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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 1-13318
REALTY INCOME CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 33-0580106
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
220 West Crest Street, Escondido, California 92025
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(Address of principal executive offices)
Registrant's telephone number, including area code: (760)741-2111
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Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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Common Stock, $1.00 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12 (g) of the Act: None
----
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
(continued)
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At March 16, 1998 the aggregate market value of the Registrant's
shares of common stock, $1.00 par value, held by non-affiliates of the
Registrant was $667,479,358, at the New York Stock Exchange closing
price of $26.00.
There were 26,464,471 shares of common stock outstanding at March 16,
1998.
Documents incorporated by reference: Part III, Item 10, 11 and 12
incorporate by reference certain specific portions of the definitive
proxy statement for Realty Income Corporation's Annual Meeting to be
held on May 5, 1998, to be filed pursuant to Regulation 14A. Only
those portions of the proxy statement which are specifically
incorporated by reference herein shall constitute a part of this
Annual Report.
FORWARD-LOOKING STATEMENT
- -------------------------
This report on Form 10-K, including documents incorporated herein by
reference, contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
When used in this annual report, the words estimated, anticipated and
similar expressions are intended to identify forward-looking
statements. Such forward-looking statements are inherently subject to
risk and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future
events and actual results, financial and otherwise, may differ
materially from the results discussed in the forward-looking
statements. In particular, among the factors that could cause actual
results to differ materially are the continued qualification as a real
estate investment trust, general business and economic conditions,
competition, interest rates, accessibility of debt and equity capital
markets and other risks inherent in the real estate business including
tenant defaults, potential liability relating to environmental matters
and illiquidity of real estate investments. For further description
and detail of other factors please see "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in this Form 10-K. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
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REALTY INCOME CORPORATION
Index To Form 10-K
==================
Page
PART I ----
Item 1: Business......................................... 4
Item 2: Properties....................................... 23
Item 3: Legal Proceedings................................ 23
Item 4: Submission of Matters to a
Vote of Security Holders......................... 23
PART II
Item 5: Market for the Registrant's Common
Equity and Related Stockholder Matters........... 24
Item 6: Selected Financial Data.......................... 25
Item 7: Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................... 26
Item 8: Financial Statements and Supplementary Data...... 40
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........127
PART III
Item 10: Directors and Executive Officers
of the Registrant................................127
Item 11: Executive Compensation...........................127
Item 12: Security Ownership of Certain
Beneficial Owners and Management.................127
Item 13: Certain Relationships and Related
Transactions.....................................128
PART IV
Item 14: Exhibits, Financial Statement Schedules
and Reports on Form 8-K..........................128
SIGNATURES....................................................132
EXHIBIT INDEX.................................................134
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PART I
======
ITEM 1: BUSINESS
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THE COMPANY
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Realty Income Corporation, a Maryland corporation ("Realty Income" or
the "Company") was organized to operate as an equity real estate
investment trust ("REIT"). Realty Income is a fully integrated self-
administered real estate company with in-house acquisition, leasing,
legal, retail and real estate research, portfolio management and
capital markets expertise. As of December 31, 1997, the Company owned
a diversified portfolio of 826 retail properties located in 43 states
with over 6.3 million square feet of leasable space. Of the 826
properties in the portfolio, 819 are single-tenant properties with the
remainder being multi-tenant properties. As of December 31, 1997,
812, or over 99%, of the 819 single-tenant properties were net leased
with an average remaining lease term (excluding extension options) of
approximately 8.4 years.
The Company's primary business objective is to generate a consistent
and predictable level of funds from operations ("FFO") per share and
distributions to stockholders. Additionally, the Company generally
will seek to increase FFO per share and distributions to stockholders
through both active portfolio management and the acquisition of
additional properties. The Company also seeks to lower the ratio of
distributions to stockholders as a percentage of FFO in order to allow
internal cash flow to be used to fund additional acquisitions and for
other corporate purposes.
Realty Income adheres to a focused strategy of acquiring freestanding,
single-tenant, retail properties leased to regional and national
retail chains under long-term, net lease agreements. The Company
typically acquires retail store locations which provides capital to
the operators for continued expansion and other corporate purposes.
Realty Income's acquisitions and investment activities are
concentrated in highly specific target markets and focus primarily on
middle-market retailers providing goods and services which satisfy
basic consumer needs. The Company's net lease agreements generally
are for initial terms of 10 to 20 years, require the tenant to pay a
minimum monthly rent and property operating expenses (taxes, insurance
and maintenance), and provide for future rent increases (typically
subject to ceilings) based on increases in the consumer price index or
additional rent calculated as a percentage of the tenant's gross sales
above a specified level.
From 1970 and through December 31, 1997, Realty Income has acquired
and leased back to regional and national retail chains 797 properties
(including 32 properties that have been sold) and has collected over
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98% of the contractual rent obligations on those properties. Realty
Income believes that the long-term ownership of an actively managed,
diversified portfolio of retail properties, leased under long-term net
lease agreements, will produce consistent, predictable income and the
potential for share price appreciation. Management believes that the
income generated under long-term leases, coupled with the tenant's
responsibility for property expenses under the net lease structure,
generally produces a more predictable income stream than many other
types of real estate portfolios.
The Company was formed on September 9, 1993 in the State of Delaware
and reincorporated in Maryland in May 1997. Realty Income commenced
operations as a REIT on August 15, 1994 through the merger of 25
public and private real estate limited partnerships with and into the
Company (the "Consolidation"). Each of the partnerships was formed
between 1970 and 1989 for the purpose of acquiring and managing long-
term, net leased properties.
The five senior officers of the Company, who have each managed the
Company's properties and operations for between seven and 12 years,
owned approximately 1.0% of the Company's outstanding common stock
with a market value of approximately $6.2 million as of March 16,
1998. The directors and five senior officers of the Company, as a
group, owned approximately 3.2% of the Company's outstanding common
stock with a market value of approximately $20.6 million as of March
16, 1998.
Thomas A. Lewis succeeded William E. Clark as Chief Executive Officer
of the Company in May 1997. Mr. Lewis has been an officer of the
Company since 1987 and has served as the Vice Chairman of the Board of
Directors since 1994. Mr. Clark has continued as Chairman of the
Board of Directors of the Company.
The Company's common stock is listed on the New York Stock Exchange
under the symbol "O" and its central index key ("CIK") number is
726728.
Realty Income has 48 employees as of March 16, 1998.
RECENT DEVELOPMENTS
===================
During 1997, the Company continued implementing its growth plan, which
is intended to increase the Company's funds from operations per share.
As part of its growth plan, in 1997 the Company acquired 96 additional
net leased retail properties with an aggregate initial annual
contractual base rental revenue of approximately $14.7 million.
ACQUISITION OF 96 PROPERTIES DURING 1997. During 1997, the Company
continued to increase the size of its portfolio through a strategic
program of real estate acquisitions. The Company acquired 96
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additional properties (the "New Properties"), and selectively sold 10
properties, increasing the number of properties in its portfolio by
11.6% to 826 properties at December 31, 1997 from 740 properties at
December 31, 1996. Of the New Properties, 88 were occupied as of
February 28, 1998 and the remaining properties were pre-leased and
under construction pursuant to contracts under which the tenants have
agreed to develop the properties (with development costs funded by the
Company) and to begin paying rent when the premises open for business.
The New Properties were acquired for an aggregate cost of
approximately $139.2 million (which excludes the estimated unfunded
development costs totaling $2.9 million on properties under
construction) at December 31, 1997. During 1997, the Company also
invested $3.1 million in 12 development properties acquired during
1996. The New Properties are located in 27 states, will contain
approximately 1.1 million leasable square feet and are 100% leased
under net leases, with an average initial lease term of 14.4 years.
The weighted average annual unleveraged return on the cost of the New
Properties (including the estimated unfunded development cost of
properties under construction) is estimated to be 10.4%, computed as
estimated contractual net operating income (which in the case of a net
leased property is equal to the base rent or, in the case of
properties under construction, the estimated base rent under the
lease) for the first year of each lease, divided by the estimated
total development costs. Since it is possible that a tenant could
default on the payment of contractual rent, no assurance can be given
that the actual return on the cost of the New Properties will not
differ from the foregoing percentage
INCREASE IN MONTHLY DISTRIBUTION. In December 1997, the Company
increased its monthly distribution to $0.16 per share from $0.1575 per
share, representing an increase of 1.6%. Effective April 1998, the
Company increased its monthly distribution to $0.1625 per share,
representing an increase of 1.6%. The monthly distribution of $0.1625
per share represents a current annualized distribution of $1.95 per
share, and an annualized distribution yield of approximately 7.5%
based on the last reported sale price of the Company's Common Stock on
the New York Stock Exchange ("NYSE") of $26.00 on March 16, 1998.
Although the Company expects to continue its policy of paying monthly
distributions, there can be no assurance that the current level of
distributions will be maintained by the Company or as to the actual
distribution yield for any future period.
UNSECURED CREDIT FACILITY. In December 1997, the Company negotiated
several modifications to its credit facility (the "Credit Facility"),
including (i) an increase in borrowing capacity to $150 million; (ii)
a reduction in the interest rate to London Interbank Offered Rate
("LIBOR") plus 0.85% and 0.15% per annum on the total credit
commitment; (iii) the addition of a competitive bid rate option for up
to 50% of the credit commitment; and (iv) an extension of the credit
facility to December 2000. This credit facility has been and is
expected to be used to acquire additional retail properties leased to
regional and national retail chains under long-term lease agreements.
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As of March 16, 1998, $138.0 million of borrowing capacity was
available to the Company under the credit facility. At that time, the
outstanding balance was $12.0 million with an effective interest rate
of 6.6%.
STOCK OFFERINGS. In February 1998, the Company issued 751,174 shares
of common stock at a net price to the Company of $25.295 per share to
a unit investment trust. The net proceeds of $19.0 million were used
to repay borrowings under the credit facility.
In October 1997, Realty Income issued 2.7 million shares of common
stock at a price of $27.00 per share. The net proceeds of $68.7
million were used to repay borrowings of $62.6 under the credit
facility and to acquire properties.
NOTES OFFERING. On May 6, 1997, Realty Income issued $110 million of
7.75% Notes due 2007 (the "Notes"). The Notes were sold at 99.929% of
par for a yield of 7.76%. After taking into effect the $1.1 million
gain realized on a treasury interest rate lock agreement entered into
by the Company, the effective interest rate to the Company on the
Notes is 7.62%. The net proceeds from the sale of the Notes were used
to repay $93.7 million of outstanding borrowings under the Company's
credit facility and to acquire properties. Currently, there is no
formal trading market for the Notes and the Company has not listed and
does not intend to list the Notes on any securities exchange.
The Company received investment grade corporate credit ratings from
Duff & Phelps Rating Company, Moody's Investor Service, Inc., and
Standard & Poor's Rating Group in December 1996. Currently, Duff &
Phelps has assigned a rating of BBB, Moody's has assigned a rating of
Baa3, and Standard & Poor's has assigned a rating of BBB- to the
Company's senior debt. These ratings are subject to change based
upon, among other things, the Company's results of operations and
financial condition.
BUSINESS OBJECTIVES AND STRATEGY
================================
GENERAL. The Company's primary business objective is to generate a
consistent and predictable level of funds from operations per share
and distributions to stockholders. Additionally, the Company
generally seeks to increase FFO per share and distributions to
stockholders through both active portfolio management and the
acquisition of additional properties. The Company also seeks to lower
the ratio of distributions to stockholders as a percentage of FFO in
order to allow internal cash flow to be used to fund additional
acquisitions and for other corporate purposes. The Company's current
earnings and profits for federal taxable income tax purposes for 1996
and 1997 has been approaching the level of distributions paid during
1996 and 1997, respectively. As the level of earnings and profits for
federal taxable tax purposes increases, the Company anticipates
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increasing its distributions. The Company increased its monthly
distributions per share from $0.1575 to $0.1600 in December 1997 and
to $0.1625 in April 1998. See "Business - Distribution Policy".
The Company's portfolio management focus includes: (i) contractual
rent increases on existing leases; (ii) rental increases at the
termination of existing leases when market conditions permit; and
(iii) the active management of the Company's property portfolio,
including selective sales of properties. The Company generally
pursues the acquisition of additional properties under long-term, net
lease agreements with initial contractual base rent which, at the time
of acquisition and as a percentage of acquisition costs, is in excess
of the Company's estimated cost of capital.
INVESTMENT PHILOSOPHY. Realty Income believes that the long-term
ownership of an actively managed, diversified portfolio of retail
properties leased under long-term, net lease agreements can produce
consistent, predictable income and the potential for long-term share
price appreciation. Under a net lease agreement, the tenant agrees to
pay a minimum monthly rent and property expenses (taxes, maintenance,
and insurance) plus, typically, future rent increases (generally
subject to ceilings) based on increases in the consumer price index
or, in some cases, additional rent calculated as a percentage of the
tenant's gross sales above a specified level. The Company believes
that long-term leases, coupled with the tenants assuming
responsibility for property expenses under the net lease structure,
generally produce a more predictable income stream than many other
types of real estate portfolios, while continuing to offer the
opportunity for capital appreciation.
INVESTMENT STRATEGY. In identifying new properties for acquisition,
Realty Income focuses on providing expansion capital to retail chains
by acquiring, then leasing back their retail store locations. The
Company classifies retail tenants into three categories: venture,
middle market, and upper market. Venture companies are those which
typically offer a new retail concept in one geographic region of the
country and operate between five and 50 retail outlets. Middle market
retail chains are those which typically have 50 to 500 retail outlets,
operations in more than one geographic region, have been successful
through one or more economic cycles, have a proven, replicable
concept, and an objective of further expansion. The upper market
retail chains typically consist of companies with 500 or more stores
which operate nationally in a mature retail concept. Upper market
retail chains generally have strong operating histories and access to
several sources of capital.
Realty Income primarily focuses on acquiring properties leased to
middle market retail chains which the Company believes are more
attractive for investment because: (i) they generally have overcome
many of the operational and managerial obstacles that affect venture
companies; (ii) they typically require capital to fund expansion but
have limited financing options; (iii) historically, they generally
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have provided attractive risk-adjusted returns to the Company over
time, since their financial strength has in many cases tended to
improve as their businesses have matured; (iv) their relatively large
size allows them to spread corporate expenses among a greater number
of stores; and (v), middle market retailers typically have the
critical mass to survive if a number of locations have to be closed
due to underperformance. Realty Income also selectively seeks
opportunities with venture and upper market retail chains.
Periodically, opportunities arise in the venture market where the
company feels that the real estate used by the tenant is of high
quality and can be purchased at prices that are favorable in the
market place. Realty Income also plans to explore various
opportunities with upper market retailers when the Company feels that
it can achieve pricing superior to the marketplace because it can
provide large amounts of capital to enable an upper market retail
tenant to accomplish its expansion goals.
CREDIT STRATEGY. Realty Income principally provides sale leaseback
financing to less than investment grade retail chains. From 1970 and
through December 31, 1997, Realty Income has acquired and leased back
to regional and national retail chains 797 properties (including 32
properties that have been sold) and has collected over 98% of the
contractual rent obligations on those properties. The Company
believes that it is within this market that it can receive the best
risk-adjusted return on the financing that it provides to retailers.
Realty Income believes that the primary financial obligations of
middle market retailers typically include their bank and other debt,
payment obligations to suppliers and real estate lease obligations.
Because the Company owns the land and building on which the tenant
conducts its retail business, the Company believes that the risk of
default on the retailers' lease obligations is less than the
retailers' unsecured general obligations. It has been the Company's
experience that since retailers must retain their profitable retail
locations in order to survive, in the event of a Chapter 11
reorganization they are less likely to reject a lease for a profitable
location, which would terminate their right to use the property.
Thus, as the property owner, the Company believes it will fare better
than unsecured creditors of the same retailer in the event of a
Chapter 11 reorganization. In addition, Realty Income believes that
the risk of default on the real estate leases can be further mitigated
by monitoring the performance of the retailers' individual unit
locations and selling those units that are weaker performers.
In order to qualify for inclusion in the Company's portfolio, new
acquisitions must meet stringent investment and credit requirements.
The properties must generate attractive current yields, and the tenant
must meet the Company's credit standards. The Company has established
a three part analysis that examines each potential investment based
on: 1) industry, company, market conditions and credit profile; 2)
location profitability, if available; and 3) overall real estate
characteristics, value, and comparative rental rates. Companies that
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have been approved for acquisition are generally those with fifty or
more retail stores located in highly visible areas, with easy access
to major thoroughfares, attractive demographics.
ACQUISITION STRATEGY. Realty Income seeks to invest in industries
that are dominated by independent local operators and in which several
well organized regional and national chains are capturing market share
through service, quality control, economies of scale, mass media
advertising, and selection of prime retail locations. The Company
executes its acquisition strategy by acting as a source of capital to
regional and national retail chain stores in a variety of industries
by acquiring, then leasing back, their retail store locations.
Relying on executives from its acquisitions, retail and real estate
research, portfolio management, finance, accounting, operations,
capital markets, and legal departments, the Company undertakes
thorough research and analysis in identifying appropriate industries,
tenants, and property locations for investment. In selecting real
estate for potential investment, the Company generally will seek to
acquire properties that have the following characteristics:
* Freestanding, commercially zoned property with a single tenant;
* Properties that are important retail locations for national and
regional retail chains;
* Properties that are located within attractive demographic areas
relative to the business of their tenants, with high visibility
and easy access to major thoroughfares;
* Properties that can be purchased with the simultaneous
execution or assumption of long-term, net lease agreements,
providing the opportunity for both current income and future
rent increases (typically subject to ceilings) based on
increases in the consumer price index or through the payment of
additional rent calculated as a percentage of the tenant's
gross sales above a specified level; and
* Properties that can be acquired at prices generally ranging from
$300,000 to $10 million.
PORTFOLIO MANAGEMENT STRATEGY. The active management of the property
portfolio is an essential component of the Company's long-term
strategy. The Company continually monitors its portfolio for changes
that could affect the performance of the industries, tenants, and
locations in which it has invested. Realty Income's investment
committee meets weekly to review industry and tenant research and
property due diligence, and the executive committee meets at least
monthly to discuss property operations and portfolio management. This
monitoring typically includes ongoing review and analysis of: (i) the
performance of various tenant industries; (ii) the operation,
management, business planning, and financial condition of the tenants;
(iii) the health of the individual markets in which the Company owns
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properties, from both an economic and real estate standpoint; and (iv)
the physical maintenance of the Company's individual properties. The
portfolio is analyzed on an ongoing basis with a view towards
optimizing performance and returns.
While the Company generally intends to hold its net leased properties
for long-term investment, the Company actively manages its portfolio
of net leased properties. The Company intends to pursue a strategy of
identifying properties that may be sold at attractive prices,
particularly where the Company believes reinvestment of the sales
proceeds can generate a higher cash flow to the Company than the
property being sold. While the Company intends to pursue such a
strategy, it will only do so within the constraints of the income tax
rules regarding REIT status.
CAPITAL STRATEGY. The Company has a $150 million revolving, unsecured
acquisition Credit Facility which expires in December 2000. As of
March 16, 1998, the outstanding balance on the Credit Facility was
$12.0 million with an effective rate of approximately 6.6%. A
commitment fee of 0.15% per annum accrues on the total credit
commitment. The Company is and has been in compliance with the
various leverage and interest coverage ratio limitations required by
the Credit Facility. The Credit Facility has been and is expected to
be used to acquire additional retail properties leased to regional and
national retail chains under long term net lease agreements.
The Company utilizes its Credit Facility as a vehicle for the short-
term financing of the acquisition of new properties. When outstanding
borrowings under the Credit Facility reach a certain level (generally
in the range of $60 to $100 million), the Company intends to refinance
those borrowings with the net proceeds of long-term or permanent
financing, which may include the issuance of common stock, preferred
stock or convertible preferred stock, debt securities or convertible
debt securities. However, there can be no assurance that the Company
will be able to effect any such refinancing or that market conditions
prevailing at the time of refinancing will enable the Company to issue
equity or debt securities upon acceptable terms. The Company believes
that it is best served by a conservative capital structure, with a
majority of its capital consisting of equity. As of December 31, 1997,
the Company's total indebtedness was approximately 20.3% of its equity
market capitalization (defined as shares of the Company's common stock
outstanding multiplied by the last reported sales price of the common
stock on the NYSE on December 31, 1997).
Management believes that the Company's cash and cash equivalents on
hand, cash provided from operating activities and borrowing capacity
are sufficient to meet its liquidity needs other than the repayment of
debt for the foreseeable future, except that the Company will require
additional sources of capital to fund property acquisitions.
The Company received investment grade credit ratings from Duff &
Phelps Credit Rating Company, Moody's Investor Service, Inc., and
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Standard & Poor's Rating Group in December 1996. Currently, Duff &
Phelps has assigned a rating of BBB, Moody's has assigned a rating of
Baa3, and Standard & Poor's has assigned a rating of BBB- to the
Company's senior debt. These ratings are subject to change based
upon, among other things, the Company's results of operations and
financial condition.
COMPETITIVE ADVANTAGES. The Company believes that, to utilize its
investment philosophy and strategy most successfully, it must seek to
maintain the following competitive advantages:
(i) SIZE AND TYPE OF INVESTMENT PROPERTIES: The Company believes
that smaller ($300,000 to $10,000,000) retail net leased properties
represent an attractive investment opportunity in today's real estate
environment. Due to the complexities of acquiring and managing a
large portfolio of relatively small assets, the Company believes that
these types of properties have not experienced significant
institutional participation or the corresponding yield reduction
experienced by larger income producing properties. The Company
believes the less intensive day to day property management required by
net lease agreements, coupled with the active management of a large
portfolio of smaller properties by the Company, is an effective
investment strategy.
The tenants of Realty Income's freestanding retail properties provide
goods and services which satisfy basic consumer needs. In order to
grow and expand, they need capital. Since the acquisition of real
estate is typically the single largest capital expenditure of many
such retailers, Realty Income's method of purchasing the property and
then leasing it back under a net lease arrangement, allows the retail
chain to free up capital.
(ii) INVESTMENT IN NEW INDUSTRIES: While specializing in single-
tenant properties, the Company will seek to further diversify its
portfolio among a variety of industries. The Company believes that
diversification will allow it to invest in industries that are
currently growing and have characteristics the Company finds
attractive. These characteristics include, but are not limited to,
industries dominated by local operators where regional and national
chain operators can gain substantial market share and dominance
through more efficient operations, as well as industries taking
advantage of major demographic shifts in the population base. For
example, in the early 1970s, Realty Income targeted the fast food
industry to take advantage of the country's increasing desire to dine
away from home, and in the early 1980s, it targeted the child day care
industry, responding to the need for professional child care as more
women entered the work force. During 1997, six new industries were
added to Realty Income's portfolio. The six new industries include:
apparel stores, book stores, office supply stores, pet supply stores,
shoe stores, and video rental stores.
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(iii) DIVERSIFICATION: Diversification of the portfolio by industry
type, tenant and geographic location is key to the Company's objective
of providing predictable investment results for its stockholders. As
the Company expands it will seek to further diversify its portfolio.
During 1997, 13 new retail chains were added to Realty Income's
portfolio.
(iv) MANAGEMENT SPECIALIZATION: The Company believes that its
management's specialization in single-tenant retail properties
operated under net lease agreements is important to meeting its
objectives. The Company plans to maintain this specialization and
will seek to employ and train high quality professionals in this
specialized area of real estate ownership, finance and management.
(v) TECHNOLOGY: The Company intends to stay at the forefront of
technology in its efforts to efficiently and economically carry out
its operations. The Company maintains a sophisticated information
system that allows it to analyze its portfolio's performance and
actively manage its investments. The Company believes that technology
and information based systems will play an increasingly important role
in its competitiveness as an investment manager and source of capital
to a variety of industries and tenants.
The Company anticipates that the year 2000 date issue will not
adversely affect its current software or computers and will not have a
material impact its consolidated financial position, results of
operations, or liquidity.
PROPERTIES
==========
As of January 1, 1998, Realty Income owned a diversified portfolio of
826 properties in 43 states consisting of over 6.3 million square feet
of leasable space. Of the 826 properties, 761, or 92%, were leased to
regional or national retail chain operators; 41, or 5%, were leased to
franchisees of retail chain operators; 16, or 2%, were leased to other
tenant types; eight or less than 1% were available for lease. At
January 1, 1998, over 98% of the properties were under net lease
agreements. Net leases typically require the tenant to be responsible
for property operating costs including property taxes, insurance and
maintenance.
The Company's net leased retail properties are retail locations
primarily leased to regional and national retail chain store
operators. At January 1, 1998, the properties averaged approximately
7,600 square feet of leasable retail space on approximately 44,500
square feet of land. Generally, buildings are single-story properties
with adequate parking on site to accommodate peak retail traffic
periods. The properties tend to be on major thoroughfares with
relatively high traffic counts and adequate access, egress and
proximity to sufficient population base to constitute a sufficient
market or trade area for the retailer's business.
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The following table sets forth certain information regarding the
Company's properties as of January 1, 1998, classified according to
the business of the respective tenants:
<TABLE> Approximate
Number of Leasable Annualized
Industry Properties Square Feet Rent (1)
=================== ========== ============ ===========
<C> <C> <C> <C>
APPAREL STORES 2 98,100 $ 1,928,000
AUTOMOTIVE PARTS &
ACCESSORIES 99 525,200 6,280,000
AUTOMOTIVE SERVICE 93 311,600 6,434,000
BOOK STORES 1 30,000 450,000
CHILD CARE 317 2,016,100 24,473,000
CONSUMER ELECTRONICS 37 559,200 4,432,000
CONVENIENCE STORES 53 153,900 4,473,000
HOME FURNISHINGS &
ACCESSORIES 14 803,300 5,116,000
OFFICE SUPPLIES 7 174,500 2,215,000
PET SUPPLIES 1 16,000 253,000
RESTAURANTS 171 879,700 13,314,000
SHOE STORES 1 16,000 332,000
VIDEO RENTAL 18 135,200 2,286,000
OTHER 12 583,500 4,788,000
---------- ------------ ----------
TOTALS 826 6,302,300 $76,774,000
========== ============ ===========
</TABLE>
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of January 1, 1998 by 12 and adding the 1997
historical percentage rent, which totaled $1.8 million (i.e.,
additional rent calculated as a percentage of the tenant's gross sales
above a specified level). For the properties under construction, an
estimated contractual base rent is used based upon the estimated total
costs of each property.
Of the 826 properties in the portfolio at January 1, 1998, 819 were
single-tenant properties with the remaining properties being multi-
tenant properties. As of January 1, 1998, 812, or 99%, of the single-
tenant properties were net leased with an average remaining lease term
(excluding extension options) of approximately 8.4 years.
</FN>
<PAGE>
Page 14
The following table sets forth certain information regarding the
timing of the initial lease term expirations on the Company's 812 net
leased, single-tenant retail properties as of January 1, 1998.
<TABLE> Percent of
Number of Annualized Annualized
Year Leases Expiring Base Rent (1)(2) Base Rent
======== =============== ================ ==========
<C> <C> <C> <C>
1998 8 $ 304,000 0.4%
1999 29 1,272,000 1.8
2000 32 1,621,000 2.3
2001 50 4,133,000 5.8
2002 78 6,147,000 8.7
2003 66 5,137,000 7.2
2004 109 8,906,000 12.5
2005 85 5,991,000 8.4
2006 29 2,453,000 3.5
2007 87 5,495,000 7.7
2008 47 3,840,000 5.4
2009 16 1,142,000 1.6
2010 38 3,176,000 4.5
2011 36 4,644,000 6.5
2012 50 5,453,000 7.7
2013 4 1,826,000 2.6
2014 4 458,000 0.6
2015 27 4,976,000 7.0
2016 7 1,357,000 1.9
2017 9 2,733,000 3.8
2018 1 39,000 0.1
--------------- ---------------- ----------
Total 812 (2) $71,103,000 100.0%
=============== ================ ==========
</TABLE>
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of January 1, 1998 by 12. For the properties
under construction, an estimated contractual base rent is used based
upon the estimated total costs of each property. Annualized rent does
not include percentage rents (i.e., additional rent calculated as a
percentage of the tenant's gross sales above a specified level), if
any, that may be payable under leases covering certain properties.
Percentage rent totaled $1.8 million in 1997.
(2) The table does not include seven multi-tenant properties (one of
which is vacant) and seven vacant, unleased single-tenant properties
owned by the Company. The lease expirations for properties under
construction are based on the estimated date of completion of such
properties.
</FN>
The following table sets forth certain state-by-state information
regarding the properties owned by the Company as of January 1, 1998.
Page 15
<PAGE>
<TABLE> Approximate Percent of
Number of Percent Leasable Annualized Annualized
State Properties Leased Square Feet Rent (1) Rent
=========== ========== ======= =========== ============= ========
<C> <C> <C> <C> <C> <C>
Alabama 7 100% 49,800 $ 454,000 0.6%
Arizona 27 99 181,200 2,458,000 3.2
Arkansas 1 100 3,100 61,000 0.1
California 54 91 1,031,900 10,972,000 14.3
Colorado 42 98 231,800 3,215,000 4.2
Connecticut 7 100 121,100 1,545,000 2.0
Florida 52 100 480,000 4,772,000 6.2
Georgia 46 100 266,800 3,809,000 4.9
Idaho 11 100 52,000 765,000 1.0
Illinois 28 100 192,200 2,457,000 3.2
Indiana 23 100 122,100 1,516,000 2.0
Iowa 8 100 51,700 463,000 0.6
Kansas 18 100 183,500 2,010,000 2.6
Kentucky 12 100 36,000 919,000 1.2
Louisiana 2 100 10,700 126,000 0.2
Maryland 6 100 34,900 537,000 0.7
Massachusetts 5 100 25,900 545,000 0.7
Michigan 5 100 26,900 387,000 0.5
Minnesota 17 100 118,400 1,751,000 2.3
Mississippi 12 100 128,900 902,000 1.2
Missouri 29 100 168,500 2,063,000 2.7
Montana 2 100 30,000 299,000 0.4
Nebraska 9 100 93,700 1,153,000 1.5
Nevada 6 100 66,900 831,000 1.1
New Hampshire 1 100 6,400 125,000 0.2
New Jersey 2 100 22,700 353,000 0.4
New Mexico 3 100 12,000 107,000 0.1
New York 7 100 106,600 2,275,000 3.0
North Carolina 26 100 99,000 1,877,000 2.4
Ohio 59 100 280,100 4,474,000 5.8
Oklahoma 14 100 80,700 934,000 1.2
Oregon 17 100 92,400 1,284,000 1.7
Pennsylvania 9 100 62,700 924,000 1.2
South Carolina 20 100 77,800 1,224,000 1.6
South Dakota 1 100 6,100 79,000 0.1
Tennessee 18 100 172,100 1,985,000 2.6
Texas 135 99 1,089,800 10,586,000 13.8
Utah 7 100 45,400 591,000 0.8
Virginia 19 100 93,400 1,547,000 2.0
Washington 42 98 249,700 3,246,000 4.2
West Virginia 2 100 16,800 147,000 0.2
Wisconsin 11 100 60,500 738,000 1.0
Wyoming 4 100 20,100 268,000 0.3
---------- ------- ----------- ------------- --------
Totals 826 99% 6,302,300 $76,774,000 100.0%
========== ======= =========== ============= ========
</TABLE>
Page 16
<PAGE>
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of January 1, 1998 by 12 and adding the 1997
historic percentage rent, which totaled $1.8 million (i.e., additional
rent calculated as a percentage of the tenant's gross sales above a
specified level). For the properties under construction, an estimated
contractual base rent is used based upon the estimated total costs of
each property.
</FN>
DESCRIPTION OF LEASING STRUCTURE. At January 1, 1998, over 98% of the
Company's properties were leased pursuant to net leases. In most
cases, the leases were for initial terms of from 10 to 20 years and
the tenant has an option to extend the initial term. The leases
generally provide for a minimum base rent plus future increases
(typically subject to ceilings) based on increases in the consumer
price index or additional rent based upon the tenant's gross sales
above a specified level (i.e., percentage rent). Where leases provide
for rent increases based on increases in the consumer price index,
generally such increases permanently become part of the base rent.
Where leases provide for percentage rent, this additional rent is
typically payable only if the tenant's gross sales for a given period
(usually one year) exceed a specified level, and then is typically
calculated as a percentage of only the amount of gross sales in excess
of such level. In general, the leases require the tenant to pay
property taxes, insurance, and expenses of maintaining the property.
Matters Pertaining to Certain Properties and Tenants
- ----------------------------------------------------
Eight of the Company's properties were vacant as of January 1, 1998
(one of which is a multi-tenant property and seven of which are
single-tenant properties) and available for lease. As of January 1,
1998, 26 of the Company's properties, which were under lease, were
vacant and available for sublease by the tenant. All of these tenants
were current with their rent and other obligations.
The Company's three largest tenants are Children's World Learning
Centers, La Petite Academy, and Golden Corral Restaurants which
accounted for approximately 20.4%, 13.8%, and 10.2%, respectively, of
the Company's rental revenue for the year ended December 31, 1997.
The financial position and results of operations of the Company and
its ability to make distributions to stockholders and debt service
payments may be materially adversely affected by financial
difficulties experienced by any such major tenants or other tenants.
For the year ended December 31, 1997, approximately 35.9%, and 19.8%
of the Company's rental revenues were attributable to tenants in the
child care and restaurant industries, respectively. A downturn in any
of these industries generally, whether nationwide or limited to
specific sectors of the United States, could adversely affect tenants
in those industries, which in turn could materially adversely affect
the financial position and results of operations of the Company and
Page 17
<PAGE>
its ability to make distributions to stockholders and debt service
payments. In that regard, a substantial number of the Company's
properties are leased to middle market retail chains which generally
have more limited financial and other resources than certain upper
market retail chains and therefore are more likely to be adversely
affected by a downturn in their respective businesses or in the
regional or national economy generally.
On September 5, 1997, Levitz Furniture filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code.
Levitz Furniture occupies four of the Company's properties: two in
California, one in Texas and one in Florida. As of March 1, 1998, the
monthly base rent multiplied by 12 from the four stores leased to
Levitz Furniture was approximately $2.5 million, or approximately 3.3%
of the Company's total base rent at that date. While Levitz Furniture
has paid its most recent rental payments, there can be no assurance
that Levitz Furniture will continue to pay rent for the remainder of
the lease terms for the four Levitz properties. Likewise, there can
be no assurance that Levitz Furniture will not be released from its
obligations under its leases with the Company pursuant to the
bankruptcy proceedings. In the event that any of the aforementioned
should occur, it could result in an adverse impact on the Company's
financial condition, results of operations and ability to make
distributions to stockholders and debt service payments.
Eight of the Company's properties were vacant as of January 1, 1998
and available for lease. Four of the vacant properties were
previously leased to restaurant operators, one to a child care
operator, one to a convenience store operator, one to a automotive
parts store operator and one operated as a multi-tenant location. One
of the restaurant locations which had been vacant since November 1995
was sold in January 1998.
Development of Certain Properties
- ---------------------------------
Of the 96 New Properties acquired by the Company in 1997, 88 were
occupied as of March 1, 1998 and the remaining eight were pre-leased
and under construction pursuant to contracts under which the tenants
have agreed to develop the properties (with development costs funded
by the Company) and to begin paying rent when the premises open for
business. In the case of development properties, the Company
typically enters into an agreement with a tenant pursuant to which the
tenant retains a contractor to construct the improvements on the
property and the Company funds the costs of such development. The
tenant is contractually obligated to complete the construction on a
timely basis, generally within eight months after the Company
purchases the land, to pay construction cost overruns to the extent
they exceed the construction budget by more than a predetermined
amount. The Company also enters into a lease with the tenant at the
time the Company purchases the land, which generally requires that the
Page 18
<PAGE>
tenant begin paying base rent, calculated as a percentage of the
Company's acquisition cost for the property, including construction
costs and capitalized interest, when the premises opens for business.
During 1997, the Company acquired 19 development properties, 11 of
which have been completed, were operating and paying rent as of March
1, 1998. The Company will continue to seek to acquire land for
development under similar arrangements.
DISTRIBUTION POLICY
===================
Distributions are paid to the Company's stockholders on a monthly
basis if, as and when declared by the Company's Board of Directors.
The April 1998 distribution of $0.1625 per share represents a current
annualized distribution of $1.95 per share, and an annualized
distribution yield of approximately 7.5% based on the last reported
sale price of $26.00 of the Company's common stock, on the NYSE on
March 16, 1998. In order to maintain its tax status as a REIT for
federal income tax purposes, the Company is generally required to
distribute dividends (other than capital gain dividends) to its
stockholders in an amount equal to at least 95% of its taxable income.
The Company intends to make distributions to its stockholders which
are sufficient to meet this requirement.
Future distributions by the Company will be at the discretion of its
Board of Directors and will depend on, among other things, its results
of operations, financial condition and capital requirements, the
annual distribution requirements under the REIT provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), its debt
service requirements and such other factors as the Board of Directors
may deem relevant. In addition, the Credit Facility contains
financial covenants which could limit the amount of distributions
payable by the Company in the event of a deterioration in the results
of operations or financial condition of the Company, and which
prohibit the payment of distributions on the common stock in the event
that the Company fails to pay when due (subject to any applicable
grace period) any principal of or interest on borrowings under the
Credit Facility.
Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes
generally will be taxable to stockholders as ordinary income.
Distributions in excess of such earnings and profits generally will be
treated as a non-taxable reduction in the stockholders' basis in its
stock to the extent of such basis, and thereafter as a gain from the
sale of such stock. Approximately 5.2% of the distributions made or
deemed to have been made in 1997 were classified as a return of
capital for federal income tax purposes. The Company is unable to
predict the portion of 1998 or future distributions which may be
classified as a return of capital since such amount depends on the
Company's taxable income for the entire year.
Page 19
<PAGE>
OTHER ITEMS
===========
COMPETITION FOR ACQUISITION OF REAL ESTATE. The Company faces
competition in the acquisition, operation and sale of its properties.
Such competition can be expected from other businesses, individuals,
fiduciary accounts and plans and other entities engaged in real estate
investment. Some of the Company's competitors are larger and have
greater financial resources than the Company. This competition may
result in a higher cost for properties the Company wishes to purchase.
The tenants leasing the Company's properties generally face
significant competition from other operators. This may result in an
adverse impact on that portion, if any, of the rental stream to be
paid to the Company based on a tenant's revenues and may also
adversely impact the tenants' results of operations or financial
condition.
ENVIRONMENTAL LIABILITIES. Investments in real property create a
potential for environmental liability on the part of the owner of such
property for contamination resulting from the presence or discharge of
hazardous substances on the property. Such liability may be imposed
without regard to knowledge of, or the timing, cause or person
responsible for the release of such substances onto the property.
There may be environmental problems associated with the Company's
properties which are not known to the Company. In that regard, a
number of the Company's properties are leased to operators of oil
change and tune-up facilities and to convenience stores which sell
petroleum-based fuels. These facilities or other of the Company's
properties utilize, or may have utilized in the past, underground
tanks for the storage of petroleum-based or waste products which could
create a potential for release of hazardous substances. The presence
of hazardous substances on a property may adversely affect the
Company's ability to sell such property and it may cause the Company
to incur substantial remediation costs. Although tenants of the
Company's properties generally are required by their leases to operate
in compliance with all applicable federal, state and local laws and
regulations and to indemnify the Company against any environmental
liabilities arising from the tenant's activities on the property, the
Company could nevertheless be subject to strict liability by virtue of
its ownership interest, and there can be no assurance that the tenants
would satisfy their indemnification obligations under the leases.
The Company believes that its properties are in compliance in all
material respects with all federal, state and local laws, ordinances
and regulations regarding hazardous or toxic substances or petroleum
products. The Company has not been notified by any governmental
authority, and is not otherwise aware, of any material noncompliance,
liability or claim relating to hazardous or toxic substances or
petroleum products in connection with any of its present properties.
Nevertheless, if environmental contamination should exist, the Company
could be subject to strict liability by virtue of its ownership
interest.
Page 20
<PAGE>
In December 1996, the Company obtained a five year environmental
insurance policy on the property portfolio. Based upon the 826
properties in the portfolio at December 31, 1997, the cost of the
insurance will be approximately $90,000 during 1998. The limit of the
policy is $10.0 million for each loss and $20.0 million in the
aggregate, with a $100,000 deductible. There is a sublimit on
properties with underground storage tanks of $1.0 million per
occurrence and $5.0 million in the aggregate, with a deductible of
$25,000.
TAXATION OF THE COMPANY. The Company has elected to be taxed as a
REIT under the Code, commencing with its taxable year ended December
31, 1994. As long as the Company meets the requirements under the
Code for qualification as a REIT each year, the Company will be
entitled to a deduction when calculating its taxable income for
dividends paid to its stockholders. For the Company to qualify as a
REIT, however, certain detailed technical requirements must be met
(including certain income, asset, distribution and stock ownership
tests) under Code provisions for which, in many cases, there are only
limited judicial or administrative interpretations. Although the
Company intends to operate so that it will continue to qualify as a
REIT, the highly complex nature of the rules governing REITs, the
ongoing importance of factual determinations and the possibility of
future changes in the Company's circumstances preclude any assurance
that the Company will so qualify in any year.
If the Company were to fail to qualify as a REIT in any taxable year,
the Company would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular
corporate rates and would not be allowed a deduction in computing its
taxable income for amounts distributed to its stockholders. Moreover,
unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is
lost. This treatment would substantially reduce the net earnings of
the Company available for investment or distribution to stockholders
because of the additional tax liability to the Company for the years
involved. Consequently, distributions to stockholders would be
substantially reduced and could be eliminated because of the Company's
increased tax liability. In addition, if the Company fails to qualify
as a REIT, all distributions to stockholders will be taxable as
ordinary income to the extent of current and accumulated earnings and
profits, but, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction.
Even if the Company qualifies for and maintains its REIT status, it is
subject to certain federal, state and local taxes on its income and
property. For example, if the Company has net income from a
prohibited transaction, such income will be subject to a 100% tax.
EFFECT OF DISTRIBUTION REQUIREMENTS. To maintain its status as a REIT
for federal income tax purposes, the Company generally is required
each year to distribute to its stockholders at least 95% of its
Page 21
<PAGE>
taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains) each year. The Company
is also subject to tax at regular corporate rates to the extent that
it distributes less than 100% of its taxable income (including net
capital gains) each year. In addition, the Company is subject to a 4%
nondeductible 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 85% of its ordinary income for such calendar year, 95%
of its capital gain net income for the calendar year and any amount of
such income that was not distributed in prior years. The Company
intends to continue to make distributions to its stockholders to
comply with the distribution requirement of the Code and to reduce
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.
DILUTION OF COMMON STOCK. The Company's future growth will depend in
large part upon its ability to raise additional capital. If the
Company were to raise additional capital through the issuance of
equity securities, the interests of holders of common stock could be
diluted. Likewise, the Company's Board of Directors is authorized to
cause the Company to issue preferred stock of any class or series
(with such dividends and voting and other rights as the Board of
Directors may determine). Accordingly, the Board of Directors may
authorize the issuance of preferred stock with voting, dividend and
other similar rights which could be dilutive to or otherwise adversely
affect the interests of holders of Common Stock.
REAL ESTATE OWNERSHIP RISKS. The Company is subject to all of the
general risks associated with the ownership of real estate, in
particular the risk that rental revenue from the properties will not
be sufficient to cover all corporate operating expenses and debt
service payments on indebtedness incurred by the Company. These risks
include adverse changes in general or local economic conditions,
changes in supply of or demand for similar or competing properties,
changes in interest rates and operating expenses, competition for
tenants, changes in market rental rates, inability to lease properties
upon termination of existing leases, renewal of leases at lower rental
rates and inability to collect rents from tenants due to financial
hardship, including bankruptcy. Other risks include changes in tax,
real estate, zoning and environmental laws which may have an adverse
impact upon the value of real estate, uninsured property liability,
property damage or casualty losses and unexpected expenditures for
capital improvements or to bring properties into compliance with
applicable federal, state and local laws. Acts of God and other
factors beyond the control of the Company's management might also
adversely affect the Company.
Page 22
<PAGE>
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts
of its executive officers and key employees. The loss of the services
of its executive officers and key employees could have a material
adverse effect on the Company's operations.
ITEM 2: PROPERTIES
- -------------------
Information pertaining to the properties of Realty Income can be found
under Item 1.
ITEM 3: LEGAL PROCEEDINGS
- --------------------------
The Company is subject to certain claims and lawsuits, the outcome of
which are not determinable at this time. In the opinion of
management, any liability that might be incurred by the Company upon
the resolution of these claims and lawsuits will not, in the
aggregate, have a material adverse effect on the Company's
consolidated operations, financial position or liquidity.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to stockholders during the fourth quarter of
the fiscal year.
Page 23
<PAGE>
PART II
=======
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- ----------------------------------------------------------
A. The stock of the Company is traded on the New York Stock Exchange
under the symbol "O." The following table shows the high and low
sales prices per share for the Common Stock as reported by the New
York Stock Exchange composite tape, and distributions declared per
share of common stock by Realty Income for the periods indicated.
<TABLE> Price Per Share
of Common Stock
------------------- Distributions
1997 High Low Declared (1)
- -----------------------------------------------------------------
<C> <C> <C> <C>
First quarter $26.625 $23.000 $0.4725
Second quarter 26.500 22.625 0.4725
Third quarter 27.813 25.438 0.4725
Fourth quarter 27.438 23.750 0.4775
-------
$1.8950
=======
1996
- -----------------------------------------------------------------
First quarter $23.250 $20.250 $0.3100(2)
Second quarter 21.375 19.500 0.4650
Third quarter 23.750 20.375 0.4650
Fourth quarter 24.500 22.250 0.4700
-------
$1.7100
=======
</TABLE>
[FN]
(1) Distributions currently are declared monthly by the Company based
on financial results for the prior months. At December 31, 1997 a
distribution of $0.1600 per share had been declared and was paid on
January 15, 1998.
(2) In the first quarter of 1996, two monthly distributions of $0.155
per share were declared.
</FN>
B. There were approximately 15,500 holders of record of Realty
Income's shares of common stock as of March 16, 1998, however, Realty
Income believes the total number of beneficial shareholders of Realty
Income to be approximately 48,000.
Page 24
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
- --------------------------------
(not covered by Independent Auditors' Report)
<TABLE>
As of or for the years ended December 31,
(dollars in thousands, except per share data)
--------------------------------------------------
1997 1996 1995 1994 1993
========== ========== ========== ========== ==========
<C> <C> <C> <C> <C> <C>
Total assets
(book value) $ 577,021 $ 454,097 $ 417,639 $ 352,768 $ 384,474
Cash and cash
equivalents 2,123 1,559 1,650 11,673 29,329
Lines of Credit
and notes
payable 132,600 70,000 18,597 12,616 255
Total
liabilities 143,706 79,856 36,218 17,352 2,570
Stockholders'
equity 433,315 374,241 381,421 335,416 381,904
Net cash
provided by
operating
activities 52,692 48,073 40,312 28,460 38,485
Net change in
cash and cash
equivalents 564 (91) (10,023) (17,656) 21,915
Total revenue 67,897 56,957 51,555 48,863 49,018
Consolidation
costs -- -- -- (11,201) --
Income from
operations 33,688 30,768 25,582 14,059 25,735
Net gain on
sales of
properties 1,082 1,455 18 1,165 3,583
Net income 34,770 32,223 25,600 15,224 29,318
Distributions
paid to
stockholders/
partners 44,367 48,079 36,710 44,666 40,831
Ratio of
earnings to
fixed charges
(1) 5:1 14:1 10:1 39:1 5,865:1
Basic and Diluted
net income
per share (2) 1.48 1.40 1.27 0.78
Distributions
paid per
share (2)(3)(4) 1.893 2.093 1.825 0.600
Page 25
<PAGE>
(continued)
As of or for the years ended December 31,
(dollars in thousands, except per share data)
--------------------------------------------------
1997 1996 1995 1994 1993
========== ========== ========== ========== ==========
Distributions
declared per
share (2)(3)(4) 1.895 1.710 2.215 0.750
Basic
weighted
average
number
of shares
outstanding
(2) 23,568,831 22,976,789 20,230,886 19,502,091
Diluted
weighted
average
number
of shares
outstanding
(2) 23,572,715 22,977,837 20,230,963 19,502,091
</TABLE>
[FN]
(1) Ratio of Earnings to Fixed Charges is calculated by dividing
earnings by fixed charges. For this purpose, earnings consist of net
income before interest expense. Fixed charges are comprised of
interest costs (including capitalized interest) and the amortization
of debt issuance costs.
(2) Due to the change in the capital structure caused by the
Consolidation (see note 1 to the consolidated financial statements),
per share information would not be meaningful for 1993 and therefore
has not been included.
(3) The 1994 amount represents distributions paid or declared, as the
case may be, after the Consolidation.
(4) 1996 distributions paid per share and 1995 distributions declared
per share include a special distribution of $0.23 per share.
</FN>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------
GENERAL
- -------
Realty Income Corporation, a Maryland corporation ("Realty Income" or
the "Company") was organized to operate as an equity real estate
Page 26
<PAGE>
investment trust ("REIT"). Realty Income is a fully integrated self-
administered real estate company with in-house acquisition, leasing,
legal, retail and real estate research, portfolio management and
capital markets expertise. As of December 31, 1997, the Company owned
a diversified portfolio of 826 retail properties located in 43 states
with over 6.3 million square feet of leasable space. Of the 826
properties in the portfolio, 819 are single-tenant properties with the
remainder being multi-tenant properties. As of December 31, 1997,
812, or over 99%, of the 819 single-tenant properties were net leased
with an average remaining lease term (excluding extension options) of
approximately 8.4 years.
The Company's primary business objective is to generate a consistent
and predictable level of funds from operations ("FFO") per share and
distributions to stockholders. Additionally, the Company generally
will seek to increase FFO per share and distributions to stockholders
through both active portfolio management and the acquisition of
additional properties. The Company also seeks to lower the ratio of
distributions to stockholders as a percentage of FFO in order to allow
internal cash flow to be used to fund additional acquisitions and for
other corporate purposes.
The Company's portfolio management focus includes: (i) contractual
rent increases on existing leases; (ii) rental increases at the
termination of existing leases when market conditions permit; and
(iii) the active management of the Company's property portfolio,
including selective sales of properties. The Company generally
pursues the acquisition of additional properties under long-term, net
lease agreements with initial contractual base rent which, at the time
of acquisition and as a percentage of acquisition costs, is in excess
of the Company's estimated cost of capital.
Realty Income adheres to a focused strategy of acquiring freestanding,
single-tenant, retail properties leased to regional and national
retail chains under long-term, net lease agreements. The Company
typically acquires retail store locations, which provides capital to
the operators for continued expansion and other corporate purposes.
Realty Income's acquisition and investment activities are concentrated
in highly specific target markets and focus on middle-market retailers
providing goods and services which satisfy basic consumer needs. The
Company's net lease agreements generally are for initial terms of 10
to 20 years, require the tenant to pay a minimum monthly rent and
property operating expenses (taxes, insurance and maintenance), and
provide for future rent increases (typically subject to ceilings)
based on increases in the consumer price index or additional rent
calculated as a percentage of the tenant's gross sales above a
specific level.
From 1970 and through December 31, 1997, Realty Income has acquired
and leased back to regional and national retail chains 797 properties
(including 32 properties that have been sold) and has collected over
98% of the original contractual rent obligation on these properties.
Page 27
<PAGE>
Realty Income believes that the long-term ownership of an actively
managed, diversified portfolio of retail properties leased under long-
term, net lease agreements can produce consistent, predictable income
and the potential for long-term share price appreciation. Management
believes that the income generated under long-term leases, coupled
with the tenant's responsibility for property expenses under the net
lease structure, generally produces a more predictable income stream
than many other types of real estate portfolios.
Realty Income was organized in the State of Delaware on September 9,
1993 to facilitate the merger, which was effective on August 15, 1994
(the "Consolidation"), of ten private and 15 public real estate
limited partnerships (the "Partnerships") with and into Realty Income.
In May 1997, the Company was reincorporated as a Maryland corporation.
From the date of the Consolidation through August 17, 1995, the
Company's day-to-day affairs were managed by R.I.C. Advisor, Inc. (the
"Advisor") which provided advice and assistance regarding acquisitions
of properties by the Company and performed the day-to-day management
of the Company's properties and business. On August 17, 1995, the
Advisor was merged with and into Realty Income (the "Merger") and the
company became self-administered and self-managed.
Other Information
Thomas A. Lewis succeeded William E. Clark as Chief Executive Officer
of the Company in May 1997. Mr. Lewis has been an officer of the
Company since 1987 and has served as the Vice Chairman of the Board of
Directors since 1994. Mr. Clark has continued as Chairman of the
Board of Directors of the Company.
The Company's common stock is listed on the New York Stock Exchange
under the symbol "O" and its central index key ("CIK") number is
726728.
The Company anticipates that the year 2000 date issue will not
adversely affect its current software or computers and will not have a
material impact its consolidated financial position, results of
operations, or liquidity.
LIQUIDITY AND CAPITAL RESOURCES
===============================
Cash Reserves
Realty Income was organized for the purpose of operating as an equity
REIT which acquires and leases properties and distributes to
stockholders, in the form of monthly cash distributions, a substantial
portion of its net cash flow generated from leases on its retail
properties. The Company intends to retain an appropriate amount of
cash as working capital reserves. At December 31, 1997, the Company
had cash and cash equivalents totaling $2.1 million.
Page 28
<PAGE>
Management believes that the Company's cash and cash equivalents on
hand, cash provided from operating activities and borrowing capacity
are sufficient to meet its liquidity needs for the foreseeable future,
except that the Company will require additional sources of capital to
fund property acquisitions.
Capital Funding
Realty Income has a $150 million, three-year revolving, unsecured
acquisition credit facility that expires in December 2000. The credit
facility currently bears interest at 0.85% over the London Interbank
Offered Rate ("LIBOR") and offers the Company other interest rate
options. As of March 16, 1998, $138.0 million of borrowing capacity
was available to the Company under the acquisition credit facility.
At that time, the outstanding balance was $12.0 million with an
effective interest rate of 6.6%. This credit facility has been and is
expected to be used to acquire additional retail properties leased to
national and regional retail chains under long term lease agreements.
Any additional borrowings will increase the Company's exposure to
interest rate risk.
Realty Income expects to meet its long-term capital needs for the
acquisition of properties through the issuance of public or private
debt or equity. In August 1997, the Company filed a universal shelf
registration statement with the Securities and Exchange Commission
covering up to $300 million in value of common stock, preferred stock
and/or debt securities. Approximately $91.9 million in value of
common stock and debt securities has been issued under the universal
shelf registration statement through March 4, 1998.
On February 23, 1998, Realty Income issued 751,174 shares of common
stock at a net price to the Company of $25.295 per share to a unit
investment trust. The net proceeds were used to repay borrowings of
$19.0 million under the acquisition credit facility.
On October 15, 1997, Realty Income issued 2,700,000 shares of common
stock at a price of $27.00 per share. The net proceeds were used to
repay borrowings of $62.6 million under the acquisition credit
facility and to acquire properties. These borrowings under the
acquisition credit facility were used to acquire properties during
June 1997 through September 1997.
On May 6, 1997, Realty Income issued $110 million of 7.75% notes due
May 2007 (the "Notes"). The Notes were sold at 99.929% of par for a
yield of 7.76%. After taking into effect the gain of $1.1 million
realized on the treasury interest rate lock agreement, which is
described in the next paragraph, the effective interest rate on the
Notes to the Company is 7.62%. The net proceeds from the issuance of
the Notes were used to repay $93.7 million of outstanding borrowings
under the Company's credit facility and to acquire properties.
Interest on the Notes is payable semiannually each May and November.
Page 29
<PAGE>
Currently, there is no formal trading market for the Notes and the
Company has not listed and does not intend to list the Notes on any
securities exchange.
In December 1996, the Company entered into a treasury interest rate
lock agreement to hedge against the possibility of rising interest
rates. Under the terms of the interest rate lock agreement, the
Company was to receive or make a payment based on the differential
between a specified interest rate, 6.537%, and the actual 10-year
treasury interest rate on notional principal of $90 million, at the
end of six months. Based on the 10-year treasury interest rate at May
1, 1997 (the interest rate pricing date), the Company realized a $1.1
million gain on the agreement, which was received in June 1997. The
gain on the agreement is being amortized over 10 years (the life of
the Notes) as a yield adjustment to interest expense.
The Company received investment grade corporate credit ratings from
Duff & Phelps Rating Company, Moody's Investor Service, Inc., and
Standard & Poor's Rating Group in December 1996. Currently, Duff &
Phelps has assigned a rating of BBB, Moody's has assigned a rating of
Baa3, and Standard & Poor's has assigned a rating of BBB- to the
Company's senior debt. These ratings are subject to change based
upon, among other things, the Company's results of operations and
financial condition.
Property Acquisitions
During 1997, Realty Income acquired 96 retail properties located in 27
states for $139.2 million (which excludes the estimated unfunded
development costs of $2.9 million on properties under construction at
December 31, 1997) and selectively sold ten properties, increasing the
number of properties in its portfolio by 11.6% to 826 from 740 at
December 31, 1996. During 1997, the Company also invested $3.1
million in development properties acquired in 1996 and $53,000 in five
existing properties in its portfolio. The 96 properties acquired will
contain approximately 1.1 million leasable square feet and are 100%
leased under net leases, with an average initial lease term of 14.4
years. The weighted average annual unleveraged return on the cost of
the 96 properties (including the estimated unfunded development cost
of the properties under development) is estimated to be 10.4%,
computed as estimated contractual net operating income (which in the
case of a net leased property is equal to the base rent or, in the
case of properties under construction, the estimated base rent under
the lease) for the first year of each lease, divided by total
acquisition and estimated development costs. Since it is possible
that a tenant could default on the payment of contractual rent, no
assurance can be given that the actual return on the cost of the 96
properties acquired in 1997 will not differ from the foregoing
percentage.
Of the properties acquired during 1997, 88 were occupied as of
February 28, 1998 and the remaining properties were pre-leased and
Page 30
<PAGE>
under construction pursuant to contracts under which the tenant has
agreed to develop the properties (with development costs funded by the
Company) and to begin paying rent when the premises open for business.
All of the properties acquired in 1997, including the properties under
development, are leased with initial terms of nine to 20 years.
The following table summarized Realty Income's 1997 acquisition
activity by quarter.
<TABLE> Approx.
1997 Acquisi- Properties Initial Lease Leasable Total
tion Activity Acquired Term (Years) Square Feet Invested (1)
============= ========== ============= =========== ============
<C> <C> <C> <C> <C>
1st quarter 11 14.0 237,000 $ 17,933,000
2nd quarter 26 14.5 353,000 39,003,000
3rd quarter 27 15.1 380,000 59,032,000
4th quarter 32 13.8 159,000 26,319,000
- -------------- ---------- ------------- ----------- ------------
Totals 96 14.4 1,129,000 $142,287,000
============== ========== ============= =========== ============
</TABLE>
[FN]
(1) Includes the $3.1 million invested during 1997 in development
properties acquired in 1996.
</FN>
Distributions
Cash distributions paid during 1997, 1996 and 1995 were $44.4 million,
$48.1 million and $36.7 million, respectively. The 1996 cash
distributions include a special distribution of $5.3 million paid in
January 1996.
During 1997, the Company paid 11 monthly distributions of $0.1575 per
share and increased the monthly distribution to $0.16 per share in
December 1997. The monthly distributions paid during 1997 totaled
$1.8925 per share. In December 1997, and January and February 1998,
the Company declared distributions of $0.16 per share which were paid
on January 15, 1998, February 17, 1998 and payable on March 16, 1998,
respectively.
During 1996, the Company paid 11 monthly distributions of $0.155 per
share and increased the monthly distribution to $0.1575 per share in
December 1996. The regular distributions paid during 1996 totaled
$1.8625 per share. In addition, the Company paid a special
distribution of $0.23 per share in January 1996. Total distributions
paid in 1996 were $2.0925 per share. For federal income tax purposes,
a portion of the special distribution, in the amount of approximately
$0.144 per share, was taxable as ordinary income in 1995 and the
remaining $0.086 per share was included in each stockholders 1996 Form
1099.
During 1995, the Company paid monthly distributions of $0.15 per share
from January through July and increased the monthly distribution to
Page 31
<PAGE>
$0.155 per share in August 1995. Monthly distributions of $0.155 per
share were paid in August through December 1995. The monthly
distributions paid during 1995 totaled $1.825 per share.
Other Information
As a result of the Merger in August 1995, the Company assumed a
defined benefit pension plan (the "Plan") covering substantially all
of the employees of the Advisor. The board of directors of the
Advisor froze the Plan effective May 31, 1995 and no additional
employees were entitled to enter the Plan. The Plan was terminated on
January 2, 1996 and final disbursement of the Plan's assets occurred
on February 24, 1997.
FUNDS FROM OPERATIONS ("FFO")
FFO for 1997 increased by $4.63 million or 9.7% to $52.35 million
versus $47.72 million during 1996. FFO during 1995 was $40.4 million.
Realty Income defines FFO as net income before gain on sales of
properties, plus provision for impairment losses, plus depreciation
and amortization. In accordance with the recommendations of the
National Association of Real Estate Investment Trusts ("NAREIT"),
amortization of deferred financing costs are not added back to net
income to calculate FFO. Amortization of financing costs are included
in interest expense in the consolidated statements of income.
