<PAGE> 1
As filed with the Securities and Exchange Commission on July 18, 1996
Registration No. 333-6459
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------------------------
INLAND REAL ESTATE CORPORATION
(Exact name of registrant as specified in governing instruments)
----------------------------------
2901 Butterfield Road
Oak Brook, Illinois 60521
(Address of principal executive offices)
Robert H. Baum, Esq.
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
(Name and address of agent for service)
With a copy of communication to:
Michael J. Choate, Esq.
Shefsky Froelich & Devine Ltd.
444 North Michigan Avenue, Suite 2500
Chicago, Illinois 60611
------------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed maximum
Title of each class of Amount be- maximum aggregate Amount of
securities being ing regis- offering price offering registration
registered tered per Share price fee
<S> <C> <C> <C> <C>
Common Stock, $.01 par value . . . . . . 10,000,000 $10.00 $100,000,000
Common Stock, $.01 par value (1). . . . . 1,000,000 9.05 9,050,000 (5)
Common Stock, $.01 par value (2). . . . . 375,000 12.00 4,500,000
Soliciting Dealer Warrants(3) . . . . . . . . 125,000 .0008 100
Soliciting Dealer Warrants(4). . . . . . . . 250,000 .0008 200
</TABLE>
(1) Shares which may be issued pursuant to the Registrant's Distribution
Reinvestment Program.
(2) Represents 125,000 and 250,000 shares of common stock which are issuable
upon exercise of warrants issuable to Inland Securities Corporation or its
assignees pursuant to Warrant Purchase Agreements dated October 14, 1994
and July 22, 1996, respectively.
(3) Represents Warrants to purchase 125,000 shares of common stock which were
to be but have not been issued to Inland Securities Corporation or its
assignees pursuant to the Warrant Purchase Agreement dated October 14,
1994.
(4) Represents Warrants to purchase 250,000 shares of common stock issuable
to Inland Securities Corporation or its assignees pursuant to the Warrant
Purchase Agreement dated July 22, 1996.
(5) All applicable registration fees previously paid.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
Inland Real Estate Corporation
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
LOCATION OR HEADING
ITEM NUMBER AND CAPTION IN REGISTRATION STATEMENT
----------------------- -------------------------
<S> <C> <C>
1. Forepart of Registration Registration Statement Cover Page and
Statement and Outside Front Cover Prospectus Cover Page
Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page of
Cover Pages of Prospectus Prospectus; Outside Back Cover Page
of Prospectus
3. Summary Information, Risk Factors Prospectus Cover Page; Prospectus
and Ratio of Earnings to Fixed Summary; Compensation Table; Risk
Charges Factors; Conflicts of Interest; Plan
of Distribution
4. Determination of Offering Price Not Applicable
5. Dilution Not Applicable
6. Selling Security Holders Not Applicable
7. Plan of Distribution Cover Page; Prospectus Summary; Plan
of Distribution; Distribution
Reinvestment and Share Repurchase
Programs
8. Use of Proceeds Estimated Use of Proceeds of Offering
9. Selected Financial Data Selected Financial Data
10. Management's Discussion and Capitalization; Management's
Analysis of Financial Condition Discussion and Analysis of Financial
and Results of Operations Condition and Results of Operations
11. General Information as to Prospectus Summary; Prior Performance
Registrant of the Company's Affiliates;
Management; Summary of the
Organizational Documents; Prior
Performance Tables
12. Policy with Respect to Certain Risk Factors; Conflicts of Interest;
Activities Investment Objectives and Policies;
Real Property Investments; Summary of
the Organizational Documents; Reports
to Stockholders
13. Investment Policies of Registrant Risk Factors; Conflicts of Interest;
Investment Objectives and Policies;
Real Property Investments; Summary of
the Organizational Documents
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION OR HEADING
ITEM NUMBER AND CAPTION IN REGISTRATION STATEMENT
----------------------- -------------------------
<S> <C> <C>
14. Description of Real Estate Investment Objectives and Policies;
Real Property Investments
15. Operating Data Prior Performance of the Company's
Affiliates; Prior Performance Tables
16. Tax Treatment of Registrant and Risk Factors; Federal Income Tax
Its Security Holders Considerations; ERISA Considerations
17. Market Price of and Distributions Risk Factors
on the Registrant's Common Equity
and Related Stockholder Matters
18. Description of Registrant's Description of Securities
Securities
19. Legal Proceedings Not Applicable
20. Security Ownership of Certain Capitalization
Beneficial Owners and Management
21. Directors and Executive Officers Management
22. Executive Compensation Compensation Table; Management
23. Certain Relationships and Related Conflicts of Interest; Management;
Transactions Investment Objectives and Policies;
Real Property Investments
24. Selection, Management and Custody Prospectus Summary; Investment
of Registrant's Investments Objectives and Policies; Real
Property Investments
25. Policies with Respect to Certain Conflicts of Interest; Investment
Transactions Objectives and Policies; Summary of
the Organizational Documents
26. Limitations of Liability Fiduciary Responsibility of Directors
and the Advisor; Indemnification
27. Financial Statements and Index to Financial Statements
Information
28. Interests of Named Experts and Legal Matters; Experts
Counsel
</TABLE>
ii
<PAGE> 4
LOCATION OR HEADING
ITEM NUMBER AND CAPTION IN REGISTRATION STATEMENT
----------------------- -------------------------
29. Disclosure of Commission Position Fiduciary Responsibility of Directors
on Indemnification for Securities and the Advisor; Indemnification;
Act Liabilities Plan of Distribution
iii
<PAGE> 5
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION; DATED JULY 18, 1996
INLAND REAL ESTATE CORPORATION
$10.00 PER SHARE
MINIMUM INITIAL PURCHASE - 300 SHARES
(100 SHARES FOR TAX-EXEMPT ENTITIES)
Inland Real Estate Corporation f/k/a Inland Monthly Income Fund III,
Inc., (the "Company"), a Maryland corporation, is an infinite-life real estate
investment trust (a "REIT"), formed in 1994 to invest in Neighborhood Retail
Centers located primarily within a 150-mile radius of its headquarters in Oak
Brook, Illinois as well as single-user retail properties located throughout
the United States. As of the date of this Prospectus, the Company owns 11
properties, including nine Neighborhood Retail Centers and two single-user
retail properties. The Company intends to use the Net Proceeds of this
Offering (after funding of appropriate working capital reserves) to acquire
additional properties. See "Investment Objectives and Policies" and "Real
Property Investments."
Of the 11,375,000 shares of the Company's common stock, $.01 par value
per share (the "Shares") offered by means of this Propectus , 10,000,000 Shares
are being offered on a "best efforts" basis (the "Offering"); 1,000,000 shares
are available only to Stockholders who are participating in the Company's
Distribution Reinvestment Program (the "DRP"); and 375,000 shares may be issued
upon the exercise of warrants granted to the Dealer Manager. In addition,
375,000 warrants are being offered by means of this Prospectus. See
"Description of Securities--Soliciting Dealer Warrants." The Company's
day-to-day operations will be managed by Inland Real Estate Advisory Services,
Inc. (the "Advisor"). Capitalized terms used in this Prospectus and not defined
in the text are defined in the "Glossary." See "Plan of Distribution."
AN INVESTMENT IN THE COMPANY INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 16. THESE RISKS INCLUDE:
o As there is currently no public trading market for the Shares and no
assurance exists that one will develop, an investor may be unable to
liquidate his investment on favorable terms, if at all. An investment
in the Shares is, therefore, suitable only for those able to make a
long-term investment. (PAGE 16)
o As of the date of this Prospectus, the Company owned nine Neighborhood
Retail Centers and two single-user retail properties and had
approximately $_________ available for acquisition of additional
properties. The Company also intends to use the Net proceeds of this
Offering (after funding of appropriate working capital reserves) to
acquire additional properties. Although the Company intends to
purchase properties, whenever possible, on an all cash basis, the
Company utilized financing to acquire seven of its 11 properties. The
Company has not specified any additional properties in which to
invest. (PAGE 16)
o The Company relies on the Advisor and its Affiliates for the daily
operation of the Company and the management of its assets. The
Company will pay the Advisor and its Affiliates substantial fees for
rendering such services. (PAGE 20)
o No person may own more than 9.8% of the Shares. (PAGE 24)
o Affiliates of the Advisor are engaged in similar real estate
activities which subject them to various conflicts of interest in
their management of the operations of the Company. Such conflicts
include competition for the time and services of Affiliates of the
Advisor, receipt by the Advisor and its Affiliates of compensation
from the Company for their various services and the possibility that
the Company may do business with entities that have pre-existing
relationships with the Advisor or its Affiliates which result in a
conflict between the ongoing business relationship of the Advisor or
its Affiliates and the Company's current interests. (PAGE 19)
o The Company has incurred indebtedness secured by certain of its
properties and may incur additional indebtedness on its existing
properties or properties to be acquired in the future. Defaults on
such indebtedness could cause the Company to lose its investment in
such properties. (PAGE 17)
<TABLE>
<CAPTION>
=========================================================================================================================
Selling Proceeds to
Price to Public Commissions (1) Company (2)(3)
=========================================================================================================================
<S> <C> <C> <C>
Per Share $ 10 $ .70 $ 9.30
Minimum Purchase 300 Shares $ 3,000 $ 210 $ 2,790
Total Maximum if 11,000,000 Shares Sold(4) $ 109,050,000 $ 7,000,000 $ 102,050,000
=========================================================================================================================
</TABLE>
The date of this Prospectus is July __, 1996. (cover page continued)
<PAGE> 6
(1) 10,000,000 of the Shares are being offered on a "best efforts" basis.
The Company will pay Inland Securities Corporation, an Affiliate of
the Advisor (the "Dealer Manager") selling commissions equal to up to
seven percent (7%) of the Gross Offering Proceeds and will issue a
warrant to purchase one Share during the Exercise Period at $12.00
per share for every 40 Shares sold (the "Soliciting Dealer Warrants"),
all or a part of which compensation may be retained or reallowed to the
Soliciting Dealers unless prohibited by either federal or state
securities laws. See "Description of Securities - Soliciting Dealer
Warrants" regarding additional terms of the Soliciting Dealer
Warrants. The Dealer Manager also will receive a marketing
contribution and due diligence expense allowance fee equal to 2.5% of
the Gross Offering Proceeds, some portion of which may be reallowed to
Soliciting Dealers. Certain volume discounts may be given on orders
of 25,000 Shares or more and Soliciting Dealers may, in their
discretion, request that the Company pay them less than the maximum
permitted compensation in respect of the sale of Shares in which event
the amounts not paid as commissions will be retained by the Company.
(2) Before deducting Organization and Offering Expenses which will be
charged to the Company, estimated at $5,771,500 if 11,000,000 Shares
are sold. If the aggregate of all Organization and Offering Expenses,
including selling commissions and the marketing contribution and due
diligence expense allowance fee, exceeds 15% of the Gross Offering
Proceeds, the Advisor will pay such excess expenses.
(3) Participation in the DRP is limited to those investors who purchased
Shares in the Prior Offering or who purchase Shares pursuant to this
Offering. Participants may purchase Shares net of selling commissions
and the marketing contribution and due diligence expense allowance fee
($9.05 per Share). All Shares issued pursuant to the DRP will be
registered.
(4) In addition, assuming all 375,000 warrants are issued to the Dealer
Manager, $300 of additional proceeds will be raised; assuming these
warrants are exercised at the warrant price of $12.00, a total of
$4,500,000 will be raised. No commission will be paid in connection
with the issuance of the warrants or the Shares thereunder.
The Shares included in the Offering will be sold by the Dealer
Manager and other securities dealers (the "Soliciting Dealers") who are members
of the National Association of Securities Dealers, Inc. (the "NASD"). The
Offering will terminate on or before __________, 1998. Subscription proceeds
received from investors will be held in escrow by the Escrow Agent, pending
release to the Company. As no minimum offering amount has been specified,
subscription proceeds are expected to be released to the Company as
subscriptions are accepted. All subscriptions will be accepted or rejected
within ten days (and generally within 24 hours) after receipt by the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THE COMPANY IS NOT A MUTUAL FUND OR AN INVESTMENT COMPANY WITHIN THE
MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND, THEREFORE,
INVESTORS WILL NOT HAVE THE BENEFIT OF THE PROTECTIONS PROVIDED BY THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCES
WHICH MAY FLOW FROM AN INVESTMENT IN THE COMPANY IS PROHIBITED.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION
ii
<PAGE> 7
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
(END OF COVER PAGE)
iii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ORGANIZATIONAL CHART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Company Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Risks of Real Estate Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Tax Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ERISA Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ESTIMATED USE OF PROCEEDS OF OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
WHO MAY INVEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Nonsubordinated Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Subordinated Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Competition for the Time and Service of the Advisor and Affiliates . . . . . . . . . . . . . . . . . . . . . 37
Process for Resolution of Conflicting Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Acquisition from Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
The Company may Purchase Properties from Persons with whom Affiliates of the Advisor have Prior
Business Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Property Management Services are being Rendered by an Affiliate of the Advisor . . . . . . . . . . . . . . . 38
Receipt of Commissions, Fees and Other Compensation by the Advisor and its Affiliates . . . . . . . . . . . 38
Non-Arm's-Length Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Legal Counsel for the Company and the Advisor is the Same Law Firm . . . . . . . . . . . . . . . . . . . . . 39
Inland Securities Corporation is Participating as Dealer Manager in the Sale of the Shares . . . . . . . . . 39
The Advisor may have Conflicting Fiduciary Obligations in the Event the Company Acquires Properties
with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND
THE ADVISOR; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Limitation of Liability and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Defenses Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Prior Investment Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
iv
<PAGE> 9
<TABLE>
<S> <C>
Summary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Publicly Registered Limited Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Private Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Private Placement Real Estate Equity Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Private Placement Mortgage and Note Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Loan Modifications and Work-Outs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Effects of Property Exchanges on Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
The Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
The Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
The Management Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Independent Director Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Types of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Acquisition Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Description of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Property Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Sale or Disposition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Change in Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Certain Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Return of Uninvested Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Additional Offerings and Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Other Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
REAL PROPERTY INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
The Walgreens/Decatur Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
The Eagle Crest Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Montgomery-Goodyear Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
The Hartford/Naperville Plaza Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Nantucket Square Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Antioch Plaza . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
The Mundelein Plaza Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Regency Point Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
</TABLE>
v
<PAGE> 10
<TABLE>
<S> <C>
Prospect Heights Plaza . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Montgomery-Sears Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
The Zany Brainy Store . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Impact of Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Taxation of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Other Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Soliciting Dealer Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Issuance of Additional Securities and Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Certain Article and Bylaw Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Stockholder Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Stockholder Lists; Inspection of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Amendment of the Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Dissolution or Termination of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Advance Notice of Director Nominations and New Business . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Restrictions on Certain Conversion Transactions and Roll-Ups . . . . . . . . . . . . . . . . . . . . . . . . 122
Limitation on Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Restrictions on Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Restrictions on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Escrow Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Advisor Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Subscription Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Determination of Investor Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
</TABLE>
vi
<PAGE> 11
<TABLE>
<S> <C>
Volume Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
HOW TO SUBSCRIBE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
SALES LITERATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Distribution Reinvestment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Share Repurchase Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
REPORTS TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-i
PRIOR PERFORMANCE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
DISTRIBUTION REINVESTMENT PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
</TABLE>
vii
<PAGE> 12
PROSPECTUS SUMMARY
The following is a summary intended solely to supply pertinent facts
and highlights from the material contained in the body of the Prospectus. More
detailed information may be found in the remainder of the Prospectus.
THE COMPANY As of the date of this Prospectus, the
Company owns and operates nine Neighborhood
Retail Centers (as hereinafter defined) and
two single-user retail properties. The
Company intends to acquire additional
existing Neighborhood Retail Centers which
will be located primarily within an
approximate 150-mile radius of its
headquarters in Oak Brook, Illinois, a
Chicago suburb, where the Advisor maintains
its acquisition and property management
headquarters. The Company also may acquire
single-user retail properties located
throughout the United States. Certain of the
single-user retail properties may be acquired
in sale and leaseback transactions in which
creditworthy tenants enter into triple-net
leases with the Company. See "Real Property
Investments." As of the date of this
Prospectus, the Company had approximately
$__________ available for acquisition of
additional properties. See "Real Property
Investments."
The Company's primary business objective is
to enhance the performance and value of its
properties through management strategies
designed to address the needs of an evolving
retail marketplace. Key elements of the
Company's strategy are:
Acquisitions:
o Selectively acquire well-located
Neighborhood Retail Centers, as well
as single-user retail properties,
net leased by creditworthy tenants.
o Whenever possible, acquire
properties on an all-cash basis,
which provides the Company with a
competitive advantage over potential
purchasers who must secure
financing. If it is in the best
interest of the Company, the Company
will, in certain instances, acquire
properties subject to existing
indebtedness. The Company utilized
financing to acquire seven of the 11
properties owned by it as of the
date of this Prospectus. The
financing for five of the properties
was obtained from an Affiliate and
was retired within 90 days of the
date of acquisition. See "Real
Property Investments."
1
<PAGE> 13
Operations:
o Actively manage costs and minimize
operating expenses by centralizing
all management, leasing, marketing,
financing, accounting, renovation
and data processing activities.
o Improve rental income and cash flow
by aggressively marketing rentable
space.
o Emphasize regular maintenance and
periodic renovation to meet the
needs of tenants and to maximize
long-term returns.
o For Neighborhood Retail Centers,
maintain a diversified tenant base,
consisting primarily of retail
tenants providing consumer goods and
services.
o Subsequent to the acquisition of the
properties, incur mortgage
indebtedness, when favorable
financing terms are available, to
allow the Company to acquire
additional properties and increase
the Company's cash flow.
The Company is a Maryland corporation which
filed an election with its tax return to be
treated as a real estate investment trust
("REIT") for the year ended December 31,
1995. See, generally "Federal Income Tax
Considerations." The Company is located at
2901 Butterfield Road, Oak Brook, Illinois
60521 (708) 218-8000.
SHARES OUTSTANDING
BEFORE OFFERING _____ Shares (including ____ Shares purchased
under the Company's Dividend Reinvestment
Program (the "DRP") and 20,000 Shares
purchased by the Advisor) as of the date of
this Prospectus. The Company sold
___________ Shares (net of _____ Shares
repurchased by the Company as of the date of
this Prospectus pursuant to the Share
Repurchase Program) in a "best efforts"
offering that commenced on October 14, 1994
and was completed on July ___, 1996, at a
price of $10 per Share (the "Prior
Offering"). See "Principal Stockholders."
SHARES OUTSTANDING
POST OFFERING _____ Shares (including ____ Shares purchased
under the DRP as of the date of this
Prospectus, but not including the 1,000,000
Shares available for sale under the DRP or up
to _____ Shares issuable upon exercise of the
Soliciting Dealer Warrants issued in
connection with the Prior Offering and to be
issued in connection with this Offering
(assuming the Maximum Offering is sold) or
options granted under the Company's Stock
Option Plan (as of the date of this
Prospectus, Options to purchase 11,500 Shares
were issued and outstanding)).
TERMS OF THE OFFERING The Company is offering 11,000,000 shares of
common stock, $.01 par value per share (the
"Shares"), of which 1,000,000 Shares are
available
2
<PAGE> 14
only to Stockholders who purchased Shares in
the Company's Prior Offering (which was
completed on July ___, 1996) or who purchase
Shares in this Offering and who participate
in the DRP. The Company is offering its
Shares for sale on a "best efforts" basis,
which means that the securities dealers
participating in the Offering are under no
obligation to purchase any Shares and,
therefore, no specified amount is guaranteed
to be raised. Subscribers for Shares must
initially purchase a minimum of 300 Shares
($3,000), except that, a minimum of 100
Shares ($1,000) may be purchased by
Tax-Exempt Entities (as defined herein). See
"Who May Invest." The Offering is being made
by Inland Securities Corporation (the "Dealer
Manager") and other securities dealers (the
"Soliciting Dealers") who are members of the
National Association of Securities Dealers,
Inc. (the "NASD"). The Offering will
terminate no later than July ___, 1998 (the
"Termination Date").
Subscribers' funds will be forwarded to
LaSalle National Bank, N.A., as escrow agent.
Subscription proceeds are expected to be
released to the Company as subscriptions are
accepted. All subscriptions will be accepted
or rejected within ten days (and generally
within 24 hours) after receipt by the
Company. See "Plan of Distribution--
General" and "--Escrow Conditions."
RISK FACTORS Investment in the Shares involves risks which
are described in detail in the "Risk Factors"
section of the Prospectus, which begins on
page 16. The following is a summary of the
risks which the Company believes are most
relevant to an investment in the Shares.
Investment Risks:
o There is currently no public trading
market for the Shares and no
assurance that one will develop;
therefore, the Shares constitute an
illiquid investment.
o As of the date of this Prospectus,
the Company owned nine Neighborhood
Retail Centers and two single-user
retail properties, and had
approximately $_____ available for
additional acquisitions. The
Company has not specified any
additional properties for
acquisition.
o The Eagle Crest Shopping Center and
the Walgreens/Decatur property were
acquired by the Company from Inland
Property Sales, Inc., an Affiliate.
Acquisitions from Affiliates may be
on terms less favorable to the
Company than arm's-length
transactions and may result in
concessions as to price or otherwise
which will have a negative effect on
the value of the Shares. The
Company will compete for the
acquisition of properties with many
other entities engaged in real
estate investment activities, some
of which have greater resources than
the
3
<PAGE> 15
Company, which may result in the
Company being unable to acquire
certain desirable properties and
have an adverse impact on Share
value.
o Acquisition of Neighborhood Retail
Centers (but not single-user retail
properties) is primarily limited to
the approximate 150-mile
radius surrounding the Advisor's
headquarters in Oak Brook, Illinois.
Adverse economic conditions
affecting that area could adversely
affect the Company's ability to
acquire, lease and dispose of such
properties, the amount of
Distributions paid and the value of
the Shares.
o If the Company defaults on any
secured indebtedness, the lender may
foreclose and the Company could lose
its investment in the properties
securing such loan and the value of
the Shares would decrease.
o To satisfy certain requirements for
qualification as a REIT for federal
income tax purposes, no person may
own, or be deemed to own by virtue
of the attribution provisions of the
Code (as defined herein), more than
9.8% of the Shares. Such
limitations may have an
anti-takeover effect and may further
limit the liquidity and value of the
Shares.
o Although the Company has a working
capital reserve of approximately
$590,500 (equal to 1% of the gross
offering proceeds from the Company's
Prior Offering) and intends to
supplement its working capital with
an additional 1% of the Gross
Offering Proceeds from this
Offering, these amounts may be
insufficient to meet the
unanticipated cash needs of the
Company and the Company may have to
obtain financing from either
affiliated or unaffiliated sources.
Additional financing likely would
decrease the cash available to pay
Distributions.
o Under certain circumstances, the
Company may borrow funds to maintain
operations of one or more of the
Company's properties or enable it to
maintain its REIT status. Borrowing
increases the Company's business
risks since debt service increases
the expenses of operations and
decreases cash available to pay
Distributions.
Company Risks:
o Two of the 11 properties owned by
the Company as of the date of this
Prospectus have been acquired from
an Affiliate. Acquisitions from
Affiliates may be on terms less
favorable to the Company than
properties acquired in arm's-length
transactions and may result in
concessions as to price or otherwise
which could have a negative effect
on the value of the Shares.
4
<PAGE> 16
o Conflicts of interest
between the Company and its
Affiliates, such as competition for
the time and services of the Advisor
and its Affiliates, receipt by the
Advisor and its Affiliates of
compensation from the Company for
their various services and the
possibility that the Company may do
business with entities that have
pre-existing relationships with the
Advisor or its Affiliates which
results in a conflict between the
ongoing business relationship of the
Advisor or its Affiliates and the
Company's current interests. Such
conflicts may have an adverse effect
on operations and thus, on the value
of the Shares.
o The success of the Company will
depend to a large extent on the
quality of management provided by
the Advisor and its Affiliates.
Since January 1, 1985, Affiliates of
the Advisor have sponsored 77
programs. Certain programs
sponsored or managed by Affiliates
of the Advisor have experienced
setbacks during the course of
business, including commercial
tenant defaults or move-outs,
unfavorable changes in the tax laws
and higher than expected vacancies
as apartment markets weakened.
These negative events have had the
effect of reducing the benefits
which investors in those programs
would have received. The degree of
impact these negative events have
had on the ability of the affected
programs to attain their original
investment objectives varies by
program. See "Prior Performance of
the Company's Affiliates" and "Prior
Performance Tables."
o The Advisor and its Affiliates will
receive substantial fees and
payments for services rendered to
the Company whether or not
Stockholders receive Distributions.
o The Directors may authorize the
issuance of shares or other
securities in addition to Shares
issued pursuant to this Offering,
thereby resulting in dilution of the
equity of the Stockholders.
o The Company's Articles, in most
cases, require a vote of only a
majority of the Stockholders on
those matters on which Stockholders
are required to vote. Therefore,
all Stockholders, including those
not voting with the majority, will
be bound by the vote of the
Stockholders owning a majority of
the outstanding Shares.
Risks of Real Estate Ownership:
o All equity real estate investments
are subject to some degree of
general economic risks, including
lease defaults, which could
adversely affect income, cash
available for Distributions and
property value. Stockholders can
expect to bear this risk in
proportion to the number of Shares
held.
5
<PAGE> 17
o Adverse trends for the
property types to be acquired by the
Company or adverse economic
developments in general or within
the Chicago metropolitan area in
particular could have an adverse
effect on the Company's
operations and the value of the
Shares could decrease.
o Future violation of environmental
and other governmental regulations
could result in substantial
expenditures by, or damages to, the
Company and decrease the cash
available to pay Distributions.
o Unanticipated renovation or
remodeling costs incurred to
re-lease the Company's properties
could reduce the cash available to
pay Distributions.
Tax Risks:
o The Company's ability to qualify as
a REIT involves the application of
technical and highly complex
provisions of the Internal Revenue
Code of 1986, as amended (the
"Code") to various factual matters
and circumstances which are often
not within the Company's control.
The Company's qualification as a
REIT depends upon its ability to
meet, through actual operations,
various tests imposed by the Code,
and there can be no assurance that
operating results will allow the
Company to satisfy the Code
requirements. In addition, the
actions and transactions the Company
will undertake to maintain its REIT
status may not produce the highest
economic profit. For example, the
Company does not intend to sell any
property as inventory property even
if so structuring sales would
produce higher profit.
o If the Company loses its REIT
status, its Distributions will not
be deductible, thereby increasing
its tax liability and substantially
reducing the funds available for
distribution to Stockholders. Such
federal income tax liability could
force the Company to borrow funds,
liquidate certain of its investments
or take other steps which could
adversely affect its operations and
the value of the Shares.
o Shefsky Froelich & Devine Ltd.
("Counsel") has rendered its opinion
that, based on certain
representations of the Company as
described throughout the Prospectus
regarding the operations of the
Company, the Company has been
organized in conformity with the
requirements for qualifications as a
REIT beginning with its taxable year
ending December 31, 1995, and that
its prior, current and anticipated
methods of operation has enabled and
will enable the Company to satisfy
the REIT Requirements, and that
distributions to certain qualified
organizations will not
6
<PAGE> 18
produce unrelated business taxable
income ("UBTI") so long as the
Company is not a "Pension-Held
REIT." See "Federal Income Tax
Considerations" and "ERISA
Considerations." The
Company's ability to maintain its
REIT status will depend upon its
ability (based on its actual
operating results) to meet the REIT
Requirements, and Counsel will not
review compliance with the REIT
Requirements on a continuing basis
after the initial effectiveness date
of the Registration Statement or
issue any opinions in the future
unless expressly requested to do so.
The opinion of Counsel represents
its legal judgment based on the law
in effect as of the date of this
Prospectus, is not binding on the
Internal Revenue Service (the
"Service") and could be subject to
modification or withdrawal based on
future legislative, judicial or
administrative changes to the
federal income tax laws (or the
interpretation thereof) which could
be applied retroactively.
Stockholders could sustain a
decrease in the value of their
Shares if such changes occur.
ERISA Risks:
o In deciding whether to purchase
Shares, each fiduciary of an
employee benefit plan subject to
ERISA, in consultation with its
advisors, should carefully consider
its fiduciary responsibilities under
ERISA, the prohibited transaction
rules of ERISA and the Code, the
UBTI consequences and the effect of
the "plan asset" regulations issued
by the Department of Labor. See
"ERISA Considerations."
Should the Company be unable to effectively
manage the impact of these risks, the
Company's ability to meet its investment
objectives will be impaired and, therefore,
the benefits to the Stockholders from their
investment in the Company will be reduced.
See "Risk Factors" and "Prior Performance of
the Company's Affiliates."
INVESTMENT OBJECTIVES
AND POLICIES The Company's investment objectives are to:
o Provide regular Distributions to
Stockholders in amounts which may
exceed the Company's taxable income,
particularly in the early years of
the Company's operations, given the
non-cash nature of depreciation
expense and, to such extent, will
constitute a tax-deferred return of
capital. In order for the Company
to maintain its REIT status, the
Company must make Distributions
equal to not less than 95% of the
its REIT taxable income. To the
extent Distributions to Stockholders
exceed taxable income, such
Distributions would constitute a
return of capital and would be
sheltered from current taxation for
taxable Stockholders. This return
of capital, however, will reduce a
Stockholder's tax basis
7
<PAGE> 19
in his Shares, which will result in
more taxable gain upon sale or
exchange of Shares than would have
occurred absent a return of capital.
Depreciation deductions, however,
will decrease the Company's tax
basis in its properties, thereby
increasing the Company's
taxable income when the properties
are sold, thereby increasing the
amount of Distributions needed to
maintain compliance with the REIT
Requirements. As long as the
Company qualifies as a REIT, it
generally will not be taxed to the
extent of the Distributions it pays
to Stockholders;
o Provide a hedge against inflation by
entering into leases which provide
for scheduled rent escalations or
participation in the growth of
tenant sales designed to provide
increased Distributions and capital
appreciation through increases in
the value of the Company's
properties; and
o Preserve Stockholders' capital by
selectively acquiring well-located
Neighborhood Retail Centers and
single-user retail properties on an
all-cash basis, whenever possible.
If it is in the best interest of the
Company, the Company will, in
certain instances, utilize borrowing
to acquire properties. As of the
date of this Prospectus, the Company
utilized financing in connection
with acquisition of seven of its 11
properties. See "Real Property
Investments."
There can be no assurance the aforementioned objectives will be achieved.
To the extent possible, it will be the policy
of the Company to avoid the fluctuations in
Distributions which might result if
Distributions were based on actual cash
received during the Distribution period. To
implement this policy, the Company may use
income earned during prior periods, or income
earned subsequent to the Distribution
declaration date but prior to the payment
date, in order to distribute annualized
Distributions consistent with the
Distribution level established from time to
time by the Board. The Company's ability to
implement this policy will be dependent upon
the availability of Cash Flow and the
applicable REIT rules. It will be the
general policy of the Company, subject to the
applicable REIT rules (including the
Distribution requirements), to reinvest that
portion of the proceeds from the sale,
financing, refinancing or other disposition
of its properties that represents the initial
investment into additional properties.
Through September 30, 1995, the Company paid
Distributions to its Stockholders on a
quarterly basis. Commencing in October,
1995, the Company began, and has continued,
to pay Distributions to the Stockholders on a
monthly basis, with daily record and
Distribution declaration dates. However, the
Company reserves a right, at any time, to
revert to paying Distributions on a quarterly
basis. The Board presently anticipates that
Distributions equal to an 8%
8
<PAGE> 20
annualized return per Share will continue to
be paid to each Stockholder of record.
It is the Company's intention, whenever
possible, to acquire properties free and
clear of permanent mortgage indebtedness by
paying the entire purchase price of each
property in cash or for shares of the
Company's stock. However, if it is
determined to be in the Company's best
interests, the Company will, in certain
instances, utilize borrowing to acquire
properties. On properties purchased on an
all-cash basis, the Company may later incur
mortgage indebtedness by obtaining loans
secured by selected properties, if favorable
financing terms are available. The proceeds
from such loans would be used primarily to
acquire additional properties to increase
Cash Flow. The Company may also incur
indebtedness to finance improvements to the
properties it acquires. The Company
anticipates that aggregate borrowings related
to all of the Company's properties will not
exceed 50% of their combined fair market
values. Notwithstanding the foregoing, the
maximum amount of borrowings in relation to
Net Assets shall not exceed 300% of Net
Assets without approval of a majority of the
Stockholders. The Company does not
anticipate that it will incur debt to fund
Distributions to Stockholders, unless
necessary to maintain its status as a REIT.
See "Investment Objectives and
Policies--Borrowing" and "Summary of the
Organizational Documents--Restrictions on
Borrowing."
Affiliates of the Advisor have extensive
experience in the acquisition and management
of properties similar to the properties
contemplated to be acquired by the Company.
However, there is no assurance that the
Company's investment objectives will be
achieved because, among other reasons, the
Company has acquired only nine Neighborhood
Retail Centers and two single-user retail
properties as of the date of this Prospectus.
The Company has not specified any additional
properties. Due to competition for suitable
properties, the Company may not be able to
acquire other properties meeting its
investment criteria. See "Risk
Factors--Investment Risks-- Partially
Specified Fund," "Risk Factors--Risks of Real
Estate Ownership--Competition with Others for
the Acquisition of Properties," "Prior
Performance of the Company's Affiliates" and
"Real Property Investments."
Proceeds of the Offering will be used to buy
properties and to pay expenses of the
Offering and Acquisition Expenses, with the
balance (but not less than 1% of Gross
Offering Proceeds) being applied to working
capital reserves. See "Estimated Use of
Proceeds of the Offering."
THE ADVISOR Inland Real Estate Advisory Services, Inc., a
wholly owned subsidiary of Inland Real Estate
Investment Corporation, a Delaware
corporation ("IREIC") is the Advisor. The
Advisor is an Illinois corporation with its
principal place of business located at 2901
Butterfield Road, Oak Brook, Illinois 60521
(708) 218-8000. IREIC, as of June 30, 1995,
had an
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<PAGE> 21
audited net worth in excess of
$91,600,000, much of which is illiquid.
Limited partnerships for which IREIC is a
general partner own in excess
of 10,500,000 square feet of commercial
property in Chicago and nationwide. See
"Management."
COMPENSATION TO BE
PAID TO THE ADVISOR
AND ITS AFFILIATES The Advisor and its Affiliates will be paid
substantial amounts for managing the business
of the Company. The most significant items
of compensation are:
Offering Stage: Selling commissions to the
Dealer Manager up to 7% of the Gross Offering
Proceeds, which may be retained or reallowed
to Soliciting Dealers; and a marketing
contribution and due diligence expense
allowance fee to the Dealer Manager equal to
2.5% of the Gross Offering Proceeds (the
"Marketing Contribution and Due Diligence
Expense Allowance Fee"), of which such
compensation may be retained or reallowed to
Soliciting Dealers. The selling commissions
and the Marketing Contribution and Due
Diligence Expense Allowance Fees for the year
ended December 31, 1995 totalled $1,719,355,
of which $102,084 was unpaid at December 31,
1995. Approximately $1,551,000 of such
amount had been reallowed to Soliciting
Dealers as of December 31, 1995. Soliciting
Dealers also receive one Soliciting Dealer
Warrant for each 40 Shares sold by such
Soliciting Dealer during the Offering. Each
Soliciting Dealer Warrant will entitle the
holder to purchase one Share from the Company
at a price of $12 during the Exercise Period.
See "Compensation Table" and "Description of
Securities--Soliciting Dealer Warrants."
Acquisition Stage: Reimbursement for actual
out-of-pocket acquisition expenses are
anticipated to be up to 0.5% of Gross
Offering Proceeds. See "Compensation Table."
Operational Stage: An annual Advisor Asset
Management Fee of not more than 1% of the
Average Invested Assets is paid quarterly.
An Affiliate of the Advisor will also receive
a Property Management Fee equal to not more
than 4.5% of the gross revenues of each of
the Company's properties (90% of the fee
typically charged by a third party), paid
monthly. Payment of the Advisor Asset
Management Fee is subordinated to the payment
of Distributions in an amount equal to a
non-compounded return equal to 8% per annum
on Invested Capital (the "Current Return").
For the year ended December 31, 1995, the
Company had not incurred or paid an Advisor
Asset Management Fee. The Company incurred
and paid Property Management Fees of $46,791
for the year ended December 31, 1995. See
"Compensation Table" and "Management's
Discussion and Analysis of Financial
Condition and Results of Operations of the
Company."
Liquidation Stage: A Property Disposition
Fee equal to the lesser of: (i) 3% of the
sale price of a property; or (ii) 50% of the
commission
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<PAGE> 22
customarily paid to third parties; and after
receipt by the Stockholders of a cumulative,
non-compounded 8% per annum return of Invested
Capital (the "Cumulative Return") and a
return of their Invested Capital, an Incentive
Advisory Fee equal to 15% of the net proceeds
from the sale of a property. In the event
the Company's Shares are listed on a national
stock exchange or included for quotation on a
national market system and the Advisor is
merged into the Company, the Advisor will
receive Shares and the Company will no longer
be obligated to pay fees to the Advisor.
See "Compensation Table."
There may be a number of other incidental
fees for services or expense reimbursement
that the Advisor and its Affiliates may
receive during the operational and
liquidation stages of the Company. See,
generally, "Compensation Table" and
"Management--Other Services."
REAL PROPERTY
INVESTMENTS As of the date of this Prospectus, the
Company owned nine Neighborhood Retail
Centers and two single-user retail
properties. The Company utilized $31,973,000
to acquire these properties. Two of the
properties are encumbered by outstanding
indebtedness of approximately $5,221,000, as
of the date of this Prospectus. The Company
has approximately $_________ available for
investment in additional properties. The
Company has not specified any additional
properties.
The terms of each of the Company's
acquisitions have been approved by a majority
of the Directors (including a majority of the
Independent Directors) as being fair and
reasonable to the Company. The acquisition
prices of the properties did not exceed the
appraised values of the properties at the
time of acquisition. Two of the properties
were acquired from an Affiliate. There can
be no assurance that the prices paid to the
Affiliate for these properties did not exceed
that which would be paid by an unaffiliated
buyer. See "Risk Factors--Company
Risks--Prices Paid for Properties Acquired
from Affiliates may be More than Prices Paid
by Non-Affiliates" and "Real Property
Investments."
The Company may invest in general
partnerships or joint venture arrangements
with Affiliates as co-owners of a property.
The Company will be able to increase its
equity participation in such entity as
additional proceeds of the Offering are
received by the Company with the result that
the Company can ultimately own 100% of the
property, provided however that the
affiliated general or joint venture partner
will not be entitled to any profit or other
benefit on such sale of its equity
participation to the Company. See
"Investment Objectives and Policies--Joint
Ventures."
PRIOR OFFERINGS
SUMMARY The Inland organization, during the past ten
years, has sponsored seven public and 70
private real estate programs which have
raised in excess in
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<PAGE> 23
$273,317,000. In excess of 19,500
investors have invested in these
Inland-sponsored programs.
Two of the Inland-sponsored public
programs and a majority of the private
programs have investment objectives similar
to those of the Company. Certain programs
sponsored or managed by Affiliates of the
Advisor have experienced setbacks during the
course of business, including commercial
tenant defaults or move-outs, unfavorable
changes in the tax laws and higher than
expected vacancies as apartment markets
weakened. These negative events have had the
effect of reducing the benefits which
investors in those programs would have
received. The degree of impact these
negative events have had on the ability of
the affected programs to attain their
original investment objectives varies by
program. See "Prior Performance of the
Company's Affiliates" and "Prior Performance
Tables."
ARTICLES OF
AMENDMENT AND
RESTATEMENT Investors should be particularly aware of the
following provisions contained in the
Company's Articles of Incorporation, as
amended and restated to date (the
"Articles"):
o Limitation on accumulation of
shares: In order for the Company to
qualify as a REIT, no more than 50%
of the outstanding Shares may be
owned, directly or indirectly, by
five or fewer individuals at any
time during the last half of the
Company's taxable year. To ensure
that the Company will not fail to
qualify as a REIT under this test,
the Articles place restrictions on
the accumulation of Shares by a
single Stockholder. These
restrictions may: (i) discourage a
change of control of the Company;
(ii) deter individuals and entities
from making tender offers for
Shares, which offers may be
attractive to Stockholders; or (iii)
limit the opportunity for
Stockholders to receive a premium
for their Shares in the event an
investor is making purchases of
Shares in order to acquire a block
of Shares. See "Description of
Securities--Restrictions on
Transfer."
o Voting rights: Each Share is
entitled to one vote and the
Articles do not provide for
cumulative voting. Stockholders
owning a majority of the outstanding
Shares have the right to: (i) amend
the Articles subject to certain
limitations; (ii) dissolve the
Company; (iii) elect or remove the
Board of Directors; and (iv) approve
or disapprove the sale of all or
substantially all of the assets of
the Company other than in connection
with a dissolution of the Company.
All Stockholders will be bound by
the vote of Stockholders owning a
majority of the outstanding Shares,
even if a Stockholder does not vote
with the majority. Stockholders
owning in the aggregate at least 10%
of the outstanding Shares may
request the Directors to call a
meeting for the purpose of voting on
any of the foregoing.
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<PAGE> 24
o Stockholders owning at least
two-thirds of the outstanding Shares
must approve certain exchange
offers, mergers, consolidations or
similar transactions commonly
known as Roll-Ups, which affect
certain Stockholder rights. Such
super-majority provisions may have
the effect of: (i) discouraging a
change in control of the Company;
(ii) deterring individuals and
entities from making tender offers
for Shares, which offers may be
attractive to Stockholders; and
(iii) limiting the opportunity for
Stockholders to receive a premium
for their Shares in the event an
investor is making purchases of
Shares in order to acquire a block
of Shares.
o Changes in investment objectives and
policies: The Directors cannot
change the investment objectives or
policies of the Company unless an
amendment to the Articles is made,
which would require the approval of
Stockholders owning a majority of
the outstanding Shares.
o Distributions: Distributions are
payable out of available cash.
See "Summary of the Organizational Documents"
and "Description of Securities."
DISTRIBUTION REINVESTMENT
AND SHARE REPURCHASE
PROGRAMS The Company provides the following programs
to facilitate investment in the Shares and to
provide limited liquidity for Stockholders
until such time as a market for the Shares
develops:
o The Distribution Reinvestment
Program (the "DRP") allows
Stockholders who purchase Shares
pursuant either to the Prior
Offering or to this Offering to
automatically reinvest Distributions
by purchasing additional Shares from
the Company, subject to the
limitations on Share ownership
imposed by the Articles. Such
purchases will not be subject to
selling commissions or the Marketing
Contribution and Due Diligence
Expense Allowance Fee and will be
sold at a price of $9.05 per Share.
See "Distribution Reinvestment and
Share Repurchase Programs --
Distribution Reinvestment Program."
o The Share Repurchase Program
provides, subject to certain
restrictions, existing Stockholders
with limited, interim liquidity by
enabling them to sell Shares back to
the Company at a price of $9.05 per
Share (a reduction of $.95 from the
$10 Offering price, reflecting
selling commissions and the
Marketing Contribution and Due
Diligence Expense Allowance Fee).
Repurchases will be on a first come,
first served basis, and will be
limited in the following ways: (i)
not more than $500,000 worth of the
outstanding Shares will be
repurchased in any given year; and
(ii) the funds available for
repurchase will be limited to
available proceeds received by the
Company from the sale of Shares
under the Distribution Reinvestment
Program. Shares
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<PAGE> 25
purchased by the Company are
not available for resale. The Share
Repurchase Program will be
terminated by the Company upon
the development of a secondary
market for the Company's Shares or
upon the listing of the Company's
Shares on a national securities
exchange or inclusion for quotation
on a national market system. See
"Distribution Reinvestment and Share
Repurchase Programs -- Share
Repurchase Program."
WHO MAY INVEST The section of the Prospectus titled "Who May
Invest" describes minimum net worth and
income requirements, as well as a detailed
explanation of other suitability requirements
which investors must meet prior to
subscription. In particular, investors must
have either: (i) a minimum annual gross
income of $45,000 and a net worth (exclusive
of home, home furnishings and automobiles) of
$45,000; or (ii) a net worth (determined with
the foregoing exclusions) of $150,000.
Suitability standards may be higher in
certain states. See "Who May Invest."
ANNUAL VALUATIONS Stockholders that are subject to ERISA will
be provided with an annual statement of value
reporting the value of each Share based upon
an estimated amount they would receive if the
Company's assets were sold as of the close of
the Company's fiscal year and if such
proceeds (without reduction for selling
expenses) and all the other funds of the
Company were distributed in liquidation of
the Company; provided, however, the Net Asset
Value of each Share will be deemed to be $10
per Share for the first three annual
statements of value following termination of
the Offering. There can be no assurance
that: (i) such value could or will actually
be realized by the Company or by Stockholders
upon liquidation (in part because estimates
of value do not necessarily indicate the
price at which assets could be sold, and
because no attempt will be made to estimate
the expenses of selling any asset of the
Company); (ii) Stockholders could realize
such value if they were to attempt to sell
their Shares; or (iii) such valuation would
comply with the ERISA requirements. Should
the Shares become listed on a national stock
exchange or included for quotation on a
national market system, the Company will no
longer provide such valuations. See "ERISA
Considerations."
GLOSSARY OF TERMS For definitions of terms used in this
Prospectus that are not defined in the text,
see "Glossary."
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<PAGE> 26
ORGANIZATIONAL CHART
____________ THE INLAND GROUP, INC.______
| |
| |
Inland Commercial Inland Real Estate
Property Management Inc. Investment Corporation
| | |
| | |
Property Management and Inland Real Estate Inland Securities
Related Services Advisory Services Inc. Corporation
| | |
| | |
Organization, Advisory Securities
| and Real Estate Services Sales
|
| |
Inland Real Estate Corporation |
Directors:
|
Robert D. Parks
G. Joseph Cosenza_____________________________|
Roland W. Burris
Douglas R. Finlayson
Heidi N. Lawton
Solid lines indicate ownership. Broken lines indicate services.
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<PAGE> 27
RISK FACTORS
Purchase of the Shares offered hereby involves various risk factors in
addition to the factors set forth elsewhere herein. Prospective purchasers
should consider, among others, the following factors:
1. INVESTMENT RISKS
Limited Liquidity. There is currently no public trading
market for the Shares and no assurance exists that one will develop. An
investor may not be able to liquidate his or her investment on favorable terms,
or at all. However, by 1999, the Company anticipates that the Board of
Directors will determine whether it is in the best interests of the Company to:
(i) apply to have the Shares listed for trading on a national stock exchange or
included for quotation on a national market system, provided the Company meets
the then applicable requirements; and/or (ii) commences a subsequent public
offering after completion of this Offering. The Company does not intend to
apply for listing during the term of this Offering. See "Investment Objectives
and Policies--Additional Offerings and Exchange Listing." Subject to available
funds and the Company's continued qualification as a REIT, the Company may
repurchase Shares from Stockholders. See "Distribution Reinvestment and Share
Repurchase Programs--Share Repurchase Program."
Partially Specified Fund. As of the date of this Prospectus,
the Company owned nine Neighborhood Retail Centers and two single-user retail
properties. Two of the properties, the Eagle Crest Shopping Center in
Naperville, Illinois, and a Walgreens property in Decatur, Illinois were
purchased from Inland Property Sales, Inc. ("IPS") an Affiliate. These
properties were acquired with the approval of the Directors (including all of
the then Independent Directors). Although this Prospectus describes the
parameters the Company will use to acquire additional properties, as of the
date of this Prospectus, no additional properties have been specified.
Accordingly, no information is available as to the identification, location,
operating histories, lease terms or other relevant economic and financial data
of the other properties to be purchased by the Company with the $___________
available for investment or with the Net Proceeds of this Offering (after
funding of appropriate working capital reserves). Since the Company has not
yet specified additional properties, there may be a delay between the sale of
the Shares and the Company's purchase of such other properties, which could
result in a delay in the benefits to investors, if any, of an investment in the
Company.
The Advisor will evaluate potential additional property
acquisitions and will engage in discussions with sellers for the purchase of
properties for the Company. At such time during the Offering as the Advisor
believes a reasonable probability exists that a property will be acquired on
specified terms (i.e., upon completion of due diligence, which includes review
of the title insurance commitment, appraisal and environmental analysis), the
Company will issue a supplement to this Prospectus setting forth certain
details concerning the proposed acquisition. Investors should be aware,
however, that acquisitions at this stage require negotiation of final binding
agreements and there can be no assurance that any such properties will be
acquired on the same terms as described in any supplements or other disclosure
prepared with respect thereto. In addition, any properties which are
identified by the Company prior to the termination of the Offering may not be
acquired unless sufficient Shares are sold. In the event any properties which
are disclosed to Stockholders as potential acquisitions are not acquired, or
any properties which the Company acquires prior to the termination of the
Offering but are not retained, subsequently acquired properties may be
materially different in a number of respects. In addition, investors should be
aware that audited financial statements of prior operations of existing
properties acquired by the Company, or of the lessees or of the property or
guarantor of the underlying leases, generally will not be available
16
<PAGE> 28
until after a supplement to this Prospectus describing such acquisition has
been provided to potential investors, and financial statements for recently
constructed properties may not be available at all.
Limitation on Area in which the Company May Acquire
Neighborhood Retail Centers. Acquisition of Neighborhood Retail Centers (but
not single-user retail properties) is limited primarily to the approximate
150-mile radius surrounding the Advisor's headquarters in Oak Brook, Illinois.
Adverse economic conditions affecting that area could adversely affect the
Company's ability to acquire, lease and dispose of such properties.
Insufficient Reserves. The Company has established a working
capital reserve of $590,500 (equal to 1% of the gross offering proceeds from
the Prior Offering) and will supplement such working capital reserve with an
additional 1% of the Gross Offering Proceeds from this Offering. However, if
such amount is insufficient to meet the unanticipated cash needs of the
Company, the Company may have to obtain financing from either affiliated or
unaffiliated sources to service such cash needs. There is no assurance that
this financing will be available or if available, will be available on terms
acceptable to the Company.
Mortgage Indebtedness and Other Borrowings May Increase the
Company's Business Risks. It is the Company's intention, whenever possible, to
acquire properties free and clear of permanent mortgage indebtedness by paying
the entire purchase price of each property in cash or for shares of the
Company's stock. However, if it is determined to be in the best interests of
the Company, the Company will, in certain instances, utilize borrowing to
acquire properties. The Company may later incur or increase mortgage
indebtedness by obtaining loans secured by selected properties, if favorable
financing terms are available. The proceeds from such loans would be used to
acquire additional properties for the purpose of increasing Cash Flow and
providing further diversity. The Company anticipates that aggregate borrowings
related to all of the Company's properties will not exceed 50% of their
combined fair market values, however, the maximum amount of borrowings in
relation to Net Assets shall, in the absence of the consent of a majority of
the Stockholders, not exceed 300% of Net Assets. Incurring mortgage
indebtedness increases the risk of possible loss. If the Company defaults on
its secured indebtedness, the lender may foreclose and the Company could lose
its investment in the properties securing such loan. Any such foreclosure
would be treated as a sale of the property for a purchase price equal to the
outstanding balance of the debt secured by the mortgage, and if the outstanding
balance of the debt secured by the mortgage exceeds the basis of the property
to the Company, there could be taxable income upon a foreclosure. It will be
the policy of the Company to seek to incur only non-recourse mortgage
indebtedness, if available, meaning that the lender may look only to the
property or properties securing the mortgage indebtedness for satisfaction of
the indebtedness. See "Investment Objectives and Policies--Borrowing" and
"Real Property Investments."