The following is a reconciliation of net income to FFO, and
information regarding distributions paid and diluted weighted average
number of shares outstanding for 1997, 1996 and 1995 (dollars in
thousands, except per share data):
<TABLE> 1997 1996 1995
-------- -------- --------
<C> <C> <C>
Net income $ 34,770 $ 32,223 $ 25,600
Plus depreciation and amortization 18,596 16,422 14,849
Plus provision for impairment losses 165 579 --
Less depreciation of furniture, fixtures
and equipment and amortization of
organization costs (96) (51) (17)
Less gain on sales of properties (1,082) (1,455) (18)
-------- -------- --------
Total Funds From Operations $ 52,353 $ 47,718 $ 40,414
======== ======== ========
Regular Cash Distributions Paid $ 44,367 $ 42,794 $ 36,710
FFO in excess of Regular
Distributions $ 7,986 $ 4,924 $ 3,704
Special Cash Distributions Paid $ -- $ 5,285 $ --
Diluted weighted average
number of shares outstanding 23,572,715 22,977,837 20,230,963
</TABLE>
Page 32
<PAGE>
Management considers FFO to be an appropriate measure of the
performance of an equity REIT. FFO is used by financial analysts in
evaluating REITs and can be one measure of a REIT's ability to make
cash distribution payments. Presentation of this information provides
the reader with an additional measure to compare the performance of
different REITs, although it should be noted that not all REITs
calculate FFO the same way so comparisons with such REITs may not be
meaningful.
FFO is not necessarily indicative of cash flow available to fund cash
needs and should not be considered as an alternative to net income as
an indication of the Company's performance or to cash flows from
operating, investing, and financing activities as a measure of
liquidity or ability to make cash distributions or to pay debt
service.
RESULTS OF OPERATIONS
=====================
Comparison of 1997 to 1996
Rental revenue was $67.6 million for 1997 versus $56.8 million for
1996, an increase of $10.8 million. The increase in rental revenue
was primarily due to the acquisition of 96 properties during 1997 and
62 properties during 1996. These properties generated revenue of
$11.4 million in 1997 compared to $915,000 in 1996, an increase of
$10.5 million. At January 1, 1998, annualized contractual lease
payments on the properties acquired in 1996 and 1997 are approximately
$20.2 million (excluding estimated rent from nine properties under
development and any percentage rents).
Of the 826 properties in the portfolio as of December 31, 1997, 819
are single-tenant properties with the remaining properties being
multi-tenant properties. Of the 819 single-tenant properties, 812, or
over 99%, were net leased with an average remaining lease term
(excluding extension options) of approximately 8.4 years. At December
31, 1997, 812 of the Company's 819 single tenant properties had leases
which provide for increases in rents through: (i) base rent increases
tied to a consumer price index with adjustment ceilings; (ii) overage
rent based on a percentage of the tenants' gross sales or (iii) fixed
increases. Some leases contain more than one of these clauses.
Percentage rent, which is included in rental revenue, was $1.8 million
during 1997 and $1.7 million in 1996.
Same store rents generated on 667 properties owned during all of both
1997 and 1996 increased by $767,000 or 1.4%, to $55.74 million from
$54.97 million.
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<PAGE>
The following tables represent Realty Income's rental revenue by
industry (dollars in thousands):
<TABLE> Annualized as For the Year Ended
of January 1, 1998 December 31, 1997
---------------------- ----------------------
Rental(1) Percentage Rental Percentage
Industry Revenue of Total Revenue of Total
- -------------------- ------- ---------- ------- ---------
<C> <C> <C> <C> <C>
Apparel Stores $ 1,928 2.5% $ 496 0.7%
Automotive Parts 6,280 8.2 6,142 9.1
Automotive Service 6,434 8.4 4,332 6.4
Book Stores 450 0.6 368 0.5
Child Care 24,473 31.9 24,284 35.9
Consumer Electronics 4,432 5.8 4,388 6.5
Convenience Stores 4,473 5.8 3,738 5.5
Home Furnishings 5,116 6.7 3,812 5.6
Office Supplies 2,215 2.9 1,123 1.7
Pet Supplies 253 0.3 134 0.2
Restaurants 13,314 17.3 13,416 19.8
Shoe Stores 332 0.4 107 0.2
Video Rental 2,286 3.0 373 0.6
Other 4,788 6.2 4,900 7.3
- -------------------- ------- ---------- --------- -------
Totals $76,774 100.0% $67,613 100.0%
==================== ======= ========== ========= ========
</TABLE>
(1) Annualized rental revenue as of January 1, 1998 has been
calculated on the properties owned at January 1, 1998 by multiplying
the monthly contractual base rent by 12 and adding the 1997 historical
percentage rents, which totaled $1.8 million.
<TABLE> For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
-------------------- --------------------
Rental Percentage Rental Percentage
Industry Revenue of Total Revenue of Total
- -------------------- ------- --------- ------- ---------
<C> <C> <C> <C> <C>
Apparel Stores $ -- --% $ -- --%
Automotive Parts 5,966 10.5 5,855 11.4
Automotive
Service 2,706 4.8 1,876 3.7
Book Stores -- -- -- --
Child Care 23,854 42.0 23,358 45.6
Consumer
Electronics 507 0.9 -- --
Convenience
Stores 2,647 4.6 1,254 2.4
Home Furnishings 2,496 4.4 1,471 2.9
Office Supplies -- -- -- --
(continued on next page)
Page 34
<PAGE>
(continued)
Pet Supplies -- -- -- --
Restaurants 13,836 24.4 12,632 24.7
Shoe Stores -- -- -- --
Video Rental -- -- -- --
Other 4,765 8.4 4,739 9.3
- -------------------- ------- --------- ------- ---------
Totals $56,777 100.0% $51,185 100.0%
==================== ======= ========= ======= =========
</TABLE>
At December 31, 1997, the Company had eight properties (one of which
is a multi-tenant property) that were not under lease as compared to
nine at December 31, 1996 and four at December 31, 1995. At December
31, 1997, 818, or over 99%, of the 826 properties in the portfolio
were under lease agreements with third party tenants.
Interest and other revenue during 1997 and 1996 totaled $284,000 and
$180,000, respectively, an increase of $104,000. The increase in 1997
was primarily due to interest earned on Note proceeds in excess of the
$93.7 million used to payoff the credit facility in May 1997. These
proceeds were invested in new properties during May and June 1997.
Depreciation and amortization was $18.6 million in 1997 versus $16.4
million in 1996. The increase in 1997 was primarily due to
depreciation of the properties acquired in 1996 and 1997.
General and administrative expenses increased by $256,000 to $5.44
million in 1997 versus $5.18 million in 1996. The increase in general
and administrative expenses was primarily due to an increase in
property acquisition expenses and employee costs. General and
administrative expenses as a percentage of revenue decreased to 8.0%
in 1997 as compared to 9.1% in 1996. During 1997, the Company
increased its number of employees to 47 from 35. The majority of the
new employees work primarily on new property acquisitions.
Property expenses are broken down into costs associated with non-net
leased multi-tenant properties, unleased single-tenant properties and
general portfolio expenses. Expenses related to the multi-tenant and
unleased single-tenant properties include, but are not limited to,
property taxes, maintenance, insurance, utilities, property
inspections, bad debt expense and legal fees. General portfolio costs
include, but are not limited to, insurance, legal, property
inspections and title search fees. At December 31, 1997, eight
properties were available for lease as compared to nine at December
31, 1996.
Property expenses were $1.79 million in 1997 and $1.64 million in
1996, an increase of $145,000. The increase in property expenses was
primarily attributable to costs of the environmental insurance
obtained in December 1996. In 1997, environmental insurance expense
totaled $85,000 and based upon the 826 properties in the portfolio at
December 31, 1997, the costs of environmental insurance is anticipated
Page 35
<PAGE>
to be approximately $90,000 during 1998. The limit of the policy is
$10 million for each loss and $20 million in the aggregate, with a
$100,000 deductible. There is a sub-limit on properties with
underground storage tanks of $1 million per occurrence and $5 million
in the aggregate, with a deductible of $25,000.
Interest expense in 1997 increased by $5.9 million to $8.23 million,
as compared to $2.37 million in 1996. The following is a summary of
the five components of interest expense for 1997 and 1996 (dollars in
thousands):
<TABLE>
1997 1996 Net Change
------- ------- ----------
<C> <C> <C>
Interest on outstanding
loans and notes $ 8,043 $ 2,137 $ 5,906
Amortization of the gain on the
treasury lock agreement (75) -- (75)
Credit facility commitment fees 145 156 (11)
Amortization of credit facility
origination costs and deferred
bond financing costs 281 224 57
Interest capitalized (168) (150) (18)
------- ------- ----------
Totals $ 8,226 $ 2,367 $ 5,859
======== ======= ==========
</TABLE>
Interest on outstanding loans and notes was $5.9 million higher in
1997 than in 1996, due to an increase in the average outstanding
balances and a higher average interest rate. The higher average
interest rate was due to interest on the Notes issued in May 1997.
During 1997, the average outstanding balances and interest rate (after
taking into effect amortization of the gain on the treasury lock
agreement) on the Notes and credit facility were $108.4 million and
7.35% as compared to $30.7 million and 6.96% during 1996. During
1997, the credit facility's average interest rate was 6.82% and
average outstanding balance was $36.1 million.
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. In 1997, a $165,000 charge was taken to
reduce the net carrying value on three properties because they became
held for sale. One of these properties was sold in 1997 and another
in January 1998. In 1996, a $579,000 charge was taken to reduce the
net carrying value on four properties because they became held for
sale. Three of these properties have been sold.
During 1997, the Company sold ten properties (six restaurants, two
child care centers, one automotive parts store and one multi-tenant
location) for a total of $4.4 million and recorded a gain of $1.1
million. During 1996, the Company sold seven properties (five
restaurants and two multi-tenant locations) for $4.4 million and
recognized a gain of $1.5 million.
Page 36
<PAGE>
In 1997, the Company had net income of $34.77 million versus $32.22
million in 1996. The $2.55 million increase in net income is
primarily due to the increase in rental revenue from properties
acquired in 1996 and 1997 of $10.5 million and an increase in same
store rents on 667 properties owned during both periods of $767,000,
which were partially offset by an increase in depreciation and
amortization, general and administrative, and interest expense
totaling $8.3 million.
Comparison of 1996 to 1995
Rental revenue was $56.8 million for 1996 versus $51.2 million for
1995, an increase of $5.6 million. The increase in rental revenue was
primarily due to the acquisition of 124 properties from December 1994
through December 1996. These properties generated revenue in 1996 and
1995 of $8.8 million and $3.8 million, respectively, an increase of
$5.0 million.
Of the 740 properties in the portfolio as of December 31, 1996, 732
are single-tenant properties with the remaining properties being
multi-tenant properties. Of the 732 single-tenant properties, 723, or
approximately 99%, had leases which provide for increases in rents
through: (i) base rent increases tied to a consumer price index with
adjustment ceilings; (ii) overage rent based on a percentage of the
tenants' gross sales or (iii) fixed increases. Some leases contain
more than one of these clauses. Percentage rent, which is included in
rental revenue, was $1.7 million during 1996 and $1.6 million in 1995.
Same store rents generated on 619 properties owned during all of both
1996 and 1995 increased by $871,000, or 1.9%, to $48.0 million from
$47.1 million.
At December 31, 1996, the Company had nine properties that were not
under lease as compared to four at December 31, 1995. At December 31,
1996, 731, or approximately 99%, of the 740 properties in the
portfolio were under lease agreements with third party tenants.
Interest and other revenue during 1996 and 1995 totaled $180,000 and
$370,000, respectively. The decrease of $190,000 was due to lower
average cash and cash equivalent balances in 1996.
Depreciation and amortization was $16.4 million in 1996 versus $14.8
million in 1995. The increase in 1996 was primarily due to
depreciation of properties acquired during 1995 and 1996 and
amortization of goodwill recorded in connection with the Merger of the
Advisor.
General and administrative expenses and advisor fees decreased by $1.7
million to $5.2 million in 1996 versus $6.9 million in 1995. General
and administrative expenses were $5.2 million in 1996 versus $3.2
million in 1995 and advisor fees of $3.7 million in 1995. The $2.0
million increase in general and administrative expenses was primarily
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<PAGE>
due to the Merger of the Advisor. Subsequent to the Merger, the
Company commenced paying for management, accounting systems, office
facilities, professional and support personnel expenses (i.e. costs of
being self-administered). Prior to the Merger such costs were the
responsibility of the Advisor. General and administrative expenses
and advisor fees as a percentage of revenue decreased to 9.1% in 1996
as compared to 13.3% in 1995.
Property expenses were $1.6 million in 1996 and 1995. Property
expenses are broken down into costs associated with non-net leased
multi-tenant properties, unleased single-tenant properties and general
portfolio expenses. Expenses related to the multi-tenant and unleased
single-tenant properties include, but are not limited to, property
taxes, maintenance, insurance, utilities, property inspections, bad
debt expense and legal fees. General portfolio costs include, but are
not limited to, insurance, legal, property inspections and title
search fees. At December 31, 1996, nine properties were available for
lease as compared to four at December 31, 1995.
Interest expense in 1996 decreased by $275,000 to $2.37 million, as
compared to $2.64 million in 1995. The following is a summary of the
four components of interest expense for 1996 and 1995 (dollars in
thousands):
<TABLE>
1996 1995 Net Change
------- ------- ----------
<C> <C> <C>
Interest on outstanding loans
and notes $ 2,137 $ 2,403 $ (266)
Credit facility commitment fees 156 127 29
Amortization of credit facility
origination costs and deferred
bond financing costs 224 329 (105)
Interest capitalized (150) (217) 67
------- ------- ----------
Totals $ 2,367 $ 2,642 $ (275)
======= ======= ==========
</TABLE>
Interest on outstanding loans and notes during 1996 was $266,000 lower
than in 1995, due to a decrease in the average outstanding balances
and lower average interest rates on the credit facility and the notes
issued as part of the Consolidation. During 1996, the average
outstanding balances and interest rate on the notes and credit
facility were $30.7 million and 6.96% as compared to $31.3 million and
7.68% during 1995.
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. In 1996, a $579,000 charge was taken to
reduce the net carrying value on four properties because they became
held for sale. Three of these properties have been sold. No charge
was recorded for an impairment loss in 1995.
Page 38
<PAGE>
During 1996, the Company sold seven properties (five restaurants and
two multi-tenant locations) for a total of $4.4 million and recorded a
gain of $1.5 million. During 1995, the Company sold three properties
(two child care centers and a multi-tenant location) for $617,000 and
recognized a gain of $18,000.
In 1996, the Company had net income of $32.2 million versus $25.6
million in 1995. The $6.6 million increase in net income is primarily
due to an increase in rental revenue from 124 properties acquired from
December 1994 through December 1996 of $5.0 million, an increase in
the net gain on sales of properties of $1.4 million and a net decrease
in advisor fees, general and administrative expenses of $1.7 million,
offset by an increase in depreciation and amortization expense of $1.6
million.
IMPACT OF INFLATION
===================
Tenant leases generally provide for limited increases in rent as a
result of increases in the tenant's sales volumes and/or increases in
the consumer price index. Management expects that inflation will
cause these lease provisions to result in increases in rent over time.
However, during times when inflation is greater than increases in rent
as provided for in the leases, rent increases may not keep up with the
rate of inflation.
Over 98% of the properties in the portfolio are leased to tenants
under net leases in which the tenant is responsible for property costs
and expenses. These features in the leases reduce the Company's
exposure to rising property expenses due to inflation.
Inflation and increased costs may have an adverse impact on the
tenants if increases in the tenant's operating expenses exceed
increases in revenue.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
===================================
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"). Statement No. 130
establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a
full set of general purpose financial statements, and is effective for
periods beginning after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("Statement
No. 131"). Statement No. 131 establishes standards for the way that
Page 39
<PAGE>
public business enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for periods beginning
after December 15, 1997.
Management believes that the adoption of the aforementioned statements
will not have a material effect on the manner and nature of
disclosures currently made by the Company.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Table of Contents Page
- ----------------- ----
A. Independent Auditors' Report...............................41
B. Consolidated Balance Sheets,
December 31, 1997 and 1996...............................42
C. Consolidated Statements of Income,
Years ended December 31, 1997, 1996 and 1995.............44
D. Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1997, 1996 and 1995.............45
E. Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995.............47
F. Notes to Consolidated Financial Statements.................49
G. Consolidated Quarterly Financial Data
(unaudited) for 1997 and 1996............................59
H. Schedule III-Real Estate and Accumulated
Depreciation.............................................60
Schedules not Filed: All schedules, other than that indicated in the
Table of Contents, have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
Page 40
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Realty Income Corporation:
We have audited the consolidated financial statements of Realty Income
Corporation and subsidiaries as listed in the accompanying table of
contents. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule III
listed in the accompanying table of contents. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Realty Income Corporation and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule III, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
/s/KPMG PEAT MARWICK LLP
San Diego, California
January 23, 1998,
except as to note 6A to the
consolidated financial statements,
which is as of February 23, 1998
Page 41
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
December 31, 1997 and 1996
(dollars in thousands, except per share data)
<TABLE>
1997 1996
========= =========
ASSETS
Real estate, at cost:
Land $ 214,342 $ 165,598
Buildings and improvements 485,455 398,942
--------- ---------
699,797 564,540
Less - accumulated depreciation
and amortization (152,206) (138,307)
--------- ---------
Net real estate 547,591 426,233
Cash and cash equivalents 2,123 1,559
Accounts receivable 2,888 1,905
Due from affiliates 348 383
Other assets 3,170 2,183
Goodwill, net 20,901 21,834
--------- ---------
TOTAL ASSETS $ 577,021 $ 454,097
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable $ 4,112 $ 3,619
Accounts payable and accrued expenses 2,180 1,172
Other liabilities 4,814 5,065
Lines of credit payable 22,600 70,000
Notes payable 110,000 --
--------- ---------
TOTAL LIABILITIES 143,706 79,856
--------- ---------
Page 42
<PAGE>
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
December 31, 1997 and 1996
(dollars in thousands, except per share data)
1997 1996
========= =========
<C> <C>
Commitments and contingencies
Stockholders' Equity
Preferred stock, par value $1.00 per
share, 20,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, par value $1.00 per share,
100,000,000 shares authorized,
25,698,464 and 22,979,537 shares
issued and outstanding in 1997 and
1996, respectively 25,698 22,980
Paid in capital in excess of par value 582,450 516,004
Accumulated distributions in excess
of net income (174,833) (164,743)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 433,315 374,241
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 577,021 $ 454,097
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 43
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Income
=================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands, except per share data)
<TABLE>
1997 1996 1995
========== ========== ==========
REVENUE
Rental $ 67,613 $ 56,777 $ 51,185
Interest 192 109 276
Other 92 71 94
---------- ---------- ----------
67,897 56,957 51,555
---------- ---------- ----------
<C> <C> <C>
EXPENSES
Depreciation and
amortization 18,596 16,422 14,849
General and administrative 5,437 5,181 3,214
Advisor fees -- -- 3,661
Property 1,785 1,640 1,607
Interest 8,226 2,367 2,642
Provision for impairment
losses 165 579 --
---------- ---------- ----------
34,209 26,189 25,973
---------- ---------- ----------
Income from operations 33,688 30,768 25,582
Net gain on sales of
properties 1,082 1,455 18
---------- ---------- ----------
NET INCOME $ 34,770 $ 32,223 $ 25,600
========== ========== ==========
Basic and diluted
net income per share $ 1.48 $ 1.40 $ 1.27
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 44
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
========================================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
Accumu-
Paid in lated
Capital Distri-
in butions
Common Stock Excess in Excess
------------------- of Par of Net
Shares Amount Value Income Totals
========== ======= ======== ========= ========
<C> <C> <C> <C> <C>
Balance,
December
31, 1994 19,502,091 $19,502 $452,996 $(137,082) $335,416
Net income -- -- -- 25,600 25,600
Distributions
paid and
payable to
stockholders -- -- -- (46,192) (46,192)
Shares issued
in exchange
for advisor
shares 990,704 991 20,186 -- 21,177
Shares retired (57,547) (58) (1,172) -- (1,230)
Shares issued
in stock
offering, net
offering
costs of
$3,217 2,540,000 2,540 44,090 -- 46,630
Shares issued
in exchange
for limited
partnership
interests 989 1 19 -- 20
---------- ------- -------- --------- --------
Balance,
December
31, 1995 22,976,237 22,976 516,119 (157,674) 381,421
</TABLE>
Page 45
<PAGE>
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
========================================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
Accumu-
Paid in lated
Capital Distri-
in butions
Common Stock Excess in Excess
------------------- of Par of Net
Shares Amount Value Income Totals
========== ======= ======== ========= ========
<C> <C> <C> <C> <C>
Net income -- -- -- 32,223 32,223
Distributions
paid and
payable to
stockholders -- -- -- (39,292) (39,292)
Shares issued 3,300 4 73 -- 77
Stock offering
costs -- -- (188) -- (188)
---------- ------- -------- --------- --------
Balance,
December
31, 1996 22,979,537 22,980 516,004 (164,743) 374,241
Net income -- -- -- 34,770 34,770
Distributions
paid and
payable to
stockholders -- -- -- (44,860) (44,860)
Shares issued
in stock
offering, net
offering
costs of
$4,193 2,700,000 2,700 66,007 -- 68,707
Shares issued 22,989 22 532 -- 554
Shares
forfeited (4,062) (4) (93) -- (97)
---------- ------- -------- --------- --------
Balance,
December
31, 1997 25,698,464 $25,698 $582,450 $(174,833) $433,315
========== ======= ======== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 46
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
1997 1996 1995
======== ======== ========
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 34,770 $ 32,223 $ 25,600
Adjustments to net income:
Depreciation and amortization 18,596 16,422 14,849
Provision for impairment losses 165 579 --
Net gain on sales of properties (1,082) (1,455) (18)
Changes in assets and liabilities:
Accounts receivable and
other assets (844) (646) (1)
Accounts payable, accrued expenses
and other liabilities 1,087 950 (86)
Due to advisor -- -- (32)
-------- -------- --------
Net cash provided by
operating activities 52,692 48,073 40,312
-------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from sales of properties 4,432 4,405 617
Acquisition of and additions to
properties (140,389) (55,705) (65,890)
Payment of advisor merger costs -- -- (1,629)
Cash acquired from advisor merger -- -- 647
-------- -------- --------
Net cash used in
investing activities (135,957) (51,300) (66,255)
-------- -------- --------
Page 47
<PAGE>
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
1997 1996 1995
======== ======== ========
<C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments of distributions (44,367) (48,079) (36,710)
Proceeds from lines of credit 117,000 66,700 50,600
Payments of lines of credit (164,400) (2,700) (44,600)
Proceeds from notes issued,
net costs of $848 109,152 -- --
Payment of notes payable -- (12,597) --
Proceeds from stock offering,
net of offering costs 68,707 -- 46,630
Proceeds from other stock issuances 246 -- --
Stock offering costs -- (188) --
Payments to the defined benefit
pension plan (2,223) -- --
Increase in other assets (286) -- --
-------- -------- --------
Net cash provided by
financing activities 83,829 3,136 15,920
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 564 (91) (10,023)
Cash and cash equivalents,
beginning of year 1,559 1,650 11,673
-------- -------- --------
Cash and cash equivalents,
end of year $ 2,123 $ 1,559 $ 1,650
======== ======== ========
</TABLE>
For supplemental disclosures, see note 12.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 48
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
==========================================
December 31, 1997, 1996 and 1995
1. Organization and Operation
Realty Income Corporation (the "Company") was organized in the State
of Delaware in September 1993 to facilitate the merger, which was
effected on August 15, 1994 (the "Consolidation"), of 10 private and
15 public real estate limited partnerships with and into the Company.
In August 1995, the Company became self-administered and self-managed
after acquiring R.I.C. Advisor, Inc. (the "Advisor"). In May 1997,
the Company reincorporated as a Maryland corporation pursuant to a
merger of the Company into a wholly-owned Maryland subsidiary and the
conversion of each outstanding share of common stock of the Company
into one share of common stock of the surviving corporation. The
Company invests in commercial retail real estate and has elected to be
taxed as a real estate investment trust ("REIT"). As of December 31,
1997, the Company owned 826 properties in 43 states.
2. Summary of Significant Accounting Policies and Procedures
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and partnerships more
than 50 percent owned (subsidiaries) after elimination of all material
intercompany balances and transactions.
Cash Equivalents - The Company considers all short-term, highly liquid
investments that are readily convertible to cash and have an original
maturity of three months or less at the time of purchase to be cash
equivalents.
Depreciation and Amortization - Depreciation of buildings and
improvements, and amortization of goodwill are computed using the
straight-line method over an estimated useful life of 25 years.
Leases - All leases are accounted for as operating leases. Under
this method, lease payments are recognized as revenue over the term of
the lease on a straight-line basis.
Federal Income Taxes - The Company has elected to be taxed as a REIT
under the Internal Revenue Code of 1986, as amended. Management
believes the Company has qualified and continues to qualify as a REIT
and therefore will be permitted to deduct distributions paid to its
stockholders, eliminating the federal taxation of income represented
by such distributions at the Company's level. Accordingly, no
provision has been made for federal income taxes in the accompanying
consolidated financial statements.
Page 49
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Distributions Paid and Payable - For the year ended December 31, 1997,
cash distributions of $1.8925 per share were paid. The 1997
distributions consisted of eleven monthly distributions of $0.1575 per
share and one monthly distribution of $0.16 per share. As of December
31, 1997, a distribution of $0.16 per share was declared and payable.
For the year ended December 31, 1996, cash distributions of $2.0925
per share were paid. The 1996 distributions consisted of a special
distribution of $0.23 per share, eleven monthly distributions of
$0.155 per share and one distribution of $0.1575 per share.
For the year ended December 31, 1995, cash distributions of $1.825 per
share were paid. The 1995 distributions consisted of seven monthly
distributions of $0.15 per share and five monthly distributions of
$0.155 per share. As of December 31, 1995, three distributions
totaling $0.54 per share were declared and payable.
The following presents the federal income tax characterization of
distributions paid or deemed to be paid to stockholders for the years
ended December 31:
<TABLE>
1997 1996 1995
------ ------ ------
<C> <C> <C>
Ordinary Income $1.794 $1.691 $1.876
Return of Capital 0.099 0.257 0.093
------ ------ ------
Totals $1.893 $1.948 $1.969
====== ====== ======
</TABLE>
For federal income tax purposes, a portion of the distributions
payable at December 31, 1995, in the amount of $0.144 per share, were
deemed to be paid in 1995. This amount is included in the $1.876 per
share taxable as ordinary income in 1995 and represents the remaining
portion of taxable earnings and profits which were assumed by the
Company in the merger with the Advisor.
Provision for Impairment Losses - The Company reviews long-lived
assets, including goodwill, for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. Generally, a provision is made for impairment loss if
estimated future operating cash flows (undiscounted and without
interest charges) over a long-term holding period plus estimated
disposition proceeds (undiscounted) are less than the current book
value. If a property is held for sale, it is carried at the lower of
cost or estimated fair value, less costs to sell. For the years ended
December 31, 1997 and 1996, provisions for impairment losses of
Page 50
<PAGE>
2. Summary of Significant Accounting Policies (continued)
$165,000 and $579,000, respectively, were charged to operations to
reduce the net carrying value of three properties held for sale in
1997 and four properties held for sale in 1996. There was no
provision for impairment losses in 1995.
Net Income Per Share - The Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128")
effective for the period ended December 31, 1997. SFAS No. 128
simplifies the standards for computing earnings per share and makes
them comparable to international earnings per share standards. All
prior period net income per share data presented were restated to
conform to SFAS No. 128.
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during each
period. Diluted net income per share is computed by dividing the
amount of net income for the period by each share that would have been
outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period.
The following is a reconciliation of the denominator of the basic net
income per share computation to the denominator of the diluted net
income per share computation (net income was available to common
shareholders for all periods presented):
<TABLE>
1997 1996 1995
---------- ---------- ----------
<C> <C> <C>
Weighted average shares used for
basic net income computation 23,568,831 22,976,789 20,230,886
Incremental shares from the
assumed conversion of stock
options 3,884 1,048 77
---------- ---------- ----------
Adjusted weighted average shares
used for diluted net income
computation 23,572,715 22,977,837 20,230,963
========== ========== ==========
</TABLE>
Stock Option Plan - The Company accounts for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
Page 51
<PAGE>
2. Summary of Significant Accounting Policies (continued)
option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Derivative Financial Instrument - The Company had an interest rate
treasury lock agreement to hedge the effect of interest rate
fluctuations. This instrument met the requirement for hedge
accounting, including a high correlation to a specific transaction.
Accordingly, the amount received under the terms of the agreement is
recognized in income when interest expense related to the hedge item
is recognized.
Use of Estimates - The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. Credit Facility Available for Acquisitions
The Company has a $150 million, three-year, revolving, unsecured
acquisition credit facility that expires in December 2000. The credit
facility is from The Bank of New York, as agent, and several U.S. and
non-U.S. banks. In November 1997, the Company obtained a $10 million
unsecured line of credit with The Bank of New York, which was repaid
and canceled in January 1998. As of December 31, 1997 and 1996, the
outstanding balances on the credit facility and line of credit were
$22.6 million and $70.0 million, respectively, with an effective
interest rate of approximately 6.66% and 6.85%, respectively.
The credit facility currently bears interest at 0.85% over the London
Interbank Offered Rate ("LIBOR") and offers the Company other interest
rate options. A facility fee of 0.15%, per annum, accrues on the
total commitment of the credit facility.
The credit facility is subject to various leverage and interest
coverage ratio limitations. The Company is and has been in compliance
with these limitations.
In 1997, 1996 and 1995, interest of $168,000, $150,000 and $217,000,
respectively, was capitalized on properties under construction.
4. Notes Payable
On May 6, 1997, Realty Income issued $110 million of 7.75% unsecured
notes due May 2007 (the "Notes"). The Notes were sold at 99.929% of
par for a yield of 7.76%. After taking into effect the $1.1 million
Page 52
<PAGE>
4. Notes Payable (continued)
gain realized on the treasury interest rate lock agreement (see note
5), the effective interest rate to the Company on the Notes is 7.62%.
The net proceeds from the issuance of the Notes were used to repay
$93.7 million of outstanding borrowings under the Company's credit
facility and to acquire properties. Interest on the Notes is payable
semiannually each May and November. Interest incurred on the Notes
for the year ended December 31, 1997 was $5.5 million. Currently,
there is no formal trading market for the Notes and the Company has
not and does not intend to list the Notes on any securities exchange.
On March 29, 1996, the Company redeemed, at par, the $12.6 million
principal amount of notes issued at the time of the Consolidation to
investors in the partnerships. Interest incurred on the notes for the
years ended December 31, 1996 and 1995 was $217,000 and $997,000,
respectively.
5. Derivative Financial Instrument
In December 1996, the Company entered into a treasury interest rate
lock agreement to hedge against rising interest rates applicable to
the Notes (see note 4). Under the terms of the interest rate lock
agreement, the Company was to receive or make a payment based on the
differential between a specified interest rate (6.537%) and the actual
10-year treasury interest rate on notional principal amount of $90
million, at the end of six months. Based on the 10-year treasury
interest rate at May 1, 1997 (the interest rate pricing date), the
Company realized a $1.1 million gain on the agreement, which was
received in June 1997. The gain on the agreement is being amortized
over 10 years (the life of the Notes) as a yield adjustment to
interest expense. The Company had only limited involvement with this
single derivative financial instrument and did not use it for trading
purposes.
6. Common Stock Offerings
A. In February 1998, the Company issued 751,174 shares of common
stock to a unit investment trust at a net price to the Company of
$25.295 per share. The net proceeds of $19.0 million were be used to
repay borrowings under the credit facility.
B. In October 1997, the Company issued 2.7 million shares of common
stock at a price of $27.00 per share. The net proceeds of $68.7
million were used to repay borrowings of $62.6 million under the
credit facility and to acquire properties.
C. In November 1995, the Company issued 2.54 million shares of common
stock at a price of $19.625 per share. Substantially all of the net
proceeds of $46.6 million were used to repay borrowings under the
credit facility.
Page 53
<PAGE>
7. Operating Leases
A. General - At December 31, 1997, the Company owned 826 properties
in 43 states. Of the Company's properties, 819 are single-tenant and
the remainder are multi-tenant. At December 31, 1997, eight
properties were vacant and available for lease or sale.
Substantially all leases are net leases whereby the tenant pays
property taxes and assessments, maintains the interior and exterior of
the building, and carries insurance coverage for public liability,
property damage, fire, and extended coverage. The Company's net lease
agreements are generally for initial terms of 10 to 20 years, require
the tenant to pay a minimum monthly rent and property operating
expenses (taxes, insurance and maintenance), and provide for future
rent increases (typically subject to ceilings) based on increases in
the consumer price index or additional rent calculated as a percentage
of the tenant's gross sales above a specified level. Percentage rent
for 1997, 1996 and 1995 was $1.8 million, $1.7 million and $1.6
million, respectively.
At December 31, 1997, minimum annual rents to be received on the
operating leases are as follows (dollars in thousands):
<TABLE>
Years Ending December 31,
=========================
<C> <C>
1998 $ 72,661
1999 71,364
2000 69,823
2001 68,392
2002 63,470
Thereafter 368,055
--------
TOTAL $713,765
========
</TABLE>
B. Major Tenants - The following schedule presents rental income,
including percentage rents, from tenants representing more than 10% of
the Company's total revenue for at least one of the years ended
December 31, 1997, 1996 or 1995 (dollars in thousands):
<TABLE>
Tenants 1997 1996 1995
========================= ======= ======= =======
<C> <C> <C> <C>
Children's World, Inc. $13,809 $13,460 $13,121
La Petite Academy, Inc. 9,311 9,339 9,189
Golden Corral Corporation 6,899 7,017 6,550
</TABLE>
8. Property Acquisitions
During 1997, the Company acquired 96 retail properties located in 27
states for $142.3 million (excluding the estimated unfunded
development costs of $2.9 million on properties under construction at
Page 54
<PAGE>
8. Property Acquisitions (continued)
December 31, 1997). The 96 properties are 100% leased under net
leases, with an average initial lease term of 14.4 years. During
1996, the Company acquired 62 retail properties located in 22 states
for $55.5 million, with an average initial lease term of 11.7 years.
9. Net Gain on Sales of Properties
In 1997, the Company sold ten properties (six restaurants, one
automotive parts store, one multi-tenant and two child care centers)
for a total of $4.4 million and recognized a gain of $1.1 million. In
1996, the Company sold seven properties (five restaurants and two
multi-tenant centers) for a total of $4.4 million and recognized a
gain of $1.5 million. In 1995, the Company sold three properties (one
multi-tenant and two childcare centers) for a total of $617,000 and
recognized a net gain of $18,000.
10. The Merger of R.I.C. Advisor, Inc.
On August 17, 1995, the Company merged with the Advisor and issued
990,704 shares of the Company's common stock valued at approximately
$21.2 million (the "Merger"). The Merger was accounted for using the
purchase method. Accordingly, the purchase price was allocated to
assets acquired based on their estimated fair values. This treatment
resulted in approximately $22.9 million of goodwill. Amortization of
goodwill for the years ended December 31, 1997, 1996 and 1995 was
$916,000, $916,000 and $340,000, respectively.
11. Fair Value of Financial Instruments
Management of the Company believes that the carrying values reflected
in the balance sheets at December 31, 1997 and 1996 reasonably
approximate the fair values for cash and cash equivalents, accounts
receivable, due from affiliates and all liabilities. In making such
assessments, the Company utilized estimates and quoted market prices.
See note 5 for a discussion of the derivative financial instrument
held at December 31, 1996.
Page 55
<PAGE>
12. Supplemental Disclosure of Cash Flow Information
Interest paid during 1997, 1996 and 1995 was $6.9 million, $2.0
million and $2.2 million, respectively.
The following non-cash investing and financing activities are included
in the accompanying financial statements:
A. In 1997, the acquisition of three properties resulted in the
following (dollars in thousands):
Increases in:
Land $1,724
Building 227
Other liabilities 1,951
B. The Merger of the Advisor into the Company in August 1995
resulted in the following (dollars in thousands):
Increases in:
Other assets $ (1,143)
Goodwill (21,184)
Common stock retired after the merger (1,230)
Increases/(decrease) in:
Other liabilities 3,029
Due to advisor (2)
Common stock 991
Paid in capital in excess of par value 20,186
--------
Cash acquired from Merger $ 647
========
In 1995, other assets of $95,000 were reclassified to goodwill.
Common stock retired after the Merger includes par value of common
stock and paid in capital in excess of par value of $58,000 and
$1,172,000, respectively.
C. In 1996 and 1995, pursuant to the assumption of the defined
benefit pension plan by the Company (see note 14), the Company
recorded a due from affiliate and a liability (included in other
liabilities) of $73,000 and $493,000, respectively. This represents
the amount of the increase in the liability to the plan, of which the
Company is indemnified by the former shareholders of the Advisor.
13. Related Party Transactions
The Company paid the Advisor an advisory fee of $3.7 million for the
period from January 1, 1995 through August 17, 1995. On August 17,
1995, the Advisor was merged into the Company and the agreement was
terminated (see note 10).
Page 56
<PAGE>
14. Employee Benefit Plan
A. As a result of the Merger, the Company assumed a defined
benefit pension plan (the "Plan") covering substantially all of its
employees. The board of directors of the Advisor froze the Plan
effective May 31, 1995 and no additional employees were entitled to
enter the Plan. The Plan was terminated on January 2, 1996 and final
disbursement of the Plan's assets occurred on February 24, 1997.
At December 31, 1996, the benefit obligation in excess of plan assets
of approximately $2.3 million is included in other liabilities in the
accompanying balance sheet. This amount was paid in February 1997.
In connection with the Merger, the Company assumed a benefit
obligation of $1.9 million. The Merger agreement provides for
indemnification by the former shareholders of the Advisor with respect
to increases in the benefit obligation. A receivable from the
Advisor's former shareholders has been recorded as of December 31,
1997 and 1996 for $348,000 and $383,000, respectively, and is included
as due from affiliates in the accompanying consolidated balance
sheets.
B. In August 1996, the Company initiated a 401(k) plan. Under
the 401(k) plan, employees may elect to make contributions to the
plan, and the Company matches 50% of such contributions up to 6% of
each participant's compensation.
15. Stock Incentive Plan
In September 1993, the board of directors of the Company approved a
stock incentive plan (the "Stock Plan") designed to attract and retain
directors, officers and employees of the Company by enabling such
individuals to participate in the ownership of the Company. The Stock
Plan authorizes the purchase of up to 500,000 shares of common stock
and provides for the award (subject to ownership limitations) of a
broad variety of stock-based compensation alternatives such as
nonqualified stock options, incentive stock options, restricted stock
and performance awards.
Stock options are granted with an exercise price equal to the
underlying stock's fair market value at the date of grant. Stock
options expire 10 years from the date they are granted and vest over
service periods of three, four and five years. At December 31, 1997,
1996 and 1995, options outstanding totaled 139,500, 73,000 and 30,000,
respectively. Prior to December 31, 1997, 189,700 stock options and
15,800 restricted shares of common stock had been granted under the
Stock Plan. Of the stock options granted, 10,489 had been exercised
and 39,711 had been canceled. At December 31, 1997, there were
294,500 additional shares available for grant under the Stock Plan.
The per share weighted-average fair value of stock options granted
during 1997 and 1996 was $2.29 on the date of grant using the Binomial
Page 57
<PAGE>
15. Stock Incentive Plan (continued)
option-pricing model with the following weighted-average assumptions:
1997 - expected dividend yield 9.92%, risk-free interest rate of 6.5%,
volatility of 18.5% and an expected life of 10 years; 1996 - expected
dividend yield 9.71%, risk-free interest rate of 6.7%, volatility of
17.4% and an expected life of 10 years. No stock options were granted
during 1995.
The Company applies APB Opinion No. 25 in accounting for its Stock
Plan and, accordingly, no compensation cost has been recognized for
its stock options in the consolidated financial statements. Had the
Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro-forma amounts indicated
below:
<TABLE>
Diluted
Net Income Net Income
(in thousands) Per Share
-------------- -----------
<C> <C>
1997 as reported $ 34,770 $1.48
1997 pro forma $ 34,722 $1.47
1996 as reported $ 32,223 $1.40
1996 pro forma $ 32,206 $1.40
1995 as reported $ 25,600 $1.27
1995 pro forma $ 25,583 $1.26
</TABLE>
16. Commitments and Contingencies
In the ordinary course of its business, the Company is a party to
various legal actions which the Company believes are routine in nature
and incidental to the operation of the business of the Company. The
Company believes that the outcome of the proceedings will not have a
material adverse effect upon its consolidated operations, financial
position or liquidity.
Page 58
<PAGE>
REALTY INCOME CORPORATION
AND SUBSIDIARIES
CONSOLIDATED QUARTERLY FINANCIAL DATA
(dollars in thousands, except per share data)
(not covered by Independent Auditors' Report)
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
======= ======= ======= ======= =======
<C> <C> <C> <C> <C>
1997
====
Total revenue $15,480 $16,123 $16,843 $19,451 $67,897
Depreciation and
amortization
expense 4,464 4,484 4,706 4,942 18,596
Provision for
impairment
losses -- 70 70 25 165
Interest expense 1,312 2,009 2,450 2,455 8,226
Other expenses 1,744 1,694 1,747 2,037 7,222
Income from
operations 7,960 7,866 7,870 9,992 33,688
Net income 8,185 8,068 8,466 10,051 34,770
Basic and diluted
net income
per share 0.36 0.35 0.37 0.40 1.48
1996
====
Total revenue $13,778 $13,637 $13,840 $15,702 $56,957
Depreciation and
amortization
expense 4,074 4,049 4,052 4,247 16,422
Provision for
impairment
losses 323 -- -- 256 579
Interest expense 520 485 497 865 2,367
Other expenses 1,756 1,701 1,669 1,695 6,821
Income from
operations 7,105 7,402 7,622 8,639 30,768
Net income 7,850 7,615 7,890 8,868 32,223
Basic and diluted
net income
per share 0.34 0.33 0.34 0.39 1.40
</TABLE>
Page 59
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Apparel Stores
- --------------
Danbury CT 1,083,296 6,215,244 None None
Westbury NY 6,333,590 3,949,770 None None
Automotive Parts & Accessories
- ------------------------------
Phoenix AZ 231,000 513,057 None None
Phoenix AZ 71,750 159,359 None None
Phoenix AZ 222,950 495,178 None None
Tucson AZ 194,250 431,434 None None
Tucson AZ 178,297 396,005 None None
Yuma AZ 120,750 268,190 None None
Fullerton CA 47,325 66,522 None None
Grass Valley CA 325,000 384,955 None None
Jackson CA 300,000 390,849 None None
Sacramento CA 210,000 466,419 None None
Turlock CA 222,250 493,627 None None
Aurora CO 221,691 492,382 None None
Canon City CO 66,500 147,699 None None
Colorado Springs CO 280,193 622,317 None None
Colorado Springs CO 192,988 433,542 None None
Denver CO 141,400 314,056 None None
Denver CO 315,000 699,623 None None
Denver CO 283,500 629,666 None None
Littleton CO 252,925 561,759 None None
Lakeland FL 500,000 233,100 None None
Tampa FL 427,395 7,412 None None
Council Bluffs IA 194,355 431,668 None None
Boise ID 158,400 351,813 None None
Boise ID 190,080 422,172 None None
Coeur D'Alene ID 165,900 368,468 None None
Lewiston ID 138,950 308,612 None None
Moscow ID 117,250 260,417 None None
Nampa ID 183,743 408,101 None None
Twin Falls ID 190,080 422,172 None None
Kansas City KS 185,955 413,014 None None
Kansas City KS 222,000 455,881 None None
Page 60
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Apparel Stores
- --------------
Danbury CT 1,083,296 6,215,244 7,298,540
Westbury NY 6,333,590 3,949,770 10,283,360
Automotive Parts & Accessories
- ------------------------------
Phoenix AZ 231,000 513,057 744,057
Phoenix AZ 71,750 159,359 231,109
Phoenix AZ 222,950 495,178 718,128
Tucson AZ 194,250 431,434 625,684
Tucson AZ 178,297 396,005 574,302
Yuma AZ 120,750 268,190 388,940
Fullerton CA 47,325 66,522 113,847
Grass Valley CA 325,000 384,955 709,955
Jackson CA 300,000 390,849 690,849
Sacramento CA 210,000 466,419 676,419
Turlock CA 222,250 493,627 715,877
Aurora CO 221,691 492,382 714,073
Canon City CO 66,500 147,699 214,199
Colorado Springs CO 280,193 622,317 902,510
Colorado Springs CO 192,988 433,542 626,530
Denver CO 141,400 314,056 455,456
Denver CO 315,000 699,623 1,014,623
Denver CO 283,500 629,666 913,166
Littleton CO 252,925 561,759 814,684
Lakeland FL 500,000 233,100 733,100
Tampa FL 427,395 7,412 434,807
Council Bluffs IA 194,355 431,668 626,023
Boise ID 158,400 351,813 510,213
Boise ID 190,080 422,172 612,252
Coeur D'Alene ID 165,900 368,468 534,368
Lewiston ID 138,950 308,612 447,562
Moscow ID 117,250 260,417 377,667
Nampa ID 183,743 408,101 591,844
Twin Falls ID 190,080 422,172 612,252
Kansas City KS 185,955 413,014 598,969
Kansas City KS 222,000 455,881 677,881
Page 61
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Apparel Stores
- --------------
Danbury CT 72,210 09/30/97 300
Westbury NY 45,744 09/29/97 300
Automotive Parts & Accessories
- ------------------------------
Phoenix AZ 182,837 11/09/87 300
Phoenix AZ 56,790 11/19/87 300
Phoenix AZ 145,267 11/02/89 300
Tucson AZ 154,959 10/30/87 300
Tucson AZ 112,385 01/19/90 300
Yuma AZ 76,111 01/23/90 300
Fullerton CA 66,522 08/21/72 234
Grass Valley CA 128,743 05/20/88 300
Jackson CA 126,615 05/17/88 300
Sacramento CA 166,215 11/25/87 300
Turlock CA 174,526 12/30/87 300
Aurora CO 139,737 01/29/90 300
Canon City CO 52,635 11/12/87 300
Colorado Spring CO 176,611 01/23/90 300
Colorado Springs CO 83,099 05/20/93 300
Denver CO 111,918 11/18/87 300
Denver CO 237,548 05/16/88 300
Denver CO 213,795 05/27/88 300
Littleton CO 195,461 02/12/88 300
Lakeland FL 0 In Process 12/31/97 300
Tampa FL 0 In Process 12/05/97 300
Council Bluffs IA 146,568 05/19/88 300
Boise ID 119,454 05/06/88 300
Boise ID 143,343 05/06/88 300
Coeur D'Alene ID 133,379 09/21/87 300
Lewiston ID 111,713 09/16/87 300
Moscow ID 94,267 09/14/87 300
Nampa ID 138,567 05/06/88 300
Twin Falls ID 143,343 05/06/88 300
Kansas City KS 140,235 05/13/88 300
Kansas City KS 154,696 05/16/88 300
Page 62
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Parts & Accessories (continued)
- ------------------------------------------
Blue Springs MO 222,569 494,334 None None
Independence MO 210,643 467,845 None None
Kansas City MO 210,070 466,571 None None
Kansas City MO 168,350 373,910 None None
Kansas City MO 248,500 551,927 None None
Missoula MT 163,100 362,249 None None
Kearney NE 173,950 344,393 None None
Omaha NE 196,000 435,321 None None
Omaha NE 199,100 412,042 None None
Albuquerque NM 80,500 178,794 None None
Rio Rancho NM 211,577 469,923 None None
Sante Fe NM 70,000 155,473 None None
Las Vegas NV 161,000 357,585 None None
Reno NV 456,000 562,344 None None
Albany OR 152,250 338,153 None None
Beaverton OR 210,000 466,419 None None
Corvallis OR 152,250 338,153 None None
Eugene OR 194,880 432,837 None None
Oak Grove OR 180,250 400,336 None None
Portland OR 190,750 423,664 None None
Portland OR 147,000 326,493 None None
Portland OR 210,000 466,412 None None
Salem OR 136,500 303,170 None None
Tigard OR 164,500 365,361 None None
Amarillo TX 140,000 419,734 None None
Austin TX 185,454 411,899 None None
Dallas TX 191,267 424,811 None None
El Paso TX 66,150 146,922 None None
El Paso TX 56,350 125,156 None None
Garland TX 242,887 539,461 None None
Harlingen TX 134,599 298,948 None None
Houston TX 151,018 335,417 None None
Leon Valley TX 178,221 395,834 None None
Lubbock TX 42,000 93,284 None None
Lubbock TX 49,000 108,831 None None
Midland TX 45,500 101,058 None None
Odessa TX 50,750 112,718 None None
Pasadena TX 107,391 238,518 None None
Plano TX 187,564 417,158 700 None
San Antonio TX 245,164 544,518 None None
Page 63
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Parts & Accessories
- ------------------------------
Blue Springs MO 222,569 494,334 716,903
Independence MO 210,643 467,845 678,488
Kansas City MO 210,070 466,571 676,641
Kansas City MO 168,350 373,910 542,260
Kansas City MO 248,500 551,927 800,427
Missoula MT 163,100 362,249 525,349
Kearney NE 173,950 344,393 518,343
Omaha NE 196,000 435,321 631,321
Omaha NE 199,100 412,042 611,142
Albuquerque NM 80,500 178,794 259,294
Rio Rancho NM 211,577 469,923 681,500
Sante Fe NM 70,000 155,473 225,473
Las Vegas NV 161,000 357,585 518,585
Reno NV 456,000 562,344 1,018,344
Albany OR 152,250 338,153 490,403
Beaverton OR 210,000 466,419 676,419
Corvallis OR 152,250 338,153 490,403
Eugene OR 194,880 432,837 627,717
Oak Grove OR 180,250 400,336 580,586
Portland OR 190,750 423,664 614,414
Portland OR 147,000 326,493 473,493
Portland OR 210,000 466,412 676,412
Salem OR 136,500 303,170 439,670
Tigard OR 164,500 365,361 529,861
Amarillo TX 140,000 419,734 559,734
Austin TX 185,454 411,899 597,353
Dallas TX 191,267 424,811 616,078
El Paso TX 66,150 146,922 213,072
El Paso TX 56,350 125,156 181,506
Garland TX 242,887 539,461 782,348
Harlingen TX 134,599 298,948 433,547
Houston TX 151,018 335,417 486,435
Leon Valley TX 178,221 395,834 574,055
Lubbock TX 42,000 93,284 135,284
Lubbock TX 49,000 108,831 157,831
Midland TX 45,500 101,058 146,558
Odessa TX 50,750 112,718 163,468
Pasadena TX 107,391 238,518 345,909
Plano TX 187,564 417,858 605,422
San Antonio TX 245,164 544,518 789,682
Page 64
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Parts & Accessories (continued)
- ------------------------------------------
Blue Springs MO 148,532 07/31/89 300
Independence MO 140,572 07/31/89 300
Kansas City MO 158,419 05/13/88 300
Kansas City MO 126,957 05/26/88 300
Kansas City MO 179,292 10/25/88 300
Missoula MT 130,111 10/30/87 300
Kearney NE 93,917 05/01/90 300
Omaha NE 147,808 05/26/88 300
Omaha NE 137,987 05/27/88 300
Albuquerque NM 64,219 10/29/87 300
Rio Rancho NM 163,507 02/26/88 300
Sante Fe NM 55,842 10/29/87 300
Las Vegas NV 128,436 10/29/87 300
Reno NV 190,812 05/26/88 300
Albany OR 123,358 08/24/87 300
Beaverton OR 170,149 08/26/87 300
Corvallis OR 123,358 08/12/87 300
Eugene OR 150,604 02/10/88 300
Oak Grove OR 146,041 08/06/87 300
Portland OR 154,552 08/12/87 300
Portland OR 119,104 08/26/87 300
Portland OR 168,835 09/01/87 300
Salem OR 110,595 08/20/87 300
Tigard OR 133,284 08/26/87 300
Amarillo TX 137,505 09/12/88 300
Austin TX 115,753 02/06/90 300
Dallas TX 120,560 01/26/90 300
El Paso TX 52,770 10/27/87 300
El Paso TX 44,952 10/27/87 300
Garland TX 153,097 01/19/90 300
Harlingen TX 84,841 01/17/90 300
Houston TX 95,189 01/25/90 300
Leon Valley TX 112,337 01/17/90 300
Lubbock TX 33,504 10/26/87 300
Lubbock TX 39,090 10/29/87 300
Midland TX 36,296 10/27/87 300
Odessa TX 40,484 10/26/87 300
Pasadena TX 67,691 01/24/90 300
Plano TX 118,226 01/18/90 300
San Antonio TX 153,021 02/14/90 300
Page 65
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Parts & Accessories (continued)
- ------------------------------------------
Bountiful UT 183,750 408,115 None None
Provo UT 125,395 278,507 None None
Bellevue WA 185,500 411,997 None None
Bellingham WA 168,000 373,133 None None
Bothell WA 199,500 443,098 None None
Everett WA 367,500 816,227 None None
Hazel Dell WA 168,000 373,135 None None
Kennewick WA 161,350 358,365 None None
Kent WA 199,500 443,091 None None
Lacey WA 171,150 380,125 None None
Marysville WA 168,000 373,135 None None
Moses Lake WA 138,600 307,831 None None
Pasco WA 161,700 359,142 None None
Puyallup WA 173,250 384,795 None None
Redmond WA 196,000 435,317 None None
Renton WA 185,500 412,003 None None
Richland WA 161,700 359,142 None None
Seattle WA 162,400 360,697 None None
Silverdale WA 183,808 419,777 None None
Spanaway WA 189,000 419,777 None None
Spokane WA 66,150 146,921 None None
Tacoma WA 191,800 425,996 None None
Tacoma WA 196,000 435,324 None None
Tacoma WA 187,111 415,579 None None
Vancouver WA 180,250 400,343 None None
Walla Walla WA 170,100 377,793 None None
Wenatchee WA 148,400 329,602 None None
Woodinville WA 171,500 380,908 None None
Automotive Service
- ------------------
Flagstaff AZ 144,821 84,182 None None
Chula Vista CA 313,293 409,654 None None
Arvada CO 201,565 339,038 None None
Arvada CO 241,044 344,753 None None
Broomfield CO 154,930 503,626 None None
Denver CO 79,717 369,586 None None
Denver CO 341,726 432,986 None None
Thornton CO 276,084 415,464 None None
Hartford CT 248,540 482,460 None None
Page 66
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Parts & Accessories (continued)
- ------------------------------------------
Bountiful UT 183,750 408,115 591,865
Provo UT 125,395 278,507 403,902
Bellevue WA 185,500 411,997 597,497
Bellingham WA 168,000 373,133 541,133
Bothell WA 199,500 443,098 642,598
Everett WA 367,500 816,227 1,183,727
Hazel Dell WA 168,000 373,135 541,135
Kennewick WA 161,350 358,365 519,715
Kent WA 199,500 443,091 642,591
Lacey WA 171,150 380,125 551,275
Marysville WA 168,000 373,135 541,135
Moses Lake WA 138,600 307,831 446,431
Pasco WA 161,700 359,142 520,842
Puyallup WA 173,250 384,795 558,045
Redmond WA 196,000 435,317 631,317
Renton WA 185,500 412,003 597,503
Richland WA 161,700 359,142 520,842
Seattle WA 162,400 360,697 523,097
Silverdale WA 183,808 419,777 603,585
Spanaway WA 189,000 419,777 608,777
Spokane WA 66,150 146,921 213,071
Tacoma WA 191,800 425,996 617,796
Tacoma WA 196,000 435,324 631,324
Tacoma WA 187,111 415,579 602,690
Vancouver WA 180,250 400,343 580,593
Walla Walla WA 170,100 377,793 547,893
Wenatchee WA 148,400 329,602 478,002
Woodinville WA 171,500 380,908 552,408
Automotive Service
- ------------------
Flagstaff AZ 144,821 84,182 229,003
Chula Vista CA 313,293 409,654 722,947
Arvada CO 201,565 339,038 540,603
Arvada CO 241,044 344,753 585,797
Broomfield CO 154,930 503,626 658,556
Denver CO 79,717 369,586 449,303
Denver CO 341,726 432,986 774,712
Thornton CO 276,084 415,464 691,548
Hartford CT 248,540 482,460 731,000
Page 67
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Parts & Accessories (continued)
- ------------------------------------------
Bountiful UT 115,821 01/30/90 300
Provo UT 79,039 01/25/90 300
Bellevue WA 150,295 08/06/87 300
Bellingham WA 136,116 08/20/87 300
Bothell WA 161,642 08/20/87 300
Everett WA 290,874 11/17/87 300
Hazel Dell WA 122,395 05/23/88 300
Kennewick WA 130,731 08/26/87 300
Kent WA 161,638 08/06/87 300
Lacey WA 138,667 08/13/87 300
Marysville WA 136,120 08/20/87 300
Moses Lake WA 112,296 08/12/87 300
Pasco WA 131,014 08/18/87 300
Puyallup WA 139,291 09/15/87 300
Redmond WA 157,580 09/17/87 300
Renton WA 149,138 09/15/87 300
Richland WA 131,014 08/13/87 300
Seattle WA 131,582 08/20/87 300
Silverdale WA 151,952 09/16/87 300
Spanaway WA 153,132 08/25/87 300
Spokane WA 52,357 11/18/87 300
Tacoma WA 155,403 08/18/87 300
Tacoma WA 156,357 10/15/87 300
Tacoma WA 117,940 01/25/90 300
Vancouver WA 146,043 08/20/87 300
Walla Walla WA 137,817 08/06/87 300
Wenatchee WA 120,240 08/25/87 300
Woodinville WA 138,954 08/20/87 300
Automotive Service
- ------------------
Flagstaff AZ 0 In Process 08/29/97 300
Chula Vista CA 26,627 05/01/96 01/19/96 300
Arvada CO 18,647 08/28/96 04/09/96 300
Arvada CO 12,840 01/03/97 07/10/96 300
Broomfield CO 27,700 08/22/96 03/15/96 300
Denver CO 216,056 10/08/85 300
Denver CO 3,569 09/25/97 06/12/97 300
Thornton CO 15,769 12/31/96 10/31/96 300
Hartford CT 24,927 09/30/96 300
Page 68
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Service (continued)
- ------------------------------
Southington CT 225,882 672,508 None None
Ft. Lauderdale FL 254,090 4,421 None None
Jacksonville FL 76,585 355,066 None None
Lauderdale Lakes FL 65,987 305,931 None None
Seminole FL 68,000 315,266 None None
Sunrise FL 80,253 372,069 None None
Tampa FL 70,000 324,538 None None
Tampa FL 67,000 310,629 None None
Tampa FL 86,502 401,041 None None
Atlanta GA 55,840 258,889 None None
Atlanta GA 78,646 364,625 None None
Bogart GA 66,807 309,732 None None
Duluth GA 222,275 273,956 None None
Gainesville GA 53,589 248,452 None None
Marietta GA 60,900 293,461 None None
Marietta GA 69,561 346,024 None None
Riverdale GA 58,444 270,961 None None
Rome GA 56,454 261,733 None None
Anderson IN 232,170 385,790 None None
Indianapolis IN 231,384 428,307 None None
Olathe KS 217,995 367,055 None None
Louisville KY 56,054 259,881 None None
Newport KY 323,511 288,168 None None
Billerica MA 399,043 461,854 None None
Clinton MD 70,880 328,620 None None
Minneapolis MN 58,000 268,903 None None
Independence MO 297,641 233,152 None None
Concord NC 237,688 64,645 None None
Durham NC 55,074 255,336 None None
Durham NC 354,676 360,875 None None
Fayettville NC 224,326 256,992 None None
Garner NC 218,294 286,665 None None
Greensboro NC 287,474 315,828 None None
Pineville NC 254,460 355,299 None None
Raleigh NC 89,145 413,301 None None
Raleigh NC 398,694 263,388 None None
Cherry Hill NJ 1,074,640 1,032,304 None None
Akron OH 139,126 460,066 None None
Beaver Creek OH 205,000 492,538 None None
Centerville OH 305,000 420,448 None None
Page 69
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Service (continued)
- ------------------------------
Southington CT 225,882 672,508 898,390
Ft. Lauderdale FL 254,090 4,421 258,511
Jacksonville FL 76,585 355,066 431,651
Lauderdale Lakes FL 65,987 305,931 371,918
Seminole FL 68,000 315,266 383,266
Sunrise FL 80,253 372,069 452,322
Tampa FL 70,000 324,538 394,538
Tampa FL 67,000 310,629 377,629
Tampa FL 86,502 401,041 487,543
Atlanta GA 55,840 258,889 314,729
Atlanta GA 78,646 364,625 443,271
Bogart GA 66,807 309,732 376,539
Duluth GA 222,275 273,956 496,231
Gainesville GA 53,589 248,452 302,041
Marietta GA 60,900 293,461 354,361
Marietta GA 69,561 346,024 415,585
Riverdale GA 58,444 270,961 329,405
Rome GA 56,454 261,733 318,187
Anderson IN 232,170 385,790 617,960
Indianapolis IN 231,384 428,307 659,691
Olathe KS 217,995 367,055 585,050
Louisville KY 56,054 259,881 315,935
Newport KY 323,511 288,168 611,679
Billerica MA 399,043 461,854 860,897
Clinton MD 70,880 328,620 399,500
Minneapolis MN 58,000 268,903 326,903
Independence MO 297,641 233,152 530,793
Concord NC 237,688 64,645 302,333
Durham NC 55,074 255,336 310,410
Durham NC 354,676 360,875 715,551
Fayettville NC 224,326 256,992 481,318
Garner NC 218,294 286,665 504,959
Greensboro NC 287,474 315,828 603,302
Pineville NC 254,460 355,299 609,759
Raleigh NC 89,145 413,301 502,446
Raleigh NC 398,694 263,388 662,082
Cherry Hill NJ 1,074,640 1,032,304 2,106,944
Akron OH 139,126 460,066 599,192
Beaver Creek OH 205,000 492,538 697,538
Centerville OH 305,000 420,448 725,448
Page 70
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Service (continued)
- ------------------------------
Southington CT 14,470 06/06/97 300
Ft. Lauderdale FL 0 In Process 12/24/97 300
Jacksonville FL 203,413 12/23/85 300
Lauderdale Lakes FL 172,767 02/19/86 300
Seminole FL 180,611 12/23/85 300
Sunrise FL 211,445 02/14/86 300
Tampa FL 185,923 12/27/85 300
Tampa FL 177,955 12/27/85 300
Tampa FL 218,269 07/23/86 300
Atlanta GA 149,370 11/27/85 300
Atlanta GA 208,889 12/18/85 300
Bogart GA 177,443 12/20/85 300
Duluth GA 0 11/03/97 06/20/97 300
Gainesville GA 142,333 12/19/85 300
Marietta GA 168,118 12/26/85 300
Marietta GA 190,987 06/03/86 300
Riverdale GA 154,124 01/15/86 300
Rome GA 149,941 12/19/85 300
Anderson IN 639 12/19/97 300
Indianapolis IN 22,129 09/27/96 300
Olathe KS 9,173 04/22/97 11/11/96 300
Louisville KY 148,882 12/17/85 300
Newport KY 3,330 09/17/97 300
Billerica MA 13,004 04/02/97 300
Clinton MD 190,770 11/15/85 300
Minneapolis MN 154,051 12/18/85 300
Independence MO 9,715 12/20/96 300
Concord NC 0 In Process 11/05/97 300
Durham NC 148,230 11/13/85 300
Durham NC 4,173 08/29/97 03/31/97 300
Fayettville NC 423 12/03/97 300
Garner NC 0 11/18/97 06/20/97 300
Greensboro NC 6,790 06/09/97 01/31/97 300
Pineville NC 4,111 08/28/97 04/16/97 300
Raleigh NC 240,144 10/28/85 300
Raleigh NC 2,160 10/01/97 300
Cherry Hill NJ 98,069 08/02/95 01/26/95 300
Akron OH 5,333 09/18/97 300
Beaver Creek OH 15,596 02/13/97 09/09/96 300
Centerville OH 24,526 07/24/96 06/28/96 300
Page 71
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Service (continued)
- ------------------------------
Cincinnati OH 293,005 200,273 None None
Columbus OH 71,098 329,626 None None
Columbus OH 75,761 351,246 None None
Columbus OH 245,036 470,468 None None
Dayton OH 70,000 324,538 None None
Eastlake OH 321,347 459,774 None None
Fairfield OH 323,408 234,253 None None
Findlay OH 283,515 397,156 None None
Hamilton OH 252,608 413,279 None None
Huber Heights OH 282,000 449,381 None None
Miamisburg OH 63,996 296,701 None None
Milford OH 353,324 269,853 None None
Mt. Vernon OH 216,115 375,365 None None
Northwood OH 65,978 263,912 None None
Norwalk OH 200,205 365,961 None None
Sandusky OH 264,708 404,164 None None
Springboro OH 191,911 522,178 None None
Toledo OH 91,655 366,621 None None
Toledo OH 73,408 293,632 None None
Midwest City OK 106,312 90,123 None None
The Village OK 143,655 116,311 None None
Bethel Park PA 299,595 331,579 None None
Bethlehem PA 275,328 389,330 None None
Bethlehem PA 229,162 310,357 None None
Philadelphia PA 858,500 877,745 None None
Springfield Twp. PA 82,740 383,601 None None
York PA 249,436 347,479 None None
Charleston SC 217,250 293,791 None None
Columbia SC 267,622 53,568 None None
Columbia SC 343,785 294,701 None None
Greenville SC 221,946 314,818 None None
Brentwood TN 305,546 292,973 None None
Nashville TN 342,960 226,897 None None
Dallas TX 234,604 325,951 None None
Houston TX 285,000 369,389 None None
Lewisville TX 199,942 324,736 None None
San Antonio TX 198,828 437,422 None None
Richmond VA 149,780 399,415 None None
Roanoke VA 349,628 322,763 None None
Virginia Beach VA 287,675 382,092 None None
Page 72
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Service (continued)
- ------------------------------
Cincinnati OH 293,005 200,273 493,278
Columbus OH 71,098 329,626 400,724
Columbus OH 75,761 351,246 427,007
Columbus OH 245,036 470,468 715,504
Dayton OH 70,000 324,538 394,538
Eastlake OH 321,347 459,774 781,121
Fairfield OH 323,408 234,253 557,661
Findlay OH 283,515 397,156 680,671
Hamilton OH 252,608 413,279 665,887
Huber Heights OH 282,000 449,381 731,381
Miamisburg OH 63,996 296,701 360,697
Milford OH 353,324 269,853 623,177
Mt. Vernon OH 216,115 375,365 591,480
Northwood OH 65,978 263,912 329,890
Norwalk OH 200,205 365,961 566,166
Sandusky OH 264,708 404,164 668,872
Springboro OH 191,911 522,178 714,089
Toledo OH 91,655 366,621 458,276
Toledo OH 73,408 293,632 367,040
Midwest City OK 106,312 90,123 196,435
The Village OK 143,655 116,311 259,966
Bethel Park PA 299,595 331,579 631,174
Bethlehem PA 275,328 389,330 664,658
Bethlehem PA 229,162 310,357 539,519
Philadelphia PA 858,500 877,745 1,736,245
Springfield Twp. PA 82,740 383,601 466,341
York PA 249,436 347,479 596,915
Charleston SC 217,250 293,791 511,041
Columbia SC 267,622 53,568 321,190
Columbia SC 343,785 294,701 638,486
Greenville SC 221,946 314,818 536,764
Brentwood TN 305,546 292,973 598,519
Nashville TN 342,960 226,897 569,857
Dallas TX 234,604 325,951 560,555
Houston TX 285,000 369,389 654,389
Lewisville TX 199,942 324,736 524,678
San Antonio TX 198,828 437,422 636,250
Richmond VA 149,780 399,415 549,195
Roanoke VA 349,628 322,763 672,391
Virginia Beach VA 287,675 382,092 669,767
Page 73
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Service (continued)
- ------------------------------
Cincinnati OH 2,296 09/17/97 300
Columbus OH 192,696 10/02/85 300
Columbus OH 204,088 10/24/85 300
Columbus OH 38,422 12/22/95 300
Dayton OH 188,569 10/31/85 300
Eastlake OH 37,548 12/22/95 300
Fairfield OH 2,695 09/17/97 300
Findlay OH 658 12/24/97 300
Hamilton OH 8,951 03/31/97 10/04/96 300
Huber Heights OH 17,225 12/03/96 07/18/96 300
Miamisburg OH 173,448 10/08/85 300
Milford OH 3,106 09/18/97 300
Mt. Vernon OH 622 12/30/97 300
Northwood OH 198,997 09/12/86 300
Norwalk OH 607 12/19/97 300
Sandusky OH 670 12/19/97 300
Springboro OH 16,439 03/07/97 300
Toledo OH 276,442 09/12/86 300
Toledo OH 221,406 09/12/86 300
Midwest City OK 0 In Process 08/08/97 300
The Village OK 0 In Process 07/29/97 300
Bethel Park PA 549 12/19/97 300
Bethlehem PA 646 12/19/97 300
Bethlehem PA 514 12/24/97 300
Philadelphia PA 201,430 05/19/95 12/05/94 300
Springfield Twp. PA 216,630 02/28/86 300
York PA 576 12/30/97 300
Charleston SC 4,363 07/14/97 03/13/97 300
Columbia SC 0 In Process 11/05/97 300
Columbia SC 6,298 05/27/97 02/07/97 300
Greenville SC 2,601 09/05/97 03/31/97 300
Brentwood TN 0 In Process 05/28/97 300
Nashville TN 2,610 09/17/97 300
Dallas TX 17,927 08/09/96 02/19/96 300
Houston TX 3,041 08/08/97 08/08/97 300
Lewisville TX 17,860 08/02/96 02/14/96 300
San Antonio TX 40,097 09/15/95 300
Richmond VA 16,642 12/26/96 300
Roanoke VA 534 12/19/97 300
Virginia Beach VA 14,396 01/07/97 09/27/96 300
Page 74
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Service (continued)
- ------------------------------
Bremerton WA 261,172 373,080 None None
Milwaukee WI 173,005 499,244 None None
Milwaukee WI 152,509 475,480 None None
New Berlin WI 188,491 466,268 None None
Book Stores
- -----------
Tampa FL 998,250 3,697,927 None None
Child Care
- ----------
Birmingham AL 63,800 295,791 None None
Huntsville AL 28,600 197,165 None None
Mobile AL 78,400 237,671 None None
Mobile AL 63,000 292,084 None None
Chandler AZ 144,083 668,080 None None
Chandler AZ 291,720 647,923 None None
Chandler AZ 271,695 603,446 None None
Glendale AZ 115,000 285,172 None None
Mesa AZ 297,500 660,755 None None
Mesa AZ 276,770 590,417 None None
Peoria AZ 281,750 625,779 None None
Phoenix AZ 318,500 707,397 None None
Phoenix AZ 264,504 587,471 None None
Phoenix AZ 260,719 516,181 None None
Scottsdale AZ 291,993 648,530 None None
Tempe AZ 292,200 648,989 None None
Tempe AZ 294,000 638,977 None None
Tucson AZ 304,500 676,303 None None
Tucson AZ 283,500 546,878 None None
Calabasas CA 156,430 725,248 None None
Carmichael CA 131,035 607,507 None None
Chino CA 155,000 634,071 None None
Chula Vista CA 350,563 778,614 None None
Corona CA 144,856 671,585 None None
El Cajon CA 157,804 731,621 None None
Encinitas CA 320,000 710,729 None None
Escondido CA 276,286 613,638 None None
Folsom CA 281,563 625,363 None None
Mission Viejo CA 353,891 744,367 None None
Page 75
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Service (continued)
- ------------------------------
Bremerton WA 261,172 373,080 634,252
Milwaukee WI 173,005 499,244 672,249
Milwaukee WI 152,509 475,480 627,989
New Berlin WI 188,491 466,268 654,759
Book Stores
- -----------
Tampa FL 998,250 3,697,927 4,696,177
Child Care
- ----------
Birmingham AL 63,800 295,791 359,591
Huntsville AL 28,600 197,165 225,765
Mobile AL 78,400 237,671 316,071
Mobile AL 63,000 292,084 355,084
Chandler AZ 144,083 668,080 812,163
Chandler AZ 291,720 647,923 939,643
Chandler AZ 271,695 603,446 875,141
Glendale AZ 115,000 285,172 400,172
Mesa AZ 297,500 660,755 958,255
Mesa AZ 276,770 590,417 867,187
Peoria AZ 281,750 625,779 907,529
Phoenix AZ 318,500 707,397 1,025,897
Phoenix AZ 264,504 587,471 851,975
Phoenix AZ 260,719 516,181 776,900
Scottsdale AZ 291,993 648,530 940,523
Tempe AZ 292,200 648,989 941,189
Tempe AZ 294,000 638,977 932,977
Tucson AZ 304,500 676,303 980,803
Tucson AZ 283,500 546,878 830,378
Calabasas CA 156,430 725,248 881,678
Carmichael CA 131,035 607,507 738,542
Chino CA 155,000 634,071 789,071
Chula Vista CA 350,563 778,614 1,129,177
Corona CA 144,856 671,585 816,441
El Cajon CA 157,804 731,621 889,425
Encinitas CA 320,000 710,729 1,030,729
Escondido CA 276,286 613,638 889,924
Folsom CA 281,563 625,363 906,926
Mission Viejo CA 353,891 744,367 1,098,258
Page 76
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Service (continued)
- ------------------------------
Bremerton WA 16,396 03/19/97 07/24/96 300
Milwaukee WI 40,772 12/22/95 300
Milwaukee WI 24,566 09/27/96 300
New Berlin WI 38,079 12/22/95 300
Book Stores
- -----------
Tampa FL 117,001 03/11/97 300
Child Care
- ----------
Birmingham AL 193,248 10/31/84 300
Huntsville AL 197,165 06/15/82 180
Mobile AL 237,671 10/15/82 180
Mobile AL 181,404 04/25/85 300
Chandler AZ 349,889 12/17/86 300
Chandler AZ 229,028 12/11/87 300
Chandler AZ 213,401 12/14/87 300
Glendale AZ 264,572 02/08/84 180
Mesa AZ 216,958 09/29/88 300
Mesa AZ 193,865 09/29/88 300
Peoria AZ 215,982 03/30/88 300
Phoenix AZ 232,273 09/29/88 300
Phoenix AZ 158,578 06/29/90 300
Phoenix AZ 130,764 12/26/90 300
Scottsdale AZ 229,291 12/14/87 300
Tempe AZ 223,993 03/10/88 300
Tempe AZ 174,113 09/27/90 300
Tucson AZ 222,064 09/28/88 300
Tucson AZ 179,567 09/29/88 300
Calabasas CA 424,348 09/26/85 300
Carmichael CA 328,149 08/22/86 300
Chino CA 602,337 10/06/83 180
Chula Vista CA 279,658 10/30/87 300
Corona CA 432,880 12/19/84 300
El Cajon CA 419,133 12/19/85 300
Encinitas CA 251,283 12/29/87 300
Escondido CA 216,954 12/31/87 300
Folsom CA 225,976 10/23/87 300
Mission Viejo CA 154,359 06/24/93 300
Page 77
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Moreno Valley CA 304,489 676,214 None None
Oceanside CA 145,568 674,889 None None
Palmdale CA 249,490 554,125 None None
Rancho Cordova CA 276,328 613,733 None None
Rancho Cucamonga CA 471,733 1,047,739 None None
Roseville CA 297,343 660,412 None None
Sacramento CA 290,734 645,731 None None
Santee CA 248,418 551,748 None None
Simi Valley CA 208,585 967,055 None None
Valencia CA 301,295 669,185 None None
Walnut CA 217,365 1,007,753 None None
Aurora CO 141,811 657,497 None None
Aurora CO 287,000 637,440 None None
Aurora CO 301,455 655,609 None None
Broomfield CO 107,000 403,080 None None
Broomfield CO 155,306 344,941 None None
Colorado Springs CO 58,400 271,217 None None
Colorado Springs CO 92,570 241,413 None None
Colorado Springs CO 115,542 535,700 None None
Englewood CO 131,216 608,372 None None
Englewood CO 158,651 735,571 None None
Fort Collins CO 55,200 256,356 None None
Fort Collins CO 117,105 542,950 None None
Fort Collins CO 137,734 638,594 None None
Greeley CO 58,400 270,755 None None
Littleton CO 161,617 358,956 None None
Littleton CO 287,000 637,435 None None
Littleton CO 299,250 664,642 None None
Longmont CO 115,592 535,931 None None
Louisville CO 58,089 269,313 None None
Parker CO 153,551 341,043 None None
Westminster CO 306,387 695,737 None None
Bradenton FL 160,060 355,501 None None
Clearwater FL 42,223 269,380 None None
Jacksonville FL 38,500 228,481 None None
Jacksonville FL 48,000 243,060 None None
Jacksonville FL 184,800 410,447 None None
Jupiter FL 78,000 360,088 None None
Margate FL 66,686 309,183 None None
Melbourne FL 256,439 549,345 None None
Page 78
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Moreno Valley CA 304,489 676,214 980,703
Oceanside CA 145,568 674,889 820,457
Palmdale CA 249,490 554,125 803,615
Rancho Cordova CA 276,328 613,733 890,061
Rancho Cucamonga CA 471,733 1,047,739 1,519,472
Roseville CA 297,343 660,412 957,755
Sacramento CA 290,734 645,731 936,465
Santee CA 248,418 551,748 800,166
Simi Valley CA 208,585 967,055 1,175,640
Valencia CA 301,295 669,185 970,480
Walnut CA 217,365 1,007,753 1,225,118
Aurora CO 141,811 657,497 799,308
Aurora CO 287,000 637,440 924,440
Aurora CO 301,455 655,609 957,064
Broomfield CO 107,000 403,080 510,080
Broomfield CO 155,306 344,941 500,247
Colorado Springs CO 58,400 271,217 329,617
Colorado Springs CO 92,570 241,413 333,983
Colorado Springs CO 115,542 535,700 651,242
Englewood CO 131,216 608,372 739,588
Englewood CO 158,651 735,571 894,222
Fort Collins CO 55,200 256,356 311,556
Fort Collins CO 117,105 542,950 660,055
Fort Collins CO 137,734 638,594 776,328
Greeley CO 58,400 270,755 329,155
Littleton CO 161,617 358,956 520,573
Littleton CO 287,000 637,435 924,435
Littleton CO 299,250 664,642 963,892
Longmont CO 115,592 535,931 651,523
Louisville CO 58,089 269,313 327,402
Parker CO 153,551 341,043 494,594
Westminster CO 306,387 695,737 1,002,124
Bradenton FL 160,060 355,501 515,561
Clearwater FL 42,223 269,380 311,603
Jacksonville FL 38,500 228,481 266,981
Jacksonville FL 48,000 243,060 291,060
Jacksonville FL 184,800 410,447 595,247
Jupiter FL 78,000 360,088 438,088
Margate FL 66,686 309,183 375,869
Melbourne FL 256,439 549,345 805,784
Page 79
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Moreno Valley CA 258,116 02/11/87 300
Oceanside CA 386,632 12/23/85 300
Palmdale CA 181,946 09/14/88 300
Rancho Cordova CA 191,244 03/22/89 300
Rancho Cucamonga CA 370,436 12/30/87 300
Roseville CA 238,630 10/21/87 300
Sacramento CA 231,929 10/05/87 300
Santee CA 202,829 07/23/87 300
Simi Valley CA 554,013 12/20/85 300
Valencia CA 225,342 06/23/88 300
Walnut CA 544,346 08/22/86 300
Aurora CO 368,615 03/25/86 300
Aurora CO 225,370 12/31/87 300
Aurora CO 241,628 09/27/89 300
Broomfield CO 403,080 01/12/83 180
Broomfield CO 119,054 03/15/88 300
Colorado Springs CO 271,217 12/22/82 180
Colorado Springs CO 232,004 08/31/83 180
Colorado Springs CO 282,492 12/04/86 300
Englewood CO 320,815 12/05/86 300
Englewood CO 385,235 12/29/86 300
Fort Collins CO 256,356 12/22/82 180
Fort Collins CO 304,395 03/25/86 300
Fort Collins CO 358,017 03/25/86 300
Greeley CO 175,757 11/21/84 300
Littleton CO 126,908 12/10/87 300
Littleton CO 209,301 09/29/88 300
Littleton CO 218,235 09/29/88 300
Longmont CO 300,461 03/25/86 300
Louisville CO 180,450 06/22/84 300
Parker CO 123,230 10/19/87 300
Westminster CO 232,355 09/27/89 300
Bradenton FL 120,707 05/05/88 300
Clearwater FL 269,380 12/22/81 180
Jacksonville FL 228,481 12/22/81 180
Jacksonville FL 243,060 12/22/81 180
Jacksonville FL 127,898 03/30/89 300
Jupiter FL 211,932 09/11/85 300
Margate FL 161,927 12/16/86 300
Melbourne FL 115,594 04/16/93 300
Page 80
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Niceville FL 73,696 341,688 None None
Orlando FL 68,001 313,922 None None
Orlando FL 159,177 353,538 None None
Orlando FL 245,249 544,704 None None
Orlando FL 190,050 422,107 None None
Oviedo FL 166,409 369,598 None None
Panama City FL 69,500 244,314 None None
Pensacola FL 147,000 326,492 None None
Royal Palm Beach FL 194,193 431,309 None None
Spring Hill FL 146,939 326,356 None None
St. Augustine FL 44,800 213,040 None None
Sunrise FL 69,400 246,671 None None
Sunrise FL 245,000 533,280 None None
Tallahassee FL 66,000 232,010 None None
Tampa FL 53,385 199,846 None None
Douglasville GA 54,000 250,356 None None
Dunwoody GA 318,500 707,399 None None
Ellenwood GA 119,678 275,414 None None
Fayetteville GA 148,400 329,601 None None
Lawrenceville GA 141,449 314,161 None None
Lilburn GA 116,350 539,488 None None
Lithia Springs GA 187,444 363,358 None None
Lithonia GA 239,715 524,459 None None
Marietta GA 231,000 513,061 None None
Marietta GA 273,000 619,076 None None
Marietta GA 148,620 330,090 None None
Marietta GA 292,250 649,095 None None
Marietta GA 295,750 596,299 None None
Marietta GA 301,000 668,529 None None
Martinez GA 141,153 313,504 None None
Smyrna GA 274,750 610,229 None None
Stockbridge GA 168,700 374,688 None None
Stone Mountain GA 65,000 301,357 None None
Stone Mountain GA 316,750 703,512 None None
Valdosta GA 73,561 341,059 None None
Cedar Rapids IA 194,950 427,085 None None
Iowa City IA 186,900 408,910 None None
Johnston IA 186,996 347,278 None None
Addison IL 125,780 583,146 None None
Algonquin IL 241,500 509,629 None None
Page 81
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Niceville FL 73,696 341,688 415,384
Orlando FL 68,001 313,922 381,923
Orlando FL 159,177 353,538 512,715
Orlando FL 245,249 544,704 789,953
Orlando FL 190,050 422,107 612,157
Oviedo FL 166,409 369,598 536,007
Panama City FL 69,500 244,314 313,814
Pensacola FL 147,000 326,492 473,492
Royal Palm Beach FL 194,193 431,309 625,502
Spring Hill FL 146,939 326,356 473,295
St. Augustine FL 44,800 213,040 257,840
Sunrise FL 69,400 246,671 316,071
Sunrise FL 245,000 533,280 778,280
Tallahassee FL 66,000 232,010 298,010
Tampa FL 53,385 199,846 253,231
Douglasville GA 54,000 250,356 304,356
Dunwoody GA 318,500 707,399 1,025,899
Ellenwood GA 119,678 275,414 395,092
Fayetteville GA 148,400 329,601 478,001
Lawrenceville GA 141,449 314,161 455,610
Lilburn GA 116,350 539,488 655,838
Lithia Springs GA 187,444 363,358 550,802
Lithonia GA 239,715 524,459 764,174
Marietta GA 231,000 513,061 744,061
Marietta GA 273,000 619,076 892,076
Marietta GA 148,620 330,090 478,710
Marietta GA 292,250 649,095 941,345
Marietta GA 295,750 596,299 892,049
Marietta GA 301,000 668,529 969,529
Martinez GA 141,153 313,504 454,657
Smyrna GA 274,750 610,229 884,979
Stockbridge GA 168,700 374,688 543,388
Stone Mountain GA 65,000 301,357 366,357
Stone Mountain GA 316,750 703,512 1,020,262
Valdosta GA 73,561 341,059 414,620
Cedar Rapids IA 194,950 427,085 622,035
Iowa City IA 186,900 408,910 595,810
Johnston IA 186,996 347,278 534,274
Addison IL 125,780 583,146 708,926
Algonquin IL 241,500 509,629 751,129
Page 82
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Niceville FL 180,176 12/03/86 300
Orlando FL 184,760 09/04/85 300
Orlando FL 129,963 07/02/87 300
Orlando FL 192,581 12/10/87 300
Orlando FL 131,531 03/30/89 300
Oviedo FL 131,704 11/20/87 300
Panama City FL 244,314 06/15/82 180
Pensacola FL 101,737 03/28/89 300
Royal Palm Beach FL 139,211 11/15/88 300
Spring Hill FL 116,294 11/24/87 300
St. Augustine FL 213,040 12/22/81 180
Sunrise FL 246,671 06/15/82 180
Sunrise FL 168,101 05/25/89 300
Tallahassee FL 232,010 06/15/82 180
Tampa FL 199,846 12/22/81 180
Douglasville GA 163,579 10/23/84 300
Dunwoody GA 228,323 11/16/88 300
Ellenwood GA 88,893 11/16/88 300
Fayetteville GA 102,707 03/29/89 300
Lawrenceville GA 104,911 07/07/88 300
Lilburn GA 282,542 12/23/86 300
Lithia Springs GA 110,194 12/28/89 300
Lithonia GA 152,857 08/20/91 300
Marietta GA 177,079 03/18/88 300
Marietta GA 211,933 04/26/88 300
Marietta GA 108,448 09/16/88 300
Marietta GA 207,693 12/02/88 300
Marietta GA 190,800 12/30/88 300
Marietta GA 213,910 12/30/88 300
Martinez GA 110,838 12/31/87 300
Smyrna GA 196,960 11/15/88 300
Stockbridge GA 116,755 03/28/89 300
Stone Mountain GA 179,999 06/19/85 300
Stone Mountain GA 227,068 11/16/88 300
Valdosta GA 179,841 12/03/86 300
Cedar Rapids IA 105,923 09/24/92 300
Iowa City IA 103,511 09/24/92 300
Johnston IA 80,307 08/19/91 300
Addison IL 326,932 03/25/86 300
Algonquin IL 139,613 07/10/90 300
Page 83
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Aurora IL 165,679 398,739 None None
Bartlett IL 120,824 560,166 None None
Bolingbrook IL 60,000 409,024 None None
Carol Stream IL 122,831 586,416 None None
Elk Grove Vlg IL 126,860 588,175 None None
Elk Grove Vlg IL 214,845 477,180 None None
Glendale Heights IL 318,500 707,399 None None
Hoffman Estates IL 318,500 707,399 None None
Hoffman Estates IL 211,082 468,818 None None
Lockport IL 189,477 442,018 None None
O'Fallon IL 141,250 313,722 None None
Orland Park IL 218,499 485,295 None None
Palatine IL 121,911 565,233 None None
Roselle IL 297,541 561,036 None None
Schaumburg IL 218,798 485,956 None None
Vernon Hills IL 132,523 614,430 None None
Westmont IL 124,742 578,330 None None
Carmel IN 217,565 430,742 None None
Fishers IN 212,118 419,959 None None
Highland IN 220,460 436,476 None None
Indianapolis IN 245,000 544,153 None None
Noblesville IN 60,000 278,175 None None
Zionsville IN 127,568 319,770 None None
Lenexa KS 318,500 707,399 None None
Olathe KS 304,500 676,308 None None
Overland Park KS 305,691 707,397 None None
Shawnee KS 315,000 699,629 None None
Topeka KS 58,000 268,903 None None
Wichita KS 108,569 401,828 None None
Wichita KS 209,890 415,549 None None
Lexington KY 210,427 420,883 None None
Acton MA 315,533 700,813 None None
Marlborough MA 352,765 776,487 None None
Westborough MA 359,412 773,877 None None
Ellicott City MD 219,368 630,839 None None
Olney MD 342,500 760,701 None None
Waldorf MD 130,430 604,702 None None
Waldorf MD 237,207 526,844 None None
Canton MI 55,000 378,848 None None
Apple Valley MN 113,523 526,319 None None
Page 84
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Aurora IL 165,679 398,739 564,418
Bartlett IL 120,824 560,166 680,990
Bolingbrook IL 60,000 409,024 469,024
Carol Stream IL 122,831 586,416 709,247
Elk Grove Vlg IL 126,860 588,175 715,035
Elk Grove Vlg IL 214,845 477,180 692,025
Glendale Heights IL 318,500 707,399 1,025,899
Hoffman Estates IL 318,500 707,399 1,025,899
Hoffman Estates IL 211,082 468,818 679,900
Lockport IL 189,477 442,018 631,495
O'Fallon IL 141,250 313,722 454,972
Orland Park IL 218,499 485,295 703,794
Palatine IL 121,911 565,233 687,144
Roselle IL 297,541 561,036 858,577
Schaumburg IL 218,798 485,956 704,754
Vernon Hills IL 132,523 614,430 746,953
Westmont IL 124,742 578,330 703,072
Carmel IN 217,565 430,742 648,307
Fishers IN 212,118 419,959 632,077
Highland IN 220,460 436,476 656,936
Indianapolis IN 245,000 544,153 789,153
Noblesville IN 60,000 278,175 338,175
Zionsville IN 127,568 319,770 447,338
Lenexa KS 318,500 707,399 1,025,899
Olathe KS 304,500 676,308 980,808
Overland Park KS 305,691 707,397 1,013,088
Shawnee KS 315,000 699,629 1,014,629
Topeka KS 58,000 268,903 326,903
Wichita KS 108,569 401,828 510,397
Wichita KS 209,890 415,549 625,439
Lexington KY 210,427 420,883 631,310
Acton MA 315,533 700,813 1,016,346
Marlborough MA 352,765 776,487 1,129,252
Westborough MA 359,412 773,877 1,133,289
Ellicott City MD 219,368 630,839 850,207
Olney MD 342,500 760,701 1,103,201
Waldorf MD 130,430 604,702 735,132
Waldorf MD 237,207 526,844 764,051
Canton MI 55,000 378,848 433,848
Apple Valley MN 113,523 526,319 639,842
Page 85
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Aurora IL 127,584 12/21/88 300
Bartlett IL 314,048 03/25/86 300
Bolingbrook IL 409,024 10/18/82 180
Carol Stream IL 328,765 03/25/86 300
Elk Grove Vlg IL 329,752 03/26/86 300
Elk Grove Vlg IL 163,358 04/08/88 300
Glendale Heights IL 228,323 11/16/88 300
Hoffman Estates IL 220,430 03/31/89 300
Hoffman Estates IL 134,349 12/08/89 300
Lockport IL 158,751 10/29/87 300
O'Fallon IL 112,670 10/30/87 300
Orland Park IL 174,295 10/28/87 300
Palatine IL 316,888 03/25/86 300
Roselle IL 179,517 12/30/88 300
Schaumburg IL 171,810 12/17/87 300
Vernon Hills IL 344,469 03/25/86 300
Westmont IL 324,231 03/25/86 300
Carmel IN 109,121 12/27/90 300
Fishers IN 106,389 12/27/90 300
Highland IN 110,572 12/26/90 300
Indianapolis IN 146,885 06/29/90 300
Noblesville IN 172,765 04/30/85 300
Zionsville IN 114,842 10/28/87 300
Lenexa KS 220,430 03/31/89 300
Olathe KS 222,065 09/28/88 300
Overland Park KS 232,273 09/28/88 300
Shawnee KS 227,767 10/27/88 300
Topeka KS 167,007 04/16/85 300
Wichita KS 192,353 12/16/86 300
Wichita KS 105,272 12/26/90 300
Lexington KY 116,624 08/20/91 300
Acton MA 230,112 09/30/88 300
Marlborough MA 250,621 11/04/88 300
Westborough MA 249,776 11/01/88 300
Ellicott City MD 201,849 12/19/88 300
Olney MD 268,950 12/18/87 300
Waldorf MD 397,601 09/26/84 300
Waldorf MD 186,266 12/31/87 300
Canton MI 378,848 10/06/82 180
Apple Valley MN 295,073 03/26/86 300
Page 86
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Bloomington MN 124,113 575,416 None None
Brooklyn Park MN 118,111 547,586 None None
Brooklyn Park MN 112,823 523,073 None None
Eagan MN 112,127 519,844 None None
Eden Prairie MN 124,286 576,243 None None
Maple Grove MN 111,691 517,822 None None
Maple Grove MN 313,250 660,149 None None
Minnetonka MN 146,847 680,842 None None
Plymouth MN 134,221 622,350 None None
W. Bloomington MN 40,000 468,484 None None
White Bear Lake MN 260,750 579,133 None None
White Bear Lake MN 242,165 537,855 None None
Florissant MO 181,300 402,672 None None
Florissant MO 318,500 707,399 None None
Gladstone MO 294,000 652,987 None None
Lee's Summit MO 239,627 532,220 None None
Liberty MO 65,400 303,211 None None
Manchester MO 287,000 637,435 None None
St. Charles MO 259,000 575,246 None None
Pearl MS 121,801 270,525 None None
Cary NC 75,200 262,973 None None
Chapel Hill NC 77,000 356,992 None None
Charlotte NC 27,551 247,000 None None
Charlotte NC 134,582 268,222 None None
Concord NC 32,441 190,859 None None
Durham NC 220,728 429,380 None None
Durham NC 238,000 471,201 None None
Hendersonville NC 32,748 186,152 None None
Kernersville NC 162,216 316,299 None None
Morrisville NC 175,700 390,234 None None
Bellevue NE 60,568 280,819 None None
Omaha NE 60,500 280,491 None None
Omaha NE 53,000 245,720 None None
Omaha NE 142,867 317,315 None None
Londonderry NH 335,467 745,082 None None
Clementon NJ 279,851 554,060 None None
Henderson NV 82,000 380,173 None None
Las Vegas NV 201,250 446,983 None None
Sparks NV 244,752 543,604 None None
Beavercreek OH 179,552 398,786 None None
Page 87
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Bloomington MN 124,113 575,416 699,529
Brooklyn Park MN 118,111 547,586 665,697
Brooklyn Park MN 112,823 523,073 635,896
Eagan MN 112,127 519,844 631,971
Eden Prairie MN 124,286 576,243 700,529
Maple Grove MN 111,691 517,822 629,513
Maple Grove MN 313,250 660,149 973,399
Minnetonka MN 146,847 680,842 827,689
Plymouth MN 134,221 622,350 756,571
W. Bloomington MN 40,000 468,484 508,484
White Bear Lake MN 260,750 579,133 839,883
White Bear Lake MN 242,165 537,855 780,020
Florissant MO 181,300 402,672 583,972
Florissant MO 318,500 707,399 1,025,899
Gladstone MO 294,000 652,987 946,987
Lee's Summit MO 239,627 532,220 771,847
Liberty MO 65,400 303,211 368,611
Manchester MO 287,000 637,435 924,435
St. Charles MO 259,000 575,246 834,246
Pearl MS 121,801 270,525 392,326
Cary NC 75,200 262,973 338,173
Chapel Hill NC 77,000 356,992 433,992
Charlotte NC 27,551 247,000 274,551
Charlotte NC 134,582 268,222 402,804
Concord NC 32,441 190,859 223,300
Durham NC 220,728 429,380 650,108
Durham NC 238,000 471,201 709,201
Hendersonville NC 32,748 186,152 218,900
Kernersville NC 162,216 316,299 478,515
Morrisville NC 175,700 390,234 565,934
Bellevue NE 60,568 280,819 341,387
Omaha NE 60,500 280,491 340,991
Omaha NE 53,000 245,720 298,720
Omaha NE 142,867 317,315 460,182
Londonderry NH 335,467 745,082 1,080,549
Clementon NJ 279,851 554,060 833,911
Henderson NV 82,000 380,173 462,173
Las Vegas NV 201,250 446,983 648,233
Sparks NV 244,752 543,604 788,356
Beavercreek OH 179,552 398,786 578,338
Page 88
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Bloomington MN 322,598 03/27/86 300
Brooklyn Park MN 306,995 03/26/86 300
Brooklyn Park MN 293,253 03/27/86 300
Eagan MN 291,442 03/31/86 300
Eden Prairie MN 323,062 03/27/86 300
Maple Grove MN 290,309 03/26/86 300
Maple Grove MN 181,778 07/11/90 300
Minnetonka MN 359,030 12/12/86 300
Plymouth MN 328,183 12/12/86 300
W. Bloomington MN 468,484 06/18/82 180
White Bear Lake MN 204,755 12/23/87 300
White Bear Lake MN 142,206 08/30/90 300
Florissant MO 125,475 03/29/89 300
Florissant MO 220,430 03/30/89 300
Gladstone MO 214,408 09/29/88 300
Lee's Summit MO 155,745 09/27/89 300
Liberty MO 181,105 06/18/85 300
Manchester MO 225,369 12/22/87 300
St. Charles MO 203,382 12/23/87 300
Pearl MS 87,484 11/15/88 300
Cary NC 245,077 01/25/84 180
Chapel Hill NC 221,716 04/17/85 300
Charlotte NC 247,000 12/23/81 180
Charlotte NC 86,570 11/16/88 300
Concord NC 190,859 12/23/81 180
Durham NC 134,759 12/29/89 300
Durham NC 108,964 08/20/91 300
Hendersonville NC 186,152 12/23/81 180
Kernersville NC 101,374 12/14/89 300
Morrisville NC 121,599 03/29/89 300
Bellevue NE 147,071 12/16/86 300
Omaha NE 186,771 08/01/84 300
Omaha NE 161,441 10/11/84 300
Omaha NE 112,185 12/09/87 300
Londonderry NH 221,801 08/18/89 300
Clementon NJ 126,597 09/09/91 300
Henderson NV 236,112 04/17/85 300
Las Vegas NV 120,655 06/29/90 300
Sparks NV 190,669 01/29/88 300
Beavercreek OH 147,721 06/30/87 300
Page 89
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Centerville OH 174,519 387,613 None None
Cincinnati OH 165,910 368,486 None None
Dublin OH 84,000 389,446 None None
Englewood OH 74,000 343,083 None None
Forest Park OH 170,778 379,305 None None
Gahanna OH 86,000 398,718 None None
Huber Heights OH 245,000 544,153 None None
Loveland OH 206,136 457,829 None None
Maineville OH 173,105 384,469 None None
Pickerington OH 87,580 406,055 None None
Westerville OH 82,000 380,173 None None
Westerville OH 294,350 646,557 None None
Broken Arrow OK 78,705 220,434 None None
Midwest City OK 67,800 314,338 None None
Oklahoma City OK 50,800 214,474 None None
Oklahoma City OK 79,000 366,261 None None
Yukon OK 61,000 282,812 None None
Beaverton OR 135,148 626,647 None None
Beaverton OR 115,232 534,301 None None
Charleston SC 125,593 278,946 None None
Charleston SC 140,700 312,498 None None
Columbia SC 58,160 269,643 None None
Elgin SC 160,831 313,600 None None
Goose Creek SC 61,635 192,905 None None
Ladson SC 31,543 177,457 None None
Lexington SC 55,869 274,742 None None
Mt. Pleasant SC 40,700 180,400 None None
Summerville SC 44,400 174,500 None None
Sumter SC 56,010 268,903 None None
Memphis TN 238,263 504,897 None None
Memphis TN 238,000 528,608 None None
Memphis TN 221,501 491,962 None None
Nashville TN 274,298 609,223 None None
Allen TX 177,637 394,537 None None
Arlington TX 82,109 380,678 None None
Arlington TX 70,000 324,538 None None
Arlington TX 238,000 528,604 None None
Arlington TX 241,500 550,559 None None
Arlington TX 195,650 387,355 None None
Austin TX 103,600 230,532 None None
Page 90
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Centerville OH 174,519 387,613 562,132
Cincinnati OH 165,910 368,486 534,396
Dublin OH 84,000 389,446 473,446
Englewood OH 74,000 343,083 417,083
Forest Park OH 170,778 379,305 550,083
Gahanna OH 86,000 398,718 484,718
Huber Heights OH 245,000 544,153 789,153
Loveland OH 206,136 457,829 663,965
Maineville OH 173,105 384,469 557,574
Pickerington OH 87,580 406,055 493,635
Westerville OH 82,000 380,173 462,173
Westerville OH 294,350 646,557 940,907
Broken Arrow OK 78,705 220,434 299,139
Midwest City OK 67,800 314,338 382,138
Oklahoma City OK 50,800 214,474 265,274
Oklahoma City OK 79,000 366,261 445,261
Yukon OK 61,000 282,812 343,812
Beaverton OR 135,148 626,647 761,795
Beaverton OR 115,232 534,301 649,533
Charleston SC 125,593 278,946 404,539
Charleston SC 140,700 312,498 453,198
Columbia SC 58,160 269,643 327,803
Elgin SC 160,831 313,600 474,431
Goose Creek SC 61,635 192,905 254,540
Ladson SC 31,543 177,457 209,000
Lexington SC 55,869 274,742 330,611
Mt. Pleasant SC 40,700 180,400 221,100
Summerville SC 44,400 174,500 218,900
Sumter SC 56,010 268,903 324,913
Memphis TN 238,263 504,897 743,160
Memphis TN 238,000 528,608 766,608
Memphis TN 221,501 491,962 713,463
Nashville TN 274,298 609,223 883,521
Allen TX 177,637 394,537 572,174
Arlington TX 82,109 380,678 462,787
Arlington TX 70,000 324,538 394,538
Arlington TX 238,000 528,604 766,604
Arlington TX 241,500 550,559 792,059
Arlington TX 195,650 387,355 583,005
Austin TX 103,600 230,532 334,132
Page 91
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Centerville OH 142,491 07/23/87 300
Cincinnati OH 138,575 04/29/87 300
Dublin OH 227,664 10/08/85 300
Englewood OH 199,343 10/23/85 300
Forest Park OH 138,377 09/28/87 300
Gahanna OH 230,045 11/26/85 300
Huber Heights OH 142,365 09/27/90 300
Loveland OH 173,464 03/20/87 300
Maineville OH 145,669 03/06/87 300
Pickerington OH 214,116 12/11/86 300
Westerville OH 222,243 10/08/85 300
Westerville OH 175,406 09/26/90 300
Broken Arrow OK 220,434 01/27/83 180
Midwest City OK 186,476 08/14/85 300
Oklahoma City OK 214,474 06/15/82 180
Oklahoma City OK 239,107 11/14/84 300
Yukon OK 174,450 05/02/85 300
Beaverton OR 328,188 12/17/86 300
Beaverton OR 279,825 12/22/86 300
Charleston SC 94,713 05/26/88 300
Charleston SC 97,377 03/28/89 300
Columbia SC 176,030 11/14/84 300
Elgin SC 100,509 12/14/89 300
Goose Creek SC 192,905 12/22/81 180
Ladson SC 177,457 12/22/81 180
Lexington SC 179,358 11/13/84 300
Mt. Pleasant SC 180,400 12/22/81 180
Summerville SC 174,500 12/22/81 180
Sumter SC 160,616 06/18/85 300
Memphis TN 165,781 09/29/88 300
Memphis TN 173,568 09/30/88 300
Memphis TN 130,073 08/31/90 300
Nashville TN 189,837 03/30/89 300
Allen TX 127,336 11/21/88 300
Arlington TX 246,924 12/13/84 300
Arlington TX 200,187 05/08/85 300
Arlington TX 173,566 09/26/88 300
Arlington TX 227,520 09/22/89 300
Arlington TX 95,988 02/07/91 300
Austin TX 230,532 10/29/82 180
Page 92
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Austin TX 88,872 222,684 None None
Austin TX 134,383 623,103 None None
Austin TX 188,144 417,872 None None
Austin TX 236,733 528,608 None None
Austin TX 191,636 425,629 None None
Austin TX 224,878 499,461 None None
Austin TX 238,000 528,604 None None
Austin TX 217,878 483,913 None None
Bedford TX 241,500 550,559 None None
Carrollton TX 277,850 617,113 None None
Cedar Park TX 168,857 375,036 None None
Colleyville TX 68,000 315,266 None None
Converse TX 217,000 481,963 None None
Coppell TX 139,224 645,551 None None
Coppell TX 208,641 463,398 None None
Desoto TX 86,000 398,715 None None
Duncanville TX 93,000 431,172 None None
Euless TX 234,111 519,962 None None
Flower Mound TX 202,773 442,846 None None
Fort Worth TX 85,518 396,495 None None
Fort Worth TX 238,000 528,608 None None
Fort Worth TX 210,007 444,460 None None
Fort Worth TX 216,160 427,962 None None
Garland TX 211,050 468,749 None None
Grand Prairie TX 167,164 371,275 None None
Houston TX 58,000 268,901 None None
Houston TX 60,000 278,175 None None
Houston TX 102,000 472,898 None None
Houston TX 139,125 308,997 None None
Houston TX 139,125 308,997 None None
Houston TX 141,296 313,824 None None
Houston TX 219,100 486,631 None None
Houston TX 219,100 486,628 None None
Houston TX 149,109 323,314 None None
Irving TX 38,853 296,034 None None
Lewisville TX 79,000 366,264 None None
Lewisville TX 192,777 428,121 None None
Lewisville TX 192,218 426,922 None None
Mansfield TX 181,375 402,838 None None
Mesquite TX 85,000 394,079 None None
Page 93
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Austin TX 88,872 222,684 311,556
Austin TX 134,383 623,103 757,486
Austin TX 188,144 417,872 606,016
Austin TX 236,733 528,608 765,341
Austin TX 191,636 425,629 617,265
Austin TX 224,878 499,461 724,339
Austin TX 238,000 528,604 766,604
Austin TX 217,878 483,913 701,791
Bedford TX 241,500 550,559 792,059
Carrollton TX 277,850 617,113 894,963
Cedar Park TX 168,857 375,036 543,893
Colleyville TX 68,000 315,266 383,266
Converse TX 217,000 481,963 698,963
Coppell TX 139,224 645,551 784,775
Coppell TX 208,641 463,398 672,039
Desoto TX 86,000 398,715 484,715
Duncanville TX 93,000 431,172 524,172
Euless TX 234,111 519,962 754,073
Flower Mound TX 202,773 442,846 645,619
Fort Worth TX 85,518 396,495 482,013
Fort Worth TX 238,000 528,608 766,608
Fort Worth TX 210,007 444,460 654,467
Fort Worth TX 216,160 427,962 644,122
Garland TX 211,050 468,749 679,799
Grand Prairie TX 167,164 371,275 538,439
Houston TX 58,000 268,901 326,901
Houston TX 60,000 278,175 338,175
Houston TX 102,000 472,898 574,898
Houston TX 139,125 308,997 448,122
Houston TX 139,125 308,997 448,122
Houston TX 141,296 313,824 455,120
Houston TX 219,100 486,631 705,731
Houston TX 219,100 486,628 705,728
Houston TX 149,109 323,314 472,423
Irving TX 38,853 296,034 334,887
Lewisville TX 79,000 366,264 445,264
Lewisville TX 192,777 428,121 620,898
Lewisville TX 192,218 426,922 619,140
Mansfield TX 181,375 402,838 584,213
Mesquite TX 85,000 394,079 479,079
Page 94
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Austin TX 222,684 01/12/83 180
Austin TX 326,334 12/23/86 300
Austin TX 141,884 05/11/88 300
Austin TX 173,568 09/27/88 300
Austin TX 136,188 12/22/88 300
Austin TX 158,421 01/03/89 300
Austin TX 163,244 04/06/89 300
Austin TX 146,747 06/22/89 300
Bedford TX 227,520 09/22/89 300
Carrollton TX 218,184 12/11/87 300
Cedar Park TX 121,042 11/21/88 300
Colleyville TX 194,468 05/01/85 300
Converse TX 158,252 09/28/88 300
Coppell TX 338,089 12/17/86 300
Coppell TX 163,837 12/11/87 300
Desoto TX 260,488 10/24/84 300
Duncanville TX 265,962 05/08/85 300
Euless TX 194,074 05/08/87 300
Flower Mound TX 166,537 04/20/87 300
Fort Worth TX 209,075 12/03/86 300
Fort Worth TX 173,568 09/26/88 300
Fort Worth TX 127,552 02/01/90 300
Fort Worth TX 106,051 02/07/91 300
Garland TX 134,330 12/12/89 300
Grand Prairie TX 118,796 12/13/88 300
Houston TX 176,672 10/11/84 300
Houston TX 171,589 05/01/85 300
Houston TX 291,700 05/01/85 300
Houston TX 115,331 05/22/87 300
Houston TX 115,331 05/22/87 300
Houston TX 115,366 07/24/87 300
Houston TX 159,786 09/30/88 300
Houston TX 157,067 11/16/88 300
Houston TX 114,032 06/26/89 300
Irving TX 164,757 04/23/86 300
Lewisville TX 218,768 06/26/85 300
Lewisville TX 164,362 01/07/87 300
Lewisville TX 136,603 12/29/88 300
Mansfield TX 115,443 12/20/89 300
Mesquite TX 257,461 10/24/84 300
Page 95
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Mesquite TX 139,466 326,525 None None
Missouri City TX 221,025 437,593 None None
N Richland Hills TX 238,000 528,608 None None
Pasadena TX 60,000 278,173 None None
Plano TX 261,912 581,658 None None
Plano TX 250,514 556,399 None None
Plano TX 259,000 575,246 None None
Round Rock TX 80,525 373,347 None None
Round Rock TX 186,380 413,957 None None
San Antonio TX 130,833 606,595 None None
San Antonio TX 102,512 475,289 None None
San Antonio TX 81,530 378,007 None None
San Antonio TX 139,125 308,997 None None
San Antonio TX 181,412 402,923 None None
San Antonio TX 162,161 360,166 None None
San Antonio TX 234,500 520,831 None None
San Antonio TX 217,000 481,967 None None
San Antonio TX 182,868 406,155 None None
San Antonio TX 220,500 447,108 None None
Southlake TX 228,279 511,750 None None
Sugarland TX 193,800 430,436 None None
Texas City TX 48,000 222,918 None None
The Woodlands TX 193,801 430,441 None None
Watauga TX 165,914 368,502 None None
Layton UT 136,574 269,009 None None
Sandy UT 168,089 373,330 None None
Centreville VA 371,000 824,003 None None
Chesapeake VA 190,050 422,107 None None
Glen Allen VA 74,643 346,060 None None
Portsmouth VA 171,575 381,072 None None
Richmond VA 71,001 327,771 None None
Richmond VA 269,500 598,567 None None
Virginia Beach VA 69,080 320,270 None None
Virginia Beach VA 124,988 579,496 None None
Woodbridge VA 358,050 795,239 None None
Everett WA 120,000 540,363 None None
Federal Way WA 150,785 699,100 None None
Federal Way WA 261,943 581,782 None None
Kent WA 128,300 539,141 None None
Kent WA 140,763 678,809 None None
Page 96
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Mesquite TX 139,466 326,525 465,991
Missouri City TX 221,025 437,593 658,618
N Richland Hills TX 238,000 528,608 766,608
Pasadena TX 60,000 278,173 338,173
Plano TX 261,912 581,658 843,570
Plano TX 250,514 556,399 806,913
Plano TX 259,000 575,246 834,246
Round Rock TX 80,525 373,347 453,872
Round Rock TX 186,380 413,957 600,337
San Antonio TX 130,833 606,595 737,428
San Antonio TX 102,512 475,289 577,801
San Antonio TX 81,530 378,007 459,537
San Antonio TX 139,125 308,997 448,122
San Antonio TX 181,412 402,923 584,335
San Antonio TX 162,161 360,166 522,327
San Antonio TX 234,500 520,831 755,331
San Antonio TX 217,000 481,967 698,967
San Antonio TX 182,868 406,155 589,023
San Antonio TX 220,500 447,108 667,608
Southlake TX 228,279 511,750 740,029
Sugarland TX 193,800 430,436 624,236
Texas City TX 48,000 222,918 270,918
The Woodlands TX 193,801 430,441 624,242
Watauga TX 165,914 368,502 534,416
Layton UT 136,574 269,009 405,583
Sandy UT 168,089 373,330 541,419
Centreville VA 371,000 824,003 1,195,003
Chesapeake VA 190,050 422,107 612,157
Glen Allen VA 74,643 346,060 420,703
Portsmouth VA 171,575 381,072 552,647
Richmond VA 71,001 327,771 398,772
Richmond VA 269,500 598,567 868,067
Virginia Beach VA 69,080 320,270 389,350
Virginia Beach VA 124,988 579,496 704,484
Woodbridge VA 358,050 795,239 1,153,289
Everett WA 120,000 540,363 660,363
Federal Way WA 150,785 699,100 849,885
Federal Way WA 261,943 581,782 843,725
Kent WA 128,300 539,141 667,441
Kent WA 140,763 678,809 819,572
Page 97
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Mesquite TX 104,483 10/08/92 300
Missouri City TX 110,856 12/13/90 300
N Richland Hills TX 173,568 09/26/88 300
Pasadena TX 181,737 10/23/84 300
Plano TX 223,665 01/06/87 300
Plano TX 196,717 12/10/87 300
Plano TX 188,882 09/27/88 300
Round Rock TX 195,531 12/16/86 300
Round Rock TX 127,838 04/19/89 300
San Antonio TX 340,078 03/24/86 300
San Antonio TX 250,626 12/03/86 300
San Antonio TX 199,327 12/11/86 300
San Antonio TX 115,331 05/22/87 300
San Antonio TX 148,118 07/07/87 300
San Antonio TX 132,402 07/07/87 300
San Antonio TX 184,142 12/29/87 300
San Antonio TX 156,908 10/14/88 300
San Antonio TX 129,957 12/06/88 300
San Antonio TX 139,323 03/30/89 300
Southlake TX 128,075 03/10/93 300
Sugarland TX 158,234 07/31/87 300
Texas City TX 222,918 06/15/82 180
The Woodlands TX 157,024 08/11/87 300
Watauga TX 135,464 07/07/87 300
Layton UT 85,255 02/01/90 300
Sandy UT 104,914 02/01/90 300
Centreville VA 243,004 09/29/89 300
Chesapeake VA 131,531 03/28/89 300
Glen Allen VA 231,872 06/20/84 300
Portsmouth VA 121,932 12/21/88 300
Richmond VA 192,912 09/04/85 300
Richmond VA 186,516 03/28/89 300
Virginia Beach VA 209,083 11/15/84 300
Virginia Beach VA 324,886 03/25/86 300
Woodbridge VA 261,117 09/29/88 300
Everett WA 540,363 11/22/82 180
Federal Way WA 366,136 12/17/86 300
Federal Way WA 187,771 11/21/88 300
Kent WA 524,123 06/03/83 180
Kent WA 355,509 12/17/86 300
Page 98
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Kirkland WA 301,000 668,534 None None
Puyallup WA 195,552 434,327 None None
Redmond WA 279,830 621,512 None None
Renton WA 111,183 515,490 None None
Appleton WI 196,000 424,038 None None
Brookfield WI 233,100 461,500 None None
Waukesha WI 215,950 427,546 None None
Cheyenne WY 59,856 277,506 None None
Consumer Electronics
- --------------------
Oxford AL 323,085 406,655 None None
Tuscaloosa AL 204,790 585,115 None None
Thousand Oaks CA 2,703,726 6,125,829 None None
Bradenton FL 174,948 240,928 None None
MaryEsther FL 149,696 363,263 None None
Melbourne FL 269,697 522,414 None None
Merritt Island FL 309,652 482,459 None None
Ocala FL 339,690 543,504 None None
Pensacola FL 419,842 1,899,287 None None
Tallahassee FL 319,807 502,697 None None
Titusville FL 176,459 579,793 None None
Venice FL 259,686 362,562 None None
Rome GA 254,902 486,812 None None
Smyrna GA 1,094,058 3,091,322 None None
Council Bluffs IA 255,217 117,792 None None
Des Moines IA 188,520 367,614 None None
Peoria IL 193,868 387,737 None None
Rockford IL 159,587 618,398 None None
Springfield IL 219,859 630,595 None None
Anderson IN 180,628 653,038 None None
Muncie IN 148,901 645,235 None None
Richmond IN 93,999 193,753 None None
Topeka KS 974,960 3,472,226 None None
Columbus MS 144,908 463,707 None None
Greenville MS 144,588 433,764 None None
Gulfport MS 299,464 502,326 None None
Hattiesburg MS 198,659 457,379 None None
Jackson MS 405,360 656,296 None None
Meridian MS 181,156 515,598 None None
Page 99
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Kirkland WA 301,000 668,534 969,534
Puyallup WA 195,552 434,327 629,879
Redmond WA 279,830 621,512 901,342
Renton WA 111,183 515,490 626,673
Appleton WI 196,000 424,038 620,038
Brookfield WI 233,100 461,500 694,600
Waukesha WI 215,950 427,546 643,496
Cheyenne WY 59,856 277,506 337,362
Consumer Electronics
- --------------------
Oxford AL 323,085 406,655 729,740
Tuscaloosa AL 204,790 585,115 789,905
Thousand Oaks CA 2,703,726 6,125,829 8,829,555
Bradenton FL 174,948 240,928 415,876
MaryEsther FL 149,696 363,263 512,959
Melbourne FL 269,697 522,414 792,111
Merritt Island FL 309,652 482,459 792,111
Ocala FL 339,690 543,504 883,194
Pensacola FL 419,842 1,899,287 2,319,129
Tallahassee FL 319,807 502,697 822,504
Titusville FL 176,459 579,793 756,252
Venice FL 259,686 362,562 622,248
Rome GA 254,902 486,812 741,714
Smyrna GA 1,094,058 3,091,322 4,185,380
Council Bluffs IA 255,217 117,792 373,009
Des Moines IA 188,520 367,614 556,134
Peoria IL 193,868 387,737 581,605
Rockford IL 159,587 618,398 777,985
Springfield IL 219,859 630,595 850,454
Anderson IN 180,628 653,038 833,666
Muncie IN 148,901 645,235 794,136
Richmond IN 93,999 193,753 287,752
Topeka KS 974,960 3,472,226 4,447,186
Columbus MS 144,908 463,707 608,615
Greenville MS 144,588 433,764 578,352
Gulfport MS 299,464 502,326 801,790
Hattiesburg MS 198,659 457,379 656,038
Jackson MS 405,360 656,296 1,061,656
Meridian MS 181,156 515,598 696,754
Page 100
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Kirkland WA 230,738 03/31/88 300
Puyallup WA 138,970 12/06/88 300
Redmond WA 228,476 07/27/87 300
Renton WA 289,001 03/24/86 300
Appleton WI 117,516 07/10/90 300
Brookfield WI 116,911 12/13/90 300
Waukesha WI 108,311 12/13/90 300
Cheyenne WY 180,139 11/20/84 300
Consumer Electronics
- --------------------
Oxford AL 18,300 11/26/96 300
Tuscaloosa AL 26,330 11/26/96 300
Thousand Oaks CA 316,499 09/27/96 300
Bradenton FL 10,842 11/26/96 300
MaryEsther FL 16,347 11/26/96 300
Melbourne FL 23,509 11/26/96 300
Merritt Island FL 21,711 11/26/96 300
Ocala FL 24,458 11/26/96 300
Pensacola FL 85,468 11/26/96 300
Tallahassee FL 22,621 11/26/96 300
Titusville FL 26,091 11/26/96 300
Venice FL 16,315 11/26/96 300
Rome GA 21,907 11/26/96 300
Smyrna GA 66,804 06/09/97 300
Council Bluffs IA 5,301 11/26/96 300
Des Moines IA 16,543 11/26/96 300
Peoria IL 17,448 11/26/96 300
Rockford IL 27,828 11/26/96 300
Springfield IL 28,377 11/26/96 300
Anderson IN 29,387 11/26/96 300
Muncie IN 29,036 11/26/96 300
Richmond IN 8,719 11/26/96 300
Topeka KS 144,673 12/27/96 300
Columbus MS 20,867 11/26/96 300
Greenville MS 19,519 11/26/96 300
Gulfport MS 22,605 11/26/96 300
Hattiesburg MS 20,582 11/26/96 300
Jackson MS 29,533 11/26/96 300
Meridian MS 23,202 11/26/96 300
Page 101
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Consumer Electronics (continued)
- --------------------------------
Tupelo MS 121,697 637,691 None None
Vicksburg MS 494,532 174,541 None None
Lakewood NY 144,859 526,301 None None
Defiance OH 97,978 601,863 None None
Kettering OH 229,246 488,393 None None
Bristol TN 344,365 468,719 None None
Clarksville TN 290,775 395,870 None None
Vienna WV 324,797 526,670 None None
Convenience Stores
- ------------------
Fullerton CA 29,170 41,003 None 11,934
Manchester CT 118,262 305,510 None None
Vernon CT 179,646 319,372 None None
Westbrook CT 98,247 373,340 None None
Dunwoody GA 545,462 724,254 None None
Lithonia GA 386,784 776,436 None None
Mabelton GA 491,069 355,957 None None
Norcross GA 384,162 651,273 None None