Under certain circumstances, the Company may borrow for the
purpose of maintaining the operations of the Company. Borrowing may increase
the Company's business risks. Debt service increases the expense of operations
since the Company will be responsible to retire the debt and pay the attendant
interest which may result in decreased cash available for distributions to
Stockholders. Also, lenders to the Company may require restrictions on future
borrowings, distributions and operating policies. The Company may incur
indebtedness if necessary to satisfy the requirement that the Company
distribute at least 95% of its REIT taxable income (as defined in the Code), or
otherwise as is necessary or advisable to assure that the Company maintains its
qualification as a REIT for federal income tax purposes.
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<PAGE> 29
Limits on Share Accumulation May Have an Anti-Takeover Effect.
In order for the Company to qualify as a REIT, no more than 50% of the
outstanding Shares may be owned, directly or indirectly, by five or fewer
individuals at any time during the last half of each of the Company's taxable
years. To ensure that the Company will not fail to qualify as a REIT under
this test, the Articles provide that no person may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.8% of the number
or value of the issued and outstanding stock of the Company. These
restrictions may: (i) discourage a change of control of the Company; (ii)
deter individuals and entities from making tender offers for Shares, which
offers may be attractive to Stockholders; or (iii) limit the opportunity for
Stockholders to receive a premium for their Shares in the event an investor is
making purchases of Shares in order to acquire a block of Shares. See
"Description of Securities--Restrictions on Transfer."
Objectives of Joint Venture Partners May Conflict with the
Company's Objectives. Certain of the Company's investments may be owned by
joint ventures between the Company and Affiliates of the Advisor. Investments
in joint ventures which own properties may involve risks not otherwise present,
including, for example, that the Company's co-venturer might become bankrupt,
that such co-venturer may at any time have economic or business interests or
goals which are inconsistent with the interests or goals of the Company or that
such co-venturer may be in a position to take action contrary to the Company's
instructions, requests, policies or objectives. Among other things, actions by
such co-venturer might subject property owned by the joint venture to
liabilities in excess of those contemplated by the terms of the joint venture
or other adverse consequences. See "Investment Objectives and Policies--Joint
Ventures."
Seller Financing by Company May Delay Liquidation or
Reinvestment. The Company intends to use its best efforts to sell its
properties for cash. However, the Company may sell its properties either
subject to or upon the assumption of any then outstanding mortgage debt or,
alternatively, may provide financing to purchasers with terms advantageous to
the Company. A purchase money obligation secured by a mortgage may be taken as
part payment and there are no limitations or restrictions on the Company taking
such purchase money obligations. The terms of payment to the Company will be
affected by custom in the area where the property being sold is located and the
then prevailing economic conditions. To the extent the Company receives
promissory notes or other property in lieu of cash from sales, such proceeds
(other than any interest payable thereon) will not be included in net sale
proceeds until and to the extent the promissory notes or other property are
actually paid, sold, refinanced or otherwise disposed of and, therefore, the
distribution of the proceeds of a sale to the Stockholders may be delayed until
such time. In many cases, the Company will receive initial downpayments (cash
and other property) in the year of sale in an amount less than the selling
price and subsequent payments will be spread over a number of years. See
"Investment Objectives and Policies--Sale or Disposition of Properties."
Loss on Dissolution and Termination. At the date of
dissolution or termination of the Company, the undistributed proceeds realized
from the liquidation of assets, if any, will be distributed to Stockholders,
but only after the satisfaction of claims of creditors. Accordingly, a
Stockholder's ability to recover all of his or her investment under such
circumstances will depend on the amount of funds so realized and claims to be
satisfied therefrom.
Limited Experience of Management in Operation of a REIT.
IREIC and its Affiliates have, during the past ten years, sponsored seven
public and 70 private real estate programs which have raised in excess of
$273,317,000. Two of the seven public programs, Inland's Monthly Income Fund,
L.P. and Inland Monthly Income Fund II, L.P., had investment objectives which
were substantially similar to those of the Company. However, each of the seven
prior public programs, including Inland's Monthly Income
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<PAGE> 30
Fund, L.P. and Inland Monthly Income Fund II, L.P., were structured as
limited partnerships and not as real estate investment trusts. Additionally,
the Company, which is the first IREIC-sponsored REIT, did not commence
operations until January 1995. Therefore, there can be no assurance that the
Company will attain its investment objectives since the Company's management,
the Advisor and its Affiliates have limited experience in the management and
operation of a REIT.
2. COMPANY RISKS
Prices Paid for Properties Acquired from Affiliates may be
More than Prices Paid by Non-Affiliates. Two properties owned by the Company,
the Eagle Crest Shopping Center and the Walgreens/Decatur property, were
acquired by the Company from an Affiliate. The Articles provide that the
Company may not purchase any property from an Affiliate unless a majority of
the Directors (including a majority of the Independent Directors) not
interested in the transaction approve the purchase as fair and reasonable to
the Company and at a price to the Company no greater than the cost of the asset
to such Affiliate, or if the price to the Company is in excess of such cost,
that substantial justification for such excess exists and that such excess is
reasonable. In no event may the cost of such asset to the Company exceed its
current appraised value. The Directors (including all of the then Independent
Directors) approved the purchases pursuant to the standards described herein.
However, there can be no assurance that the prices paid to the Affiliate for
the Eagle Crest Shopping Center and the Walgreens/Decatur property or
properties which may, in the future be acquired from Affiliates, did not or
would not exceed that which would be paid by an unaffiliated buyer.
Conflicts of Interest Between the Company and its Affiliates.
The Company is subject to various conflicts of interest arising out of its
relationship with its Affiliates, such as competition for the time and services
of Affiliates of the Advisor and acquisition of properties from Persons with
whom Affiliates of the Advisor have had prior business relationships and the
due diligence investigation of the Company by the Dealer Manager which cannot
be considered to be an independent review of the Company and, therefore, may
not be as meaningful as a review conducted by an unaffiliated broker-dealer.
Additionally, a substantial portion of the proceeds of the Offering will be
paid to an Affiliate for managing the Company. Such proceeds of the Offering
will pay expenses which include sales commissions and due diligence expense
allowances to the Dealer Manager, and reimbursement to an Affiliate for costs
related to organizing and offering the Shares for sale. An Advisor Asset
Management Fee of not more than 1% per annum of the Average Invested Assets
will be paid quarterly to the Advisor. Payment of the Advisor Asset Management
Fee is subordinated to the payment of Distributions in an amount equal to the
Current Return. Additionally, an Affiliate is being paid a Property Management
Fee equal to not more than 4.5% of the gross revenues of each of the Company's
properties on a monthly basis. The Advisor and its Affiliates will receive
substantial fees and payments for services rendered to the Company irrespective
of whether Stockholders receive Distributions.
If an Affiliate breaches its fiduciary obligations to the
Company, or does not resolve conflicts of interest in the manner described in
the section of this Prospectus titled "Conflicts of Interest--Process for
Resolution of Conflicting Opportunities," the Company may not meet its
investment objectives. The agreement between the Advisor and the Company (the
"Advisory Agreement") grants the Company the first opportunity to buy any
Neighborhood Retail Centers placed under contract by the Advisor or its
Affiliates provided the Company is able to close the purchase of such property
within 60 days. The Advisory Agreement also requires that any single-user
retail property net leased by a creditworthy tenant located anywhere in the
United States which is placed under contract or is about to be placed under
contract by the Advisor or its Affiliates may be purchased by the Company,
provided that:
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<PAGE> 31
(i) the Company has funds available to make the purchase; (ii) the Board votes
to make the purchase within five days of being offered such property by the
Advisor; (iii) the property meets the Company's acquisition criteria; and (iv)
in the event that more than one real estate investment program sponsored by
Affiliates of the Advisor has funds available to make the purchase, such
property will first be offered to the program which has had funds available for
the longest period of time. The Board, at its discretion, may reject any
property presented for purchase by the Advisor. In exercising this judgment,
the Board will consider the property's location and size and whether the
purchase of the property is consistent with the Company's investment
objectives. Any property rejected by the Board for purchase by the Company may
be purchased by the Advisor or its Affiliates. The Independent Directors, by a
majority vote, must approve all actions by the Advisor or its Affiliates which
present potential conflicts of interest with the Company. See "Compensation
Table" and "Management--The Advisory Agreement."
Dependence on the Directors and Advisor. The Board has
supervisory control over virtually all aspects of the Company's operations.
The success of the Company will depend to a large extent on the Board's ability
to oversee, and the quality of, the management provided by the Advisor, the
Management Agent, their Affiliates and employees for day-to-day operations.
Therefore, the Company will be dependent, in large part, on the ability of the
Advisor and its Affiliates to retain the services of each of its executive
officers and key employees, however, none of such individuals has an employment
agreement with the Advisor or its Affiliates. The loss of any of these
individuals could have a materially adverse effect on the Company. The Company
does not currently maintain key man life insurance policies on any of the
individuals employed by the Advisor or its Affiliates. See "Management."
Dilution. In the event the Company: (i) commences a
subsequent public offering of its Shares or of convertible debt or Preferred
Shares; or (ii) issues Shares or Preferred Shares upon exercise of warrants,
including the Soliciting Dealer Warrants, or to sellers of properties acquired
by the Company in lieu of or in addition to cash consideration, investors
purchasing Shares in this Offering who do not participate in any future stock
issuance will experience dilution of their equity investment in the Company.
The Soliciting Dealer Warrants issued to the Dealer Manager in connection with
the Prior Offering and to be issued in connection with this Offering, as well
as the Shares issuable upon exercise thereof, are being registered as part of
this Offering. The Soliciting Dealer Warrants and/or convertible securities,
if any, likely would be exercised or converted at a time when the Company would
be able to obtain needed capital through a new offering of its securities on
terms more favorable than those provided by such securities. As long as such
securities remain unexercised or unconverted, the terms on which the Company
could raise additional capital may be adversely affected.
All Stockholders Bound by Vote of Majority. The Articles, in
most cases, require a vote of only a majority of the Stockholders on those
matters on which Stockholders are required to vote. Therefore, a substantial
minority of the Stockholders may be bound by the decision of the majority of
the Stockholders with respect to any matters put to the Stockholders.
Company's and Stockholders' Rights Against the Directors and
the Advisor are Limited. The Directors and the Advisor are held harmless and
indemnified for certain actions taken by them in good faith and without
negligence or misconduct pursuant to the Articles or the Advisory Agreement,
respectively. As a result, the Company and the Stockholders may have more
limited rights against the Directors and the Advisor than they would otherwise
have under common law and, furthermore, may be obligated to fund the defense of
the Directors and the Advisor in certain cases. In particular, such persons
shall not be liable to the Company and the Stockholders unless: (i) it is
proved that the person actually received an improper benefit or profit in
money, property or services; and (ii) to the extent that a
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<PAGE> 32
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active or deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. See "Fiduciary
Responsibility of Directors and the Advisor; Indemnification."
3. RISKS OF REAL ESTATE OWNERSHIP
General. All real property investments are subject to some
degree of risk. Equity real estate investments may limit the ability of the
Company to promptly vary its portfolio in response to changing economic,
financial and investment conditions. Such investments will be subject to risks
such as adverse changes in general economic conditions or local conditions
which reduce the demand for the goods or services of tenants. Such investments
also will be subject to other factors affecting real estate values, including:
(i) possible federal, state or local regulations and controls affecting rents,
prices of goods, fuel and energy consumption and prices, water and
environmental restrictions and other factors affecting real property; (ii)
increasing labor and material costs; and (iii) the attractiveness of the
property to tenants in the neighborhood.
The Company is subject to the risk that tenants, as well as
lease guarantors, if any, may be unable to make their lease payments. A
default by a lessee, the failure of a guarantor to fulfill its obligations or
other premature termination of a lease could, depending on the size of the
leased premises and the Advisor's ability to successfully find a substitute
tenant, have an adverse effect on the financial position of the Company. See
"Prior Performance of the Company's Affiliates--Loan Modifications and
Work-Outs."
Competition for Tenants and Customers. The Company could be
adversely affected in the event retail centers are built in locations
competitive with properties owned by the Company, causing increased competition
for customer traffic and credit tenants. This could result in decreased cash
flow for tenants and may require the Company to make capital improvements to
its properties which it would not have otherwise made.
Hazardous Waste, Environmental Liens and Other Governmental
Regulations. Federal and state statutes impose, under certain circumstances,
liability on property owners or operators for the clean-up or removal of
hazardous substances found on their properties. Such statutes typically allow
the government to place liens for such liabilities against affected properties,
which liens will be senior in priority to other liens. In addition, there are
various local, state and federal health and safety regulations under which the
Company could, under certain circumstances, have responsibility for compliance
and liability for fines or damages for noncompliance. For example, properties
acquired by the Company likely will be subject to the Americans with
Disabilities Act (the "ADA"), which generally requires that public
accommodations, including restaurants and retail stores, be made accessible to
disabled persons. See "--Costs Associated with Compliance with the Americans
with Disabilities Act" in this Section. Under net leases, the tenant typically
is responsible for compliance with the ADA and other laws and regulations or is
required to indemnify the Company when the law or regulation places the burden
on the landlord. However, the Company could be liable for violations of such
laws and regulations to the extent the tenant does not have sufficient
resources to provide such indemnification. State and federal laws in this area
are constantly evolving, and the Company intends to monitor such laws and take
commercially reasonable steps to protect itself from the impact thereof,
including obtaining environmental audits of each property acquired. However,
there can be no assurance that the Company will be protected from the impact of
such laws.
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<PAGE> 33
Costs Associated with Compliance with the Americans with
Disabilities Act. Under the ADA, all public accommodations are required to
meet certain federal requirements related to access and use by disabled
persons. These requirements became effective in 1992. The ADA has separate
compliance requirements for "public accommodations" and "commercial facilities"
but generally requires that buildings be made accessible to people with
disabilities. The ADA requirements could require removal of access barriers
and could result in the imposition of fines by the federal government or an
award of damages to private litigants. The Company will attempt to structure
acquisitions of its properties so that such properties are in compliance with
the ADA, at the expense of the seller, at the time of acquisition by the
Company. However, there can be no assurance that the acquisitions will be
structured in such a fashion.
Potential Additional Costs in Connection with Acquiring
Single-User Retail Properties. Certain of the properties or portions thereof
may be designed or built primarily for a particular tenant or a specific type
of use. If the Company is holding such a property upon the termination of the
lease and the tenant fails to renew, or such tenant defaults on its lease
obligations, the property may not be readily marketable to a new tenant without
substantial capital improvements or remodeling. Such improvements might
require expenditure of Company funds otherwise available for distribution or
require the sale of such property at a below-market price.
Competition with Others for the Acquisition of Properties.
The Company competes in the acquisition of property with many other entities
engaged in real estate investment activities, some of which have greater
resources than the Company. In addition, the number of entities and the amount
of funds available for investment in properties of a type suitable for
investment by the Company may increase, resulting in increased competition for
such investments and possible increases in the prices paid therefor.
Reliance on Certain Tenants. The Company could be adversely
affected in the event of the bankruptcy or insolvency, or a downturn in the
business, of any tenant generally occupying approximately 30% or more of the
gross leasable area ("GLA") of a Neighborhood Retail Center, or the tenant of
any single-user property ("Anchor Tenant"), or if any Anchor Tenant does not
renew its lease when it expires. In addition, lease termination by one or more
Anchor Tenants could result in lease terminations or reductions in rent by
other tenants whose leases permit cancellation or rent reduction in the event
an Anchor Tenant's lease is terminated. In such event, the Company's ability
to re-lease the vacated space could be adversely affected. Similarly, the
leases of certain Anchor Tenants may permit the Anchor Tenant to transfer its
lease to another retailer. The transfer to a new Anchor Tenant could adversely
affect customer traffic in the Neighborhood Retail Center and thereby reduce
the income generated by that center and could also allow other tenants to make
reduced rental payments or to terminate their leases at the center. Each of
these developments could adversely affect the Company's revenues and its
ability to make expected Distributions.
Inability of Lessees to Meet Their Obligations. The Company
is subject to the risk that tenants, as well as lease guarantors, if any, may
be unable to make their lease payments. A default by a lessee and/or the
failure of a guarantor to fulfill its obligations or other premature
termination of a lease could, depending on the size of the property and the
Advisor's ability to successfully find a substitute tenant, have an adverse
effect on the financial position of the Company.
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Restrictions on Re-leasing Space. In many cases, tenant
leases will contain provisions giving the tenant the exclusive right to sell
certain types of merchandise or provide certain types of services within a
Neighborhood Retail Center, or will limit the ability of other tenants to sell
such merchandise or provide such services. When re-leasing space after a
vacancy occurs, these "exclusives" may limit the number and types of
prospective tenants for the vacant space.
Uninsured Losses; Unavailability of Insurance. Each lessee
shall be responsible for insuring its goods and premises and lessees may also
reimburse the Company for a share of the cost of acquiring comprehensive
insurance for the property in which it is located, including casualty,
liability, fire and extended coverage customarily obtained for similar
properties in amounts which the Advisor determines are sufficient to cover
reasonably foreseeable losses. Tenants of single-user, net leased properties
will provide such insurance for those properties. However, there are certain
types of losses (generally of a catastrophic nature, such as losses due to
wars) which are either uninsurable or not economically insurable. Should such
an event occur to, or cause the destruction of, a property owned by the
Company, the Company could lose both its invested capital and anticipated
profits from such property. See "Investment Objectives and
Policies--Description of Leases."
Risk of Recharacterization of Sale and Leaseback Transactions.
In addition to the purchase of properties subject to net leases, the Company
intends to enter into sale and leaseback transactions, pursuant to which the
Company will purchase a property from an entity and lease such property to such
entity. In the event of the bankruptcy of such a lessee, a transaction
structured as a sale and leaseback may be recharacterized as either a financing
or as a joint venture, which may result in adverse consequences to the Company.
To the extent the sale and leaseback is treated as a financing, the Company
might not be considered the owner of such property and as such would have the
status of a creditor with respect to the property in question.
Potential Additional Costs in Connection with Acquiring Newly
Constructed Properties. The Company intends primarily to acquire existing or
newly constructed property currently in operation. Although the Company will
only acquire newly constructed buildings on a turnkey basis, the builder's
failure to perform may necessitate legal action by the Company to rescind its
purchase of a property, to compel performance or to sue for damages. Any such
legal action may result in increased costs to the Company.
Risks Associated with Investments in Unimproved Real Property.
The Board has the discretion to invest not more than 10% of the assets of the
Company in unimproved real property. Investment in such real property, in
addition to the risks of real estate investment in general, include the expense
and delay which may be associated with re-zoning the land for a higher use or
the development and environmental concerns of governmental entities and/or
community groups.
4. TAX RISKS
General. There are various federal income tax risks
associated with an investment in the Company. Although the provisions of the
Code relevant to an investment in the Company are generally described in the
Section of the Prospectus titled "Federal Income Tax Considerations," each
potential investor is strongly urged to consult his or her own tax advisor
concerning the effects of federal income tax law on an investment in the
Company and on his or her individual tax situation.
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Investors should recognize that many of the advantages and
economic benefits of an investment in the Company depend upon the continued
treatment of the Company as a REIT for federal income tax purposes. If the
Company were no longer taxed as a REIT, the Company would pay a corporate level
tax on its income which would reduce its cash available to pay Distributions
and the yield from an investment in the Company. The continued treatment of
the Company as a REIT is dependent on the law and regulations, which are
subject to change, and on the Company's ability to continue to satisfy a
variety of objective tests set forth in the Code.
Among the various risks associated with the federal income tax
aspects of the Offering of which investors should be aware are:
Risk of Failing to Qualify as a REIT. Qualification as a REIT
involves the application of certain technical and highly complex provisions of
the Code to various factual matters and circumstances based on the actual
operations of the Company, some of which are not within the Company's control.
In particular, timing differences between the recognition of income and the
receipt of cash could cause the Company to have difficulty meeting the REIT
requirement of distributing 95% of taxable income. Although the Company was
organized and intends to operate so as to continue to qualify as a REIT, no
assurance can be given that the Company will in fact be able to so qualify.
Further, the Company's desire to maintain REIT status could cause it not to
acquire certain properties or undertake certain activities.
If the Company fails to qualify as a REIT or loses its REIT
status, its Distributions will not be deductible and its income will be subject
to tax, which will substantially reduce the cash available to pay
Distributions. In addition, such tax liability might cause the Company to
borrow funds, liquidate certain of its investments or take other steps which
could affect its operating results. Moreover, if the Company's REIT status is
terminated because of the failure to meet a technical REIT test or it
voluntarily revokes its election, the Company would be disqualified from
electing treatment as a REIT for the four taxable years following the year in
which REIT status is lost.
Limitations on Share Ownership. In order for the Company to
qualify as a REIT, no more than 50% of the outstanding Shares may be owned,
directly or indirectly, by five or fewer individuals at any time during the
last half of the Company's taxable year. To ensure that the Company will not
fail to qualify as a REIT under this test, the Articles provide that no person
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 9.8% of the number or value of the issued and outstanding stock
of the Company. See "Description of Securities-- Restrictions on Transfer."
Tax Liability on Reinvested Distributions. Stockholders that
participate in the DRP will be deemed to have received, and will for income tax
purposes be taxed on, the amount reinvested in Shares. Therefore, Stockholders
(other than Tax-Exempt Entities) will have to use funds from other sources to
pay their tax liability on the value of the Shares received. See "Federal
Income Tax Considerations--Other Tax Considerations--Distribution Reinvestment
Program."
Limitations on Opinion of Counsel. The opinion of Counsel is
based and conditioned on various assumptions and representations made by the
Company as to certain factual matters. As set forth more fully in the Section
of the Prospectus titled "Federal Income Tax Considerations," Counsel has
expressed its opinion based on the facts described in this Prospectus, the
Articles and certain representations by the Company and the Advisor that: (i)
the Company has been organized in conformity with the requirements for
qualification as a REIT, beginning with its taxable year ending December 31,
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1995 and that its prior, current and anticipated methods of operation have
enabled and will enable the Company to satisfy the REIT Requirements; and (ii)
distributions to a Stockholder which is a Tax-Exempt Entity will not constitute
UBTI under current law, unless: (a) such Stockholder has financed the
acquisition of its Shares with "acquisition indebtedness" (within the meaning
of the Code); or (b) a Qualified Trust (as defined herein) owns more than 10%
of the Shares and the Company is a "Pension-Held REIT" (as defined herein).
See, however, "Description of Securities-- Restrictions on Transfer."
The Company's qualification as a REIT will depend upon the
Company's ability to meet, through actual operating results, various tests
imposed by the Code. The Company's ability to maintain its REIT status will
depend upon its ability (based on its actual operating results) to meet the
REIT Requirements, and Counsel will not review compliance with the REIT
Requirements on a continuing basis after the initial effectiveness date of the
Registration Statement or issue any opinions in the future unless expressly
requested to do so. Accordingly, no assurance can be given that the Company's
actual operating results will allow the Company to satisfy the REIT
requirements. In addition, this opinion represents Counsel's legal judgment
based on the law in effect as of the initial effective date, and is not binding
on the Service and could be subject to modification or withdrawal due to
future changes in the law.
5. ERISA RISKS
Suitability of the Company's Investments for Qualified Pension
and Profit-Sharing Trusts. When considering an investment in the Company with
a portion of the assets of a Qualified Plan, a fiduciary should consider: (i)
whether the investment satisfies the diversification requirements of Section
404(a)(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or other applicable restrictions imposed by ERISA; and (ii) whether
the investment is prudent, since there is anticipated to be only a limited
market in which it can sell or otherwise dispose of the Shares. The Company
has not, and will not, evaluate whether an investment in the Company is
suitable for any particular plan, but, subject to the disclosure included
therein, will accept such entities as Stockholders if an entity otherwise meets
the suitability standards. See "ERISA Considerations."
If the Company is considered a Pension-Held REIT, an
investment in the Company may also produce UBTI which may cause a Qualified
Plan holding 10% or more of the Shares to pay a tax on a portion of the income
distributed to it by the Company. Whether the Company will constitute a
Pension-Held REIT will depend on the concentration of ownership by one or more
Qualified Plans, a factor that is not within the control of the Company. See
"Federal Income Tax Considerations" and "Description of
Securities--Restrictions on Transfer."
In addition to considering their fiduciary responsibilities
under ERISA and the prohibited transaction rules of ERISA and the Code,
advisors to Qualified Plans should also consider the effect of the "Plan Asset"
regulations issued by the Department of Labor. See "ERISA Considerations."
Stockholders subject to ERISA will be provided with an annual
statement of value reporting the value of each Share based upon an estimated
amount (as determined by the Company) they would receive if the Company's
properties were sold as of the close of the Company's fiscal year and if such
proceeds (without reduction for selling expenses), together with the other
funds of the Company were distributed in liquidation of the Company; provided,
however, the Net Asset Value of each Share is expected to be at least $10
through the termination of this Offering. This annual valuation may be revised
by the Company from time to time. There can be no assurance that: (i) such
value could actually be
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realized by the Company or by Stockholders upon liquidation (in part because
estimates of value do not necessarily indicate the price at which assets could
be sold, and because no attempt will be made to estimate the expenses of
selling any asset of the Company); (ii) Stockholders could realize such value
if they were to attempt to sell their Shares; or (iii) such value would comply
with the ERISA requirements. Should the Shares become listed for trading on a
national stock exchange or included for quotation on a national market system,
the Company will no longer provide such valuations.
IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS OF THE OFFERING,
PARTICULARLY IN LIGHT OF THE FACT THAT CERTAIN OF THE TAX ASPECTS OF THE
OFFERING WILL NOT BE THE SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE
STRONGLY ADVISED TO CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR
OWN TAX SITUATION PRIOR TO INVESTMENT IN THE COMPANY.
ESTIMATED USE OF PROCEEDS OF OFFERING
The amounts set forth in the table below represent the Company's
current estimates concerning the use of the Gross Offering Proceeds. All
proceeds of the Offering are held in trust by the Company for the benefit of
the Stockholders, to be used only for the purposes set forth above and will not
be commingled. As of the date of this Prospectus, the Company owned 11
properties including nine Neighborhood Retail Centers and two single-user
retail properties and had approximately $_______ available for additional
investments. The Company estimates that 86.79% of Gross Offering Proceeds will
be used to acquire properties if the Maximum Offering is sold. If the Maximum
Offering is sold, 7.13% of the Gross Offering Proceeds will be utilized to pay
selling and due diligence expenses to unaffiliated third parties and 4.58% of
the Gross Offering Proceeds will be paid to the Advisor and its Affiliates to
pay for the costs of the Offering and the Marketing Contribution and Due
Diligence Expense Allowance.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE DISTRIBUTION
REINVESTMENT PROGRAM)(1)
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
Gross Offering Proceeds: $109,050,000 100.00%
------------ -------
Less Expenses:
Selling Commissions (2) 7,000,000 6.42%
Marketing Contribution and Due Diligence
Expense Allowance Fee (2) 2,500,000 2.29%
Organization and Offering Expenses (3) 3,271,500 3.00%
--------- -----
Total Public Offering Expenses 12,771,500 11.71%
---------- ------
Gross Amount Available for Investment 96,278,500 88.29%
Acquisition Expenses (4)(5) 545,250 0.50%
Working Capital Reserve (6) 1,090,500 1.00%
--------- ------
Net Cash Payments Relating to the
Purchase of Properties $94,642,750 86.79%
=========== ======
</TABLE>
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- ------------------------
(1) The amounts shown in this table represent the Company's
current estimates of the uses of the Gross Offering Proceeds if the Maximum
Offering Amount is sold, and, accordingly, may not accurately reflect the
actual application of such proceeds.
(2) The Company will pay the Dealer Manager selling commissions
equal to up to 7% of a maximum of $100,000,000 of the Gross Offering Proceeds
and one Soliciting Dealer Warrant for every 40 Shares sold, all or part of
which compensation may be retained or reallowed to Soliciting Dealers. The
Dealer Manager will also receive the Marketing Contribution and Due Diligence
Expense Allowance Fee equal up to 2.5% of a maximum of $100,000,000 of the
Gross Offering Proceeds, some portion of which may be reallowed to Soliciting
Dealers. This category of expense will pay all amounts attributable to
marketing and bona fide due diligence expenses. Certain volume discounts may
be given on orders of 25,000 Shares or more and Soliciting Dealers may, in
their discretion, request that the Company pay them less than the maximum
permitted compensation in respect of the sale of Shares; however, such
discounts will not affect the amount of proceeds to the Company. No selling
commission will be paid on any Shares purchased by the Advisor, its Affiliates,
the Dealer Manager or Soliciting Dealers. Any Shares purchased by the Advisor
or its Affiliates will be for investment purposes only and not with a view
toward resale. A maximum of 1,000,000 Shares purchased under the Distribution
Reinvestment Program will not be subject to selling commissions or the
Marketing Contribution and Due Diligence Expense Allowance Fee and will be sold
at a price of $9.05 per Share ($9,050,000 if all such Shares are sold). See
"Conflicts of Interest," "Management's Discussion and Analysis of the Financial
Condition and Results of Operations," "Plan of Distribution" and "Distribution
Reinvestment and Share Repurchase Programs--Distribution Reinvestment Program."
(3) These amounts are the Advisor's best estimates of the legal,
accounting, printing and other offering expenses, including amounts for the
reimbursement of the Advisor for marketing, salaries and direct expenses of its
employees while directly engaged in registering and marketing the Shares and
other marketing and organization expenses. The Advisor has guaranteed payment
of all public offering expenses (excluding selling commissions and the
marketing contribution and due diligence expense allowance fee) in excess of
5.5% of the Gross Offering Proceeds or all Organization and Offering Expenses
(including such selling expenses) which together exceed 15% of the Gross
Offering Proceeds. This guaranty is without recourse to or reimbursement by
the Company.
(4) The Advisor will be reimbursed for actual out-of-pocket
Acquisition Expenses in an amount estimated to be 0.5% of the Gross Offering
Proceeds ($545,250, assuming the Maximum Offering, including Shares sold under
the DRP). In addition, the Advisor will be reimbursed for actual out-of-pocket
Acquisition Expenses equal to 0.5% of any funds borrowed by the Company to
acquire properties. Such expenses with respect to borrowed funds will be
payable from the proceeds of such borrowings ($272,625, assuming the Maximum
Offering, including Shares sold under the DRP, are sold, and the borrowings
equal 50% of the Maximum Offering). Acquisition Expenses include but are not
limited to the costs and expenses incurred by the Advisor in the selection,
evaluation and acquisition of, and investment in, the Company's properties,
whether or not acquired or made, including, but not limited to: surveys,
appraisals, title insurance and escrow fees, non-refundable option payments on
properties not acquired, legal and accounting fees and expenses, computer use
related expenses, architectural and engineering reports, environmental and
asbestos audits, travel and communication expenses and personnel and
miscellaneous expenses related to the selection and acquisition of properties.
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<PAGE> 39
(5) The Advisor will not receive a fee for the acquisition of
properties. However, the seller of a property may pay a real estate brokerage
commission to a third party in connection with the Company's purchase of a
property. Since a seller may fix the selling price of a property at an amount
sufficient to cover the cost of a real estate commission, the Company, as
purchaser, may indirectly pay such amount in the purchase price, which amount
may be considered an acquisition fee. The Advisor will endeavor, whenever
possible, to purchase properties directly from sellers, without the involvement
of a real estate broker. When a property has been listed by a seller with a
real estate broker, the Advisor will endeavor, whenever possible, to be
allocated a portion of the real estate brokerage commission paid by the seller.
All real estate brokerage commissions so allocated to the Advisor will then be
remitted in their entirety to the Company by the Advisor.
(6) The Company will add 1% of the Gross Offering Proceeds to its working
capital reserve.
WHO MAY INVEST
An investment in Shares involves certain risks and is suitable only as
a long-term investment for persons of adequate financial means who have no
immediate need for liquidity in their investment. Shares will be sold only to
persons who initially purchase a minimum of 300 Shares ($3,000) or Tax-Exempt
Entities which purchase a minimum of 100 Shares ($1,000, except Iowa where the
minimum investment for IRAs will be $3,000). In addition, the Company has
established financial suitability standards for investors who purchase Shares.
These standards require investors to have either: (i) a minimum annual gross
income of $45,000 and a net worth (exclusive of home, home furnishings and
automobiles) of $45,000; or (ii) a net worth (determined with the foregoing
exclusions) of $150,000. In the case of gifts to minors, the suitability
standards must be met by the custodian account or by the donor and by
acceptance of the confirmation of purchase or delivery of the Shares, an
investor represents that he satisfied any applicable suitability standards.
In purchasing Shares, custodians or trustees of employee pension
benefits plans or IRAs may be subject to the fiduciary duties employed by ERISA
or other applicable laws and to the prohibited transaction rules prescribed by
ERISA and related provisions of the Code. In addition, prior to purchasing
Shares, the trustee or custodian of an employee pension benefit plan or an IRA
should determine that such an investment would be permissible under the
governing instruments of such plan or account and applicable law. See "Federal
Income Tax Considerations--Taxation of Stockholders--Taxation of Tax-Exempt
Stockholders" and "ERISA Considerations."
Suitability standards may be higher in certain states. Investors must
meet all of the applicable requirements set forth in the Subscription
Agreement. Under the laws of certain states, an investor may transfer his
Shares only to persons who meet similar standards, and the Company may require
certain assurances that these standards are met. Investors should carefully
read the requirements in connection with resales of Shares set forth in the
Subscription Agreement and under "Description of Securities--Restrictions on
Transfer."
The Soliciting Dealers Agreements between the Dealer Manager and each
of the Soliciting Dealers requires such securities dealers to make diligent
inquiries as required by law of all prospective purchasers in order to
ascertain whether a purchase of Shares is suitable and appropriate for such
person based upon information provided by the prospective purchaser regarding
his financial situation and investment objectives and to transmit promptly to
the Company, the fully completed subscription documentation and
28
<PAGE> 40
any other supporting documentation reasonably required by the Company. By
executing the subscription agreement relating to the Shares (the "Subscription
Agreement"), by tendering payment for Shares and by acceptance of the
confirmation of purchase or delivery of the Shares, an investor represents that
he satisfies any applicable suitability standards.
In addition, each Soliciting Dealer will, by completing the
Subscription Agreement, acknowledge its determination that the Shares are a
suitable and appropriate investment for the investor, and will be required to
represent and warrant his or her compliance with applicable laws requiring the
determination of the suitability and appropriateness of the Shares as an
investment for the subscriber. The Company will, in addition to the foregoing,
coordinate the processes and procedures utilized by the Dealer Manager and
Soliciting Dealers and, where necessary, implement such additional reviews and
procedures deemed necessary to assure the adherence by registered
representatives to the suitability standards set forth herein.
COMPENSATION TABLE
The arrangements as to compensation by the Company of the Advisor and
Affiliates are arrangements by and among entities all of which are affiliated
and, consequently, such arrangements were not determined by arm's-length
negotiations. See "Conflicts of Interest." The following table discloses the
significant compensation which may be received from the Company, directly or
indirectly, by the Advisor and its Affiliates. In those instances in which
there are maximum amounts or ceilings on the compensation which may be received
by the Advisor and its Affiliates for services rendered to the Company, the
Advisor and its Affiliates may not recover any excess amounts for those
services by reclassifying such services under a different compensation or fee
category. See "Conflicts of Interest--Receipt of Commissions, Fees and Other
Compensation by the Advisor and its Affiliates."
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation and fees payable to
the Advisor and its Affiliates by the Company are not subordinated to the
Current Return or Cumulative Return to the Stockholders.
UPON COMPLETION OF OFFERING:
<TABLE>
<S> <C> <C>
Selling Commissions (payable
to the Dealer Manager and The Dealer Manager will Actual amount depends upon the
Soliciting Dealers) receive $0.70 per Share for number of Shares sold.
each Share sold and a Selling commissions of
Soliciting Dealer Warrant for $________ were incurred in the
each 40 Shares sold. The Prior Offering, including
Dealer Manager will reallow $1,369,302 incurred through
the selling commissions and December 31, 1995. $7,000,000
Soliciting Dealer Warrants to will be paid if the Maximum
Soliciting Dealers for each Offering is sold.
Share they sell. (1) Shares
purchased under the
Distribution Reinvestment
Pro-
</TABLE>
29
<PAGE> 41
<TABLE>
<S> <C> <C>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
-------------------- ---------------------- ---------------------
gram will be purchased net
of commissions.
Marketing Contribution and Due An amount equal to up to 2.5% Actual amount depends upon the
Diligence Expense Allowance of the Gross Offering number of Shares sold.
Fee (payable to the Dealer Proceeds, some portion of Expenses of $______ were
Manager and Soliciting which may be reallowed to incurred in the Prior
Dealers) Soliciting Dealers to pay Offering, including $350,053
marketing and bona fide due incurred through December 31,
diligence expenses. Shares 1995. $2,500,000 will be paid
purchased under the if the Maximum Offering is
Distribution Reinvestment sold.
Program will be purchased net
of the Marketing Contribution
and Due Diligence Expense
Allowance Fee.
Reimbursable Expenses (payable The Advisor or its Affiliates Reimbursable Expenses of
to the Advisor and its may advance Organization and $_______ were incurred in the
Affiliates) Offering Expenses for the Prior Offering, including
Company. It will be reimbursed $1,436,564 incurred through
for its actual costs incurred December 31, 1995 (for
in connection with the Organization and Offering
Offering on behalf of the Expenses, but excluding
Company, including legal and selling commissions and the
accounting fees, registration Marketing Contributions and
and filing fees, printing Due Diligence Expense
costs and selling expenses. Allowance Fee).
However, if the aggregate of
all Organization and Offering
Expenses, including selling
commissions and the Marketing
Contribution and Due Diligence
Expense Allowance Fee, exceeds
15% of the Gross Offering
Proceeds, or if the aggregate
of all Organization and
Offering Expenses, excluding
such selling expenses, exceeds
5.5% of the Gross Offering
Proceeds, the Advisor or its
Affiliates will promptly pay
</TABLE>
30
<PAGE> 42
<TABLE>
<S> <C> <C>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
-------------------- ---------------------- ---------------------
such excess expenses and the
Company will have no liability
for such expenses at any time
thereafter.
ACQUISITION STAGE:
Acquisition Expenses for the An amount estimated to be up Acquisition Expenses of
costs and expenses of the to 0.5% of the Gross Offering $______ were incurred in the
acquisition of properties Proceeds in connection with Prior Offering, all of which
including surveys, appraisals, the expenses attendant to a amounts were incurred after
title insurance and escrow property acquisition. (2) December 31, 1995. If the
fees, legal and accounting Maximum Offering is sold,
fees and expenses, computer Acquisition Expenses may not
use related expenses, exceed $________; however, the
architectural and engineering actual amounts cannot be
reports, environmental and determined at the present
asbestos audits, travel and time. In no event will such
communication expenses and amount exceed 6% of the
other related expenses purchase price of any single
(payable to the Advisor and property.
its Affiliates).
OPERATIONAL STAGE (3):
Property Management Fee A Property Management Fee Actual amounts are dependent
(payable to an Affiliate of equal to not more than 4.5% of upon results of operations.
the Advisor) the gross revenues from the Property Management Fees of
properties will be paid $_________ were incurred in
monthly to Inland Commercial the Prior Offering, including
Property Management, Inc., an $46,791 incurred through
Affiliate of the Advisor (the December 31, 1995.
"Management Agent").
Compensation for Services In addition to property Actual amounts are dependent
management, the Advisor and upon results of operations
its Affiliates will provide and, therefore, cannot be
other property-level services determined at the present
to the Company, and may time.
receive compensation for such
</TABLE>
31
<PAGE> 43
<TABLE>
<S> <C> <C>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
-------------------- ---------------------- ---------------------
services, including leasing
fees, development fees,
construction management fees,
loan origination and servicing
fees, property tax reduction
fees and risk management fees.
However, such compensation
will not exceed 90% of that
which would be paid to third
parties providing such
services and all such
compensation must be approved
by a majority of the
Independent Directors. See
"Management--Other Services."
Reimbursable Expenses (payable Certain expenses of the Actual amounts are dependent
to the Advisor and its Advisor and its Affiliates upon results of operations;
Affiliates) will be reimbursed by the $________ was incurred in the
Company. (4) (5) (6) Prior Offering, including
$7,277 incurred through
December 31, 1995.
LIQUIDATION STAGE:
Property Disposition Fee A property disposition fee, Actual amounts to be received
(payable to the Advisor and payable upon the sale of each depend upon the sale price of
its Affiliates) of the Company's properties, Company properties and,
in an amount equal to the therefore, cannot be
lesser of: (i) 3% of the determined at the present
contracted for sales price of time.
the property; or (ii) 50% of
the commission paid to third
parties which is reasonable,
customary and competitive in
light of the size, type and
location of such property
("Competitive Real Estate
Commission"). The amount
paid, when added to the sums
paid to unaffiliated parties,
shall not exceed the lesser of
the Competitive Real Estate
</TABLE>
32
<PAGE> 44
<TABLE>
<S> <C> <C>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
-------------------- ---------------------- ---------------------
Commission or an amount equal
to 6% of the contracted for
sales price. Payment of such
fees shall be made only if the
Advisor provides a substantial
amount of services in
connection with the sale of
the property. See
"Management--The Advisory
Agreement."
</TABLE>
SUBORDINATED PAYMENTS
The following fee payable to the Advisor and its Affiliates by the
Company will be payable only after specified returns have been paid to the
Stockholders as set forth below:
OPERATIONAL STAGE (3):
<TABLE>
<S> <C> <C>
Advisor Asset Management Fee An Advisor Asset Management Actual amounts are dependent
(payable to the Advisor) Fee of not more than 1% of the upon results of operations.
Average Invested Assets. The Advisor Asset Management Fees
fee will be payable quarterly of $________ were incurred in
in an amount equal to 1/4 of the Prior Offering, all of
1% of the Average Invested which amounts were incurred
Assets of the Company, as of after December 31, 1995.
the last day of the
immediately preceding quarter,
pursuant to the Advisory
Agreement. For any year in
which the Company qualifies as
a REIT, the Advisor must
reimburse the Company: (i) to
the extent that the Advisor
Asset Management Fee plus
Other Operating Expenses paid
during the previous calendar
year exceed 2% of the
Company's Average Invested
Assets for that calendar year
or 25% of the Company's Net
Income for that calendar year;
and (ii)
</TABLE>
33
<PAGE> 45
<TABLE>
<S> <C> <C>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
-------------------- ---------------------- ---------------------
to the extent that
Stockholders have not received
an annual Distribution equal
to or greater than the 8%
Current Return.
LIQUIDATION STAGE (3):
Incentive Advisory Fee After the Stockholders have Actual amounts to be received
(payable to the Advisor) first received: (i) their 8% depend upon the sale price of
Cumulative Return; and (ii) a Company properties and,
return of their Invested therefore, cannot be
Capital, an Incentive Advisory determined at the present
Fee equal to 15% of the net time.
proceeds from the sale of a
property. At such time as the
Advisory Agreement is
terminated due to the listing
for trading of the Shares on a
national exchange or market,
the Incentive Advisory Fee
shall also terminate. The
Advisor and Management Agent
may be merged into the Company
at the time of listing and may
receive shares in the Company,
in an amount which may be
determined at that time, based
upon the value of all fees
given up or waived by the
Advisor and Management Agent
through the merger. See
"Management--The Advisory
Agreement."
</TABLE>
- ----------------------
(1) Each Soliciting Dealer Warrant grants the holder a right to
purchase one Share at a price of $12 per Share during the period beginning from
the date the Soliciting Dealer Warrants are issued and ending on October 13,
2000. No Soliciting Dealer Warrants will be exercisable until one year from
the date of issuance. See "Plan of Distribution--Compensation."
34
<PAGE> 46
(2) The total of all Acquisition Expenses paid by the Company in
connection with the purchase of a property by the Company shall in no event
exceed an amount equal to 6% of the Contract Price for the Property (as defined
herein), unless a majority of the Directors (including a majority of the
Independent Directors), not otherwise interested in the transaction, approve
the transaction as being commercially competitive, fair and reasonable to the
Company. Notwithstanding the foregoing, the total of all Acquisition Expenses
paid by the Company in connection with the purchase of a property by the
Company from an Affiliate shall in no event exceed an amount equal to 6% of the
Contract Price for the Property.
(3) The Advisor and its Affiliates will be involved in determining
the types of transactions entered into by the Company. The Advisor benefits
from the Company's retaining ownership of its properties and leveraging its
properties, while Stockholders may be better served by their sale or
disposition or acquisition or hold on an unleveraged basis. Furthermore, the
receipt and retention of certain fees and reimbursements is dependent upon the
Company making investments in properties. Therefore, the interest of the
Advisor in receiving such fees may conflict with the interest of the
Stockholders to earn income on their investment in Shares and may result in the
Company entering into transactions which may not be in the best interest of the
Stockholders.
(4) (i) The Advisor and its Affiliates will be
reimbursed for: (a) the cost to the Advisor or its Affiliates
of goods and services used for and by the Company and obtained
from unaffiliated parties; and (b) administrative services
related thereto. "Administrative services" include only
ministerial services such as typing, recordkeeping,
preparation and dissemination of Company reports, preparation
and maintenance of records regarding Stockholders,
recordkeeping and administration of the Distribution
Reinvestment and Share Repurchase Programs, preparation and
dissemination of responses to Stockholder inquiries and other
communications with Stockholders and any other recordkeeping
required for Company purposes.
(ii) In extraordinary circumstances fully
justified to the official or agency administering the state
securities laws, the Advisor and its Affiliates may provide
other goods and services to the Company if all of the
following criteria are met: (a) the goods or services must be
necessary to the prudent operation of the Company; (b) the
compensation, price or fee must be equal to the lesser of 90%
of the compensation, price or fee the Company would be
required to pay to independent parties who are rendering
comparable services or selling or leasing comparable goods on
competitive terms in the same geographic location, or 90% of
the compensation, price or fee charged by the Advisor or its
Affiliates for rendering comparable services or selling or
leasing comparable goods on competitive terms; or (c) if at
least 95% of gross revenues attributable to the business of
rendering such services or selling or leasing such goods are
derived from persons other than Affiliates, the compensation,
price or fee charged by an unaffiliated person who is
rendering comparable services or selling or leasing comparable
goods must be on competitive terms in the same geographic
location. In addition, any such payment will be subject to
the further limitation described in paragraph (iii) below.
Extraordinary circumstances shall be presumed only when there
is an emergency situation requiring immediate action by the
Advisor or its Affiliates and the goods or services are not
immediately available from unaffiliated parties. Services
which may be performed in such extraordinary circumstances
include emergency maintenance of Company properties,
janitorial and other related services due to strikes or
lock-outs, emergency
35
<PAGE> 47
tenant evictions and repair services which require immediate action,
as well as operating and re-leasing properties with respect to which
the leases are in default or have been terminated.
(iii) No reimbursement will be permitted to the
Advisor or its Affiliates under clause (i)(b) above for items
such as rent, depreciation, utilities, capital equipment and
other administrative items and the salaries, fringe benefits,
travel expenses and other administrative items of any
controlling persons of the Advisor, its Affiliates or any
other supervisory personnel except in those instances in which
the Company believes it to be in the best interest of the
Company that the Advisor or its Affiliates operate or
otherwise deal with, for an interim period, a property with
respect to which the lease is in default. Permitted
reimbursements, except as set forth above, include salaries
and related salary expenses for non-supervisory services which
could be performed directly for the Company by independent
parties such as legal, accounting, transfer agent, data
processing and duplication. Controlling persons include, but
are not limited to, any person, irrespective of his or her
title, who performs functions for the Advisor similar to those
of: (a) chairman or member of the board of directors; (b)
president or executive vice president; or (c) those entities
or individuals holding 5% or more of the stock of the Advisor
or a person having the power to direct or cause the direction
of the Advisor, whether through ownership of voting
securities, by contract or otherwise. Notwithstanding the
foregoing, and subject to the approval of the Board, the
Company may reimburse the Advisor for expenses related to the
activities of controlling persons undertaken in capacities
other than those which cause them to be controlling persons.
The Advisor believes that its employees and the employees of
its Affiliates and controlling persons who will perform
services for the Company for which reimbursement is allowed
pursuant to clause (ii)(c) above, have the experience and
educational background, in their respective fields of
expertise, appropriate for the performance of such services.
(iv) The Total Operating Expenses of the Company
shall not (in the absence of a satisfactory showing to the
contrary) in any fiscal year exceed the greater of: (a) 2% of
the Average Invested Assets; or (b) 25% of its Net Income for
such year. The Independent Directors may, upon a finding of
unusual and non-recurring factors which they deem sufficient,
determine that a higher level of expenses is justified in any
given year. There are certain additional restrictions on
expenses that will be borne by the Company.
(5) The Advisor and its Affiliates shall not be compensated for
any services other than those which have been fully disclosed in this
Compensation Table.
(6) The Company shall not pay, directly or indirectly, a
commission or fee to the Advisor or its Affiliates in connection with the
reinvestment of the proceeds of any resale, exchange, financing or refinancing
of a Company property.
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<PAGE> 48
CONFLICTS OF INTEREST
The Company is subject to various conflicts of interest arising out of
its relationship with the Sponsor, the Advisor or its Affiliates. All
agreements and arrangements, including those relating to compensation, between
the Company and the Advisor and its Affiliates are not the result of
arm's-length negotiations. The limitations on the Advisor described below have
been adopted to control when the Company enters into transactions with the
Advisor and its Affiliates. With respect to the conflicts of interest
described herein, the Advisor and its Affiliates will endeavor to balance the
interests of the Company with the interests of the Advisor and its Affiliates
in making any determination.
1. Competition for the Time and Service of the Advisor and
Affiliates. The Company relies on the Advisor and its Affiliates for the daily
operation of the Company and the management of its assets. Affiliates of the
Advisor have conflicts of interest in allocating management time, services and
functions among various existing real estate programs and any future real
estate programs or other entities which they may organize or serve, as well as
other business ventures in which they are involved. The Advisor and its
Affiliates believe they have sufficient staff to be fully capable of
discharging their responsibilities in connection with various real estate
programs and other business ventures.