Stone Mountain GA 529,383 532,429 None None
Godfrey IL 374,586 733,190 None None
Granite City IL 362,287 737,255 None None
Madison IL 173,812 625,030 None None
New Albany IN 181,459 289,353 None None
New Albany IN 262,465 331,796 None None
Berea KY 252,077 360,815 None None
Elizabethtown KY 286,106 286,106 None None
Henderson KY 225,000 515,000 None None
Lebanon KY 158,052 316,105 None None
Louisville KY 198,926 368,014 None None
Louisville KY 216,849 605,697 None None
Mt. Washington KY 327,245 479,593 None None
Owensboro KY 360,000 590,000 None None
Seekonk MA 298,354 268,518 None None
Flint MI 194,492 476,504 None None
Cary NC 450,000 825,000 None None
Greenville NC 330,000 515,000 None None
Greenville NC 225,000 405,000 None None
Jacksonville NC 150,000 530,000 None None
Kinston NC 550,000 1,056,921 None None
Page 102
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Consumer Electronics (continued)
- -------------------------------
Tupelo MS 121,697 637,691 759,388
Vicksburg MS 494,532 174,541 669,073
Lakewood NY 144,859 526,301 671,160
Defiance OH 97,978 601,863 699,841
Kettering OH 229,246 488,393 717,639
Bristol TN 344,365 468,719 813,084
Clarksville TN 290,775 395,870 686,645
Vienna WV 324,797 526,670 851,467
Convenience Stores
- ------------------
Fullerton CA 29,170 52,937 82,107
Manchester CT 118,262 305,510 423,772
Vernon CT 179,646 319,372 499,018
Westbrook CT 98,247 373,340 471,587
Dunwoody GA 545,462 724,254 1,269,716
Lithonia GA 386,784 776,436 1,163,220
Mabelton GA 491,069 355,957 847,026
Norcross GA 384,162 651,273 1,035,435
Stone Mountain GA 529,383 532,429 1,061,812
Godfrey IL 374,586 733,190 1,107,776
Granite City IL 362,287 737,255 1,099,542
Madison IL 173,812 625,030 798,842
New Albany IN 181,459 289,353 470,812
New Albany IN 262,465 331,796 594,261
Berea KY 252,077 360,815 612,892
Elizabethtown KY 286,106 286,106 572,212
Henderson KY 225,000 515,000 740,000
Lebanon KY 158,052 316,105 474,157
Louisville KY 198,926 368,014 566,940
Louisville KY 216,849 605,697 822,546
Mt. Washington KY 327,245 479,593 806,838
Owensboro KY 360,000 590,000 950,000
Seekonk MA 298,354 268,518 566,872
Flint MI 194,492 476,504 670,996
Cary NC 450,000 825,000 1,275,000
Greenville NC 330,000 515,000 845,000
Greenville NC 225,000 405,000 630,000
Jacksonville NC 150,000 530,000 680,000
Kinston NC 550,000 1,056,921 1,606,921
Page 103
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Consumer Electronics (continued)
- --------------------------------
Tupelo MS 28,696 11/26/96 300
Vicksburg MS 7,854 11/26/96 300
Lakewood NY 23,684 11/26/96 300
Defiance OH 27,084 11/26/96 300
Kettering OH 21,978 11/26/96 300
Bristol TN 21,092 11/26/96 300
Clarksville TN 17,814 11/26/96 300
Vienna WV 23,700 11/26/96 300
Convenience Stores
- ------------------
Fullerton CA 46,970 11/08/72 234
Manchester CT 34,115 03/03/95 300
Vernon CT 35,663 03/09/95 300
Westbrook CT 41,690 03/09/95 300
Dunwoody GA 15,617 06/27/97 300
Lithonia GA 16,761 06/27/97 300
Mabelton GA 7,661 06/27/97 300
Norcross GA 14,046 06/27/97 300
Stone Mountain GA 11,470 06/27/97 300
Godfrey IL 15,816 06/27/97 300
Granite City IL 15,906 06/27/97 300
Madison IL 13,495 06/27/97 300
New Albany IN 32,311 03/03/95 300
New Albany IN 37,051 03/06/95 300
Berea KY 40,291 03/08/95 300
Elizabethtown KY 31,949 03/03/95 300
Henderson KY 48,925 08/25/95 300
Lebanon KY 35,298 03/03/95 300
Louisville KY 41,095 03/03/95 300
Louisville KY 37,218 06/18/96 11/17/95 300
Mt. Washington KY 21,613 10/28/96 05/31/96 300
Owensboro KY 56,050 08/25/95 300
Seekonk MA 29,985 03/03/95 300
Flint MI 38,915 12/21/95 300
Cary NC 78,375 08/25/95 300
Greenville NC 48,925 08/25/95 300
Greenville NC 38,475 08/25/95 300
Jacksonville NC 50,350 08/25/95 300
Kinston NC 8,750 10/24/97 300
Page 104
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Convenience Stores (continued)
- ------------------------------
Kingston NY 257,763 456,042 None None
Atwater OH 118,555 266,748 None None
Columbus OH 147,296 304,411 None None
Columbus OH 273,085 471,693 None None
Cuyahoga Falls OH 297,982 357,579 None None
Galion OH 138,981 327,597 None None
Groveport OH 277,198 445,497 None None
Perrysburg OH 211,678 390,680 None None
Streetsboro OH 402,988 420,351 None None
Tipp City OH 355,009 398,294 None None
Triffin OH 117,017 273,040 None None
Wadsworth OH 266,507 153,823 None None
Tulsa OK 126,545 508,266 None None
Columbia SC 150,000 450,000 None None
John's Isle SC 170,000 350,000 None None
Lexington SC 255,000 545,000 None None
Myrtle Beach SC 140,000 590,000 None None
N. Charleston SC 400,000 650,000 None None
Summerville SC 115,000 515,000 None None
La Vergne TN 340,000 650,000 None None
Shelbyville TN 200,000 465,000 None None
Midlothian VA 325,000 302,516 None None
Stafford VA 271,865 601,997 None None
Warrenton VA 515,971 649,125 None None
Home Furnishings & Accessories
- ------------------------------
Cathedral City CA 1,006,923 2,293,077 None None
Concord CA 4,162,500 3,037,500 None None
Danbury CT 630,171 3,619,609 None None
Winter Park FL 2,404,598 3,382,402 None None
Ridgeland MS 281,867 769,890 None None
Omaha NE 1,956,296 3,948,105 None None
Henderson NV 1,268,655 3,108,726 None None
Memphis TN 804,262 1,432,520 None None
Arlington TX 475,069 1,374,167 None None
Cedar Park TX 253,591 827,237 None None
Houston TX 867,767 687,042 None None
Plano TX 565,000 5,835,000 None None
Spring TX 1,794,872 1,808,661 None None
Webster TX 283,604 537,985 None None
Page 105
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Convenience Stores (continued)
- ------------------------------
Kingston NY 257,763 456,042 713,805
Atwater OH 118,555 266,748 385,303
Columbus OH 147,296 304,411 451,707
Columbus OH 273,085 471,693 744,778
Cuyahoga Falls OH 297,982 357,579 655,561
Galion OH 138,981 327,597 466,578
Groveport OH 277,198 445,497 722,695
Perrysburg OH 211,678 390,680 602,358
Streetsboro OH 402,988 420,351 823,339
Tipp City OH 355,009 398,294 753,303
Triffin OH 117,017 273,040 390,057
Wadsworth OH 266,507 153,823 420,330
Tulsa OK 126,545 508,266 634,811
Columbia SC 150,000 450,000 600,000
John's Isle SC 170,000 350,000 520,000
Lexington SC 255,000 545,000 800,000
Myrtle Beach SC 140,000 590,000 730,000
N. Charleston SC 400,000 650,000 1,050,000
Summerville SC 115,000 515,000 630,000
La Vergne TN 340,000 650,000 990,000
Shelbyville TN 200,000 465,000 665,000
Midlothian VA 325,000 302,516 627,516
Stafford VA 271,865 601,997 873,862
Warrenton VA 515,971 649,125 1,165,096
Home Furnishings & Accessories
- ------------------------------
Cathedral City CA 1,006,923 2,293,077 3,300,000
Concord CA 4,162,500 3,037,500 7,200,000
Danbury CT 630,171 3,619,609 4,249,780
Winter Park FL 2,404,598 3,382,402 5,787,000
Ridgeland MS 281,867 769,890 1,051,757
Omaha NE 1,956,296 3,948,105 5,904,401
Henderson NV 1,268,655 3,108,726 4,377,381
Memphis TN 804,262 1,432,520 2,236,782
Arlington TX 475,069 1,374,167 1,849,236
Cedar Park TX 253,591 827,237 1,080,828
Houston TX 867,767 687,042 1,554,809
Plano TX 565,000 5,835,000 6,400,000
Spring TX 1,794,872 1,808,661 3,603,533
Webster TX 283,604 537,985 821,589
Page 106
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Convenience Stores (continued)
- ------------------------------
Kingston NY 49,405 04/06/95 300
Atwater OH 29,787 03/03/95 300
Columbus OH 33,993 03/03/95 300
Columbus OH 38,522 12/21/95 300
Cuyahoga Falls OH 39,930 03/03/95 300
Galion OH 36,582 03/06/95 300
Groveport OH 36,382 12/21/95 300
Perrysburg OH 16,629 01/10/96 09/01/95 300
Streetsboro OH 0 01/27/97 09/03/96 300
Tipp City OH 0 01/31/97 06/27/96 300
Triffin OH 30,489 03/07/95 300
Wadsworth OH 6,560 11/26/96 07/01/96 300
Tulsa OK 10,967 06/27/97 300
Columbia SC 42,750 08/25/95 300
John's Isle SC 33,250 08/25/95 300
Lexington SC 51,775 08/25/95 300
Myrtle Beach SC 56,050 08/25/95 300
N. Charleston SC 61,750 08/25/95 300
Summerville SC 48,925 08/25/95 300
La Vergne TN 61,750 08/25/95 300
Shelbyville TN 44,175 08/25/95 300
Midlothian VA 4,500 08/21/97 300
Stafford VA 25,083 12/20/96 300
Warrenton VA 27,047 12/20/96 300
Home Furnishings & Accessories
- ------------------------------
Cathedral City CA 240,773 05/26/95 300
Concord CA 318,938 05/31/95 300
Danbury CT 42,006 09/30/97 300
Winter Park FL 355,152 05/31/95 300
Ridgeland MS 16,589 06/27/97 300
Omaha NE 111,717 04/04/97 300
Henderson NV 36,077 09/26/97 300
Memphis TN 30,891 06/30/97 300
Arlington TX 43,399 03/26/97 300
Cedar Park TX 26,125 03/10/97 300
Houston TX 21,651 03/07/97 300
Plano TX 612,675 05/26/95 300
Spring TX 20,940 09/29/97 300
Webster TX 11,597 06/12/97 300
Page 107
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Office Supplies
- ---------------
Lakewood CA 1,398,387 3,098,787 None None
Riverside CA 1,410,177 1,659,833 None None
Hutchinson KS 269,964 1,704,244 None None
Salina KS 240,423 1,830,037 None None
Helena MT 564,241 1,503,084 None None
Westbury NY 3,808,076 2,376,122 None None
New Philadelphia OH 726,636 1,650,638 None None
Pet Supplies
- ------------
Dickson City PA 659,790 1,880,368 None None
Restaurants
- -----------
Siloam Springs AR 190,000 352,741 None None
Douglas AZ 75,000 347,719 None None
Glendale AZ 624,761 895,976 None None
Tucson AZ 107,393 497,904 None None
Chino CA 26,729 51,555 None None
Diamond Bar CA 76,117 183,052 None 15,000
Fullerton CA 36,296 51,020 None 14,628
Hemet CA 106,164 199,179 None None
Rancho Cucamonga CA 230,733 481,225 None None
Rancho Cucamonga CA 95,192 441,334 None None
Red Bluff CA 136,740 633,984 None None
Riverside CA 90,000 170,394 None None
Riverside CA 155,795 534,679 35,000 21,560
San Dimas CA 240,562 445,521 None None
San Ramon CA 406,000 1,126,930 None None
Boulder CO 426,675 822,676 18,000 None
Colorado Springs CO 152,000 704,736 None None
Colorado Springs CO 313,250 695,730 None None
Montrose CO 217,595 483,284 None None
Security CO 150,000 695,463 None None
Sterling CO 95,320 441,928 None None
Westminster CO 338,940 1,571,401 20,000 13,440
Casselberry FL 403,900 897,075 None None
Green Cove Sprgs FL 86,240 399,828 None None
Jacksonville FL 150,210 693,446 None None
Jacksonville FL 143,299 664,373 None None
Page 108
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Office Supplies
- ---------------
Lakewood CA 1,398,387 3,098,787 4,497,174
Riverside CA 1,410,177 1,659,833 3,070,010
Hutchinson KS 269,964 1,704,244 1,974,208
Salina KS 240,423 1,830,037 2,070,460
Helena MT 564,241 1,503,084 2,067,325
Westbury NY 3,808,076 2,376,122 6,184,198
New Philadelphia OH 726,636 1,650,638 2,377,274
Pet Supplies
- ------------
Dickson City PA 659,790 1,880,368 2,540,158
Restaurants
- -----------
Siloam Springs AR 190,000 352,741 542,741
Douglas AZ 75,000 347,719 422,719
Glendale AZ 624,761 895,976 1,520,737
Tucson AZ 107,393 497,904 605,297
Chino CA 26,729 51,555 78,284
Diamond Bar CA 76,117 198,052 274,169
Fullerton CA 36,296 65,648 101,944
Hemet CA 106,164 199,179 305,343
Rancho Cucamonga CA 230,733 481,225 711,958
Rancho Cucamonga CA 95,192 441,334 536,526
Red Bluff CA 136,740 633,984 770,724
Riverside CA 90,000 170,394 260,394
Riverside CA 155,795 591,239 747,034
San Dimas CA 240,562 445,521 686,083
San Ramon CA 406,000 1,126,930 1,532,930
Boulder CO 426,675 840,676 1,267,351
Colorado Springs CO 152,000 704,736 856,736
Colorado Springs CO 313,250 695,730 1,008,980
Montrose CO 217,595 483,284 700,879
Security CO 150,000 695,463 845,463
Sterling CO 95,320 441,928 537,248
Westminster CO 338,940 1,604,841 1,943,781
Casselberry FL 403,900 897,075 1,300,975
Green Cove Sprgs FL 86,240 399,828 486,068
Jacksonville FL 150,210 693,446 843,656
Jacksonville FL 143,299 664,373 807,672
Page 109
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Office Supplies
- ---------------
Lakewood CA 118,717 01/29/97 300
Riverside CA 19,289 09/17/97 300
Hutchinson KS 36,828 06/25/97 300
Salina KS 39,546 06/25/97 300
Helena MT 32,423 06/09/97 300
Westbury NY 27,503 09/29/97 300
New Philadelphia OH 41,151 05/30/97 300
Pet Supplies
- ------------
Dickson City PA 40,504 06/20/97 300
Restaurants
- -----------
Siloam Springs AR 64,212 03/06/96 300
Douglas AZ 82,043 12/13/95 300
Glendale AZ 72,258 12/22/95 300
Tucson AZ 0 04/13/95 None
Chino CA 0 12/22/94 None
Diamond Bar CA 0 09/29/95 06/05/95 None
Fullerton CA 0 07/06/95 None
Hemet CA 97,051 12/27/94 300
Rancho Cucamonga CA 0 04/13/95 None
Rancho Cucamonga CA 120,149 12/23/94 300
Red Bluff CA 225,792 10/01/81 300
Riverside CA 781,969 01/05/84 180
Riverside CA 1,076,803 06/28/84 300
San Dimas CA 386,859 01/17/86 300
San Ramon CA 842,009 12/18/84 300
Boulder CO 427,598 08/28/85 300
Colorado Springs CO 549,821 05/16/84 300
Colorado Springs CO 563,098 05/08/84 300
Montrose CO 1,187,723 05/20/83 180
Security CO 1,262,104 12/10/82 180
Sterling CO 621,582 05/29/84 300
Westminster CO 469,132 11/06/84 300
Casselberry FL 332,034 12/18/86 300
Green Cove Sprgs FL 170,867 12/17/87 300
Jacksonville FL 285,019 12/27/84 300
Jacksonville FL 257,867 12/19/84 300
Page 110
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Orlando FL 230,000 1,066,339 None None
Orlando FL 209,800 972,679 None None
Orlando FL 339,500 746,333 None None
Garden City GA 197,225 438,043 None None
Hinesville GA 89,220 413,644 None None
Hinesville GA 172,611 383,376 None None
Lithonia GA 89,220 413,647 None None
Savannah GA 143,993 345,548 None None
Savannah GA 165,409 367,379 None None
Statesboro GA 201,250 446,983 None None
Stone Mountain GA 215,940 1,001,188 None None
Ankeny IA 100,000 349,218 None None
Boone IA 76,000 386,170 None None
Boise ID 190,894 423,981 None None
Boise ID 161,352 334,041 None None
Nampa ID 74,156 343,821 None None
Rexburg ID 90,760 420,787 None None
Alton IL 225,785 419,315 None None
Dixon IL 230,090 511,036 None None
Salem IL 213,815 474,892 None None
Anderson IN 197,523 438,707 None None
Bedford IN 311,815 692,543 None None
Decatur IN 181,020 385,618 None None
Goshen IN 115,000 533,165 None None
Muncie IN 136,400 632,380 8,000 3,334
Muncie IN 67,156 149,157 None None
New Castle IN 246,192 320,572 None None
Shelbyville IN 128,820 597,263 None None
South Bend IN 133,200 617,545 None 19,211
Westfield IN 213,341 477,300 None None
Derby KS 96,060 445,359 None None
El Dorado KS 87,400 405,206 None None
Great Bend KS 95,800 444,154 None None
Wichita KS 98,000 454,350 None None
Lexington KY 122,200 490,200 None None
Alexandria LA 143,000 662,985 None 15,000
Jennings LA 107,120 496,636 None None
La Plata MD 120,140 557,000 None None
Albion MI 143,280 694,578 None 12,341
Flint MI 827,853 0 None None
Page 111
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Orlando FL 230,000 1,066,339 1,296,339
Orlando FL 209,800 972,679 1,182,479
Orlando FL 339,500 746,333 1,085,833
Garden City GA 197,225 438,043 635,268
Hinesville GA 89,220 413,644 502,864
Hinesville GA 172,611 383,376 555,987
Lithonia GA 89,220 413,647 502,867
Savannah GA 143,993 345,548 489,541
Savannah GA 165,409 367,379 532,788
Statesboro GA 201,250 446,983 648,233
Stone Mountain GA 215,940 1,001,188 1,217,128
Ankeny IA 100,000 349,218 449,218
Boone IA 76,000 386,170 462,170
Boise ID 190,894 423,981 614,875
Boise ID 161,352 334,041 495,393
Nampa ID 74,156 343,821 417,977
Rexburg ID 90,760 420,787 511,547
Alton IL 225,785 419,315 645,100
Dixon IL 230,090 511,036 741,126
Salem IL 213,815 474,892 688,707
Anderson IN 197,523 438,707 636,230
Bedford IN 311,815 692,543 1,004,358
Decatur IN 181,020 385,618 566,638
Goshen IN 115,000 533,165 648,165
Muncie IN 136,400 653,714 790,114
Muncie IN 67,156 149,157 216,313
New Castle IN 246,192 320,572 566,764
Shelbyville IN 128,820 597,263 726,083
South Bend IN 133,200 636,756 769,956
Westfield IN 213,341 477,300 690,641
Derby KS 96,060 445,359 541,419
El Dorado KS 87,400 405,206 492,606
Great Bend KS 95,800 444,154 539,954
Wichita KS 98,000 454,350 552,350
Lexington KY 122,200 490,200 612,400
Alexandria LA 143,000 677,985 820,985
Jennings LA 107,120 496,636 603,756
La Plata MD 120,140 557,000 677,140
Albion MI 143,280 706,919 850,199
Flint MI 827,853 0 827,853
Page 112
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Orlando FL 266,775 12/20/84 300
Orlando FL 266,571 01/04/85 300
Orlando FL 532,577 10/30/86 300
Garden City GA 337,277 07/28/83 180
Hinesville GA 362,064 12/27/83 180
Hinesville GA 242,780 11/25/85 300
Lithonia GA 136,511 10/18/88 300
Savannah GA 180,661 12/28/87 300
Savannah GA 170,569 10/30/87 300
Statesboro GA 254,586 07/15/87 300
Stone Mountain GA 146,103 03/31/87 300
Ankeny IA 312,801 12/18/86 300
Boone IA 258,770 10/29/85 300
Boise ID 226,966 04/10/86 300
Boise ID 286,452 12/26/84 300
Nampa ID 288,564 10/17/85 300
Rexburg ID 321,080 12/03/85 300
Alton IL 166,656 11/12/87 300
Dixon IL 167,393 12/16/87 300
Salem IL 194,971 12/30/87 300
Anderson IN 269,707 12/18/84 300
Bedford IN 333,219 12/28/84 300
Decatur IN 227,220 12/03/85 300
Goshen IN 242,440 12/26/84 300
Muncie IN 171,624 07/30/87 300
Muncie IN 217,192 07/30/87 300
New Castle IN 171,624 07/30/87 300
Shelbyville IN 181,709 07/30/87 300
South Bend IN 184,298 07/31/89 300
Westfield IN 81,116 12/22/95 03/16/95 300
Derby KS 292,485 09/04/85 300
El Dorado KS 255,654 12/27/84 300
Great Bend KS 325,833 07/28/83 180
Wichita KS 217,343 05/11/87 300
Lexington KY 347,571 12/20/84 300
Alexandria LA 106,876 06/02/95 02/24/95 300
Jennings LA 75,184 12/21/95 05/31/95 300
La Plata MD 229,873 12/24/87 300
Albion MI 293,180 12/19/86 300
Flint MI 176,823 01/02/87 300
Page 113
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Sturgis MI 210,560 467,659 None None
Albert Lea MN 213,150 473,412 None None
Red Wing MN 248,325 551,541 None None
Roseville MN 281,600 1,305,560 None None
Belton MO 89,328 418,187 None None
Blue Springs MO 111,440 516,665 None None
Carthage MO 85,020 394,175 None None
Chillicothe MO 81,080 375,908 None None
Fulton MO 210,199 466,861 None None
Hannibal MO 266,011 590,822 None None
Hazelwood MO 157,117 725,327 None 12,930
Jackson MO 210,199 466,860 None None
Mt. Vernon MO 160,000 282,519 None None
Nevada MO 222,552 494,296 None None
Ozark MO 140,000 292,414 None None
Sedalia MO 269,798 599,232 None None
St. Charles MO 175,413 809,790 None 10,000
St. Charles MO 695,121 1,001,878 None None
St. Joseph MO 107,648 496,958 None None
Sullivan MO 85,500 396,400 None None
Clinton MS 100,000 337,371 None None
Southaven MS 263,900 582,303 None None
Fayetteville NC 116,240 538,919 None None
Wilkesboro NC 183,050 406,562 None None
Omaha NE 629,592 1,051,244 None None
Amherst NY 935,355 896,819 None None
Fulton NY 294,009 653,006 None None
Watertown NY 139,199 645,355 None None
Akron OH 723,347 17 None None
Ashland OH 120,740 559,801 None None
Celina OH 207,060 459,841 None None
Lebanon OH 210,134 466,717 None None
Stow OH 317,546 712,455 None None
Troy OH 130,540 605,238 None None
Wash. Courthouse OH 123,120 570,836 None None
Wilmington OH 119,320 553,217 None None
Broken Arrow OK 245,000 368,901 None None
Norman OK 734,335 0 None None
Oklahoma City OK 759,826 0 None None
Owasso OK 247,450 549,597 None None
Page 114
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Sturgis MI 210,560 467,659 678,219
Albert Lea MN 213,150 473,412 686,562
Red Wing MN 248,325 551,541 799,866
Roseville MN 281,600 1,305,560 1,587,160
Belton MO 89,328 418,187 507,515
Blue Springs MO 111,440 516,665 628,105
Carthage MO 85,020 394,175 479,195
Chillicothe MO 81,080 375,908 456,988
Fulton MO 210,199 466,861 677,060
Hannibal MO 266,011 590,822 856,833
Hazelwood MO 157,117 738,257 895,374
Jackson MO 210,199 466,860 677,059
Mt. Vernon MO 160,000 282,519 442,519
Nevada MO 222,552 494,296 716,848
Ozark MO 140,000 292,414 432,414
Sedalia MO 269,798 599,232 869,030
St. Charles MO 175,413 819,790 995,203
St. Charles MO 695,121 1,001,878 1,696,999
St. Joseph MO 107,648 496,958 604,606
Sullivan MO 85,500 396,400 481,900
Clinton MS 100,000 337,371 437,371
Southaven MS 263,900 582,303 846,203
Fayetteville NC 116,240 538,919 655,159
Wilkesboro NC 183,050 406,562 589,612
Omaha NE 629,592 1,051,244 1,680,836
Amherst NY 935,355 896,819 1,832,174
Fulton NY 294,009 653,006 947,015
Watertown NY 139,199 645,355 784,554
Akron OH 723,347 17 723,364
Ashland OH 120,740 559,801 680,541
Celina OH 207,060 459,841 666,901
Lebanon OH 210,134 466,717 676,851
Stow OH 317,546 712,455 1,030,001
Troy OH 130,540 605,238 735,778
Wash. Courthouse OH 123,120 570,836 693,956
Wilmington OH 119,320 553,217 672,537
Broken Arrow OK 245,000 368,901 613,901
Norman OK 734,335 0 734,335
Oklahoma City OK 759,826 0 759,826
Owasso OK 247,450 549,597 797,047
Page 115
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Sturgis MI 171,570 07/31/87 300
Albert Lea MN 251,059 12/31/87 300
Red Wing MN 319,162 12/05/86 300
Roseville MN 298,960 12/19/86 300
Belton MO 289,734 12/31/86 300
Blue Springs MO 194,315 12/28/87 300
Carthage MO 184,529 12/30/87 300
Chillicothe MO 255,830 12/18/84 300
Fulton MO 214,444 08/17/87 300
Hannibal MO 180,101 08/17/87 300
Hazelwood MO 197,719 12/01/87 300
Jackson MO 104,300 06/30/95 03/17/95 300
Mt. Vernon MO 192,582 12/01/87 300
Nevada MO 204,521 07/31/87 300
Ozark MO 226,205 12/28/87 300
Sedalia MO 241,118 12/17/85 300
St. Charles MO 262,305 11/25/85 300
St. Charles MO 266,775 12/18/84 300
St. Joseph MO 234,598 08/01/84 300
Sullivan MO 307,948 12/30/86 300
Clinton MS 287,030 10/08/85 300
Southaven MS 350,740 03/20/86 300
Fayetteville NC 248,661 12/18/85 300
Wilkesboro NC 250,043 12/10/85 300
Omaha NE 326,899 01/24/84 180
Amherst NY 199,842 07/30/87 300
Fulton NY 344,884 09/06/85 300
Watertown NY 279,746 08/01/84 300
Akron OH 256,662 12/29/87 300
Ashland OH 284,991 08/04/83 180
Celina OH 253,087 09/03/87 300
Lebanon OH 236,830 12/16/87 300
Stow OH 223,845 08/27/87 300
Troy OH 225,299 07/16/87 300
Wash. Courthouse OH 151,656 12/17/87 300
Wilmington OH 156,723 12/23/87 300
Broken Arrow OK 161,535 12/17/87 300
Norman OK 168,724 12/01/87 300
Oklahoma City OK 256,731 12/28/84 300
Owasso OK 170,154 12/01/87 300
Page 116
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Ponca City OK 234,990 521,923 None None
Corvallis OR 172,788 383,766 None None
Hermiston OR 85,560 396,675 None None
Lake Oswego OR 175,899 815,509 None None
Milwaukie OR 179,174 830,689 None None
Salem OR 198,540 440,964 None None
Connellsville PA 264,670 587,843 None None
Waynesburg PA 222,285 493,704 None None
Pierre SD 251,790 559,232 None None
Memphis TN 405,274 1,060,680 None None
Nashville TN 484,975 1,192,627 20,000 31,098
Athens TX 245,245 544,700 None None
Bedford TX 919,303 98,231 None None
Beeville TX 250,490 556,349 None None
Brownwood TX 288,225 640,160 None None
Crockett TX 90,780 420,880 None None
Dallas TX 242,025 479,170 None None
Dallas TX 742,507 0 None None
El Campo TX 98,060 454,631 None None
Ennis TX 173,250 384,793 None None
Fort Worth TX 223,195 492,067 None None
Ft. Worth TX 423,281 382,059 None None
Gainesville TX 89,220 413,644 None None
Hillsboro TX 75,992 352,316 None None
Houston TX 194,994 386,056 None None
Houston TX 184,175 364,636 None None
Killeen TX 262,500 583,014 None 14,398
League City TX 126,822 588,000 None None
Lufkin TX 105,904 490,998 None None
Mesquite TX 134,940 625,612 None None
Mesquite TX 729,596 120,820 None None
Mexia TX 93,620 434,046 None None
New Braunfels TX 185,500 411,997 None None
Orange TX 93,560 433,768 None None
Plainview TX 125,000 350,767 None None
Port Lavaca TX 244,759 543,619 None None
Porter TX 227,067 333,031 None None
Rowlett TX 126,933 585,986 None None
Sealy TX 197,871 391,754 None None
Stafford TX 214,024 423,732 None None
Page 117
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Ponca City OK 234,990 521,923 756,913
Corvallis OR 172,788 383,766 556,554
Hermiston OR 85,560 396,675 482,235
Lake Oswego OR 175,899 815,509 991,408
Milwaukie OR 179,174 830,689 1,009,863
Salem OR 198,540 440,964 639,504
Connellsville PA 264,670 587,843 852,513
Waynesburg PA 222,285 493,704 715,989
Pierre SD 251,790 559,232 811,022
Memphis TN 405,274 1,060,680 1,465,954
Nashville TN 484,975 1,243,725 1,728,700
Athens TX 245,245 544,700 789,945
Bedford TX 919,303 98,231 1,017,534
Beeville TX 250,490 556,349 806,839
Brownwood TX 288,225 640,160 928,385
Crockett TX 90,780 420,880 511,660
Dallas TX 242,025 479,170 721,195
Dallas TX 742,507 0 742,507
El Campo TX 98,060 454,631 552,691
Ennis TX 173,250 384,793 558,043
Fort Worth TX 223,195 492,067 715,262
Ft. Worth TX 423,281 382,059 805,340
Gainesville TX 89,220 413,644 502,864
Hillsboro TX 75,992 352,316 428,308
Houston TX 194,994 386,056 581,050
Houston TX 184,175 364,636 548,811
Killeen TX 262,500 597,412 859,912
League City TX 126,822 588,000 714,822
Lufkin TX 105,904 490,998 596,902
Mesquite TX 134,940 625,612 760,552
Mesquite TX 729,596 120,820 850,416
Mexia TX 93,620 434,046 527,666
New Braunfels TX 185,500 411,997 597,497
Orange TX 93,560 433,768 527,328
Plainview TX 125,000 350,767 475,767
Port Lavaca TX 244,759 543,619 788,378
Porter TX 227,067 333,031 560,098
Rowlett TX 126,933 585,986 712,919
Sealy TX 197,871 391,754 589,625
Stafford TX 214,024 423,732 637,756
Page 118
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Ponca City OK 311,184 12/31/85 300
Corvallis OR 481,225 04/03/81 180
Hermiston OR 445,521 03/12/81 180
Lake Oswego OR 249,357 12/29/89 300
Milwaukie OR 615,237 11/18/85 300
Salem OR 528,895 08/15/86 300
Connellsville PA 180,067 12/31/86 300
Waynesburg PA 128,132 03/12/90 300
Pierre SD 397,527 03/06/86 300
Memphis TN 477,195 08/28/85 300
Nashville TN 377,774 09/30/86 300
Athens TX 263,602 03/10/87 300
Bedford TX 372,803 09/30/86 300
Beeville TX 1,750 11/20/97 300
Brownwood TX 1,400 11/20/97 300
Crockett TX 1,450 11/20/97 300
Dallas TX 608 12/12/97 300
Dallas TX 284,518 01/17/86 300
El Campo TX 51,085 06/23/75 300
Ennis TX 252,833 12/20/85 300
Fort Worth TX 259,682 02/03/88 300
Ft. Worth TX 135,277 04/20/89 300
Gainesville TX 135,546 12/22/87 300
Hillsboro TX 122,171 12/22/87 300
Houston TX 129,890 12/22/87 300
Houston TX 129,334 11/14/89 300
Killeen TX 143,958 05/17/88 300
League City TX 108,748 10/07/88 300
Lufkin TX 147,729 03/25/88 300
Mesquite TX 51,480 03/30/88 300
Mesquite TX 122,063 01/07/87 300
Mexia TX 134,486 12/21/89 300
New Braunfels TX 258,498 12/03/86 300
Orange TX 149,458 07/24/87 300
Plainview TX 135,683 12/22/87 300
Port Lavaca TX 132,227 05/23/89 300
Porter TX 219,619 05/29/87 300
Rowlett TX 156,098 03/26/87 300
Sealy TX 119,484 10/29/87 300
Stafford TX 113,449 06/25/91 300
Page 119
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Temple TX 302,505 291,414 None None
Vidor TX 90,618 420,124 None None
Waxahachie TX 326,935 726,137 None None
Cedar City UT 130,000 296,544 None None
Orem UT 516,129 1,004,608 None None
Sandy UT 635,945 884,792 None None
Norfolk VA 251,207 575,250 None 12,983
Virginia Beach VA 314,790 699,161 None None
Auburn WA 301,595 669,852 None None
Marysville WA 276,273 613,613 None None
Oak Harbor WA 275,940 612,874 None None
Redmond WA 610,334 1,262,103 None None
Tacoma WA 198,857 921,947 None None
Tacoma WA 255,000 718,614 None None
Grafton WI 149,778 332,664 None None
Monroe WI 193,130 428,947 None None
Portage WI 199,605 443,328 None None
Shawano WI 205,730 456,932 None None
Sturgeon Bay WI 214,865 477,221 None None
Oak Hill WV 85,860 398,069 None None
Laramie WY 210,000 466,417 None None
Riverton WY 216,685 481,267 None None
Sheridan WY 117,160 543,184 None None
Shoe Stores
- -----------
Houston TX 1,096,376 2,300,622 None None
Video Rental
- ------------
Birmingham AL 392,795 864,933 None None
Tampa FL 401,874 933,678 None None
Brunswick GA 290,369 788,633 None None
Norcross GA 431,284 723,347 None None
Topeka KS 285,802 966,207 None None
Forest Park OH 328,187 921,232 None None
Franklin OH 337,572 774,654 None None
Tulsa OK 318,441 1,004,399 None None
Columbia TN 466,469 716,358 None None
Hendersonville TN 333,677 938,517 None None
Page 120
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Temple TX 302,505 291,414 593,919
Vidor TX 90,618 420,124 510,742
Waxahachie TX 326,935 726,137 1,053,072
Cedar City UT 130,000 296,544 426,544
Orem UT 516,129 1,004,608 1,520,737
Sandy UT 635,945 884,792 1,520,737
Norfolk VA 251,207 588,233 839,440
Virginia Beach VA 314,790 699,161 1,013,951
Auburn WA 301,595 669,852 971,447
Marysville WA 276,273 613,613 889,886
Oak Harbor WA 275,940 612,874 888,814
Redmond WA 610,334 1,262,103 1,872,437
Tacoma WA 198,857 921,947 1,120,804
Tacoma WA 255,000 718,614 973,614
Grafton WI 149,778 332,664 482,442
Monroe WI 193,130 428,947 622,077
Portage WI 199,605 443,328 642,933
Shawano WI 205,730 456,932 662,662
Sturgeon Bay WI 214,865 477,221 692,086
Oak Hill WV 85,860 398,069 483,929
Laramie WY 210,000 466,417 676,417
Riverton WY 216,685 481,267 697,952
Sheridan WY 117,160 543,184 660,344
Shoe Stores
- -----------
Houston TX 1,096,376 2,300,622 3,396,998
Video Rental
- ------------
Birmingham AL 392,795 864,933 1,257,728
Tampa FL 401,874 933,678 1,335,552
Brunswick GA 290,369 788,633 1,079,002
Norcross GA 431,284 723,347 1,154,631
Topeka KS 285,802 966,207 1,252,009
Forest Park OH 328,187 921,232 1,249,419
Franklin OH 337,572 774,654 1,112,226
Tulsa OK 318,441 1,004,399 1,322,840
Columbia TN 466,469 716,358 1,182,827
Hendersonville TN 333,677 938,517 1,272,194
Page 121
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Temple TX 125,561 06/26/91 300
Vidor TX 43,937 02/10/95 300
Waxahachie TX 91,403 06/25/91 300
Cedar City UT 86,332 06/25/91 300
Orem UT 38,299 02/09/95 300
Sandy UT 92,753 06/25/91 300
Norfolk VA 100,324 06/26/91 300
Virginia Beach VA 33,513 02/09/95 300
Auburn WA 200,621 11/27/85 300
Marysville WA 170,562 09/25/78 300
Oak Harbor WA 56,384 11/08/72 234
Redmond WA 183,910 04/15/77 300
Tacoma WA 159,237 12/09/76 300
Tacoma WA 1,058,040 12/08/83 180
Grafton WI 382,974 12/13/85 300
Monroe WI 408,136 09/13/85 300
Portage WI 292,092 07/07/86 300
Shawano WI 355,208 03/18/86 300
Sturgeon Bay WI 352,495 04/28/86 300
Oak Hill WV 247,052 08/08/86 300
Laramie WY 348,593 08/18/86 300
Riverton WY 136,047 12/28/87 300
Sheridan WY 211,231 10/15/87 300
Shoe Stores
- -----------
Houston TX 26,745 09/05/97 300
Video Rental
- ------------
Birmingham AL 10,029 09/30/97 300
Tampa FL 1,547 12/23/97 300
Brunswick GA 1,306 12/31/97 300
Norcross GA 5,973 10/01/97 300
Topeka KS 1,604 12/19/97 300
Forest Park OH 4,580 11/14/97 300
Franklin OH 1,286 12/30/97 300
Tulsa OK 11,660 09/26/97 300
Columbia TN 8,306 09/26/97 300
Hendersonville TN 1,557 12/10/97 300
Page 122
<PAGE>
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Video Rental (continued)
- ------------------------
Jackson TN 381,076 857,261 None None
Murfreesboro TN 406,056 885,984 None None
Smyrna TN 302,372 836,180 None None
Austin TX 407,910 885,003 None None
Beaumont TX 293,919 832,019 None None
Lubbock TX 266,805 857,312 None None
Woodway TX 372,487 835,198 None None
Hampton VA 373,481 835,978 None None
Other Properties
- ----------------
Mesa AZ 271,754 1,259,910 27,961 None
Phoenix AZ 322,708 1,496,143 197,440 10,462
Chino CA 53,271 102,748 None None
Escondido CA 332,500 904,690 164,176 61,140
Fresno CA 428,900 3,434,562 None None
Paramount CA 86,400 278,827 None None
San Diego CA 3,745,000 8,885,351 None None
San Diego CA 2,485,160 8,697,822 None None
San Diego CA 5,797,411 15,473,497 None None
Humble TX 106,000 545,518 None None
Chesapeake VA 144,014 649,869 None 11,754
Other None 398,370 None 28,079
----------- ----------- ------- -------
214,342,224 484,634,653 491,277 329,292
=========== =========== ======= =======
See accompanying Independent Auditors' Report
Page 123
<PAGE>
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Video Rental (continued)
- ------------------------
Jackson TN 381,076 857,261 1,238,337
Murfreesboro TN 406,056 885,984 1,292,040
Smyrna TN 302,372 836,180 1,138,552
Austin TX 407,910 885,003 1,292,913
Beaumont TX 293,919 832,019 1,125,938
Lubbock TX 266,805 857,312 1,124,117
Woodway TX 372,487 835,198 1,207,685
Hampton VA 373,481 835,978 1,209,459
Other Properties
- ----------------
Mesa AZ 271,754 1,287,871 1,559,625
Phoenix AZ 322,708 1,704,045 2,026,753
Chino CA 53,271 102,748 156,019
Escondido CA 332,500 1,130,006 1,462,506
Fresno CA 428,900 3,434,562 3,863,462
Paramount CA 86,400 278,827 365,227
San Diego CA 3,745,000 8,885,351 12,630,351
San Diego CA 2,485,160 8,697,822 11,182,982
San Diego CA 5,797,411 15,473,497 21,270,908
Humble TX 106,000 545,518 651,518
Chesapeake VA 144,014 661,623 805,637
Other None 426,449 426,449
------------ ------------ ------------
214,342,224 485,455,222 699,797,446
============ ============ ============
Page 124
<PAGE>
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Video Rental (continued)
- ------------------------
Jackson TN 9,948 09/26/97 300
Murfreesboro TN 10,283 09/26/97 300
Smyrna TN 9,701 09/02/97 300
Austin TX 1,466 12/01/97 300
Beaumont TX 9,659 09/05/97 300
Lubbock TX 12,792 08/29/97 300
Woodway TX 1,385 12/16/97 300
Hampton VA 1,385 12/19/97 300
Other Properties
- ----------------
Mesa AZ 695,875 06/30/86 300
Phoenix AZ 840,900 06/30/86 300
Chino CA 101,811 01/07/75 300
Escondido CA 406,731 01/11/84 300
Fresno CA 3,434,562 10/29/82 180
Paramount CA 262,994 11/22/83 180
San Diego CA 4,807,435 03/25/86 300
San Diego CA 3,204,038 09/19/86 300
San Diego CA 5,269,070 08/05/87 300
Humble TX 408,806 03/25/86 300
Chesapeake VA 353,714 12/22/86 300
Other 274,364
-----------
152,206,136
===========
Page 125
<PAGE>
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Note 1. Eight hundred twenty three of the properties are single unit
retail outlets. The Trade Center, Silverton Business Center and
Empire Business Center properties are multi-tenant commercial
properties.
All properties were acquired on an all cash basis
except one; no encumbrances were outstanding for the periods
presented.
Note 2. The aggregate cost for federal income tax purposes is
$636,613,875.
Note 3. Reconciliation of total real estate carrying value for the
three years ended December 31, 1997 are as follows:
1997 1996 1995
----------- ----------- -----------
Balance at Beginning of Period 564,539,993 515,425,548 450,703,481
Additions During Period:
Acquisitions 142,286,618 55,667,447 65,392,559
Equipment 0 58,000 0
Improvements, Etc. 16,683 37,303 447,720
Other (Leasing Costs) 36,266 0 50,126
----------- ---------- ----------
Total Additions 142,339,567 55,762,750 65,890,405
----------- ---------- ----------
Deductions During Period:
Cost of Real Estate Sold 6,917,114 6,054,238 1,162,098
Cost of Equipment Sold 0 0 0
Other (Fully Amortized Commissions) 0 15,067 6,240
Other (Provision
for Impairment Losses) 165,000 579,000 0
----------- ---------- ----------
Total Deductions 7,082,114 6,648,305 1,168,338
----------- ---------- ----------
Balance at Close of Period 699,797,446 564,539,993 515,425,548
=========== ========== ==========
Note 4. Reconciliation of accumulated depreciation for the three
years ended December 31, 1997 are as follows:
Balance at Beginning of Period 138,307,408 126,062,055 112,168,982
Additions During Period -
Provision for Depreciation 17,465,979 15,364,936 14,462,491
Page 126
<PAGE>
Deductions During Period:
Accumulated Depreciation of
Real Estate Sold 3,567,251 3,104,516 563,178
Other (Fully Amortized Commissions) 0 15,067 6,240
----------- ----------- -----------
Balance at Close of Period 152,206,136 138,307,408 126,062,055
=========== =========== ===========
Note 5. In 1997, a provision for impairment loss was made on two
vacant properties in Riverside, CA and Irving, TX and a Golden Corral
in McMinnville, OR which was sold in 1997. In 1996, a provision for
impairment loss was made on the Automall in Phoenix, AZ; the Automall
in Glendale, AZ; the Stone Meadow Center in Spring, TX and the Long
John Silvers in Lexington, SC.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ---------------------------------------------------------
The corporation has had no disagreements with its independent
auditors' on accountancy or financial disclosure.
PART III
========
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information set forth under the captions Director Nominees and
Officers Of The Company and Compaliance With Federal Securities
Laws in the definitive proxy statement for the Annual Meeting of
Shareholders presently scheduled to be held on May 5, 1998,
to be filed pursuant to Regulation 14A.
ITEM 11: EXECUTIVE COMPENSATION
- --------------------------------
The information set forth under the caption Executive Compensation in
the definitive proxy statement for the Annual Meeting of Shareholders
presently scheduled to be held on May 5, 1998, to be filed pursuant to
Regulation 14A.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
The information set forth under the caption Security Ownership Of
Certain Beneficial Owners And Management in the definitive proxy
Page 127
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (continued)
- -------------------------------------------------------------
statement for the Annual Meeting of Shareholders presently scheduled
to be held on May 5, 1998, to be filed pursuant to Regulation 14A.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Not applicable.
PART IV
=======
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
- ----------------------------------------------------------------
A. The following documents are filed as part of this report.
1. Financial Statements (see Item 8)
a. Independent Auditors' Report
b. Consolidated Balance Sheets,
December 31, 1997 and 1996
c. Consolidated Statements of Income,
Years ended December 31, 1997, 1996 and 1995
d. Consolidated Statements of
Stockholders' Equity,
Years ended December 31, 1997, 1996 and 1995
e. Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995
f. Notes to Consolidated Financial Statements
g. Consolidated Quarterly Financial Data
(unaudited) for 1997 and 1996
2. Financial Statement Schedule (see Item 8)
Schedule III - Real Estate and Accumulated Depreciation
Schedules not Filed: All schedules, other than those
indicated in the Table of Contents, have been omitted as the
required information is inapplicable or the information is
presented in the financial statements or related notes.
Page 128
<PAGE>
3. Exhibits
2.1 Agreement and Plan of Merger dated as of May 15, 1997
between Realty Income Corporation, a Delaware
corporation, and Realty Income Maryland, Inc., a
Maryland corporation (incorporated by reference to
the Company's Form 8-B12B dated July 29, 1997
("Form 8-B") and incorporated herein by reference)
3.1 Articles of Incorporation of the Company (filed)
as Appendix B to the Company's Proxy Statement
dated March 28, 1997 ("1997 Proxy Statement")
and incorporated herein by reference)
3.2 Bylaws of the Company (filed as Appendix C to the
Company's 1997 Proxy Statement and incorporated
herein by reference)
4.1 Pricing Committee Resolutions and Form of 7.75%
Notes due 2007 (filed as Exhibit 4.2 to the Company's
Form 8-K dated May 5, 1997 and incorporated herein by
reference)
4.2 Indenture dated as of May 6, 1997 between the Company
and The Bank of New York (filed as Exhibit 4.1 to the
Company's Form 8-K dated May 5, 1997 and incorporated
herein by reference)
4.3 First Supplemental Indenture dated as of May 28, 1997,
between the Company and The Bank of New York (filed as
Exhibit 4.3 to the Company's Form 8-B and incorporated
herein by reference)
10.1 Revolving Credit Agreement (filed as Exhibit
99.2 to the Company's Form 8-K dated
December 16, 1994 and incorporated herein by
reference)
10.2 First Amendment to the Revolving Credit
Agreement (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein
by reference)
10.3 Second Amendment to the Revolving Credit
Agreement (filed as Exhibit 99.2 to the
Company's Form 8-K dated December 19, 1995
and incorporated herein by reference)
Page 129
<PAGE>
10.4 Third Amendment to the Revolving Credit
Agreement(filed as Exhibit 10.4 to the
Company's Form 10-K dated December 31, 1996
and incorporated herein by reference)
10.5 Fourth Amendment to the Revolving Credit
Agreement(filed as Exhibit 10.5 to the
Company's Form 10-Q dated March 31, 1997
and incorporated herein by reference)
10.6 Amended and Restated Revolving Credit Agreement,
dated as of November 29, 1994 and restated as of
December 30, 1997, filed herein
10.7 1994 Stock Option and Incentive Plan (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-8
(registration number 33-95708) and incorporated herein
by reference)
10.8 First Amendment to the 1994 Stock Option and Incentive
Plan, dated June 12, 1997 (filed as Exhibit 10.9 to the
Company's Form 8-B and incorporated herein by reference)
10.9 Second Amendment to the 1994 Stock Option and Incentive
Plan, dated December 16, 1997, filed herein
10.10 Management Incentive Plan, filed herein
10.11 Form of Nonqualified Stock Option Agreement for
Independent Directors, filed herein
10.12 Form of Indemnification Agreement entered into between
the Company and the executive officers of the Company
(filed as Exhibit 10.1 to the Company's Form 8-K dated
November 21, 1997 and incorporated herein by reference)
10.13 Form of Indemnification Agreement entered into between
the Company and each director on the board of directors
of the Company (filed as Exhibit 10.2 to the Company's
Form 8-K dated November 21, 1997 and incorporated herein
by reference)
10.14 Form of Employment Agreement between the Company and its
Executive Officers (incorporated by reference to the
Company's Form 8-B12B dated July 29, 1997 and
incorporated herein by reference)
21.1 Subsidiaries of the Company as of January 1, 1998, filed
herein
24.1 Consent of KPMG Peat Marwick LLP, filed herein
Page 130
<PAGE>
27 Financial Data Schedule (electronically filed with the
Securities and Exchange Commission only)
B. Two reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report.
A report on Form 8-K was dated and filed on October 15, 1997 reporting
the issuance of 2,700,000 shares of common stock at a price of $27.00
per share on October 15, 1997.
A report on Form 8-K was dated and filed on November 21, 1997
reporting; (i) an indemnification agreement between the Registrant and
each executive officer of the Registrant and (ii) an indemnification
agreement between the Registrant and each director of the board of
directors of the Registrant.
A report on Form 8-K filed on February 24, 1998 reporting the issuance
of 751,174 shares of common stock on February 23, 1998.
Page 131
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REALTY INCOME CORPORATION
By: /s/THOMAS A. LEWIS
------------------------------------
Thomas A. Lewis
Vice Chairman of the Board of Directors and
Chief Executive Officer
Date: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/WILLIAM E. CLARK
------------------------------------
William E. Clark
Chairman of the Board of Directors
Date: March 20, 1998
By: /s/THOMAS A. LEWIS
------------------------------------
Thomas A. Lewis
Vice Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
Date: March 20, 1998
Page 132
<PAGE>
SIGNATURES (continued)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/DONALD R. CAMERON
------------------------------------
Donald R. Cameron
Director
Date: March 13, 1998
By: /s/ROGER P. KUPPINGER
------------------------------------
Roger P. Kuppinger
Director
Date: March 17, 1998
By: /s/MICHAEL D. MCKEE
------------------------------------
Michael D. McKee
Director
Date: March 12, 1998
By: /s/WILLARD H. SMITH JR
------------------------------------
Willard H. Smith Jr
Director
Date: March 20, 1998
By: /s/RICHARD J. VANDERHOFF
------------------------------------
Richard J. VanDerhoff
Director, President and Chief Operating Officer
Date: March 20, 1998
Page 133
<PAGE>
SIGNATURES (continued)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/GARY MALINO
------------------------------------
Gary Malino
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: March 20, 1998
By: /s/GREGORY J. FAHEY
------------------------------------
Gregory J. Fahey
Associate Vice President, Controller
Date: March 20, 1998
EXHIBIT INDEX
=============
Each Exhibit has
Sequentially
Exhibit No. Description Numbered Pages
- ----------- ----------- ----------------
10.6 Amended and Restated Revolving Credit
Agreement dated as of November 29, 1994
and restated as of December 30, 1997
10.9 Second Amendment to the 1994 Stock Option
and Incentive Plan, dated December 16, 1997
10.10 Form of Management Incentive Plan
10.11 Form of Nonqualified Stock Option Agreement
for Independent Directors
21.1 Subsidiaries of the Company as of
January 1, 1998
24.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
Page 134
<PAGE>
<PAGE>
Exhibit 10.6
CONFORMED COPY
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of November 29, 1994
and amended and restated
as of December 30, 1997
among
REALTY INCOME CORPORATION
THE BANKS NAMED HEREIN
AND
THE BANK OF NEW YORK
as Agent and Swing Line Bank
AND
BNY CAPITAL MARKETS, INC.
as Arranger
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
RECITALS.............................................. 1
ARTICLE I
DEFINITIONS
Section 1.01. Definitions............................ 1
ARTICLE II
THE LOANS
Section 2.01. The Loans............................. 18
Section 2.02. Procedure for Pro Rata Loans.......... 18
Section 2.03. Pro Rata Notes........................ 19
Section 2.04. Certain Fees.......................... 20
Section 2.05. Cancellation or Reduction of the
Commitment............................ 20
Section 2.06. Optional Prepayment................... 21
Section 2.07. Mandatory Prepayment.................. 21
Section 2.08. Procedure for Competitive Loans....... 22
Section 2.09. Competitive Notes..................... 25
Section 2.10. Swing Line Advances................... 25
Section 2.11. Increase in Commitments............... 28
ARTICLE III
INTEREST, METHOD OF PAYMENT, CONVERSION, ETC.
Section 3.01. Procedure for Interest Rate
Determination......................... 29
Section 3.02. Interest on ABR Loans................. 29
Section 3.03. Interest on Eurodollar Loans.......... 30
Section 3.04. Interest on Absolute Rate
Competitive Loans..................... 31
Section 3.05. Conversion/Continuance................ 31
Section 3.06. Post Default Interest................. 31
Section 3.07. Maximum Interest Rate................. 32
ARTICLE IV
DISBURSEMENT AND PAYMENT
Section 4.01. Pro Rata Treatment.................... 32
<PAGE>
Page
----
Section 4.02. Method of Payment..................... 32
Section 4.03. Compensation for Losses............... 32
Section 4.04. Withholding, Reserves and Additional
Costs................................. 34
Section 4.05. Unavailability........................ 38
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties........ 39
ARTICLE VI
CONDITIONS OF LENDING
Section 6.01. Conditions to the Availability of the
Commitment............................ 46
Section 6.02. Conditions to All Loans............... 47
ARTICLE VII
COVENANTS
Section 7.01. Affirmative Covenants................. 48
Section 7.02. Negative Covenants.................... 52
Section 7.03. Financial Covenants................... 55
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default..................... 56
ARTICLE IX
THE AGENT AND THE BANKS
Section 9.01. The Agency............................ 59
Section 9.02. The Agent's Duties.................... 59
Section 9.03. Sharing of Payment and Expenses....... 59
Section 9.04. The Agent's Liabilities............... 60
Section 9.05. The Agent as a Bank................... 60
Section 9.06. Bank Credit Decision.................. 60
Section 9.07. Indemnification....................... 61
Section 9.08. Successor Agent....................... 61
ARTICLE X
CONSENT TO JURISDICTION
Section 10.01. Consent to Jurisdiction.............. 62
<PAGE>
Page
----
ARTICLE XI
MISCELLANEOUS
Section 11.01. APPLICABLE LAW....................... 62
Section 11.02. Set-off.............................. 62
Section 11.03. Expenses............................. 63
Section 11.04. Amendments........................... 63
Section 11.05. Cumulative Rights and No Waiver...... 63
Section 11.06. Notices.............................. 64
Section 11.07. Separability......................... 64
Section 11.08. Assignments and Participations....... 64
Section 11.09. WAIVER OF JURY TRIAL................. 66
Section 11.10. Confidentiality...................... 66
Section 11.11. Indemnity............................ 66
Section 11.12. Extension of Termination Dates;
Removal of Banks; Substitutions of
Banks................................ 67
Section 11.13. Knowledge of the Company............. 69
Section 11.14. Execution in Counterparts............ 69
TESTIMONIUM.............................................. 69
SIGNATURES............................................... 69
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
EXHIBIT A Form of Conversion/Continuance Request
EXHIBIT B Form of Pro Rata Loan Request
EXHIBIT C-1 Form of Competitive Loan Request
EXHIBIT C-2 Form of Notice to Banks
EXHIBIT C-3 Form of Competitive Bid
EXHIBIT C-4 Form of Competitive Bid Accept/Reject Notice
EXHIBIT D-1 Form of Pro Rata Note
EXHIBIT D-2 Form of Competitive Note
EXHIBIT D-3 Form of Swing Line Note
EXHIBIT E Form of Swing Line Advance Request
EXHIBIT F-1 Form of Opinion of Latham & Watkins
EXHIBIT F-2 Form of Opinion of Michael R. Pfeiffer,
General Counsel of the Company
EXHIBIT G Form of Property Management Exception Report
EXHIBIT H Form of Real Estate Investment Criteria
EXHIBIT I Subsidiary Guarantee
SCHEDULE 1 Commitments
SCHEDULE 5.01(a) Subsidiaries and Joint Ventures of the Company
SCHEDULE 5.01(q) ERISA Liabilities
SCHEDULE 5.01(r) Intellectual Property
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
-----------------------------------------------
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of
November 29, 1994 as amended and restated as of December 30, 1997
(this "Agreement"), among Realty Income Corporation, a Maryland
corporation (the "Company"), each of the banks identified on the
signature pages hereof (each, a "Bank" and, collectively, the "Banks")
and The Bank of New York, as Agent for the Banks (the "Agent") and as
the Swing Line Bank with respect to Swing Line Advances (as defined
below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has requested the Banks to lend up to
$150,000,000, subject to increase as provided herein, to the Company
on a revolving basis for the acquisition of property in the ordinary
course of the Company's business, including related costs and expenses
and for the payment of fees and expenses incurred in connection with
this Agreement and up to $15,000,000 in Swing Line Advances (as
defined herein) for the purposes stated above and for working capital.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions.
(a) Terms Generally. The definitions ascribed to terms in
this Section 1.01 and elsewhere in this Agreement shall apply equally
to both the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". The words "hereby", "herein", "hereof", "hereunder" and
words of similar import refer to this Agreement as a whole (including
any exhibits and schedules hereto) and not merely to the specific
section, paragraph or clause in which such word appears. All
references herein to Articles, Sections, Exhibits and Schedules shall
be deemed references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, all
references to "dollars" or "$" shall be deemed references to the
lawful money of the United States of America.
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(b) Accounting Terms. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time;
provided, however, that, for purposes of determining compliance with
any covenant set forth in Article VII which requires financial
computations, such terms shall be construed in accordance with GAAP as
in effect on the Effective Date applied on a basis consistent with the
construction thereof applied in preparing the Company's audited
financial statements referred to in Section 5.01(h). In the event
there shall occur a change in GAAP which but for the foregoing proviso
would affect the computation used to determine compliance with any
covenant set forth in Article VII which requires financial
computations, the Company and the Banks agree to negotiate in good
faith in an effort to agree upon an amendment to this Agreement that
will permit compliance with such covenant to be determined by
reference to GAAP as so changed while affording the Banks the
protection afforded by such covenant prior to such change (it being
understood, however, that such covenant shall remain in full force and
effect in accordance with its existing terms pending the execution by
the Company and the Banks of any such amendment).
(c) Other Terms. The following terms shall have the
meanings ascribed to them below or in the Sections of this Agreement
indicated below:
"ABR Loans" shall mean Loans which bear interest at a rate
based upon the Base Rate and in the manner set forth in Section 3.02.
"Absolute Rate Competitive Loan" shall mean a Competitive
Loan bearing interest at the Competitive Rate in the manner set forth
in Section 3.04.
"Adverse Environmental Condition" shall mean any of the
matters referred to in clauses (i) or (ii) of the definition of
Environmental Claim.
"Affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with such Person. A Person
shall be deemed to control another Person if such first Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether
through ownership of stock, by contract or otherwise.
"Agent" shall have the meaning given to such term in the
preamble of this Agreement and shall also include any successor agent
hereunder.
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"Applicable Margin" shall mean the margin set forth in the following
chart applicable to the Pricing Level then in effect:
Pricing Level Applicable LIBOR Margin
------------- -----------------------
I 0.575%
II 0.650%
III 0.750%
IV 0.850%
V 1.150%
"Pricing Level I" shall be applicable for so long as the Company's
Debt Rating is better than or equal to A-/A3; "Pricing Level II" shall
be applicable for so long as the Company's Debt Rating is lower than
A-/A3 but better than or equal to BBB+/Baa1; "Pricing Level III" shall
be applicable for so long as the Company's Debt Rating is lower than
BBB+/Baa1 but better than or equal to BBB/Baa2; "Pricing Level IV"
shall be applicable for so long as the Company's Debt Rating is lower
than BBB/Baa2 but better than or equal to BBB-/Baa3; "Pricing Level V"
shall be applicable for so long as the Company's Debt Rating is lower
than BBB-/Baa3 or if the Company does not have a Debt Rating. Changes
in the applicable Pricing Level shall be effective as of the first day
of the calendar quarter following the receipt by the Agent of a letter
or letters from the applicable Rating Agencies evidencing a change in
the Company's Debt Rating.
"Assignee" has the meaning ascribed to such term in Section
11.08(c).
"Available Commitment" shall mean (a) on any date prior to
the Termination Date, an amount equal to the remainder of (i) the
Total Commitment on such date minus (ii) the aggregate outstanding
principal amount of Loans and Swing Line Advances on such date and (b)
on and after the Termination Date, $0.
"Bank" shall have the meaning given to such term in the
preamble of this Agreement and shall also include any other financial
institution which pursuant to the provisions hereof becomes a party to
this Agreement.
"Base LIBOR" shall mean, with respect to any Interest Period
for a Eurodollar Loan, the rate reported to the Agent at which U.S.
dollar deposits are offered to The Bank of New York by leading banks
in the London Interbank deposits market at approximately 11:00 A.M.,
London time, on the second full Business Day preceding the first day
of such Interest Period in an amount substantially equal to the
respective Reference Amounts for a term equal to such Interest Period.
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"Base Rate" shall mean a fluctuating interest rate per annum
as shall be in effect from time to time, which rate per annum shall on
any day be equal to the higher of:
(a) the rate of interest publicly announced by the
Agent from time to time as its prime commercial loan rate
in effect on such day; and
(b) the sum (adjusted to the nearest 1/4 of 1% or, if
there is no nearest single 1/4 of 1%, to the next higher 1/4 of
1%) of (i) 1/2 of 1% per annum and (ii) the Federal Funds
Rate.