The compensation paid to the Advisor or its Affiliates under
the Advisory Agreement is on terms no less favorable to the Company than those
customary for similar services performed by independent firms in the relevant
geographic area, but in no event more than 2% of the Average Invested Assets
less Other Operating Expenses. See "Compensation Table." The Advisory
Agreement provides that it may be terminated by a majority vote of the
Stockholders upon 60 days prior written notice. See "Management--The Advisory
Agreement."
2. Process for Resolution of Conflicting Opportunities.
Affiliates of the Advisor have sponsored publicly and privately offered
entities and may in the future sponsor publicly and privately offered REITs or
other entities which may have investment objectives very similar to those of
the Company. The Advisor and its Affiliates could, therefore, be subject to
conflicts of interest between the Company and other programs in connection with
the acquisition of properties. To the extent possible, the resolution of
conflicting investment opportunities between the Company and other investment
entities advised or managed by the Advisor and its Affiliates will, as a
general rule, be resolved by giving priority to the entity having uninvested
funds for the longest period of time. Specifically, the Advisory Agreement
gives the Company the first opportunity to buy Neighborhood Retail Centers
placed under contract by the Advisor or its Affiliates provided the Company is
able to close the purchase of such property within 60 days. The Advisory
Agreement will also require that any single-user retail property net leased by
a creditworthy tenant located anywhere in the United States which is placed
under contract by the Advisor or its Affiliates may be purchased by the Company
provided that: (i) the Company has funds available to make the purchase; (ii)
the Board votes to make the purchase within five days of being offered such
property by the Advisor; (iii) the property meets the Company's acquisition
criteria; and (iv) in the event that more than one real estate program
sponsored by Affiliates of the Advisor has funds available to make the
purchase, such property will first be offered to the program which has had
funds available for the longest period of time. Other factors which may be
considered in connection with the decisions as to the suitability of the
property for investment include: (i) the effect of the acquisition on the
diversification of each entity's portfolio; (ii) the amount of funds available
for investment; (iii) cash flow; and (iv) the estimated income tax effects of
the purchase and subsequent disposition. The Independent Directors must, by a
majority vote, approve all actions by the Advisor or its Affiliates which
present potential conflicts with the Company. See "Management--The Advisory
Agreement."
37
<PAGE> 49
It is believed that the aforementioned factors, together with
the obligations of the Advisor and the Affiliates to present to the Company any
investment opportunity which could be suitable for the Company, will help to
lessen the competition or conflicts with respect to the purchase of properties
by other entities and the Company.
3. Acquisition from Affiliates. Two of the properties acquired
by the Company were acquired from an Affiliate. The purchase prices for such
properties were not the subject of arm's-length negotiations. The Articles
provide that the purchase price of any property acquired from an Affiliate may
not exceed its fair market value as determined by a competent independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers, and a majority of the Directors (including a majority of the
Independent Directors) not interested in the transaction must approve the
purchase as fair and reasonable to the Company. The Directors (including all
of the then Independent Directors) approved these acquisitions, however, there
can be no assurance that the prices paid to the Affiliate did not exceed that
which would be paid by an unaffiliated purchaser.
4. The Company may Purchase Properties from Persons with whom
Affiliates of the Advisor have Prior Business Relationships. The Company may
purchase properties from certain sellers from whom the Advisor or its
Affiliates have purchased properties in the past and may purchase properties in
the future. In the event the Company purchases properties from such sellers,
the Advisor will experience a conflict between the current interests of the
Company and its interests in preserving any ongoing business relationship.
Nevertheless, the Advisor will not consummate such purchases in a manner which
would cause it to breach its fiduciary obligations to the Company. See
"Management."
5. Property Management Services are being Rendered by an
Affiliate of the Advisor. An Affiliate of the Advisor, Inland Commercial
Property Management, Inc., provides property management services for the
Company. The Management Agent renders the management services to the Company
on a competitive basis in a manner consistent with customary business
practices. See "Compensation Table--Nonsubordinated Payments--Operational
Stage." The Advisor and the Management Agent believe that the Management Agent
has sufficient personnel and other required resources to discharge all
responsibilities to the various properties that it manages and will manage in
the future.
6. Receipt of Commissions, Fees and Other Compensation by the
Advisor and its Affiliates. The Advisor and its Affiliates have received and
will continue to receive the compensation as described in the "Compensation
Table." Certain compensation is payable notwithstanding the lack of cash
available to make Distributions to the Stockholders. To that extent, the
Advisor benefits from the Company's retaining ownership of its properties and
leveraging its properties, while Stockholders may be better served by their
sale or disposition or acquisition or hold on an unleveraged basis.
Furthermore, the receipt and retention of certain fees and reimbursements is
dependent upon the Company making investments in properties. Therefore, the
interest of the Advisor in receiving such fees may conflict with the interest
of the Stockholders in earning income on their investment in Shares. The
Advisor and its Affiliates recognize that they have a fiduciary duty to the
Company and the Stockholders, and represent that their actions and decisions
will be made in the manner most favorable to the Company and its Stockholders,
so as not to breach their fiduciary duty. See also "Risk Factors -- Dilution"
regarding issuance of Soliciting Dealer Warrants to the Dealer Manager.
7. Non-Arm's-Length Agreements. The agreements and arrangements,
including those relating to compensation, between the Company and the Advisor
or any of its Affiliates may not be the result of arm's-length negotiations,
but are expected to approximate the terms of arm's-length transactions.
38
<PAGE> 50
While the Company will make no loans to the Advisor or its
Affiliates, the Company has and may continue to borrow money from the Advisor
or its Affiliates for various purposes including working capital requirements,
but only on terms as to interest rate, security, fees and other charges at
least as favorable to the Company (as determined by a majority of the Directors
(including a majority of the Independent Directors)) as those charged by
unaffiliated lending institutions in the same locality on comparable loans for
the same purpose. See "Real Property Investments."
The Advisor and its Affiliates are not prohibited from
providing services to, and otherwise dealing or doing business with, persons
who deal with the Company, although there are no present arrangements with
respect to any such services. However, no rebates or "give-ups" may be
received by the Advisor or its Affiliates, nor may the Advisor or any such
Affiliates participate in any reciprocal business arrangements which would have
the effect of circumventing any of the provisions of the Advisory Agreement.
8. Legal Counsel for the Company and the Advisor is the Same Law
Firm. Shefsky Froelich & Devine Ltd. is acting as general counsel to the
Company and as special counsel to the Advisor and some of its Affiliates upon
all legal matters related to the Offering. Shefsky Froelich & Devine Ltd. is
not acting as counsel for the Stockholders or any potential investor.
There is a possibility that in the future the interests of the
various parties may become adverse, and under the Code of Professional
Responsibility of the legal profession, such counsel may be precluded from
representing any one or all of said parties. If any situation arises in which
the interests of the Company appear to be in conflict with those of the Advisor
or its Affiliates, additional counsel may be retained by one or more of the
parties to assure that their interests are adequately protected. Moreover,
should such a conflict not be readily apparent, counsel may inadvertently act
in derogation of the interest of certain parties which could affect the
Company's and, therefore, the Stockholders' ability to meet their investment
objectives.
9. Inland Securities Corporation is Participating as Dealer
Manager in the Sale of the Shares. Inland Securities Corporation, a securities
dealer affiliated with the Advisor, is participating as the Dealer Manager in
the Offering and is entitled to selling commissions and Soliciting Dealer
Warrants which may be retained or reallowed to Soliciting Dealers. See "Risk
Factors -- Dilution" and "Plan of Distribution--Compensation" regarding
issuance of the Soliciting Dealer Warrants to the Dealer Manager. Any review of
the structure, formation or operation of the Company performed by the Dealer
Manager will be conducted as if it was an independent review; however, it
cannot be considered to represent such an independent review, and such review
may not be as meaningful as a review conducted by an unaffiliated
broker-dealer. Thus, the Dealer Manager may be subject to a conflict of
interest, which may arise out of its participation in the Offering and its
affiliation with the Advisor, in performing its "due diligence" obligations
which arise under the Securities Act of 1933, as amended (the "Act"). However,
the Dealer Manager believes it has properly performed and will properly perform
these "due diligence" activities.
10. The Advisor may have Conflicting Fiduciary Obligations in the
Event the Company Acquires Properties with Affiliates. The Advisor may cause
the Company to acquire an interest in a property through a joint venture with
an Affiliate of the Advisor. In such instance, the Advisor will have a
fiduciary duty to both the Company and the Affiliate participating in the joint
venture. In order to minimize the likelihood of a conflict between these
fiduciary duties, the Advisory Agreement provides guidelines for investments in
such joint ventures in various respects. In addition, the Articles provide
that
39
<PAGE> 51
a majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in the transaction determine that the transaction is
fair and reasonable to the Corporation and is on terms and conditions no less
favorable than from unaffiliated third parties. See "Investment Objectives and
Policies--Joint Ventures."
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND
THE ADVISOR; INDEMNIFICATION
GENERAL
Consistent with the duties and obligations of, and limitations on, the
Directors as set forth in the Articles and under the laws of the State of
Maryland, the Directors are accountable to the Stockholders as fiduciaries and
are required to perform their duties in good faith and in a manner each
Director believes to be in the best interest of the Company and its
Stockholders, with such care, including reasonable inquiry, as a prudent person
in a like position would use under similar circumstances. In addition, the
Independent Directors must review at least annually the relationship of the
Company with the Advisor and the Advisor's performance of its duties under the
Advisory Agreement, and must determine that the compensation paid to the
Advisor is reasonable in relation to the nature and quality of the services
performed. The Advisor also has a fiduciary duty to the Company and the
Stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The liability of the Directors and officers of the Company is limited
to the fullest extent permitted by the MGCL; accordingly, the Directors and
officers shall not be liable to the Company or its Stockholders except that
liability shall not be so limited: (a) if it is proved that the person
actually received an improper benefit or profit in money, property or services;
and (b) to the extent that a judgment or other final adjudication adverse to
the person is entered in a proceeding based on a finding in the proceeding that
the person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The Company's Articles and Bylaws authorize it, to the fullest extent
permitted by Maryland statutory or decisional law, as amended or interpreted
and, without limiting the generality of the foregoing, in accordance with
Section 2-418 of the MGCL, to indemnify and pay or reimburse reasonable
expenses to: any Director, the Advisor or its Affiliates (each an "Indemnified
Party") provided, that: (i) the Director, Advisor or its Affiliates, have
determined, in good faith, that the course of conduct which caused the loss or
liability was in the best interest of the Company; (ii) the Director, the
Advisor or its Affiliates were acting on behalf of or performing services on
the part of the Company; (iii) such liability or loss was not the result of
negligence or misconduct on the part of the Indemnified Party, except that in
the event the Indemnified Party is or was an Independent Director, such
liability or loss shall not have been the result of gross negligence or willful
misconduct; and (iv) such indemnification or agreement to be held harmless is
recoverable only out of the assets of the Company and not from the
Stockholders. The Company shall not indemnify a Director, the Advisor or its
Affiliates for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that
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indemnification of the settlement and related costs should be made and the
court considering the request has been advised of the position of the
Securities and Exchange Commission (the "Commission") and the published
opinions of the Tennessee Securities Division and any other state securities
regulatory authority in which securities of the Company were offered and sold
as to indemnification for securities law violations.
The Company may advance amounts to persons entitled to indemnification
hereunder for legal and other expenses and costs incurred as a result of any
legal action for which indemnification is being sought only if all of the
following conditions are satisfied: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party for or on behalf of the Company; (ii) the legal action is
initiated by a third party who is not a Stockholder or the legal action is
initiated by a Stockholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes to repay the advanced
funds to the Company, together with the applicable legal rate of interest
thereon, in cases in which such party is found not to be entitled to
indemnification.
The Company shall have the power to purchase and maintain insurance on
behalf of an indemnified party against any liability asserted which was
incurred in any such capacity with the Company or arising out of such status;
provided, however, that the Company shall not incur the costs of any liability
insurance which insures any person against liability for which he, she or it
could not be indemnified under the Articles or the Bylaws.
Neither the amendment nor the adoption of any other provision of the
Articles or the Bylaws shall apply to or affect in any respect the
applicability of indemnification with respect to any act or failure to act
which occurred prior to such amendment, repeal or adoption. The parties
expressly agree that all of the terms and provisions hereof shall be construed
under the MGCL as now adopted or as may be hereafter amended and govern all
aspects of the Articles absent contrary terms contained in the Articles.
To the extent that the indemnification may apply to liabilities
arising under the Act, the Company has been advised that, in the opinion of the
Commission, such indemnification is contrary to public policy and, therefore,
unenforceable.
DEFENSES AVAILABLE
There are certain defenses available to the Directors, officers and
the Advisor under Maryland law and pursuant to the Articles in the event of a
Stockholder action against them. One such defense is the "business judgment
rule." A Director, officer or the Advisor can, under the "business judgment
rule," argue that he or she performed the action giving rise to the
Stockholder's action in good faith and in a manner he or she reasonably
believed to be in the best interests of the Company, and with such care as an
ordinarily prudent person in a like position would have used under similar
circumstances. The Directors, officers and the Advisor are also entitled to
rely on information, opinions, reports or records prepared by experts
(including accountants, consultants, counsel, etc.) who were selected with
reasonable care. However, the Directors, officers and the Advisor shall not
invoke the "business judgment rule" to further limit the rights of the
Stockholders to access records. In the event a Stockholder challenges an
amendment to the Articles made by Directors without the Stockholders' approval,
the Directors are permitted to contend that the Articles permit amendments to
the Articles absent Stockholder vote in certain circumstances. As described
above, the Directors, officers and the Advisor are also indemnified by the
Company pursuant to the Articles, subject to certain limitations.
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PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES
PRIOR INVESTMENT PROGRAMS
The Inland organization, during the past ten years, has sponsored
seven public and 70 private real estate programs which have raised in excess in
$273,317,000. In excess of 19,500 investors have invested in these Inland-
sponsored programs. The investment objectives and policies of the Company are
similar to those of several investment programs which have owned and operated
retail properties. However, the vast majority of these investment programs
were dissimilar from the Company in that the partnerships owned apartment
properties or whole or partial interests in mortgage loans.
The information in this Section and in the Prior Performance Tables
included in this Prospectus as Exhibit A shows relevant summary information
concerning real estate programs sponsored by the Advisor and its Affiliates,
the purpose of which is to provide information on the prior performance of
these programs so that potential investors may evaluate the experience of the
Advisor and its Affiliates in sponsoring such programs. The following
discussion is intended to briefly summarize the objectives and performance of
prior programs and to disclose any material adverse business developments
sustained by them.
SUMMARY INFORMATION
The table below provides certain summarized information concerning
prior programs through the date of this Prospectus and is qualified in its
entirety by reference to the foregoing introductory discussion and the detailed
information appearing in the Prior Performance Tables in this Prospectus.
Investors should not construe inclusion of the succeeding tables, which cover
the period from January 1, 1986 through December 31, 1995, as implying in any
manner that the Company will have results comparable to those reflected in the
tables; the yield and cash available and other factors could be substantially
different for the Company's properties. Investors should note that by
acquiring Shares in the Company, they will not be acquiring any interests in
any prior programs.
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<TABLE>
<CAPTION>
Prior Prior
Public Private
Programs Programs
----------------------------------
<S> <C> <C>
Number of programs sponsored . . . . . . . . . . . . 7 70
Aggregate amount raised from investors . . . . . . . $181,700,000 $91,617,000
Aggregate number of investors . . . . . . . . . . . . 16,500 3,000
Number of properties purchased . . . . . . . . . . . 87 107 (1)
Aggregate cost of properties . . . . . . . . . . . . $163,913,000 (2) $342,021,000(3)
Percentage of properties (based on cost) that were:
Commercial --
Retail . . . . . . . . . . . . . . . . . . . 2.5% 0.0%
Single-user retail net-lease . . . . . . . . 8.7% 23.5%
Nursing homes . . . . . . . . . . . . . . . 8.7% 0.2%
Offices . . . . . . . . . . . . . . . . . . 0.0% 0.0%
Industrial . . . . . . . . . . . . . . . . . 0.0% 1.3%
Health clubs . . . . . . . . . . . . . . . . 4.7% 0.0%
Mini-storage . . . . . . . . . . . . . . . . 0.0% 0.4%
Total commercial . . . . . . . . . . . . . . 24.6% 28.4%
Multi-family residential . . . . . . . . . . . . 19.0% 71.5%
Land . . . . . . . . . . . . . . . . . . . . . . 56.4% 0.3%
Percentage of properties (based on cost) that were:
Newly constructed (within a year of
acquisition) . . . . . . . . . . . . . . . . 8.7% 13.9%
Existing . . . . . . . . . . . . . . . . . . . . 91.3% 86.1%
Construction . . . . . . . . . . . . . . . . . . 0.0% 0.0%
Number of properties sold . . . . . . . . . . . . . . 12 14
22.2% (4) 20.0%
Number of properties exchanged . . . . . . . . . . . 0 34
49.0%
</TABLE>
(1) Includes 37 properties acquired following the disposition of a
program's original real estate asset. See "-- Loan Modifications and
Work-Outs" in this Section.
(2) Includes purchase price and acquisition fees and expenses.
(3) Represents the aggregate purchase prices paid by the investment
programs. Includes $104,768,242 in properties acquired following the
disposition of a program's original real estate asset.
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(4) Based on costs of property including portions of land parcels sold at
December 31, 1995, and costs capitalized subsequent to acquisition.
During the three years prior to December 31, 1995, publicly registered
investment programs sponsored by IREIC purchased a total of 22 parcels of land
totalling 4,136 acres, all located in northeast Illinois. The land was
purchased on an all-cash basis.
Upon written request of the Company, any potential investor may
obtain, without charge, a copy of Table VI, filed with the Commission in
connection with this Offering, which provides more detailed information
concerning these acquisitions.
PUBLICLY REGISTERED LIMITED PARTNERSHIPS
INLAND'S MONTHLY INCOME FUND, L.P. ("MONTHLY INCOME FUND I") -- The
offering period for Monthly Income Fund I began August 3, 1987 and ended August
3, 1988. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on an all-cash basis to
provide monthly cash distributions of at least 8% per annum throughout the life
of the partnership and to provide a hedge against inflation through capital
appreciation.
Monthly Income Fund I raised $30,000,000 from over 2,200 investors.
Originally, Monthly Income Fund I purchased seven properties, including five in
Illinois, one in Ohio and one in Oklahoma, for a total investment of
$27,511,692 which includes acquisition costs of $25,831,542 plus an additional
$1,487,500 expended for the upgrade of the McHenry Plaza, a neighborhood retail
center, in McHenry, Illinois, plus $192,650 for upgrade costs at other
properties. The properties owned by Inland Monthly Income Fund I include, in
addition to McHenry Plaza, two nursing centers, two retail stores leased on a
triple-net basis by Wal-Mart Stores Inc., a health club facility and an
apartment complex, which was sold on an installment basis in 1994 and 1995.
Through December 31, 1995, cash distributions have been maintained at an 8%
level and on an accrual basis have totaled $335.06 per $500 unit or $18,877,468
including $15,629,880 from operating cash flow, $305,000 of net sales proceeds
from the sale of the apartment complex, $2,095,863 from supplemental capital
contributions from IREIC and $541,725 as a partial return of capital from
partnership reserves. In the opinion of IREIC, the partnership is
substantially meeting its investment objective for cash flow.
Two of Monthly Income Fund I's properties, which represent 26.3% of
its total assets as measured by their original purchase price, are nursing
center facilities which are 100% leased by Elite Care Corporation ("Elite").
Monthly Income Fund I's lease with Elite became effective in February 1991,
following the termination of a lease with Adventist Living Centers Inc.
("ALC"), the tenant which was in place when Monthly Income Fund I purchased the
properties. After ALC began experiencing financial difficulties, IREIC sought
out Elite as a replacement nursing home operator/tenant. The net effect to
Monthly Income Fund I was a .5% decrease in the effective rent over the term of
the leases for the two nursing homes, from $67,270 per month when ALC was the
tenant to $66,936 from Elite. Under the terms of the lease agreements for the
nursing care facilities the partnership must approve any sublease transaction.
The current operator of these facilities has negotiated with a new operator to
sublease the facilities. IREIC has reviewed and approved the transaction with
no significant changes to the terms of the leases.
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<PAGE> 56
The major tenant at McHenry Plaza is a Walgreens drug store. Other
tenants are Don Robert's Beauty School, Midwest Furniture and Family
Entertainment Center. These tenants took possession of their spaces at the
center from 1990 through 1993, following the July 1989 termination of a lease
with Duckwell-Alco Stores, Inc. ("Alco"), the tenant which leased 94% of the
space in the center at the time Monthly Income Fund I purchased the property.
IREIC embarked on a program to re-lease the center to new tenants, and secured
a $1,700,000 line of credit for property upgrades, remodeling and re-leasing
expenses. Annual principal and interest payments on this debt total $187,943.
Approximately 83% of the property is currently leased. An additional 4,000
square feet of storage area at the rear of the center, representing 7% of the
total space, remains to be leased. Additional expenditures for build-out and
leasing commissions are anticipated as the remaining rentable space is leased.
The 1995 annual net operating income prior to debt service at McHenry Plaza is
$234,000, compared to approximately $213,000 when Alco was the tenant. The
completion of the redevelopment and lease-up of McHenry Plaza will increase the
cash flow available for distribution by Monthly Income Fund I.
The partnership successfully completed the conversion of the apartment
complex to condominiums. Condominium sales began during the first quarter of
1994. As of December 31, 1995, all of the 38 six-unit buildings at the
property had been sold.
The defaults by ALC and Alco, the expense of upgrades and build-out at
the McHenry Plaza and lower than expected net rental income from the apartment
complex have reduced cash available for distribution by Monthly Income Fund I.
Under the terms of a guarantee agreement, IREIC has made supplementary capital
contributions totaling $2,095,863 from the inception of the program through
December 31, 1995 for the purpose of providing 8% annual cash distributions to
investors. These supplementary capital contributions will begin to be repaid
from cash flow in the future, but only if excess cash flow exists after payment
of an 8% annual distribution to investors. The effect on investors is that
cash flow distributions will not exceed 8% per annum for the foreseeable
future. In addition, IREIC may be reimbursed for its supplementary capital
contributions from the sale or financing of properties, but only after
investors have received the return of their capital. The effect on investors
is that profits from the sale of the properties will be reduced by the amounts
contributed by IREIC under the 8% distribution guarantee agreement.
INLAND MONTHLY INCOME FUND II, L.P. ("MONTHLY INCOME FUND II") -- The
offering period for Monthly Income Fund II began August 4, 1988 and ended
August 4, 1990. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on an all-cash basis to
provide monthly cash distributions of at least 8% per annum through the first
five years of the partnership and to provide a hedge against inflation through
capital appreciation.
Monthly Income Fund II raised $25,323,569 from more than 2,100
investors and purchased five properties, a net-leased Wholesale Club retail
property in Indiana, a net-leased health club in Ohio, a net leased nursing
center in Illinois, a net-leased retail store in Arizona and the Water Tower
Market Plaza (formerly Eagle Plaza), a neighborhood retail center in Illinois,
for a total acquisition cost of $21,224,542. Through December 31, 1995, cash
distributions have been maintained at or above an 8% level and on an accrual
basis have totaled $349.65 per $500 unit or $16,279,471, including $11,883,906
from operations and an additional $4,395,565 which constitutes the net proceeds
from the sale of the Wholesale Club.
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<PAGE> 57
One of Monthly Income Fund II's properties, which represents 35.44% of
its total assets, as measured by its original purchase price, is a nursing
center which is 100% leased to Elite. Monthly Income Fund II's lease with
Elite became effective in February 1991, following the termination of a lease
with ALC, the tenant which was in place when Monthly Income Fund II purchased
the property. After ALC began experiencing financial difficulties, IREIC
sought out Elite as a replacement nursing home operator/tenant. The net effect
to Monthly Income Fund II was an 8% decrease in the effective rent from the
nursing center over the term of the lease, from $77,368 per month when ALC was
the tenant to $71,895 from Elite. Under the terms of the lease agreement for
the nursing center the partnership must approve any sublease transaction. The
current operator of this facility has negotiated with a new operator to
sublease the facility. IREIC has reviewed and approved the transaction with no
significant changes to the terms of the lease.
On January 8, 1991, Monthly Income Fund II sold its Wholesale Club
property in Indiana for $4,400,000. Net sales proceeds of $4,395,565 were
distributed to investors on February 1, 1991. The property was purchased by
Monthly Income Fund II in December 1988 for $3,427,278, which included
acquisition fees of $275,013 and acquisition costs of $9,265. The gain on sale
for financial reporting purposes was $847,467, which is net of selling expenses
and commissions.
On January 21, 1994, the anchor tenant at Eagle Plaza neighborhood
retail center, Eagle Foods, closed its store. Under the terms of its lease,
Eagle Foods has guaranteed rent payments until May 1997. On February 4, 1994
and with the approval of IREIC, Eagle Foods assigned its lease to Certified
Grocers Midwest, Inc. ("Certified"). The shopping center was subsequently
renamed Water Tower Market Plaza. During August 1995, Certified vacated the
store. Under the original lease, as well as the assignment of the lease, Eagle
Foods has guaranteed payments until November 1998. Eagle Foods assigned its
lease to Euro-Fresh Markets which began occupancy in May 1996.
In the opinion of IREIC, the partnership is meeting its investment
objective to provide a minimum 8% cash distribution and has, through an early
and profitable sale of the Wholesale Club, achieved capital appreciation on 16%
of the partnership's investment in properties.
INLAND REAL ESTATE GROWTH FUND, L.P. ("GROWTH FUND I") -- The offering
period for Growth Fund I began December 9, 1985 and ended August 9, 1987. The
objectives were to invest in multi-family residential properties on a
moderately leveraged basis for capital appreciation through increases in
property values, tax-sheltered quarterly cash distributions and the build-up of
equity through reduction of mortgage indebtedness.
Growth Fund I raised $9,465,000 from more than 700 investors and
purchased four properties which included one multi-family residential property
in Arizona and a partial interest in another multi-family residential property
in Illinois. The other two properties were repurchased from Growth Fund I by
IREIC. The terms of these repurchase transactions placed Growth Fund I in the
same cash position it would have been in had the properties never been
acquired. Growth Fund I sold the multi-family residential property located in
Illinois as condominium units to individual purchasers for $6,685,950. Of the
total net sales proceeds of $6,455,375, $1,650,000 was used to pay off the
underlying debt on the property, $1,715,198 was distributed to limited partners
during 1994, $1,832,785 was used to pay down the debt on the partnership's
Arizona property and the remainder was used to fund condominium conversion
costs. The property was purchased by Growth Fund I in December 1985 for
$3,836,416, which included acquisition fees of $483,500. The gain on sale for
financial reporting purposes was $2,236,220, which is net of selling expenses
and commissions. Cash distributions to limited partners
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through December 31, 1995 totaled $509.66 per $1,000 unit or $4,516,868,
including $1,281,155 from operations, $1,724,843 from the sale or refinancing
of the partnership's properties, $943,224 from the repurchase of partnership
properties by IREIC and $567,646 partial return of capital from partnership
reserves. The monthly principal and interest payments on the Arizona property
were reduced from $27,819 to $12,314 as a result of refinancing the Arizona
property in March 1994 and the debt reduction described above.
In IREIC's opinion, the Arizona real estate market has been improving
over the last two years, and a sale of the Arizona property will be evaluated
on an ongoing basis with the intent to profitably conclude the partnership.
The decline in the Arizona market from 1989 through 1992 reduced net operating
income from that property and, therefore, the quarterly cash distributions
which might otherwise have been received by limited partners during that
period. Similarly, the decline of the Arizona market has extended the holding
period for that property. If and when the Arizona property can be sold at a
profit, the annual rate of capital appreciation realized by investors will be
less than if the Arizona market had not declined.
INLAND REAL ESTATE GROWTH FUND II, L.P. ("GROWTH FUND II") -- The
offering period for Growth Fund II began September 21, 1987 and ended September
21, 1989. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on a moderately leveraged
basis for capital appreciation through increases in property values,
tax-sheltered quarterly cash distributions and the build-up of equity through
reduction of mortgage indebtedness.
Growth Fund II raised $4,038,250 from 336 investors and purchased two
properties, a multi-family residential property in Illinois and a health club
in Ohio. These properties were purchased for a total acquisition cost of
$5,615,826. The health club is currently approximately 62% financed with 38%
equity. Cash distributions to limited partners through December 31, 1995
totaled $1,135.44 per $1,000 unit or $4,509,182, including $862,410 from
operations and $3,646,772 return of capital from the sale of the multi-family
property in Illinois as 18 individual six-unit apartment buildings. All 18 of
the six-unit buildings were sold to third-party buyers on an installment basis
for $245,334 to $250,000 per building or a total of $4,261,895 (net of selling
expenses). Growth Fund II's cost basis in the buildings was $4,112,195. The
partnership extended financing to buyers to allow buyers to make monthly
interest payments to Growth Fund II for a period of not more than seven to ten
years, at which time the balance of the purchase price would be due. However,
as of December 31, 1995, 13 of the installment sale loans had been prepaid in
full and five had been substantially pre-paid (the partnership continues to be
owed $80,000 on these loans, secured by second mortgages). In the opinion of
IREIC, the sale of the multi-family property as individual six-unit apartment
buildings has resulted in modest capital appreciation within a short holding
period. IREIC is evaluating strategies to sell the partnership's remaining
assets and bring the partnership to a profitable conclusion.
INLAND LAND APPRECIATION FUND, L.P. ("LAND FUND I") -- The offering
period for Land Fund I began October 12, 1988 and ended October 6, 1989. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund I raised $30,001,000 from 3,425 investors and purchased 25
land parcels, all in suburban counties surrounding Chicago, Illinois, for an
aggregate purchase price of $25,187,069. As of December 31, 1995, Land Fund I
has completed 51 sales transactions, involving all or portions of 11 parcels,
including three sales of rights-of-way to the Illinois Department of
Transportation plus a land option, which generated $4,774,251 in net sales
proceeds. Land Fund I's cost basis in the land parcels sold was $2,654,277
resulting in a gain, net of selling expenses and commissions, of $2,119,974 for
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financial reporting purposes. In the opinion of IREIC, the partnership
is currently meeting its investment objectives and has, through completed sales
transactions, realized significant capital appreciation on the assets sold.
Cash distributions to limited partners through December 31, 1995 totaled
$4,146,395, all from the sale of land parcels.
INLAND LAND APPRECIATION FUND II, L.P. ("LAND FUND II") -- The
offering period for Land Fund II began October 25, 1989 and ended October 24,
1991. The objectives were to invest in pre-development land on an all-cash
basis and realize appreciation of such land upon resale.
Land Fund II raised $50,476,170 from 5,055 investors and purchased 27
land parcels and two buildings, all in suburban counties surrounding Chicago,
Illinois, for an aggregate purchase price of $41,314,301. As of December 31,
1995, Land Fund II has had multiple sales transactions involving all or
portions of seven parcels which generated $9,113,875 in net sales proceeds.
Land Fund II's cost basis in the land parcels sold was $5,552,092 resulting in
a gain, net of selling expenses and commissions, of $3,561,783 for financial
reporting purposes. In the opinion of IREIC, the partnership is currently
meeting its investment objectives and has, through completed sales
transactions, realized significant capital appreciation on the assets sold.
Cash distributions to limited partners through December 31, 1995 totaled
$2,836,752, including $2,115,752 from sales and $721,000 from operations.
INLAND CAPITAL FUND, L.P. ("LAND FUND III") -- The offering period for
Land Fund III began December 13, 1991 and ended August 23, 1993. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund III raised $32,399,282 from 2,683 investors and purchased 18
land parcels, one of which included a house and several outbuildings, for an
aggregate purchase price of $25,945,990. Land Fund III has completed two sales
transactions, involving the house and portions of two parcels which generated
$646,334 in net sales proceeds. Land Fund III's cost basis in the land parcels
sold was $417,551 resulting in a gain, net of selling expenses and commissions,
of $228,783 for financial reporting purposes. In the opinion of IREIC, the
partnership is currently meeting its investment objectives and has, through
completed sales transactions, realized significant capital appreciation on the
assets sold. Cash distributions to limited partners through December 31, 1995
totaled $646,334, all from the sale of land parcels.
PRIVATE PARTNERSHIPS
Since inception, Affiliates of the Advisor have sponsored 514 private
placement limited partnerships which have raised more than $524,201,000 from
approximately 17,000 investors and invested in properties for an aggregate
price of more than $1 billion in cash and notes. Of the 522 properties
purchased, 93% have been in Illinois. Approximately 90% of the funds were
invested in apartment buildings, 6% in shopping centers, 2% in office buildings
and 2% in other properties. Including sales to Affiliates, 275 partnerships
have sold their original property investments. Officers and employees of IREIC
and its Affiliates invested more than $17,000,000 in these partnerships.
From 1990 and through the end of 1995, investors in Inland's private
partnerships have received total distributions in excess of $82,473,427
consisting of cash flow from partnership operations, sales and refinancing
proceeds and cash received during the course of property exchanges. Following
a proposal by Inland Real Estate Corporation, the former corporate general
partner, investors in 301 private partnerships voted in 1990 to make IREIC the
corporate general partner for those partnerships.
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Beginning in December 1993 and continuing into the first quarter of
1994, investors in 101 private limited partnerships for which IREIC is the
general partner received letters from IREIC informing them of the possible
opportunity to sell the 66 apartment properties owned by those partnerships to
a to-be-formed REIT (the "Apartment REIT") in which Affiliates of IREIC would
receive stock and cash and the limited partners would receive cash. In
connection therewith, the underwriters for the Apartment REIT subsequently
advised IREIC to sell to a third party its management and general partner's
interests in those remaining limited partnerships not selling their apartment
properties to the Apartment REIT (approximately 30% of the Inland-sponsored
limited partnerships owning apartment buildings). The prospective third-party
buyers of IREIC's interests in the remaining partnerships, however, would make
no assurance to support those partnerships financially. As a result, in a
letter from IREIC dated March 30, 1994, investors were informed of IREIC's
decision not to go forward with the formation of the Apartment REIT. Following
this decision, two investors filed a complaint on April 19, 1994 in the Circuit
Court of Cook County, Chancery Division, purportedly on behalf of a class of
other unnamed investors, alleging that IREIC had breached its fiduciary
responsibility to those investors whose partnerships would have sold apartment
properties to the Apartment REIT. The complaint sought an accounting of
information regarding the Apartment REIT matter, an unspecified amount of
damages and the removal of IREIC as general partner of the partnerships that
would have participated in the sale of properties to the Apartment REIT. On
August 1, 1994, Judge Thomas O'Brien granted IREIC's motion to dismiss, finding
that plaintiffs lacked standing to bring this case individually. Plaintiffs
were granted leave to file an amended complaint within 28 days. On August 29,
1994, six investors filed an amended complaint, purportedly on behalf of a
class of other investors, and derivatively on behalf of six limited
partnerships of which IREIC is the general partner. The derivative counts seek
damages from IREIC for alleged breach of fiduciary duty and breach of contract,
and assert a right to an accounting. IREIC filed a motion to dismiss in
response to the amended complaint. The suit was dismissed on March 31, 1995
with prejudice, and the plaintiffs were given until May 1, 1996 to file an
appeal. An appeal was filed on April 25, 1996 and the parties briefed the
issue. It is not expected that oral arguments will be made until Fall 1996.
PRIVATE PLACEMENT REAL ESTATE EQUITY PROGRAM
WISCONSIN CAPITAL LAND FUND, L.P., an Illinois limited partnership,
was formed in October 1992. The objectives were to invest in pre-development
land in the Madison, Wisconsin area on an all-cash basis and realize
appreciation of such land upon resale. The offering period for units in this
privately offered partnership began October 1992 and ended June 14, 1993 with
the maximum amount, $2,275,000, raised. Seven parcels of land in the Madison,
Wisconsin, area were purchased with the proceeds of the offering. Limited
partners will receive cash distributions as land parcels are sold.
PRIVATE PLACEMENT MORTGAGE AND NOTE PROGRAMS
During 1992 and in 1993, IREIC or its Affiliates sponsored nine
private placement securities offerings, including seven mortgage and note
programs, which are described below.
TRIPLE SECURITY FUND, L.P., an Illinois limited partnership, was formed
in May 1992. The principal investment objectives of the partnership were to
invest in participations in third-party mortgage loans owned by an Affiliate of
IREIC and thereby return investors' capital within five years, and to provide a
10% annual return on invested capital during the life of the partnership. The
return of capital and the 10% annual return were guaranteed by IREIC. The
offering period for interests in this privately offered partnership began in
May 1992 and ended in June 1992 with the maximum amount of $3,000,000 raised.
All of the offering proceeds were used to invest in participations in 14
wraparound mortgage loans
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and first mortgage loans, secured by condominium, multi-family residential and
commercial properties located in the Chicago metropolitan area. Limited
partners received their first monthly cash distribution on July 17, 1992. Cash
distributions to limited partners through December 31, 1995 totaled $1,044,218,
including $986,185 from operations and $58,033 from a loan from IREIC, pursuant
to the guarantee for that program.
10% INCOME FUND, L.P., an Illinois limited partnership offering
investments in promissory notes, was formed in May 1992. The offering period
for the purchase of notes began in May 1992 and ended June 1992 with the
maximum amount of $2,000,000 raised. Notes with a term of five years and
providing a 10% annual return for the first four years and 10.5% in the fifth
year were issued by the partnership. The return of capital to noteholders and
the specified annual returns are guaranteed by IREIC. 10% Income Fund, L.P.
invested in loans made to an Affiliate of IREIC, which were secured by
collateral assignments of third-party mortgage loans owned by the Affiliate.
Noteholders received their first monthly interest distribution on July 17,
1992. Cash distributions to noteholders through December 31, 1995 totaled
$681,223 including $663,939 from interest earnings and $17,284 from working
capital reserves.
9% INCOME JUNIOR MORTGAGE FUND, L.P., an Illinois limited partnership,
was formed in July 1992. The principal investment objectives of the
partnership were to invest in third-party junior mortgage loans owned by an
Affiliate of the Advisor and thereby return investors' capital within six
years, and to provide a 9% annual return on invested capital during the life of
the partnership. The return of capital and the 9% annual return were
guaranteed by IREIC. The offering period for interests in this privately
offered partnership began in July 1992 and ended September 1992 with the
maximum amount of $1,000,000 raised. All of the offering proceeds were used to
invest in third-party junior mortgage loans owned by the Affiliate, secured by
condominium, multi-family residential and commercial properties located in the
Chicago metropolitan area. Limited partners received their first monthly cash
distribution on September 17, 1992. Cash distributions through December 31,
1995 totaled $357,116, of which $276,364 was interest earnings, $73,463 was a
return of capital resulting from the amortization of mortgage loans and $7,339
was a loan from IREIC, pursuant to the distribution guarantee for that program.
INLAND EMPLOYEE APPRECIATION FUND, L.P., an Illinois limited
partnership offering investments in promissory notes, was formed in December
1992. The offering period for the purchase of Notes began in December 1992 and
ended in February 1993 with the maximum amount of $400,000 raised. Notes were
offered only to Illinois residents who are employees of IREIC and its
Affiliates. Notes with a term of four years and providing 10% annual interest
were issued by the partnership. The return of capital to noteholders and the
specified annual return are guaranteed by IREIC. Inland Employee Appreciation
Fund, L.P. invested in a loan made to an Affiliate of IREIC, which was secured
by collateral assignments of third-party investor loans owned by the Affiliate.
Noteholders received their first monthly interest distribution on March 17,
1993. Cash distributions through December 31, 1995 totalled $342,060, of which
$339,631 was interest earnings and $2,429 was subsidy income from IREIC,
pursuant to the guarantee for that program. On May 31, 1996, the promissory
notes were paid in full. This partnership will be liquidated in 1996.
In February 1993, IREIC sponsored 9% MONTHLY CASH FUND, L.P., an
Illinois limited partnership offering investments in promissory notes to
accredited investors. The offering period for this program began February 1,
1993 and ended on May 17, 1993 when the maximum amount of $4,000,000 raised.
Notes maturing August 1, 1999 and providing a 9% annual return were issued by
the partnership. 9% Monthly Cash Fund, L.P. invested in loans made to an
Affiliate of IREIC secured by collateral assignments of third party mortgage
loans owned by the Affiliate. The return of capital to noteholders
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<PAGE> 62
and the 9% annual return are guaranteed by IREIC. Cash distributions
through December 31, 1995 totaled $929,094, of which $924,784 was interest
earnings and $4,310 from working capital reserves.
In April 1993, IREIC sponsored 9% MONTHLY CASH FUND II, L.P., an
Illinois limited partnership offering investments in promissory notes to
accredited investors, with investment objectives identical to those of 9%
Monthly Cash Fund, L.P. The offering period for this program began April 5,
1993 and ended July 23, 1993, with the maximum amount of $4,000,000 raised.
Notes maturing February 1, 2000 and providing a 9% annual return were issued by
the partnership. 9% Monthly Cash Fund II, L.P. has invested in a loan made to
an Affiliate of IREIC, secured by collateral assignments of third-party
mortgage loans owned by the Affiliate. The return of capital to noteholders
and the 9% annual return are guaranteed by IREIC. Cash distributions through
December 31, 1995 totaled $867,945, of which $864,752 was interest earnings and
$3,193 from working capital reserves.
In July 1993, Inland Mortgage Corporation, an Illinois corporation and
an Affiliate of IREIC ("IMC"), sponsored IMC NOTE ISSUE #2 1993, offering
investments in promissory notes. The offering period for this program began
August 25, 1993 and closed on June 13, 1994 after raising $6,800,000. Notes
maturing December 31, 2003 with 8% per annum interest and 100% return of
principal guaranteed by IREIC were issued by IMC. Proceeds of the offering
have been used to invest in a mortgage loan secured by an apartment property in
Manchester, New Hampshire, owned by an Affiliate of IREIC. Investors may also
receive additional interest, dependent on the future sale of the property. An
initial distribution to investors of escrow interest, totaling $13,685, was
made November 17, 1993. Cash distributions through December 31, 1995 totaled
$1,068,666 of which $671,865 was interest earnings and $19,456 was subsidy
income from IREIC pursuant to the guarantee for that program.
In December 1993, IREIC sponsored INLAND CONDOMINIUM FINANCING FUND,
L.P., an Illinois limited partnership offering investment in promissory notes.
The offering period for this program began December 15, 1993 and closed on June
30, 1994. This partnership offered notes in a maximum principal amount of
$2,000,000 maturing July 1, 2001 with 10% per annum interest and 100% return of
principal guaranteed by IREIC. The proceeds of the offering have been used to
make unsecured loans to limited partnerships which are Affiliates of IREIC, for
the purposes of paying expenses relating to the conversion of apartment
properties owned by those partnerships to condominiums, and conducting
condominium unit sales and other partnership expenses. Cash distributions
began on March 17, 1994. Distributions through March 31, 1995 totaled $177,893
all of which were interest earnings.
An August 1988 private placement securities offering sponsored by an
Affiliate of IREIC was INLAND JUNIOR MORTGAGE FUND, L.P., an Illinois limited
partnership. The offering period for this program ended May 1989 with $410,000
raised. All of the proceeds available for investment were used to purchase 82
second mortgages owned by Inland Mortgage Investment Corporation ("IMIC"),
secured predominantly by condominium units located in the Chicago metropolitan
area. Cash distributions through December 31, 1995 have totaled $404,175,
including $124,794 from interest earnings and $279,381 return of capital from
loan repayments. In February 1996, 20 limited partners exercised their put
option and IMIC bought their interests. As a result, IMIC currently owns 88%
of the limited partner units.
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LOAN MODIFICATIONS AND WORK-OUTS
Between 1990 and December 31, 1995, 38 Inland-sponsored partnerships
owning 25 properties ceased making debt service payments to unaffiliated
lenders which held the underlying financing on the properties. These actions
were taken with the objective of reducing or restructuring the debt to levels
commensurate with the levels of performance of the operating properties. In
the case of six of these partnerships, namely 14 W. Elm Limited Partnership,
1445 North State Parkway Limited Partnership, 5600 Sheridan Limited
Partnership, 5630 Sheridan Limited Partnership, 6030 Sheridan Limited
Partnership and Oak Brook Commons Limited Partnership, the original asset of
each of these partnerships was transferred to a new partnership which was 100%
owned by the old partnership. IREIC believed that the new partnerships were
better positioned to accomplish a work-out with the lender. In connection with
the transfers of three of these properties to the new partnerships discussed
above, the lender holding the first mortgages on these properties filed a
separate proceeding against the general partner and its Affiliates, claiming
contractual interference and other allegations. This complaint was withdrawn
as part of a final settlement reached with the lender in February 1993.
Each of these new partnerships filed for financial reorganization in
federal court. In addition, 1036 N. Dearborn Limited Partnership also filed
for financial reorganization in federal court. All of these filings for
reorganization were an extension of negotiations with the lenders, with the
objective of reducing or restructuring the debt on the properties owned by the
partnerships. In the case of the filing for reorganization by each of the new
partnerships owned by 1445 North State Parkway Limited Partnership, 5600
Sheridan Limited Partnership and 5630 Sheridan Limited Partnership, the
reorganization proceedings were dismissed after each lender approved a
tax-deferred exchange transaction between the new partnership and an
unaffiliated third party. The general partner of the 1036 North Dearborn
Limited Partnership was able to purchase the debt encumbering that property at
a discount from the lender and the filing for reorganization of that
partnership was dismissed. The 1036 North Dearborn property was subsequently
refinanced with a third-party lender and then sold to a third party. The new
partnerships owned by the 14 W. Elm, 6030 Sheridan and Oak Brook Commons
Limited Partnerships participated with the general partner and its affiliates
and with 16 other affiliated limited partnerships, all of whose properties were
subject to first-mortgage loans from the same third-party lender, in a
settlement agreement with that lender. Under the terms of the settlement
agreement, the 16 other affiliated limited partnerships--none of which were in
default on their mortgage loans--provided additional security to the lender
with respect to each of their loans by transferring administration of property
tax escrow accounts to the lender. The transfer of the escrow accounts had no
financial impact on the 16 partnerships. Five of the 16 other partnerships
also obtained favorable loan modifications from the lender. In the case of the
new partnership owned by the 14 W. Elm Limited Partnership, the lender
cooperated in a tax-deferred exchange of the partnership's real estate asset.
The partnership assigned its interest in its property, subject to the existing
indebtedness, to an unaffiliated third party in exchange for an assignment of
the unaffiliated third party's interest in another property, subject to
indebtedness in a principal amount similar to that on the 14 W. Elm property.
This transaction was accomplished with the objective of avoiding the creation
of any current income tax liability to the partnership or its limited partners.
As a result of this tax-deferred exchange, the 14 W. Elm Limited Partnership
owns a net-lease commercial property secured by a long-term lease with a
creditworthy tenant. The debt service on the indebtedness used to acquire the
exchange property is in the form of fully amortizing payments over the term of
the store lease, with the net-lease payments received from the tenant equal to
the required debt service payments. The possibility of cash flow distributions
to the limited partners is, therefore, precluded. However, the expectation
exists for equity accumulation through the amortization of the loan and,
therefore, a distribution to the limited partners upon the disposition of the
exchange property. IREIC believes that the limited partners of the
14 W. Elm
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Limited Partnership are in a better position to realize a return of their
capital investment through the ultimate disposition of the exchange property.
In the case of the new partnership owned by the Oak Brook Commons Limited
Partnership, the lender acquired the property through foreclosure and the
general partner has supplied the Oak Brook Commons Limited Partnership with a
new property, an ownership interest in a retail store in Marshall, Minnesota,
leased on a triple-net basis by Wal-Mart Stores, Inc. In the case of the new
partnership owned by the 6030 Sheridan Limited Partnership, the lender agreed
to permit a tax-deferred exchange of the partnership's property, similar to
that completed by the 14 W. Elm Limited Partnership and subsequently the lender
sold its mortgage to an unaffiliated party who then acquired the property. The
new partnership acquired a replacement property similar to that acquired by the
14 W. Elm Limited Partnership, which property was then conveyed to the 6030
Sheridan Limited Partnership.
Of the original partnerships discussed above, Mr. Daniel L. Goodwin, a
Director of IREIC, served as individual general partner of all but the Oak
Brook Commons Limited Partnership, in which Mr. G. Joseph Cosenza, a Director
of IREIC and the Company, served as individual general partner. Prior to the
filing for reorganization, and as part of the strategy thereof, Mr. Cosenza
relinquished his position as individual general partner of the Oak Brook
Commons Limited Partnership and Mr. Goodwin did the same for all except the
1036 N. Dearborn Limited Partnership, for which he continues to serve as
individual general partner. These actions were taken upon the advice of
counsel to reduce the chances of delay in the reorganization efforts. The
corporate general partner of each partnership has elected to continue the
business of each of the partnerships in which the individual general partner
relinquished his position.
Four of the 38 Inland-sponsored partnerships described in the first
paragraph of this section owned four adjacent office buildings in Park Ridge,
Illinois. These four operating partnerships were, in turn, owned by 21 other
Inland-sponsored partnerships which had sold their original real estate assets
and reinvested a portion of the proceeds from those sales in ownership units in
the four operating partnerships. During 1991, the lenders which held the first
mortgages encumbering the four office buildings acquired the deeds to the
properties in lieu of foreclosure. The four operating partnerships were
subsequently liquidated. The general partner of the 21 partnerships which had
owned the four operating partnerships arranged for the transfer to each of the
21 partnerships of certain ownership interests in five net-lease commercial
properties having long-term leases with creditworthy tenants. The debt service
on the indebtedness used to acquire the commercial properties consists of
principal and interest payments which fully amortize the indebtedness over the
term of the store leases, with the net-lease payments received from the tenants
equal to the required debt service payments. The possibility of cash flow
distributions to the limited partners in the 21 partnerships is, therefore,
precluded. However, the expectation exists for equity accumulation through the
amortization of the loan and, therefore, a future distribution to the limited
partners upon the disposition of the commercial properties. The 21
partnerships experienced minimal adverse tax consequences from the liquidation
of the four operating partnerships and their receipt of the ownership interests
in the commercial properties. IREIC believes that the limited partners of the
21 partnerships are now positioned to realize a return of their capital
investment through the ultimate disposition of the commercial properties.
In the case of the 900 DeWitt and the Hoffman Ridge Limited
Partnerships, two of the 38 limited partnerships mentioned in the first
paragraph of this section, tax-deferred exchanges of the partnerships'
properties were accomplished, in the same manner as described above. The
partnerships acquired net-lease commercial properties. Subsequent to the
exchanges, the 900 DeWitt and Hoffman Ridge properties were acquired by the
first-mortgage lenders whose loans were secured by those properties.
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In the case of the Park Colony Limited Partnership, one of the 38
limited partnerships mentioned in the first paragraph of this section, the
partnership defaulted on a loan secured by a second mortgage against the Park
Colony property. The lender which owned the second-mortgage loan purchased the
position of the lender which had funded the first mortgage loan secured by the
property. The lender then sold the debt, at a substantial discount, to an
Affiliate of the general partner of Park Colony Limited Partnership, and all
legal actions associated with the loan default were dismissed. The partnership
then refinanced the debt at the lower principal amount, retiring the debt owned
by the Affiliate. In December 1993, a new general partner replaced IREIC.