"Borrowing Date" shall mean the date set forth in each Loan
Request as the date upon which the Company desires to borrow Loans
pursuant to the terms of this Agreement.
"Business Day" shall mean (i) with respect to any ABR Loan
or any payment of the Facility Fee, any day except a Saturday, Sunday
or other day on which commercial banks in New York City or Los Angeles
are authorized by law to close and (ii) with respect to any Eurodollar
Loan, any day on which commercial banks are open for domestic and
international business (including dealings in U.S. dollar deposits) in
London, New York City and Los Angeles.
"Capital Lease" shall mean, with respect to any Person, any
obligation of such Person to pay rent or other amounts under a lease
with respect to any property (whether real, personal or mixed)
acquired or leased by such Person that is required to be accounted for
as a liability on a balance sheet of such Person in accordance with
GAAP.
"Capital Lease Obligations" shall mean the obligation of any
Person to pay rent or other amounts under a Capital Lease.
"Change of Control" shall mean any person or group of
Persons (within the meaning of Section 13(d) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) who shall become the
beneficial owner, directly or indirectly, of capital stock of the
Company representing 50% or more of the voting power of the Company or
otherwise enabling such Person or group of Persons to exercise
effective control over the management of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Commitment" of any Bank shall mean, in the case of each
Bank (i) prior to any such Bank's Termination Date, the amount set
forth opposite such Bank's name under the heading "Commitment" on
Schedule 1 hereto, or set forth in the assignment agreement executed
by such Bank if it is not a Bank on the date hereof, as such amount
may be adjusted from time to time pursuant to assignments of such
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Bank and as such amount may be reduced from time to time pursuant to
Section 2.05 and (ii) after such Bank's Termination Date, zero.
"Competitive Accept/Reject Notice" has the meaning ascribed
to such term in Section 2.08(d).
"Competitive Bid" means an offer by a Bank to make a
Competitive Loan pursuant to Section 2.08(c).
"Competitive Bid Rate" means, with respect to any
Competitive Bid, (i) in the case of a Eurodollar Competitive Loan, the
sum of the Competitive Margin plus LIBOR, and (ii) in the case of a
Absolute Rate Competitive Loan, the fixed rate of interest at which
the Bank making the Competitive Bid offers thereby to make a
Competitive Loan.
"Competitive Loan" has the meaning ascribed to such term in
Section 2.01.
"Competitive Loan Request" means a request for Competitive
Bids made pursuant to Section 2.08(b).
"Competitive Margin" means, with respect to any Eurodollar
Competitive Loan for any Interest Period, the margin (expressed as a
percentage rate per annum in the form of a decimal fraction to no more
than four decimal places) to be added to or subtracted from LIBOR, in
order to determine the interest rate applicable to such Loan during
such Interest Period, as specified in the related Competitive Bid and
the Competitive Accept/Reject Notice.
"Competitive Notes" means, collectively, promissory notes of
the Borrower evidencing Competitive Loans, each substantially in the
form of Exhibit D-2.
"Competitive Rate" means, with respect to any Absolute Rate
Competitive Loan, the fixed rate of interest (expressed as a
percentage rate per annum in the form of a decimal to no more than
four decimal places) for such Loan, as specified in the related
Competitive Bid and Competitive Accept/Reject Notice.
"Compliance Date" shall mean each of the date of this
Agreement, each Borrowing Date, each Conversion Date and the date of
each delivery by the Company of a certificate requiring the Company to
certify as to the accuracy of the representations and warranties
contained in Article V.
"Consolidated Depreciation and Amortization" shall mean, at any date
of determination, "Depreciation and Amortization" or the similar item,
determined on a consolidated basis for the Company and its
Subsidiaries, as shown on the most recent consolidated statement of
income for the Company and its Subsidiaries which has been delivered
to the Agent pursuant to Section 7.01(a).
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"Consolidated Funds from Operations" shall mean, for any
period, Consolidated Net Income excluding gain or loss from debt
restructurings or sales of properties plus provision for impairment
losses, plus Consolidated Depreciation and Amortization, and after
adjustments for unconsolidated partnerships and joint ventures,
determined on a consolidated basis for the Company and its
Subsidiaries, as shown on the most recent consolidated statement of
cash flows for the Company and its Subsidiaries which has been
delivered to the Agent pursuant to Section 7.01(a).
"Consolidated Interest Expense" shall mean, for any period,
total interest expense (including that attributable to Capital Leases
in accordance with GAAP) of the Company and its Subsidiaries,
determined on a consolidated basis, in accordance with GAAP with
respect to all outstanding Indebtedness of the Company and its
Subsidiaries, including, without limitation, paid-in-kind (PIK)
interest and all net costs under Interest Rate Protection Agreements.
"Consolidated Net Income" shall mean, for any period, "Net
Income" or the similar item, determined on a consolidated basis for
the Company and its Subsidiaries, as shown on the most recent
consolidated statement of income for the Company and its Subsidiaries
which has been delivered to the Agent pursuant to Section 7.01(a).
"Consolidated Stockholders' Equity" shall mean, for any
period, "Total Stockholders' Equity" or the similar item, determined
on a consolidated basis for the Company and its subsidiaries, as shown
on the most recent consolidated balance sheet for the Company and its
Subsidiaries which has been delivered to the Agent pursuant to Section
7.01(a).
"Consolidated Tangible Stockholders' Equity" shall mean
Consolidated Stockholders' Equity less all intangible assets of the
Company and its Subsidiaries. For purposes of the foregoing,
"intangible assets" means goodwill, patents, trade names, trademarks,
copyrights, franchises, organization expenses and any other assets
that are properly classified as intangible assets in accordance with
GAAP.
"Consolidated Total Assets" shall mean, at any date of
determination, "Total Assets" or the similar item, determined on a
consolidated basis for the Company and its Subsidiaries, as shown on
the most recent consolidated balance sheet for the Company and its
Subsidiaries which has been delivered to the Agent pursuant to Section
7.01(a).
"Consolidated Total Indebtedness" shall mean total
Indebtedness, determined on a consolidated basis for the Company and
its Subsidiaries, as shown on the most recent consolidated balance
sheet for the Company and its Subsidiaries which has been delivered to
the Agent pursuant to Section 7.01(a).
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"Consolidated Total Liabilities" shall mean, at any date of
determination, "Total Liabilities" or the similar item, determined on
a consolidated basis for the Company and its Subsidiaries, as shown on
the most recent consolidated balance sheet for the Company and its
Subsidiaries which has been delivered to the Agent pursuant to Section
7.01(a).
"Conversion/Continuance Date" shall mean the date on which a
conversion of interest rates on outstanding Loans, pursuant to a
Conversion/Continuance Request, shall take effect.
"Conversion/Continuance Request" shall mean a request by the
Company to convert or continue the interest rate on all or portions of
outstanding Loans pursuant to the terms hereof, which shall be
substantially in the form of Exhibit A and shall specify, with respect
to such outstanding Loans, (i) the requested Conversion/Continuance
Date, which shall be not less than three Business Days after the date
of such Conversion/Continuance Request, (ii) the aggregate amount of
the Loans, from and after the Conversion/Continuance Date, which are
to bear interest as ABR Loans or Eurodollar Loans and (iii) if any
Loans are Eurodollar Loans, the term of the Interest Periods therefor,
if any.
"Covered Tax" means any Tax that is not an Excluded Tax.
"Credit Documents" shall mean this Agreement and the Notes.
"Default" shall mean any event or circumstance which, with
the giving of notice or the passage of time, or both, would become an
Event of Default.
"Debt Rating" shall mean the highest rating published by at
least two of the three Rating Agencies with respect to the senior
unsecured debt of the Company, provided, that if no two Rating
Agencies have published the same rating with respect to the Company's
senior unsecured debt, the Debt Rating shall be the rating that is at
the middle of the three published ratings.
"Effective Date" shall have the meaning ascribed to such
term in Section 6.01.
"Environmental Claim" shall mean any notice, request for
information, action, claim, order, proceeding, demand or direction
(conditional or otherwise) based on, relating to or arising out of (i)
any violation of any Environmental Law by the Company, any person
acting on behalf of the Company or any subsidiary of the Company, or
(ii) any liabilities under any Environmental Law arising out of or
otherwise in respect of any act, omission, event, condition or
circumstance existing or occurring in connection with the Company and
its Subsidiaries, including without limitation liabilities relating to
the release of hazardous substances (whether on-site or off-site),
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any claim by any third party (including, without limitation, tort
suits for personal or bodily injury, tangible or intangible property
damage, damage to the environment, nuisance and injunctive relief),
fines, penalties or restrictions, or the transportation, storage,
treatment or disposal of any Hazardous Substances.
"Environmental Law" means (i) any applicable federal, state,
foreign and local law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, legal doctrine,
order, judgment, decree, injunction, requirement or agreement with any
governmental entity, (x) relating to the protection, preservation or
restoration of the environment, (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety, or (y) the exposure
to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of Hazardous Substances, in each case as amended and as now
or hereafter in effect. The term Environmental Law includes, without
limitation, the federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the federal Water Pollution Control Act of 1972,
the federal Clean Air Act, the federal Clean Water Act, the federal
Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the federal Solid Waste
Disposal and the federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Federal Occupational
Safety and Health Act of 1970, each as amended and as now or hereafter
in effect (collectively, "Environmental Ordinances"), and (ii) any
common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance,
trespass and strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result
of, the presence of or exposure to any Hazardous Substance.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"ERISA Affiliate" shall mean a corporation, partnership or
other entity which is considered one employer with the Company under
Section 4001 of ERISA or Section 414(b), (c) or (m) of the Code.
"Eurodollar Competitive Loan" means a Competitive Loan that
bears interest by reference to LIBOR and in the manner set forth in
Section 3.03.
"Eurodollar Loans" means, collectively, Eurodollar Pro Rata
Loans and Eurodollar Competitive Loans.
"Eurodollar Pro Rata Loans" shall mean Pro Rata Loans which
bear interest at a rate based upon Base LIBOR and in the manner set
forth in Section 3.03.
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"Eurodollar Reserve Percentage" shall mean for any day, that
percentage, expressed as a decimal, which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or
any successor) for determining the maximum reserve requirement
(including any marginal, supplemental or emergency reserve
requirements) for a member bank of the Federal Reserve System in New
York City with deposits exceeding one billion dollars in respect of
eurocurrency funding liabilities. LIBOR shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Default" shall mean any of the events described in
Section 8.01.
"Excluded Asset Sales" shall mean, during each fiscal year,
the sale, lease (not entered into in the ordinary course of business),
transfer or disposal of assets, the aggregate proceeds of which, in
one or more transactions, are less than $20,000,000.
"Excluded Tax" means any of the following taxes, levies,
imposts, duties, deductions, withholdings or charges, and all
liabilities with respect thereto: (i) Taxes imposed on the net income
of a Bank, the Agent, Participant or Assignee (including without
limitation branch profits taxes, minimum taxes and taxes computed
under alternative methods, at least one of which is based on net
income (collectively referred to as "net income taxes") by (A) the
jurisdiction under the laws of which such Bank, the Agent, Participant
or Assignee is organized or any political subdivision thereof, (B) the
jurisdiction of such Bank's, Participant's, Assignee's or the Agent's
applicable lending office or any political subdivision thereof or (C)
any jurisdiction in which the Bank, the Agent, Participant or Assignee
is doing business (other than solely as a result of actions
contemplated or required by this Agreement), (ii) any Taxes to the
extent that they are in effect and would apply to a payment to such
Bank or the Agent, as applicable, as of the Closing Date, or as of the
date such Person becomes a Bank, in the case of any Participant or
Assignee pursuant to Section 11.08, (iii) any Taxes resulting from a
failure to take the actions, if any, required by subsection
4.04(a)(iv), (iv) any Taxes to the extent of any credit or other Tax
benefit which, in the reasonable good faith judgment of such Bank,
Participant, Assignee or the Agent, as the case may be, is available
to such Bank, Participant, Assignee or the Agent, as applicable, as a
result thereof and is allocable to the transactions contemplated by
this Agreement, (v) any Taxes imposed on or measured by the overall
net income of any Bank by the United States of America or any
political subdivision or taxing authority thereof or therein, or (vi)
any Taxes that would not have been imposed but for the failure by the
Agent or such Bank, Participant or Assignee as applicable to provide
and keep current any certification or other documentation required to
qualify for an exemption from or reduced rate of any Tax.
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"Facility Fee" shall have the meaning ascribed to such term
in Section 2.04(a).
"Facility Fee Rate" with respect to any Facility Fee payment
shall mean the facility fee rate set forth in the following chart
applicable to the Pricing Level (determined as set forth under
"Applicable Margin" above including the receipt by the Agent of a
letter or letters evidencing the Company's Debt Rating) in effect on
the date on which such Facility Fee payment is due:
Pricing Level Facility Fee
------------- ------------
I 0.125%
II 0.150%
III 0.150%
IV 0.150%
V 1.250%
"Federal Funds Rate" for any day shall mean the rate
(rounded to the nearest 1/16 of 1% or, if there is no single
nearest 1/16 of 1%, to the next higher 1/16 of 1%) on such day for
Federal Funds as published by the Board of Governors of the Federal
Reserve System in "Statistical Release H.15 (519), Selected Interest
Rates", or any successor publication, under the heading "Federal Funds
(Effective)". In the event that such rate or such publication is not
published with respect to such day the Federal Funds Rate on such day
shall be the "Federal Funds/Effective Rate" as posted by the Federal
Reserve Bank of New York for that day in its publication "Composite
Closing Quotations for U.S. Government Securities". The Federal Funds
Rate for Saturdays, Sundays and any other day on which the Federal
Reserve Bank of New York is closed shall be the Federal Funds Rate as
in effect for the next preceding day for which such rates are
published or posted, as the case may be.
"GAAP" shall mean generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entities as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date
of determination.
"Guarantee" by any person shall mean any obligation,
contingent or otherwise, of such Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
and including any obligation of such Person, (i) to purchase or pay
(or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such
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Indebtedness, (ii) to purchase property, securities or services for
the purpose of assuring the holder of such Indebtedness of the payment
of such Indebtedness, or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such
Indebtedness (and "Guaranteed", "Guaranteeing" and "Guarantor" shall
have meanings correlative to the foregoing); provided that the term
"Guarantee" shall not include endorsements for collection or deposit
in the ordinary course of business.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Substance" means any substance presently or
hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Ordinance, whether by type or by quantity, including any
substance containing any such substance as a component. Hazardous
Substance includes, without limitation, any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste,
special waste or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos, asbestos containing material,
urea formaldehyde foam insulation, lead and polychlorinated biphenyl.
"Increase Notice" shall have the meaning ascribed to such
term in Section 2.11.
"Indebtedness" of any Person shall mean, without
duplication, (a) all indebtedness of such Person for borrowed money or
for the deferred purchase price of property or services (including all
obligations, contingent or otherwise, of such Person in connection
with letter of credit facilities, bankers' acceptance facilities,
Interest Rate Protection Agreements or other similar facilities
including currency swaps) other than indebtedness to trade creditors
and service providers incurred in the ordinary course of business, (b)
all obligations of such Person evidenced by bonds, notes, debentures
or other similar instruments, (c) all indebtedness created or arising
under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights
and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property), (d)
all Capital Lease Obligations of such Person, (e) all Indebtedness
referred to in clauses (a), (b), (c) or (d) above secured by (or for
which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in
property (including accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness, (f) all preferred stock issued by
such Person which is redeemable, prior to the full
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satisfaction of the Company's obligations under the Credit Documents
(including repayment in full of the Loans and all interest accrued
thereon), other than at the option of such Person, valued at the
greater of its voluntary or involuntary liquidation preference plus
accumulated and unpaid dividends and (g) all Indebtedness of others
Guaranteed by such Person. For purposes of this Agreement, the amount
of any Indebtedness under clauses (c) and (e) shall be the lesser of
(x) the principal amount of such Indebtedness and (y) the value of the
property subject to the Lien referred to therein. For purposes of
this Agreement tenant security deposits shall not be deemed to be
Indebtedness.
"Initial Loan" shall mean the first Loan which is made
pursuant to the terms hereof.
"Interest Period" shall mean each one, two, three or six-
month period, in the case of Eurodollar Loans; such period being the
one selected by the Company in a Pro Rata Loan Request or Competitive
Loan Request and pursuant to Section 3.03 hereof and commencing on the
date the relevant loan is made or the last day of the current Interest
Period, as the case may be.
"Interest Rate Protection Agreements" shall mean any
interest rate swap agreement, interest rate cap agreement or similar
arrangement used by a Person to fix or cap a floating rate of interest
on Indebtedness to a negotiated maximum rate or amount.
"Key Management" shall mean Thomas A. Lewis, Richard J.
VanDerhoff, Gary M. Malino, Michael R. Pfeiffer and Richard G.
Collins.
"Leverage Ratio" shall mean the ratio of Consolidated Total
Indebtedness to Consolidated Tangible Stockholders' Equity.
"Lien" shall mean, with respect to any asset, any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest
in or on such asset.
"LIBOR" shall mean with respect to any Interest Period the
rate per annum (rounded to the nearest 1/16 of 1% or, if there is no
nearest single 1/16 of 1%, to the next higher 1/16 of 1%) determined
pursuant to the following formula:
Base LIBOR
-----------------------------------
LIBOR = (1 - Eurodollar Reserve Percentage)
"Loan Request" shall mean either a Pro Rata Loan Request or
a Competitive Loan Request.
"Loans" shall mean, collectively, Pro Rata Loans and
Competitive Loans outstanding hereunder from time to time but shall
not include Swing Line Advances.
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"Material Adverse Change" shall mean a material adverse
change in the business, properties, condition (financial or otherwise)
or operations of the Company and its Subsidiaries (including the
partnerships which were merged into the Company), taken as a whole
since December 31, 1996.
"Material Adverse Effect" shall mean (i) any material
adverse effect on the business, properties, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as
a whole, from and after the date of any determination, (ii) any
material adverse effect on the ability of the Company to perform its
obligations hereunder and under the Credit Documents, or (iii) any
adverse effect on the legality, validity, binding effect or
enforceability of this Agreement or the Notes.
"Maturity Date" means, with respect to a Competitive Loan,
the date for repayment of such Competitive Loan, which date shall be
not less than seven days after the Borrowing Date and not more than
(i) 180 days after the Borrowing Date, in the case of an Absolute Rate
Competitive Loan, or (ii) six months after the Borrowing Date, in the
case of a Eurodollar Competitive Loan, and in any event shall not be
later than the Termination Date to be in effect on the Borrowing Date.
"Net Cash Proceeds" shall mean (i) when used in respect of
any sale or disposition of assets of the Company or any Subsidiary,
the gross cash proceeds received by the Company, or the relevant
Subsidiary from such sale or disposition less (x) the costs of sale,
including payment of the outstanding principal amount of, premium or
penalty, if any, and interest on any Indebtedness which is paid or
required to be paid as a result of such sale, all legal, accounting,
title and recording tax expenses, commissions and other fees and
expenses paid or to be paid in cash solely as a result of such sale,
and all other federal, state, local and foreign taxes paid or payable
in connection therewith and (y) the portion of gross cash proceeds
from such sale or disposal which the Company must distribute to its
stockholders in order to avoid the imposition of any income or excise
tax with respect to a taxable gain (if any) associated with such sale
or disposition, (ii) when used with respect to any loss, casualty,
fire damage, theft, destruction or condemnation of any capital asset
of the Company or any Subsidiary, the gross cash proceeds received by
the Company or the relevant Subsidiary under any insurance policy or
any award or compensation received, as the case may be, in each case
as a result of any such loss, casualty, fire damage, theft,
destruction or condemnation, net of all legal, accounting and other
fees and expenses paid or to be paid in cash as a result of such loss,
casualty, fire damage, theft, destruction or condemnation, and all
other federal, state, local and foreign taxes paid or payable in
connection therewith and less the portion of gross cash proceeds from
such award or compensation which the Company must distribute to its
stockholders in order to avoid the imposition of any income or excise
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tax with respect to a taxable gain (if any) associated with such award
or compensation, provided that such award or compensation shall not be
deemed to be Net Cash Proceeds if such proceeds have been reinvested
in or have been committed to be reinvested in the lost, damaged,
stolen, destroyed or condemned property within twelve months from the
date of such award or compensation and (iii) when used in respect of
the issuance, assumption or incurrence of Specified Additional
Indebtedness by the Company or any of its Subsidiaries, the gross cash
proceeds received by the Company or the relevant Subsidiary from such
issuance, assumption or incurrence less the costs of issuance,
assumption or incurrence. Net Cash Proceeds shall equal $0 if it
would otherwise be a negative number hereunder.
"Notes" means the Pro Rata Notes, the Competitive Notes and
the Swing Line Note.
"Participant" shall have the meaning ascribed to such term
in Section 11.08(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation
or any successor thereto.
"Permitted Encumbrances" shall mean (i) Liens for taxes not
delinquent or being contested in good faith and by appropriate
proceedings and for which adequate reserves (in accordance with GAAP)
are being maintained, (ii) deposits or pledges to secure obligations
under workers' compensation, social security or similar laws, or under
unemployment insurance, (iii) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the ordinary course of business,
(iv) mechanics', workers', materialmen's or other like Liens arising
in the ordinary course of business with respect to obligations which
are not due or which are being contested in good faith, (v) minor
imperfections of title on real estate, provided such imperfections do
not render title unmarketable, (vi) all other Liens existing on the
date of this Agreement, (vii) leases or subleases granted to others in
the ordinary course of business of the Company and its Subsidiaries,
(viii) any interest or title of a lessor in the property subject to
any Capital Lease or operating lease, (ix) Liens arising from filing
Uniform Commercial Code financing statements regarding leases or sub-
leases, (x) any attachment or judgment Lien arising from a judgment or
order against the Company or any Subsidiary that does not give rise to
a Default or an Event of Default, provided that such Lien is not in
place for more than sixty days or has been stayed, (xi) Liens
encumbering customary initial deposits and margin deposits, and other
Liens securing Indebtedness under Interest Rate Protection Agreements
that are within the general parameters customary in the industry and
incurred in the course of business, (xii) any option, contract or
other agreement to sell an asset provided such sale is otherwise
permitted by this Agreement, (xiii) any statutory right of a lender to
which the Company or a
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Subsidiary may be indebted to offset against, or appropriate and apply
to the payment of, such Indebtedness any and all balances, credits,
deposits, accounts or monies of the Company or a Subsidiary with or
held by such lender, (xiv) any pledge or deposit of cash or property
in conjunction with obtaining bonds or letters of credit required to
engage in constructing on-site and off-site improvements required by
municipalities or other governmental authorities in the ordinary
course of business of the Company and its Subsidiaries, (xv) Liens in
favor of all of the Banks collectively, and (xvi) purchase money
security interests in personal property, with such encumbrances, in
the aggregate, not to exceed $3,500,000.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation,
entity or government (whether Federal, state, county, city, municipal
or otherwise, including any instrumentality, division, agency, body or
department thereof).
"Plan" shall mean an employee benefit plan as defined in
Section 3(3) of ERISA which is maintained or contributed to by the
Company or an ERISA Affiliate while such entity is an ERISA Affiliate.
"Pro Rata Loan Request" shall mean a request by the Company
to borrow Pro Rata Loans pursuant to the terms hereof, which shall be
substantially in the form of Exhibit B and shall specify, with respect
to such requested Loans, (i) the requested Borrowing Date, (ii) the
aggregate amount of Pro Rata Loans which the Company desires to borrow
on such date, (iii) whether such requested Loans are to bear interest
as ABR Loans or Eurodollar Loans, and (iv) if the requested Loans are
to bear interest as Eurodollar Loans the requested term of the
Interest Period therefor.
"Pro Rata Loans" shall have the meaning ascribed to such
term in Section 2.01(a).
"Pro Rata Notes" shall mean, collectively, the promissory
notes of the Company evidencing Pro Rata Loans, each substantially in
the form of Exhibit D-1.
"Pro Rata Share" shall mean, with respect to any Bank, the
proportion of such Bank's Commitment to the Total Commitment of all
the Banks or, if the Total Commitment shall have been canceled or
reduced to $0 or expired, the proportion of such Bank's then
outstanding Loans to the aggregate amount of Loans then outstanding.
"Real Estate Investment Criteria" shall mean the Real Estate
Investment Criteria established by the Company's Board of Directors as
amended, restated, supplemented or revised from time to time, the
current version (as of the date hereof) of which are attached hereto
as Exhibit H.
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"Rating Agency" shall mean Moody's Investors Service, Inc.,
Standard & Poor's, a division of the McGraw Hill Companies, Inc., or
Duff & Phelps Credit Rating Co.
"Reference Amount", with respect to any Bank and Interest
Period, shall mean the amount of that Bank's Eurodollar Loan scheduled
to be outstanding during that Interest Period (i) without taking into
account any reduction in the amount of any Bank's Loan through any
assignment or transfer and (ii) rounded up to the nearest integral
multiple of $1,000,000.
"REIT" shall have the meaning ascribed to such term in
Section 5.01(w).
"Required Banks" shall mean at any date Banks having at
least 51% of the Total Commitment or, if the Total Commitment has been
canceled or terminated, holding Notes evidencing at least 51% of the
aggregate unpaid principal amount of the Loans.
"Single-Employer Plan" shall mean any Plan that is a single-
employer plan as defined in Section 4001(a)(15) of ERISA which is
subject to the provisions of Title IV of ERISA.
"Solvent" shall mean, when used with respect to any Person,
that:
(a) at the date of determination, the present fair
salable value of such Person's assets is in excess of the
total amount of such Person's liabilities;
(b) at the date of determination, such Person is able
to pay its debts as they become due; and
(c) such Person does not have unreasonably small
capital to carry on such Person's business as theretofore
operated and all businesses in which such Person then is
about to engage.
"Specified Additional Indebtedness" of any Person shall mean
Indebtedness which is not outstanding as of the date hereof, excluding
(i) Indebtedness to the Agent, the Swing Line Bank, or the Banks
hereunder and under the Notes, (ii) Indebtedness incurred in
connection with the payment of any dividend necessary for the Company
to maintain its qualification as a REIT and (iii) up to $10,000,000
principal amount of additional unsecured Indebtedness that matures and
becomes due and payable on a date not more than one year from the date
such Indebtedness was incurred by the Company.
"Subsidiary" shall mean any Person of which or in which the
Company and its other Subsidiaries own directly or indirectly 50% or
more of:
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(a) the combined voting power of all classes of stock
having general voting power under ordinary circumstances to
elect a majority of the board of directors of such Person,
if it is a corporation,
(b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar
entity, or
(c) the beneficial interest of such Person, if it is
a trust, association or other unincorporated organization;
provided, however, that "Subsidiary" shall not include any such entity
that the Company does not control. For the purposes of this
paragraph, the term "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting equity interests, by contract or otherwise.
"Swing Line Advance" means an advance made by the Swing Line
Bank pursuant to Section 2.10.
"Swing Line Advance Request" shall have the meaning ascribed
to such term in Section 2.10(d) hereof.
"Swing Line Bank" means The Bank of New York, or any
successor to the duties, obligations and rights of The Bank of New
York, in its capacity as the bank making Swing Line Advances
hereunder.
"Swing Line Borrowing" means a borrowing consisting of a
Swing Line Advance made by the Swing Line Bank.
"Swing Line Facility" shall have the meaning ascribed to
such term in Section 2.10(a) hereof.
"Swing Line Note" shall mean the promissory note of the
Company in the form of Exhibit D-3.
"Tax" means any present or future tax, levy, impost, duty,
charge, governmental fee, deduction or withholding of any nature and
whatever called, by whomsoever, on whomsoever and wherever imposed,
levied, collected, withheld or assessed.
"Termination Date" shall mean, with respect to any Bank, the
earliest to occur of (i) December 30, 2000 or such later date as may
be agreed to by such Bank pursuant to Section 11.12, (ii) the date on
which the obligations of the Banks to make loans hereunder shall
terminate pursuant to Section 8.01 or the Commitments shall be reduced
to zero pursuant to Section 2.05, and (iii) the date specified as such
Bank's Termination Date pursuant to Section 11.12, or, if in any case
(other than clause (ii) above) such day is not a
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Business Day, the next succeeding Business Day; in all cases, subject
to the provisions of Section 11.12(d).
"Texas Subsidiary" means Realty Income Texas Properties,
L.P., a Delaware limited partnership of which only the Company and one
or more of its Subsidiaries are partners.
"Total Commitment" shall mean the aggregate Commitment of
all the Banks.
"Unmatured Surviving Obligations" shall mean, as of any
date, any obligations under this Agreement which are contingent and
unliquidated and not then due and payable on such date and which
pursuant to the provisions of this Agreement survive termination of
this Agreement.
"Wholly owned Subsidiary" shall mean any Subsidiary all the
equity interests of which (other than directors' qualifying shares, if
a corporation) at the time are owned directly or indirectly by the
Company and/or one or more Wholly owned Subsidiaries of the Company.
ARTICLE II
THE LOANS
Section 2.01. The Loans. Prior to the Termination Date,
and subject to the terms and conditions of this Agreement, upon the
request of the Company, and upon the satisfaction by the Company or
the waiver by each of the Banks of each of the conditions precedent
contained in Section 6.02, each of the Banks, severally and not
jointly with the other Banks, agrees to make revolving credit loans
(collectively, "Pro Rata Loans") and, to the extent offered by such
Bank and accepted by the Company, competitive rate loans
(collectively, "Competitive Loans" and, together with the Pro Rata
Loans, the "Loans") to the Company from time to time in an aggregate
principal amount at any one time outstanding not to exceed its
Commitment; provided, however, that the sum of (i) aggregate
outstanding Loans and (ii) aggregate outstanding Swing Line Advances
may not exceed the Total Commitment.
Section 2.02. Procedure for Pro Rata Loans.
(a) The Company may borrow Pro Rata Loans by delivering a
written Pro Rata Loan Request to the Agent on or before 5:00 P.M., New
York time, one Business Day prior to the requested Borrowing Date
therefor, in the case of ABR Loans, or on the date not less than three
Business Days prior to the requested Borrowing Date therefor, in the
case of Eurodollar Pro Rata Loans. ABR Loans shall be in the minimum
aggregate amount of $1,000,000 or in integral multiples of $100,000 in
excess thereof. Eurodollar Pro Rata Loans shall be in the minimum
aggregate amount of $5,000,000 or in integral multiples
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of $100,000 in excess thereof; provided, however, that Eurodollar Pro
Rata Loans used to pay Swing Line Advances may be in a minimum
aggregate amount of $2,500,000 or in integral multiples of $100,000 in
excess thereof.
(b) Upon receipt of any Pro Rata Loan Request from the
Company, the Agent shall forthwith give notice to each Bank of the
substance thereof. Not later than 2:00 P.M., New York time, on the
Borrowing Date specified in such Pro Rata Loan Request, each Bank
shall make available to the Agent in immediately available funds at
the office of the Agent at its address set forth on the signature
pages hereof, such Bank's Pro Rata Share of the requested Pro Rata
Loans.
(c) Upon receipt by the Agent of funds and satisfaction by
the Company or waiver by each of the Banks of each of the conditions
precedent contained in Section 6.02, the Agent shall disburse to the
Company on the requested Borrowing Date the Pro Rata Loans requested
in such Pro Rata Loan Request. The Agent may, but shall not be
required to, advance on behalf of any Bank such Bank's Pro Rata Share
of the Pro Rata Loans on a Borrowing Date unless such Bank shall have
notified the Agent prior to such Borrowing Date that it does not
intend to make available its Pro Rata Share of such Loans on such date
(it being understood that no action or inaction by the Agent regarding
such an advance shall affect the rights of the Company with respect to
any non-performing Bank). If the Agent makes such advance, the Agent
shall be entitled to recover such amount on demand from the Bank on
whose behalf such advance was made, and if such Bank does not pay the
Agent the amount of such advance on demand, the Company shall promptly
repay such amount to the Agent. Until such amount is repaid to the
Agent by such Bank or the Company, such advance shall be deemed for
all purposes to be a Pro Rata Loan made by the Agent. The Agent shall
be entitled to recover from the Bank or the Company, as the case may
be, interest on the amount advanced by it for each day from the
Borrowing Date therefor until repaid to the Agent, at a rate per annum
equal to (i) in the case of the Bank, the Federal Funds Rate, for the
three-day period beginning on the Borrowing Date, and the applicable
rate on the Pro Rata Loans made on the Borrowing Date for the period
beginning on the fourth day after the Borrowing Date, and (ii) in the
case of the Company, the applicable rate on the Pro Rata Loans made on
the Borrowing Date.
(d) In lieu of delivering the written notice described
above, the Company may give the Agent telephonic notice of any request
for borrowing by the time required under this Section 2.02; provided
that such telephonic notice shall be confirmed by delivery of a
written notice to the Agent promptly but in no event later than 4:00
P.M., New York City time, on the date of such telephonic notice.
Section 2.03. Pro Rata Notes. The Company's obligation to
repay the Pro Rata Loans shall be evidenced by Pro Rata Notes, one
such Pro Rata Note payable to the order of each Bank. The Pro Rata
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Note of each Bank shall (i) be in the principal amount of such Bank's
Commitment, (ii) be dated the date of the initial Loan and (iii) be
stated to mature on the Termination Date as such date may be extended
hereunder and bear interest from its date until maturity on the
principal balance (from time to time outstanding thereunder) payable
at the rates and in the manner provided herein. Each Bank is
authorized to indicate upon the grid attached to its Pro Rata Note all
Pro Rata Loans made by it pursuant to this Agreement, interest
elections and payments of principal and interest thereon. Such
notations shall be presumptive as to the aggregate unpaid principal
amount of all Pro Rata Loans made by such Bank, and interest due
thereon, but the failure by any Bank to make such notations or the
inaccuracy or incompleteness of any such notations shall not affect
the obligations of the Company hereunder or under the Pro Rata Notes.
Section 2.04. Certain Fees.
(a) The Company shall pay to the Agent for the account of
the Banks a fee (the "Facility Fee") equal to the Facility Fee Rate
per annum (on the basis of a 360-day year for the actual number of
days involved) on the daily average amount of the Total Commitment,
regardless of usage, (excluding the amount of any canceled or reduced
portion of the Commitment for which the Facility Fee was paid in
connection with such cancellation or reduction pursuant to Section
2.05 hereof) during the quarter with respect to which such Facility
Fee is being paid. Such Facility Fee shall be payable in arrears on
the last Business Day of each calendar quarter, commencing on the
first such date after the date hereof, on any date that the Total
Commitment is canceled or reduced pursuant to Section 2.05 (but only
with respect to the amount of such cancellation or reduction) and on
the Termination Date.
(b) The Company shall pay to the Agent for its own account
such fees as have been or may hereinafter be agreed to between the
Agent and the Company, in the amounts and at the times agreed upon.
(c) On the Effective Date the Company shall pay to the Agent
for the account of each of the Banks (other than The Bank of New York)
such fees as have been or may hereinafter be agreed
to between the Agent and the Company, in the amounts and at the times
agreed upon.
Section 2.05. Cancellation or Reduction of the Commitment.
The Company shall have the right, upon not less than three Business
Days' written notice to the Agent and upon payment of the Facility
Fees relating to the amount of the Total Commitment canceled or
reduced which have been accrued through the date of such cancellation
or reduction, with respect to the amount of the cancellation or
reduction, to cancel the Total Commitment in full or to reduce the
amount thereof; provided, however, that the Total Commitment may not
be canceled so long as any Loan or Swing Line Advance remains
outstanding; and provided, further, that the amount of any partial
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reduction in the Total Commitment shall not exceed the remainder of
(i) the Total Commitment on such date minus (ii) the aggregate
outstanding principal amount of Loans and Swing Line Advances on such
date. Partial reductions of the Total Commitment shall be in the
amount of $5,000,000 or in integral multiples of $1,000,000 in excess
thereof (or, if the aggregate outstanding amount of Loans is less than
$5,000,000, then all of such lesser amount). All such cancellations
or reductions shall be permanent.
Section 2.06. Optional Prepayment. The Company shall have
the right, on not less than three Business Days' written notice to the
Agent in the case of Eurodollar Pro Rata Loans, and upon written
notice delivered by 11:00 A.M. New York City time the day of the
proposed prepayment to the Agent in the case of ABR Loans or Swing
Line Advances, to prepay Pro Rata Loans or Swing Line Advances bearing
interest on the same basis and having the same Interest Periods, if
any, in whole or in part, without premium or penalty, in the aggregate
principal amount of $1,000,000 ($100,000 in the case of Swing Line
Advances) or in integral multiples of $100,000 in excess thereof (or,
if the outstanding aggregate amount of such Loan or Swing Line Advance
is less than $1,000,000 or $100,000, respectively, then all of such
lesser amount), together with accrued interest on the principal being
prepaid to the date of prepayment and, in the case of Eurodollar
Loans, the amounts required by Section 4.03. Subject to the terms and
conditions hereof, prepaid Loans may be reborrowed.
Section 2.07. Mandatory Prepayment.
(a) If (i) the Company or any Subsidiary shall sell, lease
(other than in the ordinary course of business), assign, transfer or
otherwise dispose of any of its assets, other than pursuant to
Excluded Asset Sales, in an exchange that qualifies under Section 1031
of the Code, or to the extent that the Net Cash Proceeds therefrom
received are reinvested in similar assets within 90 days of such
disposition of such assets, (ii) the Company or a Subsidiary issues,
assumes or incurs Specified Additional Indebtedness or (iii) the
Company sells or issues equity securities, other than pursuant to the
Company's Stock Incentive Plan, the Company shall prepay outstanding
Pro Rata Loans and Swing Line Advances with the Net Cash Proceeds
therefrom.
(b) Application of Prepayments. All prepayments required
to be made pursuant to this Section 2.07 shall be applied in the
following order: first, to compensate the Banks for any amounts
required by Section 4.03, in the case that such prepayment shall apply
to any Eurodollar Pro Rata Loans, second, to accrued interest on the
principal amount of Pro Rata Loans being prepaid, third, to the
principal of the Pro Rata Loans then outstanding, if any, fourth, to
accrued interest on the principal amount of Swing Line Advances being
prepaid, and fifth, to the principal of the Swing Line Advances then
outstanding, if any; provided that any prepayments shall be
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applied in a manner to minimize the payments, if any, required by the
Company pursuant to Section 4.03 with respect to such prepayment; and
provided, further, that the accrued interest on, and the outstanding
principal of, Pro Rata Loans to be prepaid shall be applied to
prepayment of ABR Loans and Eurodollar Pro Rata Loans in proportion to
the outstanding aggregate principal amount of such ABR Loans or
Eurodollar Pro Rata Loans, respectively, relative to that of all Pro
Rata Loans.
(c) Officer's Certificate. Promptly upon receipt of any
Net Cash Proceeds, other than pursuant to any Excluded Asset Sales,
the Company shall deliver to the Agent a certificate signed by the
chief financial officer of the Company, which shall be in form and
substance satisfactory to the Agent, setting forth the amount of the
gross cash proceeds received and the items deducted therefrom in
reasonable detail in order to confirm the amount of such Net Cash
Proceeds and also setting forth the Company's year-to-date asset
sales.
Section 2.08. Procedure for Competitive Loans. (a) Prior
to the Termination Date, the Company may request that the Banks make
offers to make Competitive Loans in dollars on the terms and
conditions hereinafter set forth; provided, however, that (i) the
aggregate principal amount of Competitive Loans that may be borrowed
on any Borrowing Date may not exceed the Available Commitment (after
giving effect to any Loans to be repaid or prepaid on such Borrowing
Date and any other Loans to be made on such Borrowing Date), (ii) the
aggregate amount of Competitive Loans outstanding on any day may not
exceed 50% of the Total Commitment (after giving effect, with respect
to any day, to any Loans being repaid or prepaid on such day and any
other Loans to be made on such day) and (iii) the Company may not
request Competitive Loans before the fifth Business Day after the
Effective Date. Each Bank may, but shall have no
obligation to, make such offers and the Company may, but shall have no
obligation to, accept any such offers, in the manner set forth in this
Section 2.08.
(b) The Company may request Competitive Loans under this
Section 2.08 by giving a Competitive Loan Request to the Agent, by
telephone, telex, telecopy or in writing not later than 12:00 Noon,
New York time (if not in writing, to be confirmed in writing in
substantially the form of Exhibit C-1 not later than 2:00 P.M., New
York time, on the same day), on (i) the fourth Business Day prior to
the proposed Borrowing Date, in the case of Eurodollar Competitive
Loans, and (ii) on the Business Day immediately prior to the proposed
Borrowing Date, in the case of Absolute Rate Competitive Loans. The
Agent shall promptly notify each Bank, by a letter in substantially
the form of Exhibit C-2, of each such Competitive Loan Request
received by it from the Company and of the terms contained therein.
(c) Each Bank may, if it elects so to do, irrevocably offer
to make a Competitive Loan of the requested type to the Company
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at a Competitive Bid Rate or Rates, as specified by such Bank in
accordance with the related Competitive Loan Request, by submitting a
Competitive Bid, in substantially the form of Exhibit C-3 and
indicating the maximum and minimum principal amounts of the
Competitive Loan which such Bank would be willing to make (which
amount may, subject to the proviso to the first sentence of Section
2.08(a), exceed such Bank's Commitment, but shall be in a principal
amount equal to $1,000,000 or in integral multiples of $100,000 in
excess thereof), the Competitive Rate, or Competitive Margin for the
relevant Interest Period, as the case may be, and any other terms and
conditions required by such Bank, not later than 9:30 A.M., New York
time, on (i) the third Business Day prior to the proposed Borrowing
Date, in the case of Eurodollar Competitive Loans or (ii) the proposed
Borrowing Date, in the case of Absolute Rate Competitive Loans, to the
Agent (which shall give notice thereof to the Borrower as promptly as
practicable and in no event later than 10:00 A.M., New York time);
provided that, if the Agent, at such time (if any) as it is a Bank,
shall elect to submit a Competitive Bid, the Agent shall communicate
the substance of its Competitive Bid to the Company not later than 15
minutes prior to the applicable deadline specified above. Banks may
submit multiple Competitive Bids. Any Competitive Bid that does not
conform substantially with Exhibit C-3 may be rejected by the Agent,
after conferring with the Company, and the Agent shall notify the Bank
that submitted such Competitive Bid of such rejection as promptly as
practicable. The Agent shall (i) disclose the Competitive Bids
received to the Company as promptly as reasonably practicable after
the deadline stated above for the submission of Competitive Bids, (ii)
maintain in confidence all Competitive Bids until each of them has
been disclosed to the Company and (iii) provide copies of all
Competitive Bids (or other written notice containing all of the terms
thereof) to the Company as soon as practicable after completion of the
bidding process described in this Section 2.08.
(d) The Company shall, not later than (i) 12:00 Noon, New
York time, on the third Business Day prior to the proposed Borrowing
Date, in the case of Eurodollar Competitive Loans or (ii) 12:00 Noon,
New York time, on the proposed Borrowing Date, in the case of Absolute
Rate Competitive Loans, either
(i) cancel the Borrowing Request by giving the Agent
notice to that effect or
(ii) accept one or more Competitive Bids, in its sole
discretion, by giving notice to the Agent of the principal
amount of each Competitive Loan (which principal amount
shall be equal to or greater than the minimum amount
offered by the relevant Bank and equal to or less than the
maximum amount offered by such Bank for such Competitive
Loan pursuant to Section 2.08(c)), to be made by each Bank,
and reject any remaining Competitive Bids, by giving the
Agent notice to that effect; provided that the aggregate
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principal amount of such offers accepted by the Company
shall be in a principal amount equal to $1,000,000 or in
integral multiples of $100,000 in excess thereof, each such
notice to be in substantially the form of Exhibit C-4 (a
"Competitive Accept/Reject Notice"); provided that
(A) the failure by the Company to give such notice in
a timely fashion shall be deemed to be a rejection of all
the Competitive Bids,
(B) the Company shall not accept a Competitive Bid
made at a Competitive Bid Rate if such Company has rejected
a Competitive Bid made at a lower Competitive Bid Rate,
(C) the aggregate principal amount of the Competitive
Bids accepted by the Company shall not exceed the principal
amount specified in the Competitive Loan Request,
(D) if the Company shall accept Competitive Bids made
at a particular Competitive Bid Rate but shall be
restricted by other conditions hereof from borrowing the
principal amount of Competitive Loans specified in such
Competitive Loan Request in respect of which Competitive
Bids at such Competitive Bid Rate have been made or if the
Company shall accept Competitive Bids made at a particular
Competitive Bid Rate but the aggregate amount of
Competitive Bids made at such Competitive Bid Rate shall
exceed the amount specified in the Competitive Loan
Request, then the Company shall accept a pro rata portion
of each Competitive Bid made at such Competitive Bid Rate
aggregating the portion of Competitive Loans with respect
to which Competitive Bids at such Competitive Bid Rate have
been received (provided further that if the principal
amount of Competitive Loans to be so allocated is not
sufficient to enable Competitive Loans to be so allocated
to each such Bank in a principal amount equal to $1,000,000
or in integral multiples of $100,000 in excess thereof, the
Company shall select the Banks to be allocated such
Competitive Loans in a principal amount equal to not less
than $1,000,000 but may round up allocations to the next
higher integral multiple of $100,000 if necessary), and
(E) except as provided in clause (E) above, no
Competitive Bid shall be accepted for a Competitive Loan
unless such Competitive Loan is in a principal amount equal
to $5,000,000 or an integral multiple of $1,000,000 in
excess thereof.
(e) If the Company notifies the Agent that a Borrowing
Notice for Competitive Loans is canceled, the Agent shall give prompt
notice thereof to the Banks.
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(f) If the Company accepts one or more Competitive Bids,
the Agent shall promptly give notice (i) to each Bank of the date and
aggregate amount of such Competitive Loan(s), the Competitive Bid Rate
therefor and whether or not any Competitive Bid made by such Bank has
been accepted by the Company, and (ii) to each Bank whose Competitive
Bid, or any portion thereof, has been accepted by the Company, of the
principal amount of the Competitive Loan to be made by such Bank and
the date for repayment thereof, together with the Competitive Rate or
Competitive Margin, as applicable, and any other terms applicable to
such Competitive Loan.
(g) Following any acceptance by the Company and
notification by the Agent pursuant to Section 2.06(f), and upon
satisfaction, or waiver by the Banks, of each of the applicable
conditions precedent contained in Article VI, each such Bank shall
disburse to the Agent, by 2:00 P.M. on the specified Borrowing Date,
the aggregate principal amount of the Competitive Loans accepted by
the Company, whereupon the Agent shall promptly disburse such funds to
the Company in funds immediately available at the Company's office
specified in Section 11.06.
(h) Nothing in this Section 2.08 shall be construed as a
right of first offer in favor of the Banks or to otherwise limit the
ability of the Company to request and accept credit facilities from
any Person (including any Bank).
Section 2.09. Competitive Notes. The Company's obligation
to repay the Competitive Loans shall be evidenced by Competitive
Notes, one such Competitive Note payable to the order of each Bank
making a Competitive Loan pursuant to Section 2.08. The Competitive
Note of each Bank shall (i) be in the principal amount of 50% of the
Total Commitment or, if less, the aggregate principal amount
outstanding under Competitive Loans made by such Bank, (ii) be dated
the date of the initial Competitive Loan made by such Bank and (iii)
be stated to mature on the last Maturity Date of any Competitive Loan
made by such Bank as such date may be extended hereunder and bear
interest from its date until maturity on the principal balance (from
time to time outstanding thereunder) payable at the rates and in the
manner provided herein. Each Bank is authorized to indicate upon the
grid attached to its Competitive Note all Competitive Loans made by it
pursuant to this Agreement, interest elections and payments of
principal and interest thereon. Such notations shall be presumptive
as to the aggregate unpaid principal amount of all Competitive Loans
made by such Bank, and interest due thereon, but the failure by any
Bank to make such notations or the inaccuracy or incompleteness of any
such notations shall not affect the obligations of the Company
hereunder or under the Competitive Notes.
Section 2.10. Swing Line Advances.
(a) Prior to the Termination Date, and subject to the terms
and conditions of this Agreement, the Swing Line Bank shall
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make, on the terms and conditions hereinafter set forth, Swing Line
Advances to the Company from time to time on any Business Day in an
aggregate amount not to exceed at any time outstanding $15,000,000
(the "Swing Line Facility"); provided, however, that the sum of (i)
the aggregate outstanding Loans plus (ii) the aggregate outstanding
Swing Line Advances, may not exceed the Total Commitment. Each Swing
Line Borrowing shall be in an amount of not less than $100,000 or an
integral multiple of $100,000 in excess thereof. Each Bank other than
the Swing Line Bank shall be deemed to, and hereby agrees to, have
irrevocably and unconditionally purchased from the Swing Line Bank a
participation in such Swing Line Advance in an amount equal to such
Bank's Pro Rata Share of the principal amount thereof.
(b) Interest. Each Swing Line Advance shall bear interest
at a rate agreed upon by the Company and the Swing Line Bank but in no
event higher than a rate based upon the Base Rate and in the manner
set forth in Section 3.02, as if such Swing Line Advance were an ABR
Loan. Such interest shall be payable in arrears at the end of the
applicable interest period or as otherwise agreed by the Company and
the Swing Line Bank. The interest period for any Swing Line Advance
shall not exceed 30 days.
(c) Swing Line Note. The Company's obligation to repay its
Swing Line Advances shall be evidenced by a Swing Line Note which
shall be (i) payable to the Swing Line Bank, (ii) in the principal
amount of $15,000,000 or, if less, the principal amount of the
Company's Swing Line Advances from time to time outstanding, (iii)
dated not later than the date of the Company's first Swing Line
Advance and (iv) stated to mature with respect to each Swing Line
Advance from time to time outstanding thereunder on the date
determined pursuant to this Section 2.10 but in any event not later
than the Termination Date. The Swing Line Bank is authorized to
indicate upon the grid attached to the Swing Line Note all borrowings
thereunder and payments of principal and interest thereon. Such
notations shall be presumptively correct as to the aggregate unpaid
principal amount of the Swing Line Advance made by the Swing Line
Bank, and interest due thereon, but the failure by the Swing Line Bank
to make such notations or the inaccuracy or incompleteness of any such
notations shall not affect the obligations of the Company hereunder or
under the Swing Line Note.
(d) Procedure. Each Swing Line Borrowing shall be made on
notice, given not later than 12:00 P.M., New York time on the date of
the proposed Swing Line Borrowing, by the Company to the Swing Line
Bank and the Agent. Each such notice of a proposed Swing Line
Borrowing (a "Swing Line Advance Request") shall be by telephone or
telecopier (and if by telecopier, in the form of Exhibit E thereto),
and, if by telephone, confirmed immediately in writing, specifying
therein the requested (i) date of such borrowing, (ii) amount of such
borrowing and (iii) maturity of such borrowing (which maturity shall
be no later than the thirtieth day after the requested date of such
borrowing subject to successive thirty day extensions thereof, at the
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Company's option, so long as the total outstanding amount of Swing
Line Advances remains less than or equal to $15,000,000). To the
extent it is required to do so pursuant to Section 2.10(a) above, the
Swing Line Bank will make the amount of the requested Swing Line
Advance available to the Agent in immediately available funds, at the
office of the Agent at its address set forth on the signature pages
hereof. After the Agent's receipt of such funds and upon satisfaction
by the Company, or waiver by the Agent of each of the conditions
precedent contained in Article VI applicable thereto, the Agent will
disburse such funds to the Company.
(e) Repayment. The Company shall repay to the Agent for
the account of the Swing Line Bank the outstanding principal amount of
each Swing Line Advance made to the Company on the earlier of the
maturity date specified in the applicable Swing Line Advance Request
(which maturity shall be no later than the thirtieth day after the
requested date of such borrowing subject to successive thirty day
extensions thereof, at the Company's option, so long as the total
outstanding amount of Swing Line Advances remains less than or equal
to $5,000,000) and the Termination Date.
(f) Conversion of Swing Line Advances. Subject to Section
4.03, (i) if the aggregate outstanding Swing Line Advances shall at
any time exceed $1,000,000 the Company may, at its option, convert
such Swing Line Advances to an ABR Loan and if the aggregate
outstanding Swing Line Advances shall at any time exceed $2,500,000
the Company may, at its option, convert such Swing Line Advances to a
Eurodollar Pro Rata Loan; (ii) if the aggregate outstanding Swing Line
Advances shall at any time exceed $7,500,000, Swing Line Advances in
excess of such amount shall, on the next date on which interest is
payable on any Swing Line Advance, unless converted at the Company's
option pursuant to clause (i) above, automatically be converted to an
ABR Loan; and (iii) if a Default shall occur and be continuing, the
Swing Line Bank may, at its option, convert such Swing Line Advances
to an ABR Loan. Upon election of any conversion under clause (i), the
Company shall notify the Swing Line Bank in writing of such
conversion, whether such Swing Line Advances shall be ABR Loans or
Eurodollar Pro Rata Loans and the Business Day on which such
conversion is to be effective (which notice in the case of the
Eurodollar Pro Rata Loans shall not be less than three days prior to
the requested date for conversion) and upon any automatic conversion
under clause (ii) or election of conversion under clause (iii), the
Swing Line Bank shall immediately notify the Company in writing of
such conversion. On the Business Day of any conversion described
above, such Swing Line Advances shall constitute an ABR Loan or a
Eurodollar Pro Rata Loan and shall bear interest at the rate of
interest then applicable to ABR Loans or Eurodollar Pro Rata Loans, as
the case may be. Upon written demand by the Swing Line Bank on or
before 1:00 P.M., New York time, with a copy of such demand to the
Agent, each other Bank shall purchase from the Swing Line Bank, and
the Swing Line Bank shall sell to each such other Bank, such other
Bank's Pro Rata Share of such outstanding Swing Line Advance as of
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the date of such demand, by making available to the Agent for the
account of the Swing Line Bank not later than 2:00 P.M., New York
time, in immediately available funds, an amount equal to the portion
of the outstanding principal amount of such Swing Line Advance to be
purchased by such Bank. The Company hereby agrees to each such sale.
Each Bank agrees to purchase its Pro Rata Share of an outstanding
Swing Line Advance on (i) the Business Day on which demand therefor is
made by the Swing Line Bank, provided that notice of such demand is
given not later than 1:00 P.M., New York time, on such Business Day or
(ii) the first Business Day next succeeding such demand if notice of
such demand is given after such time. If and to the extent that any
Bank shall not have so made the amount of such Swing Line Advance
available to the Agent, such Bank agrees to pay to the Agent forthwith
on demand such amount together with interest thereon, for each day
from the date of demand by the Swing Line Bank until the date such
amount is paid to the Agent, at a rate per annum equal to (i) the
Federal Funds Rate, for the three-day period beginning on the date of
such demand, and (ii) the rate of interest then applicable to ABR
Loans or Eurodollar Pro Rata Loans, as the case may be, for the period
beginning on the fourth day after the date of such demand, changing as
and when said rate changes.
Section 2.11. Increase in Commitments. (a)(i) The Company
may, by submitting a notice (an "Increase Notice") to the Agent,
request that the Banks increase the Total Commitment up to the amount
specified therein, provided that the amount of such increase shall be
an integral multiple of $5,000,000 and the Total Commitment after such
increase shall not be greater than $200,000,000. Promptly upon
receipt of such Increase Notice from the Company, the Agent shall
notify the Banks and any new lenders of the contents thereof. Each
Bank and new lender shall provide written notice to the Agent, no
later than 21 days after the date on which the Increase Notice shall
have been given to the Agent, of the amount, if any, by which such
Bank agrees to increase its Commitment or such new lender agrees to
establish as its Commitment. Promptly upon receipt of such notice
from any Bank, the Agent shall notify the Company of the contents
thereof. To the extent that the aggregate amount of the proposed
Commitments of such new lenders and the proposed increase of the
Commitments of such existing Banks is less than the aggregate amount
of the increase of the Commitments requested by the Company, the
Company may either (A) request the Agent to solicit the Banks for
further increases in their Commitments or (B) amend the Increase
Notice by reducing the requested amount by which the aggregate amount
of the Commitments is to be increased to an amount equal to the
aggregate amount of proposed Commitments of such new lenders and the
proposed increase of the Commitments of such existing Banks.
(ii) Upon the effectiveness of the increase in Commitments
pursuant to Section 2.11(b) below, each of the new lenders shall
execute and deliver a counterpart of this Agreement, Schedule 1 shall
be amended by the Company and the Agent to reflect the increase in the
Commitment of any existing Bank and the Commitments of such new
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lenders, and such new lenders shall be and become Banks hereunder for
all purposes hereof and of the Credit Documents. In connection with
any such increase, the Borrower shall execute and deliver new Pro Rata
Notes to reflect appropriately such new Commitments and the Banks
(including such new lenders) shall effect such purchases and sales
among themselves of portions of the outstanding Loans (other than
outstanding Competitive Loans) as shall be necessary to reflect such
Commitments, as specified by the Agent, and, in connection with such
purchases and sales, the Borrower shall pay to each affected Bank, in
the case of Banks that are sellers of Loans, an amount equal to the
amount that the Borrower would have had to pay pursuant to Section
4.04 if such Loans, or portions thereof, were prepaid on such Increase
Date or, in the case of Banks that are purchasers of Loans, such
amount, determined as if Section 4.04 were applicable thereto,
specified by such Bank as necessary to compensate it for the funding
of the Loans, or portions thereof, purchased by it.
(b) An increase in Commitments pursuant to this Section
2.11 shall become effective on the Increase Date so long as each of
the following conditions shall have been fulfilled on and as of such
date: (i) the Agent shall have consented to any such new lenders;
(ii) the Agent shall have received opinions of counsel to the Borrower
in form and substance reasonably satisfactory to the Agent; (iii) the
conditions to the making of Loans set forth in Section 6.02 shall be
fulfilled on and as of such Increase Date as if Loans were made
thereon; and (iv) the Agent shall have received such other instruments
and documents, in form and substance satisfactory to it, as it shall
have reasonably requested.
ARTICLE III
INTEREST, METHOD OF PAYMENT, CONVERSION, ETC.
Section 3.01. Procedure for Interest Rate Determination.
(a) Unless the Company shall request in a Loan Request or in
a Conversion/Continuance Request that Pro Rata Loans (or portions
thereof) bear interest as Eurodollar Pro Rata Loans, the Pro Rata
Loans shall bear interest as ABR Loans.
(b) Competitive Rate Loans shall bear interest as
Absolute Rate Competitive Loans or Eurodollar Competitive Loans as
determined in accordance with Section 2.08.
Section 3.02. Interest on ABR Loans. Each ABR Loan shall
bear interest from the date of such ABR Loan until maturity thereof or
until such Loan is repaid, or the beginning of any relevant Interest
Period, as the case may be, payable in arrears on the last day of each
calendar quarter of each year, commencing with the first such date
after the date hereof, and on the date such ABR Loan is repaid, at a
rate per annum (on the basis of a 365- or 366-day year
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for the actual number of days involved in the case of ABR Loans which
accrue interest based upon the Prime Rate and on the basis of a 360-
day year for the actual number of days involved in the case of ABR
Loans which accrue interest based upon the Federal Funds Rate) equal
to the Base Rate in effect from time to time, which rate shall change
as and when said Base Rate shall change. If an ABR Loan is
outstanding, the Agent shall notify the Company of the Base Rate when
said Base Rate shall change; provided that the failure to give notice
shall not affect the Company's obligations with respect to such ABR
Loan.
Section 3.03. Interest on Eurodollar Loans.
(a) Each Eurodollar Loan shall bear interest from the date
of such Loan until maturity thereof or until such Loan is repaid,
payable in arrears, with respect to Interest Periods of three months
or less, on the last day of such Interest Period, and with respect to
Interest Periods longer than three months, on the day which is three
months after the commencement of such Interest Period and on the last
day of such Interest Period, at a rate per annum (on the basis of a
360-day year for the actual number of days involved), determined by
the Agent with respect to each Interest Period with respect to
Eurodollar Loans, equal to the sum of (i) the Applicable Margin, in
the case of Eurodollar Pro Rata Loans or the Competitive Margin, in
the case of Eurodollar Competitive Loans and (ii) LIBOR.
(b) The Interest Period for each Eurodollar Loan shall be
selected by the Company at least three Business Days prior to the
beginning of such Interest Period. If the Company fails to notify the
Agent of the subsequent Interest Period for an outstanding Eurodollar
Pro Rata Loan at least three Business Days prior to the last day of
the then current Interest Period of such Eurodollar Pro Rata Loan,
then such outstanding Eurodollar Pro Rata Loan shall become an ABR
Loan at the end of such current Interest Period.
(c) Notwithstanding the foregoing: (i) if any Interest
Period for a Eurodollar Loan would otherwise end on a day which is not
a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Business Day; (ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar
month; and (iii) no Interest Period for a Eurodollar Loan may extend
beyond the Termination Date.
(d) Eurodollar Loans shall be made by each Bank from its
branch or affiliate identified as its Eurodollar Lending Office on the
signature page hereto, or such other branch or affiliate as it may
hereafter designate to the Company and the Agent as its
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Eurodollar Lending Office. A Bank shall not change its Eurodollar
Lending Office designation if it, at the time of the making of such
change, increases the amounts that would have been payable by the
Company to such Bank under this Agreement in the absence of such a
change.
Section 3.04. Interest on Absolute Rate Competitive Loans.