IREIC believes that this debt reduction is of significant benefit to the
partnership, which is now better positioned to realize its investment
objectives.
In 1990, the New England Limited Partnership, acting as nominee for 14
Florida limited partnerships which own the Sunset Ridge Apartments in
Manchester, New Hampshire, ceased making payments on the bond financing for
that property, which bonds were issued by the New Hampshire Housing Finance
Authority. In August 1993, an Affiliate of the general partner for those
partnerships purchased the bonds and the interests of two savings and loan
associations which had acted as bond credit-enhancers, at a substantial
discount. The partnerships which own the property are obtaining refinancing
funds to pay off the bonds and the amounts due to the Affiliate under the
credit-enhancement instruments for approximately the discounted price paid by
the Affiliate.
In April 1993, the West Haven Limited Partnership ceased making
payments on the first mortgage loan for that partnership's property. The
general partner attempted to negotiate with the lender to modify the terms of
the loan to a level commensurate with the operating performance of the West
Haven property, but no agreement was reached. A tax-deferred exchange was
accomplished and the partnership acquired an interest in a net-lease commercial
property. The West Haven property will be acquired by the lender whose loan
was secured by a first mortgage against the property.
In the case of the other partnerships referred to in the first
paragraph of this section, subsequent to the acquisition of net-leased
commercial properties via tax-deferred exchanges, the Townsgate, Riverdale,
Northwoods and Bridgeview properties were acquired by the first-mortgage
lenders whose loans were secured by the properties. The Covington Associates
and Westbrooke Limited Partnerships' tax-deferred exchange property, Townsgate
II, was acquired by the first mortgage lender and the two partnerships acquired
net-lease commercial properties via second tax-deferred exchanges. In the case
of the Bensenville Industrial Limited Partnership, subsequent to the
acquisition of a replacement net-lease commercial property, the Bensenville
property was acquired by the first-mortgage lender whose loan was secured by
the property.
In addition to the above-described developments, the corporate general
partner of the Walton Place Limited Partnership and the Barrington Lakes
Limited Partnership settled litigation with the lenders for the properties
which resulted in the transfer of the properties and an agreement to make cash
settlements by the partnerships to the lenders. In each case, the litigation
resulted after the partnership ceased making debt service payments in an effort
to bring about a renegotiation of the terms of the financing. The lenders
agreed to permit a tax-deferred exchange of the partnerships' respective
properties.
In January 1995, the Timberlake Limited Partnership ceased making
payments on the first mortgage loan for that partnership's property. IREIC is
attempting to negotiate with the lender to modify the terms of the loan to a
level commensurate with the operating performance of the Timberlake property,
but to date, no agreement has been reached. It is IREIC's intent to initiate a
tax-deferred exchange
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whereby the partnership will acquire an interest in a net-lease commercial
property prior to the Timberlake property being acquired by the lender whose
loan is secured by a first mortgage against the property.
EFFECTS OF PROPERTY EXCHANGES ON INVESTORS
The Inland organization has used a strategy of tax-deferred property
exchanges to mitigate the adverse effects of 1986 tax law changes and the
weakening of apartment markets in the late 1980s on Inland's tax-shelter
private partnerships and investors in those partnerships. The loss of
deficit-producing properties to foreclosure would otherwise have resulted in
the loss of investors' capital, as well as substantial income tax liability for
those investors. Through the exchange program, deficit-producing apartment
properties have been disposed of, net-leased retail properties have been
acquired, and most tax liability continues to be deferred. Gradually, through
the amortization of debt secured by the new, net-leased properties owned by
these partnerships, the partnerships and their investors are rebuilding equity
which may be realized upon the future sale or refinancing of these properties.
One of the primary investment objectives of these tax-shelter partnerships--the
deferral of tax liability, continues to be met to a significant degree.
However, no cash flow is being received by the investors in these partnerships.
In addition, the tax-deferred exchanges have extended the expected term of
these tax-shelter partnerships. If and when the net-leased properties are
sold or refinanced, there is no assurance that investors will realize any
profit or a complete return of capital. Because the duration of these
partnerships has been extended, when the net-leased properties are sold or
refinanced, the annual rate of appreciation realized by investors, if any, will
be less than if the tax law had not been changed and apartment markets had not
declined in the late 1980s.
ADDITIONAL INFORMATION
Through December 31, 1995, 18 private partnerships sponsored by
Affiliates of the Advisor which sold properties on an installment basis
re-acquired their properties as a result of defaults by the purchasers.
Thirteen of the properties that were re-acquired were subsequently sold. One
property was returned to the lender and the remaining properties are being
operated by the partnerships.
Through December 31, 1995, seven private partnerships sponsored by
Affiliates of the Advisor have agreed to modifications of the original terms of
the installment receivables. The impact of these modifications on the
installment receivables includes reductions in net interest income during the
first year or two following a modification (and corresponding decreases in
distributions to limited partners during that period) and increases in interest
income thereafter (and corresponding increases in distributions), as well as
the deferral of some interest until maturity and, in the case of two
partnerships, the extension of a maturity date. The decreases in distributions
to limited partners range from 25% to 50% of the originally scheduled
distributions for the initial one- or two-year period of the modifications
followed by similar increases over the originally scheduled distributions for
the year or two following the modifications. Any interest deferred until
maturity would result in a lower-than-originally-scheduled distribution until
the maturity date, when such deferred amounts would be received from the
borrowers. The distribution to investors of the principal proceeds due upon
maturity would also be received at a later date, i.e., one to two years later,
due to a negotiated extension of the original maturity date.
During 1988, one private partnership sponsored by an Affiliate of
IREIC transferred its property to the municipality in which it was located
pursuant to an involuntary conversion proceeding. On March 1, 1989, the
proceeds of the conversion were reinvested in a new property, a transaction
intended to qualify as tax-deferred under the Code.
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Except for re-acquisitions of previously owned properties upon default
by the purchaser, the transfer of a defaulted loan, the tax-deferred property
exchanges and the disputes with lenders described herein, there have been no
further major adverse business developments or conditions experienced by these
prior partnerships which would be material to investors in the Company.
Upon written request to the Company, any potential investor may
obtain, without charge, the most recent Annual Report on Form 10-K filed with
the Commission by any public program sponsored by Affiliates which has reported
to the Commission within the last 24 months. Copies of any exhibits to such
Annual Reports shall be provided, upon request, for a reasonable fee.
MANAGEMENT
GENERAL
The Company operates under the direction of the Board of Directors
that is responsible for the overall management and control of the affairs of
the Company. However, the Board of Directors has retained the Advisor to
manage the Company's day-to-day affairs, subject to the Board's supervision.
Investment policies of the Company, as well as fees and expenses of
the Company, have been established by the Directors and will be reviewed and
approved by the Directors (including a majority of the Independent Directors)
not less often than annually and with sufficient frequency to determine that
the policies being followed are in the best interest of the Stockholders. All
Directors are responsible, as a result of their fiduciary duties, for
determining the reasonableness of the total fees and expenses of the Company in
light of the investment experience of the Company and the fees and expenses of
comparable advisor companies in supervising the relationship of the Company
with the Advisor and its Affiliates. Each such determination and the basis
therefor shall be set forth in the minutes of the Directors.
The Independent Directors shall determine from time to time, but not
less often than annually, that the compensation which the Company contracts to
pay to the Advisor is reasonable in relation to the nature and quality of the
services performed and that such compensation is within the limits prescribed
by applicable state regulatory authorities. The Independent Directors shall
also supervise the performance of the Advisor and the compensation paid to it
by the Company to determine that the provisions of the Advisory Agreement are
being carried out. Each such determination shall be based on the factors set
forth below and all other factors that the Independent Directors may deem
relevant and the findings of the Independent Directors on each such factor
shall be recorded in the minutes of the Board. Such factors include: (i) the
size of the Advisory Fee in relation to the size, composition and
profitability of the portfolio of the Company; (ii) the success of the Advisor
in generating opportunities that meet the investment objectives of the Company;
(iii) the rates charged to other REITs and to investors other than REITs by
advisors performing similar services; (iv) additional revenues realized by the
Advisor and any Affiliate through their relationship with the Company,
including loan administration, underwriting or brokerage commissions,
servicing, engineering, inspection and other fees, whether paid by the Company
or by others with whom the Company does business; (v) the quality and extent of
service and advice furnished by the Advisor; (vi) the performance of the
investment portfolio of the Company, including income, conservation or
appreciation of capital, frequency of problem investments and competence in
dealing with distress situations; and (vii) the quality of the portfolio of the
Company in relationship to the investments generated by the Advisor for its own
account. See "Fiduciary Responsibility of Directors and the Advisors;
Indemnification" and "--The Advisory Agreement" in this Section.
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The Board is currently comprised of five individuals, a majority of
whom are independent (the "Independent Directors"). Each of the Directors
serves for a one-year term and will be elected annually. See "Summary of
Organizational Documents."
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and the Company's executive officers:
<TABLE>
<CAPTION>
Name Age Position and Office with the Company
---- --- ------------------------------------
<S> <C> <C>
Robert D. Parks 52 President, Chief Executive Officer, Chief Operating Officer
and Affiliated Director
G. Joseph Cosenza 52 Affiliated Director
Roland W. Burris 58 Independent Director
Douglas R. Finlayson, M.D. 56 Independent Director
Heidi N. Lawton 33 Independent Director
Roberta S. Matlin 51 Vice President -- Administration
Cynthia M. Hassett 37 Secretary, Treasurer and Chief Financial Officer
Patricia A. Challenger 42 Assistant Secretary
</TABLE>
ROBERT D. PARKS. President, Chief Executive Officer, Chief Operating
Officer and Affiliated Director of the Company since its formation in 1994.
Mr. Parks joined The Inland Group, Inc. and its Affiliates ("TIGI") in 1968.
He is Director of TIGI and is President, Chairman and Chief Executive Officer
of Inland Real Estate Investment Corporation ("IREIC") and is a Director of
Inland Securities Corporation. Mr. Parks is responsible for the ongoing
administration of existing partnerships, corporate budgeting and administration
for IREIC. He oversees and coordinates the marketing of all limited
partnership interests nationwide and has overall responsibility for the
portfolio management of all partnership investments and investor relations.
Mr. Parks received his B.A. Degree from Northeastern Illinois University and
M.A. from the University of Chicago. He is a registered Direct Participation
Program Principal with the National Association of Securities Dealers, Inc. and
a licensed real estate broker. He is a member of the Real Estate Investment
Association and the National Association of Real Estate Investment Trusts.
G. JOSEPH COSENZA. Affiliated Director of the Company since its
formation in 1994. Mr. Cosenza joined TIGI in 1968. Mr. Cosenza is a
Director, Vice Chairman and Chief Executive Officer of TIGI. Mr. Cosenza
oversees, coordinates and directs Inland's many enterprises and, in addition,
immediately supervises a staff of three persons who engage in property
acquisition. Mr. Cosenza has been a consultant to other real estate entities
and lending institutions on property appraisal methods. Mr. Cosenza received
his B.A. Degree from Northeastern Illinois University and his M.S. Degree from
Northern Illinois University. From 1967 to 1968, Mr. Cosenza taught at the
LaGrange School District in Hodgkins, and from 1968 to 1972, he served as
Assistant Principal and teacher in the Wheeling School District. He has been a
licensed real estate broker since 1968 and an active member of various national
and local real estate associations, including the National Association of
Realtors and the Urban Land Institute. Mr. Cosenza has also been Chairman of
the Board of American National Bank of DuPage and part owner of American
National Bank of DuPage and Burbank State Bank, and has served on the Board of
Directors of Continental Bank of Oakbrook Terrace. Mr. Cosenza was the
individual general partner of a limited partnership which ceased making debt
service payments to an unaffiliated lender with the
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objective of reducing or restructuring the debt to a level which was
commensurate with the level of performance of the property owned by such
partnership. The lender acquired the property owned by such partnership
through foreclosure and an affiliate of Mr. Cosenza supplied the partnership
with the new property, an ownership interest in a retail store in Marshall,
Minnesota, leased on a triple-net basis by Wal-Mart Stores, Inc. See "Prior
Performance of the Company's Affiliates--Loan Modifications and Work-Outs."
ROLAND W. BURRIS. Independent Director since January 1996. Mr.
Burris has been the Managing Partner of Jones, Ware & Grenard, a Chicago law
firm since June 1995, where he practices primarily in the areas of
environmental, banking and consumer protection. After obtaining his law degree
from Howard University Law School in 1963, Mr. Burris began a career in the
banking industry initially as a federal bank examiner and then at Continental
Illinois National Bank where he rose to the position of vice president. From
1973 to 1995, Mr. Burris was involved in State of Illinois government including
holding the positions of State Comptroller and Attorney General of the State of
Illinois. Mr. Burris completed his undergraduate studies at Southern Illinois
University and studied international law as an exchange student at the
University of Hamburg in Germany. Mr. Burris serves on many boards, including
the Illinois Criminal Justice Authority, the Financial Accounting Foundation,
the Law Enforcement Foundation of Illinois, the African American Citizens
Coalition on Regional Development and the Boy Scouts of America. He currently
serves as chair of the Illinois State Justice Commission. He is also serving
as an adjunct professor in the Master of Public Administration Program at
Southern Illinois University.
DOUGLAS R. FINLAYSON, M.D. Independent Director of the Company since
October 1994. Dr. Finlayson is a full-time family practice and nutritional
medicine physician with Partners in Primary Care in Rolling Meadows, Illinois
and Westlake Clinic in Ingleside, Illinois. He joined the Clinic in 1992.
From 1968 to 1971, Dr. Finlayson was a battalion surgeon in the United States
Army. Dr. Finlayson began private practice in 1971 joining the staff of
Northwest Community Hospital, and from 1982 until 1988, Dr. Finlayson served as
Medical Director of the Rolling Meadows Alcohol and Drug Dependence Program of
Lutheran Welfare Services. From 1988 until joining Westlake Clinic in 1992,
Dr. Finlayson practiced medicine on a part-time basis primarily in the area of
nutritional medicine. Since 1975, Dr. Finlayson has been involved with buying
and selling real estate assets, including vacant land, speculative housing and
rental properties, for his own account. In 1978, Dr. Finlayson acquired and
developed 100 acres in South Barrington, Illinois, and as a member of the
Church Building Committee, led the development of the Willow Creek Community
Church Campus. Since 1983, Dr. Finlayson has been designing computer software
systems for medical application including projects for the Illinois Hospital
Association. Dr. Finlayson holds a B.S. Degree in Chemistry from the
University of Illinois and a M.D. Degree from the University of Heidelberg,
Germany.
HEIDI N. LAWTON. Independent Director of the Company since October
1994. Ms. Lawton is managing broker, owner and president of Lawton Realty
Group, an Oak Brook, Illinois real estate brokerage firm which she founded in
1989. Lawton Realty Group employs four full-time associates and generates
sales volume of approximately $20,000,000 annually. The firm specializes in
commercial, industrial and investment real estate brokerage. Ms. Lawton is
responsible for all aspects of the operations of the company. She also
structures real estate investments for clients -- procuring partner/investors,
acquiring land and properties and obtaining financing for development and/or
acquisition. Prior to founding Lawton Realty Group and while she was earning
her B.S. Degree in business management from the National College of Education,
she was managing broker for VCR Realty in Addison, Illinois. While there, she
was engaged primarily in brokerage of industrial and commercial property. She
also provided property management services, including leasing, for a portfolio
of more than 100 properties, including
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condominium complexes, industrial, apartment and small retail shopping centers.
At the beginning of her career in real estate, she acted as a general
contractor building and selling single-family homes as well as a retail center
in Lombard, Illinois. As a licensed real estate professional since 1982, she
has served as a member of the Certified Commercial Investment Members,
secretary of the Northern Illinois Association of Commercial Realtors, and is a
past board member and commercial director of the DuPage Association of
Realtors.
ROBERTA S. MATLIN. Vice President - Administration of the Company
since March 1995. Ms. Matlin joined Inland in 1984 as Director of Investor
Administration and currently serves as Senior Vice President - Investments of
IREIC directing the day-to-day internal operations. She is also the President
and a Director of Inland Securities Corporation. Prior to joining Inland, Ms.
Matlin spent 11 years with the Chicago Region of the Social Security
Administration of the United States Department of Health and Human Services.
Ms. Matlin received her B.A. Degree from the University of Illinois. She is
registered with the NASD as a general securities principal.
CYNTHIA M. HASSETT. Secretary, Treasurer and Chief Financial Officer
of the Company since January 1995. Ms. Hassett has been Secretary and
Treasurer of the Advisor since its formation in 1994. Ms. Hassett joined
Inland in 1983 and is a Vice President of IREIC. Ms. Hassett is responsible
for the Investment Accounting Department which includes the accounting for the
Company and all public limited partnership accounting functions along with
quarterly and annual SEC filings. Prior to joining Inland, Ms. Hassett was on
the audit staff of Altschuler, Melvoin and Glasser since 1980. She received
her B.S. Degree in Accounting from Illinois State University. Ms. Hassett is a
Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants.
PATRICIA A. CHALLENGER. Assistant Secretary of the Company since
March 1995. Ms. Challenger joined Inland in 1985. She is currently a Senior
Vice President of IREIC in the area of asset management. As head of the Asset
Management Department, she develops operating and disposition strategies for
all investment-owned properties. Ms. Challenger received her B.S. Degree from
George Washington University and her Master's Degree from Virginia Tech
University. Ms. Challenger was selected and served from 1980 to 1984 as
Presidential Management Intern, where she was part of a special government-wide
task force to eliminate waste, fraud and abuse in government contracting and
also served as Senior Contract Specialist responsible for capital improvements
in 109 government properties. Ms. Challenger is a licensed real estate
salesperson, NASD registered securities sales representative and is a member of
the Urban Land Institute.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board has established an Audit Committee
consisting of two Independent Directors, Ms. Lawton and Mr. Burris. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews the plans and results of the audit engagement with the
independent public accountants, approves professional services provided by, and
the independence of, the independent public accountants, considers the range of
audit and non-audit fees and consults with the independent public accountants
regarding the adequacy of the Company's internal accounting controls.
Executive Committee. The Board may establish an Executive Committee
consisting of three Directors, including two Independent Directors. The
Executive Committee would likely exercise all powers of the Directors except
for those which require actions by all of the Directors or the Independent
Directors under the Articles or Bylaws or under applicable law.
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Executive Compensation Committee. The Board may establish an
Executive Compensation Committee consisting of three Directors, including two
Independent Directors, to establish compensation policies and programs for the
Company's executive officers. The Executive Compensation Committee will
exercise all powers of the Board in connection with establishing and
implementing compensation matters, including incentive compensation and benefit
plans.
COMPENSATION OF DIRECTORS
The Company pays its Independent Directors an annual fee of $1,000.
In addition, Independent Directors receive $250 for attendance (in person or by
telephone) at each meeting of the Board or committee thereof. Officers of the
Company who are Directors are not paid any directors' fees. Each Independent
Director received options to purchase 3,000 Shares at a price of $9.05 per
Share under the Company's Independent Director Stock Option Plan. On the date
of the annual meeting of the Company's Stockholders, each Independent Director
then in office will receive an annual grant of options to purchase 500 Shares.
See "--Independent Director Stock Option Plan" in this Section.
THE ADVISOR
The Advisor is a wholly owned subsidiary of IREIC. The Advisor is an
Illinois corporation and the following table sets forth information with
respect to the executive officers and directors of the Advisor. The
biographies of Robert D. Parks, G. Joseph Cosenza, Roberta S. Matlin, Patricia
A. Challenger and Cynthia M. Hassett are set forth above.
<TABLE>
<CAPTION>
Name Position and Office with the Advisor
---- ------------------------------------
<S> <C>
Robert D. Parks Chairman of the Board and President
G. Joseph Cosenza Director
Norbert J. Treonis Director
Roberta S. Matlin Director and Secretary
Patricia A. Challenger Vice President -- Asset Management
Cynthia M. Hassett Treasurer
</TABLE>
NORBERT J. TREONIS (age 45) has been a director of the Advisor since
its formation in 1994. Mr. Treonis joined TIGI and its Affiliates in 1975 and
he is currently Chairman and Chief Executive Officer of Inland Property
Management Group, Inc., Chairman of the Board of Directors of Inland Commercial
Property Management, Inc. and a Director of TIGI. He serves on the Board of
Directors of all Inland subsidiaries involved in the property management,
acquisitions and maintenance of real estate, including Mid-America Management
Corp. and American Building Services, Inc. Mr. Treonis is charged with the
responsibility of the overall management and leasing of all apartment units,
retail, industrial and commercial properties nationwide. Mr. Treonis is a
licensed real estate broker. He is a past member of the Board of Directors of
American National Bank of DuPage, the Apartment Builders and Managers
Association of Illinois, the National Apartment Association and the Chicago
Apartment Association.
The Advisor is a member of a group of affiliated corporations, The
Inland Group, Inc. ("TIGI"), which is engaged in businesses related to many
aspects of real estate and mortgage financing. The relevant skills and
experience of each of these companies, developed over the course of 30 years in
business, primarily in the Chicago metropolitan area, is available to the
Company in the conduct of its business.
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The first of the TIGI-affiliated businesses was started by a group of
Chicago school teachers in 1967, and incorporated the following year. The
founders of TIGI all remain actively involved in overseeing these companies.
The businesses of these TIGI-affiliated companies are still centered in the
Chicago metropolitan area, since the founders of TIGI believe that sound real
estate operations require detailed knowledge of local conditions. Over the
past 30 years, TIGI-affiliated companies have experienced significant growth.
TIGI-affiliated companies, in the aggregate, in April 1996 were ranked by
Crain's Chicago Business as the 32nd largest privately held business group
headquartered in the Chicago area. Limited partnerships for which IREIC is the
general partner own in excess of 9,800 acres of pre-development land in the
Chicago area, as well as 10,500,000 square feet of commercial property in
Chicago and nationwide.
As TIGI-affiliated companies bought and sold properties over the
years, necessary expertise in real estate financing was developed. This
function was formally recognized in 1977, with the incorporation of IMC. IMC,
during its history, has originated more than $1 billion in financing, including
loans to third parties and affiliated entities.
Further delineation of functions and duties associated with financing
occurred in 1990, with the separate incorporation of Inland Mortgage Investment
Corporation ("IMIC") and Inland Mortgage Servicing Corporation ("IMSC"). IMIC,
as of March 1, 1996, owned a $57,000,000 loan portfolio, and IMSC serviced a
loan portfolio of 455 loans exceeding $460,000,000.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor generally has
responsibility for the day-to-day operations of the Company, administers the
Company's bookkeeping and accounting functions, serves as the Company's
consultant in connection with policy decisions to be made by the Directors,
manages or causes to be managed the Company's properties and renders other
services as the Directors deem appropriate. The Advisor is subject to the
supervision of the Directors and has only such functions as are delegated to
it.
The Advisor bears the expenses incurred by it in connection with
performance of its duties under the Advisory Agreement, including employment
expenses of its personnel, certain travel and other expenses of the directors,
officers and employees of the Advisor, rent, telephone, and equipment expenses
to the extent such expenses relate to the office maintained by both the Company
and the Advisor and miscellaneous administrative expenses incurred in
supervising, monitoring and inspecting real property or other investments of
the Company or relating to its performance under the Advisory Agreement. The
Advisor receives reimbursement for certain expenses it incurs. The Company
bears its own expenses for functions not required to be performed by the
Advisor under the Advisory Agreement, which generally include capital raising
and financing activities, corporate governance matters and other activities not
directly related to the Company's properties.
The Advisory Agreement, which was entered into by the Company, with
the unanimous approval of the Directors, including the Independent Directors,
is for a one-year term subject to successive one-year renewals upon the mutual
consent of the parties. It may be terminated by either party, or by mutual
consent of the parties or by a majority of the Independent Directors of the
Company or the Advisor, as the case may be, upon 60 days written notice without
cause or penalty. In the event of the termination of the Advisory Agreement,
the Advisor will cooperate with the Company and take all reasonable steps
requested to assist the Directors in making an orderly transition of the
advisory function.
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For any year in which the Company qualifies as a REIT, the Advisor
must reimburse the Company: (i) to the extent that the Advisor Asset
Management Fee plus Other Operating Expenses paid during the previous calendar
year exceed 2% of the Company's Average Invested Assets for that calendar year;
or (ii) 25% of the Company's Net Income for that calendar year.
The Advisory Agreement gives the Company the first opportunity to buy
any Neighborhood Retail Centers placed under contract by the Advisor or its
Affiliates provided the Company is able to close the purchase within 60 days.
The Advisory Agreement also provides the Company with the first opportunity to
purchase any single-user retail property net leased by a creditworthy tenant
located anywhere in the United States which is placed under contract or about
to be placed under contract by the Advisor or its Affiliates, provided that:
(i) the Company has funds available to make the purchase; (ii) the Board votes
to make the purchase within five days of being offered such property by the
Advisor; (iii) the property meets the Company's acquisition criteria; and (iv)
in the event that more than one real estate investment program sponsored by the
Advisor or its Affiliates has funds available to make the purchase, such
property will first be offered to the program which has had funds available for
the longest period of time.
If the Advisor or its Affiliates perform services that are outside of
the scope of the Advisory Agreement, compensation is at such rates and in such
amounts as are agreed by the Advisor and the Independent Directors. The
Directors (including a majority of its Independent Directors) approved the
payment to the Advisor of an Acquisition Expense reimbursement equal to
approximately 0.5% of Gross Offering Proceeds to cover costs incurred in the
Advisor's site selection and acquisition activities (including travel and
related items) on behalf of the Company. See "Compensation Table."
Many REITs which are listed on national stock exchange or included for
quotation on a national market system are considered "self-administered," since
the employees of the REIT perform all significant management functions. In
contrast, REITs that are not self-administered, like the Company, typically
engage a third-party to perform management functions on its behalf, such as an
advisor. Accordingly, should the Company commence a subsequent public offering
after completion of this Offering and apply to have the Shares listed for
trading on a national stock exchange or included for quotation on a national
market system, it may be in the Company's best interest to become self-
administered. In this event, if the Independent Directors determine that the
Company should become self-administered, the Advisory Agreement permits the
Advisor to merge into the Company and for the Company to allow such merger,
with the consideration determined through appropriate means agreed to by the
Company and the Advisor. In the event the Advisor is merged into the Company,
certain key employees of the Advisor will become employees of the Company.
In the event the Advisory Agreement is terminated because Shares are
listed for trading on a national stock exchange or market system, provision for
payment of fees to the Advisor will be terminated. The Advisor and the
Management Agent may be merged into the Company at the time of listing and may
receive Shares in the Company in an amount which would be determined at that
time, based upon the value of all fees given up or waived by the Advisor and
the Management Agent through the merger. In the event the Advisory Agreement
is terminated for any reason other than the merger of the Advisor into the
Company, all obligations of the Advisor and its Affiliates to offer properties
to the Company for purchase shall also terminate.
The Company has agreed to indemnify the Advisor and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to the
Advisor with respect to acts or omissions of the Advisor, provided that: (i)
the Advisor determined, in good faith, that the course of conduct which caused
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<PAGE> 74
a loss or liability was in the best interest of the Company; (ii) the Advisor
was acting on behalf of or performing services for the Company; (iii) such
liability or loss was not the result of misconduct on the part of the Advisor;
and (iv) such indemnification or agreement to hold harmless is recoverable only
out of the Company's net assets and not from the Stockholders.
THE MANAGEMENT AGENT
Inland Commercial Property Management, Inc. ("ICPM" or the "Management
Agent"), an Affiliate of the Advisor, provides property management services to
the Company. ICPM, an Illinois corporation, is a wholly owned subsidiary of
Mid-America Management Corp. ("Mid-America"), which manages approximately
14,600 multi-family units, including approximately 13,600 in the Chicago
metropolitan area more than any other firm in that market. ICPM was
incorporated in 1994 to segregate responsibility for Mid-America's growing
management portfolio of commercial properties. In August 1988, Mid-America and
its Affiliates owned or managed 1.3 million square feet of retail property.
This figure had grown to 5.8 million square feet by August 1991 and to 9.6
million square feet in April 1996.
ICPM is responsible for collections, leasing and maintenance of the
commercial properties which it manages. A substantial portion of the
portfolio, approximately 7.6 million square feet, consists of properties
triple-net leased to creditworthy tenants, whereby the tenant operates and
maintains the property and rent is net of property taxes, insurance and
operating expenses.
The following table sets forth information with respect to the
executive officers and directors of ICPM. The biography of Mr. Norbert J.
Treonis is set forth above.
<TABLE>
<CAPTION>
Name Age Position and Office with ICPM
---- --- -----------------------------
<S> <C> <C>
Norbert J. Treonis 45 Chairman of the Board of Directors
Robert H. Baum 52 Director
Daniel L. Goodwin 52 Director
D. Scott Carr 30 President
Kristi Wells 30 Vice President
Robert M. Barg 42 Secretary/Treasurer
</TABLE>
ROBERT H. BAUM has been a Director of ICPM since its formation. Mr.
Baum has been with TIGI and its Affiliates since 1967 and is one of the four
original principals. Mr. Baum is Executive Vice President-General Counsel and
a Director of TIGI. In his capacity as General Counsel, Mr. Baum is
responsible for the supervision of the legal activities of TIGI and its
Affiliates. This responsibility includes the supervision of the Inland Law
Department and serving as liaison with all outside counsel. Mr. Baum is a
member of the North American Securities Administrators Association Real Estate
Advisory Committee and is a member of the Securities Advisory Committee to the
Secretary of State of Illinois. He is also a member of the American
Corporation Counsel Association, as well as a member of several bar
associations. Mr. Baum has been admitted to practice before the Supreme Courts
of the United States and the State of Illinois, as well as the bars of several
federal courts of appeals and federal district courts. He received his B.S.
Degree from the University of Wisconsin and his J.D. Degree from Northwestern
University School of Law.
DANIEL L. GOODWIN has been a Director of ICPM since its formation.
Mr. Goodwin is Chairman of the Board of Directors of TIGI, a billion-dollar
real estate and financial organization located in Oak Brook, Illinois. Mr.
Goodwin has been with TIGI and its Affiliates since 1967. Among TIGI's
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<PAGE> 75
subsidiaries is the largest property management firm in Illinois and one of the
largest commercial real estate and mortgage banking firms in the Midwest. Mr.
Goodwin has served as Director of the Avenue Bank of Oak Park and as a Director
of the Continental Bank of Oakbrook Terrace. He was also Chairman of the Bank
Holding Company of American National Bank of DuPage. Currently, he is the
Chairman of the Board of Inland Mortgage Investment Corporation.
Mr. Goodwin has served on the Board of the Illinois State Affordable
Housing Trust Fund for the past six years. He is an advisor for the Office of
Housing Coordination Services of the State of Illinois, and a member of the
Seniors Housing Committee of the National Multi-Housing Council. Illinois
Governor James Edgar appointed him Chairman of the Housing Production Committee
for the Illinois State Affordable Housing Conference. He has also served as a
member of the Cook County Commissioner's Economic Housing Development
Committee, and he was the Chairman of the DuPage County Affordable Housing Task
Force. The 1992 Catholic Charities Award was presented to Mr. Goodwin for his
work in addressing affordable housing needs. The City of Hope designated him
as the 1980's Man of the Year for the Illinois construction industry. In 1989,
the Chicago Metropolitan Coalition on Aging presented Mr. Goodwin with an award
in recognition of his efforts in making housing more affordable to Chicago's
senior citizens. On May 4, 1995, PADS, Inc. (Public Action to Deliver
Shelter) presented Mr. Goodwin with an award, recognizing TIGI as the leading
corporate provider of transitional housing for the homeless people of DuPage
County.
Mr. Goodwin is a product of Chicago-area schools, and obtained his
Bachelor's and Master's Degrees from Illinois universities. Following
graduation, he taught for five years in the Chicago public schools. In 1990,
he received the Northeastern Illinois University President's Meritorious
Service Award. Mr. Goodwin holds a Master's Degree in Education from Northern
Illinois University and, in 1986, he was awarded an honorary doctorate from
Northeastern Illinois University College of Education. He is currently a
trustee of Illinois Benedictine College, and a member of the Board of Governors
of Illinois State Colleges and Universities. He was elected chairman of the
Northeastern Illinois University Board of Trustees in January 1996. Mr.
Goodwin served as a member of Governor Edgar's Transition Team. He also
served as a member of the Illinois House of Representatives Speaker's Advisory
Council.
Mr. Goodwin was the individual general partner of 14 W. Elm Limited
Partnership, 1445 North State Limited Partnership, 5600 Sheridan Limited
Partnership, 5630 Sheridan Limited Partnership and 6030 Sheridan Limited
Partnership, each of which ceased making debt service payments to unaffiliated
lenders with the objective of reducing or restructuring the debt to a level
which was commensurate with the level of performance of the property owned by
such partnerships. See "Prior Performance of the Company's Affiliates--Loan
Modifications and Work-Outs."
D. SCOTT CARR has been an officer of ICPM since its formation. Mr.
Carr was appointed Vice President and Secretary of ICPM in July 1994 and was
appointed President in July 1995. Mr. Carr joined TIGI and its Affiliates in
1987. Mr. Carr has responsibility for all the portfolio of commercial
properties managed by ICPM, including management and leasing. Mr. Carr is a
licensed real estate broker. He is a Certified Property Manager candidate with
the Institute of Real Estate Management and a member of the International
Council of Shopping Centers.
KRISTI A. WELLS has been an employee of ICPM since its formation. Ms.
Wells was appointed Assistant Vice President in July 1994 and in July 1995 was
appointed Vice President. Ms. Wells joined TIGI in 1990. Ms. Wells is a
licensed real estate broker and is a member of the International Counsel of
Shopping Centers.
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ROBERT M. BARG has been the Secretary and Treasurer of ICPM since
January 1995. Mr. Barg joined the Inland Property Management Group in January
1986 and is Vice President and Controller of Mid-America. Prior to joining
TIGI, Mr. Barg was an Accounting Manager for the Charles H. Shaw Co. He
received his B.S. Degree in Business Administration from the University of
Illinois - Chicago and a Master's Degree from Western Illinois University. Mr.
Barg is a Certified Public Accountant and is a member of the Illinois CPA
Society. He holds a real estate sales license and is registered with the NASD
as a securities sales representative.
OTHER SERVICES
In addition to the services described above provided by the Advisor
and its Affiliates, Affiliates of the Advisor may provide other property-level
services to the Company and may receive compensation for such services,
including leasing, development, construction management, loan origination and
servicing, property tax reduction and risk managing fees. However, under no
circumstances will such compensation exceed 90% of that which will be paid to
third parties providing such services and all such compensation must have the
prior approval of a majority of the Directors, including a majority of the
Independent Directors.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
The Company adopted the Independent Director Stock Option Plan (the
"Independent Director Stock Option Plan") concurrently with the commencement of
the Prior Offering. Only non-employee Directors who are "disinterested
persons" as defined under Rule 16b-3 of the Exchange Act are eligible to
participate in the Independent Director Stock Option Plan.
A total of 50,000 shares of Common Stock have been authorized and
reserved for issuance under the Independent Director Stock Option Plan. If the
outstanding shares of Common Stock are increased, decreased or changed into, or
exchanged for, a different number or kind of shares or securities of the
Company through a reorganization or merger in which the Company is the
surviving entity, or through a combination, recapitalization, reclassification,
stock split, stock dividend, stock consolidation or otherwise, an appropriate
adjustment shall be made in the number and kind of shares that may be issued
pursuant to options. A corresponding adjustment to the consideration payable
with respect to options granted prior to any such change shall also be made.
Any such adjustment, however, shall be made without change in the total
payment, if any, applicable to the portion of the options not exercised but
with a corresponding adjustment in the price for each share.
The Independent Director Stock Option Plan provides for the grant of
non-qualified stock options to purchase 3,000 Shares to each Independent
Director as of the date such individuals become Directors (the "Initial
Options"), and subsequent grants of options to purchase 500 Shares on the date
of each annual stockholders' meeting to each Independent Director then in
office (the "Subsequent Options", collectively with the "Initial Options"
referred to herein as an "Option" or "Options"). As of the date of this
Prospectus, Options to purchase 11,500 Shares at $9.05 per Share had been
granted.
The purchase price of Common Stock (the "Option Price") under each
Initial Option granted to Independent Directors who became Directors on or
before the date of the Offering is the fair market value of the Common Stock at
the date of the commencement of the Offering. The Option Price under each
Initial Option granted to Directors who become Directors after the commencement
of the Offering will be the fair market value of the Common Stock as of the
date of grant. The Option Price under each
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Subsequent Option granted to Directors shall be the fair market value of the
Common Stock on the last business day preceding the annual meeting. The Option
Price under Options granted during the period of the Offering is fixed in the
Independent Director Stock Option Plan at $9.05 per share.
The Initial Options are exercisable as follows: 1,000 Shares on the
date of grant and 1,000 Shares on each of the first and second anniversaries of
the date of grant. The Subsequent Options are exercisable on the second
anniversary of the date of grant. Options granted under the Independent
Director Stock Option Plan continue to be exercisable until the first to occur
of the tenth anniversary of the date of grant or three months following the
date the Independent Director ceases to be a Director and may be exercised by
payment of cash or through the delivery of Common Stock. Notwithstanding any
other provisions of the Independent Director Stock Option Plan to the contrary,
no Option issued pursuant thereto may be exercised if such exercise would
jeopardize the Company's status as a REIT under the Code.
No Option may be sold, pledged, assigned or transferred by an
Independent Director in any manner otherwise than by will or the laws of
descent or distribution. Options granted under the Independent Director Stock
Option Plan are generally exercisable in the case of death or disability for a
period of one year after death or the disabling event or three months after the
Independent Director ceases to be a member of the Board for any reason except
death or disability.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation
or upon sale of all or substantially all of the Company's property, the
Independent Director Stock Option Plan shall terminate, and any outstanding
options shall terminate and be forfeited. Notwithstanding the foregoing, the
Board may provide in writing in connection with, or in contemplation of, any
such transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the
options theretofore granted or the substitution by such corporation for such
options of options covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind
of shares and prices; (ii) for the continuance of the Independent Director
Stock Option Plan by such successor corporation in which event the Independent
Director Stock Option Plan and the options shall continue in the manner and
under the terms so provided; or (iii) for the payment in cash or Shares in lieu
of and in complete satisfaction of such options.
SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived
from the financial statements of the Company. Balance sheet data at March 31,
1996 and December 31, 1995 and 1994 and income statement data for the three
months ended March 31, 1996 and for the years ended December 31, 1995 and 1994
have been derived from the audited financial statements of the Company. In
addition, the data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
financial statements of the Company and related notes thereto included
elsewhere in this Prospectus.
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<TABLE>
<CAPTION>
(Unaudited)
Three
Months
Ended
March 31, Year Ended December 31,
---------- -----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . $26,428,081 18,750,877 2,402,373
Mortgage payable . . . . . . . . . . . . . . . . . . . . 748,011 750,727 --
Total income . . . . . . . . . . . . . . . . . . . . . . 761,079 1,180,422 --
Net income . . . . . . . . . . . . . . . . . . . . . . . 235,266 496,514 --
Net income per share (a) . . . . . . . . . . . . . . . . .12 .53 --
Distributions declared . . . . . . . . . . . . . . . . . 476,675 736,627 --
Distributions per share (a) . . . . . . . . . . . . . . . .20 .78 --
Funds from Operations (a) (b) . . . . . . . . . . . . . . 338,357 666,408 --
Funds available for distributions (b) . . . . . . . . . . 440,406 787,011 --
Cash flows from operating activities . . . . . . . . . . 596,106 978,350 --
Cash flows used in investing activities . . . . . . . . . (5,811,430) (6,577,843) (1,703,498)
Cash flows from financing activities . . . . . . . . . . 7,413,866 6,327,490 1,714,432
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . 2,394,092 943,156 20,000
</TABLE>
(a) The net income and distributions per share are based upon the weighted
average number of common shares outstanding. The $.20 per share
Distribution for the three months ended March 31, 1996 and the $.78
per share Distribution for the fiscal year ended December 31, 1995,
represented 141% and 110.5% of the Company's Funds From Operations
("FFO") and 108% and 93.6% of funds available for distribution for
those periods. See Footnote (b) below for information regarding the
Company's calculation of FFO. Distributions by the Company to the
extent of its current and accumulated earnings and profits for federal
income tax purposes will be taxable to Stockholders as ordinary
dividend income. Distributions in excess of earnings and profits
generally will be treated as a non-taxable reduction of the
stockholder's basis in the Shares to the extent thereof, and
thereafter as taxable gain (a return of capital). These Distributions
will have the effect of deferring taxation of the amount of the
Distribution until the sale of the Stockholder's Shares. The Company
cannot calculate the portion of the Distribution for the three months
ended March 31, 1996 that represented a return of capital. For 1995,
$42,414 (or 5.76%) of the $736,627 Distribution paid for 1995
represented a return of capital. In order to maintain
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<PAGE> 79
its qualification as a REIT, the Company must make annual
distributions to Stockholders of at least 95% of its taxable income
(which does not include net capital gains) which was approximately
$659,500 (or 89.5%) of the Distribution paid in 1995. Under certain
circumstances, the Company may be required to make Distributions in
excess of cash available for distribution in order to meet the REIT
distribution requirements. Distributions are determined by the
Company's Board of Directors and are dependent on a number of factors,
including the amount of funds available for distribution, the
Company's financial condition, any decision by the Board of Directors
to reinvest funds rather than to distribute the funds, the Company's
capital expenditure, the annual distribution required to maintain REIT
status under the Code and other factors the Board of Directors may
deem relevant.
(b) "FFO" means net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation, and after
adjustments for unconsolidated partnerships and joint ventures. The
Company presently has no interests in unconsolidated partnerships or
joint ventures. FFO and funds available for distribution are
calculated as follows:
<TABLE>
<CAPTION>
3/31/96 1995 1994
------- ---- ----
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . $ 235,266 496,514 --
Depreciation . . . . . . . . . . . . . . . . . . . . 103,091 169,894 --
------- ------- --------
Funds from operations (1) . . . . . . . . . . . 338,357 666,408 --
Deferred rent receivable . . . . . . . . . . . . . (7,284) (12,413)(2) --
Rental income received under master
lease agreements (3) . . . . . . . . . . . . . 109,333 133,016 --
------- ------- ---------
Funds available for distribution . . . . . . . $440,406 787,011 --
======== ========== ==========
</TABLE>
(1) FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available
to fund cash needs. FFO should not be considered as an
alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a
measure of liquidity. FFO as reported by the Company may not
be comparable to other similarly titled measures of other real
estate companies.
(2) Reference is made to Note (5) of the Notes to Financial
Statements of the Company.
(3) As part of the Montgomery-Goodyear, Hartford/Naperville Plaza,
Nantucket Square and Antioch Plaza purchases, the Company will
receive rent under master lease agreements on the spaces
currently vacant for periods ranging from one year to 18
months or until the spaces are leased. Generally accepted
accounting principles require that as these payments are
received, they be recorded as a reduction in the purchase
price of the properties rather than as rental income. As of
December 31, 1995, the Company had recorded $133,016 of such
payments and for the three months ended March 31, 1996, the
Company recorded $109,333 of such payments.
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<PAGE> 80
INVESTMENT OBJECTIVES AND POLICIES
1. General. The Company's investment objectives are to: (i)
make regular Distributions to the Stockholders in amounts which may exceed the
Company's taxable income due to the non-cash nature of depreciation expense
and, to such extent, will constitute a tax-deferred return of capital, but in
no event less than 95% of the Company's taxable income pursuant to the REIT
qualification requirements; (ii) provide a hedge against inflation by entering
into leases which contain clauses for scheduled rent escalations or
participation in the growth of tenant sales, permitting the Company to increase
Distributions and provide capital appreciation; and (iii) preserve
Stockholders' capital.
2. Distributions. The Company currently pays regular monthly
Distributions to its Stockholders. However, the Company reserves the right,
prior to the completion of the acquisition process, to pay Distributions on a
quarterly basis out of Cash Flow, in an amount determined by the Board. The
Board presently anticipates that Distributions equal to an 8% annualized return
per Share will continue to be paid to each Stockholder of record. The
continuation of Distributions and the size of the Distributions depend upon a
variety of factors. There can be no assurance that Distributions will be made.
Distributions for the year ended December 31, 1995, totaled $736,627, of which
$42,414 was a return of capital for federal income tax purposes. In addition,
Distributions for the three months ended March 31, 1996 totalled $476,675, a
portion of which may be a return of capital.
To the extent possible, it will be the policy of the Company
to avoid the fluctuations in Distributions which might result if Distributions
were based on actual cash received during the Distribution period. To
implement this policy, the Company may use cash received during prior periods,
or cash received subsequent to the Distribution period and prior to the payment
date for such Distribution, in order to pay annualized Distributions consistent
with the Distribution level established from time to time by the Board. The
Company's ability to maintain this policy will be dependent upon the
availability of Cash Flow and applicable REIT rules. Therefore, there can be
no assurance that there will be Cash Flow available to pay Distributions, or
that Distributions will not fluctuate. Monthly Distributions will be
calculated with daily record and Distribution declaration dates. However, the
Board could, at any time, elect to pay Distributions quarterly, to reduce
administrative costs. It will be the general policy of the Company, subject to
applicable REIT rules, to reinvest proceeds from the sale, financing,
refinancing or other disposition of its properties through the purchase of
additional properties. See "--Sale or Disposition of Properties" in this
Section.
3. Types of Investments. The Company was formed to acquire
existing Neighborhood Retail Centers located primarily within an approximate
150-mile radius of its headquarters in Oak Brook, Illinois, a Chicago suburb,
where the Advisor maintains its acquisition and property management
headquarters, as well as single-user properties net leased by creditworthy
tenants, located throughout the United States. The Company may enter into sale
and leaseback transactions, pursuant to which the Company will purchase a
property from an entity and lease the property to such entity. It is the
Company's intention, whenever possible, to acquire properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price of each
property in cash or for shares of the Company's stock. However, if it is
determined to be in the best interests of the Company, the Company will, in
certain instances, utilize borrowing to acquire properties. On properties
purchased on an all-cash basis, the Company may later incur mortgage
indebtedness by obtaining loans secured by selected properties, if favorable
financing terms are available. The proceeds from such loans would be used to
acquire additional properties and increase Cash Flow. Certain of these
properties will be subject to "net" leases. "Net" leases typically require
that tenants pay all or a majority of the operating expenses including real
estate taxes, special assesments and
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<PAGE> 81
sales and use taxes, utilities, insurance and building repairs related to the
property, as well as lease payments. The leases will be long-term (typically
15 to 25 years, but generally not less than ten years) and may provide for a
base minimum annual rent with periodic increases. For purposes hereof, a
creditworthy tenant shall be defined as a tenant with a minimum net worth equal
to ten times one year's rental payments required under the terms of the lease
or, alternatively, a tenant for whom payments under the lease are guaranteed by
an affiliate having a minimum net worth of $10 million.
The Company will elect to purchase properties based on an
examination and evaluation by the Advisor of the potential value of the site,
the financial condition and business history of the property, the demographics
of the area in which the property is located or to be located, the proposed
purchase price, geographic and market diversification and potential sales. In
acquiring a property, the Advisor requires a Phase I environmental report and,
if necessary, a Phase II environmental report. In a sale-leaseback situation,
the seller of the property generally is assuming the operating risk which may
increase the price paid for the property. All acquisitions from Affiliates are
subject to approval by a majority of the Directors, including a majority of the
Independent Directors.
The Advisor and its Affiliates may purchase properties in
their own name, assume loans in connection therewith and temporarily hold title
thereto for the purpose of facilitating the acquisition of such property,
borrowing money or obtaining financing for the Company, the completion of
construction of the property or any other purpose related to the business of
the Company. In no event, however, may the Advisor or its Affiliates transfer
any property to the Company which it has held in excess of 12 months prior to
commencement of the Offering, except those specified in this Prospectus.
4. Acquisition Standards. Through its experience with the
acquisition of approximately 750 properties by Affiliates, the Advisor believes
the Company has the ability to identify quality properties capable of meeting
the investment objectives of the Offering. In evaluating potential
acquisitions, the Company considers a number of factors, including a
property's: (a) geographic location and type; (b) construction quality and
condition; (c) current and projected cash flow; (d) potential for capital
appreciation; (e) lease rent roll, including the potential for rent increases;
(f) potential for economic growth in the tax and regulatory environment of the
community in which the property is located; (g) potential for expanding the
physical layout of the property and/or the number of sites; (h) occupancy and
demand by tenants for properties of a similar type in the same geographic
vicinity; (i) prospects for liquidity through sale, financing or refinancing of
the property; (j) competition from existing properties and the potential for
the construction of new properties in the area; and (k) treatment under
applicable federal, state and local tax and other laws and regulations.
Statistics in this section are excerpted from Woods & Poole
Economics, Inc., 1996 MSA Profile, Metropolitan Area Forecasts to 2020. Woods
& Poole Economics, Inc. is a Washington, D.C.-based independent research firm
that specializes in long-term county economic and demographic forecasts.
Chicago statistics are for the Chicago Metropolitan Statistical Area/Primary
Metropolitan Statistical Area, as defined by the Office of Management and
Budget. All earnings, personal income and retail sales data are presented in
inflation-adjusted 1987 "constant" dollars.
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In 1993, Chicago had the third largest population among 313
metropolitan areas in the nation with more than 7.6 million people. Chicago
today is one of the nation's largest metropolitan areas and retail markets.
While the rate of growth of this large market from 1993 through 2020 is
forecast to trail that of the nation as a whole, in absolute numbers Chicago
will be a leader in increases in population, jobs, per capita income and retail
sales. Population is forecast to increase 0.33% per year in the Chicago
metropolitan area, compared to 0.83% for the nation as a whole; for jobs, the
forecasted annual increase is 0.87% for Chicago, compared to 1.02% for the
nation; for retail sales, the total forecasted increase from 1993 to 2020 is
43% for Chicago and 64% for the nation.
Woods & Poole Economics, Inc. projects that from 1993 through
2020, the Chicago metropolitan area will add 714,840 persons, the 21st largest
increase among the nation's 313 metropolitan areas, with Chicago retaining its
current place as third largest metropolitan area in the nation.
For the same period it is forecast that the Chicago area will:
(i) see a 50% rise in per capita income, improving the area's ranking from 23rd
to 18th among the nation's 313 metropolitan areas; (ii) lead the nation in the
number of new jobs, with 1,153,500; and (iii) see a rise in annual retail sales
from $49.8 billion to $71.1 billion, the largest increase among any
metropolitan area in the nation.