Each Absolute Rate Competitive Loan shall bear interest from the date
of such Loan to (but excluding) its Maturity Date, payable in arrears,
with respect to maturities of three months or less, on its Maturity
Date, and with respect to maturities longer than three months, on the
day which is three months after the making of such loan (and each
three month anniversary thereafter, if any) and on its Maturity Date,
at a rate per annum equal to the applicable Competitive Rate.
Section 3.05. Conversion/Continuance.
(a) The Company may request, by delivery to the Agent of a
written Conversion/Continuance Request not less than three Business
Days prior to a requested Conversion/ Continuance Date, that all or
portions of the outstanding ABR Loans and Eurodollar Pro Rata Loans,
in the aggregate amount of $1,000,000 or in integral multiples of
$100,000 in excess thereof (or, if the aggregate amount of outstanding
Loans is less than $1,000,000, then all such lesser amount), shall
bear interest from and after the Conversion Date as either ABR Loans
or Eurodollar Pro Rata Loans.
(b) Upon receipt of any such Conversion/ Continuance
Request from the Company, the Agent shall forthwith give notice to
each Bank of the substance thereof. Effective on such
Conversion/Continuance Date and upon payment by the Company of the
amounts, if any, required by Section 4.03, the Loans or portions
thereof as to which the Conversion/Continuance Request was made shall
commence to accrue interest as set forth in this Article III for the
interest rate selected by the Company.
(c) In lieu of delivering the above described notice, the
Company may give the Agent telephonic notice hereunder by the required
time under this Section 3.04; provided that such telephonic notice
shall be confirmed by delivery of a written notice to the Agent by no
later than 4:00 P.M., New York City time, the date of such telephonic
notice.
Section 3.06. Post Default Interest. Upon the occurrence
and during the continuation of an Event of Default, all Loans, Swing
Line Advances and any unpaid installment of interest shall bear
interest at a rate per annum equal to the sum of (i) 2% and (ii) with
respect to ABR Loans and Swing Line Advances, the rate of interest
then applicable to ABR Loans, changing as and when said rate shall
change, with respect to Eurodollar Loans, the rate of interest
applicable to each such Eurodollar Loan, and with respect to Absolute
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Rate Competitive Loans, the Competitive Rate applicable to such
Absolute Rate Competitive Loan. Interest payable pursuant to this
Section 3.06 shall be payable on demand.
Section 3.07. Maximum Interest Rate.
(a) Nothing in this Agreement or the Notes shall require
the Company to pay interest at a rate exceeding the maximum rate
permitted by applicable law. Neither this Section nor Section 11.01
is intended to limit the rate of interest payable for the account of
any Bank to the maximum rate permitted by the laws of the State of New
York (or any other applicable law) if a higher rate is permitted with
respect to such Bank by supervening provisions of U.S. Federal law.
(b) If the amount of interest payable for the account of
any Bank on any interest payment date in respect of the immediately
preceding interest computation period, computed pursuant to this
Article III, would exceed the maximum amount permitted by applicable
law to be charged by such Bank, the amount of interest payable for its
account on such interest payment date shall automatically be reduced
to such maximum permissible amount.
ARTICLE IV
DISBURSEMENT AND PAYMENT
Section 4.01. Pro Rata Treatment. Each payment of the
Facility Fee and each reduction of the Total Commitment shall be
apportioned among the Banks in proportion to each Bank's Pro Rata
Share. Except as provided in Section 4.04 or 4.05, the ABR Loans and
Eurodollar Pro Rata Loans or portions thereof as to which a
Conversion/Continuance Request has been made pursuant to Section 3.05
hereof shall at all times bear interest on the same basis (as ABR
Loans and Eurodollar Pro Rata Loans) and the Interest Periods
applicable thereto, if any, shall be of the same duration.
Section 4.02. Method of Payment. All payments by the
Company hereunder and under the Notes shall be made without set-off or
counterclaim to the Agent, for its account or for the account of the
Bank or Banks entitled thereto, as the case may be, in lawful money of
the United States and in immediately available funds at the office of
the Agent on the date when due.
Section 4.03. Compensation for Losses.
(a) Compensation. In the event that (i) the Company makes
a prepayment under Section 2.06 on a day other than the last day of
the Interest Period for the amount so prepaid, (ii) a
Conversion/Continuance Date selected pursuant to Section 3.05 falls on
a day other than the last day of the Interest Period for the
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amount as to which a conversion is made, (iii) the Company revokes any
notice given under Section 2.02 requesting Eurodollar Loans, (iv) the
Loans or portions thereof are converted into ABR Loans pursuant to
Section 4.05 on a day other than the last day of the Interest Period
for the Eurodollar Loans so converted, (v) the Eurodollar Loans shall
be declared to be due and payable prior to the scheduled maturity
thereof pursuant to Section 8.01 or (vi) Swing Line Advances shall be
converted into an ABR Loan on any day other than the maturity date for
such Swing Line Advances, the Company shall pay to each Bank or the
Swing Line Bank, as the case may be, promptly after its demand an
amount which will compensate such Bank or the Swing Line Bank, as the
case may be, for any cost, loss, premium or penalty incurred (other
than any cost, loss, premium or penalty incurred as a consequence of
any Tax, which shall be governed by the provisions of Section 4.04(a))
by such Bank or the Swing Line Bank, as the case may be, as a result
of such prepayment, conversion, declaration or revocation of notice in
respect of funds deemed (pursuant to the last sentence of this Section
4.03(a)) obtained for the purpose of making or maintaining such Bank's
Eurodollar Loans or the Swing Line Bank's Swing Line Advances, or any
part thereof (it being understood, however, that the foregoing shall
not be construed as covering any amounts paid pursuant to Section
2.10(c) by a Bank to the Swing Line Bank in connection with the
conversion of a Swing Line Loan). Such compensation shall include an
amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so paid or prepaid, or not
borrowed or converted, for the period from the date of such payment or
prepayment or conversion or failure to borrow to the last day of such
Interest Period or the maturity date of Swing Line Advances (or, in
the case of a failure to borrow, the Interest Period that would have
commenced on the date of such failure to borrow) in each case at the
applicable rate of interest for such Loan provided for herein
(excluding, however, the Applicable Margin included therein) over (ii)
the amount of interest (as reasonably determined by such Bank) which
would have accrued to such Bank on such amount by placing such amount
on deposit for a comparable period with leading banks in the London
Interbank market. For purposes of calculating amounts payable by the
Company to the Banks under this Section, each Eurodollar Loan made by
a Bank (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at Base
LIBOR used in determining LIBOR for such Eurodollar Loan by a matching
deposit or other borrowing in the London Interbank deposits market for
a comparable amount and for a comparable period, whether or not such
Eurodollar Loan is in fact so funded.
(b) Certificate, Etc. Each Bank and the Swing Line Bank,
if applicable, shall promptly notify the Company, with a copy to the
Agent, upon becoming aware that the Company may be required to make
any payment pursuant to this Section 4.03. When requesting payment
pursuant to this Section 4.03, each Bank and the Swing Line Bank, if
applicable, shall provide to the Company, with a copy to the Agent, a
certificate, signed by an officer of such Bank or Swing Line Bank,
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setting forth the amount required to be paid by the Company to such
Bank or Swing Line Bank and the computations made by such Bank or
Swing Line Bank to determine such amount. In the absence of manifest
error, such certificate shall be conclusive and binding on the Company
as to the amount so required to be paid by the Company to such Bank.
(c) Participants. Subject to Section 11.08(e), each
Participant shall be deemed a "Bank" for the purposes of this Section
4.03.
Section 4.04. Withholding, Reserves and Additional Costs.
(a) Taxes.
(i) Withholding. To the extent permitted by law, all
payments under this Agreement and under the Notes (including payments
of principal and interest) shall be payable to each Bank free and
clear of any and all present and future Covered Taxes. If any Taxes
are required to be withheld or deducted from any amount payable under
this Agreement or any Note, then (1) the Company shall pay any such
Tax before the date on which penalties attach thereto, and (2) in the
event such Tax is a Covered Tax, the amount payable under this
Agreement or such Note shall be increased to the amount which, after
deduction from such increased amount of all Covered Taxes required to
be withheld or deducted therefrom, will yield to such Bank the amount
stated to be payable under this Agreement or such Note. The Company
shall execute and deliver to any Bank upon its request such further
instruments as may be necessary or desirable to give full force and
effect to any such increase, including a new Note of the Company to be
issued in exchange for any Note theretofore issued. The Company shall
also hold each Bank harmless and indemnify it for any stamp or other
taxes with respect to the preparation, execution, delivery, recording,
performance or enforcement of the Credit Documents (all of which shall
be included with "Taxes"). If any Covered Taxes are paid by any Bank,
the Company shall, not later than 10 days after demand of such Bank,
reimburse such Bank for such payments, together with any interest,
penalties and expenses incurred in connection therewith, plus interest
thereon at a rate per annum (based on a 360-day year for the actual
number of days involved) equal to the interest rate then applicable to
ABR Loans, changing as and when such rate shall change, from the date
such payment or payments are made by such Bank to the date of
reimbursement by the Company. The Company shall deliver to the Agent
certificates or other valid vouchers for all Taxes or other charges
deducted from or paid with respect to payments made by the Company
hereunder.
(ii) Tax Refund. If the Company determines in good faith
that, (a) acting in the name of a Bank, Participant, Assignee or the
Agent it is more likely than not to win a contest involving a Covered
Tax, or (b) acting in the name of the Company, a reasonable basis
exists for contesting a Covered Tax, then the relevant Bank,
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Participant, Assignee or the Agent, as applicable, shall cooperate
with the Company in challenging such Tax at the Company's expense if
requested by the Company (it being understood and agreed that neither
the Agent nor any Bank, Participant or Assignee shall have any
obligation to contest, or any responsibility for contesting any Tax).
If any Bank, Participant, Assignee or the Agent, as applicable,
receives a refund (whether by way of direct payment or by offset) of
any Covered Tax for which a payment has been made pursuant to
subsection 4.04(a)(i) which, in the reasonable good faith judgment of
such Bank, Participant, Assignee or Agent, as the case may be, is
allocable to such payment made under subsection 4.04(a)(i), the amount
of such refund (together with any interest received thereon) shall be
paid to the Company to the extent payment has been made in full
pursuant to subsection 4.04(a)(i).
(iii) U.S. Tax Certificates. Each Bank that is organized
under the laws of any jurisdiction other than the United States or any
state thereof shall deliver to the Agent for transmission to the
Company, on or prior to the Closing Date (in the case of each Bank
listed on the signature pages hereof) or on the date (and as a
condition to effectiveness) of an assignment pursuant to which it
becomes a Bank (in the case of each other Bank), and at such other
times as may be necessary in the determination of the Company or the
Agent (each in the reasonable exercise of its discretion), such
certificates, documents or other evidence, properly completed and duly
executed by such Bank (including, without limitation, Internal Revenue
Service Form 1001 or Form 4224 or any other certificate or statement
of exemption required by Treasury Regulations Section 1.1441-4(a) or
Section 1.1441-6(c) or any successor thereto) to establish that such
Bank is not subject to deduction or withholding of United States
federal income tax under Section 1441 or 1442 of the Code or otherwise
(or under any comparable provisions of any successor statute) or is
subject to deduction or withholding at a reduced rate under any
applicable treaty or otherwise with respect to any Payments to such
Bank of principal, interest, fees or other amounts payable under this
Agreement or any of the Notes. The Company shall not be required to
pay any additional amount to any such Bank under subsection 4.04(a)(i)
if such Bank shall have failed to satisfy the requirements of the
immediately preceding sentence; provided that if such Bank shall have
satisfied such requirements on the Closing Date (in the case of each
Bank listed on the signature pages hereof) or on the date of the
agreement pursuant to which it became a Bank (in the case of each
other Bank), nothing in this subsection 4.04(a)(iii) shall relieve the
Company of its obligation to pay any additional amounts pursuant to
subsection 4.04(a)(i) in the event that, as a result of any change in
applicable law, such Bank is no longer properly entitled to deliver
certificates, documents or other evidence at a subsequent date
establishing the fact that such Bank is not subject to withholding as
described in the immediately preceding sentence.
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(iv) Mitigation. Each Bank agrees that, as promptly as
practicable after the officer of such Bank responsible for
administering the Loans under this Agreement becomes aware of the
occurrence of an event or the existence of a condition that would
require the Company to make payments with respect to such Bank under
subsection 4.04(a)(i), it will, to the extent not inconsistent with
such Bank's internal policies, use reasonable efforts (1) to make,
fund or maintain the Commitments or Loans of such Bank through another
lending office of such Bank, or (2) take such other reasonable
measures, if as a result the additional amounts that would otherwise
be required to be paid by the Company with respect to such Bank
pursuant to subsection 4.04(a)(i) would be materially reduced and if,
as determined by such Bank in its sole discretion, the making, funding
or maintaining of such Commitments or Loans through such other lending
office or in accordance with such other measures, as the case may be,
would not otherwise materially adversely affect such Commitments or
Loans or the interests of such Bank.
(v) Replacement of Bank. If the Company becomes obligated
to pay additional amounts described in Section 4.04(a) as a result of
any condition described in such section and payment of such amount is
demanded by any Bank, then the Company may, on ten business days'
prior written notice to the Agent and such Bank, cause such Bank to
(and such Bank shall) assign all of its rights and obligations under
this Agreement to a Bank or other entity selected by the Company for a
purchase price equal to the outstanding principal amount of such
Bank's Loans and all accrued interest and fees, provided that in no
event shall the assigning Bank be required to pay or surrender to such
purchasing Bank or other entity any of the fees received by such
assigning Bank pursuant to this Agreement. The Company shall remain
obligated to pay to such assigning Bank all additional amounts
described in Section 4.04(a) arising on or prior to the date of such
assignment as a result of any condition described in such section and
demanded by any Bank.
(b) Additional Costs. (i) If after the date hereof, any
change in any law or regulation or in the interpretation thereof by
any court or administrative or governmental authority charged with the
administration thereof or the enactment of any law or regulation shall
either (1) impose, modify or deem applicable any reserve, special
deposit or similar requirement against the Banks' Commitments or the
Loans or Swing Line Advances or (2) impose on any Bank any other
condition regarding this Agreement, its Commitment or the Loans or
Swing Line Advances and the result of any event referred to in clause
(1) or (2) of this clause (b) shall be to increase the cost (other
than an increase in cost as a consequence of any Tax, which shall be
governed by the provisions of Section 4.04(a)) to any Bank of
maintaining its Commitment or any Loans or Swing Line Advances (which
increase in cost shall be calculated in accordance with each Bank's
reasonable averaging and attribution methods) by an amount which any
such Bank deems to be material, then, upon receipt by the
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Company of written notice by such Bank, the Company shall be obligated
to pay to such Bank within 10 days of any written demand therefor an
amount equal to such increase in cost incurred by any such Bank after
the date the Company receives such notice; provided that in respect of
any Loan or Swing Line Advances such amount shall bear interest, after
receipt by the Company of any such demand until payment in full
thereof, at a rate per annum (based on a 360-day year, for the actual
number of days involved) equal to the sum of 2% and the interest rate
then applicable to ABR Loans, changing as and when such rate shall
change.
(ii) If any Bank shall have determined that the adoption of
any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank
or comparable agency charged with the interpretation or administration
thereof (including any such adoption or change made prior to the date
hereof but not effective until after the date hereof), or compliance
by any Bank with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of
reducing the rate of return on capital for any such Bank or any
corporation controlling such Bank as a consequence of its obligations
under this Agreement to a level below that which such Bank or such
corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's or such
corporation's policies with respect to capital adequacy), then upon
receipt by the Company of written notice by such Bank, the Company
shall be obligated to pay to such Bank upon receipt of written demand
from such Bank such additional amount or amounts as will compensate
such Bank for such reduction suffered by such Bank after the date the
Company receives such notice, plus interest thereon at a rate per
annum (based on a 360-day year, for the actual number of days
involved) equal to the sum of 2% and the interest rate then applicable
to ABR Loans, changing as and when such rate shall change, from the
date of such demand by such Bank to the date of payment by the
Company.
(iii) Mitigation. Each Bank agrees that, as promptly as
practicable after the officer of such Bank responsible for
administering the Loans under this Agreement becomes aware of the
occurrence of an event or the existence of a condition that would
require the Company to make payments with respect to such Bank under
subsection 4.04(b)(i) or (ii), it will, to the extent not inconsistent
with such Bank's internal policies, use reasonable efforts (1) to
make, fund or maintain the Commitments or Loans of such Bank through
another lending office of such Bank, or (2) take such other reasonable
measures, if as a result the additional amounts that would otherwise
be required to be paid by the Company with respect to such Bank
pursuant to subsection 4.04(b)(i) or (ii) would be materially reduced
and if, as determined by such Bank in its sole discretion, the making,
funding or maintaining of such Commitments or
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Loans through such other lending office or in accordance with such
other measures, as the case may be, would not otherwise materially
adversely affect such Commitments or Loans or the interests of such
Bank.
(iv) Replacement of Bank. If the Company becomes obligated
to pay additional amounts described in Section 4.04(b)(i) or (ii) as a
result of any condition described in such section and payment of such
amount is demanded by any Bank, then the Company may, on ten business
days' prior written notice to the Agent and such Bank, cause such Bank
to (and such Bank shall) assign all of its rights and obligations
under this Agreement to a Bank or other entity selected by the Company
for a purchase price equal to the outstanding principal amount of such
Bank's Loans and all accrued interest and fees, provided that in no
event shall the assigning Bank be required to pay or surrender to such
purchasing Bank or other entity any of the fees received by such
assigning Bank pursuant to this Agreement. The Company shall remain
obligated to pay to such assigning Bank all additional amounts
described in Section 4.04(b) arising on or prior to the date of such
assignment as a result of any condition described in such section and
demanded by any Bank.
(c) Lending Office Designations. Before giving any notice
to the Company pursuant to this Section 4.04, each Bank shall, if
possible, designate a different lending office if such designation
will avoid the need for giving such notice and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank.
(d) Certificate, Etc. Each Bank shall promptly notify the
Company, with a copy to the Agent, upon becoming aware that the
Company may be required to make any payment pursuant to this Section
4.04. When requesting payment pursuant to this Section 4.04, each
Bank shall provide to the Company, with a copy to the Agent, a
certificate, signed by an officer of such Bank, setting forth the
amount required to be paid by the Company to such Bank and the
computations made by such Bank to determine such amount.
Determinations and allocations by such Bank for purposes of this
Section 4.04 shall be conclusive and binding upon the Company,
provided that such determinations and allocations are made on a
reasonable basis and are mathematically accurate.
(e) Participants. Subject to Section 11.08(e), each
Participant shall be deemed a "Bank" for the purposes of this Section
4.04.
Section 4.05. Unavailability. If at any time any Bank
shall have determined in good faith (which determination shall be
conclusive) that the making or maintenance of all or any part of such
Bank's Eurodollar Loans has been made impracticable or unlawful
because of compliance by such Bank in good faith with any law or
guideline or interpretation or administration thereof by any official
body charged with the interpretation or administration thereof or
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with any request or directive of such body (whether or not having the
effect of law), because U.S. dollar deposits in the amount and
requested maturity of such Eurodollar Loans are not available to the
Bank in the London Eurodollar Interbank market, or because of any
other reason, then the Agent, upon notification to it of such
determination by such Bank, shall forthwith advise the other Banks and
the Company thereof. Upon such date as shall be specified in such
notice and until such time as the Agent, upon notification to it by
such Bank, shall notify the Company and the other Banks that the
circumstances specified by it in such notice no longer apply, (i)
notwithstanding any other provision of this Agreement, such Eurodollar
Loans of such Bank shall automatically and without requirement of
notice by the Company be converted to ABR Loans and (ii) the
obligation of only such Bank to allow borrowing, elections and
renewals of Eurodollar Loans shall be suspended, and, if the Company
shall request in a Loan Request or Conversion/Continuance Request that
such Bank make a Eurodollar Loan, the loan requested to be made by
such Bank shall instead be made as an ABR Loan.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties. As of each
Compliance Date, the Company represents and warrants to the Banks
that:
Subsidiaries. At the date hereof, the Company has no
Subsidiaries and is a participant in no joint ventures other than as
listed on Schedule 5.01(a).
Good Standing and Power. The Company is duly organized
and validly existing and in good standing under the laws of the State
of Maryland; and the Company has the power to own its property and to
carry on its business as now being conducted and is duly qualified to
do business and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it therein or in which
the transaction of its business makes such qualification necessary,
except where the failure to be so qualified or to be in good standing,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect. Each of the corporate Subsidiaries of
the Company are corporations, each duly organized and validly
existing, under the laws of the jurisdiction of its incorporation;
each other Subsidiary is an entity duly organized and validly existing
under the laws of the jurisdiction of its organization; and each
Subsidiary has the power to own its property and to carry on its
business as now being conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except
where the failure to be so organized,
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existing, qualified, or to be in good standing, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
Corporate Authority. The Company has full corporate power
and authority to execute, deliver and perform its obligations under
this Agreement, to make the borrowings contemplated hereby, and to
execute and deliver the Notes and to incur the obligations provided
for herein and therein, all of which have been duly authorized by all
proper and necessary corporate action. No consent or approval of
stockholders is required as a condition to the validity or performance
by the Company of its obligations under this Agreement or the Notes.
Authorizations. All authorizations, consents, approvals,
registrations, notices, exemptions and licenses with or from
Governmental Authorities and other Persons which are necessary for the
borrowing hereunder, the execution and delivery of the Credit
Documents, the performance by the Company of its obligations hereunder
and thereunder have been effected or obtained and are in full force
and effect.
Binding Agreements. This Agreement constitutes, and the
Notes, when executed and delivered pursuant hereto for value received
will constitute, the valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors; and the effect of general principles
of equity, regardless of whether enforcement is sought in a proceeding
at law or in equity, and the discretion of the court before which any
proceeding therefor may be brought.
Litigation. There are no proceedings or investigations,
so far as the executive officers of the Company know, pending or
threatened before any court or arbitrator or before or by any
Governmental Authority which (i) in any one case or in the aggregate,
if determined adversely to the interests of the Company or any of its
Subsidiaries, could reasonably be expected to have a Material Adverse
Effect, (ii) relates to any Credit Document or the lending
transactions contemplated hereby and thereby or (iii) seeks to (or is
expected to) rescind, terminate, revoke, cancel, withdraw, suspend,
modify or withhold any material license or permit of the Company or
any of the Subsidiaries.
No Conflicts. There is no statute, regulation, rule,
order or judgment, and no provision of any material agreement or
instrument binding on the Company or any of its Subsidiaries, or
affecting their respective properties and no provision of the
certificate of incorporation, by-laws, governing partnership agreement
or other organizational document of the Company or any of its
Subsidiaries, which would prohibit, conflict with or in any way
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prevent the execution, delivery, or performance of the terms of the
Credit Documents or the incurrence of the obligations provided for
herein and therein, or result in or require the creation or imposition
of any Lien on any of the Company's or its Subsidiaries' properties as
a consequence of the execution, delivery and performance of any Credit
Document or the lending transactions contemplated hereby and thereby.
Financial Condition. (i) (A) The consolidated balance
sheet as of December 31, 1996, together with consolidated statements
of income, stockholders' equity and cash flows for the fiscal year
then ended, audited by KPMG Peat Marwick, included in the Realty
Income Corporation 1996 Year End Report and (B) the consolidated
balance sheet as of
September 30, 1997, together with the consolidated statements of
income and cash flows for the 9 months then ended certified by the
chief financial officer of the Company, heretofore delivered to the
Agent, fairly present the financial condition of the Company and its
consolidated Subsidiaries and the results of their operations as of
the dates and for the periods referred to and have been prepared in
accordance with GAAP consistently applied throughout the periods
involved. As of the date hereof, there are no material liabilities,
direct or indirect, fixed or contingent, of the Company and its
Subsidiaries as of the dates of such balance sheet which are not
reflected therein or in the notes thereto. (ii) Since December 31,
1996 there has been no Material Adverse Change.
Taxes. The Company and each of its Subsidiaries has filed
or caused to be filed all tax returns which are required to be filed
and has paid all taxes required to be shown to be due and payable on
said returns or on any assessment made against it
or any of its property and all other taxes, assessments, fees,
liabilities, penalties or other charges imposed on it or any of its
property by any Governmental Authority, except for any taxes not yet
delinquent and any taxes, assessments, fees, liabilities, penalties or
other charges which are being contested in good faith and for which
adequate reserves (in accordance with GAAP) have been established.
Use of Proceeds. The proceeds of the Loans and Swing Line
Advances will be used by the Company for the purposes described in the
Whereas clause hereto.
Margin Regulations. No part of the proceeds of any Loan
will be used to purchase or carry, or to reduce or retire or refinance
any credit incurred to purchase or carry or extend credit to others
for the purpose of purchasing or carrying, any "margin stock" as
defined in Regulation G or Regulation U of the Board of Governors of
the Federal Reserve System.
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No Material Misstatements. All written information
relating to the Company and its Subsidiaries heretofore delivered by
the Company and its Subsidiaries to the Agent or any Bank in
connection with the Credit Documents is complete and correct in all
material respects.
Title to Properties; Possession Under Leases. The Company
and its Subsidiaries each have good and marketable title to, or valid
leasehold interests in, all properties and assets reflected on the
consolidated balance sheet of the Company as of September 30, 1997,
referred to in Section 5.01(h), except for such properties and assets
as have been disposed of in the ordinary course of business and except
for minor defects in title that do not, individually or in the
aggregate, materially interfere with the ability of the Company or any
of such Subsidiaries to conduct its business as now conducted. All
such assets and properties are free and clear of all Liens, except
Liens permitted pursuant to this Agreement.
Leases. To the Company's knowledge, no condition exists
which, with the giving of notice or the passage of time, or both,
would permit any lessee to cancel its obligations under any lease to
which the Company or any Subsidiary is a party that would create,
individually or in the aggregate, a Material Adverse Effect; (ii) the
Company has received no notice that any lessee or lessees intend to
cease operations at any leased property or properties prior to the
expiration of the term of the applicable lease (other than temporarily
due to casualty, remodeling, renovation or any similar cause) that
would create, individually or in the aggregate, a Material Adverse
Effect; and (iii) to the Company's knowledge, none of the lessees or
their sub-lessees, if any, under any of the leases to which the
Company or any Subsidiary is a party to or is the subject of any
bankruptcy, reorganizations, insolvency or similar proceeding that
would create, individually or in the aggregate, a Material Adverse
Effect.
Conduct of Business. At the date hereof, the Company and
its Subsidiaries hold all authorizations, consents, approvals,
registrations, franchises, licenses and permits, with or from
Governmental Authorities and other Persons as are required or
necessary for them to own their properties and conduct their business
as now conducted unless and to the extent that any failure to hold
such authorizations, consents, approvals, registrations, franchises,
licenses and permits, individually or in the aggregate, could not have
a Material Adverse Effect.
Compliance with Laws and Charter Documents. Neither the
Company nor any Subsidiary thereof is, or as a result of performing
any of its obligations under the Credit Documents will be, in
violation of (a) any law, statute, rule, regulation or order of any
Governmental Authority (including Environmental Laws) applicable to it
or its properties or assets, (b) its certificate of incorporation, by-
laws, governing partnership agreement or other organizational
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document or (c) judgments or agreements to which it is a party or by
which its assets may be bound unless and to the extent that such
violations, individually or in the aggregate, would not have a
Material Adverse Effect.
ERISA. (i) Neither the Company nor any ERISA Affiliate
has engaged in a transaction with respect to any Plan which, assuming
the taxable period of such transaction expired as of the Compliance
Date, could subject the Company or any ERISA Affiliate to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i)
of ERISA in an amount that would have a Material Adverse Effect.
(ii) Except as set forth on Schedule 5.01(q), neither
the Company nor any ERISA Affiliate has incurred any liability since
December 30, 1993, under Title IV of ERISA with respect to any "single
employer plan" within the meaning of Section 4001(a)(15) of ERISA. No
Single-Employer Plan had an accumulated funding deficiency, whether or
not waived, as of the last day of the most recent fiscal year of such
Plan ended prior to the Compliance Date, and each Plan has complied in
all material respects with the applicable provisions of ERISA and the
Code. Neither the Company nor any ERISA Affiliate is (A) required to
give security to any Single-Employer Plan pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA, or (B) subject to a
lien in favor of such a Plan under Section 302(f) of ERISA.
(iii) No liability under Sections 4062, 4063, 4064 or
4069 of ERISA has been or is expected by the Company to be incurred by
the Company or ERISA Affiliate with respect to any Single-Employer
Plan in an amount that could have a Material Adverse Effect. Neither
the Company nor any ERISA Affiliate has incurred or expects to incur
any withdrawal liability with respect to any Plan which is a
multiemployer plan in an amount which would have a Material Adverse
Effect.
(iv) Under each Single-Employer Plan, as of the last day
of the most recent plan year ended prior to the Compliance Date, the
actuarially determined present value of all benefit liabilities (as
determined on the basis of the actuarial assumptions contained in the
Plan's most recent actuarial valuation) did not exceed the fair market
value of the asset of such Plan by an amount that would have a
Material Adverse Effect.
(v) Insofar as the representations and warranties of the
Company contained in clause (i) above relates to any Plan which is a
multiemployer plan, such representations and warranties are made to
the best knowledge of the Company and its ERISA Affiliates. As used
in this Section, (A) "accumulated funding deficiency" shall have the
meaning assigned to such term in Section 412 of the Code and Section
302 of ERISA; (B) "multiemployer plan" and "plan year" shall have the
respective meanings assigned to such terms in Section 3 of ERISA; (C)
"benefit liabilities" shall have the meaning assigned to
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such term in Section 4001 of ERISA; (D) "taxable period" shall have
the meaning assigned to such term in Section 4975 of the Code; and (E)
"withdrawal liability" shall have the meaning assigned to such term in
Part 1 of Subtitle E of Title IV of ERISA.
Intellectual Property. The Company and each of its
Subsidiary owns, or is licensed to use, all trademarks, trade names,
patents and copyrights (the "Intellectual Property") necessary for the
conduct of its business as currently conducted, including, without
limitation, the Intellectual Property listed on Schedule 5.01(r)
hereto. To the knowledge of the Company, no claim has been asserted
or is pending by any Person challenging or questioning the use by the
Company or any Subsidiary of any such Intellectual Property or the
validity or effectiveness of any such Intellectual Property, nor does
the Company know of any valid basis for any such claim. To the
knowledge of the Company, the use of such Intellectual Property by the
Company and its Subsidiaries does not infringe on the rights of any
Person, nor, to the knowledge of the Company, are there any uses by
other Persons of such Intellectual Property which infringe on the
rights of the Company and its Subsidiaries.
Not an Investment Company or Public Utility Holding
Company. Neither the Company nor any of its Subsidiaries is or, after
giving effect to the transactions contemplated hereby will be (i) an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company
Act of 1940, as amended or (ii) subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act or any
foreign, federal, state or local statute or regulation limiting its
ability to incur indebtedness for money borrowed as contemplated
hereby.
Environmental Matters. Except as they would not
individually or in the aggregate have a Material Adverse Effect (i)
the businesses as presently or formerly engaged in by the Company are
and have been conducted in compliance with all applicable
Environmental Laws, including, without limitation, having all permits,
licenses and other approvals and authorizations, during the time the
Company engaged in such businesses, (ii) the properties presently or
formerly owned or operated by the Company (including, without
limitation, soil, groundwater or surface water on, under or adjacent
to the properties, and buildings thereon) (the "Properties") do not
contain any Hazardous Substance other than in compliance with
applicable Environmental Law (provided, however, that with respect to
Properties formerly owned or operated by the Company, such
representation is limited to the period the Company owned or operated
such Properties), (iii) the Company has not received any notices,
demand letters or request for information from any Federal, state,
local or foreign governmental entity or any third party indicating
that the Company may be in violation of, or liable under, in any
respect, any Environmental Law in connection with the ownership or
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operation of the Company's businesses, (iv) there are no civil,
criminal or administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or threatened against the
Company with respect to the Company or the Properties relating to any
violation, or alleged violation, of any Environmental Law, (v) no
reports have been filed, or are required to be filed, by the Company
concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law on or at the Properties,
(vi) no Hazardous Substance has been disposed of, transferred,
released or transported from any of the Properties during the time
such Property was owned or operated by the Company, other than in
compliance with applicable Environmental Law, (vii) there have been no
environmental investigations, studies, audits, tests, reviews or other
analyses conducted by or which are in the possession of the Company
relating to the Company or the Properties which have not been
delivered to the Banks prior to the date hereof, (viii) none of the
Properties has been used at any time by the Company as a sanitary
landfill or hazardous waste disposal site and (ix) the Company has not
incurred, and none of the Properties are presently subject to, any
material liabilities (fixed or contingent) relating to any suit,
settlement, court order, administrative order, judgment or claim
asserted or arising under any Environmental Law.
Solvency. On the date of each Loan and Swing Line Advance
hereunder, and after the payment of all estimated legal, investment
banking, accounting and other fees related hereto, the Company and
each of its Subsidiaries will be Solvent.
Insurance. All of the properties (other than properties
leased to other Persons) and operations of the Company and its
Subsidiaries of a character usually insured by companies of
established reputation engaged in the same or a similar business
similarly situated are adequately insured, by financially sound and
reputable insurers, against loss or damage of the kinds and in amounts
customarily insured against by such Persons, and the Company and its
Subsidiaries carry, with such insurers in customary amounts, such
other insurance as is usually carried by companies of established
reputation engaged in the same or a similar business similarly
situated.
REIT Status. The Company qualifies, and will elect or has
elected to be treated, as a real estate investment trust under
Sections 856 through 860 of the Code and the rules and regulations
thereunder (a "REIT") beginning with its taxable year ending December
31, 1994. No fact, event or condition has occurred which could
jeopardize the Company's tax status as a REIT.
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ARTICLE VI
CONDITIONS OF LENDING
Section 6.01. Conditions to the Availability of the
Commitment. The obligations of each Bank hereunder are subject to,
and the Banks' Commitment shall not become available until the date
(the "Effective Date") on which, each of the following conditions
precedent shall have been satisfied or waived in writing by each of
the Banks, and upon such satisfaction or waiver each Bank will give a
written confirmation of the same to the Company on request:
Credit Agreement. The Agent shall have received this
Agreement duly executed and delivered by each of the Banks and the
Company.
Notes. The Agent on behalf of each Bank shall have
received Pro Rata Notes and Swing Line Notes in the principal amounts
set forth in Sections 2.03 and 2.10(c), duly executed and delivered by
the Company.
Good Standing Certificates. The Agent on behalf of the
Banks shall have received from the Company copies of good standing
certificates, dated within five (5) days prior to the date hereof,
confirming the Company's representation as to good standing in Section
5.01(b).
Secretary's Certificate. The Agent on behalf of the Banks
shall have received from the Company a certificate from the Secretary
or Assistant Secretary of the Company, dated as of the date hereof,
(i) certifying the incumbency of the officers executing the Credit
Documents and all related documentation, (ii) attaching and certifying
the resolutions of the Board of Directors of the Company relating to
the execution, delivery and performance of this Agreement, and (iii)
attaching and certifying the Certificate of Incorporation and By-laws
of the Company.
Authorizations. The Agent shall have received copies of
all authorizations, consents, approvals, registrations, notices,
exemptions and licenses with or from Governmental Authorities and
other Persons which are necessary for the borrowing hereunder, the
execution and delivery of the Credit Documents, the performance by the
Company of its obligations hereunder and thereunder.
Opinion of Company Counsel. The Agent shall have received
a favorable written opinion, dated the date hereof, of Latham &
Watkins, special New York counsel for the Company, in substantially
the form of Exhibit F-1 and of Michael R. Pfeiffer, general counsel of
the Company, in substantially the form of Exhibit F-2.
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Litigation. There shall not be pending or threatened any
action or proceeding before any court or administrative agency
relating to the lending transactions contemplated by this Agreement or
any Note which, in the judgment of the Agent or any Bank, could
materially impair the ability of the Company to perform its
obligations hereunder or thereunder.
Other Agreements. The Agent shall have received copies of
other tax sharing, management and other similar agreements between the
Company and any of its Subsidiaries or Affiliates, which shall be in
form and substance satisfactory to the Agent.
Capital Structure. The Company's capital structure shall
be acceptable to the Agent.
Fees. The Agent shall have received from the Company the
fees set forth in Section 2.04 and fees of Agent's counsel which are
due and payable on the Effective Date.
Other Documents. The Agent shall have received such other
certificates and documents as the Agent and the Banks reasonably may
require.
Section 6.02. Conditions to All Loans. The obligations of
each Bank in connection with each Loan (including the Initial Loan)
and the obligations of the Swing Line Bank in
connection with each Swing Line Advance (including the first Swing
Line Advance) are subject to the conditions precedent that, on the
date of each such Loan and after giving effect thereto, each of the
following conditions precedent shall have been satisfied or waived in
writing by each Bank, and upon such satisfaction or waiver each Bank
will give a written confirmation of the same to the Company on
request:
(a) Requests. For each Loan, the Agent shall have received
either a Pro Rata Loan Request in substantially the form of Exhibit B
or a Competitive Loan Request in substantially the form of Exhibit C-
1; for each Swing Line Advance, the Agent and the Swing Line Bank
shall have received a Swing Line Advance Request in substantially the
form of Exhibit E.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing, and the Agent shall have received from the
Company a certificate to that effect signed by an authorized officer
of the Company.
(c) Representations and Warranties; Covenants. The
representations and warranties contained in Article V (other than
representations and warranties that speak as of a specific date) shall
be true and correct with the same effect as though such
representations and warranties had been made at the time of such Loan
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or Swing Line Advance, and the Agent shall have received from the
Company a certificate to that effect signed by an authorized officer
of the Company.
ARTICLE VII
COVENANTS
Section 7.01. Affirmative Covenants. Until the Termination
Date, and thereafter until payment in full of the Notes and
performance of all other obligations of the Company hereunder (other
than Unmatured Surviving Obligations), the Company will:
(a) Financial Statements; Compliance Certificates. Furnish
to the Agent and to each Bank
(i) as soon as available, but in no event more
than 60 days following the end of each fiscal quarter,
copies of all consolidated quarterly balance sheets, income
statements and other financial statements and reports of
the Company and its Subsidiaries, prepared in a format and
in scope consistent with the financial statements and
reports of the Company referenced in Section 5.01(h);
(ii) as soon as available, but in no event more
than 105 days following the end of each fiscal year, a copy
of the annual consolidated audit report and financial
statements relating to the Company and its Subsidiaries,
certified by KPMG Peat Marwick, one of the other "Big Six"
accounting firms or another independent certified public
accountant reasonably satisfactory to the Agent, prepared
in a format and in scope consistent with the
December 31, 1996 financial statements and reports of the
Company referenced in Section 5.01(h);
(iii) as soon as available, but in no event later
than 60 days following the end of each fiscal year, an
annual forecast for the then-current fiscal year, prepared
in a manner and in the form of the forecast provided on the
date of this Agreement or in such other form as is
reasonably acceptable to the Agent and the Required Banks
together with an annual rent roll dated the most-recent
December 31;
(iv) together with each of the financial
statements delivered pursuant to clauses (i) and (ii) of
this Section 7.01(a), a certificate of the Chief Financial
Officer of the Company stating whether as of the last date
of such financial statements any event or circumstance
exists which constitutes a Default or Event of Default and,
if so, stating the facts with respect thereto, together
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with calculations, where applicable, which establish the
Company's (and where applicable, each of the Company's
Subsidiaries') compliance therewith;
(v) promptly upon receipt thereof, copies of any
reports and management letters submitted to the Company or
any of its Subsidiaries or their accountants in connection
with any annual or interim audit of the books of the
Company or its Subsidiaries, together with the responses
thereto, if any; and
(vi) such additional information, reports or
statements as the Agent and the Banks from time to time may
reasonably request including but not limited to the
quarterly furnishing to the Agent of the most recent
Property Management Exception Report in a form
substantially similar to Exhibit G hereto, a list of the
Company's current property portfolio and a list of the
Company's past quarter's acquisitions on an acquisition
cost basis, an appraised value basis (to the extent
available) and a projected annual rent basis.
(b) Notification of Defaults and Adverse Developments.
Notify the Agent (i) promptly, and in any event not later than five
Business Days after the discovery by any officer of the Company of the
occurrence of any Default or Event of Default; (ii) promptly, and in
any event not later than five Business Days after the discovery by any
officer of the Company of the occurrence of a Material Adverse Change;
(iii) promptly, and in any event not later than ten Business Days
after the discovery by any officer of the Company of any litigation or
proceedings that are (to the knowledge of any executive officer of the
Company) instituted or threatened against the Company or its
Subsidiaries or any of their respective assets that (a) could
reasonably be expected to have a Material Adverse Effect or (b) seeks
to (or is expected to) rescind, terminate, revoke, cancel, withdraw,
suspend, modify or withhold any material license or permit of the
Company or any of the Subsidiaries; (iv) promptly, and in any event
not later than five Business Days after the discovery by any officer
of the Company of the occurrence of each and every event which would
be an event of default (or an event which with the giving of notice or
lapse of time or both would be an event of default) under any
Indebtedness of the Company or any of its Subsidiaries in a principal
amount in excess of $5,000,000, such notice to include the names and
addresses of the holders of such Indebtedness and the amount thereof
and (v) promptly, and in any event not later than five days after the
end of the calendar quarter in which the Company receives notice of a
change in the rating published by any of the Rating Agencies with
respect to the Company's senior unsecured debt. Upon receipt of any
such notice of default or adverse development, the Agent shall
forthwith give notice to each Bank of the details thereof.
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(c) Notice of ERISA Events. Within 10 days after the
Company or any ERISA Affiliate knows that any of the events described
in the succeeding two sentences have occurred, the Company shall
furnish to the Agent a statement signed by a senior officer of the
Company describing such event in reasonable detail and the action, if
any, proposed to be taken with respect thereto. The events referred
to in the preceding sentence are, with respect to any Single-Employer
Plan: (i) any reportable event described in Section 4043 of ERISA,
other than a reportable event for which the 30-day notice requirement
has been waived by the PBGC; (ii) the provision to any affected party
as such term is defined in Section 4001 of ERISA of a notice of intent
to terminate the Plan; (iii) the adoption of or amendment to the Plan
if, after giving effect to such amendment, the Plan is a plan
described in Section 4021(b) of ERISA; (iv) receipt of notice of an
application by the PBGC to institute proceedings to terminate the Plan
pursuant to Section 4042 of ERISA; (v) withdrawal from or termination
of the Plan during a plan year for which the Company or any ERISA
Affiliate is or would be subject to liability under Sections 4063 or
4064 of ERISA; (vi) cessation of operations by the Company or any
ERISA Affiliate at a facility under the circumstances described in
Section 4062(e) of ERISA; (vii) adoption of an amendment to the Plan
which would require security to be given to the Plan pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA; and (viii)
failure by the Company or any ERISA Affiliate to make payment to the
Plan which would give rise to a lien in favor of the Plan under
Section 302(f) of ERISA. Such events shall also include receipt of
notice of withdrawal liability pursuant to Section 4202 of ERISA with
respect to a Plan that is a multiemployer plan.
(d) Other Reports, Notices and Materials. Furnish to the
Agent (i) as soon as available copies of reports, notices and other
materials sent to the Company or any of its Subsidiaries from any
Governmental Authority, including the Securities and Exchange
Commission, the Internal Revenue Service and PBGC and (ii) within 90
days of adoption by the Company's board of directors, copies of any
revisions, supplements, amendments or restatements to the Real Estate
Investment Criteria.
(e) Environmental Matters. (i) Comply, and cause its
Subsidiaries to comply, in all material respects, with all applicable
Environmental Laws, (ii) notify the Agent promptly after receiving
notice or becoming aware of any order, notice, claim or proceeding
under any Environmental Laws, other than those that are clearly not
material, and (iii) promptly forward to Agent a copy of any
Environmental Claim, order, notice, permit, application, or any other
communication or report received by Company or any of its Subsidiaries
in connection with any such matters as they may affect such premises,
if material.
(f) Taxes. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges upon it, its income and its properties prior to
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the date on which penalties are attached thereto, unless and to the
extent that (i) such taxes, assessments and governmental charges shall
be contested in good faith and by appropriate proceedings by the
Company or such Subsidiary, as the case may be, (ii) adequate reserves
(in accordance with GAAP) are maintained by the Company or such
Subsidiary, as the case may be, with respect thereto, and (iii) any
failure to pay and discharge such taxes, assessments and governmental
charges could not have a Material Adverse Effect.
(g) Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible insurance
companies against such risks, on such properties and in such amounts
as is customarily maintained by similar businesses; and file and cause
each of its Subsidiaries to file with the Agent upon its request or
the request of any Bank a detailed list of the insurance companies,
the amounts and rates of the insurance, the dates of the expiration
thereof and the properties and risks covered thereby.
(h) Corporate Existence. Except as permitted by Section
7.02(c), maintain, and cause each of its Subsidiaries to maintain, its
existence in good standing and qualify and remain qualified to do
business in each jurisdiction in which the character of the properties
owned or leased by it therein or in which the transaction of its
business is such that the failure to maintain such existence or to
qualify could reasonably be expected to have a Material Adverse
Effect.
(i) Authorizations. Obtain, make and keep in full force
and effect all material authorizations from and registrations with
Governmental Authorities.
(j) Maintenance of Records. Maintain, and cause each of
its Subsidiaries to maintain, complete and accurate books and records
in which full and correct entries in conformity with GAAP shall be
made of all dealings and transactions in its respective business and
activities.
(k) Inspection. Permit, and cause each of its Subsidiaries
to permit, the Agent and the Banks to have one or more of their
officers and employees, or any other Person designated by the Agent or
the Banks, visit and inspect any of the properties of the Company and
its Subsidiaries (upon reasonable request and notice and in accordance
with the agreement, if any, relating to any such property) and to
examine the minute books, books of account and other records of the
Company and its Subsidiaries and make copies thereof or extracts
therefrom, and discuss its affairs, finances and accounts with its
officers and, at the request of the Agent or the Banks, with the
Company's independent accountants, during normal business hours and at
such other reasonable times and as often as the Agent or the Banks
reasonably may desire.
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(l) Conduct of Business. (i) Engage in as its principal
business investing in real estate in the United States, (ii) preserve,
renew and keep in full force and effect all its material contracts,
(iii) preserve, renew and maintain in full force and effect all its
franchises and licenses material to the normal conduct of its business
as now conducted, and (iv) comply with all of the terms of all
instruments which evidence, secure or govern the Indebtedness of the
Company and its Subsidiaries and materially all laws, rules and
regulations of all Governmental Authorities.
(m) Maintenance of Property, Etc. (i) Maintain, keep and
preserve and cause each of its Subsidiaries to maintain, keep and
preserve all of its properties in good repair, working order and
condition and from time to time make all necessary and proper repairs,
renewals, replacements, and improvements thereto, and (ii) maintain,
preserve and protect and cause each of its Subsidiaries to maintain,
preserve and protect all franchises, licenses, copyrights, patents and
trademarks material to its business, so that the business carried on
in connection therewith may be properly and advantageously conducted
at all times.
(n) Insurance on Leased Properties. Use its, and cause its
Subsidiaries to use their, commercially reasonable best efforts to
ensure that each lessee of a property owned in whole or in part,
directly or indirectly, by the Company or any Subsidiary, and each
mortgagor of a property on which the Company or any Subsidiary holds a
mortgage, has, and until the Termination Date will keep, in place
adequate insurance which names the Company or such Subsidiary as a
loss payee. For the purposes of the preceding sentence "adequate
insurance" shall mean insurance, with financially sound and reputable
insurers in such amounts and insuring against such risks as are
customarily maintained by similar businesses.
(o) Further Assurances. The Company agrees to do all acts
and things, as may be required by law or as, in the reasonable
judgment of the Agent, may be necessary or advisable to carry out the
intent and purpose of this Agreement.
Section 7.02. Negative Covenants. Until the Termination
Date, and thereafter until payment in full of the Notes and
performance of all other obligations of the Company hereunder (other
than Unmatured Surviving Obligations), the Company will not:
(a) Indebtedness. Create, incur or assume any
Indebtedness, except (i) Indebtedness to the Agent and the Banks
hereunder and under the Notes, (ii) Indebtedness incurred to pay
dividends enabling the Company to maintain its status as a REIT, (iii)
Indebtedness incurred to purchase Interest Rate Protection Agreements
and (iv) Indebtedness that would otherwise be permitted under the
Credit Documents, provided that, in each of the aforementioned cases,
(A) the agreements and covenants entered into in connection therewith
would be, in the written determination of the
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Agent, no more restrictive on the Company than the agreements and
covenants hereunder, (B) such Indebtedness is unsecured, (C) the
maturity of such Indebtedness (including all scheduled payments of
principal) is later than the Termination Date, (D) such Indebtedness
ranks pari passu or subordinate to the Notes and (E) after giving
effect to the incurrence of such Indebtedness, the Company's interest
coverage ratio referred to in Section 7.03(c) herein for the most
recent four-quarter period ending on the ending date of the Company's
last fiscal quarter would have been greater than 2.50:1.00. The
Company shall not permit any Subsidiary to create, incur, assume or
suffer to exist any Indebtedness except to the Company or another
Subsidiary, and such Indebtedness may not exceed $3,500,000."
(b) Mortgages and Pledges. Create, incur, assume or suffer
to exist, or permit any of its Subsidiaries to create, incur, assume
or suffer to exist, any Lien of any kind upon or in any of its
property or assets, whether now owned or hereafter acquired, except
Permitted Encumbrances.
(c) Merger, Acquisition or Sales of Assets. (i) Acquire,
or permit any of its Subsidiaries to acquire, all or any substantial
portion of the assets of any Person other than (a) the acquisition of
property in the ordinary course of the Company's business; or (b) the
acquisition of the equity interests of an entity for the purpose of
controlling the property of that entity in the ordinary course of the
Company's business, provided that the aggregate purchase price paid by
the Company in all transactions under this clause (b) and clause
(ii)(b) below shall not exceed $50,000,000; (ii) enter into any merger
or consolidation, or permit any Subsidiary to do so, other than (a) a
merger or consolidation of a Wholly owned Subsidiary with one or more
other Wholly owned Subsidiaries or into the Company, (b) a merger or
consolidation of a Subsidiary or the Company with an entity for the
purpose of controlling the property of that entity in the ordinary
course of the Company's business, provided that the aggregate purchase
price paid by the Company in all transactions under this clause (b)
and clause (i)(b) above shall not exceed $50,000,000, or (c) a merger
of the Company into another corporation primarily for the purpose of
changing the jurisdiction of incorporation of the Company, provided
that the surviving entity shall assume all obligations of the Company
hereunder; or (iii) sell, lease or otherwise dispose of any assets of
the Company or any of the Subsidiaries other than in the ordinary
course of the Company's business for the fair market value thereof;
provided, that the Company shall be permitted to spend up to
$10,000,000 to acquire shares of its common stock.
(d) Negative Pledge. Grant any Person a negative pledge on
any assets of the Company or of the Subsidiaries, except as provided
in the Stockholder Notes and in any Permitted Note Refinancing.
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(e) Loans and Investments. Purchase or acquire the
obligations or stock of, or any other interest in, or make loans,
advances or capital contributions to, or form any joint ventures or
partnerships with, any Person, or permit any Subsidiary so to do,
except (i) investments in real estate which satisfy each of the Real
Estate Investment Criteria, (ii) direct obligations of, or obligations
the principal of and interest on which are unconditionally guaranteed
by, the United States of America with a maturity not exceeding one
year and debt of federal government agencies and treasury and United
States government money market accounts, (iii) short-term domestic or
Eurodollar time deposits of any Bank or any bank having a combined
capital and surplus of not less than $500,000,000 and a long-term debt
rating of A or better from Standards & Poor's Corporation or A2 or
better from Moody's Investors Services, Inc. with a maturity not
exceeding one year, (iv) normal business banking accounts and short-
term certificates of deposit in federally insured financial
institutions, (v) capital contributions to the Texas Subsidiary by the
Company or a Subsidiary of the purchase price for acquisitions by the
Texas Subsidiary of properties that the Company would be allowed to
acquire directly under this Agreement, provided that, the Subsidiary
Guarantee of the Company's payment obligations under this Agreement,
attached hereto as Exhibit I, shall remain in full force and effect,
and (vi) shares of the Company's common stock; provided that the
Company shall not spend more than $10,000,000 in acquiring such
shares.
(f) Dividends and Purchase of Stock. Declare any dividends
(other than dividends payable in capital stock of the Company) on any
shares of any class of its capital stock, or apply any of its property
or assets to the purchase, redemption or other retirement of, or set
apart any sum for the payment of any dividends on, or for the
purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of, any
shares of any class of capital stock of the Company, or permit any
Subsidiary which is not a Wholly owned Subsidiary so to do, or permit
any Subsidiary to purchase or acquire any shares of any class of
capital stock of the Company; provided, however, so long as an Event
of Default pursuant to Section 8.01(a) has not occurred and is not
continuing, the Company may, and may permit its Subsidiaries to, pay
dividends and other distributions with respect to capital stock; and
provided further that the Company may spend up to $10,000,000 to
acquire shares of its common stock.
(g) Stock of Subsidiaries. Issue, sell or otherwise
dispose of any shares of capital stock of any Subsidiary (except in
connection with a merger or consolidation of a Wholly owned Subsidiary
permitted by Section 7.02(c) or with the dissolution of any
Subsidiary) or permit any Subsidiary to issue any additional shares of
its capital stock except pro rata to its stockholders.
(h) Terms of Indebtedness. Amend or modify, or permit to
be amended or modified the terms of any Company or Subsidiary
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Indebtedness for borrowed money or any documents relating thereto in a
manner which would (i) increase the principal amount of such
Indebtedness, (ii) increase the interest borne by such Indebtedness,
(iii) shorten the maturity of such Indebtedness or (iv) elevate, in
relation to the Loans and Swing Line Advances, the ranking in terms of
payment of such Indebtedness, without prior written consent from the
Agent.
(i) Contracts. Amend or modify (i) the Company's
certificate of incorporation, (ii) the Real Estate Investment Criteria
to a material degree or (iii) any tax sharing, management or other
similar agreement between or among the Company and any of its
Subsidiaries without the approval of the independent board of
directors.
(j) Transactions with Affiliates. Enter into any
transactions, including without limitation, the purchase, sale or
exchange of property or the rendering of any service, with any
Affiliate, or permit any Subsidiary so to do, except in the ordinary
course of and pursuant to the reasonable requirements of its business
and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary, as the case may be, than could be obtained in an
arm's length transaction with a person not an Affiliate.
(k) Mortgage Financings. Enter into any mortgage
financings.
(l) Significant Properties. Without the prior written
consent of the Required Banks (which consent shall not be unreasonably
withheld, and which consent the Banks and the Agent shall use their
best efforts to grant or deny within 10 Business Days of receipt by
the Agent of the Company's written request therefor, provided that the
failure to grant, deny or explain the inability to make a
determination about such consent for 20 Business Days after the
Agent's receipt of the Company's request shall be deemed to constitute
a grant of such consent), purchase or acquire an interest in (i)
multi-tenant office buildings, (ii) hotels, motels, bowling alleys or
mobile home parks or (iii) any individual lot of property the price of
which exceeds $15,000,000 or two contiguous lots occupied by more than
one tenant, the price of which exceeds $30,000,000.
Section 7.03. Financial Covenants. Until the Termination
Date, and thereafter until payment in full of the Notes and
performance of all other obligations of the Company hereunder (other
than Unmatured Surviving Obligations),
(a) Tangible Stockholders' Equity. The Company will
maintain Consolidated Tangible Stockholders' Equity of not less than
the sum of (i) $350,000,000 plus (ii) 75% of the sum of the net
proceeds received by the Company after December 31, 1997 from any
offering of its equity securities.
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(b) Leverage Ratio. The Company will maintain, as measured
at the end of each fiscal quarter, a Leverage Ratio of not more than
1.00:1.00.
(c) Interest Coverage Ratio. The Company will not permit
the ratio of (i) the sum of Consolidated Funds from Operations and
Consolidated Interest Expense to (ii) Consolidated Interest Expense
for the four quarter period ending on the last day of each fiscal
quarter to be less than 2.50:1.00.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default. If one or more of the
following events (each, an "Event of Default") shall occur:
(a) Default shall be made in the payment of any installment
of principal of any Note or Swing Line Advance when due and payable,
whether at maturity, by notice of intention to prepay or otherwise; or
default shall be made in the payment of any installment of interest
upon any Note or Swing Line Advance when due and payable, and such
default shall have continued for five days; or
(b) Default shall be made in the payment of the Facility
Fee or any other fee or amount payable hereunder when due and payable
and such default shall have continued for five days; or
(c) Default shall be made in the due observance or
performance of any term, covenant, or agreement contained in Section
7.01(j) or in Section 7.03; or
(d) Default shall be made in the due observance or
performance of any other term, covenant or agreement contained in this
Agreement, and such default shall have continued unremedied for a
period of 30 days after any officer of the Company becomes aware, or
should have become aware, of such default; or
(e) Any representation or warranty made or deemed made by
the Company herein or any statement or representation made in any
certificate or report delivered by or on behalf of the Company in
connection herewith or in connection with any Note shall prove to have
been false or misleading in any material respect when made; or
(f) Any obligation (other than its obligation hereunder) of
the Company or any of its Subsidiaries for the payment of Indebtedness
in excess of $500,000 is not paid when due or within any grace period
for the payment therefor or becomes or is declared to be due and
payable prior to the expressed maturity thereof, or there shall have
occurred an event which, with the giving of notice or lapse of time,
or both, would cause any such obligation to become, or allow any such
obligation to be declared to be, due and payable; or
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(g) An involuntary case or other proceeding shall be
commenced against the Company or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any applicable Federal or State bankruptcy, insolvency, reorganization
or similar law now or hereafter in effect or seeking the appointment
of a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed, or an order or decree approving or ordering any of the
foregoing shall be entered and continued unstayed and in effect, in
any such event, for a period of 60 days; or
(h) The commencement by the Company or any of its
Subsidiaries of a voluntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by any of them to the entry of a
decree or order for relief in respect of the Company or any of its
Subsidiaries in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against any of them, or the filing by any of them
of a petition or answer or consent seeking reorganization or relief
under any applicable Federal or State law, or the consent by any of
them to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any of its
Subsidiaries or any substantial part of their respective property, or
the making by any of them of an assignment for the benefit of
creditors, or the admission by any of them in writing of inability to
pay their debts generally as they become due, or the taking of
corporate action by the Company or any of its Subsidiaries in
furtherance of any such action; or
(i) One or more judgments against the Company or any of its
Subsidiaries or attachments against its property, which in the
aggregate exceed $500,000, or the operation or result of which could
be to interfere materially and adversely with the conduct of the
business of the Company or any of its Subsidiaries, remain unpaid,
unstayed on appeal, undischarged, unbonded, or undismissed for a
period of 30 days; or
(j) With respect to any Single-Employer Plan, any of the
following shall occur: (A) the provision to any affected party as
such term is defined in Section 4001 of ERISA of a notice of intent to
terminate the Plan, the adoption of an amendment to the Plan if, after
giving effect thereto, the Plan is a plan described in Section 4021(b)
of ERISA or receipt of notice of an application by the PBGC to
institute proceedings to terminate the Plan pursuant to Section 4042
of ERISA; in each case, if the amount of unfunded benefit
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liabilities, as such term is defined in Section 4001(a)(18) of ERISA,
of the Plan as of the date such event occurs is more than $5,000,000,
(B) the Company or any ERISA Affiliate incurs liability under Sections
4062(e), 4063 or 4064 of ERISA in an amount in excess of $5,000,000,
(C) an amendment is adopted to the Plan which would require security
to be given to the Plan pursuant to Section 401(a)(29) of the Code or
Section 307 of ERISA in an amount in excess of $5,000,000, (D) the
Company or any ERISA Affiliate fails to make a payment to the Plan
which would give rise to a lien in favor of the Plan under Section
302(f) of ERISA in an amount in excess of $5,000,000, or (E) any
Person shall engage in any non-exempt "prohibited transaction" (as
defined in Section 406 or 407 of ERISA or Section 4975 of the Code)
involving any Plan, in an amount in excess of $5,000,000; or
(k) Any court or governmental or regulatory authority shall
have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which
prohibits, enjoins or otherwise restricts in a manner that would have
a Material Adverse Effect on any of the lending transactions
contemplated under the Credit Documents; or
(l) The Company shall fail to maintain its status as a
"real estate investment trust", as such term is defined in the Code;
or
(m) There shall occur a Change of Control; or
(n) During any twelve month period two or more members of
Key Management are terminated or resign;
then (i) upon the happening of any of the foregoing Events of Default,
the obligation of the Banks to make any further Loans or the
obligation of the Swing Line Bank and the other Banks to make any
further Swing Line Advances under this Agreement shall terminate upon
declaration to that effect delivered by the Agent or the Required
Banks to the Company and (ii) upon the happening of any of the
foregoing Events of Default which shall be continuing, the Notes and
the Swing Line Advances shall become and be immediately due and
payable upon declaration to that effect delivered by the Agent or the
Required Banks to the Company; provided that upon the happening of any
event specified in Section 8.01(g) or (h), the Notes and Swing Line
Advances shall become immediately due and payable and the obligation
of the Banks to make any further Loans and the obligation of the Swing
Line Bank and the other Banks to make any further Swing Line Advances
hereunder shall terminate without declaration or other notice to the
Company. The Company expressly waives any presentment, demand,
protest or other notice of any kind.
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ARTICLE IX
THE AGENT AND THE BANKS
Section 9.01. The Agency. (a) Each Bank appoints The Bank
of New York as its Agent hereunder and irrevocably authorizes the
Agent to take such action on its behalf and to exercise such powers
hereunder as are specifically delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental hereto,
and the Agent hereby accepts such appointment subject to the terms
hereof. The relationship between the Agent and the Banks shall be
that of agent and principal only and nothing herein shall be construed
to constitute the Agent a trustee for any Bank nor to impose on the
Agent duties or obligations other than those expressly provided for
herein.
Section 9.02. The Agent's Duties. The Agent shall promptly
forward to each Bank copies, or notify each Bank as to the contents,
of all notices and other communications received from the Company
pursuant to the terms of this Agreement and the Notes and, in the
event that the Company fails to pay when due the principal of or
interest on any Loan, the Agent shall promptly give notice thereof to
the Banks. As to any other matter not expressly provided for herein
or therein, the Agent shall have no duty to act or refrain from acting
with respect to the Company, except upon the instructions of the
Required Banks. The Agent shall not be bound by any waiver,
amendment, supplement, or modification of this Agreement or any Note
which affects its duties hereunder and thereunder, unless it shall
have given its prior written consent thereto. The Agent shall have no
duty to ascertain or inquire as to the performance or observance of
any of the terms, conditions, covenants or agreements binding on the
Company pursuant to this Agreement or any Note nor shall it be deemed
to have knowledge of the occurrence of any Default or Event of Default
(other than a failure of the Company to pay when due the principal or
interest on any Loan), unless it shall have received written notice
from the Company or a Bank specifying such Default or Event of Default
and stating that such notice is a "Notice of Default".
Section 9.03. Sharing of Payment and Expenses. All funds
for the account of the Banks received by the Agent in respect of
payments made by the Company pursuant to, or from any Person on
account of, this Agreement or any Note shall be distributed forthwith
by the Agent among the Banks, in like currency and funds as received,
ratably in proportion to their respective interests therein. In the
event that any Bank shall receive from the Company or any other source
any payment of, on account of, or for or under this Agreement or any
Note (whether received pursuant to the exercise of any right of set-
off, banker's lien, realization upon any security held for or
appropriated to such obligation or otherwise as permitted by law)
other than in proportion to its Pro Rata Share, then such Bank shall
purchase from each other Bank so much of its interest in obligations
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of the Company as shall be necessary in order that each Bank shall
share such payment with each of the other Banks in proportion to each
Bank's Pro Rata Share; provided that no Bank shall purchase any
interest of any Bank that does not, to the extent that it may lawfully
do so, set-off against the balance of any deposit accounts maintained
with it the obligations due to it under this Agreement. In the event
that any purchasing Bank shall be required to return any excess
payment received by it, the purchase shall be rescinded and the
purchase price restored to the extent of such return, but without
interest.
Section 9.04. The Agent's Liabilities. Each of the Banks
and the Company agrees that (i) neither the Agent in such capacity nor
any of its officers or employees shall be liable for any action taken
or omitted to be taken by any of them hereunder except for its or
their own gross negligence or willful misconduct, (ii) neither the
Agent in such capacity nor any of its officers or employees shall be
liable for any action taken or omitted to be taken by any of them in
good faith in reliance upon the advice of counsel, independent public
accountants or other experts selected by the Agent, and (iii) the
Agent in such capacity shall be entitled to rely upon any notice,
consent, certificate, statement or other document (including any
telegram, cable, telex, facsimile or telephone transmission) believed
by it to be genuine and correct and to have been signed and/or sent by
the proper Persons.
Section 9.05. The Agent as a Bank. The Agent shall have
the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not the Agent, and the terms
"Bank" or "Banks", unless the context otherwise indicated, include the
Agent in its individual capacity. The Agent may, without any
liability to account, maintain deposits or credit balances for, invest
in, lend money to and generally engage in any kind of banking business
with the Company or any Subsidiary or affiliate of the Company as if
it were any other Bank and without any duty to account therefor to the
other Banks.
Section 9.06. Bank Credit Decision. Neither the Agent nor
any of its officers or employees has any responsibility for, gives any
guaranty in respect of, nor makes any representation to the Banks as
to, (i) the condition, financial or otherwise, of the Company or any
Subsidiary thereof or the truth of any representation or warranty
given or made herein or in any other Credit Document, or in connection
herewith or therewith or (ii) the validity, execution, sufficiency,
effectiveness, construction, adequacy, enforceability or value of this
Agreement or any other Credit Document or any other document or
instrument related hereto or thereto. Except as specifically provided
herein and in the other Credit Documents to which the Agent is a
party, the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Bank with any
credit or other information with respect to the operations, business,
property, condition or creditworthiness of the
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Company or any of its Subsidiaries, whether such information comes
into the Agent's possession on or before the date hereof or at any
time thereafter. Each Bank acknowledges that it has, independently
and without reliance upon the Agent or any other Bank, based on such
documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank
also acknowledges that it will independently and without reliance upon
the Agent or any other Bank, based on such documents and information
as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement
or any Note.
Section 9.07. Indemnification. Each Bank agrees (which
agreement shall survive payment of the Loans and the Notes) to
indemnify the Agent, to the extent not reimbursed by the Company,
ratably in accordance with their respective Commitments, from and
against any and all liabilities, obligations, losses, claims, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by,
or asserted against the Agent in any way relating to or arising out of
this Agreement or any other Credit Document, or any action taken or
omitted to be taken by the Agent hereunder or thereunder; provided
that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence
or willful misconduct of the Agent or any of its officers or
employees. Without limiting the foregoing, each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) incurred by the Agent
in such capacity in connection with the preparation, execution or
enforcement of, or legal advice in respect of rights or
responsibilities under, this Agreement or any Note or any amendments
or supplements hereto or thereto, to the extent that the Agent is not
reimbursed for such expenses by the Company.
Section 9.08. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Banks and the Company,
and the Agent may be removed at any time by the Required Banks by
giving written notice thereof to the Agent, the other Banks and the
Company at least ten Business Days prior to the effective date of such
removal. Upon any such resignation or removal, the Required Banks
shall have the right to appoint a successor Agent. If no successor
Agent shall have been so appointed by the Required Banks and shall
have accepted such appointment within 30 days after the resigning
Agent's giving of notice of resignation, or the Required Banks' giving
notice of removal, as the case may be, the resigning Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a
commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and
surplus of at least $250,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all
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the rights, powers, privileges and duties of the resigned or removed
Agent, and the resigned or removed Agent shall be discharged from its
duties and obligations under this Agreement. After any Agent's
resignation hereunder as Agent, the provisions of this Article IX
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
ARTICLE X
CONSENT TO JURISDICTION
Section 10.01. Consent to Jurisdiction. The Company hereby
irrevocably submits to the non-exclusive jurisdiction of the State of
New York for the purpose of any suit, action, proceeding or judgment
relating to or arising out of this Agreement and each Note. The
Company hereby appoints CT Corporation System, with offices on the
date hereof at 1633 Broadway, New York, New York 10019, as its
authorized agent on whom process may be served in any action which may
be instituted against it by the Agent or the Banks in any state or
federal court in the Borough of Manhattan, The City of New York,
arising out of or relating to any Loan or this Agreement and each
Note. Service of process upon such authorized agent and written
notice of such service to the Company shall be deemed in every respect
effective service of process upon the Company, and the Company hereby
irrevocably consents to the jurisdiction of any such court in any such
action and to the laying of venue in the Borough of Manhattan, The
City of New York. The Company hereby irrevocably waives any objection
to the laying of the venue of any such suit, action or proceeding
brought in the aforesaid courts and hereby irrevocably waives any
claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Notwithstanding the
foregoing, nothing herein shall in any way affect the right of the
Agent or any Bank to bring any action arising out of or relating to
the Loans or this Agreement and each Note in any competent court
elsewhere having jurisdiction over the Company or its property.
ARTICLE XI
MISCELLANEOUS
Section 11.01. APPLICABLE LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK, UNITED STATES OF AMERICA.
Section 11.02. Set-off. Each Bank is authorized to set off
and apply any and all deposits at any time held by such Bank against
obligations of the Company under the Credit Documents.
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Section 11.03. Expenses. The Company agrees to pay (i) all
reasonable out-of-pocket expenses of the Agent (including, without
limitation, all reasonable fees and expenses of Sullivan & Cromwell,
as counsel to the Agent) in connection with the preparation of this
Agreement and the other Credit Documents and any amendments,
supplements or modifications hereto or thereto, (ii) all reasonable
out-of-pocket expenses incurred by the Agent, the Swing Line Bank and
any Bank, including fees and expenses of counsel, in connection with
the enforcement of, and the protection of their rights under, any
provisions of this Agreement, the Notes or any amendment or supplement
hereto or thereto, whether or not any loan is made hereunder, and
(iii) all reasonable out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of counsel, in connection with the
syndication of the Loans. The Company shall pay any transfer taxes,
documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or
the Notes incurred up to and including the date of this Agreement.
Section 11.04. Amendments. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Company and the Required
Banks (and, if the rights or duties of the Agent or the Swing Line
Bank are affected thereby, by the Agent and the Swing Line Bank,
respectively); provided that no such amendment, waiver or modification
shall, unless signed by all the Banks, (i) increase or decrease the
Commitment of any Bank, subject any Bank to any additional obligation
or change the several nature of the obligations of each Bank, (ii)
reduce the principal of or rate of interest on any Loan (other than
interest payable pursuant to Section 3.06) or any fees hereunder,
(iii) except as otherwise provided in Section 11.12, postpone the date
fixed for any payment of principal of or interest on any Loan or any
fees hereunder or for any reduction or termination of any Commitment,
(iv) except as otherwise may result from actions taken in accordance
with Section 11.12, change the percentage of any of the Commitments or
of the aggregate unpaid principal amount of the Notes or Swing Line
Advances, or the number of Banks, which shall be required for the
Banks or any of them to take any action under this Section or any
other provision of this Agreement, or (v) amend or waive the
provisions of Article IV or of this Section 11.04.
Section 11.05. Cumulative Rights and No Waiver. Each and
every right granted to the Agent, the Swing Line Bank and the Banks
hereunder or under any other document delivered hereunder or in
connection herewith, or allowed them by law or equity, shall be
cumulative and may be exercised from time to time. No failure on the
part of the Agent, the Swing Line Bank or any Bank to exercise, and no
delay in exercising, any right will operate as a waiver thereof, nor
will any single or partial exercise by the Agent, the Swing Line Bank
or any Bank of any right preclude any other or future exercise thereof
or the exercise of any other right.
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Section 11.06. Notices. Any communication, demand or
notice to be given hereunder or with respect to the Notes will be duly
given when delivered in writing or by telecopy to a party at its
address as indicated below, except that notices from the Company
pursuant to Section 2.02 will not be effective until received by the
Agent.
A communication, demand or notice given pursuant to this
Section 11.06 shall be addressed:
If to the Company, at
220 West Crest Street
Escondido, California 92025-1725
Telecopy: (619) 741-8674
Attention: Legal Department
If to the Agent or the Swing Line Bank, at its address as
indicated on the signature pages hereof, with a copy, only in the case
of default notices, to:
Sullivan & Cromwell
444 South Flower Street, 12th Floor
Los Angeles, California 90071
Telecopy: (213) 683-0457
Attention: Alison S. Ressler
If to any Bank, at its address as indicated on the signature
pages hereof.
Unless otherwise provided to the contrary herein, any notice
which is required to be given in writing pursuant to the terms of this
Agreement may be given by telex, telecopy or facsimile transmission.
Section 11.07. Separability. In case any one or more of
the provisions contained in this Agreement shall be invalid, illegal
or unenforceable in any respect under any law, the validity, legality
and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
Section 11.08. Assignments and Participations.
(a) This Agreement shall be binding upon and inure to the
benefit of the Company, the Swing Line Bank and the Banks and their
respective successors and assigns, except that the
Company may not assign any of its rights hereunder without the prior
written consent of the Banks.
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(b) Any Bank may at any time grant to one or more banks or
other institutions (each a "Participant") participating interests in
its Commitment or any or all of its Loans. In the event of any such
grant by a Bank of a participating interest to a Participant, whether
or not upon notice to the Company and the Agent, such Bank shall
remain responsible for the performance of its obligations hereunder,
and the Company and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any
Bank may grant such a participating interest shall provide that such
Bank shall retain the sole right and responsibility to enforce the
obligations of the Company hereunder including the right to approve
any amendment, modification or waiver of any provision of this
Agreement; provided that such participation agreement may provide that
such Bank will not agree to any modification, amendment or waiver of
this Agreement described in clauses (i) through (vi), inclusive, of
Section 11.04 without the consent of the Participant. Subject to
Section 11.08(e), the Company agrees that each Participant shall be
entitled to the benefits of Sections 4.03, 4.04 and 11.04 with respect
to its participating interest. An assignment or other transfer which
is not permitted by clause (c) below shall be given effect for
purposes of this Agreement only to the extent of a participating
interest granted in accordance with this clause (b).
(c) Any Bank may at any time assign to one or more banks or
other institutions (each an "Assignee") all, or (except insofar as
such assignment relates to Competitive Loans) a proportionate part of
all, of its rights and obligations under this Agreement and the Notes,
and such Assignee shall assume such rights and obligations, pursuant
to an instrument executed by such Assignee and such transferor Bank,
with (and subject to) the signed consents of the Company and the Agent
and the Swing Line Bank (which consents shall not be unreasonably
withheld or delayed); provided, however, any such assignment shall be
in the minimum aggregate amount of $10,000,000; provided, further,
that the foregoing consent requirement shall not be applicable in the
case of, and this subsection (c) shall not restrict, an assignment of
all, or (except insofar as such assignment relates to Competitive
Loans) a proportionate part of all, of its rights and obligations
under this Agreement and the Notes by any Bank to an Affiliate of such
Bank or a pledge and assignment of all, or (except insofar as such
assignment relates to Competitive Loans) a proportionate part of all,
of its rights and obligations under this Agreement and the Notes to a
Federal Reserve Bank as collateral; and provided, further, that no
consent of the Company shall be required if an Event of Default has
occurred and is continuing. Upon (i) execution and delivery of such
an instrument, (ii) payment by such Assignee to such transferor Bank
of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee and (iii) payment by the transferee
Bank or transferor Bank to the Agent of an administrative fee in the
amount of $3,500, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and
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obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank (and the Company as
to the transferor Bank) shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action
by any party shall be required. Upon the consummation of any
assignment pursuant to this subsection (c), the transferor Bank, the
Agent and the Company shall make appropriate arrangements so that, if
required, new Notes are issued to the Assignee.
(d) No Assignee, Participant or other transferee of any
Bank's rights shall be entitled to receive any greater payment under
Section 4.03 or 4.04 than such Bank would have been entitled to
receive with respect to the rights transferred, unless such transfer
is made with the Company's prior written consent or by reason of the
provisions of Section 4.04 requiring such Bank to designate a
different lending office under certain circumstances or at a time when
the circumstances giving rise to such payment did not exist.
(e) No Participant of any Bank shall be entitled to receive
any greater payment under Section 4.03, Section 4.04 or Section 11.04
than such Bank would have been entitled to receive if it had not
granted a participation to such Participant.
Section 11.09. WAIVER OF JURY TRIAL. THE COMPANY, THE
AGENT AND EACH OF THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT, THE NOTES OR THE
RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 11.10. Confidentiality. Except as may be required
to enforce the rights and duties established hereunder,
the parties hereto shall preserve in a confidential manner all
information received from the other pursuant to this Agreement, the
Notes and the transactions contemplated hereunder and thereunder, and
shall not disclose such information except to those persons with which
a confidential relationship is maintained (including regulators, legal
counsel, accountants, or designated agents), or where required by law.
Nothing in this paragraph shall prevent the filing of this Agreement
with the Securities and Exchange Commission.
Section 11.11. Indemnity. The Company agrees to indemnify
the Agent, the Swing Line Bank and each of the Banks and their
respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee
harmless from, any and all losses, claims, damages and liabilities of
any party other than the Company and related expenses, including
reasonable counsel fees and expenses incurred by or asserted against
any Indemnitee arising out of, in any way connected with, or as a
result of (i) the execution or delivery of this
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Agreement or any Note or any agreement or instrument contemplated
hereby or thereby, the performance by the parties thereto of their
respective obligations hereunder or thereunder or the consummation of
the transactions and the other transactions contemplated hereby or
thereby, (ii) the use of the proceeds of the Loans or (iii) any claim,
litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto and
notwithstanding that any claim, proceeding, investigation or
litigation relating to any such losses, claims, damages, liabilities
or expenses is or was brought by a stockholder, creditor, employee or
officer of the Company; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of any
Indemnitee or from the breach by any Indemnitee of its obligations
hereunder or with respect to claims or actions solely between or
among the Banks relating to this Agreement or the transactions
contemplated hereby and provided further, that such Indemnity shall
not apply to any loss, claim, damage, or liability or related expense
incurred as a consequence of any additional costs (as contemplated by
Section 4.04(b)) or any Tax, which shall be governed by the provisions
of Section 4.04(b) and (a), respectively.
The provisions of this Section 11.11 shall remain operative
and in full force and effect regardless of the expiration of the term
of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any of the Loans, the reduction or
cancellation of the Commitment, the invalidity or unenforceability of
any term or provision of this Agreement or any Note, or any
investigation made by or on behalf of the Banks. All amounts due
under this Section 11.11 shall be payable in immediately available
funds upon written demand therefor.
Section 11.12. Extension of Termination Dates; Removal of
Banks; Substitutions of Banks.
(a) (i) No earlier than the first anniversary of the
Effective Date and no later than 120 days prior to the scheduled
Termination Date, the Company may, at its option, request all the
Banks then party to this Agreement to extend their scheduled
Termination Dates by one calendar year by means of a letter, addressed
to each such Bank and the Agent. If such a request is accepted and
the Termination Date is extended pursuant to subsection 11.12(a)(ii),
the Company may, at its option, no earlier than the date one year
after the first request for extension and no later than 120 days prior
to the rescheduled Termination Date, make one further request that all
the Banks then party to this Agreement to extend their scheduled
Termination Dates by one additional year in the same manner, subject
to the provisions of subsection 11.12(a)(ii); provided that in no
event shall the Termination Date be extended to a date which is later
than the fifth anniversary of the Effective Date.
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(ii) Each Bank electing (in its sole discretion) so to extend its
scheduled Termination Date shall execute and deliver within forty-five
(45) days following such request counterparts of such letter to the
Company and the Agent, whereupon (unless Banks with an aggregate
percentage of the Total Commitment in excess of 25% decline to extend
their respective scheduled Termination Dates, in which event the Agent
shall notify all the Banks thereof), such Bank's scheduled Termination
Date shall be extended to the anniversary date of the year immediately
succeeding such Bank's then-current scheduled Termination Date. If no
such election is received within such forty-five day period from any
Bank, such Bank shall be deemed to have elected not to extend its
scheduled Termination Date.
(b) With respect to any Bank which has declined to extend
such Bank's scheduled Termination Date and if Banks with an aggregate
percentage of the Total Commitment not in excess of 25% have not
declined to extend their respective Termination Dates, the Company may
in its discretion, upon not less than 30 days' prior written notice to
the Agent and each Bank, remove such Bank as a party hereto. Each
such notice shall specify the date of such removal (which shall be a
Business Day), which shall thereupon become the scheduled Termination
Date for such Bank.
(c) In the event that any Bank does not extend its
scheduled Termination Date pursuant to subsection (a) above or is the
subject of a notice of removal pursuant to subsection (b) above, then,
at any time prior to the Termination Date for such Bank (a
"Terminating Bank"), the Company may, at its option, arrange to have
one or more other financial institutions acceptable to the Agent
(which may be a Bank or Banks and each of which shall herein be called
a "Successor Bank") succeed to all or a percentage of the Terminating
Bank's outstanding Loans, if any, and rights under this Agreement and
assume all or a like percentage (as the case may be) of such
Terminating Bank's Commitment and other obligations hereunder, as if
(i) in the case of any Bank electing not to extend its scheduled
Termination Date pursuant to subsection (a) above, such Successor Bank
had extended its scheduled Termination Date pursuant to such
subsection (a) and (ii) in the case of any Bank that is the subject of
a notice of removal pursuant to subsection (b) above, no such notice
of removal had been given by the Company. Such succession and
assumption shall be effected by means of one or more agreements
supplemental to this Agreement among the Terminating Bank, the
Successor Bank, the Company and the Agent. On and as of the effective
date of each such supplemental agreement, each Successor Bank party
thereto shall be and become a Bank for all purposes of this Agreement
and to the same extent as any other Bank hereunder and shall be bound
by and entitled to the benefits of this Agreement in the same manner
as any other Bank.
(d) On the originally scheduled Termination Date for any
Terminating Bank, such Terminating Bank's Commitment shall terminate
and, except to the extent assigned pursuant to subsection (c) above,
Page 68
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the Company shall pay in full all of such Terminating Bank's Loans and
all other amounts payable to such Bank hereunder, including any
amounts payable pursuant to Section 4.3 on account of such payment.
(e) To the extent that all or a portion of any Terminating
Bank's obligations are not assumed pursuant to subsection (c) above,
the Total Commitment shall be reduced on the applicable Termination
Date and each Bank's percentage of the reduced Total Commitment shall
be revised pro rata to reflect such Terminating Bank's absence.
Section 11.13. Knowledge of the Company. As used in this
Agreement, knowledge of the Company shall mean to the best of any
executive officer's knowledge, after a reasonable investigation.
Section 11.14. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
REALTY INCOME CORPORATION
By: /s/ Michael R. Pfeiffer
---------------------------
Name: Michael R. Pfeiffer
Title: Senior Vice
President, General
Counsel and
Secretary
THE BANK OF NEW YORK,
as Agent for the Banks
By: /s/ Lisa Y. Brown
---------------------------
Name: Lisa Y. Brown
Title: Vice President
Page 69
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Address for Notices:
One Wall Street
18th Floor
New York, NY 10286
Attn: Kalyani Bose
Agency Function
Administration
Fax: (212) 635-6365
With a copy to:
The Bank of New York
10990 Wilshire Boulevard
Suite 1700
Los Angeles, CA 90024
Attn: Lisa Y. Brown
Vice President
Fax: (310) 996-8667
THE BANK OF NEW YORK
as a Bank and as the
Swing Line Bank
By: /s/ Lisa Y. Brown
---------------------------
Name: Lisa Y. Brown
Title: Vice President
Address for Notices:
One Wall Street
18th Floor
New York, NY 10286
Attn: Kalyani Bose
Agency Function
Administration
Fax: (212) 635-6365
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<PAGE>
With a copy to:
The Bank of New York
10990 Wilshire Boulevard
Suite 1700
Los Angeles, CA 90024
Attn: Lisa Y. Brown
Vice President
Fax: (310) 996-8667
Eurodollar Lending Office:
One Wall Street
18th Floor
New York, NY 10286
Attn: Kalyani Bose
Agency Function
Administration
Fax: (212) 635-6365
SANWA BANK CALIFORNIA
By: /s/ Dirk Price
Name: Dirk A. Price
Title: Vice President
Address for Notices:
Sanwa Bank California
601 S. Figueroa St., 8th Floor
Los Angeles, CA 90017
Attn: Dirk A. Price
Vice President
Fax: (213) 896-7282
Eurodollar Lending Office:
Sanwa Bank California
601 S. Figueroa St., 8th Floor
Los Angeles, CA 90017
Attn: Dirk A. Price
Vice President
Fax: (213) 896-7282
Page 71
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FIRST UNION NATIONAL BANK
By: /s/ John Schissel
---------------------------
Name: John Schissel
Title: Vice President
Address for Notices:
One First Union Center, DC-6
Charlotte, NC 28288
Attn: John Schissel
Fax: (704) 383-6205
Eurodollar Lending Office:
One First Union Center, DC-6
Charlotte, NC 28288
Attn: John Schissel
Fax: (704) 383-6205
BANK HAPOALIM, B.M.
SAN FRANCISCO BRANCH
By: /s/ Paul Watson
---------------------------
Name: Paul Watson
Title: Vice President
By: /s/ John Rice
---------------------------
Name: John Rice
Title: Vice President/
Senior Loan Officer
Address for Notices:
250 Montgomery Street, Ste 700
San Francisco, CA 94104
Attn: Paul Watson
Fax: (415)989-9948
Eurodollar Lending Office:
250 Montgomery Street, Ste 700
San Francisco, CA 94104
Attn: Paul Watson
Fax: (415)989-9948
Page 72
<PAGE>
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By: /s/ Christopher E. Sarisky
---------------------------
Name: Christopher E.
Sarisky
Title: Assistant Treasurer
By: /s/ Colleen Madden
---------------------------
Name: Colleen Madden
Title: Vice President
Address for Notices:
Dresdner Bank AG
333 So. Grand Ave., Ste. 1700
Los Angeles, CA 90071
Attn: Vitol Wiacek
Fax: (213) 473-5450
Eurodollar Lending Office:
Dresdner Bank AG, New York Branch
75 Wall Street
New York, NY 10005
Attn: Robert Reddington
Fax: (212) 429-2130
BANK OF MONTREAL
By: /s/ John Mead
---------------------------
Name: John Mead
Title: Director
Address for Notices:
115 S. LaSalle St., 12th Fl.
Chicago, IL 60603
Attn: Jeff Forsythe
Director
Fax: (312) 750-4352
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<PAGE>
Eurodollar Lending Office:
115 S. LaSalle St., 12th Fl.
Chicago, IL 60603
Attn: Debra Fahey
Fax: (312) 750-4345
AMSOUTH BANK
By: /s/ John Meriwether
---------------------------
Name: John Meriwether
Title: Senior Vice
President
Address for Notices:
P.O. Box 11007
Birmingham, AL 35288
Attn: John Meriwether
Fax: (205) 326-4075
Eurodollar Lending Office:
P.O. Box 11007
Birmingham, AL 35288
Attn: Sue Ailshie
Fax: (205) 326-4075
Page 74
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EXHIBIT A
FORM OF CONVERSION/CONTINUANCE REQUEST
[Dated as provided
in Section 3.05]
The Bank of New York
One Wall Street, 18th Floor
New York, New York 10286
Attn: Kalyani Bose
Realty Income Corporation (the "Company") hereby gives
notice of its intention to [convert/continue] [$___________ Principal
Amount] [the entire outstanding amount] of its [ABR Loans] [Eurodollar
Pro Rata Loans] with an Interest Period of ____ days and ending on
__________, ____] [to/as] [ABR Loans] [Eurodollar Pro Rata Loans],
pursuant to the Amended and Restated Revolving Credit Agreement, dated
as of November 29, 1994 and amended and restated as of December __,
1997, among the Company, the Banks and The Bank of New York, as Agent
and Swing Line Bank (as amended, supplemented or otherwise modified
from time to time, the "Agreement"), such [conversion/ continuance to
be effective as of ___________, ____. [The Interest Period for the
Eurodollar Pro Rata Loans shall be _____ days, with a Scheduled
Maturity on __________.]
Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Page 75
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EXHIBIT B
FORM OF PRO RATA LOAN REQUEST
[Dated as provided
in Section 2.02]
The Bank of New York
One Wall Street, 18th Floor
New York, New York 10286
Attn: Kalyani Bose
Realty Income Corporation (the "Company") hereby gives
notice of its intention to borrow $____________ of Loans on _________,
____ pursuant to the Amended and Restated Revolving Credit Agreement,
dated as of November 29, 1994 and amended and restated as of December
__, 1997, among the Company, the Banks and The Bank of New York, as
Agent and Swing Line Bank (as amended, supplemented or otherwise
modified from time to time, the "Agreement"). [The Company hereby
requests that such Loan constitute a Eurodollar Pro Rata Loans with a
scheduled maturity of ___________, 19__ and an Interest Period of
_____ days.]
The Company hereby confirms that the amounts of Loans
outstanding on the date hereof is as follows:
Total Commitment $150,000,000
Outstanding Pro Rata Loans $___________
Outstanding Competitive
Loans $___________
Availability $___________
The Company also hereby confirms that each of the
representations and warranties (other than the representations and
warranties that speak as of a specific date) contained in Article V of
the Agreement is true and correct on the date hereof and, after giving
effect to this borrowing, will be true and correct on the proposed
borrowing date as though such representation or warranty had
originally been made on such dates. No Default or Event of Default
has occurred and is continuing, nor will any such event occur as a
result of this borrowing.
Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
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<PAGE>
EXHIBIT C-1
Form of Competitive Loan Request
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: Kalyani Bose
Agency Function Administration
Re: Request for Competitive Bids
Reference is made to the Amended and Restated Revolving
Credit Agreement, dated as of November 29, 1994 and amended and
restated as of December __,1997 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), among Realty Income
Corporation (the "Company"), the banks from time to time parties
thereto and The Bank of New York, as Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings
ascribed to such terms in the Credit Agreement.
The Company hereby gives you notice pursuant to Section 2.08
of the Credit Agreement that it requests the Lenders to make offers to
make Competitive Loans under the Credit Agreement, and in that
connection sets forth below the terms on which such Competitive Loans
are requested to be made:
(A) Borrowing Date(1)
(B) Principal Amount
of Competitive Loan(2)
(C) Maturity Date(3)
(D) Interest rate basis [Absolute Rate] [Eurodollar]
(E) Interest Period, if any(4)
Very truly yours,
REALTY INCOME CORPORATION
By:_______________________
Title:
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<PAGE>
(1) Must be a Business Day.
(2) Must be an amount not less than $1,000,000, or an integral
multiple of $100,000 in excess thereof.
(3) At least seven days after the Borrowing Date and not more
than (i) 180 days after the Borrowing Date, in the case of
Absolute Rate Competitive Loans, or (ii) six months after the
Borrowing Date, in the case of Eurodollar Competitive Loans.
(4) One, two, three or six months with respect to Eurodollar
Competitive Loans. Not applicable to Absolute Rate
Competitive Loans.
Page 78
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EXHIBIT C-2
FORM OF NOTICE TO BANKS
[Date]
[Name of Bank]
[Address]
Attention: ________________
Re: Notice of a Request for Competitive Bids
Reference is made to the Amended and Restated Revolving
Credit Agreement, dated as of November 29, 1994 and amended and
restated as of December __, 1997 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), among Realty Income
Corporation (the "Company"), the banks from time to time parties
thereto and The Bank of New York, as Agent. Capitalized terms used
but not defined herein shall have the meanings assigned to such terms
in the Credit Agreement.
The Company delivered to the Agent a Competitive Loan
Request on ____________, ____, pursuant to Section 2.08 of the Credit
Agreement, and in that connection you are invited to submit a Bid to
make a Competitive Loan to the Company by [TIME], on _______________,
___. Your Bid must comply with Section 2.08 of the Credit Agreement
and the terms set forth below on which the Competitive Loan Request
was made:
(A) Proposed Borrowing Date
(B) Principal amount of
Competitive Loan
(C) Interest rate basis [Absolute Rate] [Eurodollar]
(E) Interest Period and the
last day thereof
Very truly yours,
THE BANK OF NEW YORK, as
Agent
By:___________________________
Title:
Page 79
<PAGE>
EXHIBIT C-3
FORM OF COMPETITIVE BID
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: Kalyani Bose
Agency Function Administration
Re: Competitive Bid
Reference is made to the Amended and Restated Revolving
Credit Agreement, dated as of November 29, 1994, and amended and
restated as of December __, 1997 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), among Realty Income
Corporation (the "Company"), the other lenders from time to time
parties thereto and The Bank of New York, as Agent. Capitalized terms
used but not defined herein shall have the meanings assigned to such
terms in the Credit Agreement.
[NAME OF BANK] hereby submits a Competitive Bid to make an
[Absolute Rate] [Eurodollar] Competitive Loan pursuant to Section 2.08
of the Credit Agreement, in response to the Borrowing Request made by
the Company on ______________, ____, and in that connection sets forth
below the terms on which such Competitive Bid is made:
(A) Principal Amount(1) _______________
(B) Competitive Bid _______________
(C) Competitive Bid
[Rate] [Margin](2) _______________
The undersigned hereby confirms that it will, subject only
to the conditions set forth in the Credit Agreement, extend credit to
the Borrower upon acceptance by the Borrower of this Competitive Bid
in accordance with Section 2.08 of the Credit Agreement.
Very truly yours,
[NAME OF BANK]
By:______________________
Title:
(1) Principal amount must be at least $1,000,000, or an integral
multiple of $100,000 in excess thereof, and not greater than the
requested Competitive Loan. Multiple bids may be accepted by
the Agent.
(2) In the case of Absolute Rate Competitive Loans, __%; in the case
of Eurodollar Competitive Loans, a margin (+/- __%) over LIBOR.
Page 80
<PAGE>
EXHIBIT C-4
FORM OF COMPETITIVE BID ACCEPT/REJECT NOTICE
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: Kalyani Bose
Agency Function Administration
Re: Competitive Bid Acceptance/Reject Letter
Realty Income Corporation (the "Company") refers to the
Amended and Restated Revolving Credit Agreement, dated as of November
29, 1994, and amended and restated as of December __, 1997 (as
amended, modified or supplemented or extended from time to time, the
"Credit Agreement"), among the Company, the banks from time to time
parties thereto (the "Banks") and The Bank of New York, as Agent.
In accordance with Section 2.08 of the Credit Agreement, we
have received a summary of bids in connection with our Competitive
Loan Request, dated ________, ____, and in accordance with Section
2.08 of the Credit Agreement, we hereby accept the following
Competitive Bids for Competitive Loans to be made on _________, ____,
with a Maturity Date of ____________, ____:
Competitive
Principal Amount Rate/Margin Bank
---------------- ----------- --------------
%/+/-. %
We hereby reject the following Competitive Bids:
Competitive
Principal Amount Rate/Margin Bank
---------------- ----------- --------------
%/+/-. %
Very truly yours,
REALTY INCOME CORPORATION
By:_______________________
Title:
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<PAGE>
EXHIBIT D-1
FORM OF PRO RATA NOTE
$__________________ December __, 1997
Realty Income Corporation, a Maryland corporation (the
"Company"), for value received, hereby promises to pay on the
Termination Date to the order of _______________ (the "Bank"), at the
office of The Bank of New York, as Agent, at One Wall Street, New
York, New York 10286, in lawful money of the United States, the
principal sum of $__________ or if less, the aggregate unpaid
principal amount of all Pro Rata Loans made by the Bank to the Company
pursuant to that certain Amended and Restated Revolving Credit
Agreement dated as of November 29, 1994 and amended and restated as of
December __, 1997 (as amended, supplemented or otherwise modified from
time to time, the "Agreement") among the Company, each of the banks
party thereto, and The Bank of New York, as Agent and Swing Line Bank.
This Note shall bear interest, and such interest shall be
payable, as set forth in the Agreement for ABR Loans and Eurodollar
Pro Rata Loans. Upon the occurrence and during the continuation of an
Event of Default, this Note shall bear interest at the default rate
pursuant to Section 3.06 of the Agreement.
Except as otherwise provided in the Agreement, with respect
to Eurodollar Pro Rata Loans, if interest or principal on the Loan
evidenced by this Note becomes due and payable on a day which is not a
Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and interest shall be payable thereon at the
rate herein specified during such extension.
This Note is one of the Pro Rata Notes referred to in the
Agreement, and is subject to prepayment in whole or in part and its
maturity is subject to acceleration upon the terms provided in the
Agreement. Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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All Pro Rata Loans made by the Bank to the Company pursuant
to the Agreement and all payments of principal hereof and interest
thereon may be indicated by the Bank upon the grid attached hereto
which is a part of this Note. Such notations shall be presumptive as
to the aggregate unpaid principal amount of and interest on all Pro
Rata Loans made by the Bank pursuant to the Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Loan and Payments of Principal and Interest
Interest Interest
Method period if
Amount (ABR or Eurodollar
Date of Loan Eurodollar) Loan)
- -------- --------- ------------ -------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 83
<PAGE>
Name of
Amount of Unpaid Amount of Person
Principal Principal Interest Making
Paid Balance Paid Notation
- --------- --------- ---------- ----------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 84
<PAGE>
EXHIBIT D-2
FORM OF COMPETITIVE NOTE
$[75,000,000] __________________
Realty Income Corporation, a Maryland corporation (the
"Company"), for value received, hereby promises to pay on the
Termination Date to the order of _______________ (the "Bank"), at the
office of The Bank of New York, as Agent, at One Wall Street, New
York, New York 10286, in lawful money of the United States, the
principal sum of $[75,000,000] or if less, the aggregate unpaid
principal amount of all Competitive Loans made by the Bank to the
Company pursuant to that certain Amended and Restated Revolving Credit
Agreement dated as of November 29, 1994 and amended and restated as of
December __, 1997 (as amended, supplemented or otherwise modified from
time to time, the "Agreement") among the Company, each of the banks
party thereto, and The Bank of New York, as Agent and Swing Line Bank.
This Note shall bear interest, and such interest shall be
payable, as set forth in the Agreement for Absolute Rate Competitive
Loans and Eurodollar Competitive Loans. Upon the occurrence and
during the continuation of an Event of Default, this Note shall bear
interest at the default rate pursuant to Section 3.06 of the
Agreement.
Except as otherwise provided in the Agreement, with respect
to Eurodollar Competitive Loans, if interest or principal on the Loan
evidenced by this Note becomes due and payable on a day which is not a
Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and interest shall be payable thereon at the
rate herein specified during such extension.
This Note is one of the Competitive Notes referred to in the
Agreement, and is subject to prepayment in whole or in part and its
maturity is subject to acceleration upon the terms provided in the
Agreement. Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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All Competitive Loans made by the Bank to the Company
pursuant to the Agreement and all payments of principal hereof and
interest thereon may be indicated by the Bank upon the grid attached
hereto which is a part of this Note. Such notations shall be
presumptive as to the aggregate unpaid principal amount of and
interest on all Competitive Loans made by the Bank pursuant to the
Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Loan and Payments of Principal and Interest
Interest Interest
Method period if
Amount (ABR or Eurodollar
Date of Loan Eurodollar) Loan)
- -------- --------- ------------ -------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 86
<PAGE>
Name of
Amount of Unpaid Amount of Person
Principal Principal Interest Making
Paid Balance Paid Notation
- --------- --------- ---------- ----------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 87
<PAGE>
EXHIBIT D-3
FORM OF SWING LINE NOTE
$15,000,000 December __, 1997
Realty Income Corporation, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the order of
The Bank of New York (the "Bank"), on the maturity date thereof, the
principal amount of each Swing Line Advance made by the Bank pursuant
to that certain Revolving Credit Agreement, dated as of November 29,
1994, and amended and restated as of December __, 1997 (as amended,
supplemented or otherwise modified from time to time, the
"Agreement"), among the Company, each of the banks party thereto, and
The Bank of New York, as Agent and Swing Line Bank.
The Company also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the date
hereof until maturity (whether by acceleration or otherwise) and,
after maturity, until paid, at the rate or rates per annum, on the
date or dates and in the manner specified in the Agreement.
Payments of both principal and interest are to be made in
lawful money of the United States of America in immediately available
funds to the Swing Line Bank, in the manner specified in the
Agreement.
This Note is the Swing Line Note referred to in the
Agreement, which among other things, contains provisions for the
acceleration of the maturity hereof upon the happening of certain
events and for the amendment or waiver of certain provisions of the
Agreement, all upon the terms and conditions therein specified.
Unless otherwise defined herein, capitalized terms used herein have
the respective meanings specified in the Agreement.
This Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
The Bank is authorized to indicate upon the grid attached to
this Note all borrowings hereunder and payments of principal and
interest hereon. Such notations shall be presumptive as to the
aggregate unpaid principal amount of and interest on all Swing Line
Advances made by the Bank pursuant to the Agreement.
REALTY INCOME CORPORATION
By___________________________
Name:
Title:
Page 88
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SWING LINE ADVANCES AND PRINCIPAL PAYMENTS
Amount of Swing
Line Advances Made
Swing Line
Date Advance Maturity Interest Rate
- ----- -------------- ---------- --------------
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
Page 89
<PAGE>
Amount of
Amount of Unpaid
Principal Principal
Repaid Balance
Swing Line Swing Line Notation
Advance Advance Total Made by
- ---------- ---------- -------- ----------
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
Page 90
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EXHIBIT E
FORM OF SWING LINE ADVANCE REQUEST
[Dated as provided
in Section 2.10]
The Bank of New York
One Wall Street, 18th Floor
New York, New York 10286
Attn: Kalyani Bose
Realty Income Corporation (the "Company") hereby gives
notice of its intention to borrow $____________ in a Swing Line
Advance on _________, ____ pursuant to the Amended and Restated
Revolving Credit Agreement, dated as of November 29, 1994 and amended
and restated as of December __, 1997, among the Company, the Banks and
The Bank of New York, as Agent and Swing Line Bank (as amended,
supplemented or otherwise modified from time to time, the
"Agreement").
The Company hereby confirms that the amounts of Loans and
Swing Line Advances outstanding on the date hereof are as follows:
Total Commitment $150,000,000
Outstanding Loans $___________
Commitment Availability $___________
Swing Line Facility $ 15,000,000
Outstanding Swing Line Advances $___________
Swing Line Availability $___________
The Company also hereby confirms that each of the
representations and warranties (other than the representations and
warranties that speak as of a specific date) contained in Article V of
the Agreement is true and correct on the date hereof and, after giving
effect to this borrowing, will be true and correct on the proposed
borrowing date as though such representation or warranty had
originally been made on such dates. No Default or Event of Default
has occurred and is continuing, nor will any such event occur as a
result of this borrowing.
Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Page 91
<PAGE>
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 1
December __, 1997
EXHIBIT F-1
FORM OF OPINION OF LATHAM & WATKINS
The Bank of New York,
as Agent for the Banks
One Wall Street, Twenty-Second Floor
New York, New York 10286
The Banks Signatory to the Credit
Agreement Referred to Below
Re: Amended and Restated Revolving Credit Agreement dated as
of November 29, 1994 and amended and restated as of
December __, 1997, among Realty Income Corporation, the
Banks Named Therein and The Bank of New York, as Agent
and Swing Line Bank
Ladies/Gentlemen:
We have acted as special counsel for Realty Income
Corporation, a Maryland corporation (the "Company"), in connection
with the Amended and Restated Revolving Credit Agreement (the "Credit
Agreement") dated as of November 29, 1994 and amended and restated as
of December __, 1997, among the Company, each of the banks identified
on the signature pages thereof (the "Banks") and The Bank of New York,
as Agent for the Banks and Swing Line Bank (the "Agent"). This opinion
is rendered to you pursuant to Section 6.01(f) of the Credit
Agreement. Capitalized terms defined in the Credit Agreement are used
herein as therein defined.
In our capacity as such counsel, we have examined such
matters of fact and questions of law as we have considered appropriate
for purposes of rendering the opinions expressed below. We have
examined among other things, the following:
(a) The Credit Agreement;
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The Bank of New York,
as Agent for the Banks
December __, 1997
Page 2
(b) The following promissory notes of the Company dated
_________________, 1997 (collectively, the "Notes",
and together with the Credit Agreement, the "Loan
Documents"): (i) note in the original principal
amount of $__________ payable to The Bank of New
York; (ii) note in the original principal amount of
$_________________ payable to ______________; [and
(____) note in the original principal amount of
$_____________ payable to _____________________;]
(c) The Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws of
the Company; and
(d) Such other documents and agreements as we deem
necessary for purposes of rendering the opinions
expressed below.
In our examination, we have assumed the genuineness of all
signatures (other than those of officers of the Company on the Loan
Documents as to which we have relied on a certificate of incumbency),
the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents
submitted to us as copies.
We have been furnished with, and with your consent have
relied upon, certificates of officers of the Company with respect to
certain factual matters. In addition, we have obtained and relied upon
such certificates and assurances from public officials as we have
deemed necessary.
We are opining herein as to the effect on the subject
transaction only of the federal laws of the United States and the
internal laws of the State of New York, as applicable, and we express
no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any
state.
Our opinions set forth in paragraph 1 below are based upon
our consideration of only those statutes, rules and regulations which,
in our experience, are normally applicable to bank credit
transactions.
Subject to the foregoing and the other matters set forth
herein, it is our opinion that, as of the date hereof:
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The Bank of New York,
as Agent for the Banks
December __, 1997
Page 3
1. None of the execution and delivery of the Loan
Documents by the Company, the borrowing of the funds pursuant to the
Loan Documents by the Company and the payment of the indebtedness of
the Company evidenced by the Notes: (a) violate any federal or New
York statute, rule, or regulation applicable to the Company
(including, without limitation, Regulations G, T, U, or X of the Board
of Governors of the Federal Reserve System), or (b) require any
consents, approvals, authorizations, registrations, declarations, or
filings by the Company under any applicable federal or New York
statute, rule or regulation.
2. Each of the Loan Documents has been duly executed and
delivered by the Company and constitutes a legally valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms.
3. The Company is not an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
The opinions set forth in paragraph 2 above are subject to
the following limitations, qualifications and exceptions:
(a) the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in
effect relating to or affecting the rights or remedies
of creditors;
(b) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or
at law, and the discretion of the court before which
any proceeding therefor may be brought;
(c) the unenforceability under certain circumstances under
law or court decisions of provisions providing for the
indemnification of or contribution to a party with
respect to a liability where such indemnification or
contribution is contrary to public policy;
(d) the unenforceability of any provision requiring the
payment of attorney's fees, except to the extent that
a court determines such fees to be reasonable; and
(e) we express no opinion with respect to the
enforceability of Section 10.01 of the Credit
Agreement by a federal court.
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The Bank of New York,
as Agent for the Banks
December __, 1997
Page 4
To the extent that the obligations of the Company may be
dependent upon such matters, we assume for purposes of this opinion
that: all parties to the Loan Documents other than the Company are
duly incorporated, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation; all parties
to the Loan Documents other than the Company have the requisite
corporate power and authority to execute and deliver the Loan
Documents and to perform their respective obligations under the Loan
Documents to which they are a party; and the Loan Documents to which
such parties other than the Company are a party have been duly
authorized, executed and delivered by such parties and constitute
their legally valid and binding obligations, enforceable against them
in accordance with their terms. We express no opinion as to compliance
by any parties to the Loan Documents with any state or federal laws or
regulations applicable to the subject transactions because of the
nature of their business.
This opinion is rendered only to you and is solely for your
benefit in connection with the transactions covered hereby. This
opinion may not be relied upon by you for any other purpose, or
furnished to, quoted to or relied upon by any other person, firm or
corporation for any purpose, without our prior written consent.
Very truly yours,
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The Bank of New York,
as Agent for the Banks
December __, 1997
Page 1
December ___ , 1997
EXHIBIT F-2
FORM OF OPINION OF MICHAEL R. PFEIFFER, ESQ.
The Bank of New York,
as Agent for the Banks
One Wall Street
22nd Floor
New York, New York 10286
The Banks Signatory to the Credit
Agreement Referred to Below
Re: Amended and Restated Revolving Credit Agreement dated as
of November 29, 1994 and amended and restated as of
December __, 1997, among Realty Income Corporation, the
Banks Named Therein and The Bank of New York, as Agent
and Swing Line Bank
Ladies/Gentlemen:
I am general counsel of Realty Income Corporation, a
Maryland corporation (the "Company"). This opinion is rendered to you
pursuant to Section 6.01(f) of the Amended and Restated Revolving
Credit Agreement (the "Credit Agreement") dated as of November 29,
1994 and amended and restated as of December __, 1997, among the
Company, each of the banks identified on the signature pages thereof
(the "Banks") and The Bank of New York, as Agent for the Banks and
Swing Line Bank (the "Agent"). Capitalized terms defined in the Credit
Agreement are used herein as therein defined.
In my capacity as general counsel, I have examined such
matters of fact and questions of law as I have considered appropriate
for purposes of rendering the opinions expressed below, except where a
statement is qualified as to knowledge or awareness, in which case I
have made no or limited inquiry as specified below. I have examined,
among other things, the following:
(a) The Credit Agreement;
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The Bank of New York,
as Agent for the Banks
December __, 1997
Page 2
(b) The following promissory notes of the Company dated
_____________, 1997 (collectively, the "Notes", and
together with the Credit Agreement, the "Loan
Documents"): (i) note in the original principal amount
of $_____________ payable to The Bank of New York; (ii)
note in the original principal amount of $____________
payable to ________________ [[and] (_____) note in the
original principal amount of $__________ payable to
________________];
(c) The Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws of the Company; and
(d) Such other documents and agreements as I deem necessary
for purposes of rendering the opinions expressed below.
In my examination, I have assumed the genuineness of all
signatures (other than those of officers of the Company on the Loan
Documents), the authenticity of all documents submitted to me as
originals, and the conformity to authentic original documents of all
documents submitted to me as copies.
I have been furnished with, and with your consent have
relied upon, certificates of officers of the Company with respect to
certain factual matters. In addition, I have obtained and relied upon
such certificates and assurances from public officials as I have
deemed necessary.
I am opining herein as to the effect on the subject
transaction only of the federal laws of the United States and the
internal laws of the State of California, as applicable, and I express
no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any
state.
Whenever a statement herein is qualified by "to the best of
my knowledge" or a similar phrase, it is intended to indicate that I
do not have current actual knowledge of the inaccuracy of such
statement. Except as otherwise expressly indicated, I have not
undertaken any independent investigation to determine the accuracy of
any such statement, and no inference that I have any knowledge of any
matters pertaining to such statement should be drawn from my
representation of the Company.
Subject to the foregoing and the other matters set forth
herein, it is my opinion that, as of the date hereof:
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The Bank of New York,
as Agent for the Banks
December __, 1997
Page 3
1. Based solely on certificates from public officials, I
confirm that the Company is qualified to do business in the states in
which the Company owns properties.
2. To the best of my knowledge, there are no proceedings
or investigations pending or threatened before any court or arbitrator
or before or by any governmental authority which would have a material
adverse effect on the legality, validity, binding effect or
enforceability of any Loan Document.
This opinion is delivered by me as general counsel for the
Company to you and is solely for your benefit in connection with the
transactions covered hereby. This opinion may not be relied upon by
you for any other purpose, or furnished to, quoted to or relied upon
by any other person, firm or corporation for any purpose, without my
prior written consent.
Very truly yours,
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Exhibit G
---------
Form of Property Management Exception Report
This document has been excluded.
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<PAGE>
Exhibit H
---------
Real Estate Investment Criteria
The Investment Committee is authorized, without prior Board of
Director approval, to approve real estate investments which meet all
of the following criteria:
1. The Purchase Price for each property shall not exceed
$10,000,000.
2. The investment must consist of a fee interest in real property.
3. If the real property is unimproved at the time of acquisition,
there must be an agreement to complete specified improvements on
the property by a certain date.
4. Prior to, or concurrent with the acquisition, the property must
be net-leased to a tenant approved by the Company's Investment
Committee.
5. The real estate investment may not cause (i) the total
investment with that tenant to exceed $25 million, or (ii) the
amount of annualized rental revenue to be derived by the Company
from a tenant to exceed 5% of the Company's previous 12 months'
rental revenues.
6. The real estate investment may not cause the amount of
annualized rental revenue to be derived by the Company from any
one industry to exceed 25% of the Company's previous 12 month's
rental revenues.
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EXHIBIT I
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY, dated as of December 13, 1994, is made by
each entity that is identified on Schedule A hereto or that hereafter
executes and delivers a Subsidiary Joinder pursuant to the Credit
Agreement described herein (each such entity, a "Guarantor") in favor
of the lenders (the "Lenders") from time to time party to the Credit
Agreement (as defined below), and The Bank of New York ("BONY"), as
agent (BONY and any successor thereto in such capacity, "Agent") for
the Lenders and in favor of all other present and future Holders of
any of the Guaranteed Obligations described herein.
RECITALS
A. The Lenders and Agent have entered into that certain
Credit Agreement, dated as of November 28, 1994 (as amended,
supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Realty Income Corporation, a Delaware corporation
("Borrower"), Agent and the Lenders.
B. Each Guarantor is a Subsidiary of Borrower and
expects to derive substantial direct and indirect benefit from the
transactions contemplated by the Credit Agreement.
C. It is a condition precedent to the making of Loans by
the Lenders under the Credit Agreement that each Guarantor shall have
guaranteed payment of each and all debts, liabilities and obligations
of Borrower under the Credit Agreement and the Notes (collectively,
the "Obligations"), on the terms set forth herein.
D. Borrower has agreed, in the Credit Agreement, to
cause any future Subsidiaries of Borrower to which the Borrower or any
Subsidiary of Borrower transfers its properties located in the State
of Texas to become party to this Guaranty, as a Guarantor hereunder,
by executing and delivering a Subsidiary Joinder as set forth in the
Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing and in
order to induce the Lenders to make Loans under the Credit Agreement,
each Guarantor hereby agrees as follows:
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 General Definitions. Except as otherwise
specifically provided herein, the terms which are defined in Article I
of the Credit Agreement shall have the same meanings when used in this
Guaranty and the provisions of Sections 1.2 and 1.3 of the Credit
Agreement shall apply to this Guaranty.
SECTION 1.2 Certain Defined Terms. As used in this
Guaranty, the following terms shall have the following meanings:
"Bankruptcy Code" means Title 11 of the United States Code,
as from time to time amended.
"Disallowed Post-Commencement Interest and Expenses" means
interest computed at the rate provided in the Credit Agreement and
claims for reimbursements, costs, expenses or indemnities under the
terms of the Credit Agreement accruing or claimed at any time after
commencement of any Insolvency or Liquidation Proceeding, if the claim
for such interest, reimbursement, cost, expense or indemnity is not
allowable, allowed or enforceable against Borrower in such Insolvency
or Liquidation Proceeding.
"Guaranty" means this Subsidiary Guaranty, dated as of
_______________, 1994, made by the Guarantors for the benefit of the
Lenders, Agent and other Holders of Guaranteed Obligations.
"Guaranty Taxes" is defined in Section 3.8(a).
"Holder" means, in respect of any Guaranteed Obligation, the
Person entitled to enforce payment thereof and specifically includes
Agent and the Lenders.
"Insolvency or Liquidation Proceeding" means any (i) any
case under the Bankruptcy Code, any other insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to Borrower or to any of
its creditors, as such, or to a substantial part of any of its assets,
or (ii) any proceeding for the liquidation, dissolution or other
winding up of Borrower, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (iii) any assignment for
the benefit of creditors or any other marshaling of assets and
liabilities of Borrower.
"Subordinated Liabilities" is defined in Section 2.8(a).
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ARTICLE II
GUARANTY AND RELATED PROVISIONS
SECTION 2.1 Guaranty. Each Guarantor hereby
unconditionally:
(a) guarantees the punctual payment when due, whether
at stated maturity, by acceleration or otherwise, of (i) all
Obligations now outstanding or hereafter arising under or in
connection with the Credit Agreement or the Notes, whether for
principal, interest, fees, taxes, additional compensation,
expense reimbursements, indemnification or otherwise, and (ii)
each other debt, liability or obligation of Borrower now
outstanding or hereafter arising under any of the Credit
Agreement and the Notes (such Obligations, liabilities and other
debts, liabilities and obligations, collectively, the
"Guaranteed Obligations"), and
(b) agrees to pay on demand (i) all Disallowed Post-
Commencement Interest and Expenses, to the Person entitled to
payment thereof if the claim therefor had been allowed in any
Insolvency or Liquidation Proceeding and (ii) all costs and
expenses (including, without limitation, reasonable attorneys'
fees and legal expenses) incurred by any Holder of Guaranteed
Obligations in enforcing this Guaranty; provided, however, that
the amount of each Guarantor's payment obligations hereunder
shall not exceed an aggregate amount equal to such Guarantor's
stockholders' or partners' equity, as the case may be.
SECTION 2.2 Acceleration of Payment. If (i) the Notes
become immediately due and payable pursuant to Section 8.01 of the
Credit Agreement, then all liability of each Guarantor under this
Guaranty in respect of any Guaranteed Obligation that is not then due
and payable shall thereupon become and be immediately due and payable,
without notice or demand.
SECTION 2.3 Guaranty Absolute and Unconditional. Each
Guarantor guarantees that the Guaranteed Obligations will be paid in
accordance with the terms of the Credit Agreement and the Notes,
regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights and
claims of any Holder of Guaranteed Obligations against Borrower with
respect thereto and even if any such rights or claims are modified,
reduced or discharged in an Insolvency or Liquidation Proceeding or
otherwise. The obligations of each Guarantor under this Guaranty are
independent of the Guaranteed Obligations, and a separate action or
actions may be brought and prosecuted against each Guarantor to
enforce this Guaranty, irrespective of whether any action is brought
against Borrower or whether Borrower is joined in any such action or
actions. The liability of each Guarantor under this Guaranty shall
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be absolute and unconditional irrespective of (i) any lack of validity
or enforceability of the Credit Agreement or any Note or any other
agreement or instrument relating thereto; (ii) any change in the time,
manner or place of payment of, or in any other term of, all or any of
the Guaranteed Obligations, or any other amendment or waiver of or any
consent to departure from the Credit Agreement or any Note, including,
without limitation, any increase in the Guaranteed Obligations
resulting from the extension of additional credit to Borrower or
otherwise; (iii) any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guaranty, for all or any of the
Guaranteed Obligations; (iv) any manner of application of collateral,
or proceeds thereof, to all or any of the Guaranteed Obligations, or
any manner of sale or other disposition of any collateral for all or
any of the Guaranteed Obligations or any other assets of Borrower; (v)
any change, restructuring or termination of the corporate structure or
existence of Borrower; or (vi) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, a
surety or guarantor.
SECTION 2.4 Guaranty Irrevocable and Continuing. This
Guaranty is an irrevocable and continuing offer and agreement
guaranteeing payment of any and all Guaranteed Obligations and shall
extend to all Guaranteed Obligations now outstanding or created or
incurred at any future time, whether or not created or incurred
pursuant to any agreement presently in effect or hereafter made, until
all obligations of the Lenders to extend credit to Borrower have
expired or been terminated, and all Guaranteed Obligations have been
fully, finally and indefeasibly paid. To the extent any contingent
Obligation survives the expiration or termination of the Credit
Agreement and the repayment of the Loans, each Guarantor's liability
under this Guaranty shall likewise survive. This Guaranty may be
released only in writing.
SECTION 2.5 Reinstatement. If at any time any payment
on any Guaranteed Obligation is set aside, avoided or rescinded or
must otherwise be restored or returned, this Guaranty and the
liability of each Guarantor under this Guaranty shall remain in full
force and effect and, if previously released or terminated, shall be
automatically and fully reinstated, without any necessity for any act,
consent or agreement of any Guarantor, as fully as if such payment had
never been made and as fully as if any such release or termination had
never become effective.
SECTION 2.6 Waiver. Each Guarantor hereby waives and
agrees not to assert or take advantage of:
(a) Marshaling. Any right to require any Holder of
Guaranteed Obligations to proceed against or exhaust its
recourse against Borrower or any other Subsidiary Guarantor or
any other Person liable for any of the Guaranteed Obligations or
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against any collateral for any of the Guaranteed Obligations or
against any other Person or property, before demanding and
enforcing payment of the Guaranteed Obligations from any
Guarantor under this Guaranty;
(b) Other Defenses. Any defense that may arise by
reason of (i) the incapacity, lack of authority, death or
disability of Borrower or any other Person; (ii) the revocation
or repudiation of any of the Credit Agreement or the Notes by
Borrower or any other Person; (iii) the unenforceability in
whole or in part of the Credit Agreement or the Notes or any
other instrument, document or agreement; (iv) the failure of any
Holder of Guaranteed Obligations to file or enforce a claim
against any Person liable for any of the Guaranteed Obligations
or in any Liquidation or Insolvency Proceeding; or (v) any
borrowing or grant of a security interest under Section 364 of
the Bankruptcy Code;
(c) Notices. Presentment, demand for payment, protest,
notice of discharge, notice of acceptance of this Guaranty,
notice of the incurrence of, or any default in respect of, any
debt, liability or obligation guaranteed hereunder, and all
other indulgences and notices of every type or nature,
including, without limitation and to the maximum extent
permitted by law, notice of the disposition of any collateral
for any of the Guaranteed Obligations;
(d) Election of Remedies. Any defense based upon an
election of remedies (including, if available, an election to
proceed by non-judicial foreclosure) or any other act or
omission of any Holder of Guaranteed Obligations or any other
Person which destroys or otherwise impairs any right that any
Guarantor might otherwise have for subrogation, recourse,
reimbursement, indemnity, exoneration, contribution or otherwise
against Borrower or any other Person;
(e) Collateral. Any defense based upon any taking,
modification or release of any collateral or guaranties for the
Guaranteed Obligations, or any failure to create or perfect or
ensure the priority or enforceability of any security interest
in any collateral for any of the Guaranteed Obligations or any
act or omission related thereto;
(f) Offsets. Any right to recoup from or offset
against any of the Guaranteed Obligations any claim that may be
held or asserted by or available to (i) Borrower or any other
Guarantor or any other Person liable for any of the Guaranteed
Obligations against any Holder of Guaranteed Obligations or
(ii) any Guarantor against Borrower, any other Guarantor, any
other Holder of Guaranteed Obligations or any other Person; or
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(g) Defenses of Others. Any other claim, right or
defense (including, by way of illustration and without
limitation, such matters as failure or insufficiency of
consideration, statute of limitations, breach of contract,
tortious conduct, accord and satisfaction, and discharge by
agreement, conduct or in a Liquidation or Insolvency
Proceeding), except the defense of payment, that may be held or
asserted by or available to (i) Borrower or any other Guarantor
or any other Person liable for any of the Guaranteed Obligations
against any Holder of Guaranteed Obligations or (ii) any
Guarantor against Borrower, any other Guarantor, any other
Holder of Guaranteed Obligations or any other Person.