5. Description of Leases. The Company anticipates that with
regard to its properties, lessees will generally be required to pay a share,
either pro rata or fixed, of the real estate taxes, insurance, utilities and
common area maintenance of the properties. It is the Company's intent that a
substantial number of these leases will also contain provisions which increase
the amount of base rent payable at certain points during the lease term and/or
provide for the payment of additional rent calculated as a percentage of a
tenant's gross sales above predetermined thresholds. The terms of the leases
with Anchor Tenants will generally have initial terms of ten to 25 years, with
one or more options available to the lessee upon expiration of the initial
term. By contrast, smaller tenant leases typically have three to five year
terms.
During the initial term of a "net" lease, anticipated to be
not less than ten years, but typically 15 to 25 years, the tenant will pay the
Company, as lessor, a predetermined minimum annual rent generally based upon
the Company's cost of purchasing the land and building.
Each "net" lease tenant will be required to pay its share of
the cost of the liability insurance covering the properties owned by the
Company. The third party liability coverage will insure, among others, the
Company and the Advisor. Each tenant will be required to obtain, at its own
expense, property insurance naming the Company as the insured party for fire
and other casualty losses in an amount equal to the full value of such
property. All such insurance must be approved by the Advisor. In general, the
"net" lease may be assigned or subleased with the Company's prior written
consent, but the original tenant will remain fully liable under the lease
unless the assignee meets certain income and net worth tests.
6. Property Acquisition. The Company's acquisitions are
anticipated to be acquisitions of fee interests in real property, although
other methods of acquiring a property may be utilized if it is deemed to be
advantageous to the Company. For example, the Company may acquire properties
through a joint venture or the acquisition of substantially all of the
interests of an entity which in turn owns the real property. The Company may
also use wholly owned subsidiaries to acquire a property. Such wholly owned
subsidiaries will be formed solely for the purpose of acquiring a property or
properties. See "--Joint Ventures" in this Section.
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<PAGE> 83
As of the date of this Prospectus, the Company had acquired
nine Neighborhood Retail Centers and two single-user retail properties. Two of
the properties acquired to date, the Eagle Crest Shopping Center and the
Walgreen/Decatur property, were acquired from an Affiliate. The purchase
prices for those properties were not the subject of arm's-length negotiations.
The Articles provide that the Company shall not purchase a property from an
Affiliate unless a majority of the Directors (including a majority of the
Independent Directors) not interested in the transaction approve the purchase
as fair and reasonable to the Company and at a price to the Company no greater
than the cost of the asset to such Affiliate, or if the price to the Company is
in excess of such cost, that substantial justification for such excess exists
and that such excess is reasonable. In no event shall the cost of such asset
to the Company exceed its current appraised value. A majority of the Directors
(including a majority of the then Independent Directors) approved the purchases
of the Eagle Crest Shopping Center and the Walgreen/Decatur property as being
fair and reasonable to the Company and at a price to the Company no greater
than the cost of the assets to such Affiliate. There can be no assurance,
however, that the prices paid to the Affiliate for the Eagle Crest Shopping
Center and the Walgreens/Decatur property or for future acquisitions of
properties from Affiliates, if any, did not or would not exceed that which
would be paid by an unaffiliated buyer. See "Real Property Investments."
In some cases, the Company may commit to purchase properties
subject to completion of construction in accordance with terms and conditions
specified by the Company. In such cases, the Company will be obligated to
purchase the property at the completion of construction, provided the
construction conforms to definitive plans, specifications and costs approved by
the Company and embodied in the construction contract, as well as, in most
instances, satisfaction that agreed upon percentages of the property are
leased. The Company will receive a certificate of an architect, engineer or
other appropriate party, stating that the property complies with all plans and
specifications. The Company will not be permitted to construct or develop
properties, or render any services in connection with such development or
construction.
If remodeling is required prior to the purchase of a property,
the Company will pay a negotiated maximum amount either upon completion or in
installments commencing prior to completion. Such amount will be based on the
estimated cost of such remodeling. In such instances, the Company will also
have the right to review the lessee's books during and following completion of
the remodeling to verify actual costs. In the event of substantial disparity
between estimated and actual costs, an adjustment in purchase price may be
negotiated. If remodeling is required after the purchase of a property, an
Affiliate of the Advisor may serve as construction manager for a fee no greater
than 90% of the fee a third party would charge for such services.
The Advisor and its Affiliates may purchase properties in
their own name, and assume loans in connection therewith and temporarily hold
title thereto for the purpose of facilitating the acquisition of such property,
obtaining financing for the Company, the completion of construction of the
property or any other purpose related to the business of the Company, in
accordance with the terms set forth in the Bylaws.
7. Borrowing. It is the Company's intention, whenever possible,
to acquire properties free and clear of permanent mortgage indebtedness by
paying the entire purchase price of each property in cash or for shares of the
Company's stock. However, if it is determined to be in the best interest of
the Company, the Company will, in certain instances, utilize borrowing to
acquire properties. On properties purchased on an all cash basis, the Company
may later incur mortgage indebtedness by obtaining loans secured by selected
properties, if favorable financing terms are available. The proceeds from such
loans
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<PAGE> 84
would be used to acquire additional properties and increase Cash Flow. The
Company may also incur indebtedness to finance improvements to the properties
it acquires. The Company anticipates that aggregate borrowings related to all
of the Company's properties will not exceed 50% of their combined fair market
values, however, the maximum amount of borrowings in relation to Net Assets
shall, in the absence of the consent of a majority of the Stockholders, not
exceed 300% of Net Assets.
If the Company does borrow funds secured by its properties, it
intends to incur only non-recourse indebtedness, if available, in connection
with such borrowings, meaning that the lenders' rights on default will
generally be limited to foreclosure on the property which secured the
obligation. The Company will not borrow funds from a program sponsored by the
Advisor or its Affiliates which makes or invests in mortgage loans. If the
Company incurs mortgage indebtedness, it would endeavor to obtain level payment
financing, meaning that the amount of debt service payable would be
substantially the same each year, although some mortgages might provide for a
so-called "balloon" payment. Any mortgages secured by Company property will
comply with the restrictions set forth by the Commissioner of Corporations of
the State of California. See "Summary of the Organizational
Documents--Restrictions on Borrowing."
8. Sale or Disposition of Properties. The determination of
whether a particular property should be sold or otherwise disposed of will be
made after consideration of relevant factors, including performance or
projected performance of the property and market conditions, with a view toward
achieving the principal investment objectives of the Company.
In general, it will be the Company's policy to hold its
properties, prior to sale, for a minimum of four years. See "Federal Income
Tax Considerations--Taxation of the Company--Prohibited Transactions."
Furthermore, the general policy of the Company will be to reinvest proceeds
from the sale, financing, refinancing or other disposition of its properties
that represents the initial investment into additional properties or,
secondarily, to use such proceeds for the maintenance or repair of existing
properties or to increase reserves for such purposes. The objective of
reinvesting such portion of the sale, financing and refinancing proceeds is to
increase the real estate assets owned by the Company, and the Cash Flow derived
from such assets, prior to listing the Company's Shares on a national
securities exchange or market, with the further objective of maximizing Share
prices at the time of listing. Notwithstanding this policy, the Board, in its
discretion, may distribute to Stockholders all of the proceeds from the sale,
financing, refinancing or other disposition of the Company's properties. In
determining whether all of such proceeds should be distributed to Stockholders,
the Board will consider, among other factors, the desirability of properties
available for purchase, real estate market conditions, the likelihood of the
listing of the Company's shares on a national stock exchange or included for
quotation on a national market system and compliance with REIT regulations.
Because the Company may reinvest such portion of the proceeds from the sale,
financing or refinancing of its properties, the Company could hold
Stockholders' capital indefinitely. However, the affirmative vote of the
Stockholders controlling a majority of the Shares will force the Company to
liquidate its assets and dissolve. See "Summary of the Organizational
Documents--Dissolution or Termination of the Company."
In connection with a sale of a property owned by the Company,
the Company's general policy will be to obtain an all-cash sale price.
However, a purchase money obligation secured by a mortgage on the property sold
may be taken as partial payment; there are no limitations or restrictions on
the Company taking such purchase money obligations. The terms of payment to
the Company will be affected by custom in the area in which the property being
sold is located and the then prevailing economic conditions. To the extent the
Company receives notes and other property instead of cash from
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<PAGE> 85
sales, such proceeds (other than any interest payable thereon) will not be
included in net sale proceeds until and to the extent the notes or other
property are actually paid, sold, refinanced or otherwise disposed of and,
therefore, the distribution of the proceeds of a sale to the Stockholders may
be delayed until such time. In such cases, the Company will receive payments
(cash and other property) in the year of sale in an amount less than the
selling price and subsequent payments will be spread over a number of years.
9. Change in Investment Objectives. The Stockholders have no
voting rights with respect to implementing the investment objectives and
policies of the Company, all of which are the responsibility of the Board. The
Board will not, however, make any material change in the principal investment
objectives described herein under the caption "Investment Objectives and
Policies" without first obtaining the written consent or approval of the
Stockholders controlling a majority of the Shares.
10. Certain Investment Limitations. The Company will not: (i)
invest more than 10% of its total assets in unimproved real property; (ii)
invest in commodities or commodity future contracts; (iii) issue redeemable
equity securities; (iv) issue shares on a deferred payment basis or other
similar arrangement; and (v) operate in such a manner as to be classified as an
"investment company" for purposes of the Investment Company Act of 1940, as
amended. See "Summary of the Organizational Documents--Restrictions on
Investments."
11. Appraisals. All real property acquisitions made and to be
made by the Company have been or will be supported by an appraisal prepared by
a competent, independent appraiser who is a member-in-good standing of the
American Institute of Real Estate Appraisers prior to the purchase of the
property. The purchase price of each property will not exceed its appraised
value. It should be noted, however, that appraisals are estimates of value and
should not be relied on as measures of true worth or realizable value. The
appraisal will be maintained in the Company's records for at least five years
and copies of such appraisals will be available for review by Stockholders upon
their request.
12. Return of Uninvested Proceeds. Any of the proceeds of this
Offering allocable to investments in real property which have not been invested
in real property or committed for such purpose within the later of: (i) 24
months from the original effective date of this Prospectus; or (ii) 12 months
from the termination of the Offering, will be returned by the Company to the
Stockholders. All funds received by the Company out of the escrow account will
be available for the general use of the Company from the time of such receipt
until the expiration of the period discussed above and may be expended to
operate the properties which have been acquired and to reimburse the Advisor
for certain expenses of the Company, to the extent allowable under the Advisory
Agreement. Funds will not be segregated or held separate from other funds of
the Company pending investment, and interest will be payable to the
Stockholders if uninvested funds are returned to them.
13. Additional Offerings and Exchange Listing. The Company
anticipates that, by 1999, the Board of Directors will determine whether it is
in the best interests of the Company to: (i) apply to have the Shares listed
for trading on a national stock exchange or included for quotation on a
national market system, provided the Company meets the then applicable listing
requirements; and/or (ii) commence a subsequent public offering after
completion of this Offering. The Company believes that the completion of a
subsequent public offering and/or exchange listing will allow the Company to
increase its size, portfolio diversity, stockholder liquidity, access to
capital and stability, and decrease its operating costs through economies of
scale. If listing of the Shares is not feasible by 1999, the Board may decide
to: (i) sell the Company's assets individually; or (ii) list the Shares at a
future date to provide liquidity for Stockholders.
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<PAGE> 86
14. Joint Ventures. The Company shall be permitted to invest in
joint venture arrangements with other public real estate programs formed by the
Advisor or any of its Affiliates if a majority of Directors (including a
majority of Independent Directors) not otherwise interested in the transaction
approve the transaction as being fair and reasonable to the Company and the
investment by each such joint venture partner is substantially on the same
terms and conditions as those received by other joint venturers.
The Company shall be permitted to invest in general
partnerships or joint venture arrangements with Affiliates other than publicly
registered Affiliates only under the following conditions: (i) the investment
is necessary to relieve the Company from any commitment to purchase a property
entered into prior to the closing of the Offering; (ii) there are no duplicate
property management or other fees; (iii) the investment of each entity is on
substantially the same terms and conditions; and (iv) the Company must have a
right of first refusal if the Advisor or its Affiliates wish to sell the
property held in such joint venture. In addition, the Company shall be
permitted to invest in general partnerships or joint venture arrangements with
Affiliates as co-owners of a property. The Company will be able to increase
its equity participation in such entity as additional proceeds of the Offering
are received by the Company with the result that the Company will end up with
up to a 100% equity ownership of the property, provided, however that the
affiliated general or joint venture partner will not be entitled to any profit
or other benefit on such sale of its equity participation to the Company.
It should be noted that there is a potential risk of an
impasse on joint venture decisions (i.e., that the Company and its joint
venture partner will be unable to agree on a matter material to the joint
venture). Furthermore, there can be no assurance that the Company will have
sufficient financial resources to exercise its right of first refusal. The
Company will not enter into joint venture arrangements with entities
unaffiliated with the Advisor and its Affiliates. See "Risk
Factors--Investment Risks--Objectives of Joint Venture Partners May Conflict
with the Company's Objectives."
15. Other Policies. In determining whether to purchase a
particular property, the Company may first obtain an option to purchase such
property. The amount paid for the option, if any, usually would be surrendered
if the property was not purchased and normally would be credited against the
purchase price if the property was purchased.
The Company will not invest in any multi-family residential
properties, leisure home sites, farms, ranches, timberlands, unimproved or
mining properties. Assuming the Maximum Offering is sold, the Company does not
intend to invest more than approximately 20% of the anticipated proceeds in any
one property.
The Company holds all funds, pending investment in properties,
in assets which will allow the Company to continue to qualify as a REIT. Such
investments are highly liquid and provide for appropriate safety of principal
and may include, but are not limited to, investments such as GNMA bonds and
real estate mortgage investment conduits ("REMICs"). See "Federal Income Tax
Considerations--Taxation of the Company--REIT Qualification Tests."
The Company will not make distributions-in-kind, except for:
(i) distributions of readily marketable securities; (ii) distributions of
beneficial interest in a liquidating trust established for the dissolution of
the Company and the liquidation of its assets in accordance with the terms of
the Articles; or (iii) distributions of in-kind property which meet all of the
following conditions: (a) the Directors advise each Stockholder of the risks
associated with direct ownership of the property; (b) the Directors
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<PAGE> 87
offer each Stockholder the election of receiving in-kind property
distributions; and (c) the Directors distribute in-kind property only to those
Stockholders who accept the Directors' offer.
REAL PROPERTY INVESTMENTS
The Company currently owns nine Neighborhood Retail Centers and two
single-user retail properties. The terms of the Company's leases vary
depending upon tenant size, but in many cases contain contractual provisions
which automatically increase the amount of base rent payable at certain points
during the term of the lease. Such leases may also contain provisions which
provide for the payment of additional rent calculated as a percentage of a
tenant's gross sales above pre-determined thresholds.
THE WALGREENS/DECATUR PROPERTY
On January 31, 1995, the Company acquired the Walgreens/Decatur
property from Inland Property Sales, Inc. ("IPS"), an Affiliate of the
Advisor, for the purchase price of $1,209,053, including acquisition costs of
$482. Although it was originally anticipated that this property would be
acquired on an all cash basis, management of the Company made the
determination, based on the recommendations of the Advisor, that the investment
objectives of the Company would be better met by assuming a portion of the
first mortgage loan secured by such property, since: (i) the terms of the
current first mortgage loan are more favorable for the Company than mortgage
rates currently available from unaffiliated third parties; and (ii) the Company
was able to apply its available cash towards the acquisition of an additional
property.
The Walgreen Company ("Walgreens"), which is the largest drug store
chain in the United States based on sales volume and is considered to be
creditworthy by the Company, leases 100% of the free-standing building, which
has 13,500 square-feet of GLA and was constructed in 1988. IPS purchased the
Walgreens/Decatur property in 1990 for a purchase price of $1,152,500,
including a cash downpayment of $112,500 and first-mortgage debt of $1,040,000.
On June 9, 1994, IPS refinanced the Walgreens/Decatur property. The existing
first-mortgage loan was retired in the amount of $1,025,498, including nine
days of interest at $2,462. A new first mortgage loan was funded in the
principal amount of $1,075,000.
The following table describes the formulation of the purchase price
paid by the Company:
<TABLE>
<S> <C>
IPS 1990 cash downpayments for purchase . . . . . . . . . . . . . . . . . $ 112,500
1994 excess refinancing proceeds received by IPS . . . . . . . . . . . . . (24,044)
Costs of June 9, 1994 refinancing
Closing costs paid by IPS to third parties . . . . . . . . . . . . 34,364
Closing costs paid by IPS to Affiliate . . . . . . . . . . . . . . 10,751
Initial paydown of first mortgage loan . . . . . . . . . . . . . . . . . . 300,000
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482
Assumption of first mortgage loan . . . . . . . . . . . . . . . . . . . . 775,000
-------
TOTAL PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,209,053
=========
</TABLE>
As of June 30, 1996, the balance of the assumed mortgage was
approximately $745,242. This mortgage has an interest rate of 7.655%,
amortizes over a 25-year period and matures May 31, 2004.
76
<PAGE> 88
The Company is responsible for monthly payments of principal and interest of
$5,689. For federal income tax purposes, the Company's basis in the
Walgreens/Decatur property is $1,130,723. Real estate taxes and insurance for
the Walgreens/Decatur property paid in 1995 were $24,600 and $1,701,
respectively.
Walgreens' lease requires it to pay $127,820 in annual base rent
($9.47 per square foot). The rent does not include any allowances for tenant
improvements, leasing commissions or similar amounts. The lease provides for
payment of percentage rent equal to the amount by which 2.5% of general sales
and 1% of liquor sales exceed the base rent. 2.5% of general merchandise sales
and 1% of liquor sales currently equal approximately $80,000; therefore, no
percentage rent is currently payable. Walgreens has the option to cancel the
lease on September 1, 2008 or it can exercise up to five, five-year extensions.
The lease is on a double-net basis. Walgreens guarantees payment of rent,
reimbursement of property taxes and payment of all other property expenses,
exclusive of the roof and structural elements of the building.
The table below sets forth certain information with respect to the
occupancy rate of the Walgreens/Decatur property as a percentage for the time
IPS owned the property and the annual rent per square foot received for that
period, as well as since the Company owned the property. The information
provided by IPS is unaudited.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received
December 31, Rate Per Sq. Ft.
-------- --- ---- --- --- ---
<S> <C> <C>
1995 100% $9.47
1994 100 9.47
1993 100 9.47
1992 100 9.47
1991 100 9.47
</TABLE>
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of the Walgreens/Decatur property as
of May 9, 1994 of $1,550,000. It should be noted, however, that appraisals are
estimates of value and should not be relied on as measures of true worth or
realizable value.
THE EAGLE CREST SHOPPING CENTER
On March 1, 1995, the Company acquired the Eagle Crest Shopping Center
("Eagle Crest"), a Neighborhood Retail Center located in Naperville, Illinois,
from IPS for a purchase price of $4,816,970, including acquisition costs of
$11,059. Although it was originally anticipated that Eagle Crest would be
acquired on an all-cash basis, management of the Company made the
determination, based on the recommendation of the Advisor, that the investment
objectives of the Company would be better met by assuming a portion of the
first mortgage loan held by IPS secured by such property, as well as entering
into a loan agreement with IPS for the balance of the purchase price. By
utilizing seller financing to purchase Eagle Crest, the Company was able to
begin receiving the net income, after debt service payments, from Eagle Crest
on an expedited basis, thus increasing the Company's earnings to be distributed
to the Stockholders.
77
<PAGE> 89
Eagle Crest aggregates 67,650 square feet of GLA and is 100% leased.
Its major tenant is Eagle Foods, Inc. ("Eagle"). Eagle, which leases 46,096
square feet (approximately 68%) of Eagle Crest's GLA, is the only tenant at
Eagle Crest which leases more than 10% of Eagle Crest's GLA and is considered
creditworthy by the Company. IPS purchased Eagle Crest in April 1991 for
$3,200,000, including a cash down payment of $457,893, first- and
second-mortgage debt of $2,244,139 and a note owed to the seller in the amount
of $493,192. In 1992, IPS refinanced the first-mortgage debt in the principal
amount of $2,450,000, realizing $76,792 in net refinancing proceeds. Since
purchasing Eagle Crest, IPS expended $142,441 for capital improvements at the
property. In 1993, Eagle completed extensive improvements to its store at
Eagle Crest, converting the store to a "country market" format. On March 1,
1994, IPS again refinanced Eagle Crest, increasing the principal amount of the
first mortgage loan from $2,450,000 to $3,600,000, using the additional
$1,150,000 in loan proceeds, plus $50,000 of IPS's funds, to reimburse
$1,200,000 to Eagle for the improvements made by Eagle to its store. In return
for the reimbursement Eagle began paying an additional $157,500 per annum in
rent under its lease. Eagle's lease requires it to pay base rent equal to
$6.61 per square foot per annum through 1995 and increasing to $6.68 per square
foot per annum through February 2014. The lease contains five five-year
renewal options at a base rent equal to $6.68 per square foot. Eagle leases
its store on a double-net basis and is responsible for paying its pro rata
share of property taxes and a fixed amount of the common area maintenance
("CAM") at Eagle Crest, which payments were $48,674 and $19,207, respectively,
for 1995.
The following table describes the formulation of the purchase price
paid by the Company:
<TABLE>
<S> <C>
IPS 1991 cash downpayment for purchase . . . . . . . . . . . . . . . . . . . . . . $ 457,813
Cumulative IPS capital improvements to Eagle Crest . . . . . . . . . . . . . . . . 142,441
1992 excess refinancing proceeds received by IPS . . . . . . . . . . . . . . . . . (76,792)
1994 Refinancing:
Closing costs paid by IPS to third parties . . . . . . . . . . . . . . . . 59,995
Closing costs paid by IPS to Affiliate . . . . . . . . . . . . . . . . . . 36,000
Loan guarantee fee paid by IPS to Affiliate . . . . . . . . . . . . . . . . . . . 12,500
Assumption of first mortgage loan . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
1994 pay-off of note by IPS to original seller . . . . . . . . . . . . . . . . . . 220,000
Pay-off of unpaid notes owed to original seller . . . . . . . . . . . . . . . . . 353,954*
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,059
------
TOTAL PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,816,970
=========
</TABLE>
* Amount of principal and accrued interest due as of July 1, 1994.
Interest is accruing at the rate of $1,970 per month and this amount
will be adjusted at the time of purchase by the Company.
The balance of the assumed mortgage was paid in full in April 1995
with interest at 9.5% per annum. The total amount paid was $3,551,100, of
which $3,533,760 was principal paid from Gross Offering Proceeds and $17,340
was interest paid from Company operations. The deferred portion of the
purchase price, totaling $1,212,427, was paid to IPS in full from Gross
Offering Proceeds, including accrued interest of $22,009, in May 1995. The
interest was paid from Company operations. At December 31, 1995, for federal
income tax purposes, the Company's basis in Eagle Crest was $2,938,352.
None of the rents received from any of the Eagle Crest tenants include
allowances for tenant improvements, leasing commissions or similar amounts.
Property taxes payable in 1995 for the tax year ended 1994 (the most recent tax
year for which information is available) totalled $72,854.
78
<PAGE> 90
The table below sets forth certain information with respect to the
occupancy rate for the time IPS has owned the property and the annual rent per
square foot received for that period, as well as since the Company owned the
property. The information supplied by IPS is unaudited. Information for prior
years, when Eagle Crest was owned by the third party which sold it to IPS, is
unavailable.
<TABLE>
<CAPTION>
Annual
Year Ending Rents
December Occupancy Received
31, Rate Per Sq. Ft.
--- ---- --- --- ---
<S> <C> <C>
1995 100% $ 8.70
1994 100 8.16
1993 100 6.06
1992 100 6.11
1991 100 6.00
(nine months
annualized)
</TABLE>
At March 31, 1996, Eagle Crest had a total of 13 tenants. The
following tables set forth certain information with respect to the amount of
and expiration of leases at this Neighborhood Retail Center:
<TABLE>
<CAPTION>
Approx.
Gross Average Percent of Percent of
Leasable Area Base Rent Total Annual
("GLA") of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
-------- --- -------- ------- ----- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1 1,505 $ 15,260 $ 573,357 $10.14 2.22% 2.66%
1997 4 5,590 86,670 564,540 15.50 8.26 15.35
1998 4 9,525 130,745 481,127 13.73 14.08 27.17
1999 1 4,028 42,294 350,382 10.50 5.95 12.07
2000-2005 -- -- -- 308,088 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market prices.
79
<PAGE> 91
<TABLE>
<CAPTION>
Square Feet Renewal Current Annual Rent Per
Lessee Leased Lease Ends Options Base Rent Square Foot
------ ------ ----- ---- ------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Eagle Foods 46,096 2/2014 5/5 years $ 308,088 $ 6.68
Blue Angel Travel 910 6/1997 None 16,800 18.46
State Farm Insurance 888 7/2000 None 17,746 19.98
Dental Office 900 7/1997 None 17,158 19.06
Pot Pourri Gifts 4,028 1/1999 1/5 years 40,280 10.00
La Cantina Lounge 2,000 12/1998 1/5 years 30,980 15.49
Pepe's Restaurant 2,000 12/1998 1/5 years 30,980 15.49
Prudential Real Estate 4,250 2/1998 None 42,500 10.00
The Grill 1,275 11/1998 1/5 years 17,850 14.00
Clothes Clean Center 1,700 6/1997 None 23,800 14.00
Hair Inc. 1,505 4/1999 3/3 years 15,260 10.14
The Sewing Room 2,080 10/1997 None 27,560 13.25
Coffee Grinder (outlet) 18 6/1996 None 6,000 333.33
</TABLE>
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Eagle Crest as of August 1, 1994
of $4,850,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as measures of true worth or realizable
value.
MONTGOMERY-GOODYEAR SHOPPING CENTER
On September 14, 1995, the Company acquired the Montgomery-Goodyear
Shopping Center ("Montgomery-Goodyear"), a Neighborhood Retail Center located
in Montgomery, Illinois, from an unaffiliated third party for a purchase price
of $1,145,992, including acquisition costs of $5,992. A portion of the
purchase price was evidenced by a promissory note payable to Inland Mortgage
Investment Corporation, an affiliate of the Advisor ("IMIC"), in the gross
amount of $600,000, bearing interest at a rate of 10.9% per annum and maturing
on October 14, 1995. The remainder of the purchase price, net of prorations,
of approximately $535,000 was funded with proceeds of the Prior Offering. The
promissory note was paid in full in October 1995. The total amount paid was
$604,260, of which $600,000 was principal paid from Gross Offering Proceeds and
$4,260 was interest paid from Company operations. At December 31, 1995, for
federal income tax purposes, the Company's basis in the Montgomery-Goodyear
building was $827,390. Real estate taxes and insurance for the
Montgomery-Goodyear property paid in 1995 were $25,450 and $3,012,
respectively.
Montgomery-Goodyear, built in 1991, aggregates 12,863 square feet of
gross leasable area ("GLA") and is 100% occupied. Its major tenant is Goodyear
Tire & Rubber Co. which leases 6,293 square feet and is considered creditworthy
by the Company. The other tenants are Merlin Corporation,
80
<PAGE> 92
which leases approximately 28% of GLA, and National Carpet Outlet, Inc., which
leases the remaining 23% of GLA.
The table below sets forth certain information with respect to the
occupancy rate at the Montgomery-Goodyear property for the time an unaffiliated
third party had owned the property and the annual rent per square foot received
for the period, as well as since the Company owned the property. The
information was supplied by the seller of Montgomery-Goodyear to the Company.
Construction of the Montgomery-Goodyear property was completed in late 1991.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received
December 31, Rate Per Square Foot
-------- --- ---- --- ------ ----
<S> <C> <C>
1995 100% $ 11.39
1994 100 11.39
1993 100 11.39
1992 100 11.39
</TABLE>
At March 31, 1996, Montgomery-Goodyear had a total of three tenants.
The following tables set forth certain information with respect to the amount
of and expiration of leases at this Neighborhood Retail Center:
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
-------- --- -------- ------- ----- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1 3,010 $ 36,120 $ 146,520 $12.00 23.40% 24.65%
1997-2000 -- -- -- 115,080 -- -- --
2001 -- -- -- 116,467 -- -- --
2002-2005 -- -- -- 121,428 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market rates.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
- ------ ------ ---- ------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Goodyear Tire & Rubber Co. 6,293 11/2006 5/5 years $63,600 $10.10
Merlin Corporation 3,560 10/2006 3/5 years 46,800 13.15
National Carpet Outlet, Inc. 3,010 9/1996 1/1 year 36,120 12.00
</TABLE>
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Montgomery-Goodyear as of May 10,
1995 of $1,260,000. It should be noted, however, that appraisals are estimates
of value and should not be relied on as measures of true worth or realizable
value.
81
<PAGE> 93
THE HARTFORD/NAPERVILLE PLAZA PROPERTY
On September 14, 1995, the Company acquired Hartford/Naperville Plaza
("Hartford/Naperville") located in Naperville, Illinois from an unaffiliated
third party for a purchase price of $4,414,015, including acquisition costs of
$14,015. A portion of the purchase price was evidenced by a promissory note
payable to IMIC, in the gross amount of $600,000, bearing interest at a rate of
10.9% per annum and maturing on October 14, 1995. In addition, the Company
paid closing costs of $13,915 and deposited $150,000 in an escrow account for
leasehold improvements to the Blockbuster, Inc. space. The remainder of the
purchase price was funded with proceeds of the Prior Offering. The promissory
note was paid in full in October 1995. The total amount paid was $605,102, of
which $600,000 was principal paid from Gross Offering Proceeds and $5,102 was
interest paid from Company operations. At December 31, 1995, for federal
income tax purposes, the Company's basis in Hartford/Naperville was $3,325,211.
Real estate taxes for Hartford/Naperville paid in 1995 for the tax year ended
1994 were $25,450.
Hartford/Naperville aggregates 43,862 square feet of GLA and
construction was completed in July 1995. Its anchor tenants include nationally
recognized tenants such as Sears Hardware with 21,000 square feet and
Blockbuster Video with 6,500 square feet, as well as Keller/Williams Realty
with 6,160 square feet, and each is considered creditworthy by the Company.
Hartford/Naperville is currently 100% leased and is anchored by Sears
Hardware, Blockbuster Video and Keller/Williams Realty, each of which leases
more than 10% of the building's square footage. The lease with Sears Hardware
requires a base rent of $9.35 per square foot per annum until August 2005 and
contains three renewal options of five years each. Sears Hardware sells
hardware supplies and tools. The lease with Blockbuster Video requires a base
rent of $15 per square foot per annum until September 30, 2000 and $17.25 per
square foot per annum from October 1, 2000 until October 31, 2005, and contains
four renewal options of five years each. Blockbuster Video sells and rents
prerecorded audio and video products. The lease with Keller/Williams Realty
requires a base rent of $15 per square foot per annum until December 2000 and
such lease has no renewal options. Keller/Williams Realty is a local real
estate brokerage firm.
At March 31, 1996, Hartford/Naperville had a total of eight tenants.
The following tables set forth certain information with respect to the amount
of and expiration of leases at this Neighborhood Retail Center:
82
<PAGE> 94
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
-------- --- -------- ------- ----- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-1999 -- -- -- $548,170 -- -- --
2000 4 11,610 $178,728 551,186 $15.39 26.47% 32.43%
2001 1 2,992 40,392 384,067 13.50 6.82 10.52%
2002-2004 -- -- -- 343,675 -- -- --
2005 3 29,260 343,675 343,675 11.75 66.71 100.00%
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market rates.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
- ------ ------ ---- ------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Sears Hardware 21,000 8/2005 3/5 years $196,350 $ 9.35
Blockbuster Video 6,500 10/2005 4/5 years 97,500 15.00
Keller/Williams Realty 6,160 12/2000 None 92,400 15.00
Hair Cuttery 1,320 3/2000 1/5 years 21,780 16.50
Signature Cleaners 1,760 12/2005 1/5 years 35,200 20.00
Aspen Bakery 2,600 11/2000 1/5 years 41,600 16.00
Sound Deluxe 2,992 2/2001 1/5 years 40,390 13.50
Nancy's Pizza 1,530 12/2000 3/5 years 22,950 15.00
</TABLE>
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a prospective value of Hartford/Naperville of the leased
fee interest upon reaching stabilized occupancy as of October 1, 1995 of
$4,680,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as true worth or realizable value.
NANTUCKET SQUARE SHOPPING CENTER
On September 20, 1995, the Company acquired Nantucket Square Shopping
Center ("Nantucket Square"), a Neighborhood Retail Center located in
Schaumburg, Illinois from an unaffiliated third party for a purchase price of
$4,257,918, including acquisition costs of $4,913. A portion of the purchase
price was evidenced by a promissory note payable to IMIC in the gross amount of
$3,550,000, bearing interest at a rate of 10.5% per annum and maturing on
November 19, 1995. The remainder of the purchase price was funded with
proceeds of the Prior Offering. The promissory note was paid in full in
December 1995. The total amount paid was $3,612,011, of which $3,550,000 was
principal paid from Gross Offering Proceeds and $62,011 was interest paid from
Company operations. There are two buildings on the property, one of which is a
one-story, multi-tenant shopping mall located on approximately 7.75 acres of
land containing 53,720 square feet. The other building is a one-story,
free-standing building which houses a Burger King restaurant containing
approximately 3,260 square feet. Real
83
<PAGE> 95
estate taxes for the shopping mall and the Burger King restaurant outlot were
$152,122 and $39,733, respectively, for 1993. Subsequent to the purchase of
the property, the Company paid $51,135 for tenant improvements, from Gross
Offering Proceeds, for two tenants expanding their space, which sum was added
to the cost of the property. At December 31, 1995, for federal income tax
purposes, the Company's basis in the Nantucket Square building was $2,372,160.
Nantucket Square is currently 89% leased (100% leased when including
the master lease) and has four tenants which lease more than 10% of the
building's square footage. The lease with Play It Again Sports requires a
current base rent of $10 per square foot per annum until September 30, 1998,
$10.50 per square foot per annum from October 1, 1998 to September 30, 1999 and
$11 per square foot per annum from October 1, 1999 to September 30, 2000 with
no renewal provisions. Play It Again Sports sells sports equipment and related
accessories. The lease with Kathy's Hallmark requires a current base rent of
$10.50 per square foot per annum until February 28, 1999 and $11.50 per square
foot per annum from March 1, 1999 until May 31, 2000, and contains one renewal
option of five years. Kathy's Hallmark sells greeting cards and gift items.
The lease with Super Trak Corp. requires a current base rent of $7 per square
foot per annum until November 30, 1998 and $7.50 per square foot per annum from
December 1, 1998 until November 30, 2003, and contains three renewal options of
five years each. Super Trak sells auto parts and accessories. The lease with
Fashionation requires a base rent of $8.76 per square foot per annum until
January 31, 1998 and such lease has one renewal option of five years.
Fashionation is a clothing retailer. In October 1995, the Company received
notice from one of its tenants at Nantucket Square of its intent to close its
store. The tenant, which occupies 6,228 square feet of space, vacated the
premises on December 10, 1995. The lease for the space currently expires on
January 31, 1998. The tenant is continuing to pay its monthly rent, however,
the Company is pursuing a replacement tenant. A second tenant at Nantucket
Square, occupying 3,300 square feet of space, filed for financial and
reorganization protection under the federal bankruptcy laws. This tenant
continues to occupy its space and pay its monthly rent. The bankruptcy
petition filed with the bankruptcy court stated this tenant planned on closing
a number of its other stores but did not anticipate closing its store at
Nantucket Square.
The table below sets forth certain information with respect to the
occupancy rate at the Nantucket Square property for the time an unaffiliated
third party had owned the property and the annual rent per square foot received
for the period, as well as since the Company owned the property. The
information, supplied by the seller of Nantucket Square to the Company, is
unaudited. Information for prior years is not available to the Company.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received Per
December 31, Rate Square Foot
-------- --- ---- ------ ----
<S> <C> <C>
1995 81% $ 8.54
1994 83 8.44
</TABLE>
At March 31, 1996, Nantucket Square had a total of 17 tenants. The
following tables set forth certain information with respect to the amount of
and expiration of leases at this Neighborhood Retail Center:
84
<PAGE> 96
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
-------- --- -------- ------- ----- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 2 4,500 $ 42,750 $ 589,081 $ 9.50 7.90% 7.26%
1997 -- -- -- 554,563 -- -- --
1998 5 11,106 109,772 559,980 9.88 19.49 19.60
1999 1 1,050 12,477 467,558 11.88 1.84 2.67
2000 5 17,218 204,368 459,340 11.87 30.22 44.49
2001 1 2,403 27,000 255,562 11.24 4.22 10.56
2002 3 5,661 103,540 229,162 18.29 9.93 45.18
2003 1 11,743 88,072 126,022 7.50 20.61 69.89
2004 1 3,300 37,950 37,950 11.50 5.79 100.00
2005 -- -- -- -- -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management's current opinion that the space
will be released at market rates.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
- ------ ------ ---- ------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Currency Exchange 1,246 12/2000 1/5 years $ 18,067 $ 14.50
Baskin-Robbins Ice Cream 900 11/2000 None 14,769 16.41
Express Services 1,050 2/1998 1/3 years 11,025 10.50
Travel Agency 1,050 7/1999 None 11,550 11.00
Vacant* 2,400 22,800 9.50
Mail Works Plus 1,200 12/1997 1/5 years 13,500 11.25
Imperial Cleaners 1,200 12/2002 1/10 years 16,800 14.00
Proof Positive Photo 1,200 4/1998 1/3 years 15,022 12.52
Nancy's Pizza 1,200 8/1998 2/5 years 12,000 10.00
Vacant* 2,100 19,950 9.50
Fashionation 6,228 1/1998 1/5 years 54,557 8.76
Super Trak 11,743 11/2003 3/5 years 82,201 7.00
Kathy's Hallmark 7,156 5/2000 1/5 years 75,138 10.50
Clothes Time 3,300 4/2004 2/5 years 34,650 10.50
Great Clips 1,428 9/1998 1/5 years 14,994 10.50
Radio Shack 2,403 2/2001 None 24,600 10.24
Once Upon A Child 2,703 7/2000 1/5 years 25,678 9.50
Play It Again Sports 5,213 9/2000 None 52,130 10.00
Burger King 3,261 7/2002 1/5 years 67,900 20.82
</TABLE>
___________________
* The vacancies currently total 4,500 square feet, however, the vacant
space is being master leased by the seller at $15.00 per square foot
for one year, on a gross basis. For purposes of the charts appearing
on this and the prior page, the Company presented the vacant space as
being master leased at a rate of $9.50 per square foot, on a net
basis.
85
<PAGE> 97
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Nantucket Square as of September
14, 1995 in the range of $4,400,000 to $4,600,000. It should be noted,
however, that appraisals are estimates of value and should not be relied on as
true worth or realizable value.
ANTIOCH PLAZA
On December 28, 1995, the Company purchased the Antioch Plaza property
("Antioch Plaza"), a Neighborhood Retail Center located in Antioch, Illinois
from an unaffiliated third party for a purchase price of $1,750,365, including
acquisition costs of $365. A portion of the purchase price was evidenced by a
promissory note payable to Inland Real Estate Investment Corporation, an
affiliate of the Advisor ("IREIC"), in the gross amount of $660,000, which bore
interest at a rate of 9.5% per annum. The remainder of the purchase price, net
of prorations of approximately $1,100,000 was funded with proceeds of the Prior
Offering. The loan to IREIC was repaid in full on January 9, 1996 and the
total amount paid was $661,163, of which $660,000 was principal paid from Gross
Offering Proceeds and $1,163 was interest paid from Company operations.
Antioch Plaza, built in 1995, consists of a two-building, free-standing,
masonry-constructed strip center aggregating 19,810 square feet of gross
leasable area. Its major tenant is Blockbuster Video which leases 6,500 square
feet of GLA and is considered creditworthy by the Company. At the time of
acquisition, a second lease had been signed by a dry-cleaning establishment and
a third lease was under negotiation. At December 31, 1995, for federal income
tax purposes, the Company's basis in Antioch Plaza was $1,480,648.
Antioch Plaza is currently 49% leased (100% leased when including the
master lease) and is anchored by Blockbuster Video. Currently 10,160 square
feet of the vacant space at Antioch Plaza is being master leased by the seller
until June 1997 at $12 per square foot, on a net basis. Blockbuster Video
leases more than 10% of the building's square footage. The lease with
Blockbuster Video requires a base rent of $10 per square foot per annum until
August 31, 2000 and $11 per square foot per annum from September 1, 2000 until
August 31, 2005, and contains four renewal options of five years each.
Blockbuster Video sells and rents prerecorded audio and video products.
At March 31, 1996, Antioch Plaza had a total of three tenants. The
following tables set forth certain information with respect to the amount of
and expiration of leases at this Neighborhood Retail Center:
86
<PAGE> 98
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
-------- --- -------- ------- ----- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $224,720 -- -- --
1997 1 10,160 $121,920 224,720 $12.00 51.29% 54.25%
1998 -- -- -- 102,800 -- -- --
1999 2 3,150 37,800 102,800 12.00 15.99 36.77
2000 -- -- -- 67,167 -- -- --
2001-2004 -- -- -- 71,500 -- -- --
2005 1 6,500 71,500 71,500 11.00 32.99 100.00
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market rates.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
------ ------ ---- ------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Blockbuster Video 6,500 8/2005 4/5 years $ 65,000 $ 10.00
Antioch Floral 1,650 12/1999 1/3 years 19,800 12.00
One Hour Cleaners 1,500 12/1999 1/3 years 18,000 12.00
Vacant* 10,160 6/1997 None 121,920 12.00
</TABLE>
_______________
* The vacancies currently total 10,160 square feet, however, the vacant
space is being master leased by the seller until June 1997 at $12.00
per square foot, on a net basis.
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Antioch Plaza as of December 18,
1995 of $1,850,000. It should be noted, however, that appraisals are estimates
of value and should not be relied on as measures of true worth or realizable
value.
THE MUNDELEIN PLAZA PROPERTY
On March 29, 1996, the Company purchased the Mundelein Plaza property
("Mundelein Plaza"), a Neighborhood Retail Center located in Mundelein,
Illinois from an unaffiliated third party for a purchase price of $5,658,230,
including acquisition costs of $8,230, on an all cash basis. Mundelein Plaza,
built in 1990, consists of two one-story, multi-tenant brick and block strip
centers located on approximately 4.3 acres of land. Mundelein Plaza aggregates
67,896 square feet of GLA and was constructed in 1990. Its anchor tenant is
Sears Home Life with 47,000 square feet. Sears Home Life is a nationally
recognized home furnishings chain and is considered creditworthy by the
Company.
Mundelein Plaza is currently 100% leased. Sears Home Life is the only
tenant occupying 10% or more of the rentable square feet. The lease with Sears
Home Life requires a base rent of $8.47 per
87
<PAGE> 99
square foot per annum until October 23, 1996, $8.72 per square foot per annum
from October 24, 1996 to October 23, 1997, $9.29 per square foot per annum from
October 24, 1997 to October 23, 1998, $9.53 per square foot per annum from
October 24, 1998 to October 23, 1999, $9.81 per square foot per annum from
October 24, 1999 to October 23, 2000 and contains two renewal options of five
years each. Although there currently is no vacant space at Mundelein Plaza,
the seller is providing a lease guaranty for 6,181 square feet of space, on a
net basis, through December 1997. 4,088 square feet of the space which is
subject to the lease guaranty is currently leased by Color Tile, Inc., which
recently filed for financial and reorganization protection under the federal
bankruptcy laws. This tenant continues to occupy its space and is anticipated
to pay its monthly rent. The bankruptcy petition filed with the Bankruptcy
Court stated that this tenant planned on closing a number of its other stores.
The Company has been advised that Color Tile, Inc. considers the store at
Mundelein Plaza to be one of its best performing stores and the Company does
not anticipate the closing of the Color Tile store at Mundelein Plaza. The
other space, 2,093 square feet, is leased to Tile World, Ltd., on a month-
to-month lease. For federal income tax purposes, the Company's basis in
Mundelein Plaza will be approximately $3,847,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are based upon estimated useful lives of 40 years. Property taxes
paid in 1995 for the tax year ended 1994 (the most recent tax year for which
information is available) were $84,768.
The table below sets forth certain information with respect to the
occupancy rate at Mundelein Plaza expressed as a percentage of total gross
leasable area for each of the last five years and the average effective annual
base rent per square foot for each of the last five years.
<TABLE>
<CAPTION>
Average Effective
Year Ending Occupancy Annual Rent Per
December 31, Rate Square Foot
-------- --- ---- ------ ----
<S> <C> <C>
1995 100% $ 9.41
1994 97 9.22
1993 97 9.03
1992 97 8.93
1991 97 8.90
</TABLE>
At March 31, 1996, Mundelein Plaza had a total of eight tenants. The
following tables set forth certain information with respect to the amounts of
and expiration of leases at this Neighborhood Retail Center:
88
<PAGE> 100
<TABLE>
<CAPTION>
Approx.
Gross Average Percent of Percent of
Leasable Area Base Rent Total Annual
("GLA") of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent Leases(1) Leases Leases
-------- --- -------- ------- ----- ------ ---- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1 3,100 $ 46,800 $ 685,209 $15.10 4.57% 6.83%
1997 2 7,628 97,506 654,902 12.78 11.23 14.89
1998 1 1,620 28,172 583,236 17.39 2.39 4.83
1999 -- -- -- 567,888 -- -- --
2000 3 51,460 524,605 582,389 10.19 75.79 90.08
2001-2004 -- -- -- 59,280 -- -- --
2005 -- -- -- 61,871 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases.
It is management of the Company's current opinion that the space will
be released at market rates.
<TABLE>
<CAPTION>
Square Current Annual Base Rent
Feet Term Renewal Base Per Square
Lessee Leased Ends Options Rent Foot
------- ------ ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Color Tile, Inc. (1) 4,088 12/2009 None $55,188 $13.50
R R B Cycles, Ltd. 2,460 12/2000 None 37,259 15.15
Cartel, Inc. 1,620 12/1998 None 26,555 16.51
C M C Music, Inc. 5,535 06/1997 1/5 years 66,420 12.00
Esterquest (Pet store) 3,100 12/1996 None 46,800 15.10
Sears Roebuck & Co.
(Sears Home Life) 47,000 10/2000 2/5 years 400,301 8.52
Tile World, Ltd. (1) (2) 2,093 Month to None 31,086 14.85
Month
Minnesota Fats 2,000 08/2000 3/5 years 21,600 10.80
</TABLE>
(1) Although currently leased, these spaces are subject to a lease
guaranty from the seller through December 1997.
(2) This space is currently leased on a month-to-month basis.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers reflecting a fair market value of Mundelein Plaza as of March
28, 1996 of not less than $5,650,000. It should be noted, however, that
appraisals are estimates of value and should not be relied on as measures of
true worth of realizable value.
89
<PAGE> 101
REGENCY POINT SHOPPING CENTER
On April 5, 1996, the Company acquired Regency Point Shopping Center
located in Lockport, Illinois ("Regency Point") from an unaffiliated third
party for a purchase price of $5,700,000. As part of the acquisition, the
Company assumed the existing first mortgage loan of approximately $4,473,200,
along with a related interest rate swap agreement. The remainder of the
purchase price of approximately $1,226,800 was funded, after prorations, with
proceeds of the Prior Offering. For federal income tax purposes, the Company's
basis in the Regency Point building will be approximately $4,700,000. Property
taxes paid in 1995 for the tax year ended 1994 (the most recent tax year for
which information is available) were $16,867. Regency Point is located in the
Des Plaines River Valley Enterprise Zone, therefore, the assessed value of the
property will remain fixed until the year 2003.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly and amortizes over
25 years. The interest rate swap agreement, in conjunction with the first
mortgage, provides for Bank One, Chicago, to receive from or pay to the Company
the difference between 6.11% and the 30-day LIBOR rate, so that the first
mortgage loan has an effective rate of 7.91% per annum. The first mortgage
loan matures in August 2000. The interest rate swap agreement expires
concurrently therewith.
Regency Point, built in 1993 and 1994, consists of a one-story,
multi-tenant brick and block strip center aggregating 54,875 of rentable square
feet. Its anchor tenants include nationally recognized tenants such as
Walgreens with 13,000 square feet, Ace Hardware with 15,505 square feet and the
United States Postal Service with 2,503 square feet and are considered
creditworthy by the Company.
Regency Point is currently 95% leased and is anchored by Walgreens and Ace
Hardware. The vacant space at Regency Point is being master leased by the
seller for a one-year period at $14 per square foot for 1,600 square feet, on a
net basis, and $10 per square foot for 1,450 square feet, on a gross basis.
Regency Point was 88% occupied at December 31, 1995, 100% occupied at December
31, 1994 and 36% occupied at December 31, 1993. Walgreens and Ace Hardware
both lease more than 10% of the building's square footage. The lease with
Walgreens requires Walgreens to pay base rent equal to $10.98 per square foot
per annum until December 31, 2013 and contains six renewal options of five
years. Walgreens is a national pharmacy chain providing prescriptive and
over-the-counter medications, sundries and household items. The lease with Ace
Hardware requires Ace Hardware to pay base rent equal to $7.49 per square foot
per annum until October 31, 2008 and contains one renewal option for five
years. Ace Hardware is a national retail hardware chain.
The table below sets forth certain information with respect to the
occupancy rate at Regency Point expressed as a percentage of total gross
leasable area for each of the last three years (since the opening of Regency
Point) and the average effective annual base rent per square foot for each of
the last three years.
<TABLE>
<CAPTION>
Average
Effective
Annual Rent
Year Ending Occupancy Per Square
December 31, Rate Foot
------------ --------- -----------
<S> <C> <C>
1995(1) 93% $9.83
1994 100 10.09
1993(2) 36 3.57
</TABLE>
90
<PAGE> 102
(1) During 1995, an additional 5,000 square feet of space was added to
Regency Point, of which 1,950 square feet is leased with rent beginning in
February 1996.
(2) Regency Point was built in 1993 and 1994. The occupancy rate and average
effective annual rent per square foot represent the initial rent-up phase
of this property.
At March 31, 1996, Regency Point had a total of 17 tenants. The following
table sets forth information with respect to the amount of and expiration of
leases at this Neighborhood Retail Center:
<TABLE>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent Leases Leases Leases
- ------------ --------- ------------- --------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $ 613,655 -- -- --
1997 3 5,690 $ 74,882 620,670 $13.16 10.37% 12.06%
1998 5 9,945 142,378 553,623 14.32 18.12 25.72
1999 3 3,900 53,560 415,775 13.73 7.11 12.88
2000 1 985 15,240 362,821 15.47 1.79 4.20
2001 -- -- -- 348,670 -- -- --
2002 -- -- -- 349,869 -- -- --
2003 1 1,398 19,572 350,615 14.00 2.55 5.58
2004 1 2,503 31,913 339,432 12.75 4.56 9.40
2005 -- -- -- 307,728 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases.