SECTION 2.7 Subrogation. Each Guarantor hereby
represents, warrants and agrees, in respect of any and all present and
future rights of subrogation, recourse, reimbursement, indemnity,
exoneration, contribution and other claims that such Guarantor at any
time may have against Borrower, any other Guarantor or any other
Person liable for the payment of any of the Guaranteed Obligations
(including, without limitation, the owner of any interest in
collateral for any of the Guaranteed Obligations) as a result of or in
connection with this Guaranty or any payment hereunder, that:
(a) No Agreement. Such Guarantor has not entered into,
and agrees that it will not enter into, any agreement providing,
directly or indirectly, for any such right or claim against
Borrower or, except as set forth in Section 2.10, against any
other Subsidiary of Borrower, and each such agreement now
existing or hereafter entered into (except Section 2.10) is and
shall be void;
(b) Release. Such Guarantor forever waives and
releases, and agrees never to sue upon, any such right or claim
against Borrower and, except as set forth in Section 2.10,
against any other Subsidiary of Borrower, whether or not the
Guaranteed Obligations have been paid in full;
(c) Capital Contribution. Each payment made by such
Guarantor under this Guaranty shall be a contribution to the
capital of Borrower, and no such payment shall give rise to any
claim (as that term is defined in the Bankruptcy Code) in favor
of such Guarantor against Borrower;
(d) Subordination of Contribution Rights. Each
Guarantor reserves, as against each other Guarantor, its right
of contribution under Section 2.10 but agrees that all such
contribution rights shall be included among the Subordinated
Liabilities; and
(e) Deferral of Other Rights and Claims. Until all
obligations of the Lenders to extend credit to Borrower have
expired or been terminated and all the Guaranteed Obligations
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have been paid in full, such Guarantor will not demand, sue for,
accept or receive any payment or transfer on account of any such
right or claim from any Person (other than Borrower and its
Subsidiaries) liable for the payment of any of the Guaranteed
Obligations.
SECTION 2.8 Subordination Provisions.
(a) Subordination. Any and all present and future
debts, liabilities and obligations of every type and description
(whether for money borrowed, on intercompany accounts, for
provision of goods or services, under tax sharing or
contribution agreements or on account of any other transaction,
agreement, occurrence or event and whether absolute or
contingent, direct or indirect, matured or unmatured, liquidated
or unliquidated, created directly or acquired from another, or
sole, joint, several or joint and several) of Borrower now
outstanding or hereafter incurred or owed to any Guarantor (the
"Subordinated Liabilities") shall be, and hereby are,
subordinated to full and final payment of the Guaranteed
Obligations.
(b) Prohibited Payments. No Guarantor will demand, sue
for, accept or receive, or cause or permit any other Person to
make, any payment on or transfer of property on account of any
Subordinated Liabilities except to the extent payment is
permitted at the time under Section 7.02 of the Credit
Agreement.
(c) No Liens or Transfers. No Guarantor will demand,
accept or hold any Lien upon any real or personal property of
Borrower as security for any of the Subordinated Liabilities and
agrees that any such Lien shall be void.
(d) Insolvency Proceedings. In any Insolvency or
Liquidation Proceeding, the Holders of Guaranteed Obligations
shall be entitled to receive payment in full of all amounts due
or to become due on or in respect of the Guaranteed Obligations,
or provision shall be made for such payment in money or money's
worth, before any Guarantor is entitled to receive any payment
or distribution of any kind or character, whether in cash,
property or securities, on account of any of the Subordinated
Liabilities, and to that end the Holders of Guaranteed
Obligations shall be entitled to receive, for application to the
payment thereof, all payments and distributions of any kind or
character, whether in cash, property or securities (including
any such payment or distribution which may be payable or
deliverable by reason of the payment of any other debt or
liability of Borrower being subordinated to the payment of the
Subordinated Liabilities), which may be payable or deliverable
in respect of the Subordinated Liabilities in any such
Insolvency or Liquidation Proceeding.
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(e) Disallowed Post-Commencement Interest and
Expenses. If in any Insolvency or Liquidation Proceeding
(i) any payment or distribution of any kind or character,
whether in cash, property or securities (including any such
payment or distribution which may be payable or deliverable by
reason of the payment of any other debt or liability of Borrower
being subordinated to the payment of the Subordinated
Liabilities) is payable or deliverable in respect of the
Subordinated Liabilities, and (ii) the Holders of Guaranteed
Obligations are not otherwise entitled to receive such payment
or distribution pursuant to Section 2.8(d), and (iii) any amount
remains unpaid to any Holder of Guaranteed Obligations on
account of any Disallowed Post-Commencement Interest and
Expenses, then the Holders of Guaranteed Obligations shall be
entitled to receive payment of all such unpaid Disallowed Post-
Commencement Interest and Expenses from and out of any and all
such payments and distributions in respect of the Subordinated
Liabilities.
(f) Held in Trust. If any payment, transfer or
distribution is made to any Guarantor upon any Subordinated
Liabilities that is not permitted to be made under this Section
2.8 or that the Holders of Guaranteed Obligations are entitled
to receive under this Section 2.8, such Guarantor shall receive
and hold the same in trust, as trustee for the benefit of the
Holders of Guaranteed Obligations, and shall forthwith transfer
and deliver the same to Agent, in precisely the form received
(except for any required endorsement), for application to the
payment of Guaranteed Obligations or any unpaid Disallowed Post-
Commencement Interest and Expenses.
(g) Claims in Bankruptcy. Each Guarantor will file
all claims against Borrower in any Liquidation or Insolvency
Proceeding in which the filing of claims is required or
permitted by law upon any of the Subordinated Liabilities and
will assign to Agent, for the benefit of the Holders of
Guaranteed Obligations, all rights of such Guarantor thereunder.
If any Guarantor does not file any such claim at least 30 days
prior to any applicable claims bar date, Agent is hereby
authorized (but shall not be obligated), as attorney-in-fact for
such Guarantor with full power of substitution, either to file
such claim or proof thereof in the name of such Guarantor or, at
Agent's option, to assign the claim and cause the claim or proof
thereof to be filed by an agent or nominee. Agent and its
agents and nominees shall have the sole right, but no
obligation, to accept or reject any plan proposed in such
Insolvency or Liquidation Proceeding and to cast any votes and
to take any other action with respect to all claims upon any of
the Subordinated Liabilities.
(h) Subordination Effective and not Impaired. This
Section 2.8 shall remain effective for so long as this Guaranty
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is continuing and thereafter for so long as any Guaranteed
Obligation is outstanding. Each Guarantor's obligations under
this Section 2.8 (i) shall be absolute and unconditional as set
forth in Section 2.3, irrevocable and continuing as set forth in
Section 2.4, subject to reinstatement as set forth in Section
2.5, and not be affected or impaired by any of the matters
waived in Section 2.6, (ii) shall be subject to the provisions
of Article V, and (iii) shall otherwise be as equally enduring
and free from defenses as such Guarantor's liability under this
Guaranty.
SECTION 2.9 Fraudulent Transfer Limitation. If, in any
action to enforce this Guaranty or any proceeding to allow or
adjudicate a claim under this Guaranty, a court of competent
jurisdiction determines that enforcement of this Guaranty against any
Guarantor for the full amount of the Guaranteed Obligations is not
lawful under, or would be subject to avoidance under, Section 548 of
the Bankruptcy Code or any applicable provision of comparable state
law, the liability of such Guarantor under this Guaranty shall be
limited to the maximum amount lawful and not subject to avoidance
under such law.
SECTION 2.10 Contribution among Guarantors. The
Guarantors desire to allocate among themselves, in a fair and
equitable manner, their rights of contribution from each other when
any payment is made by one of the Guarantors under this Guaranty.
Accordingly, if any payment is made by a Guarantor under this Guaranty
(a "Funding Guarantor") that exceeds its Fair Share, the Funding
Guarantor shall be entitled to a contribution from each other
Guarantor in the amount of such other Guarantor's Fair Share
Shortfall, so that all such contributions shall cause each Guarantor's
Aggregate Payments to equal its Fair Share. For these purposes:
(a) "Fair Share" means, with respect to a Guarantor as
of any date of determination, an amount equal to (i) the ratio
of (x) the Adjusted Maximum Amount of such Guarantor to (y) the
aggregate Adjusted Maximum Amounts of all Guarantors, multiplied
by (ii) the aggregate amount paid on or before such date by all
Funding Guarantors under this Guaranty.
(b) "Fair Share Shortfall" means, with respect to a
Guarantor as of any date of determination, the excess, if any,
of the Fair Share of such Guarantor over the Aggregate Payments
of such Guarantor.
(c) "Adjusted Maximum Amount" means, with respect to a
Guarantor as of any date of determination, the maximum aggregate
amount of the liability of such Guarantor under this Guaranty,
limited to the extent required under Section 2.9 (except that,
for purposes solely of this calculation, any assets or
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liabilities arising by virtue of any rights to or obligations of
contribution under this Section 2.10 shall not be counted as
assets or liabilities of such Guarantor).
(d) "Aggregate Payments" means, with respect to a
Guarantor as of any date f determination, the aggregate net
amount of all payments made on or before such date by such
Guarantor under this Guaranty (including, without limitation,
under this Section 2.10).
The amounts payable as contributions hereunder shall be determined as
of the date on which the related payment or distribution is made by
the Funding Guarantor. The allocation and right of contribution among
the Guarantors set forth in this Section 2.10 shall not be construed
to limit in any way the liability of any Guarantor under this Guaranty
to the Holders of the Guaranteed Obligations.
SECTION 2.11 Joint and Several Obligation. This
Guaranty and all liabilities of each Guarantor hereunder shall be the
joint and several obligation of each Guarantor and may be freely
enforced against each Guarantor, for the full amount of the Guaranteed
Obligations (subject to Section 2.9), without regard to whether
enforcement is sought or available against any other Guarantor.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1 Condition of Borrower. Each Guarantor is
fully aware of the financial condition of Borrower and is executing
and delivering this Guaranty based solely upon such Guarantor's own
independent investigation of all matters pertinent hereto and is not
relying in any manner upon any representation or statement by any
Holder of Guaranteed Obligations. Each Guarantor represents and
warrants that it is in a position to obtain, and each Guarantor hereby
assumes full responsibility for obtaining, any additional information
concerning the financial condition of Borrower and any other matter
pertinent hereto as such Guarantor may desire, and such Guarantor is
not relying upon or expecting any Holder of Guaranteed Obligations to
furnish to such Guarantor any information now or hereafter in the
possession of any Holder of Guaranteed Obligations concerning the same
or any other matter. By executing this Guaranty, each Guarantor
knowingly accepts the full range of risks encompassed within a
contract of this type, which risks each Guarantor acknowledges. No
Guarantor shall have the right to require any Holder of Guaranteed
Obligations to obtain or disclose any information with respect to the
Guaranteed Obligations, the financial condition or prospects of
Borrower, the ability of Borrower to pay or perform the Guaranteed
Obligations, the existence, perfection, priority or enforceability of
any collateral security for any or all
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of the Guaranteed Obligations, the existence or enforceability of any
other guaranties of all or any part of the Guaranteed Obligations, any
action or non-action on the part of any Holder of Guaranteed
Obligations, Borrower, or any other Person, or any other event,
occurrence, condition or circumstance whatsoever.
SECTION 3.2 Amendments.
(a) Amendment to Guaranty. No amendment or waiver of
any provision of this Guaranty, and no consent to any departure
by any Guarantor herefrom, shall in any event be effective
unless the same shall be in writing and signed by the Required
Banks, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which
given, except that no amendment, waiver or consent shall, unless
in writing and signed by all the Lenders, (i) limit the
liability of any Guarantor hereunder, (ii) postpone any date
fixed for payment hereunder, or (iii) change the number of
Lenders required to take any action hereunder.
(b) Amendment or Modification of The Notes. The Notes
may be amended, modified or supplemented in accordance with
their terms without notice to or consent or agreement by any
Guarantor, including, without limitation, so as to (i) alter,
compromise, modify, accelerate, extend, renew, refinance or
change the time or manner for making of advances, provision of
other financial accommodations, or the payment or performance of
all or any portion of the Guaranteed Obligations, (ii) increase
or reduce the rate of interest or amount of principal payable on
the Notes, (iii) release or discharge Borrower or any other
Person as to all or any portion of the Guaranteed Obligations,
or (iv) release, substitute or add any one or more guarantors or
endorsers, accept additional or substituted security for payment
or performance of the Guaranteed Obligations, or release or
subordinate any security therefore.
SECTION 3.3 Notices. All notices and other
communications provided for hereunder shall be in writing (including
telecopier communication) and mailed, telecopied or delivered; if to
any Guarantor, at c/o Realty Income Corporation, 220 West Crest
Street, Escondido, CA 92025-1707, Attention: Richard J. VanDerhoff,
Esq., with a copy to: Michael J. Brody Esq., Latham & Watkins, 633
West Fifth Street, Suite 4000, Los Angeles, CA 90071-2007, if to
Agent, at The Bank of New York, One Wall Street, 18th Floor, New York,
NY 10286, Attention: Kalyani Bose -- Agency Function Administration,
with a copy to: Sullivan & Cromwell, 444 South Flower Street, Los
Angeles, CA 90071, Attention: Alison S. Ressler; and if to any
Lender, at its address specified in the Credit Agreement, or, as to
any party, at such other address as shall be designated by such party
in a written notice to each other party. All such notices and other
communications shall, when mailed or telecopied be effective when
deposited in the mails or telecopied respectively.
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SECTION 3.4 Right of Set-off. If any request is made or
consent is given by the Required Banks pursuant to Section 8.01 of the
Credit Agreement for a declaration by Agent that the Notes are
immediately due and payable, or if the Notes become immediately due
and payable pursuant to Section 8.01 of the Credit Agreement, each
Lender shall have the right at any time and from time to time
thereafter, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other liability at any time
owing by such Lender to or for the credit or the account of any
Guarantor against any and all liability of such Guarantor under this
Guaranty, whether or not such Lender shall have made any demand under
this Guaranty and even though such liability may then be contingent
and unmatured. Each Lender agrees promptly to notify the effected
Guarantor after any such set-off and application made by such Lender,
but the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender under this
Section 3.4 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such Lender may
have.
SECTION 3.5 Successors and Assigns. This Guaranty is
binding upon and enforceable against each Guarantor, its successors
and assigns, and shall inure to the benefit of, and be enforceable by,
each Holder of any of the Guaranteed Obligations and such Holder's
heirs, representatives, successors and assigns.
SECTION 3.6 No Inquiry. Each Holder of Guaranteed
Obligations may rely, without further inquiry, on the power and
authority of each Guarantor, Borrower and each of its Subsidiaries and
on the authority of all officers, directors and agents acting or
purporting to act on their behalf.
SECTION 3.7 Bankruptcy. So long as any Commitments or
Guaranteed Obligation are outstanding, no Guarantor will, without the
prior written consent of Agent and the Required Banks, commence or
join with any other Person in commencing any Insolvency or Liquidation
Proceeding against Borrower or any of its Subsidiaries.
SECTION 3.8 No Waiver; Remedies. No failure on the part
of any Holder of Guaranteed Obligations to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, and
any single or partial exercise of any right hereunder shall not
preclude any other or further exercise of any other right or of the
same right as to any other matter or on a subsequent occasion.
SECTION 3.9 Remedies Cumulative. All rights, powers and
remedies of each Holder of Guaranteed Obligations under this Guaranty,
under any other agreement now or at any time hereafter in effect
between any such Holder and each and all of the Guarantors (whether
relating to the Guaranteed Obligations or otherwise) or now
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or hereafter existing at law or in equity or by statute or otherwise,
shall be cumulative and concurrent and not alternative and each such
right, power and remedy may be exercised independently of, and in
addition to, each other such right, power or remedy.
SECTION 3.10 Severally Enforceable. This Guaranty may
be enforced severally and successively by any one or more of the
Holders of Guaranteed Obligations in one or more actions, whether
independent, concurrent, joint, successive or otherwise. The claims,
rights and remedies of any Holder of Guaranteed Obligations (i) may
not be modified or waived by any other Holder, except as set forth in
Section 3.2(a), and (ii) shall not be reduced, discharged, affected or
impaired by any deed, act or omission, whether or not wrongful, of any
other Holder.
SECTION 3.11 Counterparts. This Guaranty may be
executed in counterparts, and each such counterpart for all purposes
shall be deemed an original and all such counterparts together shall
constitute but one and the same agreement.
SECTION 3.12 Severability. If any provision hereof or
the application thereof in any particular circumstance is held to be
unlawful or unenforceable in any respect, all other provisions hereof
and such provision in all other applications shall nevertheless remain
effective and enforceable to the maximum extent lawful.
SECTION 3.13 Integration. This Guaranty is intended as
an integrated and final expression of the entire agreement of such
Guarantor with respect to the subject matter hereof. No
representation, understanding, promise or condition concerning the
subject matter hereof shall be binding upon any Holder of Guaranteed
Obligations unless expressed herein or therein, and no course of prior
dealing or usage of trade, and no parol or extrinsic evidence of any
nature, shall be admissible to supplement, modify or vary any of the
terms hereof. Acceptance of or acquiescence in a course of
performance rendered under this Guaranty or any other dealings between
any Guarantor and any Holder of Guaranteed Obligations shall not be
relevant to determine the meaning of this Guaranty even though the
accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
SECTION 3.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL.
(a) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF
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THIS AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS.
EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN
RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE
BY ANY MEANS PERMITTED BY NEW YORK LAW.
(c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE NOTES OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY.
SECTION 3.15 Acceptance and Notice. Each Guarantor
acknowledges acceptance hereof and reliance hereon by each Holder of
any of the Guaranteed Obligations and waives, irrevocably and forever,
all notice thereof.
IN WITNESS WHEREOF, the Guarantors have caused this
Subsidiary Guaranty to be duly executed and delivered by an officer of
each Guarantor thereunto duly authorized as of the date first above
written.
THE GUARANTORS:
Realty Income Texas Properties, L.P,
a Delaware limited partnership
By: Realty Income Corporation
Its: General Partner
By: _______________________________
Michael R. Pfeiffer
Senior Vice President,
General Counsel
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Schedule 1
----------
Commitments
-----------
BANK ALLOCATION
- ----------------------------------------------------
The Bank of New York $32,000,000
AmSouth Bank $22,000,000
Bank of Montreal $22,000,000
Dresdner Bank $22,000,000
First Union $22,000,000
Sanwa Bank $17,000,000
Bank Hapoalim $13,000,000
============
TOTAL $150,000,000
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Schedule 5.01(a)
----------------
Subsidiaries and Joint Ventures of the Company
----------------------------------------------
SUBSIDIARIES:
Realty Income Texas Properties, Inc., a Delaware corporation
Realty Income Texas Properties, L.P., a Delaware limited
partnership
CO-TENANCIES:
Sizzler #514
101 North Village Court
San Dimas, CA 91773
Sizzler #567
9588 Baseline Road
Rancho Cucamonga, CA 91730
Children's World #134
510 West Second Street
Corona, CA 91720
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Schedule 5.01(q)
----------------
ERISA Liabilities
-----------------
1. Termination of the Realty Income Corporation Defined Benefit
Pension Plan (the "Plan") on January 2, 1996. All Plan benefits were
distributed on or before February 24, 1997.
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Schedule 5.01(r)
----------------
Intellectual Property
---------------------
REGISTERED U.S. SERVICE MARKS:
#1,470,945 "R.I.C."
#1,470,946 "RIC"
#1,908,766 "Realty Income Corporation"
#1,928,373 Building & Sun Design
APPLIED FOR U.S. SERVICE MARKS:
#75/182,734 "Realty Income"
#75/182,736 "Realty Income" with Building & Sun Design
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Exhibit 10.9
SECOND AMENDMENT TO THE
1994 STOCK OPTION AND INCENTIVE PLAN
FOR KEY EMPLOYEES OF
REALTY INCOME CORPORATION,
AND RIC ADVISOR, INC
--------------------
THIS SECOND AMENDMENT ("Amendment") TO THE 1994 STOCK OPTION AND
INCENTIVE PLAN FOR KEY EMPLOYEES OF REALTY INCOME CORPORATION and RIC
ADVISOR, INC. (the "Plan") is made as of December 16,1997, by Realty
Income Corporation, a Maryland corporation (the "Company").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Board of Directors approved the First Amendment
to the Plan on June 12, 1997; and
WHEREAS, the Board of Directors of the Company has
determined that it is appropriate and in the best interests of the
Company to further amend the Plan as set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals,
the Plan is hereby amended as set forth herein:
1. Capitalized terms used herein which are not otherwise defined
herein but are defined in the Plan shall have the meanings given to
such terms in the Plan.
2. Section 10.1 of the Plan is hereby amended and restated in
its entirety as follows:
"10.1 Non-Transferability. No Option or Performance Award or
Restricted Stock (each, an "Award") under this Plan may be sold,
pledged, assigned or transferred in any manner other than by a
qualified domestic relations order as defined by the Code or Title I
of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder ("QDRO") or by will or the laws of descent and
distribution unless and until such Award has been exercised, or the
shares underlying such Award have been issued, and all restrictions
applicable to such shares have lapsed. In the case of Options granted
to Independent Directors, however, an Optionee who is an Independent
Director may transfer an Option to a Permitted Transferee (as defined
below) to the extent permitted by any applicable law or regulations
and subject to the following terms and conditions:
(a) An Option transferred to a Permitted Transferee shall
not be assignable or transferable by the Permitted Transferee other
than by a QDRO or by will or the laws of descent and distribution.
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(b) Any Option which is transferred to a Permitted Transferee shall
continue to be subject to all the terms and conditions of the Option
as applicable to the original holder (other than the ability to
further transfer the Option).
(c) The Optionee and the Permitted Transferee shall execute
any and all documents reasonably requested by the Board, including
without limitation documents to (i) confirm the status of the
transferee as a Permitted Transferee, (ii) satisfy any requirements
for an exemption for the transfer under applicable federal and state
securities laws and (iii) evidence the transfer.
(d) Shares of Common Stock acquired by a Permitted
Transferee through exercise of an Option have not been registered
under the Securities Act of 1933, as amended, or any state securities
act and may not be transferred, nor will any assignee or transferee
thereof be recognized as an owner of such shares of Common Stock for
any purpose, unless a registration statement under the Securities Act
of 1933, as amended, and any applicable state securities act with
respect to such shares shall then be in effect or unless the
availability of an exemption from registration with respect to any
proposed transfer or disposition of such shares shall be established
to the satisfaction of counsel for the Company.
As used in this Section 10.1, "Permitted Transferee" shall
mean (i) one or more of the following family members of an Optionee:
spouse, former spouse, child (whether natural or adopted), stepchild,
any other lineal descendant of the Optionee, (ii) a trust, partnership
or other entity established and existing for the sole benefit of, or
under the sole control of, one or more of the above family members of
the Optionee, or (iii) any other transferee specifically approved by
the Board after taking into account any state or federal tax or
securities laws applicable to transferable Options.
No Award or interest or right therein shall be liable for
the debts, contracts or engagements of the holder thereof or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any
other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect,
except to the extent that such disposition is permitted by the
preceding provisions of this Section 10.1. Except as specifically
provided in this Section 10.1, an Option shall be exercised during the
Optionee's lifetime only by the Optionee or his guardian or legal
representative, and a Performance Award under this Plan shall be
exercised during the Grantee's lifetime only by the Grantee or his
guardian or legal representative."
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3. Except as expressly provided in this Amendment, all of the
terms, covenants, conditions, restrictions and other provisions
contained in the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned, being duly authorized
to do so, has caused this Amendment to be executed as of the date
first above written.
REALTY INCOME CORPORATION
By:
----------------------------
Name: Michael R. Pfeiffer
Title: Senior Vice President,
General Counsel and
Secretary
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Exhibit 10.10
REALTY INCOME CORPORATION
MANAGEMENT INCENTIVE PLAN
I. INTRODUCTION
The Realty Income Corporation Management Incentive Plan is an annual,
stock and cash-based incentive plan that is designed to ensure that
Realty Income Corporation (Realty Income) is managed in keeping with
the best short- and long-term interests of its shareholders and
employees. In light of this objective, the plan rewards certain
executives for the achievement of key corporate and individual-
specific performance objectives. A participant's total award shall be
determined on the basis of annual performance and shall be made in the
form of restricted stock, stock options and cash, which encourage
executives to focus on Realty Income Corporation's long-term success
and shareholder interests. This document sets forth all terms and
conditions of the plan as approved by the Board of Directors.
II. DEFINITIONS
For the purposes of the Plan, the following terms shall have the
meaning set forth below:
"Board" means the Board of Directors of Realty Income.
"CEO" means the Chief Executive Officer of Realty Income.
"Change in Control" means the acquisition of shares of Realty
Income Common Stock by any person, entity or group in a
transaction or series of transactions, resulting in the
beneficial ownership of more than thirty percent of the
outstanding Common Stock of Realty Income; a merger,
consolidation or sale of substantially all the assets of Realty
Income; a contested election of directors of Realty Income
resulting in a majority of the nominees recommended by the Board
of Directors of Realty Income not being elected; a change in
composition within a sixty day period of a majority of Realty
Income's Board of Directors; or any other event which results in
a change of voting power sufficient to elect a majority of the
Board of Directors of Realty Income.
"Committee" means the Compensation Committee of the Board of
Directors of Realty Income.
"Date of Grant" means December 31 of the year for which
performance is being measured.
"Exercise Price" of a Realty Income stock option means the price
at which a share of Realty Income common stock can be purchased
over a specified option term.
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"Funds from Operations" or "FFO" means net income excluding gain
or loss from sales of properties, plus provision for impairment
losses, plus depreciation and amortization. FFO per share means
total FFO for a Performance Period divided by the average number
of Common Shares outstanding for the Performance Period.
"Grant Price" means the per share market value of Realty Income
common stock on the date a Total Award is made.
"Individual-Specific" means individual performance measures
and/or objectives that can determine a portion of a
Participant's Total Award.
"Maximum Award" means a Participant's maximum award for a
certain portion of the Plan for a Performance Period. Maximum
Award is determined by the Committee under the Plan and
typically is expressed as a percentage of a Participant's Target
Award.
"Maximum Performance" means the performance objective at or
above which a Maximum Award is made for a certain portion of the
Plan.
"Minimum Award" means a Participant's minimum award for a
certain portion of the Plan for a Performance Period. Minimum
Award is determined by the Committee under the Plan and
typically is expressed as a percentage of a Participant's Target
Award.
"Minimum Performance" means the performance objective at which a
Minimum Award is made for a certain portion of the Plan and
below which no award is made for that portion of the Plan.
"Participant" means any executive or key employee of Realty
Income selected by the Committee to participate in the Plan.
"Peer Group" means the group of peer companies used in Realty
Income's proxy statement performance graph.
"Performance Period" means a Realty Income fiscal year for which
Total Awards under the Plan are made.
"Plan" means the Realty Income Corporation Management Incentive
Plan.
"President" means the President of Realty Income.
"Target Award" means a Participant's target award for a certain
portion of the Plan for a Performance Period. Target Award for
each portion of the Plan is determined on the basis of the
weight assigned to that portion of the Plan (i.e., a certain
performance measure) and a Participant's Target Total Award.
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"Target Total Award" means a Participant's target Total Award
for a Performance Period, as determined by the Committee under
the Plan. Target Total Award typically is expressed as a
percentage of a Participant's base salary.
"Target Performance" means the performance objective at which a
Target Award is made for a certain portion of the Plan.
"Total Award" means a stock and cash-based award made by the
Board to any Plan Participant for performance on FFO, TSR, and
Individual-Specific objectives for a Performance Period.
"Total Shareholder Return" or "TSR" means a shareholder's annual
percentage return on an investment in stock, including stock
appreciation and dividends. TSR is calculated by adding Realty
Income's stock price on the last day of a Performance Period to
total dividends for that Performance Period, dividing the
resulting value by Realty Income's stock price on the last day
of the preceding Performance Period, and subtracting one from
the resulting value.
III. BASIC APPROACH
The Plan rewards Participants for the achievement of three performance
objectives:
A predetermined FFO per share objective
A predetermined measure of TSR relative to the Peer Group
Individual-Specific objectives.
The Committee shall set a Target Total Award for each Participant that
is expressed as a percentage of the Participant's base salary. A
Target Total Award is set on the basis of competitive pay practices
and the scope of a Participant's responsibilities. Each performance
objective carries a certain weight in determining a Participant's
actual Total Award. FFO performance carries a weight of 60%, TSR
performance carries a weight of 20%, and Individual-Specific
performance carries a weight of 20% of the Total Award.
FFO PER SHARE PERFORMANCE. FFO per share performance shall be
measured by the amount of increase in FFO per share for the
Performance Period over the previous Performance Period. Performance
awards for percentage FFO growth shall be determined as set forth on
Exhibit "1," attached hereto and incorporated herein.
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RELATIVE TSR PERFORMANCE. TSR performance shall be measured as
follows:
Performance Level
------------------------------
TSR Performance
TSR Objective (e.g., TSR Rank
Relative to Peer Group) Third Second First
Percentage of Target Award Made
for TSR Performance 50% 100% 150%
No award shall be made to Participants for the relative TSR
portion of the Plan if actual TSR is zero or negative, regardless of
TSR performance vis-a-vis the Peer Group for the Performance Period.
INDIVIDUAL-SPECIFIC PERFORMANCE. At the beginning of a
Performance Period, the CEO and the Board shall work with the
Participants to develop their Individual-Specific objectives.
Following the end of each Performance Period, the CEO shall make
recommendations to the Committee on the percentage of Target Award
that should be paid to a Participant on the basis of whether
individual performance is below expectations, meets expectations, or
exceeds expectations. The individual portion of the award shall be
between 0% and 150%, which percentage shall be determined by the
Committee.
After actual performance and corresponding awards for each portion of
the Plan are determined, a Participant's Total Award shall be
calculated as the sum of awards from each portion of the Plan.
Straight-line interpolation shall be used to determine award levels
for actual performance between performance increments for FFO
performance. A Participant shall receive no award on a performance
measure if actual performance for that measure is below the Minimum
Performance objective. A Participant shall receive the Maximum Award
on a performance measure if actual performance for that measure is at
or above the Maximum Performance objective.
After a Participant's Total Award (up to 100% of the Target Total
Award) is calculated, 25% of the Participant's Total Award shall be
paid in cash, 25% shall be in the form of restricted stock and 50%
shall be made in the form of stock options. All awards above the
Target Total Award level shall be in the form of stock options. The
number of underlying shares that is granted in the form of restricted
stock shall be determined by dividing 25% of the Total Award (up to
the Target Total Award level) by Realty Income's stock price (the
Grant Price) on the Date of Grant. The number of underlying shares
that is granted in the form of stock options shall be determined by
dividing the balance of the Total Award, less the amount paid in cash,
by the expected value of a Realty Income stock option on the Date of
Grant (using the same Grant Price). The expected value of a Realty
Income stock option shall be estimated using the binomial option
valuation formula, a widely accepted formula for determining the
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expected value of stock options. The Exercise Price of stock options
shall equal the Grant Price.
The number of restricted stock and stock option shares granted shall
be rounded to the nearest 100. The Table below provides an example of
how the number of underlying shares granted in the form of restricted
stock and stock options is determined for a Participant who earns an
assumed Total Award of $40,000. Assuming the Total Award does not
exceed the Target Award, $10,000 (25%) would be paid in cash, and the
balance would be computed as follows:
TABLE
HOW THE NUMBER OF UNDERLYING SHARES FOR A TOTAL AWARD IS DETERMINED -
EXAMPLE (ASSUMING TOTAL AWARD OF $40,000)
Number of Underlying Shares Made in Restricted Stock
- ----------------------------------------------------------------------
Number of
25% of Total RS Shares
Award Made in Assumed Number of (Rounded to
Restricted Stock Grant Price RS Shares Nearest 100)
---------------- ----------- --------- ------------
$10,000 $22.00 455 500
Number of Underlying Shares Made in Stock Options
- ----------------------------------------------------------------------
Number of
50% of Total Assumed SO Shares
Award Made in Assumed Binomial Number of (Rounded to
Stock Options Grant Price Value (1) SO Shares Nearest 100)
------------- ----------- -------- --------- ------------
$20,000 $22.00 $5.76 3,472 3,500
RS: restricted stock; SO: stock option.
(1) Assumed binomial option value of $5.76 was determined using
assumptions for interest rate, stock volatility, dividend yield,
and option term.
All restricted stock and stock option grants made pursuant to the Plan
shall be made in accordance with the provisions of Realty Income's
Stock Incentive Plan.
IV. ASSESSMENT OF PERFORMANCE
Actual performance for FFO, TSR, and Individual-Specific measures
shall be determined as of the last day of a Performance Period.
Actual performance shall be assessed as soon as feasible after the end
of a Performance Period.
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V. ADJUSTMENT OF PERFORMANCE OBJECTIVES
The Committee shall have the authority to change performance
objectives from one Performance Period to another or in the event of
special circumstances (e.g., in the event that a company is added to
or omitted from the Peer Group that is used to determine relative TSR
performance).
At the beginning of each Performance Period (i.e., within the first
three months of the Performance Period), the Board and/or CEO shall
work with other Participants to develop their Individual-Specific
objectives. The Board and/or CEO shall have the authority to change
performance objectives from one Performance Period to another or in
the event of special circumstances (e.g., in the event that a
Participant's position or scope of responsibilities change).
VI. ADJUSTMENT OF AWARDS LEVELS
The Committee shall set Participants' Target Total Award, Minimum
Award, Target Award, and Maximum Award levels under the Plan and shall
have the authority to adjust award levels on the basis of competitive
practices and/or Realty Income's business objectives.
VII. TIMING OF TOTAL AWARD PAYMENTS
All Total Awards shall be made as soon as feasible after all
performance results for the Performance Period are available. The
number of underlying shares for restricted stock and stock options
that are granted shall be determined on the basis of Realty Income's
stock price (the Grant Price) on the Date of Grant.
VIII. VESTING OF TOTAL AWARDS
Restricted stock and stock options that comprise a Total Award shall
vest over three years, with one-third of the Total Award vesting one
year after the Date of Grant, one-third vesting two years after the
Date of Grant, and one-third vesting three years after the Date of
Grant. Dividends on the restricted stock portion of a Total Award
shall be payable from the Date of Grant.
IX. PARTICIPATION
Participation in the Plan shall be limited to executives and key
employees who have a significant impact on the growth and
profitability of Realty Income. The CEO shall make recommendations to
the Committee on which executives and key employees should participate
in the Plan. The Committee shall have the authority to approve
employees for participation in the Plan.
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X. SEPARATION OF EMPLOYMENT
Payment of a Total Award under the Plan shall be conditioned on a
Participant's continued employment with Realty Income during the
entire Performance Period.
SEPARATION OF EMPLOYMENT FOR CAUSE. In the event that a Participant's
employment with Realty Income is terminated for a reason other than
death, disability, retirement, or a Change in Control, any Total Award
for the current, incomplete Performance Period shall be forfeited.
SEPARATION OF EMPLOYMENT WITHOUT CAUSE. If employment ends by reason
of death, disability, retirement, or a Change in Control, a Total
Award shall be paid subject to the conditions of the Plan and
Committee approval, except that the Total Award shall be prorated on
the basis of the number of months in the Performance Period actually
completed prior to said death, disability, retirement, or Change in
Control.
TIMING AND FORM OF PAYMENT. If employment ends by reason of
death, disability, or retirement, such a Total Award shall be
payable in cash at the same time as those paid to Participants
who complete the Performance Period (as described in Section VII
above).
If employment ends by reason of a Change in Control, a prorated
Target Total Award shall be payable in cash immediately. The
prorated Target Total Award shall be made on the basis of the
number of months in the Performance Period actually completed
prior to the Change in Control.
NONVESTED STOCK AWARDS EARNED FROM PRECEDING PERFORMANCE
PERIODS. If employment ends by reason of death, disability,
retirement, or a Change in Control, all nonvested restricted
stock and stock options earned in preceding Performance Periods
shall vest in accordance with the provisions of Realty Income's
Stock Incentive Plan.
XI. MISCELLANEOUS
(a) Term and Adoption of the Plan - The Plan, as set forth herein,
shall become effective on January 1, 1998. The Plan shall
remain in effect until it is terminated pursuant to subsection
(b) below. The adoption of this Plan or any modification hereof
does not imply any commitment to continue the Plan, or any
modification thereof, or adopt any other plan for incentive
compensation for any succeeding year. Neither the Plan nor any
Total Award made under the Plan shall create any employment
contract or relationship between Realty Income and any
Participant. Furthermore, no person has any rights with respect
to a Total Award until it is payable to such person after the
expiration of the applicable Performance Period and verification
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of actual performance on FFO, TSR, and applicable Individual-
Specific measures.
(b) Right to Amend or Terminate the Plan - The Board can amend,
suspend, or terminate the Plan at any time and for any reason,
except that the provisions of the Plan pertaining to the amount
and timing of a Total Award shall not be amended more than once
in any 12-month period.
(c) Liens on Company Assets - No Participant shall hold a lien on
any assets of Realty Income by reason of any Total Award made
under the Plan.
(d) Payment of Awards - Payment of Total Awards under the Plan for a
particular Performance Period shall be made as soon as feasible
following the end of that Performance Period. All Total Awards
shall be made in the form of restricted stock and stock options
and cash.
(e) Deductions - Realty Income retains the right to deduct from all
amounts paid in restricted stock and stock options any taxes
required by law to be withheld from such payments.
(f) Plan Agreement - Each Participant must sign the Realty Income
Corporation Management Incentive Plan Agreement (Exhibit 2) to
confirm his or her participation in the Plan under the terms and
conditions set forth herein. A new agreement must be signed
within the first four months of each Performance Period.
Exhibit 2
Realty Income Corporation
Management Incentive Plan Agreement
This document shall constitute the agreement between Realty Income
Corporation (Realty Income) and (the
Participant), which confirms participation in the Realty Income
Corporation Management Incentive Plan (the Plan).
Subject to the terms and conditions of the Plan, you are a Participant
in the Performance Period beginning January 1, 1998 and ending
December 31, 1998. Your Target Total Award for the Performance Period
shall be % of your base salary, or $ , as shown in Table 1
below.
Table 1
Target Total Award
Base Salary as a % of Base Salary Target Total Award
----------- --------------------- ------------------
$ % $
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Your actual Total Award shall be calculated on the basis of the
achievement of the performance objectives specified pursuant to the
terms of the Plan and as described in this agreement. Realty Income
reserves the right to amend performance objectives and targets on the
basis of factors beyond the control of the Participant. The
performance objectives, the weight each objective carries in
determining your Total Award, and the award levels for the Performance
Period are shown in Table 2 below and further described on the
attached schedule of Management Awards.
Table 2
1998 Performance Objectives and Award Levels -
(Name of Participant)
- ----------------------------------------------------------------------
Performance Objectives Performance Level
and Award Levels ---------------------------------------
Minimum Target Maximum
Performance Performance Performance
- ---------------------------------------------------------------------
FFO PERFORMANCE
Carries Weight of 60%
of Total Award
FFO Per Share Objective $ $ $
Percentage of Target
Award Made for
FFO Performance 20% 100% 300%
- ---------------------------------------------------------------------
TSR PERFORMANCE
Carries Weight of 20%
of Total Award
TSR Ranking Objective
(Relative to Proxy
Performance Graph
Peer Group) Third Second First
Percentage of Target
Award Made for TSR
Performance 50% 100% 150%
- ---------------------------------------------------------------------
INDIVIDUAL-SPECIFIC PERFORMANCE
Carries Weight of 20%
of Total Award
Performance on Individual
-Specific Objectives Below Meets Exceeds
Percentage of Target
Award Made for Individual
Performance 0% 100% 150%
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Pursuant to the provisions of the Plan, your Total Award, up to the
Target Award, shall be made in the form of cash (25%), restricted
stock (25%) and stock options (50%). The amount of your Total Award
that exceeds the Target Award shall be in the form of stock options.
The number of underlying shares that is granted to you in the form of
restricted stock and stock options shall be determined on the basis of
Realty Income's stock price (the Grant Price) on the Date of Grant.
The Exercise Price on stock options shall equal the Grant Price. Your
Total Award shall be made as soon as feasible after the end of the
Performance Period.
Restricted stock and stock options that comprise a Total Award shall
vest over three years, with one-third of the Total Award vesting one
year after the Date of Grant, one-third vesting two years after the
Date of Grant, and one-third vesting three years after the Date of
Grant. Dividends on the restricted stock portion of a Total Award
shall be payable from the Date of Grant.
In the event that your employment with the Company is terminated for
reasons other than death, disability, retirement, or a Change in
Control, any Total Award for the current, incomplete Performance
Period or nonvested restricted shares or stock options from preceding
Performance Periods shall be forfeited. (See Section X of the Realty
Income Corporation Management Incentive Plan.)
Please read the Realty Income Corporation Management Incentive Plan
carefully and retain a copy of the plan document and a copy of the
plan agreement for your reference. Indicate your acceptance of the
terms of this agreement by signing in the space provided below.
Accepted: REALTY INCOME CORPORATION Accepted: (Name of Participant)
By:
------------------------------- -------------------------------
Thomas A. Lewis
Chief Executive Officer
Date: Date:
------------------------------ --------------------------
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Exhibit 1
Proration of Incentive Awards
Percentage FFO Percentage
Growth per Share of Award
- ------------------- ----------
0-4% 0.00%
4.00% 20.00%
4.25% 26.67%
4.50% 33.33%
4.75% 40.00%
5.00% 46.67%
5.25% 53.33%
5.50% 60.00%
5.75% 66.67%
6.00% 73.33%
6.25% 80.00%
6.50% 86.67%
6.75% 93.33%
7.00% 100.00%
7.25% 105.00%
7.50% 110.00%
7.75% 115.00%
8.00% 120.00%
8.25% 125.00%
8.50% 130.00%
8.75% 135.00%
9.00% 140.00%
9.25% 145.00%
9.50% 150.00%
9.75% 155.00%
10.00% 160.00%
10.25% 165.00%
10.50% 170.00%
10.75% 175.00%
11.00% 180.00%
11.25% 185.00%
11.50% 190.00%
11.75% 195.00%
12.00% 200.00%
12.25% 208.33%
12.50% 216.67%
12.75% 225.00%
13.00% 233.33%
13.25% 241.67%
13.50% 250.00%
13.75% 258.33%
14.00% 266.67%
14.25% 275.00%
14.50% 283.33%
14.75% 291.67%
15.00% 300.00%
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<PAGE>
Exhibit 10.11
NONQUALIFIED STOCK OPTION AGREEMENT
FOR INDEPENDENT DIRECTORS
THIS AGREEMENT, dated June 12, 1997, is made by and between
Realty Income Corporation, a Maryland corporation hereinafter referred
to as "Company," and ____________________, an independent director of
the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its $1.00 par value Common Stock;
and
WHEREAS, the Company wishes to carry out the Plan (the terms
of which are hereby incorporated by reference and made a part of this
Agreement);
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates
to the contrary. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
SECTION 1.1 - BOARD
"Board" shall mean the Board of Directors of the Company.
SECTION 1.2 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.3 - COMMITTEE
"Committee" shall mean the Compensation Committee of the Board, or a
subcommittee of the Board, appointed as provided in Section 9.1 of the
Plan
SECTION 1.4 - COMMON STOCK
"Common Stock" shall mean the common stock of the Company, par value
$1.00 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any warrants,
options or other rights to purchase Common Stock. Debt securities of
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the Company convertible into Common Stock shall be deemed equity
securities of the Company.
SECTION 1.5 - COMPANY
"Company" shall mean Realty Income Corporation, a Maryland
corporation.
SECTION 1.6 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.7 - EMPLOYEE
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
SECTION 1.8 - EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
SECTION 1.9 - FAIR MARKET VALUE
"Fair Market Value" of a share of Common Stock as of a given date
shall be the daily market price for the trading day on which the
purchase of such share by the exercising party is consummated. The
market price for each such trading day shall be: (i) if the shares of
Common Stock are listed or admitted to trading on any national
securities exchange or the NASDAQ-National Market System, the closing
price, regular way, on such day, or if no such sale takes place on
such day, the average of the closing bid and asked prices on such day,
(ii) if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange or the NASDAQ-National
Market System, the last reported sale price on such day or, if no sale
takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source
designated by the Company, or (iii) if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange
or the NASDAQ-National Market System and no such last reported sale
price or closing bid and asked prices are available, the average of
the reported high bid and low asked prices on such day, as reported by
a reliable quotation source designated by the Company, or if there
shall be no bid and asked prices on such day, the average of the high
bid and low asked prices, as so reported, on the most recent day (not
more than 10 days prior to the date in question) for which prices have
been so reported; provided that if there are no bid and asked prices
reported during the 10 days prior to the date in question, the Fair
Market Value of the shares of Common Stock shall be determined by the
Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
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SECTION 1.10 - INDEPENDENT DIRECTOR
"Independent Director" shall mean a member of the Board who is not an
Employee of the Company.
SECTION 1.11 - OPTION
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
SECTION 1.12 - OPTIONEE
"Optionee" shall mean an Independent Director granted an Option under
this Agreement and the Plan.
SECTION 1.13 - PLAN
"Plan" shall mean The 1994 Stock Option and Incentive Plan for Key
Employees of Realty Income Corporation and R.I.C. Advisor, Inc., as
amended by the First Amendment dated as of June 12, 1997, and the
Second Amendment dated as of December 16, 1997.
SECTION 1.14 - RULE 16B-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended from time to time.
SECTION 1.15 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.16 - SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.17 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock
possessing 50 percent or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
SECTION 1.18 - TERMINATION OF DIRECTORSHIP
"Termination of Directorship" shall mean the time when the Optionee
ceases to be a Director for any reason, including, but not by way of
limitation, a termination by resignation, failure to be elected, death
or retirement. The Board, in its sole and absolute discretion, shall
determine the effect of all matters and questions relating to
Termination of Directorship.
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ARTICLE II
GRANT OF OPTION
SECTION 2.1 - GRANT OF OPTION
In consideration of the Optionee's agreement to serve as an
Independent Director of the Company or its Subsidiaries until the next
annual meeting of stockholders of the Company and for other good and
valuable consideration, on the date hereof the Company irrevocably
grants to the Optionee the option to purchase any part or all of an
aggregate of 5,000 shares of its $1.00 par value Common Stock upon the
terms and conditions set forth in this Agreement.
SECTION 2.2 - PURCHASE PRICE
The purchase price of the shares of stock covered by the Option shall
be $25.375 per share (which is the Fair Market Value of a share of
Common Stock on the date of the granting of this Option) without
commission or other charge.
SECTION 2.3 - CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the
Company or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, until the next annual
meeting of stockholders of the Company. Nothing in the Plan or this
Agreement shall confer upon any Optionee any right to continue as a
director of the Company, or shall interfere with or restrict in any
way the rights of the Company and any Subsidiary, which are hereby
expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.
SECTION 2.4 - ADJUSTMENTS IN OPTION
(a) In the event that the outstanding shares of the
stock subject to the Option are changed into or exchanged
for a different number or kind of shares of the Company or
other securities of the Company, or of another corporation,
by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock splitup, stock
dividend or combination of shares, the Board shall make an
appropriate and equitable adjustment in the number and kind
of shares as to which the Option, or portions thereof then
unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be
maintained as before the occurrence of such event. Such
adjustment in the Option may include any necessary
corresponding adjustment in the Option price per share, but
shall be made without change in the total price applicable
to the unexercised portion of the Option (except for any
change in the aggregate price resulting from rounding-off of
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share quantities or prices). Any such adjustment made by
the Board shall be final and binding upon the Optionee, the
Company and all other interested persons.
(b) Notwithstanding the foregoing, in the event of such
a reorganization, merger, consolidation, recapitalization,
reclassification, stock splitup, stock dividend or
combination, or other adjustment or event which results in
shares of Common Stock being exchanged for or converted into
cash, securities or other property, the Company will have
the right to terminate the Plan as of the date of the
exchange or conversion, in which case all options, rights
and other awards under this Plan shall become the right to
receive such cash, securities or other property, net of any
applicable exercise price.
(c) In the event of a "spin-off" or other substantial
distribution of assets of the Company which has a material
diminutive effect upon the Fair Market Value of the
Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to
reflect such diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
(a) Subject to Section 5.6, the Option shall become
exercisable one (1) year after the date the Option is
granted.
(b) No portion of the Option which is unexercisable at
Termination of Directorship shall thereafter become
exercisable.
SECTION 3.2 - DURATION OF EXERCISABILITY
Each Option shall remain exercisable until it becomes unexercisable
under Section 3.3.
SECTION 3.3 - EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of 10 years from the date the Option
was granted; or
(b) The expiration of one year from the date of the
Optionee's Termination of Directorship; or
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(c) The effective date of either the merger or
consolidation of the Company with or into another
corporation, the exchange of all or substantially all of the
assets of the Company for the securities of another
corporation, the acquisition by another corporation or
person of all or substantially all of the Company's assets
or 80% or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company,
unless the Board waives this provision in connection with
such transaction and such waiver is consistent with Rule
16b-3. At least 10 days prior to the effective date of such
merger, consolidation, exchange, acquisition, liquidation or
dissolution, the Committee or the Board shall give the
Optionee notice of such event if the Option has then neither
been fully exercised nor become unexercisable under this
Section 3.3.
SECTION 3.4 - ACCELERATION OF EXERCISABILITY
To the extent consistent with the requirements of Rule 16b-3, in the
event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the
assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially
all of the Company's assets or 80% or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the
Company, the Board may, in its absolute discretion and upon such terms
and conditions as it deems appropriate, provide by resolution, adopted
prior to such event and incorporated in the notice referred to in
Section 3.3(f), that at some time prior to the effective date of such
event this Option shall be exercisable as to all the shares covered
hereby, notwithstanding that this Option may not yet have become fully
exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3
prior to said effective date; or
(b) In connection with such an event, provision is made
for an assumption of this Option or a substitution therefor
of a new option by an employer corporation or a parent or
subsidiary of such corporation; and
provided, further, that nothing in this Section 3.4 shall make this
Option exercisable if it is otherwise unexercisable by reason of
Section 5.6.
The Board may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in
connection with such acceleration of exercisability, including, but
not by way of limitation, provisions to ensure that any such
acceleration and resulting exercise shall be conditioned upon the
consummation of the contemplated corporate transaction.
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None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent
with the requirements of Rule 16b-3.
SECTION 3.5 - ACCELERATION OF EXERCISABILITY UPON RETIREMENT
To the extent consistent with the requirements of Rule 16b-3, this
Option shall be exercisable as to all the shares covered hereby,
notwithstanding that this Option may not yet have become fully
exercisable under Section 3.1(a), upon the retirement of the Optionee
in accordance with the Company's retirement policy applicable to
Directors.
ARTICLE IV
EXERCISE OF OPTION
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
Unless the Option has been transferred in accordance with the
provisions of Section 5.2 herein, during the lifetime of the Optionee,
only he (or, in the event of a disability or incapacity, his legal
representative) may exercise the Option or any portion thereof, unless
it has been disposed of pursuant to a qualified domestic relations
order as defined by the Code or Title 1 of Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder ("QDRO"), in
which case the Option shall be exercisable only by the beneficiary of
the QDRO to the same extent it would have been exercisable by the
Optionee. After the death of the Optionee, any exercisable portion of
the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal
representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and
distribution.
SECTION 4.2 - PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time
prior to the time when the Option or portion thereof becomes
unexercisable under Section 3.3; provided, however, that each partial
exercise shall be for not less than 100 shares or the remaining number
of shares if less than 100 and shall be for whole shares only.
SECTION 4.3 - MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.3:
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(a) Notice in writing signed by the Optionee or the
other person then entitled to exercise the Option or
portion, stating that the Option or portion is thereby
exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with
respect to which such Option or portion is exercised;
(ii) With the consent of the Board, payment delayed
for up to thirty (30) days from the date the Option, or
portion thereof, is exercised; or
(iii) With the consent of the Board, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed
for transfer to the Company or (B) subject to the timing
requirements of Section 4.4, shares of the Company's Common
Stock issuable to the Optionee upon exercise of the Option,
with a Fair Market Value on the date of Option exercise
equal to the aggregate purchase price of the shares with
respect to which such Option or portion is exercised; or
(iv) With the consent of the Board, property of any
kind which constitutes good and valuable consideration; or
(v) With the consent of the Board, a full recourse
promissory note bearing interest (at no less than such rate
as shall then preclude the imputation of interest under the
Code or successor provision) and payable upon such terms as
may be prescribed by the Committee or the Board. The
Committee or the Board may also prescribe the form of such
note and the security to be given for such note. The Option
may not be exercised, however, by delivery of a promissory
note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law; or
(vi) With the consent of the Board, any combination of
the consideration provided in the foregoing subparagraphs
(iii), (iv) and (v); and
(c) A bona fide written representation and agreement, in
a form satisfactory to the Committee or the Board, signed by
the Optionee or other person then entitled to exercise such
Option or portion, stating that the shares of stock are
being acquired for his own account, for investment and
without any present intention of distributing or reselling
said shares or any of them except as may be permitted under
the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then
entitled to exercise such Option or portion will indemnify
the Company against and hold it free and harmless from any
loss, damage, expense or liability resulting to the Company
Page 8
<PAGE>
if any sale or distribution of the shares by such person is
contrary to the representation and agreement referred to
above. The Committee or the Board may, in its absolute
discretion, take whatever additional actions it deems
appropriate to insure the observance and performance of such
representation and agreement and to effect compliance with
the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the
foregoing, the Committee or the Board may require an opinion
of counsel acceptable to it to the effect that any
subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue
stop-transfer orders covering such shares. Share
certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein.
The written representation and agreement referred to in the
first sentence of this subsection (c) shall, however, not be
required if the shares to be issued pursuant to such
exercise have been registered under the Securities Act, and
such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer
corporation) of all amounts which, under federal, state or
local tax law, it is required to withhold upon exercise of
the Option; with the consent of the Board, (i) shares of the
Company's Common Stock owned by the Optionee duly endorsed
for transfer, or (ii) subject to the timing requirements of
Section 4.4, shares of the Company's Common Stock issuable
to the Optionee upon exercise of the Option, having a Fair
Market Value at the date of Option exercise equal to the
sums required to be withheld, may be used to make all or
part of such payment; and
(e) In the event the Option or portion shall be
exercised pursuant to Section 4.1 by any person or persons
other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option.
SECTION 4.4 - CERTAIN TIMING REQUIREMENTS
Shares of the Company's Common Stock issuable to the Optionee upon
exercise of the Option may be used to satisfy the Option price or the
tax withholding consequences of such exercise only (i) during the
period beginning on the third business day following the date of
release of the quarterly or annual summary statement of sales and
earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written
election by the Optionee to use shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes (subject to the
Page 9
<PAGE>
approval of the Board) made at least six months prior to the payment
of such Option price or withholding taxes.
SECTION 4.5 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the
Company. Such shares shall be fully paid and nonassessable. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of the
Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other
qualification of such shares under any state or federal law
or under rulings or regulations of the Securities and
Exchange Commission or of any other governmental regulatory
body, which the Committee or Board shall, in its absolute
discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance
from any state or federal governmental agency which the
Committee or Board shall, in its absolute discretion,
determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such
shares, including payment of all amounts which, under
federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time
following the exercise of the Option as the Committee or
Board may from time to time establish for reasons of
administrative convenience; and
(f) The restrictions on ownership and transfer of Common
Stock set forth in the Company's charter and bylaws.
SECTION 4.6 - RIGHTS AS SHAREHOLDER
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and
until certificates representing such shares shall have been issued by
the Company to such holder.
Page 10
<PAGE>
ARTICLE V
OTHER PROVISIONS
SECTION 5.1 - ADMINISTRATION
With respect to this Option, the full Board, acting by a majority of
its members in office, shall have the power to interpret the Plan and
this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith
and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Board in good faith
shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option.
SECTION 5.2 - NON-TRANSFERABILITY
The Option may not be sold, pledged, assigned or transferred in any
manner other than by a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder ("QDRO") or by will or
the laws of descent and distribution; provided, however, the Optionee
may transfer the Option to a Permitted Transferee (as defined below)
to the extent permitted by any applicable law or regulations and
subject to the following terms and conditions:
(a) An Option transferred to a Permitted Transferee
shall not be assignable or transferable by the Permitted
Transferee other than by a QDRO or by will or the laws of
descent and distribution.
(b) Any Option which is transferred to a Permitted
Transferee shall continue to be subject to all the terms and
conditions of the Option as applicable to the original
holder (other than the ability to further transfer the
Option).
(c) The Optionee and the Permitted Transferee shall
execute any and all documents reasonably requested by the
Board, including without limitation documents to (i) confirm
the status of the transferee as a Permitted Transferee, (ii)
satisfy any requirements for an exemption for the transfer
under applicable federal and state securities laws and (iii)
evidence the transfer.
(d) Shares of Common Stock acquired by a Permitted
Transferee through exercise of an Option have not been
registered under the Securities Act or any state securities
act and may not be transferred, nor will any assignee or
transferee thereof be recognized as an owner of such shares
of Common Stock for any purpose, unless a registration
Page 11
<PAGE>
statement under the Securities Act and any applicable state
securities act with respect to such shares shall then be in
effect or unless the availability of an exemption from
registration with respect to any proposed transfer or
disposition of such shares shall be established to the
satisfaction of counsel for the Company.
As used in this Section 5.2, "Permitted Transferee" shall mean (i) one
or more of the following family members of an Optionee: spouse, child
(whether natural or adopted), stepchild, any other lineal descendant
of the Optionee, (ii) a trust, partnership or other entity established
and existing for the sole benefit of, or under the sole control of,
one or more of the above family members of the Optionee, or (iii) any
other transferee specifically approved by the Board after taking into
account any state or federal tax or securities laws applicable to
transferable Options.
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy,
attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy).
SECTION 5.3 - SHARES TO BE RESERVED
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be
sufficient to satisfy the requirements of this Agreement.
SECTION 5.4 - NOTICES
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary,
and any notice to be given to the Optionee shall be addressed to him
at the address given beneath his signature hereto. By a notice given
pursuant to this Section 5.4, either party may hereafter designate a
different address for notices to be given to him. Any notice which is
required to be given to the Optionee shall, if the Optionee is then
deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and
address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a
post office or branch post office regularly maintained by the United
States Postal Service.
SECTION 5.5 - TITLES
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Page 12
<PAGE>
SECTION 5.6 - CONSTRUCTION
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Maryland.
SECTION 5.7 - CONFORMITY TO SECURITIES LAWS
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the
Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without
limitation Rule 16b-3. Notwithstanding anything herein to the
contrary, the Plan shall be administered, and the Option is granted
and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable
law, the Plan and this Agreement shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
REALTY INCOME CORPORATION
By: ___________________________
Thomas A. Lewis
Chief Executive Officer
By: ___________________________
Michael R. Pfeiffer
Secretary
____________________________
__________________, Optionee
____________________________
____________________________
Address
Optionee's Taxpayer
Identification Number:
____________________________
Page 13
<PAGE>
<PAGE>
Exhibit 21.1
============
Subsidiaries of the Company as of January 1, 1998
- -------------------------------------------------
Realty Income Texas Properties, L.P.
a Delaware limited partnership
Realty Income Texas Properties, Inc.
a Delaware corporation
Page 1
<PAGE>
<PAGE>
EXHIBIT 24.1
The Board of Directors
Realty Income Corporation:
We consent to incorporation by reference in Registration
Statement Nos. 333-10431 and 333-34311, each on Form S-3 of Realty
Income Corporation and to incorporation by reference in Registration
Statement No. 33-95708 on Form S-8 of Realty Income Corporation, of
our report relating to the consolidated balance sheets of Realty
Income Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended
December 31, 1997, and the related Schedule III. Such report is dated
January 23, 1998, except as to Note 6A, which is as of
February 23, 1998, and appears in the December 31, 1997, annual report
on Form 10-K of Realty Income Corporation.
/s/KPMG Peat Marwick LLP
San Diego, California
March 19, 1998
Page 1
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>5
<LEGEND>
This Schedule contains summary financial information extracted
from the registrant's Balance Sheet as of December 31, 1997 and
Income Statement for the twelve months ended December 31, 1997 and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER>1
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,123,000
<SECURITIES> 0
<RECEIVABLES> 3,236,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> <F1> 0
<PP&E> 699,797,000
<DEPRECIATION> 152,206,000
<TOTAL-ASSETS> 577,021,000
<CURRENT-LIABILITIES> <F1> 0
<BONDS> 134,319,000
<COMMON> 25,698,000
0
0
<OTHER-SE> 407,617,000
<TOTAL-LIABILITY-AND-EQUITY> 577,021,000
<SALES> 0
<TOTAL-REVENUES> 67,897,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,818,000
<LOSS-PROVISION> 165,000
<INTEREST-EXPENSE> 8,226,000
<INCOME-PRETAX> 34,770,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 34,770,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,770,000
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
<FN> Current assets and current liabilities are not applicable to
the Company under current industry standards.
/FN
Page 1
<PAGE>
</TABLE>