It is management of the Company's current opinion that the space will be
released at market rates.
<TABLE>
<CAPTION>
Square Current Rent
Feet Lease Renewal Annual Per Square
Lessee Leased Ends Options Base Rent Foot
----------------- ------ ------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Walgreens 13,000 12/2013 6/5yr. $142,740 $10.98
Cellular Center 1,820 8/99 1/5yr. 24,570 13.50
Body Basters 1,600 4/97 1/3yr. 23,138 14.46
Personal Finance 985 1/2000 1/5yr. 13,950 14.16
J.C. Flick 5,265 11/98 1/3yr&1/2yr. 64,556 12.26
Ace Hardware 15,505 10/2008 1/5yr. 116,280 7.49
Vet 1,300 10/98 1/5yr. 18,937 14.56
Subway 1,105 12/98 1/5yr. 16,515 14.94
Cost Cutters 975 12/98 1/5yr. 13,481 13.82
Little Ceasars 1,040 1/99 2/5yr. 13,520 13.00
Just $1 1,040 1/99 1/5yr. 13,520 13.00
Optometrist 1,040 4/97 1/5yr. 14,548 13.98
Brown's Chicken 1,398 12/2003 1/5yr. 18,174 13.00
Cleaners 1,300 12/98 1/5yr. 19,751 15.19
U.S. Post Office 2,503 3/2004 2/5yr. 30,036 12.00
Currency Exchange 550 1/2006 1/10yr. 12,000 21.81
Vacant* 1,600 4/1997 None 22,400 14.00
1,450 4/1997 None 14,500 10.00
Dunkin Donuts 1,400 1/2006 2/5yr. 21,700 15.49
</TABLE>
91
<PAGE> 103
* The vacancies currently total 3,050 square feet, however, the vacant
space will be master leased by the seller at $14.00 per square foot, on a
net basis, for 1,600 square feet and $10.00 per square foot, on a gross
basis, for 1,450 square feet, for a one-year period.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Regency Point as of March 7, 1996
of $5,710,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as a measure of true worth or realizable
value.
PROSPECT HEIGHTS PLAZA
On June 17, 1996, the Company acquired Prospect Heights Plaza ("Prospect
Heights"), a Neighborhood Retail Center located in Prospect Heights, Illinois
from an unaffiliated third party for a purchase price of $2,165,000 on an all
cash basis.
Prospect Heights, built in 1985, consists of two one-story, multi-tenant
brick buildings aggregating 28,080 rentable square feet.
The table below sets forth certain information with respect to the
occupancy rate at Prospect Heights expressed as a percentage of total gross
leasable area for each of the last five years and the average effective annual
base rent per square foot for each of the last five years.
<TABLE>
Year Ending Occupancy Annual Rents Received
December 31, Rate Per Square Foot
------------ --------- ---------------------
<S> <C> <C>
1991 100% $7.53
1992 100 7.53
1993 100 7.53
1994 100 7.53
1995 78 5.85
</TABLE>
As of June 17, 1996, Prospect Heights was 100% leased and 78% occupied.
Tenants leasing more than 10% of the total square footage currently include
Walgreens with 12,600 square feet, United Farm Stands Corp. with 4,680 square
feet and Blockbuster Video with 6,250 square feet.
The lease with Walgreens requires a base rent of $5.50 per square foot per
annum until July 31, 2005, $6.00 per square foot per annum from August 1, 2005
to July 31, 2015 and $6.50 per square foot per annum from August 1, 2015 to
July 31, 2025. The lease also requires the payment of percentage rent annually
based on 1% of food item sales, 1.5% of liquor sales and 2% of other sales in
excess of monthly rent paid including their portion of CAM, real estate taxes
and insurance. In 1995, net percentage rent was $23,000. Walgreens has the
option to terminate the lease in 2005, 2010, 2015, and 2020 with a one year
notice.
The lease with United Farm Stands Corp. requires a base rent of
$12.00 per square foot per annum until January 31, 1998 and contains three
renewal options of two years each. United Farm Stands Corp. sells fruits and
vegetables.
92
<PAGE> 104
The lease with Blockbuster Video requires a base rent of $12.00 per square
foot per annum for three years and contains four renewal options of five years
each. Blockbuster Video sells and rents prerecorded audio and video products.
Blockbuster Video will begin paying rent three months after occupancy which is
anticipated to be in July 1996. The seller will master lease this space at
$12.00 per square foot per annum until Blockbuster Video begins paying rent.
For federal income tax purposes, the Company's depreciable basis in the
Prospect Heights buildings will be approximately $1,407,000. Depreciation
expense, for tax purposes, will be computed using the straight-line method.
Buildings and improvements are based upon estimated useful lives of 40 years.
Real estate taxes paid in 1995 for the tax year ended 1994 (the most
recent tax year for which information is available) were $127,033.
At June 1, 1996, Prospect Heights had five tenants. The following tables
set forth certain information with respect to the amount of and expiration of
leases at this Neighborhood Retail Center.
<TABLE>
<CAPTION>
Square Current
Foot Lease Renewal Annual Rent Per
Lessee Leased Ends Options Rent Square Foot
- ----------- ----------- ------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Walgreens 12,600 07/2025 None $72,450 $5.75
Blockbuster 6,250 07/1999 4/5 75,000 12.00
Power Motion 2,550 07/1998 1/3 27,600 10.82
Dr. W. Beck 2,000 12/1997 1/5 22,000 11.00
United Farm Stands 4,680 01/1998 3/2 56,160 12.00
</TABLE>
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
- ------------ ---------- ------------- ----------- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $253,710 -- -- --
1997 1 2,000 $22,000 254,910 $11.00 7.12% 8.63%
1998 2 7,230 86,160 233,610 11.92 25.75 36.88
1999 1 6,250 75,000 147,450 12.00 22.26 50.86
2000-2004 -- -- -- 72,450 -- -- --
2005 -- -- -- 73,763 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
management of the Company's current opinion that the space will be
released at market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a market value of Prospect Heights as of June 17, 1996,
of $2,190,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as a measure of true worth or realizable
value.
93
<PAGE> 105
MONTGOMERY-SEARS SHOPPING CENTER
On June 17, 1996, the Company acquired the Montgomery-Sears Shopping
Center ("Montgomery-Sears"), a Neighborhood Retail Center located in
Montgomery, Illinois, from an unaffiliated third party for a purchase price of
$3,419,000 on an all cash basis.
Montgomery-Sears, built in 1990, is a one-story, multi tenant concrete
masonry building aggregating 34,600 rentable square feet.
The table below sets forth certain information with respect to the
occupancy rate at Montgomery-Sears expressed as a percentage of total gross
leasable area for each of the last five years and the average effective annual
base rent per square foot for each of the last five years.
<TABLE>
<CAPTION>
Year Ending Occupancy Annual Rents Received
December 31, Rate Per Square Foot
------------ --------- ---------------------
<S> <C> <C>
1991 95% $8.88
1992 95 9.50
1993 95 9.84
1994 95 10.48
1995 95 9.47
</TABLE>
As of June 14, 1996, Montgomery-Sears was 85% leased. Tenants leasing more
than 10% of the building's square footage include Sears Hardware with 20,000
square feet and Blockbuster Video with 7,000 square feet.
The lease with Sears requires a base rent of $10.50 per square foot per
annum until September 1, 1996, $11.44 per square foot per annum from October 1,
1996 to September 30, 1999 and $12.47 per square foot per annum from October 1,
1999 to July 30, 2000 and contains two renewal options of five years each.
Sears has the right to terminate the lease at any time after July 15, 1997 with
180 days notice and payment of one year's rent. Sears Hardware sells hardware
supplies and tools. The lease with Blockbuster requires a base rent of $13.20
per square foot per annum until August 31, 2000 and contains a renewal option
for an additional five years. Blockbuster Video sells and rents prerecorded
audio and video products.
The vacant space, totaling 5,100 square feet, at Montgomery-Sears will be
master leased by the seller for a period of 24 months or until such time as a
tenant begins paying rent at $12.00 per square foot per annum, on a net basis,
for 3600 square feet and $10.20 per square foot, on a net basis, for 1500
square feet.
For federal income tax purposes, the Company's depreciable basis in the
Montgomery-Sears building will be approximately $2,675,000. Depreciation
expense, for tax purposes, will be computed using the straight-line method.
Buildings and improvements are based upon estimated useful lives of 40 years.
Real estate taxes to be paid in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) are $65,310.
94
<PAGE> 106
At June 1, 1996, Montgomery-Sears had three tenants. The following tables
set forth certain information with respect to the amount of and expiration of
leases at this Neighborhood Retail Center.
<TABLE>
<CAPTION>
Square Current
Foot Lease Renewal Annual Rent Per
Lessee Leased Ends Options Rent Square Foot
-------------- ------ ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Sears Hardware 20,000 07/2000 2/5 $210,000 $10.50
Blockbuster 7,000 08/2000 1/5 92,400 13.20
Radio Shack 2,500 09/2000 1/5 25,000 10.00
Vacant* 3,600 06/1998 -- 43,200 12.00
Vacant* 1,500 06/1998 -- 15,300 10.20
</TABLE>
* The vacancies currently total 5,100 square feet, however, the vacant
space will be master leased by the seller for a two-year period at
$12.00 per square foot, on a net basis, for 3,600 square feet and $10.20
per square foot, on a net basis, for 1,500 square feet.
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
- ------------ --------- ------------- ----------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $396,380 -- -- --
1997 -- -- -- 416,640 -- -- --
1998 1 5,100 $ 61,200 416,640 $12.00 14.74% 14.69%
1999 -- -- -- 362,178 -- -- --
2000 3 29,500 379,004 379,004 12.85 85.26 100.00
2001-2005 -- -- -- -- -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
management of the Company's current opinion that the space will be
released at market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a market value of Montgomery-Sears as of June 17, 1996 of
$3,450,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as a measure of true worth or realizable
value.
THE ZANY BRAINY STORE
On July 1, 1996, the Company acquired fee simple title to a single-user
retail property in Wheaton, Illinois from an unaffiliated third party for a
purchase price of $2,455,000 on an all cash basis (the "Zany Brainy Store").
This facility has been leased 100% to Children's Concepts, Inc. which does
business as Zany Brainy ("Zany Brainy") and sells children's books, computer
software, toys, and related items.
The Zany Brainy Store, built in 1995, is a single tenant retail facility
aggregating 12,499 rentable square feet.
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<PAGE> 107
The lease with Zany Brainy requires a base rent of $22.00 per square foot
per annum until November 2000, which increases for the period December 2000 to
November 2006 to the lesser of $24 per square foot per annum or a calculated
amount using the consumer price index. The lease with Zany Brainy contains two
renewal options of five years each.
For federal income tax purposes, the Company's depreciable basis in the
Zany Brainy Store will be approximately $1,617,000. Depreciation expense, for
tax purposes, will be computed using the straight-line method. Buildings and
improvements are based upon estimated useful lives of 40 years.
Real estate taxes to be paid in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) are $1,292 for vacant land.
Real estate taxes to be paid in 1997 for the tax year ended 1996 are expected
to be $35,000 for improved land.
The following tables set forth certain information with respect to the
amount of and expiration of the Zany Brainy lease.
<TABLE>
<CAPTION>
Square Current
Foot Lease Renewal Annual Rent Per
Lessee Leased Ends Options Rent Square Foot
- ------------ ------------- ----------- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Zany Brainy 12,499 11/2006 2/5 $274,978 $22.00
</TABLE>
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
- ------------ --------- ------------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-1999 -- -- -- $ 274,978 -- -- --
2000 -- -- -- 289,560(2) -- -- --
2001-2004 -- -- -- 299,976 -- -- --
2005 1 12,499 $299,976 299,976 $24.00 100% 100%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
management of the Company's current opinion that the space will be
released at market rates.
(2) The base rent will increase in December 2000 to the lesser of $24.00 per
square foot per annum or $274,978* (1.0 plus the sum of CPI for the first
five years plus .025). For presentation purposes, $24.00 per square foot
per annum was used.
The Directors, including the Independent Directors, approved each of these
acquisitions as being fair and reasonable to the Company.
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company as of March 31, 1996 and the pro forma capitalization of the Company as
of that date as adjusted to give effect to the sale of all Shares in the Prior
Offering and in this Offering (as if all 11,000,000 Shares including 1,000,000
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<PAGE> 108
Shares to be sold pursuant to the DRP are sold excluding those sold by the
Advisor), and the application of the estimated Net Proceeds as described in
"Estimated Use of Proceeds." The information set forth in the following table
should be read in conjunction with the historical financial statements of the
Company included elsewhere in this Prospectus and the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
(IN THOUSANDS)
DEBT:
Mortgage notes payable ..................................... $ 748 $ 5,221
STOCKHOLDER'S EQUITY:
Preferred Stock, $.01 par value, 6,000,000 authorized,
none outstanding ........................................ -- --
Common Stock, $.01 par value, 24,000,000 authorized,
2,909,912 shares issued and outstanding historical;
17,000,000 shares issued and outstanding pro forma (1) .. 29 170
Paid-in capital ............................................ 29,954 148,637
Accumulated Distributions in Excess of Net Income .......... (482) (482)
Total stockholders' equity .............................. 24,501 148,325
Total capitalization .................................... 25,249 153,546
</TABLE>
- ---------------
(1) Does not include Shares issuable upon the exercise of outstanding
options granted under the Company's Stock Option Plan for Independent
Directors.
(2) The Company was originally capitalized in 1994 through the cash
contribution of $200,000 by the Advisor, for which the Advisor received 20,000
shares of Common Stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of the date of this
Prospectus: (i) each stockholder known by the Company to own beneficially in
excess of 5% of the outstanding shares of Common Stock; (ii) each Director;
(iii) each executive officer; and (iv) all Directors and executive officers as
a group. Except as otherwise indicated in the footnotes to the table, the
persons named below have sole voting and investment power with respect to the
shares of Common Stock beneficially owned by such person.
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<PAGE> 109
<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY OWNED
AFTER COMPLETION
OF THE OFFERING
SHARES BENEFICIALLY (ASSUMING THE
OWNED AS OF THE DATE OF MAXIMUM OFFERING
THIS PROSPECTUS IS SOLD)
---------------------- ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C>
Robert D. Parks (a)(b) 8,945.6107 * 8,945.6107 *
G. Joseph Cosenza (a)(b) 22,500 * 22,500 *
Roland W. Burris (c)(f) -- * -- *
Douglas R. Finlayson, M.D. (d)(f) -- * -- *
Heidi N. Lawton (e)(f) -- * -- *
Cynthia M. Hassett (a) -- * -- *
Roberta S. Matlin (a) 116.8974 * 116.8974 *
</TABLE>
Directors and Executive Officers as a Group
(seven persons)
- ---------------
(a) The business address of each of Messrs. Parks and Cosenza, Ms. Hassett
and Ms. Matlin is c/o The Inland Group, Inc., 2901 Butterfield Road, Oak
Brook, Illinois 60521.
(b) Includes 20,000 Shares owned by the Advisor, of which Messrs. Parks and
Cosenza disclaim beneficial ownership. The Advisor is a wholly-owned
subsidiary of IREIC, which is an affiliate of TIGI. Messrs. Parks and
Cosenza are control persons with respect to TIGI. See, generally,
"Management -- the Advisor."
(c) The business address of Mr. Burris is c/o Jones, Ware & Grenard, 180
North LaSalle Street, Suite 3800, Chicago, Illinois 60601.
(d) The business address of Dr. Finlayson is c/o Westlake Clinic, 214
Washington Street, Ingleside, Illinois 60041.
(e) The business address of Ms. Lawton is c/o Lawton Realty Group, 2100
Clearwater Drive, Suite 106, Oak Brook, Illinois 60521.
(f) Does not include 3,500, 4,000 and 4,000 Shares issuable upon exercise of
options granted to Mr. Burris, Dr. Finlayson and Ms. Lawton, respectively,
pursuant to the Company's Independent Director Stock Option Plan.
* Less than 1% of the Company's outstanding shares of Common Stock, as of the
date of this Prospectus.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995 and March 31, 1996, the Company had a total of
2,000,073 Shares ($19,976,354) and 2,909,912 Shares ($29,060,946) outstanding,
in each case including 20,000 Shares held by the Advisor. At December 31,
1994, only the 20,000 Shares held by the Advisor were outstanding; however,
subscriptions for 189,938.145 Shares had been received as of that date.
Subscriber funds were held in an interest-bearing escrow account with the
Company's unaffiliated escrow agent until January 3, 1995 when subscriptions
for those Shares were accepted and the Shares were issued by the Company. The
Stockholders share in their portion of benefits of ownership of the Company's
real property investments according to the number of Shares held.
The Company's capital needs and resources are expected to undergo changes
through completion of this Offering as additional Shares are sold in this
Offering and additional properties are acquired. Operating cash flow is
expected to increase as these additional properties are added to the portfolio.
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<PAGE> 110
Distributions to Stockholders are determined by the Company's Board of
Directors and are dependent on a number of factors, including the amount of
funds available for distribution, the Company's financial condition, capital
expenditures and the annual distribution required to maintain REIT status under
the Code.
As of March 31, 1996, the Company had acquired seven properties, utilizing
approximately $22,700,000 and had cash and cash equivalents of $2,937,473
compared to two properties, utilizing approximately $6,026,023 and cash and
cash equivalents of $338,430 at March 31, 1995. The Company intends to use
these funds and funds from sales of additional Shares to purchase additional
properties, to make distributions and to pay offering costs. See "Subsequent
Events," below. To the extent that these sources are insufficient to meet the
Company's short- and long-term liquidity requirements, the Company may rely on
financing of one or more of the properties.
The properties owned by the Company are currently generating sufficient
cash flow to cover operating expenses of the Company plus pay a monthly
distribution of 8% per annum on weighted average shares. For the three months
ended March 31, 1996, cash provided by operations amounted to $596,106.
Distributions declared for the period were $476,675, a portion of which
represents a return of capital for federal income tax purposes. The return of
capital portion of the distributions can be determined only at year end.
Management monitors the various qualification tests the Company must meet
to maintain its status as a real estate investment trust. Large ownership of
the Company's stock is tested upon purchase to determine that no more than 50%
in value of the outstanding stock is owned directly, or indirectly, by five or
fewer persons or entities at any time. Management of the Company also
determines, on a quarterly basis, that the Gross Income, Asset and Distribution
Tests as described in the section of the Prospectus entitled "Federal Income
Tax Considerations--Taxation of the Company--REIT Qualification Tests" are met.
On an ongoing basis, as due diligence is performed by management of both the
Company and the Advisor on potential real estate purchases or temporary
investment of uninvested capital, management of both entities determines that
the income from the new asset will qualify for REIT purposes. For the year
ended December 31, 1995, the Company qualified as a REIT.
The Advisor has guaranteed payment of all public offering expenses
(excluding selling commissions, the marketing contribution and the due
diligence expense allowance fee) in excess of 5.5% of the Gross Offering
Proceeds of the Offering (the Gross Offering Proceeds") or all organization and
offering expenses (including such selling expenses) which together exceed 15%
of the Gross Offering Proceeds.
The Company provides the following programs to facilitate investment in
the Shares and to provide limited liquidity for Stockholders until such time as
a market for the Shares develops:
The Distribution Reinvestment Program allows Stockholders who purchase
Shares pursuant to the Offering to automatically reinvest distributions by
purchasing additional Shares from the Company. Such purchases will not be
subject to selling commissions or the Marketing Contribution and Due Diligence
Expense Allowance Fee and will be sold at a price of $9.05 per Share. As of
March 31, 1996, the Company had received $371,596 from the sale of
approximately 41,060 Shares through the DRP.
The Share Repurchase Program will, subject to certain restrictions,
provide existing Stockholders with limited, interim liquidity by enabling them
to sell shares back to the Company at a price of $9.05
99
<PAGE> 111
per share. Shares purchased by the Company will not be available for resale.
As of March 31, 1996, the Company has repurchased 3,000 shares from
Stockholders for an aggregate price of $26,838, pursuant to the terms of the
Share Repurchase Program. The remaining $344,758 of DRP proceeds is available
to the Company for investment in additional properties, maintenance of existing
properties or the repurchase of additional shares pursuant to the terms of the
Share Repurchase Program.
RESULTS OF OPERATIONS
As of March 31, 1996, subscriptions for a total of 2,909,912 shares were
outstanding, including 20,000 Shares held by the Advisor. At March 31, 1996,
the Company owned six Neighborhood Retail Centers and one single user-retail
property. See also "-Subsequent Events," below.
PURCHASE OF WALGREENS/DECATUR, DECATUR, ILLINOIS
On January 31, 1995, the Company acquired this single-user retail property
from Inland Property Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the
purchase price of $1,209,053, including acquisition costs of $482. Although it
was originally anticipated that this property would be acquired on an all-cash
basis, management of the Company made the determination, based on the
recommendation of the Advisor, that the investment objectives of the Company
would be better met by assuming a portion of the mortgage loan secured by such
property, since: (i) the terms of the current first mortgage loan were more
favorable for the Company than mortgage rates then currently available from
unaffiliated third parties; and (ii) the Company was able to apply its
available cash towards the acquisition of a second property. The balance of
the assumed mortgage at December 31, 1995 was $750,727, and was $748,011 at
March 31, 1996. This mortgage has an interest rate of 7.655% and amortizes
over a 25-year period. The Company is responsible for monthly payments of
principal and interest of $5,689.
PURCHASE OF THE EAGLE CREST SHOPPING CENTER, NAPERVILLE, ILLINOIS
On March 1, 1995, the Company acquired this Neighborhood Retail Center
("Eagle Crest") from IPS for the purchase price of $4,816,970, including
acquisition costs of $11,059. Although it was originally anticipated that
Eagle Crest would be acquired on an all-cash basis, management of the Company
made the determination, based on the recommendation of the Advisor, that the
investment objectives of the Company would be better met by assuming a portion
of the first mortgage loan secured by such property, as well as entering into a
loan agreement with IPS for the balance of the purchase price. By utilizing
seller financing to purchase Eagle Crest, the Company was able to begin
receiving the net income, after debt service payments, from Eagle Crest on an
expedited basis, thus increasing the Company's earnings to be distributed to
the Stockholders. The balance of the assumed mortgage was paid in full in
April 1995 with interest at 9.5% per annum. In May 1995, the deferred portion
of the purchase price, totaling $1,212,427, was paid to IPS in full from gross
offering proceeds from the Prior Offering. In addition, accrued interest of
$22,009 was paid from Company operations.
PURCHASE OF THE MONTGOMERY-GOODYEAR SHOPPING CENTER, MONTGOMERY, ILLINOIS
On September 14, 1995, the Company acquired this Neighborhood Retail
Center from an unaffiliated third party for a purchase price of $1,145,992,
including acquisition costs of $5,992, a portion of which was evidenced by a
promissory note payable to Inland Mortgage Investment Corporation ("IMIC"), an
affiliate of the Advisor, in the gross amount of $600,000. The remainder of
the purchase price was funded with proceeds of the Prior Offering. The
promissory note was paid in full October 1995,
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<PAGE> 112
with interest at a rate of 10.9% per annum. The principal amount paid was
$600,000 from gross offering proceeds from the Prior Offering and interest of
$4,260 was paid from Company operations.
PURCHASE OF THE HARTFORD/NAPERVILLE PLAZA, NAPERVILLE, ILLINOIS
On September 14, 1995, the Company acquired this newly constructed
Neighborhood Retail Center from an unaffiliated third party for a purchase
price of $4,414,015, including acquisition costs of $14,015 and deposited
$150,000 in an escrow account to be paid to Blockbuster, Inc. to cover the cost
of its leasehold improvements. A portion of the purchase price was evidenced
by a promissory note payable to IMIC, in the gross amount of $600,000. The
remainder of the purchase price was funded with proceeds of the Prior Offering.
The promissory note was paid in full in October 1995, with interest at a rate
of 10.9% per annum. The principal amount paid was $600,000 from gross offering
proceeds from the Prior Offering and interest of $5,102 was paid from Company
operations.
PURCHASE OF NANTUCKET SQUARE SHOPPING CENTER, SCHAUMBURG, ILLINOIS
On September 20, 1995, the Company acquired this Neighborhood Retail
Center from an unaffiliated third party for a purchase price of $4,257,918,
including acquisition costs of $4,913, a portion of which was evidenced by a
promissory note payable to IMIC, in the gross amount of $3,550,000. The
remainder of the purchase price was funded with proceeds of the Prior Offering.
The promissory note was paid in full in December 1995, with interest at a rate
of 10.5% per annum. In addition, as part of the purchase, the Company agreed
to and has paid $51,135 for tenant improvements for two tenants expanding their
space, which was added to the cost of the property.
In October 1995, the Company received notice from one of its tenants at
Nantucket Square of its intent to close its store, which it did on December 10,
1995. The lease for the 6,228 square feet of space currently expires January
31, 1998. The Company is pursuing a replacement tenant, however, in the
interim, the tenant continues to pay its monthly rent. A second tenant at
Nantucket Square, occupying 3,300 square feet, filed for financial and
reorganization protection under the federal bankruptcy laws. The tenant
continues to occupy the space and pay its monthly rent. The petition filed
with the bankruptcy court by the tenant stated that it is planning on closing a
number of its other stores but did not anticipate closing its store at
Nantucket Square.
PURCHASE OF ANTIOCH PLAZA, ANTIOCH, ILLINOIS
On December 28, 1995, the Company acquired this Neighborhood Retail Center
from an unaffiliated third party for a purchase price of $1,750,365, including
acquisition costs of $365, a portion of which was evidenced by a promissory
note payable to IREC, an affiliate of the Advisor, in the gross amount of
$660,000. The remainder of the purchase price, net of prorations, of
approximately $1,100,000 was funded with proceeds of the Prior Offering. As of
December 31, 1995, the unpaid balance of this note was $360,000. The note
which bore interest at a rate of 9.5% per annum was repaid in full on January
9, 1996. The total amount repaid was $661,163, of which $660,000 was principal
paid from gross offering proceeds from the Prior Offering and $1,163 was
interest paid from Company operations.
PURCHASE OF THE MUNDELEIN PLAZA, MUNDELEIN, ILLINOIS
On March 29, 1996, the Company acquired this Neighborhood Retail Center
from an unaffiliated third party for a purchase price of $5,658,230, including
acquisition costs of $8,230 on an all cash basis.
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<PAGE> 113
The following is a list of approximate physical occupancy levels for the
Company's properties held as of the end of each quarter during 1995 and the
first quarter of 1996 (N/A indicates the property was not owned by the Company
at the end of the quarter):
<TABLE>
1995 1996
------------------------------------------
at at at at at
Properties 03/31 06/30 09/30 12/31 03/31
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walgreens 100% 100% 100% 100% 100%
Decatur, Illinois
Eagle Crest 100% 100% 100% 100% 100%
Naperville, Illinois
Montgomery-Goodyear N/A N/A 100% 100% 100%
Montgomery, Illinois
Hartford/Naperville Plaza N/A N/A 48% 90% 100%
Naperville, Illinois
Nantucket Square N/A N/A 92% 81% 81%
Schaumburg, Illinois
Antioch Plaza N/A N/A N/A 33% 49%
Antioch, Illinois
Mundelein Plaza N/A N/A N/A N/A 100%
Mundelein, Illinois
Regency Point(1)
Lockport, Illinois N/A N/A N/A N/A N/A
Prospect Heights Plaza(1)
Prospect Heights, Illinois N/A N/A N/A N/A N/A
Montgomery-Sears(1)
Montgomery, Illinois N/A N/A N/A N/A N/A
Zany Brainy(1)
Wheaton, Illinois N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) These properties were purchased after March 31, 1996. See "-- Subsequent
Events," below.
The increases in rental income, additional rental income, property
operating expenses to Affiliates and non-affiliates and depreciation for the
three months ended March 31, 1996, as compared to the three months ended
March 31, 1995, is due to the acquisition of properties during 1995. Rental
income is expected to increase as additional properties are added to the
portfolio.
The decrease in mortgage interest expense to affiliates and non-affiliates
for the three months ended March 31, 1996, as compared to the three months
ended March 31, 1995, is due to the payoff of the financing relating to the
acquisitions of the properties. The Company continues to have mortgage
indebtedness of $747,094 collateralized by the Walgreens/Decatur Property. See
also "-Subsequent Events" regarding mortgage indebtedness secured by Regency
Point.
102
<PAGE> 114
During 1994, the Advisor advanced $193,300 to the Company for costs
incurred with the Prior Offering. These advances were repaid with a market
rate of interest to the Advisor in January 1995.
Interest income is the result of working capital being invested in
short-term investments until properties are purchased.
The increases in professional services to affiliates and non-affiliates
and general and administrative expenses to affiliates and non-affiliates for
the three months ended March 31, 1996, as compared to the three months ended
March 31, 1995, is due to the Company entering the operational stage.
SUBSEQUENT EVENTS
On April 5, 1996, the Company acquired the Regency Point Shopping Center
located in Lockport, Illinois from an unaffiliated third party for a purchase
price of $5,700,000. As part of the acquisition, the Company assumed an
existing first mortgage loan of approximately $4,473,200 along with a related
interest rate swap agreement. The remainder of the purchase price of
approximately $1,226,800 was funded, after prorations, with proceeds of the
Prior Offering. On June 17, 1996, the Company acquired Prospect Heights Plaza
located in Prospect Heights, Illinois for $2,165,000 on an all cash basis. The
Company also purchased, on June 17, 1996, the Montgomery-Sears Shopping Center
located in Montgomery, Illinois for $3,419,000 on an all cash basis. On July
1, 1996, the Company acquired the Zany Brainy Store located in Wheaton,
Illinois for $2,455,000 on an all cash basis. See "Real Estate Investments."
The Advisor is continuing to explore the purchase of additional properties
from unaffiliated third parties for the Company.
INFLATION
For the Company's Neighborhood Retail Centers, inflation is likely to
increase rental income from leases to new tenants and lease renewals, subject
to market conditions. Continued inflation may cause capital appreciation of
these properties over time as rental rates and the replacement cost of the
properties rise.
The Company's rental income and operating expenses for those properties
owned or to be owned and operated under triple-net leases, like the
Walgreens/Decatur property, are not likely to be directly affected by future
inflation, since property expenses are the responsibility of the tenants. The
capital appreciation of triple-net leased properties is likely to be influenced
by interest rate fluctuations. To the extent that inflation determines
interest rates, future inflation may have an effect on the capital appreciation
of triple-net leased properties.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted the Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of"
which was issued in March 1995 and is effective for fiscal years beginning
after December 15, 1995.
The Company has adopted the Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation Plans" which was issued in
October 1995. The Statement is effective for
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<PAGE> 115
fiscal years beginning after December 15, 1995. As allowed by the new
Statement, the Company plans to continue to use Accounting Principles Board
Option No. 25, "Accounting for Stock Issued to Employees" in accounting for its
stock options.
Neither of these accounting pronouncements are expected to have a material
effect on the financial position or results of operations of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The Company has been organized and intends to operate in a manner that
will permit it to continue to qualify as a REIT under the applicable provisions
of the Code and Regulations (the "REIT Requirements") and receive the
beneficial tax treatment described below. However, no assurance can be given
that the activities and operations of the Company will allow it to continue to
meet the REIT Requirements, which are highly technical and complex. The
following discusses the rules the Company must comply with to receive REIT
treatment, the federal income tax consequences to the Company and its
Stockholders from the Company maintaining REIT status and all material federal
income tax consequences to an investor in the Offering. The discussion is
qualified in its entirety by the applicable REIT qualification provisions
contained in the Code, the rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof. Shefsky Froelich & Devine
Ltd. has acted and will act as tax counsel to the Company in connection with
the organization of the Company and its election to be taxed as a REIT for
federal income tax purposes and has rendered the opinion set forth below. The
tax implications of an investment in the Company's Shares is set forth in
"--Taxation of Stockholders" in this Section. Each prospective purchaser of
Shares, however, is urged to consult his tax advisor with respect to the
federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of Shares which may be particular to his tax
situation.
In brief, a corporation that invests primarily in real estate can, if it
complies with the detailed REIT provisions in Code Sections 856-860, qualify as
a REIT and therefore claim tax deductions for the dividends it pays to its
stockholders. Such a corporation is, therefore, generally not taxed on its
"REIT taxable income" to the extent such income is currently distributed to
stockholders, thereby substantially eliminating the "double taxation" that a
corporation generally bears. However, as discussed in greater detail below,
such an entity could be subject to tax in certain circumstances even if it
qualifies as a REIT and would likely suffer adverse consequences, including
reduced cash available for distribution to its stockholders, if it failed to
qualify as a REIT. See "--Taxation of the Company--Failure to Qualify" in this
Section. The Company represents that it filed the election to be recognized as
a real estate investment trust with its tax return for the year ending December
31, 1995, which tax return was filed on a timely basis. The Company intends to
continue operating in a manner that permitted it to elect REIT status beginning
with its taxable year ending December 31, 1995 and to continue to maintain this
status in each taxable year thereafter, so long as REIT status remains
advantageous to the Company and the Stockholders.
Shefsky Froelich & Devine, Ltd. is of the opinion, based on the
assumptions and representations described in this Section and throughout the
Prospectus, that the Company has been organized in conformity with the
requirements for qualification as a REIT, beginning with its taxable year
ending December 31, 1995 and that its prior, current and anticipated methods of
operation (as described in this Prospectus and represented by the Company and
its management) has enabled and will enable it to continue to satisfy the REIT
Requirements. This opinion has been filed as an exhibit to the Registration
104
<PAGE> 116
Statement of which this Prospectus is a part, and is based in condition on
various assumptions and certain representations made to Shefsky Froelich &
Devine, Ltd. by the Company and the Advisor as to certain factual matters. The
Company's qualification and taxation as a REIT will depend upon the Company's
ability to meet, through the operation of its current properties and those
properties it acquires in the future. Shefsky Froelich & Devine, Ltd. will not
review compliance with these tests on a continuing basis after the initial
effectiveness date of the Registration Statement or issue additional opinions
unless expressly requested to do so. Accordingly, no assurance can be given
that the actual operating results of the Company will allow the Company to
satisfy the REIT Requirements in each tax year. In addition, this opinion
represents counsel's legal judgment and is not binding on the Service.
Management of the Company and the Advisor currently expects that the
Company has operated and will continue to operate in a manner that permits the
Company to elect, and that it has elected, REIT status for its taxable year
ending December 31, 1995, and each taxable year thereafter. There can be no
assurance, however, that this expectation will be fulfilled, since
qualification as a REIT depends on the Company's ability to continue to satisfy
numerous asset, income and distribution tests described below, which in turn
will be dependant on part on the Company's operating results.
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT and has a
valid election in place, it will claim deductions for the dividends it pays to
the Stockholders, and therefore will not be subject to federal income tax on
that portion of its "REIT taxable income" or capital gain which is, in effect,
distributed to the Stockholders. The Company will, however, be subject to tax
at normal corporate rates on any taxable income or capital gain not
distributed.
Although the Company, if it maintains REIT status, can eliminate (or
substantially reduce) its federal income tax liability by maintaining its REIT
status and paying sufficient dividends, the Company could be subject to tax on
certain items of income. If the Company fails to satisfy either the 95% Test
or the 75% Test (as defined below), yet maintains its REIT status by meeting
other requirements, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either test. The Company will also be
subject to a 100% tax on the net income from any "prohibited transaction," as
described below. In addition, if the Company fails to annually distribute at
least the sum of: (i) 85% of its REIT ordinary income for such year; (ii) 95%
of its REIT capital gain net income for such year; and (iii) any undistributed
taxable income from prior years, it would be subject to an excise tax equal to
4% of the difference between the amount required to be distributed under such
formula and the amount actually distributed. The Company may also be subject
to the corporate alternative minimum tax. Additionally, the Company will be
subject to tax at the highest corporate rate on any non-qualifying income from
"foreclosure property," although the Company will not own any "foreclosure
property" unless it makes loans secured by interests in real property and
forecloses on the property following a default on the loan.
If the Company acquires any asset from a C corporation (generally, a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the assets in the Company's hands are determined by reference to the
basis of the assets (or any other property) in the hands of the transferor
corporation (or if a REIT such as the Company holds such an asset beginning on
the first day of the first taxable year for which the Company qualifies as a
REIT), and the Company recognizes gain on the disposition of such an asset
during the 10-year period beginning on the date on which such asset was
acquired by the Company (or the date that the Company first qualified as a
REIT) (the "Recognition Period"), then,
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pursuant to guidelines to be issued by the Service, the excess of the fair
market value as of the beginning of the applicable Recognition Period over the
Company's adjusted basis in such asset at the beginning of such Recognition
Period will be subject to tax at the highest regular corporate tax rates.
REIT Qualification Tests. The Code defines a REIT as a corporation, trust
or association:
(i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(iii) that would be taxable as a domestic corporation but for its
status as a REIT;
(iv) that is neither a financial institution nor an insurance
company;
(v) the beneficial ownership of which is held by 100 or more
persons on at least 335 days in each full taxable year, proportionately
adjusted for a partial taxable year;
(vi) at all times during the second half of each taxable year, no
more than 50% in value of the outstanding stock is owned, directly, or
indirectly, by five or fewer persons or entities; and
(vii) the Gross Income, Asset and Distribution Tests, described in
greater detail below, are met.
Conditions (i) through (iv) and (vii) must be met during each taxable year
for which REIT status is sought while conditions (v) and (vi) do not have to be
met until after the first taxable year for which a REIT election is made.
Although the Voting Test (as defined below) generally prevents a REIT from
owning more than 10% of the voting stock of an entity, the Code provides an
exception for ownership of voting stock in a qualified REIT subsidiary (a
"QRS"), a corporation that is wholly-owned by a REIT throughout the
subsidiary's existence. For purposes of the Asset and Gross Income Tests
described below, all assets, liabilities and tax attributes of a QRS are
treated as belonging to the REIT. A QRS is not subject to federal income tax,
but may be subject to state or local tax. The Company may in the future hold
direct or indirect interests in one or more partnerships or joint ventures. In
general, a partnership is not subject to federal income tax and instead,
allocates its tax attributes to its partners. The partners are subject to tax
on their allocable share of the income and gain, without regard to whether they
receive distributions from the partnership. Each partner's share of a
partnership's tax attributes is determined in accordance with the partnership
agreement. In addition, for purposes of the Asset and Income Tests, the
Company will be deemed to own and earn (based on its capital interest) an
undivided interest in each asset and a share of each item of gross income.
The Company, in satisfying the general tests described above, must meet,
among others, the following requirements:
A. Share Ownership Tests. The Shares and any other capital stock the
Company issues (with the Shares, "Capital Stock") must be held by a minimum of
100 persons (determined without attribution
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to the owners of any entity owning Capital Stock) for at least 335 days in each
full taxable year, proportionately adjusted for partial taxable years. In
addition, at all times during the second half of each taxable year, no more
than 50% in value of the Capital Stock may be owned, directly or indirectly, by
five or fewer individuals (determined with attribution to the owners of any
entity owning Capital Stock). However, these two requirements do not apply
until after the first taxable year an entity seeks REIT status. The Company
represents that is has issued sufficient Capital Stock pursuant to the Offering
to allow the Company to satisfy these requirements, did not admit investors as
Stockholders until the admission allowed there to be sufficient Stockholders to
meet these requirements and has thereafter admitted only those Stockholders
that allow the Company to continue to meet these requirements. In addition,
the Company's Articles contain provisions restricting the transfer of Capital
Stock, which provisions are intended to assist the Company in satisfying these
requirements and the Company utilizes computerized systems designed to prevent
violations of these requirements. Furthermore, the Distribution Reinvestment
Program contains provisions that prevent its operations from causing a
violation of these tests as do the terms of the options granted to the
Independent Directors and the terms of the Soliciting Dealer Warrants.
Moreover, the Company maintains records which disclose the actual ownership of
the outstanding Capital Stock, and the Company has demanded and will demand
written statements each year from the record holders of 5% or more of the
Capital Stock disclosing the beneficial owners thereof. Those Stockholders
failing or refusing to comply with the Company's written demand are required by
the Code and the Articles to submit, with their tax returns, a similar
statement disclosing the actual ownership of Capital Stock and certain other
information. See "Description of Securities--Restrictions on Transfer."
B. Asset Tests. The Company must satisfy, on the last day of each
calendar quarter, two tests based on the composition of its assets. After
initially meeting the Asset Tests at the close of any quarter, the Company will
not lose its status as a REIT for failure to satisfy the Asset Tests at the end
of a later quarter solely due to changes in value. In addition, if the failure
to satisfy the Asset Tests results from an acquisition during a quarter, the
failure can be cured by disposing of non-qualifying assets within 30 days after
the close of that quarter. The Company intends to maintain adequate records of
the value of its assets to insure compliance with the Asset Tests, and will
take such other actions within 30 days after the close of any quarter as may be
required to cure any non-compliance.
1. 75% Asset Test. At least 75% of the value of the Company's total
assets must be represented by "real estate assets," cash, cash items (including
receivables from the operations of the Company) and government securities (the
"75% Asset Test"). Real estate assets include interests in real property
(including undivided interests in real property, leaseholds of land and options
to acquire land), interests in mortgages on real property, shares in other
qualifying REITs and property attributable to certain temporary investments of
new capital for a one year period beginning on the date the REIT received the
new capital. Property will qualify as attributable to the temporary investment
of new capital if the property is stock or a debt instrument and the money used
to purchase such stock or debt instrument is received by the REIT in exchange
for stock in the REIT (other than amounts received pursuant to a dividend
reinvestment plan) or in a public offering of debt obligations which have a
maturity of at least five years. The Company owns the properties, and the
Company represents that the purchase contracts apportion no more than 5% of the
purchase price of any property to property other than "real property," as
defined in the Code. In addition, the Company represents that it does not and
will not rent personal property to any tenant at any property, and has
maintained and will maintain depreciation schedules which corroborate this
representation. In addition, the Company has and will invest funds not used
to acquire properties in cash sources, GNMA certificates, REMIC interests, "new
capital" investments or other liquid investments which will allow it to qualify
under the 75% Asset
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Test. Therefore, the Company's investment in the properties will constitute
"real estate assets" and should allow the Company to meet the 75% Asset Test.
2. Limitation Tests. The remaining 25% of the Company's assets
generally may be invested without restriction, although if invested in
securities, such securities may not exceed either: (i) 5% of the value of the
Company's total assets as to any one non-government issuer; or (ii) 10% of the
outstanding voting securities of any one issuer. A partnership interest held
by a REIT is not considered a "security" for purposes of these tests. The
Company represents that as of the date hereof, it does not own any stock or
securities of any other company, and will not acquire securities which could
cause the Company to violate these limitation tests.
C. Gross Income Tests. The Company must satisfy for each calendar year
three separate tests based on the composition of its gross income, as
determined under its method of accounting. For purposes of these tests, if the
Company invests in a partnership, it will be treated as receiving its share of
the income and loss of the partnership, and the gross income of the partnership
will retain the same character in the hands of the Company as it has in the
hands of the partnership.
1. The 75% Gross Income Test (the "75% Test"). At least 75% of the
Company's gross income for the taxable year must result from "rents from real
property" (as defined below), interest on obligations secured by real property
mortgages, gains from the sale of interests in real property and real estate
mortgages (other than gain from property held primarily for sale to customers
in the ordinary course of the Company's trade or business), dividends from
other qualifying REITs, certain other investments relating to real property or
mortgages thereon, and, for a limited time, income from the investment of new
capital. Income will qualify as attributable to the temporary investment of
"new capital" if the income is attributable to the ownership of a stock or debt
instrument, but only during the one year period beginning on the date the REIT
receives such "new capital." New capital is defined as amounts received in
exchange for the issuance of stock (other than amounts received pursuant to a
dividend reinvestment plan) or a public offering of debt obligations which have
a maturity of at least five years. The Company will invest funds not otherwise
invested in properties in cash sources, GNMA certificates, REMIC interests,
"new capital" investments or other liquid investments which will allow the
Company to qualify under the 75% Test.
Income attributable to a lease of real property will generally qualify as
"rent from real property" under the 75% Test (and the 95% Test described below)
subject to the rules discussed below:
(i) Rent from a particular tenant will not qualify if the Company,
or an owner of 10% or more of the stock of the Company, directly or
indirectly owns 10% or more of the stock, assets or net profits of the
tenant.
(ii) The portion of rent attributable to personal property rented
with real property will not qualify unless the portion attributable to
personal property is 15% or less of the total rent received under the
lease.
(iii) Rent will not qualify if it is based in whole, or in part, on
the income or profits of any person. However, rent will not fail to
qualify if it is based on a fixed percentage (or designated varying
percentages) of receipts or sales, including amounts above a base amount
so long as the base amount is fixed at the time the lease is entered
into, the provisions are in
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accordance with normal business practice and the arrangement is not an
indirect method for basing rent on income or profits.
(iv) Rental income will not qualify if the Company furnishes or
renders services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent that the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space, and are not otherwise considered
"rendered to the occupant."
The Company represents that:
(i) The leases provided to Counsel represent the only arrangements
between the Company and tenants with regard to the rental of the
properties or any portion thereof;
(ii) It has not and will not directly or indirectly own 10% or more
of any tenant that leases space in the properties;
(iii) The portion of any payments received under each lease which
are attributable to personal property constitutes less than 15% of the
total rent received under such lease, and the depreciation schedules
maintained for each property corroborate this representation;
(iv) Has not and will not charge rent that is based on the income or
profits of any person in certain properties and that the percentage rent
clauses, if any, in its current leases are not intended to provide the
Company with a prohibited share of income or profits; and
(v) Services received by tenants in connection with their leases to
the properties are usually or customarily rendered in connection with the
rental of space, and therefore the provision of these services will not
cause the rents received with respect to the properties to fail to
qualify as rents from real property for purposes of the 75% and 95%
Tests. The Company intends to hire "independent contractors" to render
services which it believes are not "usually or customarily rendered" in
connection with the rental of space, including physical development or
redevelopment activities.
2. The 95% Gross Income Test (the "95% Test"). In addition to deriving
75% of its gross income from the sources listed above, at least 95% of the
Company's gross income for the taxable year must be derived from the
above-described qualifying income, or from dividends, interest or gains from
the sale or disposition of stock or other securities that are not Dealer
Property (as defined below). Dividends and interest on obligations not
collateralized by an interest in real property qualify under the 95% Test, but
not under the 75% Test. The Company will invest funds not otherwise invested
in properties in cash sources, GNMA certificates, REMIC interests, "new
capital" investments or other liquid investments which will allow the Company
to qualify under the 95% Test. For purposes of determining whether the Company
complies with the 75% and 95% Tests, gross income does not include income from
prohibited transactions.
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The Company's share of income from the properties will primarily give rise
to rental income qualifying under the 75% and 95% Tests, and gains on sales of
the properties, substantially all of which will generally qualify under the 75%
and 95% Tests. The Company's anticipated operating results indicate that it is
unlikely that the Company will have sufficient, if any, non-qualifying income
to cause adverse consequences. The Company represents that the only income it
has received has been from the leases entered into with tenants at the
properties, and interest income from the investment of amounts not otherwise
invested in properties.
If the Company fails to satisfy either the 75% or 95% Tests for any
taxable year, it may retain its status as a REIT for such year if the failure
was due to reasonable cause and not due to willful neglect, the Company
attached to its return a schedule of the sources of its income, and any
incorrect information on the schedules was not due to fraud. If this relief
provision was available, the Company would remain subject to tax with respect
to the excess net income.
3. The 30% Test. The Company must derive less than 30% of its gross
income for each taxable year from the sale or other disposition of: (i) real
property held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities held for less than one year;
and (iii) property in a prohibited transaction. The Company currently intends
to hold the properties for more than four years and not to own any property
that will cause a prohibited transaction and will structure its activities to
comply with this test. In addition, the Company will invest amounts not
invested in properties in investments that will allow it to comply with this
test, and therefore may maintain increased cash reserves or make relatively low
earning liquid investments in order to prevent violations of this test.
D. Annual Distribution Requirements (the "Distribution Test"). In
addition to the other tests described above, the Company is required to
distribute dividends (other than capital gain dividends) to the Stockholders
each year in an amount at least equal to the difference between: (i) the sum
of: (a) 95% of the Company's REIT taxable income (computed without regard to
the dividends paid deduction and the REIT's net capital gain); and (b) 95% of
the net income (after tax), if any, from foreclosure property; and (ii) the sum
of certain items of non-cash income. Whether sufficient amounts have been
distributed is based on amounts paid in the taxable year to which they relate,
or in the following taxable year if the Company files an election before it
timely files its tax return for such year and if paid on or before the first
regular Distribution payment after such declaration. If the Company fails to
meet the Distribution Test as a result of an adjustment to the Company's tax
return by the Service, the Company may cure the failure by paying a "deficiency
dividend" (plus penalties and interest to the Service) within a specified
period. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100% of its REIT
taxable income, as adjusted, it will be subject to tax on the undistributed
portion.
The Company intends to pay sufficient dividends each year to satisfy the
Distribution Test. See "Investment Objectives and Policies--Distributions."
It is possible that the Company may not have sufficient cash or other liquid
assets to meet the Distribution Test due to tax accounting rules and other
timing differences. The Company will closely monitor the relationship between
its REIT taxable income and cash flow and, if necessary to comply with the
Distribution Test, will borrow funds to provide cash flow needed to satisfy the
distribution requirement. The Company represents that to date, it has
distributed dividends in excess of its real estate investment trust taxable
income, which thereby has allowed it to meet the Distribution Test.
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Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year and the relief provisions are not available or cannot
be met, the Company will not be able to deduct its dividends and will be
subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, thereby reducing cash available for
Distributions. In such event, all Distributions to Stockholders (to the extent
of current and accumulated earnings and profits), will be taxable as ordinary
income. Unless entitled to relief under specific statutory provisions, the
Company will not be eligible to elect REIT status for the four taxable years
following the year during which qualification was lost.
Prohibited Transactions. As discussed above, the Company will be subject
to a 100% tax on any net income from "prohibited transactions". Net income
from a prohibited transaction arises from the sale or exchange of property held
for sale to customers in the ordinary course of its trade or business ("Dealer
Property") unless such property is foreclosure property. In addition, there is
an exception for certain sales of Dealer Property so long as the property sold:
(i) is a real estate asset under the 75% Asset Test; (ii) has been held for at
least four years; (iii) has capitalized expenditures not in excess of 30% of
the net sales price; (iv) was held for production of rental income for at least
four years; and (v) when combined with other sales in the year, does not cause
the REIT to have made more than seven sales of Dealer Property during the
taxable year. Although the Company will eventually sell each of the
properties, its primary intention in acquiring and operating the properties is
the production of rental income and it does not expect to hold any property for
sale to customers in the ordinary course of its trade or business.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, Distributions paid to the Company's taxable domestic
Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be ordinary dividend income.
Dividend income is characterized as "portfolio" income under the passive loss
rules and cannot be offset by a Stockholder's current or suspended passive
losses. Corporate Stockholders cannot claim the dividends received deduction
for such dividends unless the Company loses its REIT status. Distributions
that are designated as capital gain dividends will be taxed as long-term
capital gains (to the extent they do not exceed the Company's actual net
capital gain for the taxable year). However, corporate Stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and
profits are treated first as a tax-deferred return of capital to the
Stockholder, reducing the Stockholder's tax basis in its Shares by the amount
of such distribution. Because earnings and profits are reduced for
depreciation and other non-cash items, it is possible that a portion of each
Distribution will constitute a tax-deferred return of capital. Distributions
in excess of the Stockholder's tax basis are taxable as capital gains.
Although Stockholders generally recognize taxable income in the year that a
Distribution is received, any Distribution declared by the Company in October,
November or December of any year and payable to a Stockholder of record on a
specific date in any such month shall be treated as both paid by the Company
and received by the Stockholder on December 31 of the year it was declared even
if paid by the Company during January of the following calendar year. Because
the Company is not a pass-through entity for tax purposes, Stockholders may not
use any operating or capital losses of the Company to reduce their tax
liabilities.
In general, the sale of Shares held for more than 12 months will produce
long-term capital gain or loss, while all other sales will produce short-term
gain or loss, in each case with the gain or loss equal to the difference
between the amount of cash received form the sale and the Stockholder's basis
in the Shares sold. However, any loss from a sale or exchange of Shares by a
Stockholder who has held such
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stock for six months or less (after applying certain holding period rules) will
be treated as a long-term capital loss, to the extent of distributions from the
Company that the Stockholder treated as long-term capital gains. In addition,
please note that Distributions in excess of earnings and profits that reduce a
Stockholder's basis will tend to increase the gain or sale.
Backup Withholding. The Company will report to its domestic Stockholders
and to the Service the amount of dividends paid during each calendar year, and
the amount (if any) of tax it withheld. A Stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such
Stockholder: (a) is a corporation or comes within other exempt categories; or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption, and otherwise complies with applicable requirements. A Stockholder
that does not provide the Company with its correct taxpayer identification
number may also be subject to penalties imposed by the Service. Any amount
paid as backup withholding can be credited against the Stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any Stockholders who fail to certify their
non-foreign status to the Company. See "--Taxation of Foreign Stockholders" in
this Section.
Taxation of Tax-Exempt Stockholders. Distributions by the Company to a
Stockholder that is a tax-exempt entity should not constitute UBTI unless the
tax-exempt entity borrows funds to acquire its Shares (or otherwise incurs
acquisition indebtedness within the meaning of the Code with respect to its
acquisition of the Shares), or the Shares are otherwise used in an unrelated
trade or business of the tax-exempt entity.
Notwithstanding the foregoing, if the Company constitutes a "Pension-Held
REIT", certain Qualified Plans that are Stockholders could recognize UBTI even
without incurring debt to acquire their Shares. The Company will constitute a
Pension-Held REIT if either: (i) at least one Qualified Plan holds more than
25% (by value) of the Shares; or (ii) one or more Qualified Plans (each of
which owns more than 10% by value of the Shares) hold an aggregate of more than
50% (by value) of the Shares. If the Company constitutes a Pension-Held REIT,
then a portion of the dividends received by any Qualified Plan that holds 10%
or more of the Shares will constitute UBTI based on the ratio of the Company's
gross income (less allowable deductions) which is considered UBTI itself, bears
to the Company's total gross income (less allowable deductions).
Notwithstanding the foregoing, the Ownership Limit contained in the Articles
should prevent the Company from unintentionally constituting a Pension-Held
REIT because no Stockholder, whether a Qualified Plan or otherwise, is
permitted to own more than 9.8% (by value) of the Shares without requesting and
obtaining prior Board approval.
Taxation of Foreign Stockholders. The following discussion is intended
only as a summary of the rules governing income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Foreign Stockholders"). Prospective Foreign
Stockholders should consult with their own tax advisors to determine the impact
of federal, state, and local income tax laws on an investment in the Company,
including any reporting requirements.
In general, Foreign Stockholders will be subject to regular U.S. income
tax with respect to their investment in the Company if the investment is
"effectively connected" with the conduct of a trade or business in the U.S. A
corporate Foreign Stockholder that receives income that is treated as
effectively connected with a U.S. trade or business may also be subject to the
"branch profits tax" under Code Section 884. The following discussion applies
to Foreign Stockholders whose investment in the Company is not considered
"effectively connected."
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Generally, any dividend that constitutes ordinary income for tax purposes
will be subject to a U.S. tax equal to the lesser of 30% of the dividend or the
rate in an applicable tax treaty. A Distribution in excess of the Company's
earnings and profits is treated first as a return of capital that will reduce a
Foreign Stockholder's basis in its Shares (but not below zero) and then as gain
from the disposition of such Shares, subject to the rules discussed below for
dispositions.
Distributions by the Company that are attributable to gain from the sale
or exchange of a U.S. real property interest are taxed to a Foreign Stockholder
as if the Distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Foreign Stockholder will be taxed at the
capital gain rates applicable to a U.S. stockholder (subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of
non-resident alien individuals). In addition, such dividends may also be
subject to a 30% branch profits tax when made to a corporate Foreign
Stockholder that is not entitled to treaty exemptions.
Although tax treaties may reduce the Company's withholding obligations,
the Company will generally be required to withhold from dividends to Foreign
Stockholders, and remit to the Service, 34% of designated capital gain
dividends and 30% of ordinary dividends paid out of earnings and profits. In
addition, if the Company designates prior dividends as capital gain dividends,
subsequent dividends, up to the amount of such prior dividends, will be treated
as capital gain dividends for purposes of withholding. If the amount of tax
withheld by the Company with respect to a distribution to a Foreign Stockholder
exceeds its U.S. tax liability with respect to such distribution, the Foreign
Stockholder may file for a refund of such excess from the Service. The 34%
withholding tax rate on capital gain dividends currently corresponds to the
maximum income tax rate applicable to corporations, but is higher than the 28%
maximum rate on capital gains of individuals.
Unless the Shares constitute a U.S. real property interest under Code
Section 897, a sale of Shares by a Foreign Stockholder generally will not be
subject to U.S. income taxation. The Shares will not constitute a U.S. real
property interest if the Company is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which at all times during a specified
testing period less than 50% in value of its shares is held directly or
indirectly by Foreign Stockholders. It is currently anticipated that the
Company will be a domestically controlled REIT, and therefore that the sale of
Shares will not be subject to such taxation. However, because the Shares may
be publicly traded, no assurance can be given that the Company will continue to
be a domestically controlled REIT. Notwithstanding the foregoing, capital gain
not subject to such rules will be taxable to a Foreign Stockholder if the
Foreign Stockholder is a non-resident alien individual who is present in the
U.S. for 183 days or more during the taxable year and certain other conditions
apply, in which case the non-resident alien individual will be subject to a 30%
tax on his or her U.S. source capital gains. If the Company did not constitute
a domestically-controlled REIT, whether a Foreign Stockholder's sale of stock
would be subject to tax as a sale of a U.S. real property interest would depend
on whether the Shares were "regularly traded" on an established securities
market and on the size of the selling Stockholder's interest in the Company.
If the gain on the sale of Shares was subject to taxation under these rules,
the Foreign Stockholder would be subject to the same treatment as a U.S.
Stockholder with respect to the gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). In addition, Distributions that are treated as gain from the
disposition of stock and are subject to tax under Code Section 897 may also be
subject to a 30% branch profits tax when made to a foreign corporate
stockholder that is not entitled to treaty exemptions. In any event, a
purchaser of Shares from a Foreign Stockholder will not be required to withhold
on the purchase price if the purchased shares are "regularly traded" on an
established securities market or if the Company is a domestically-controlled
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REIT. Otherwise, the purchaser of stock may be required to withhold 10% of the
purchase price and remit this amount to the Service.
If the proceeds of a disposition of Shares are paid by or through a U.S.
office of a broker-dealer, the payment is subject to information reporting and
to backup withholding unless the disposing Foreign Stockholder certifies as to
his name, address and non-U.S. status or otherwise establishes an exemption.
Generally, U.S. information reporting and backup withholding will not apply to
a payment of disposition proceeds if the payment is made outside the U.S.
through a non-U.S. office of a non-U.S. broker-dealer. U.S. information
reporting requirements (but not backup withholding) will apply, however, to a
payment of disposition proceeds outside the U.S. if (i) the payment is made
through an office outside the U.S. of a broker-dealer that is either (a) a U.S.
person, (b) a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the U.S. or (c) a
"controlled foreign corporation" for U.S. federal income tax purposes, and (ii)
the broker-dealer fails to initiate documentary evidence that the Stockholder
is a Foreign Stockholder and that certain conditions are met or that the
Foreign Stockholder otherwise is entitled to an exemption.
OTHER TAX CONSIDERATIONS
Distribution Reinvestment Program. Stockholders who purchased Shares
pursuant to the Company's Prior Offering as well as Stockholders who purchase
shares in the Offering and participate in the Distribution Reinvestment Program
will recognize taxable dividend income in the amount they would have received
had they not elected to participate, even though they receive no cash. These
deemed dividends will be treated as actual dividends from the Company to the
participating Stockholders and will retain the character and tax effects
applicable to all dividends. See "--Taxation of Stockholders" in this Section.
Capital Stock received under the program will have a holding period beginning
with the day after purchase, and a tax basis equal to their cost, which is the
gross amount of the deemed Distribution.
State and Local Taxes. The Company and its Stockholders may be subject to
state or local taxation in various jurisdictions, including those in which it
or they transact business or reside. The state and local tax treatment of the
Company and its Stockholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective Stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on a investment in the Shares of the Company.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of Code Section 4975 that may be
relevant to a prospective purchaser. This discussion does not deal with all
aspects of ERISA or Code Section 4975 or, to the extent not preempted, state
law that may be relevant to particular employee benefit plan Stockholders
(including plans subject to Title I of ERISA, other employee benefit plans and
IRAs subject to the prohibited transaction provisions of Code Section 4975, and
governmental plans and church plans that are exempt from ERISA and Code Section
4975 but that may be subject to state law requirements) in light of their
particular circumstances.
In considering whether to invest a portion of the assets of a pension,
profit-sharing, retirement or other employee benefit plan ("Plan"), fiduciaries
of the Plan should consider, among other things whether the investment: (i)
will be in accordance with the documents and instruments covering the
investments by such Plan; (ii) will allow the Plan to satisfy the
diversification requirements of ERISA, if applicable;
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(iii) will result in UBTI to the Plan (see "Federal Income Tax
Considerations--Taxation of Stockholders--Taxation of Tax-Exempt
Stockholders"); (iv) will provide sufficient liquidity; and (v) is prudent
under the general ERISA standards. In addition to imposing general fiduciary
standards of investment prudence and diversification, ERISA and the
corresponding provisions of the Code prohibit a wide range of transactions
involving the assets of the Plan and persons who have certain specified
relationships to the Plan ("parties in interest" within the meaning of ERISA,
"disqualified persons" within the meaning of the Code). Thus, a designated
Plan fiduciary considering an investment in the Shares should also consider
whether the acquisition or the continued holding of the Shares might constitute
or give rise to a direct or indirect prohibited transaction.
The fiduciary of an IRA or of an employee benefit plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees (a "Non-ERISA Plan") should consider that such
an IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Code Section 4975 and
permitted under applicable state law.
The Department of Labor (the "DOL") has issued final regulations (the "DOL
Regulations") which provide guidance on the definition of Plan assets under
ERISA. Under the DOL Regulations, if a Plan acquires an equity interest in an
entity, which is neither a "publicly-offered security" nor a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended, the Plan's assets would include, for ERISA purposes, both the equity
interest and an undivided interest in each of the entity's underlying assets
unless certain specified exceptions apply. The DOL Regulations define a
publicly-offered security as a security that is "widely-held",
"freely-transferable," and either part of a class of securities registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
sold pursuant to an effective registration statement under the Act (provided
the securities are registered under the Exchange Act within 190 days after the
end of the fiscal year of the issuer during which the offering occurred). The
Shares are being sold in an offering registered under the Act and will be
registered under the Exchange Act.
The DOL Regulations provide that a security is "widely-held" only if it is
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely-held" because the number of independent investors falls below 100
subsequent to the initial offering as a result of events beyond the issuer's
control. The Company represents that the Shares are held by over 100
independent investors and therefore are currently considered "widely-held."
The DOL Regulations provide that whether a security is
"freely-transferable" is a factual question to be determined on the basis of
all relevant facts and circumstances. The DOL Regulations further provide that
when a security is part of an offering in which the minimum investment is
$10,000 or less, as is the case with this Offering, certain restrictions
ordinarily will not, alone or in combination, affect the finding that such
securities are freely-transferable. One type of restriction that will not
affect a finding that securities are freely transferable is a restriction or
prohibition against a transfer or assignment which would result in a
termination or reclassification of an entity for federal or state income tax
purposes. The Company believes that the Ownership Limit imposed under the
Articles on the transfer of the Shares are designed to prevent violations of
the five-or-fewer rule (which would cause a termination of REIT status for tax
purposes) or which are otherwise permitted under the DOL Regulations and,
therefore, will not cause the Shares to not be "freely-transferable." The DOL
Regulations are interpretive in nature and,
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therefore, no assurance can be given that the DOL and the United States
Department of the Treasury will not conclude that the Shares are not
freely-transferable.
Assuming that the Shares are "widely-held," the Company believes that the
Shares will be "publicly offered securities" for purposes of the Regulations
and that the assets of the Company will not be deemed to be "plan assets" of
any Plan that invests in the Shares.
DESCRIPTION OF SECURITIES
GENERAL
The total number of Shares of stock which the Company has authorized is
30,000,000 of which 24,000,000 shares are common stock, $.01 par value per
share (the "Common Stock"), and 6,000,000 shares are preferred stock, $.01 par
value per share (the "Preferred Stock"). The Shares of Common Stock offered
hereby will be duly authorized, fully paid and nonassessable.
Stockholders have no preemptive rights to purchase or subscribe for
securities of the Company, and the Common Stock is not convertible or subject
to redemption at the option of the Company. The Common Stock is entitled to
one vote per share and Shares do not have cumulative voting rights. Subject to
the rights of the holders of any class of capital stock of the Company having
any preference or priority over the Common Stock, the Stockholders are entitled
to Distributions in such amounts as may be declared by the Board from time to
time out of funds legally available for such payments and, in the event of
liquidation, to share ratably in any assets of the Company remaining after
payment in full of all creditors and provisions for any liquidation preferences
on any outstanding Preferred Stock.
The Company may, at the discretion of the Board, authorize the listing,
issuance and sale of Shares on a national securities exchange or market. It is
not the present intention of the Company to list the Shares prior to the
termination of this Offering. However, the Company anticipates that by 1999 it
will apply to have the Shares listed, provided the Company meets the applicable
listing requirements and the Board determines such action to be in the best
interests of the Company.
Generally, the Directors, without further action by the Stockholders, are
authorized to issue up to 6,000,000 shares of Preferred Stock in one or more
series and to determine and fix, as to any series, all the relative rights and
preferences of shares including, without limitation, preferences, limitations
or relative rights with respect to redemption rights, conversion rights, if
any, voting rights, if any, dividend rights and preferences on liquidation.
It is the current intention of the Company to issue only the Shares and
Soliciting Dealer Warrants as described below, although it may from time to
time issue other securities through public offerings or private placements.
The Company may also issue shares of either Common Stock or Preferred Stock in
whole or partial payment for a property if, in the judgment of the Board, such
a transaction would be advantageous to the Company.
All Shares are fully transferable, subject only to restrictions which
would cause loss of REIT status. See "--Restrictions on Transfer" in this
Section. However, each person acquiring Shares must notify the Company of any
such transfer and provide his name, address, taxpayer identification number,
number of Shares acquired, Service Form W-9 and the name of the transferor
Stockholder prior to any
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Share transfer being recorded on the books and records of the Company.
Additionally, the transferee Stockholder must present the stock certificate
representing such Shares or an affidavit of lost certificate. Such properly
executed documentation must be presented one calendar month prior to the last
date of the current quarter to be effective as of the first day of the next
quarter. Failure to provide such information could result in a transfer not
being recognized by the Company on a timely basis.
SOLICITING DEALER WARRANTS
The Company has agreed to issue and sell, and the Dealer Manager has
agreed to purchase, for the price of $.0008 per warrant, warrants (the
"Soliciting Dealer Warrants") to purchase one Share per Soliciting Dealer
Warrant in the Company equal to 2.5% of the total number of Shares sold by the
Dealer Manager (and/or the Soliciting Dealers) up to a maximum of 250,000
Soliciting Dealer Warrants. The Soliciting Dealer Warrants will be issued on a
quarterly basis commencing 60 days after the date on which the Shares are first
sold pursuant to this Offering. The Dealer Manager may retain or reallow all
Soliciting Dealer Warrants to the Soliciting Dealers, unless such issuance of
the Soliciting Dealer Warrants is prohibited by either federal or state
securities laws. The Soliciting Dealer Warrants which were to be but have not
been issued to the Dealer Manager in connection with the Prior Offering and the
Soliciting Dealer Warrants to be issued in connection with this Offering, as
well as the Shares issuable upon exercise of the Soliciting Dealer Warrants,
are being registered as part of this Offering.
Each Soliciting Dealer will receive from the Dealer Manager one Soliciting
Dealer Warrant for each 40 Shares sold by such Soliciting Dealer during this
Offering. All Shares sold by the Company other than through the Distribution
Reinvestment Program will be included in the computation of the number of
Shares sold to determine the number of Soliciting Dealer Warrants to be issued.
The holder of a Soliciting Dealer Warrant will be entitled to purchase one
Share from the Company at a price of $12 (120% of the public offering price per
Share) during the time period beginning from the date the Soliciting Dealer
Warrants are issued and ending upon October 13, 2000 (the "Exercise Period").
A Soliciting Dealer Warrant may not be exercised unless the Shares to be issued
upon the exercise of the Soliciting Dealer Warrant have been registered or are
exempt from registration in the state of residence of the holder of the
Soliciting Dealer Warrant or if a prospectus required under the laws of such
state cannot be delivered to the buyer on behalf of the Company.
Notwithstanding the foregoing, no Soliciting Dealer Warrants will be
exercisable until one year from the date of issuance. In addition, holders of
Soliciting Dealer Warrants may not exercise the Soliciting Dealer Warrants to
the extent such exercise would jeopardize the Company's status as a REIT under
the Code.
The terms of the Soliciting Dealer Warrants, including the exercise price
and the number and type of securities issuable upon exercise of a Soliciting
Dealer Warrant and the number of such Warrants may be adjusted in the event of
stock dividends, certain subdivisions, combinations and reclassification of
Shares or the issuance to Stockholders of rights, options or warrants entitling
them to purchase Shares or securities convertible into Shares. The terms of
the Soliciting Dealer Warrants also may be adjusted if the Company engages in
certain merger or consolidation transactions or if all or substantially all of
the Company's assets are sold. Soliciting Dealer Warrants are not transferable
or assignable except by the Dealer Manager, the Soliciting Dealers, their
successors in interest, or to individuals who are both officers and directors
of such a person. Exercise of these Soliciting Dealer Warrants will be under
the terms and conditions detailed in this Prospectus and in the Warrant
Purchase Agreement, which is an exhibit to the Registration Statement.
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As holders of Soliciting Dealer Warrants, persons do not have the rights
of Stockholders, may not vote on Company matters and are not entitled to
receive Distributions.
ISSUANCE OF ADDITIONAL SECURITIES AND DEBT INSTRUMENTS
The Directors are authorized to issue additional shares or convertible
securities for cash, property or other consideration on such terms as they may
deem advisable and to classify or reclassify any unissued shares of capital
stock of the Company without approval of the holders of such outstanding
securities. The Directors may cause the Company to issue debt obligations with
conversion privileges on more than one class of capital stock. The Directors
may issue debt obligations with conversion privileges on such terms and
conditions as the Directors may determine whereby the holders thereof may
acquire Shares. Subject to certain restrictions, the Directors may also cause
the Company to issue warrants, options and rights to buy Shares on such terms
as they deem advisable (notwithstanding the possible dilution in the value of
the outstanding Shares which may result from the exercise of such warrants,
options or rights to buy Shares) as part of a ratable issue to Stockholders, as
part of a public or private offering or as part of a financial arrangement with
parties other than the Advisor or Directors, officers or employees of the
Company or the Advisor.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, Shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year) or during a proportionate part of
a shorter taxable year. Further, not more than 50% of the value of the issued
and outstanding shares of capital stock may be owned, directly or indirectly,
by five or fewer individuals during the last half of a taxable year (other than
the first year) or during a proportionate part of a shorter taxable year.
Since the Board believes it is essential for the Company to continue to
qualify as a REIT, the Articles provide that no person may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.8% (the
"Ownership Limit") of the number or value of any class of the issued and
outstanding stock of the Company. The Directors, upon receipt of a ruling from
the Service, an opinion of counsel or other evidence satisfactory to the
Directors and upon other conditions as the Directors may direct, may also
exempt a proposed transferee from the Ownership Limit. As a condition of this
exemption, the intended transferee must give written notice to the Company of
the proposed transfer no later than 15 days prior to any transfer which, if
effected, would result in the intended transferee owning shares in excess of
the Ownership Limit. The Directors may require opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable in
order to determine or ensure the Company's status as a REIT. Any transfer of
Shares that would: (i) create a direct or indirect ownership of Shares in
excess of the Ownership Limit; (ii) result in the Shares being owned by fewer
than 100 persons; or (iii) result in the Company being "closely-held" within
the meaning of Code Section 856(b), shall be null and void, and the intended
transferee will acquire no right to the Shares. The foregoing restrictions on
transferability and ownership will not apply if the Directors determine that it
is no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT.
Any purported transfer of Shares that would result in a person owning
Shares in excess of the Ownership Limit or cause the Company to become
"closely-held" under Code Section 856(b) that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"). Upon the
Company determining the existence of Excess Shares, it shall make a demand upon
such Stockholders to sell such
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Excess Shares. Within 30 days after the Company requests such holder to sell
such Excess Shares, the Excess Shares shall be deemed to have been offered for
sale to the Company, or its designee, at a price per Share equal to the lesser
of: (a) the price per Share in the transaction that created such Excess Shares
(or, in the case of a devise or gift, the market price at the time of such
devise or gift); and (b) the market price of the equity shares to which such
Excess Shares relates on the date the Company, or its designee, accepts such
offer. The Company shall have the right to accept such offer for a period of
30 days after the later of: (i) the date of Transfer which resulted in such
Excess Shares; and (ii) the date the Board determines in good faith that a
Transfer resulting in Excess Shares has occurred, if the Company does not
receive a notice of such Transfer pursuant to the terms of the Articles but in
no event later than a permitted Transfer pursuant to and in compliance with the
terms of the Articles. If the Company accepts such offer, it shall be required
to pay the full purchase price for such Shares within such 30 day period.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 9.8% (or such other percentage between 1/2 of 1% and 5%,
as provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding Shares must give the Company written notice
by January 31st of each year. In addition, each Stockholder shall, upon
demand, be required to disclose to the Company in writing all information
regarding the direct, indirect and constructive ownership of Shares as the
Directors deem reasonably necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
Shares might receive a premium for their Shares over the then prevailing market
price or a price which such holders might believe to be otherwise in their best
interest.
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS
Each Stockholder shall be bound by and deemed to have agreed to the terms
of the Organizational Documents by his, her or its election to become a
Stockholder. The Organizational Documents, consisting of the Articles and
Bylaws, were reviewed and ratified by a majority of the Directors (including a
majority of the Independent Directors) at the first meeting of such Directors.
The following is a summary of certain provisions of the Organizational
Documents and does not purport to be complete. This summary is qualified in
its entirety by specific reference to the Organizational Documents filed as
Exhibits to the Company's Registration Statement.
CERTAIN ARTICLE AND BYLAW PROVISIONS
Stockholders' rights and related matters are governed by the Maryland
General Corporation Law ("MGCL"), the Articles and Bylaws. Certain provisions
of the Articles and Bylaws, which are summarized below, may make it more
difficult to change the composition of the Board and may discourage or make
more difficult any attempt by a person or group to obtain control of the
Company.
STOCKHOLDERS' MEETINGS
An annual meeting of the Stockholders will be held not less than 30 days
after the delivery of the Company's annual report, but within six months after
the end of each fiscal year, for the purpose of
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electing Directors and for the transaction of such other business as may become
before the meeting. A special meeting of the Stockholders may be called by the
chief executive officer, a majority of the Directors or a majority of the
Independent Directors, and shall be called by an officer of the Company upon
written request of the Stockholders holding in the aggregate not less than 10%
of the outstanding Shares. Upon receipt of a written request, either in person
or by mail, stating the purpose(s) of the meeting, the Company shall provide
all Stockholders, within ten days after receipt of said request, written
notice, either in person or by mail, of a meeting and the purpose of such
meeting to be held on a date not less than 15 nor more than 60 days after the
distribution of such notice, at a time and place specified in the request, or
if none is specified, at a time and place convenient to the Stockholders. At
any meeting of the Stockholders, each Stockholder is entitled to one vote for
each Share owned of record on the applicable record date. In general, the
presence in person or by proxy of a majority of the outstanding Shares shall
constitute a quorum, and the majority vote of the Stockholders will be binding
on all Stockholders of the Company.
BOARD OF DIRECTORS
The Articles and Bylaws provide that the number of directors of the
Company may not be fewer than three nor more than nine, a majority of which
will be independent. This provision may only be amended by a vote of a
majority of the Board. A vacancy in the Board caused by the death, resignation
or incapacity of a Director or by an increase in the number of Directors
(within the limits described above) may be filled by the vote of a majority of
the remaining Directors. With respect to a vacancy created by the death,
resignation or incapacity of an Independent Director, the remaining Independent
Directors shall nominate a replacement. Vacancies occurring as a result of the
removal of a Director by Stockholders shall be filled by a majority vote of the
Stockholders. Any Director may resign at any time and may be removed with or
without cause by the Stockholders owning at least a majority of the outstanding
Shares.
A Director shall have had at least three years of relevant experience
demonstrating the knowledge and experience required to successfully acquire and
manage the type of assets being acquired by the Company. At least one of the
Independent Directors shall have three years of relevant real estate
experience.
STOCKHOLDER VOTING RIGHTS
Except as otherwise provided, all Shares shall have equal voting rights.
Stockholders are entitled to vote by written consent and do not have cumulative
voting rights. The voting rights per share of equity securities of the Company
(other than the Shares) sold in a private offering shall not exceed voting
rights which bear the same relationship to the voting rights of the Shares of
the Company as the consideration paid to the Company for each privately offered
Company share bears to the book value of each Share.
All elections for Directors shall be decided by the affirmative vote of a
majority of votes cast at a meeting or without a meeting, provided that a
quorum is present (defined as a majority of the aggregate number of votes
entitled to be cast thereon). Any or all Directors may be removed, with or
without cause, by the affirmative vote of the holders of at least a majority of
the outstanding Shares entitled to vote at an annual or special meeting. All
other questions shall be decided by a majority of the votes cast at a meeting.
If no meeting is held, 100% of the Stockholders must consent in writing.
Without concurrence of a majority of the outstanding Shares, the Directors
may not: (a) amend the Articles, except for amendments which do not adversely
affect the rights, preferences and privileges
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of the Stockholders, including amendments to provisions relating to Director
qualifications, fiduciary duty, liability and indemnification, conflicts of
interest, investment policies or investment restrictions; (b) sell all or
substantially all of the Company's assets other than in the ordinary course of
the Company's business or in connection with liquidation and dissolution; (c)
cause a merger or other reorganization of the Company; or (d) dissolve or
liquidate the Company, other than before the initial investment in a property
by the Company. For purposes of the above provision, a sale of all or
substantially all of the Company's assets shall mean the sale of two-thirds or
more of the Company's assets based on the total number of properties or the
current fair market value of these assets.
With respect to Shares owned by the Advisor, the Sponsor, the Directors or
any Affiliate, neither the Advisor, the Sponsor, the Directors, nor any
Affiliate may vote or consent on matters submitted to the Stockholders
regarding the removal of the Advisor, the Sponsor, the Directors or any
Affiliate or any transaction between the Company and any of them. In
determining the requisite percentage and interest of Shares necessary to
approve a matter on which the Advisor, the Sponsor, the Directors and any
Affiliate may not vote or consent, any Shares owned by them shall not be
included.
Each Stockholder entitled to vote may do so: (i) at a meeting in person,
by written proxy or by a signed writing or consent directing the manner in
which he or she desires that his or her vote be cast (which must be received by
the Directors prior to such meeting); or (ii) without a meeting by a signed
writing or consent directing the manner in which he or she desires that his or
her vote be cast (which must be received by the Directors prior to the date the
votes of the Stockholders are to be counted).
STOCKHOLDER LISTS; INSPECTION OF BOOKS AND RECORDS
An alphabetical list of names, record addresses and business telephone
numbers (if any) of all Stockholders with the number of Shares held by each,
shall be maintained as part of the books and records of the Company at the
Company's principal office. Such list shall be updated at least quarterly and
shall be open for inspection by a Stockholder or his designated agent upon such
Stockholder's request. Such list shall also be mailed to any Stockholder
requesting the list within ten days of receipt of a request. The Company may
impose a reasonable charge for expenses incurred in reproducing such list and
may require the Stockholder requesting such Stockholder's list to represent
that the list is requested with respect to matters relating to Stockholders'
voting rights under the Articles and the exercise of Stockholders' rights under
federal proxy laws.
Any Stockholder and any designated representative thereof shall be
permitted access to all records of the Company at all reasonable times and may
inspect and copy any of them. In addition, the books and records of the
Company shall be open for inspection by state securities administrators upon
reasonable notice and during normal business hours at the principal place of
business of the Company.
AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS
The Articles may be amended by the affirmative vote of a majority of the
then outstanding Shares, without the necessity for concurrence by the
Directors. Unless otherwise stated in the Articles, the Bylaws may be amended
in a manner not inconsistent with the Articles by a majority vote of the
Directors, except that an amendment of any matter which requires greater than a
majority vote of the Directors must be amended by the requisite vote and no
Bylaw adopted by the Stockholders may be amended by the Directors if the
provision of such Bylaw provides that it may not be amended without a
Stockholder vote.
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DISSOLUTION OR TERMINATION OF THE COMPANY
The Company is an infinite-life REIT which may be dissolved pursuant to
the procedures set forth in the MGCL at any time by the affirmative vote of a
majority of the Stockholders. However, the Company anticipates that, by 1999,
the Board of Directors will determine whether it is in the best interests of
the Company to: (i) apply to have the Shares listed for trading on a national
stock exchange or included for quotation on a national market system, provided
the Company meets the then applicable listing requirements; and/or
(ii) commence a subsequent public offering after completion of this Offering.
If listing of the Shares is not feasible by 1999, the Board may decide to:
(i) sell the Company's assets individually; (ii) list the Shares at a future
date to provide liquidity for Stockholders; or (iii) liquidate the Company
within ten years of the date thereof.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that: (a) with respect to an annual meeting of
Stockholders, nominations of persons for election to the Board and the proposal
of business to be considered by Stockholders may be made only: (i) pursuant to
the Company's notice of the meeting; (ii) by the Board; or (iii) by a
Stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws; and (b) with respect to
special meetings of Stockholders, only the business specified in the Company's
notice of meeting may be brought before the meeting of Stockholders, and
nominations of persons for election to the Board may be made only: (i)
pursuant to the Company's notice of the meeting; (ii) by the Board; or (iii)
provided that the Board has determined that directors shall be elected at such
meeting, by a Stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the Bylaws.
RESTRICTIONS ON CERTAIN CONVERSION TRANSACTIONS AND ROLL-UPS
The Articles require that 66 2/3% in interest of the Stockholders and all
the Independent Directors approve certain exchange offers, mergers,
consolidations or similar transactions involving the Company in which
the Stockholders receive securities in a surviving entity having a
substantially longer duration or materially different investment objectives and
policies, or that provides significantly greater compensation to management
from that which is described in this Prospectus, except for any such
transaction effected because of changes in applicable law, or to preserve tax
advantages for a majority in interest of the Stockholders. In should be noted
that standards such as "substantially longer life," "materially different
investment objectives and policies" or "provides significantly greater
compensation to management" are not defined and are by their nature potentially
ambiguous. Any ambiguities will be resolved by the Directors.
In connection with a proposed Roll-Up, as defined below, an appraisal of
all of the Company's assets shall be obtained from a person with no current or
prior business or personal relationship with the Advisor or the Directors and
who is engaged, to a substantial extent, in the business of rendering opinions
regarding the value of assets of the type held by the Company (an "Independent
Expert"). The appraisal will be included in a prospectus used to offer the
securities of a Roll-Up Entity, as defined below, and shall be filed with the
Commission and the state regulatory commissions as an exhibit to the
registration statement for the offering. Accordingly, an issuer using the
appraisal shall be subject to liability for violation of Section 11 of the Act
and comparable provisions under state laws for any material misrepresentations
or material omissions in the appraisal. The Company's assets shall be
appraised in a consistent manner. The appraisal shall be based on an
evaluation of all relevant information, and shall
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indicate the value of the Company's assets as of a date immediately prior to
the announcement of the proposed Roll-Up transaction. The appraisal shall
assume an orderly liquidation of the Company's assets over a 12-month period.
The terms of the engagement of the Independent Expert shall clearly state that
the engagement is for the benefit of the Company and its Stockholders. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Stockholders in
connection with a proposed Roll-Up. A Roll-Up is a transaction involving the
acquisition, merger, conversion or consolidation, either directly or
indirectly, of the Company and the issuance of securities of a Roll-Up Entity,
as defined below. A Roll-Up does not include: (i) a transaction involving
securities of the Company that have been for at least 12 months listed on a
national securities exchange or traded through the Nasdaq National Market; or
(ii) a transaction involving the conversion to corporate, trust or association
form of only the Company if, as a consequence of the transaction, there will be
no significant adverse change in any of the following: (a) Stockholders'
voting rights; (b) the term and existence of the Company; (c) Sponsor or
Advisor compensation; or (d) the Company's investment objectives. A Roll-Up
Entity is a partnership, real estate investment trust, corporation, trust or
other entity that would be created or would survive after the successful
completion of a proposed Roll-Up.
Notwithstanding the foregoing, the Company may not participate in any
proposed Roll-Up which would:
(i) result in the Stockholders having rights to meetings less
frequently or which are more restrictive to Stockholders than those
provided in the Articles;
(ii) result in the Stockholders having voting rights that are less
than those provided in the Articles;
(iii) result in the Stockholders having greater liability than as
provided in the Articles;
(iv) result in the Stockholders having rights to receive reports that
are less than those provided in the Articles;
(v) result in the Stockholders having access to records that are
more limited than those provided in the Articles;
(vi) include provisions which would operate to materially impede or
frustrate the accumulation of Shares by any purchaser of the
securities of the Roll-Up Entity (except to the minimum extent
necessary to preserve the tax status of the Roll-Up Entity);
(vii) limit the ability of an investor to exercise the voting rights of
its securities in the Roll-Up Entity on the basis of the number of the
Shares held by that investor;
(viii) result in investors in the Roll-Up Entity having rights of access to
the records of the Roll-Up Entity that are less than those provided in
the Articles; or
(ix) place any of the costs of the transaction on the Company if the
Roll-Up is not approved by the Stockholders;
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provided, however, that nothing herein shall be construed to prevent
participation in any proposed Roll-Up which would result in Stockholders having
rights and restrictions comparable to those contained in the Articles, with the
prior approval of a majority of the Stockholders.
Stockholders who vote "no" on the proposed Roll-Up shall have the choice
of:
(i) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up; or
(ii) one of either:
(a) remaining as Stockholders of the Company and preserving their
interests therein on the same terms and conditions as previously
existed; or
(b) receiving cash in an amount equal to the Stockholders' pro rata
share of the appraised value of the net assets of the Company.
The foregoing provisions in the Articles, Bylaws and the MGCL could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of the Shares might receive a premium for their Shares
over the then prevailing market price or which these holders might believe to
be otherwise in their best interests.
LIMITATION ON TOTAL OPERATING EXPENSES
The Articles provide that, subject to the conditions described in the
following paragraph, the annual Total Operating Expenses of the Company shall
not exceed in any fiscal year the greater of 2% of the Average Invested Assets
of the Company or 25% of the Company's Net Income. The Independent Directors
have a fiduciary responsibility to limit the Company's annual Total Operating
Expenses to amounts that do not exceed the foregoing limitations. The
Independent Directors may, however, determine that a higher level of Total
Operating Expenses is justified for such period because of unusual and
non-recurring expenses. Any such finding by the Independent Directors and the
reasons in support thereof shall be recorded in the minutes of the meeting of
Directors. Within 60 days after the end of any fiscal quarter of the Company
for which Total Operating Expenses (for the 12 months then ended) exceed 2% of
Average Invested Assets or 25% of Net Income, whichever is greater, there shall
be sent to the Stockholders a written report of such fact, together with an
explanation of the facts the Independent Directors considered in arriving at
the conclusion that such higher operating expenses were justified. In the
event the Total Operating Expenses exceed the limitations described above and
if the Directors are unable to conclude that such excess was justified then,
within 60 days after the end of the Company's fiscal year, the Advisor shall
reimburse the Company in the amount by which the aggregate annual Total
Operating Expenses paid or incurred by the Company exceed the limitation.
TRANSACTIONS WITH AFFILIATES
The Articles impose certain restrictions upon dealings between the Company
and the Advisor, the Sponsor, any Director or Affiliates thereof. In
particular, the Company may not:
(i) borrow money from the Advisor, the Sponsor, any Director or
Affiliates thereof, unless a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in
such transaction determines that such transaction is fair and
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reasonable and no less favorable to the Company than from
unaffiliated parties under the same or similar circumstances;
(ii) invest in joint ventures with an Affiliated program except
in compliance with the requirements set forth in the Articles. See
"Investment Objectives and Policies--Joint Ventures";
(iii) enter into any other transaction with the Advisor, the
Sponsor, any Director or Affiliates thereof, unless a majority of
the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction determines that the
transaction is fair and reasonable to the Company and is on terms
and conditions no less favorable than from unaffiliated third
parties, except for advisory arrangements with the Advisor.
Notwithstanding the above, the Company was allowed to acquire the
Eagle Crest Shopping Center and the Walgreens/Decatur property from
IPS. See "Conflicts of Interest--Acquisitions from Affiliates" and
"--Non-Arm's-Length Agreements" and "Real Property Investments"; or
(iv) sell property to or loan money to the Advisor, the Sponsor,
any Director or Affiliates thereof (except as provided in the
Articles).
RESTRICTIONS ON BORROWING
The Company may not incur indebtedness to enable it to make Distributions
except as necessary to satisfy the requirement that the Company distribute at
least 95% of its REIT Taxable Income, or otherwise as necessary or advisable to
assure that the Company maintains its qualification as a REIT for federal
income tax purposes. The aggregate borrowing of the Company, secured and
unsecured, shall be reasonable in relation to the Net Assets of the Company and
shall be reviewed by the Board at least quarterly. The Company anticipates
that aggregate borrowings related to all of the Company's properties will not
exceed 50% of their combined fair market values, however, the maximum amount of
borrowings in relation to Net Assets shall, in the absence of a satisfactory
showing that a higher level of borrowing is appropriate, not exceed 300% of Net
Assets. Any borrowings in excess of such 300% level shall only occur with the
consent of a majority of the Stockholders. See "Investment Objectives and
Policies--Borrowing." The Company shall not borrow funds from the Advisor, the
Sponsor, any Director or Affiliates thereof, unless a majority of the Directors
(including a majority of the Independent Directors), not otherwise interested
in such transaction, determines that such transaction is fair and reasonable
and no less favorable to the Company than from unaffiliated parties under the
same or similar circumstances.
RESTRICTIONS ON INVESTMENTS
The investment policies set forth in the Articles shall be approved by a
majority of Independent Directors. The Articles prohibit investments in: (i)
any foreign currency or bullion; (ii) short sales; and (iii) any security in
any entity holding investments or engaging in activities prohibited by the
Articles.
In addition to other investment restrictions imposed by the Directors from
time to time consistent with the Company's objective to qualify as a REIT, the
Company will observe the following restrictions on its investments set forth in
its Articles:
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(i) not more than 10% of the Company's total assets will be
invested in unimproved real property or mortgage loans on
unimproved real property. For purposes of this paragraph,
"unimproved real properties" does not include properties under
construction, under contract for development or plan for
development within one year;
(ii) the Company may not invest in commodities or commodity future
contracts. Such limitation is not intended to apply to interest
rate futures, when used solely for hedging purposes;
(iii) the Company shall not invest in or make mortgage loans unless an
appraisal is obtained concerning the underlying property. Mortgage
indebtedness on any property shall not exceed such property's
appraised value. In cases in which the majority of Independent
Directors so determine, and in all cases in which the mortgage loan
involves the Advisor, the Sponsor, the Directors or any Affiliates,
such appraisal must be obtained from an Independent Expert concerning
the underlying property. The appraisal shall be maintained in the
Company's records for at least five years, and shall be available for
inspection and duplication by any Stockholder. In addition to the
appraisal, a mortgagee's or owner's title insurance policy or
commitment as to the priority of the mortgage or condition of the
title must be obtained. The Company may not invest in real estate
contracts of sale otherwise known as land sale contracts;
(iv) the Company may not make or invest in mortgage loans,
including construction loans, on any one property if the aggregate
amount of all mortgage loans outstanding on the property, including
the loans of the Company, would exceed an amount equal to 85% of
the appraised value of the property as determined by appraisal
unless substantial justification exists because of the presence of
other underwriting criteria provided that such loans would in no
event exceed the appraised value of the property at the date of the
loans;
(v) the Company may not make or invest in any mortgage loans
that are subordinate to any mortgage or equity interest of the
Advisor, the Sponsor, any Director or Affiliates thereof;
(vi) the Company shall not invest in equity securities unless a
majority of the Directors (including a majority of the Independent
Directors) not otherwise interested in such transaction approves
the transaction as being fair, competitive and commercially
reasonable. Investments in entities affiliated with the Advisor,
the Sponsor, any Director or Affiliates thereof are subject to the
restrictions on joint venture investments. Notwithstanding these
restrictions, the Company may purchase its own securities, when
traded on a secondary market or on a national securities exchange
or market, if a majority of the Directors (including a majority of
the Independent Directors) determine such purchase to be in the
best interests of the Company;
(vii) the Company shall not issue: (a) redeemable equity
securities; (b) debt securities unless the historical debt service
coverage (in the most recently completed fiscal year) as adjusted
for known charges is sufficient to properly service the higher level
of debt; (c) options or warrants to purchase Shares to the Advisor,
the Sponsor, any Director or Affiliates thereof except on the same
terms as sold to the general public, provided that the Company may
issue options or warrants to persons not affiliated with the Company
at
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exercise prices not less than the fair market value of such
securities on the date of grant and for consideration (which may
include securities) that in the judgment of the Independent
Directors have a market value not less than the value of such
option on the date of grant); options or warrants issuable to the
Advisor, the Sponsor, any Director or Affiliates thereof shall not
exceed an amount equal to ten percent (10%) of the outstanding
Shares on the date of grant of any options or warrants; or (d)
issue Shares on a deferred payment basis or similar arrangement;
(viii) to the extent the Company invests in real property acquired from an
Affiliate, a majority of the Directors (including a majority of the
Independent Directors) shall determine the consideration paid for such
real property, based on the fair market value of the property; in such
event, an appraisal by a qualified independent real estate appraiser
selected by the Independent Directors shall be obtained;
(ix) the Company may not invest in indebtedness (herein called
"Junior Debt") secured by a mortgage on real property which is
subordinate to the lien of other indebtedness (herein called
"Senior Debt"), except where the amount of such Junior Debt, plus
the outstanding amount of the Senior Debt, does not exceed 90% of
the appraised value of such property, if after giving effect
thereto, the value of all such investments of the Company (as shown
on the books of the Company in accordance with generally accepted
accounting principles, after all reasonable reserves but before
provision for depreciation) would not then exceed 25% of the
Company's tangible assets. The value of all investments in Junior
Debt of the Company which does not meet the aforementioned
requirements would be limited to 10% of the Company's tangible
assets (which would be included within the 25% limitation);
(x) engage in trading, as compared with investment activities;
and
(xi) engage in underwriting or the agency distribution of
securities issued by others.
Subject to the above restrictions, a majority of the Independent Directors may
alter the investment policies if they determine that such change is in the best
interests of the Company.
PLAN OF DISTRIBUTION
GENERAL
Of the 11,375,000 Shares offered by means of this Prospectus, the Company is
offering 10,000,000 Shares on a "best efforts" basis at a purchase price of
$10.00 per Share with a minimum initial investment of $3,000 ($1,000 in the
case of Tax-Exempt Entities, except Iowa where the minimum investment for IRAs
will be $3,000); 1,000,000 Shares at a purchase price of $9.05 per Share
pursuant to the Distribution Reinvestment Program; and 375,000 Shares which may
be issued upon the exercise of warrants granted to the Dealer Manager. The
warrants are also offered by means of this Prospectus. See "Description of
Securities -- Soliciting Dealer Warrants." "Best efforts" means that no one
is guaranteeing that any specified amount of capital will be raised. The
Offering will commence as of the date of this Prospectus and will terminate
not later than July __, 1998. The Company reserves the right to terminate the
Offering at any time.
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ESCROW CONDITIONS
Subscription proceeds for qualified subscriptions will be deposited in a
segregated escrow account with the LaSalle National Bank, N.A., 120 South
LaSalle Street, Chicago, Illinois, and will be held in trust for the benefit of
the subscribers pending release to the Company, and will not be commingled.
Subscription proceeds are expected to be released to the Company as
subscriptions are accepted. All subscriptions will be accepted or rejected
within ten days (and generally within 24 hours) after receipt by the Company.
ADVISOR CAPITAL CONTRIBUTION
The Advisor made a capital contribution to the Company in the amount of
$200,000 prior to the commencement of the Prior Offering, for which the Advisor
received 20,000 Shares. The Advisor may not sell this initial investment while
it remains the Advisor but may transfer the Shares to an Affiliate. The
Advisor and its Affiliates may purchase additional Shares for their own
accounts. However, at no time will the Advisor own 9.8% or more of the total
number of the Company's Shares outstanding. Any purchases of Shares by the
Advisor during the Offering will be for investment purposes only and not with a
view toward immediate resale.
SUBSCRIPTION PROCESS
The Shares are being offered to the public through the Dealer Manager and
the Soliciting Dealers. The form of Soliciting Dealers Agreement between the
Dealer Manager and the Soliciting Dealers requires the broker-dealers to make
diligent inquiries, as required by law, of all prospective purchasers in order
to ascertain whether a purchase of Shares is suitable for such person and
transmit promptly to the Company the completed subscription documentation and
any supporting documentation reasonably required by the Company.
The Shares are being sold when, as and if subscriptions therefor are
received and accepted by the Company, subject to the satisfaction by the
Company of certain other conditions and approval by counsel of certain legal
matters. The Company has the unconditional right to accept or reject any
subscription. Subscriptions will be accepted or rejected within ten days (and
generally within 24 hours) after its receipt of a copy of the Subscription
Agreement, fully completed, and payment in good funds for the number of
subscribed Shares. If the subscription is accepted, a confirmation will be
mailed not more than five days after acceptance of the investor as a
Stockholder. A sale of the Shares may not be completed until at least five
business days after the date the subscriber receives a Prospectus and, as may
be required by certain state regulatory authorities, a copy of the
Organizational Documents. If for any reason the subscription is rejected, the
check and subscription agreement will be returned to the subscriber, without
interest or deduction, within ten days after receipt.
Shares will only be sold to persons who initially purchase a minimum of
300 Shares ($3,000) or Tax-Exempt Entities which purchase a minimum of 100
Shares ($1,000, except Iowa where the minimum investment for IRAs will be
$3,000). Subscriptions will be accepted for fractional Shares only in the
discretion of the Company.
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DETERMINATION OF INVESTOR SUITABILITY
The Company, the Dealer Manager and each Soliciting Dealer shall make
every reasonable effort to determine that those persons being offered or sold
the Shares are appropriate in light of the suitability standards set forth
herein and are appropriate to such investor's investment objectives and
financial situation. The Soliciting Dealers shall ascertain that the investors
can reasonably benefit from the Company, and the following shall be relevant to
such determination: (i) the investor has the capability of understanding the
fundamental aspects of the Company, which capacity may be evidenced by the
following: (a) the nature of employment experience; (b) educational level
achieved; (c) access to advice from qualified sources, such as attorneys,
accountants, tax advisors, etc.; and (d) prior experience with investments of a
similar nature; (ii) the investor has apparent understanding of: (a) the
fundamental risks and possible financial hazards of this type of investment;
(b) the lack of liquidity of this investment; (c) the Advisor's role in
directing or managing the investment; and (d) the tax consequences of the
investment; and (iii) the investor has the financial capability to invest in
the Company.
By executing the subscription agreement, each Soliciting Dealer
acknowledges his determination that the Shares are a suitable investment for
the investor, and will be required to represent and warrant his compliance with
the applicable laws requiring the determination of the suitability of the
Shares as an investment for the subscriber. The Company and its Affiliates
will, in addition to the foregoing, coordinate the processes and procedures
utilized by the Dealer Manager and Soliciting Dealers and, where necessary,
implement such additional reviews and procedures deemed necessary to determine
that investors meet the suitability standards set forth herein. The Dealer
Manager and/or the Soliciting Dealers shall maintain for at least six years a
record of the information obtained to determine that an investor meets the
suitability standards imposed on the offer and sale of Shares and a
representation of the investor that the investor is investing for the
investor's own account or, in lieu of such representation, information
indicating that the investor for whose account the investment was made met the
suitability standards.
COMPENSATION
The Company will pay the Dealer Manager selling commissions equal to up to
seven percent (7%) on all Shares sold for serving as a dealer manager of the
Offering and for the sale of Shares through its efforts, of which such
compensation may be retained or reallowed to Soliciting Dealers, as
compensation for their services in soliciting and obtaining subscribers for the
purchase of Shares, further described below. Up to an additional 2.5% of the
Gross Offering Proceeds may be paid as a Marketing Contribution and Due
Diligence Expense Allowance Fee. The total of reallowed commissions and
reimbursed expenses paid by the Dealer Manager will not exceed 9.5% of the
purchase price of the Shares sold by a Soliciting Dealer. Soliciting Dealers
will also receive one Soliciting Dealer Warrant for each 40 Shares sold by such
Soliciting Dealer during the Offering, subject to federal and state securities
laws. The holder of a Soliciting Dealer Warrant will be entitled to purchase
one Share from the Company at a price of $12 during the period commencing with
the first date upon which the Soliciting Dealer Warrants are issued and ending
on October 13, 2000 (the "Exercise Period"). Subject to certain limitations,
the Soliciting Dealer Warrants may not be transferred, assigned, pledged or
hypothecated for a period of one year following issuance thereof. In addition,
no Soliciting Dealer Warrants will be exercisable until one year from the date
of issuance. The Soliciting Dealer Warrants which were to be but have not been
issued to the Dealer Manager in connection with the Prior Offering and the
Soliciting Dealer Warrants to be issued in connection with the Offering, as
well as the Shares issuable upon exercise of the Soliciting Dealer Warrants,
are being registered as part of this Offering. For the life of the Soliciting
Dealer Warrants, the holders are given, at nominal cost, the opportunity to
profit from a rise in the market price
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for the Common Stock without assuming the risk of ownership, with a resulting
dilution in the interest of other security holders. Moreover, the holders of
the Soliciting Dealer Warrants might be expected to exercise them at a time
when the Company would, in all likelihood, be able to obtain needed capital by
a new offering of its securities on terms more favorable than those provided by
the Soliciting Dealer Warrants. See "Description of Securities--Soliciting
Dealer Warrants."
The Dealer Manager may award sales incentive items to Soliciting Dealers
in connection with their sales activities. The value of each item will be less
than $50 per annum per participating salesperson. In addition, the Dealer
Manager may pay incentive compensation to its regional marketing
representatives for their activities as wholesalers in connection with the
distribution of the Shares, subject to the overall restrictions on commissions
described herein. The Dealer Manager will reallow commissions to Soliciting
Dealers who sell 100,000 or more Shares during the Offering, as an incentive.
This incentive commission, equal to 1% of the price of the Shares initially
will be paid following the sale of 100,000 Shares by a Soliciting Dealer and,
thereafter, will be paid quarterly in the event additional Shares are sold.
The incentive compensation will be reduced by the amount of any marketing costs
paid by the Dealer Manager on behalf of, or to, the Soliciting Dealers.
The Company shall not pay or award, directly or indirectly, any
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such advisor to advise the investor
to purchase Shares, provided, however, that this provision shall not prohibit
the normal sales commission payable to a registered broker-dealer or other
properly licensed person for selling the Shares.
VOLUME DISCOUNTS
Commissions will be reduced below 7% for obtaining subscriptions from
Stockholders in accordance with the following:
<TABLE>
<CAPTION>
Amount of
Purchaser's Investment Maximum Commission
----------------------- ------------------
From To per Share
---------- --------- ---------
<S> <C> <C>
$ 250,000 499,999 5.5%
500,000 999,999 4.0%
1,000,000 and over 2.5%
</TABLE>
Any reduction from the up to 7% commission otherwise payable to the Dealer
Manager, some or all of which may be reallowable to a Soliciting Dealer in
respect of a purchaser's subscription will be credited to such purchaser in the
form of additional whole Shares or fractional Shares purchased net of
commissions.
Subscriptions may be combined for the purpose of crediting a purchaser
with additional Shares and determining commissions payable to the Dealer
Manager and reallowable to Soliciting Dealers so long as all such purchases are
made through the same Soliciting Dealer. Tax-Exempt Entities may be combined
in computing amounts invested if they each have the same person who exercises
investment discretion. If the Subscription Agreement/Signature Page fails to
indicate by marking the "Additional Purchase" space that subscriptions are to
be combined, the Company cannot be held responsible for failing to properly
combine subscriptions.
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Employees and associates of the Company and its Affiliates will be
permitted to purchase Shares net of sales commissions and the Marketing
Contribution and Due Diligence Expense Allowance Fee ($9.05 per Share).
TRANSFER OF SHARES
A Stockholder may assign all or some of his Shares, subject to the
Ownership Limit contained in the Articles. This assignment shall confer upon
the assignee the right to become a Stockholder in the following manner and
subject to certain conditions, including the following: (i) an instrument of
assignment executed by both the assignor and assignee of the Shares
satisfactory in form to the Company shall be delivered to the Company; (ii)
reimbursement of the Company for reasonable expenses and filing costs incurred
in connection with such transfer, which amount shall not exceed $100; (iii) no
assignment shall be effective until the first day of the month following the
month in which the Company actually receives the instrument of assignment which
complies with the requirements of (i) and (ii) above; (iv) no assignment of
beneficial ownership (other than by gift, bequest, inheritance or operation of
law) shall be effective prior to the termination of the Offering; (v) no
assignment shall be effective if such assignment would, in the opinion of
counsel to the Company, result in the termination of the Company's status as a
REIT under the Code; (vi) an assignment may be rejected if such assignment
would cause 25% or more of the issued and outstanding Shares to be held by
Tax-Exempt Entities that are considered "benefit plan investors" under ERISA or
otherwise cause the assets of the Company to be Plan assets; and (vii) no
assignment shall be effected if the assignment would, to the knowledge of the
Company, violate the provisions of any applicable federal or state securities
laws.
The Shares will not initially be listed on a national stock exchange or
included for quotation on a national market system. The Company anticipates
that by 1999 the Board will determine whether it is in the best interests of
the Company to: (i) apply to have the Shares listed for trading on a national
stock exchange or included for quotation on a national market system, provided
the Company meets the then applicable listing requirements; and/or (ii)
commence a subsequent public offering.
INDEMNIFICATION
The Company will indemnify the Dealer Manager and the Soliciting Dealers
against certain liabilities, including liabilities under the Act; provided,
however, that the Company shall not indemnify the Dealer Manager or any
Soliciting Dealer from any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee and a court of competent
jurisdiction has approved indemnification of the litigation costs; or (ii) such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court has approved
indemnification of the litigation costs; or (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular
indemnitee and the court has approved indemnification of the settlement and
related costs and the court considering the request has been advised of the
position of the Commission and the published opinions of any state securities
regulatory authority in which securities of the Company were offered and sold
as to indemnification for securities law violations. The Soliciting Dealer
will be required to indemnify the Company and the Advisor against certain such
liabilities. In the opinion of the Commission, indemnification for liabilities
arising under the Act is against public policy and, therefore, unenforceable.
The Dealer Manager and each of the Soliciting Dealers may be deemed to be an
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"underwriter" as that term is defined in the Act. See "Distribution
Reinvestment and Share Repurchase Programs."
HOW TO SUBSCRIBE
Shares may be purchased by an investor who meets the suitability standards
described above under "Plan of Distribution--Suitability of the Investment" by
proceeding as follows:
1. Read the entire Prospectus and the current supplement(s), if any,
accompanying the Prospectus.
2. Complete the execution copy of the Subscription Agreement. A specimen
copy of the Subscription Agreement, including instructions for completing the
Subscription Agreement, is included in the Prospectus as Exhibit I.
3. Deliver a check for the full purchase price of the Shares being
subscribed for, payable to "LNB/Escrow Agent for IREC," along with the
completed Subscription Agreement to the Soliciting Dealer whose name appears on
the Subscription Agreement.
4. By executing the Subscription Agreement and by paying the full purchase
price for the Shares subscribed for, each investor attests that he meets the
suitability standards as stated in the Subscription Agreement and will be bound
by all of the terms of the Subscription Agreement.
Within ten days (and generally within 24 hours) of the Company's receipt
of each completed Subscription Agreement, the Company will accept or reject the
subscription. If the subscription is accepted, a confirmation will be mailed
within five days. If for any reason the subscription is rejected, the check
and Subscription Agreement will be promptly returned to the subscriber, without
interest or deduction, within ten days after receipt.
Subscriptions on behalf of IRAs, Keogh plans and 401(k) plans must be
processed through and forwarded to the Company by an approved trustee. In the
case of IRA, Keogh plans and 401(k) plan Stockholders, the confirmation will be
sent to the trustee.
SALES LITERATURE
In addition to and apart from this Prospectus, the Company may use certain
supplemental sales material in connection with the Offering. This material,
prepared by the Advisor may consist of a brochure describing the Advisor and
its Affiliates and the objectives of the Company. It would contain pictures and
summary descriptions of properties similar to those to be acquired by the
Company that Affiliates of the Company have previously acquired. This material
may also include pictures and summary descriptions of properties similar to
those to be acquired by the Company as well as a brochure, audiovisual
materials and taped presentations highlighting and explaining various features
of the Offering, properties of prior real estate programs and real estate
investments in general; and articles and publications concerning real estate.
Business reply cards, introductory letters and seminar invitation forms may be
sent to Soliciting Dealers and prospective investors. No person has been
authorized to prepare for, or furnish to, a prospective investor any sales
literature other than: (i) that described herein; and (ii) newspaper
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advertisements or solicitations of interest limited to identifying the Offering
and the location of sources of further information.
The use of any sales materials is conditioned upon filing with and, if
required, clearance by appropriate regulatory agencies. Such clearance (if
provided), however, does not indicate that the regulatory agency allowing the
use of the materials has passed on the merits of the Offering or the adequacy
or accuracy of the materials.
This Offering is made only by means of this Prospectus. Except as
described herein, the Company has not authorized the use of other supplemental
literature or sales material in connection with this Offering. Although it is
believed that the information contained in such literature does not conflict
with any of the information set forth in this Prospectus, such material does
not purport to be complete, and should not be considered as a part of this
Prospectus, or as incorporated in this Prospectus by reference, or as forming
the basis of the Offering described herein.
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS
DISTRIBUTION REINVESTMENT PROGRAM
The Distribution Reinvestment Program (the "DRP") allows Stockholders who
purchased Shares pursuant either to the Prior Offering or to this Offering
("Participants") to automatically reinvest Distributions in the Company by
permitting purchase of additional Shares. Stockholders who purchased Shares
pursuant to the Prior Offering or who purchase Shares pursuant to this Offering
and elect to take part in the DRP will authorize the Company to use
Distributions payable to them to purchase additional Shares. However, a
Participant will not be able to acquire Shares under the DRP to the extent such
purchase would cause it to exceed the Ownership Limit.
Purchases under the DRP will not be subject to selling commissions or the
Marketing Contribution and Due Diligence Expense Allowance Fee. Participants
in the DRP may also purchase fractional Shares, so that 100% of Distributions
will be used to acquire Shares. Shares will be purchased under the DRP on the
record date for the Distribution used to purchase the Shares. Distributions
for Shares acquired under the DRP are currently paid monthly and are calculated
with a daily record and Distribution declaration date. Each Participant agrees
that if, at any time prior to listing of the Shares on a national stock
exchange or inclusion of the Shares for quotation on a national market system,
he fails to meet the suitability requirements for making an investment in the
Company or cannot make the other representations or warranties set forth in the
Subscription Agreement, he will promptly so notify the Company in writing.
Commencing with the first Distribution paid after the effective date of
the Offering of Shares pursuant to the Prospectus and continuing until the
termination of the Offering, Participants will acquire Shares from the Company
at a fixed price of $9.05 per Share. It is possible that a secondary market
will develop for the Shares, and that Shares may be bought and sold on the
secondary market at prices lower or higher than the $9.05 per Share price which
will be paid under the DRP. Neither the Company nor its Affiliates will
receive a fee for selling Shares under the DRP. The Company does not warrant
or guarantee that Participants will be acquiring Shares at the lowest possible
price. A Participant may terminate participation in the DRP at any time
without penalty, by delivering written notice to the Company. Prior to listing
of the Shares on a national stock exchange or including the Shares for
quotation
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on a national market system, any transfer of Shares by a Participant to a
non-Participant will terminate participation in the DRP with respect to the
transferred Shares. Upon termination, Distributions will be distributed to the
Stockholder instead of being used to purchase Shares under the DRP. Within 90
days after the end of the Company's fiscal year, the Company will: (i) issue
certificates evidencing ownership of Shares purchased through the DRP during
the prior fiscal year (ownership of said Shares will be in book-entry form
prior to the issuance of certificates); and (ii) provide each Participant with
an individualized report on his or her investment, including the purchase
date(s), purchase price and number of Shares owned, as well as the dates of
distribution and amounts of Distributions received during the prior fiscal
year. The individualized statement to Participants will include receipts and
purchases relating to each Participant's participation in the DRP including the
tax consequences relative thereto. The Directors by majority vote (including a
majority of Independent Directors) may amend or terminate the DRP upon 30 days'
notice to Participants. It is anticipated that the Directors will amend or
terminate the DRP upon completion of this Offering.
Stockholders who participate in the Distribution Reinvestment Program will
recognize taxable dividend income in the amount they would have received had
they not elected to participate, even though they receive no cash. These
deemed dividends will be treated as actual dividends from the Company to the
participating Stockholders and will retain the character and tax effects
applicable to all dividends. Shares received under the program will have a
holding period beginning with the day after purchase, and a tax basis equal to
their cost, which is the gross amount of the deemed Distribution. See "Federal
Income Tax Considerations--Taxation of Stockholders--Taxation of Taxable
Domestic Stockholders" for a full discussion of the tax effects of dividend
distributions.
If the Company's Shares are listed on a national stock exchange or
included for quotation on a national market system, Shares purchased by the
Company for the DRP will be purchased on such exchange or market, at the
prevailing market price, and will be sold to Stockholders at such price. The
reservation of any Shares from this Offering remaining for issuance under the
DRP will be cancelled. The Shares will continue to have the status of
authorized but unissued Shares. These Shares will not be issued unless they
are first registered with the Commission under the Act and under appropriate
state securities laws or are otherwise issued in compliance with such laws.
SHARE REPURCHASE PROGRAM
The Share Repurchase Program ("SRP") may, subject to certain restrictions,
provide eligible Stockholders with limited, interim liquidity by enabling them
to sell Shares back to the Company at a price of $9.05 per Share (a reduction
of $.95 from the $10 Offering price, reflecting selling commissions and the
Marketing Contribution and Due Diligence Expense Allowance Fee).
Repurchases under the SRP will be made quarterly by the Company on a
first-come, first-served basis, and will be limited in the following ways: (i)
not more than $500,000 worth of the outstanding Shares will be repurchased in
any given year; and (ii) the funds available for repurchase will be limited to
available proceeds received by the Company from the sale of Shares under the
DRP. The determination of available funds from sales under the DRP will be at
the sole discretion of the Board. In making this determination, the Board will
consider the need to use proceeds from the Share sales under the DRP for
investment in additional properties, or for maintenance or repair of existing
properties. Such property-related uses will have priority over the need to
allocate funds to the SRP. To be eligible to offer Shares for purchase to the
SRP, the Stockholder must have beneficially held the Shares for at least one
year.
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The Company cannot guarantee that funds will be available for repurchase.
If no funds are available for the SRP at the time when repurchase is requested,
the Stockholder could: (i) withdraw his request for repurchase; or (ii) ask
that the Company honor the request at such time, if any, when funds are
available. Such pending requests will be honored on a first come, first served
basis. There is no requirement that Stockholders sell their Shares to the
Company. The SRP is only intended to provide interim liquidity for
Stockholders until a secondary market develops for the Shares. No such market
presently exists and no assurance can be given that one will develop. The SRP
will exist during the Offering period and will be terminated following the
close of the Offering period upon: (i) the development of a secondary market
for the Shares (i.e., at such time as a secondary market-maker quotes a bid and
ask price for at least 30 continuous trading days); or (ii) the listing of the
Shares on a national securities exchange or inclusion for quotation on a
national market system.
Shares purchased by the Company under the SRP will be cancelled, and will
have the status of authorized but unissued Shares. Shares acquired by the
Company through the SRP will not be reissued unless they are first registered
with the Commission under the Act and under appropriate state securities laws
or otherwise issued in compliance with such laws.
In the event that the Company begins selling its properties, the purchase
price paid by the SRP for Shares will be adjusted accordingly. Because the
availability of purchase funds for the SRP cannot be predetermined, and because
the demand for repurchase by Stockholders cannot be predetermined, there can be
no assurance that the Company will be able to establish and maintain the SRP.
REPORTS TO STOCKHOLDERS
The Advisor will keep, or cause to be kept, full and true books of account
on an accrual basis of accounting, in accordance with generally accepted
accounting principles ("GAAP"). All of such books of account, together with a
copy of the Articles and any amendments thereto, will at all times be
maintained at the principal office of the Company, and will be open to
inspection, examination and duplication at reasonable times by the Stockholders
or their agents.
The Advisor will submit to each Stockholder audited annual reports of the
Company within 120 days following the close of each fiscal year. The annual
reports will contain the following: (i) audited financial statements; (ii) the
ratio of the costs of raising capital during the period to the capital raised;
(iii) the aggregate amount of advisory fees and the aggregate amount of fees
paid to the Advisor and any Affiliate of the Advisor by the Company and
including fees or charges paid to the Advisor and any Affiliate of the Advisor
by third parties doing business with the Company; (iv) the Total Operating
Expenses of the Company, stated as a percentage of the Average Invested Assets
and as a percentage of Net Income; (v) a report from the Independent Directors
that the policies being followed by the Company are in the best interests of
its Stockholders and the basis for such determination; and (vi) separately
stated, full disclosure of all material terms, factors and circumstances
surrounding any and all transactions involving the Company, the Directors, the
Advisor and any Affiliate thereof occurring in the year for which the Annual
Report is made. Independent Directors shall be specifically charged with the
duty to examine and comment in the report on the fairness of such transactions.
In addition, unaudited quarterly reports containing the information
required by Form 10-Q will be submitted to each Stockholder within 60 days
after the end of the first three fiscal quarters of each fiscal year.
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Concurrently with any Distribution, the Company shall provide Stockholders
with a statement disclosing the source of the funds distributed. If such
information is not available concurrently with the making of a Distribution, a
statement setting forth the reasons why such information is not available shall
be provided concurrently. In no event shall such information be provided to
Stockholders more than 60 days of making such Distribution.
Within 60 days following the end of any calendar quarter during the period
of the Offering in which the Company has closed an acquisition of a property, a
report will be submitted to each Stockholder containing: (i) the location and
a description of the general character of the property acquired during the
quarter; (ii) the present or proposed use of such property and its suitability
and adequacy for such use; (iii) the terms of any material lease affecting the
property; (iv) the proposed method of financing, if any, including estimated
down payment, leverage ratio, prepaid interest, balloon payment(s), prepayment
penalties, "due-on-sale" or encumbrance clauses and possible adverse effects
thereof and similar details of the proposed financing plan; and (v) a statement
that title insurance has been or will be obtained on the property acquired. In
addition, a report will be sent to each Stockholder and submitted to
prospective investors at such time as the Advisor believes a reasonable
probability exists that a property will be acquired: (i) on specified terms
(i.e., upon completion of due diligence which includes review of the title
insurance commitment, appraisal and environmental analysis); and (ii) involving
the use of 10% or more, on a cumulative basis, of the net proceeds of this
Offering.
After the completion of the last acquisition, the Advisor shall, upon
request, send to the Commissioner of Corporations of the State of California a
schedule, verified under the penalty of perjury, reflecting: (i) each
acquisition made; (ii) the purchase price paid; (iii) the aggregate of all
Acquisition Fees paid on each transaction; and (iv) a computation showing
compliance with the Articles. The Company shall, upon request, submit to the
Commissioner of Corporations of the State of California or to any of the
various state securities administrators any report or statement required to be
distributed to Stockholders pursuant to the Articles or any applicable law or
regulation.
The Company's federal tax return (and any applicable state income tax
returns) will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the Stockholders within 30
days following the end of each fiscal year of the Company. A specific
reconciliation between GAAP and income tax information will not be provided to
the Stockholders; however, such reconciling information will be available in
the office of the Company for inspection and review by any interested
Stockholder. Concurrent with the dissemination of appropriate tax information
to Stockholders, the Company will annually provide each Stockholder with an
individualized report on his or her investment, including the purchase date(s),
purchase price and number of Shares owned, as well as the dates of distribution
and amounts of Distributions received during the prior fiscal year. The
individualized statement to Stockholders will include any purchases of Shares
under the DRP. Stockholders requiring individualized reports on a more frequent
basis may request such reports. The Company will make every reasonable effort
to supply more frequent reports, as requested, but the Company, at its sole
discretion, may require payment of an administrative charge which will be paid:
(i) directly by the Stockholder; or (ii) through pre-authorized deductions
from Distributions payable to the Stockholder making the request.
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LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Shapiro and Olander, Baltimore, Maryland. Legal matters in
connection with the Company's status as REIT for federal income tax purposes
have been passed upon, on behalf of the Company, by Shefsky Froelich & Devine
Ltd. (counsel to the Company). Shefsky Froelich & Devine Ltd. does not purport
to represent Stockholders or potential investors who should consult their own
counsel. See "Conflicts of Interest--Legal Counsel for the Company and the
Advisor is the Same Law Firm."
The statements in the section in the Prospectus titled "Federal Income Tax
Considerations" and elsewhere as they relate to federal income tax matters and
the statements in the section in the Prospectus titled "ERISA Considerations"
have been reviewed by Shefsky Froelich & Devine Ltd.
EXPERTS
The financial statements of the Company as of December 31, 1995, and 1994,
and for the year ended December 31, 1995 and for the period from May 12, 1994
(formation date) to December 31, 1994, the historical summaries of gross income
and direct operating expenses of the Walgreens/Decatur Property for each of the
years in the three-year period ended June 30, 1994, the historical summaries of
gross income and direct operating expenses of Eagle Crest/Naperville for each
of the years in the three-year period ended June 30, 1994 and the historical
summary of gross income and direct operating expenses of the Regency Point
Shopping Center for the year ended December 31, 1995, have been included herein
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The statement of gross income and direct operating expenses for the year
ended December 31, 1994 for Nantucket Square Shopping Center included in this
Prospectus has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and is included
herein in reliance upon the authority of said firm as experts in giving said
report.
The statement of gross income and direct operating expenses for the year
ended December 31, 1995 for Mundelein Plaza, Prospect Heights Plaza and
Montgomery-Sears Shopping Center have been included herein in reliance upon the
report of Bruce Gorlick, C.P.A., Ltd., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto with respect to the offer and
sale of Shares which the Company has filed with the Commission and which may be
inspected and copied at the Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, http://www.sec.gov, and at the Regional Offices of the
Commission at 500 West Madison Street, Fourteenth Floor, Chicago, Illinois
60661 and 75 Park Place, Suite 1400, New York, New York 10007. This material,
as well as copies of all other documents filed with the Commission, may be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 upon payment of the fee prescribed by the Commission.
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GLOSSARY
The definitions used in the Prospectus are set forth below:
"ACQUISITION EXPENSES" means expenses related to the Company's selection,
evaluation and acquisition of, and investment in, properties, whether or not
acquired or made, including but not limited to legal fees and expenses, travel
and communications expenses, cost of appraisals and surveys, non-refundable
option payments on property not acquired, accounting fees and expenses,
computer use related expenses, architectural and engineering reports,
environmental and asbestos audits, title insurance and escrow fees, and
personnel and miscellaneous expenses related to the selection and acquisition
of properties.
"ADA" means the Americans with Disabilities Act of 1990.
"ADVISOR" means the person(s) or entity responsible for directing or performing
the day-to-day business affairs of the Company, including a person or entity to
which an Advisor subcontracts substantially all such functions. The Advisor is
Inland Real Estate Advisory Services, Inc. or anyone which succeeds it in such
capacity.
"ADVISOR ASSET MANAGEMENT FEE" means an amount equal to 1% of the Average
Invested Assets.
"ADVISORY AGREEMENT" means the agreement between the Company and the Advisor
pursuant to which the Advisor will act as the Sponsor of the Company.
"AFFILIATE" means: (i) any Person directly or indirectly owning, controlling
or holding, with the power to vote 10% or more of the outstanding voting
securities of such other Person; (ii) any Person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held, with the power to vote, by such other Person; (iii) any Person directly
or indirectly controlling, controlled by or under common control with such
other Person; (iv) any executive officer, director, trustee or general partner
of such other Person; and (v) any legal entity for which such Person acts as an
executive officer, director, trustee or general partner.
"AFFILIATED DIRECTORS" means those Directors affiliated with the Company or its
Affiliates.
"ANCHOR TENANT" means tenants generally occupying approximately 30% or more of
the GLA of a Neighborhood Retail Center, or the tenant of any single-user
property.
"ARTICLES" means the Company's Articles of Incorporation, as amended and
restated to date.
"AVERAGE INVESTED ASSETS" shall mean, for any period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests and in loans secured by real estate, before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"BOARD" means the Board of Directors of the Company.
"BYLAWS" means the Amended and Restated Bylaws of the Company.
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"CASH FLOW" means, with respect to any period: (i) all cash receipts derived
from investments made by the Company; plus (ii) cash receipts from operations
(including any interest from temporary investments of the Company) without
deduction for depreciation or amortization; less (iii) cash receipts used to
pay operating expenses (including the Advisor Asset Management Fee).
"CODE" means the Internal Revenue Code of 1986, as amended, or corresponding
provisions of subsequent revenue laws.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means Inland Real Estate Corporation f/k/a Inland Monthly Income Fund
III, Inc., a Maryland corporation.
"COMPETITIVE REAL ESTATE COMMISSION" means the real estate or brokerage
commission paid for the purchase or sale of a property which is reasonable,
customary and competitive in light of the size, type and location of such
property.
"COMPANY FIXED ASSETS" means the real estate, together with the buildings,
leasehold interests, improvements, equipment, furniture, fixtures and personal
property associated therewith, used by the Company in the conduct of its
business.
"CONTRACT PRICE FOR THE PROPERTY" means the amount actually paid or allocated
to the purchase, development, construction or improvement of a property
exclusive of Acquisition Expenses.
"CONTROL SHARES" means voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquirer, or in respect
of which the acquirer is able to exercise or direct the exercise of voting
power except solely by virtue of irrevocable proxy, would entitle the acquirer
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) 1/5 or more but less than 1/3; (ii) 1/3 or more but
less than a majority; or (iii) a majority of all voting power.
"CONTROL SHARE ACQUISITION" means the acquisition of Control Shares subject to
certain exceptions.
"COUNSEL" means Shefsky Froelich & Devine Ltd.
"CUMULATIVE RETURN" means a cumulative, non-compounded return, equal to 8% per
annum on Invested Capital commencing upon acceptance of the investor's
subscription.
"CURRENT RETURN" means a non-cumulative, non-compounded return, equal to 8% per
annum on Invested Capital.
"DEALER MANAGER" means Inland Securities Corporation.
"DEVELOPMENT FEE" means a fee for the packaging of a property of the Company,
including negotiating and approving plans, and undertaking to assist in
obtaining zoning and necessary variances and necessary financing for the
specific property, either initially or at a later date.
"DIRECTORS" means the members of the Board of Directors of the Company
(including the Independent Directors).
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"DISTRIBUTIONS" means any cash distributed to Stockholders arising from their
interest in the Company.
"EQUITY STOCK" shall mean stock that is either Common Stock and/or Preferred
Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EXCESS SHARES" means shares held by a Stockholder in excess of 9.8% of the
outstanding Shares entitled to vote.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PERIOD" means the period commencing upon the issuance of the
Soliciting Dealer Warrants and ending upon October 13, 2000.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FUNDS FROM OPERATIONS OR FFO" means net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and amortization,
and after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
"GAAP" means generally accepted accounting principles.
"GLA" means gross leasable area.
"GROSS DOLLARS INVESTED IN PROPERTIES" means the amount actually paid or
allocated to the purchase, development, construction or improvement of
properties acquired by the Company.
"GROSS OFFERING PROCEEDS" means the total proceeds from the sale of Shares
during the initial public offering period (and from sales under the
Distribution Reinvestment Program during such period) before deductions for
Organization and Offering Expenses. For purposes of calculating Gross Offering
Proceeds, the purchase price for all Shares, including those for which volume
discounts apply, shall be deemed to be $10 per Share, except for Shares
purchased under the Distribution Reinvestment Program in which case the
purchase price for such Shares shall be $9.05 per Share.
"GROSS REVENUES FROM PROPERTIES" means all cash receipts derived from the
operation of Company Fixed Assets.
"INCENTIVE ADVISORY FEE" means an amount equal to 15% of the net proceeds from
the sale of a property after the Stockholders have first received: (i) their
Cumulative Return; and (ii) a return of their Invested Capital.
"INDEPENDENT DIRECTORS" means the Directors who: (i) are not affiliated,
directly or indirectly, with the Company or the Advisor, whether by ownership
of, ownership interest in, employment by, any material business or professional
relationship with, or as an officer or director of the Company, the Advisor or
its Affiliates; (ii) do not serve as a director for more than two other REITs
organized by the Company or the Advisor; and (iii) perform no other services
for the Company, except as Directors. For this purpose, an
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indirect relationship shall include circumstances in which a member of the
immediate family of a Director has one of the foregoing relationships with the
Company or the Advisor. For purposes of determining whether or not the
business or professional relationship is material, the gross revenue derived by
the prospective Independent Director from the Sponsor and Advisor and
Affiliates shall be deemed material per se if it exceeds five percent of the
prospective Independent Directors: (i) annual gross revenue, derived from all
sources, during either of the last two years; or (ii) net worth, on a fair
market value basis.
"INDEPENDENT EXPERT" shall mean a person with no current or prior business or
personal relationship with the Advisor or the Directors and who is engaged, to
a substantial extent, in the business of rendering opinions regarding the value
of assets of the type held by the Company.
"INTERESTED STOCKHOLDER" means for purposes of the MGCL, any person who owns
10% or more of the voting power of the then outstanding voting stock of the
Company.
"INVESTED CAPITAL" means the original issue price of the Shares reduced by
prior distributions from the sale or financing of Company fixed assets.
"IRA" means an individual retirement account established pursuant to Code
Section 408.
"LEVERAGE" shall mean the aggregate amount of indebtedness of the Company for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"MANAGEMENT AGENT" means an entity which provides property management services
to the Company. The Management Agent is Inland Commercial Property Management,
Inc., an Affiliate of the Advisor, or anyone which succeeds it in such
capacity.
"MARKETING CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE FEE" means an
amount equal to 2.5% of the Gross Offering Proceeds, a portion of which may be
reallowed to Soliciting Dealers to pay marketing and due diligence expenses.
"MINIMUM INITIAL PURCHASE" means the minimum amount which must be purchased by
a person who is not a Stockholder at the time of purchase.
"MAXIMUM OFFERING" means 11,375,000 Shares (which includes 1,000,000 Shares
available under the Distribution Reinvestment Program and 375,000 Shares which
may be issued upon the exercise of warrants granted to the Dealer Manager).
"MGCL" means the Maryland General Corporation Law, as amended from time to
time.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NEIGHBORHOOD RETAIL CENTER" shall mean any property located primarily within
an approximate 150-mile radius of the Oak Brook, Illinois headquarters of the
Advisor leased primarily to one or more retail tenants providing for the sale
of household goods (food, drugs, apparel, etc.) and personal services (laundry,
dry cleaning, etc.) for the day-to-day living needs of the immediate
neighborhood with GLA ranging from approximately 5,000 to 150,000 square feet.
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"NET ASSETS" or "NET ASSET VALUE" means the total assets of the Company (other
than intangibles) at cost before deducting depreciation or other non-cash
reserves less total liabilities of the Company, calculated at least quarterly
on a basis consistently applied.
"NET INCOME" means, for any period, total revenues applicable to such period,
less the expenses applicable to such period other than additions to or
allowances for reserves for depreciation, amortization or bad debts or other
similar non-cash reserves; provided, however, that Net Income shall not include
the gain from the sale of the Company's assets.
"NET PROCEEDS" means the proceeds received by the Company with respect to the
sale of Shares less Organization and Offering Expenses.
"NON-U.S. STOCKHOLDER" means a Stockholder which is a foreign corporation or a
nonresident alien of the United States.
"OFFERING" means the offering of 10,000,000 Shares of the Company pursuant to
this Prospectus.
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred by and to be
paid from the assets of the Company in connection with and in preparing the
Company for registration and subsequently offering and distributing Shares to
the public, including, but not limited to, total underwriting and brokerage
discounts and commissions (including fees of the underwriters' attorneys),
expenses for printing, engraving, mailing, salaries of employees while engaged
in sales activity, charges of transfer agents, registrars, trustees, escrow
holders, depositaries, experts, expenses of qualification of the sale of the
securities under federal and state laws, including taxes and fees, and
accountants' and attorneys' fees.
"OTHER OPERATING EXPENSES" means Total Operating Expenses less the Advisor
Asset Management Fee.
"OWNERSHIP LIMIT" means the beneficial ownership of no more than 9.8% of the
outstanding Shares of the Company.
"PARTICIPANT" means a Stockholder who purchased Shares pursuant to the Prior
Offering or purchases Shares pursuant to this Offering and elects to
participate in the DRP.
"PERSON" means any natural person, partnership, corporation, association,
trust, limited liability company or other legal entity.
"PRIOR OFFERING" means the Company's public offering of 6,000,000 Shares (which
includes 1,000,000 Shares available under the Company's distribution
reinvestment program) which commenced October 14, 1994 and was completed July
___, 1996.
"PROPERTY DISPOSITION FEE" means a real estate disposition fee, payable (under
certain conditions) to the Advisor and its Affiliates upon the sale of the
Company's property in an amount equal to the lesser of: (i) 3% of the
contracted for sales price of the property; or (ii) 50% of the commission paid
to third parties which is reasonable, customary and competitive in light of the
size, type and location of such property.
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"PROPERTY MANAGEMENT FEE" shall mean any fee paid to an Affiliate or third
party as compensation for management of the Company's properties. The Property
Management Fee shall be a percentage of the aggregate gross revenues from the
properties, not to exceed 5.0% if paid to a third party or 4.5% if paid to an
Affiliate of the Advisor.
"PROSPECTUS" means the final prospectus of the Company as may be supplemented
in connection with the initial registration of Shares filed with the
Commission on Form S-11, as amended.
"QUALIFIED PLAN" means any qualified pension, profit-sharing or other
retirement plan (including a Keogh plan) and any trust, bank commingled trust
fund for such a plan.
"REGISTRATION STATEMENT" means the initial registration of Shares on Form S-11
and related exhibits, as amended, filed by the Company with the Commission.
"REIMBURSABLE EXPENSES" means those certain expenses of the Advisor and its
Affiliates which will be reimbursed by the Company.
"REIT" means a corporation, trust, association or other legal entity (other
than a real estate syndication) which is engaged primarily in investing in
equity interests in real estate (including fee ownership and leasehold
interests) or in loans secured by real estate or both.
"REIT PROVISIONS" means Code Sections 856 through 860.
"REIT TAXABLE INCOME" means the taxable income as computed for a corporation
which is not a REIT: (i) without the deductions allowed by Code Sections 241
through 247, 249 and 250 (relating generally to the deduction for dividends
received); (ii) excluding amounts equal to: (a) the net income from
foreclosure property; and (b) the net income derived from prohibited
transactions; (iii) deducting amounts equal to: (x) any net loss derived from
prohibited transactions; and (y) the tax imposed by Code Section 857(b)(5) upon
a failure to meet the 95% and/or the 75% gross income tests; and (iv)
disregarding the dividends paid, computed without regard to the amount of the
net income from foreclosure property which is excluded from REIT Taxable
Income.
"REMICS" means real estate mortgage investment conduits.
"ROLL-UP" means a transaction involving the acquisition, merger, conversion or
consolidation either directly or indirectly of the Company and the issuance of
securities of a Roll-Up Entity. Such term does not include:
(i) a transaction involving securities of the Company that have
been for at least 12 months listed on a national securities
exchange or traded through The Nasdaq Stock Market - Nasdaq
National Market; or
(ii) a transaction involving the conversion to corporate, trust or
association form of only the Company if, as a consequence of the
transaction, there will be no significant adverse change in any of
the following:
143
<PAGE> 155
(a) Stockholders' voting rights;
(b) the term and existence of the Company;
(c) Sponsor or Advisor compensation; or
(d) the Company's investment objectives.
"ROLL-UP ENTITY" means a partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive after
the successful completion of a proposed Roll-Up transaction.
"SELLING COMMISSION" means an amount equal to up to 7% of the Gross Offering
Proceeds payable to the Dealer Manager which may be retained, or reallowed to
Soliciting Dealers for each Share sold.
"SERVICE" means the Internal Revenue Service of the United States of America.
"SHARES" means the common stock, par value $.01 per share, of the Company.
"SOLICITING DEALERS" means the dealer members of the National Association of
Securities Dealers, Inc. designated by the Dealer Manager.
"SPONSOR" means any Person directly or indirectly instrumental in organizing,
wholly or in part, the Company or any Person who will control, manage or
participate in the management of the Company, and any Affiliate of such Person.
Not included is any Person whose only relationship with the Company is as that
of an independent property manager of the Company's assets, and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by:
i. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either alone
or in conjunction with one or more other Persons;
ii. receiving a material participation in the Company in connection with
the founding or organizing of the business of the Company, in
consideration of services or property, or both services and
property;
iii. having a substantial number of relationships and contacts with the
Company;
iv. possessing significant rights to control Company properties;
v. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
vi. providing goods or services to the Company on a basis which was not
negotiated at arm's-length with the Company.
"STOCKHOLDERS" means holders of shares of Common Stock.
144
<PAGE> 156
"TAX-EXEMPT ENTITIES" means any investor that is exempt from federal income
taxation, including without limitation a Qualified Plan, an endowment fund or a
charitable, religious, scientific or education organization.
"TERMINATION DATE" means July __, 1998.
"TOTAL OPERATING EXPENSES" means the aggregate expenses of every character paid
or incurred by the Company as determined under generally accepted accounting
principles, including Advisor Asset Management Fees, but excluding:
a. the expenses of raising capital such as Organization and
Offering Expenses, legal, audit, accounting, underwriting,
brokerage, listing, registration and other fees, printing and other
such expenses, and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of
the Shares;
b. interest payments;
c. taxes;
d. non-cash expenditures such as depreciation, amortization and
bad debt reserves;
e. incentive fees payable to the Advisor; and
f. Acquisition Expenses, real estate commissions on resale of
property and other expenses connected with the acquisition,
disposition and ownership of real estate interests, mortgage loans
or other property (such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair and improvement of
property).
"UBTI" means unrelated business taxable income as described in the Code.
"USRPI" means a United States real property interest described in Code Section
897. Generally, such an interest would be a direct interest in real property
located in the United States or an interest in a domestic corporation which
owns other USRPI's with a fair market value equal to at least 50% of the sum of
the fair market value of its USRPI's, foreign real property and assets used in
a trade or business.
145
<PAGE> 157
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets for the Company (unaudited) at March 31, 1996 and
December 31, 1995 ........................................................... F-1
Statements of Operations (unaudited) for the three months ended March 31,
1996 and 1995 ............................................................... F-3
Statements of Stockholders' Equity at March 31, 1996 and December 31, 1995 .. F-4
Statement of Cash Flows (unaudited) for the three months ended March 31,
1996 and 1995 ............................................................... F-5
Notes to Financial Statements ............................................... F-6
Independent Auditors' Report ................................................ F-14
Balance Sheets for the Company as of December 31, 1995 and 1994 ............. F-15
Statement of Operations for the year ended December 31, 1995 ................ F-17
Statement of Stockholders' Equity for the year ended December 31, 1995 and
for the period from May 12, 1994 (formation of the Company) to December 31,
1994 ........................................................................ F-18
Statement of Cash Flows for the year ended December 31, 1995 and for
the period May 12, 1994 (formation of the Company) to December 31, 1994 ..... F-19
Notes to Financial Statements ............................................... F-21
Historical Summary of Gross Income and Direct Operating
Expenses (unaudited) of the Walgreens/Decatur property for the six-month
period ended December 31, 1994 .............................................. F-30
Independent Auditor's Report ................................................ F-31
Historical Summaries of Gross Income and Direct Operating Expenses unaudited
of the Walgreens/Decatur property for each of the three years in
the three year period ended June 30, 1994 ................................... F-32
Notes to Historical Summaries of Gross Income and Direct Operating
Expenses .................................................................... F-33
Historical Summary of Gross Income and Direct Operating Expenses (unaudited)
of the Eagle Crest Shopping Center for the six-month period ended
December 31, 1994 ........................................................... F-35
</TABLE>
F-i
<PAGE> 158
Independent Auditor's Report ......................................... F-36
Historical Summaries of Gross Income and Direct Operating Expenses
of the Eagle Crest/Naperville property for each of the three years
in the three year period ended June 30, 1994 ......................... F-37
Notes to the Historical Summaries of Gross Income and Direct Operating
Expenses ............................................................. F-38
Report of Independent Public Accountants ............................. F-40
Statement of Gross Income and Direct Operating Expenses for the year
ended December 31, 1994 of Nantucket Square Shopping Center .......... F-41
Notes to the Statement of Gross Income and Direct Operating Expenses
for the year ended December 31, 1994 of Nantucket Square Shopping
Center................................................................ F-42
Statement of Gross Income and Direct Operating Expenses for the
seven-month period ended July 31, 1995 of Nantucket Square Shopping
Center (unaudited) ................................................... F-44
Report of Independent Public Accountants ............................. F-45
Statement of Gross Income and Direct Operating Expenses
for the Year Ended December 31, 1995 of Mundelein Plaza............... F-46
Notes to the Statement of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Mundelein Plaza............... F-47
Independent Auditors' Report ......................................... F-49
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of the Regency Point
Shopping Center ...................................................... F-50
Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1995 of the Regency Point
Shopping Center ....................................................... F-51
Report of Independent Public Accountants .............................. F-53
Statement of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 of Prospect Heights Plaza ..................... F-54
Notes to the Statement of Income and Direct Operating Expenses
for the year ended December 31, 1995 of Prospect Heights Plaza ........ F-55
Report of Independent Public Accountants .............................. F-57
F-ii
<PAGE> 159
Statement of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 of Montgomery-Sears Shopping
Center ............................................................... F-58
Notes to the Statement of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Montgomery-Sears
Shopping Center ...................................................... F-59
Pro Forma Balance Sheet of the Company (unaudited) at December 31,
1995 ................................................................. F-61
Notes to Pro Forma Balance Sheet of the Company (unaudited) at December
31, 1995.............................................................. F-63
Pro Forma Statement of Operations of the Company (unaudited) for the
year ended December 31, 1995 ......................................... F-68
Notes to Pro Forma Statement of Operations of the Company (unaudited)
for the year ended December 31, 1995 ................................. F-70
Pro Forma Balance Sheet of the Company (unaudited) at March 31, 1996 . F-78
Notes to Pro Forma Balance Sheet of the Company (unaudited) at
March 31, 1996 ....................................................... F-80
Pro Forma Statement of Operations of the Company (unaudited) for the
three months ended March 31, 1996 .................................... F-84
Notes to Pro Forma Statement of Operations of the Company (unaudited)
for the three months ended March 31, 1996 ............................ F-86
F-iii
<PAGE> 160
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
March 31, 1996 and December 31, 1995
(unaudited)
Assets
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investment properties (Notes 1, 4 and 5):
Land............................................ $ 7,240,948 5,437,948
Building and improvements....................... 15,982,166 12,074,484
----------- ----------
23,223,114 17,512,432
Less accumulated depreciation................... 272,985 169,894
----------- ----------
Net investment properties....................... 22,950,129 17,342,538
----------- ----------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 2,937,473 738,931
Restricted cash (Note 1).......................... - 150,000
Accounts and rents receivable (Note 5)............ 492,081 333,823
Deposits and other assets......................... 22,309 158,123
Deferred organization costs (Note 1).............. 26,089 27,462
----------- ----------
Total assets.................................. $26,428,081 18,750,877
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-1
<PAGE> 161
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
(continued)
March 31, 1996 and December 31, 1995
(unaudited)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities:
Accounts payable................................ $ 43,544 6,875
Accrued offering costs to Affiliates............ 269,570 222,353
Accrued offering costs to non-affiliates........ 31,000 6,444
Accrued interest payable to Affiliates.......... 4,771 5,242
Accrued real estate taxes....................... 463,751 374,180
Distributions payable (Note 7).................. 183,457 129,532
Security deposits............................... 71,133 54,483
Note payable to Affiliates (Note 6)............. - 360,000
Mortgage payable (Note 6)....................... 748,011 750,727
Unearned income................................. 13,268 39,846
Other liabilities............................... 28,852 178,852
Due to Affiliates (Note 2)...................... 69,508 7,277
----------- ----------
Total liabilities............................. 1,926,865 2,135,811
----------- ----------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 2,909,912 and 2,000,073, issued and
outstanding at March 31, 1996 and
December 31, 1995, respectively............... 29,103 19,996
Additional paid-in capital (net of offering
costs of $4,078,208 at March 31, 1996, of
which $2,896,271 was paid to Affiliates)...... 24,953,635 16,835,183
Accumulated distributions in excess
of net income................................. (481,522) (240,113)
----------- ----------
Total stockholders' equity.................... 24,501,216 16,615,066
----------- ----------
Total liabilities and stockholders' equity........ $26,428,081 18,750,877
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 162
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statements of Operations
For the three months ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income:
Rental income (Notes 1 and 5)................... $ 475,038 70,733
Additional rental income........................ 242,290 8,790
Interest income................................. 43,751 21,598
----------- ----------
761,079 101,121
----------- ----------
Expenses:
Professional services to Affiliates............. 2,000 -
Professional services to non-affiliates......... 26,068 -
General and administrative expenses
to Affiliates................................. 7,903 -
General and administrative expenses
to non-affiliates............................. 2,197 415
Advisor asset management fee.................... 48,540 -
Property operating expenses to Affiliates....... 29,136 2,882
Property operating expenses to non-affiliates... 281,477 8,825
Mortgage interest to Affiliates................. 15,043 20,398
Mortgage interest to non-affiliates............. - 14,499
Depreciation.................................... 103,091 14,444
Amortization.................................... 1,373 -
Acquisition costs expensed...................... 8,985 162
----------- ----------
525,813 61,625
----------- ----------
Net income.................................... $ 235,266 39,496
=========== ===========
Net income per weighted average common stock shares
outstanding (2,394,092 and 343,119 for the
three months ended March 31, 1996 and 1995,
respectively.................................... $ .12 .12
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 163
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statements of Stockholders' Equity
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
------ ---------- ------------- -----
<S> <C> <C> <C> <C>
Balance January 1, 1995..... $ 200 199,800 - 200,000
Net income.................. - - 496,514 496,514
Distributions declared
($.78 per weighted average
common stock shares
outstanding).............. - - (736,627) (736,627)
Proceeds from Offering (net
of Offering costs of
$3,121,175)............... 19,826 16,662,162 - 16,681,988
Repurchases of Shares....... (30) (26,779) - (26,809)
---------- ---------- ----------- ----------
Balance December 31, 1995... 19,996 16,835,183 (240,113) 16,615,066
Net income.................. - - 235,266 235,266
Distributions declared
($.20 per weighted average
common stock shares
outstanding).............. - - (476,675) (476,675)
Proceeds from Offering (net
of Offering costs of
$957,033)................. 9,107 8,118,452 - 8,127,559
---------- ---------- ----------- ----------
Balance March 31, 1996...... $ 29,103 24,953,635 (481,522) 24,501,216
========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 164
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Cash Flows
For the three months ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 235,266 39,496
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................ 103,091 14,444
Amortization................................ 1,373 -
Rental income under master lease agreements. 109,333 -
Changes in assets and liabilities:
Accounts and rents receivable............... (158,258) (74,855)
Other assets................................ 135,814 1,075
Accrued interest payable.................... (471) 30,052
Accrued real estate taxes................... 89,571 95,225
Accounts payable............................ 36,669 -
Unearned income............................. (26,578) -
Due to Affiliates........................... 53,646 -
Security deposits........................... 16,650 13,853
----------- -----------
Net cash provided by operating activities......... 596,106 119,290
----------- -----------
Cash flows from investing activities:
Additions to investment properties.............. (153,450) -
Purchase of investment properties............... (5,657,980) (218,418)
----------- -----------
Net cash used in investing activities............. (5,811,430) (218,418)
----------- -----------
Cash flows from financing activities:
Repayment of note to Affiliate.................. (360,000) -
Repayment of loan from Advisor.................. - (193,300)
Proceeds from offering.......................... 9,084,592 4,842,205
Payments of offering costs...................... (885,260) (613,424)
Distributions paid.............................. (422,750) -
Principal payments of debt...................... (2,716) (2,508,857)
----------- -----------
Net cash provided by financing activities......... 7,413,866 1,526,624
----------- -----------
Net increase in cash and cash equivalents......... 2,198,542 1,427,496
Cash and cash equivalents at beginning of period.. 738,931 10,934
----------- -----------
Cash and cash equivalents at end of period........ $ 2,937,473 1,438,430
=========== ===========
Distributions payable............................. $ 183,457 (58,495)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 165
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
March 31, 1996
(unaudited)
Readers of this Quarterly Report should refer to the Company's audited
financial statements for the fiscal year ended December 31, 1995, which are
included in the Company's 1995 Annual Report, as certain footnote disclosures
which would substantially duplicate those contained in such audited financial
statements have been omitted from this Report.
(1) Organization and Basis of Accounting
Inland Monthly Income Fund III, Inc. (the "Company") was formed on May 12, 1994
to invest in neighborhood retail centers located within an approximate 150-mile
radius of its headquarters in Oak Brook, Illinois. The Company may also
acquire single-user retail properties in locations throughout the United
States, certain of which may be sale and leaseback transactions, net leased to
creditworthy tenants. On October 14, 1994, the Company commenced an initial
public offering (the "Offering") of 5,000,000 shares of common stock (the
"Shares") at a price of $10 per Share and the issuance of 1,000,000 Shares at a
price of $9.05 per Share which may be distributed pursuant to the Company's
distribution reinvestment program (the "DRP"). Inland Real Estate Advisory
Services, Inc. (the "Advisor"), an Affiliate of the Company, is the advisor to
the Company. Subscriber funds were held in an interest-bearing escrow account
with the Company's unaffiliated escrow agent until January 3, 1995. Offering
proceeds were released from escrow on January 3, 1995 when subscriptions were
accepted and Shares issued by the Company. Subscribers received their pro rata
share of interest income earned on their subscriptions while in escrow. As of
March 31, 1996, the Company has repurchased 3,000 Shares. At March 31, 1996,
subscriptions for a total of 2,909,912 Shares have been received, resulting in
$29,088,408 in Gross Offering Proceeds.
The Company qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, for federal income tax purposes
commencing with the tax year ending December 31, 1995. Since the Company
qualified for taxation as a REIT, the Company generally will not be subject to
federal income tax to the extent it distributes its REIT taxable income to its
stockholders. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its income
and property and federal income and excise taxes on its undistributed income.
F-6
<PAGE> 166
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
The preparation of 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents and are carried at cost, which
approximates fair value. Included in cash and equivalents is $249,890 held by
the Company's affiliated property manager which is unrestricted and held in the
Company's name.
Deferred organization costs are amortized over a 60-month period.
Offering costs were offset against the Stockholders' equity accounts once the
Shares sold exceeded the Minimum Number of Shares and Gross Offering Proceeds
were released from escrow. Offering costs consist principally of printing,
selling and registration costs.
The investment properties are carried at the lower of aggregate cost or net
realizable value. Periodically, the Company will review its real estate
portfolio and if investment properties suffer an impairment in value which is
deemed to be other than temporary, the investment in properties would be
reduced to the net realizable value of the properties. As of March 31, 1996,
there have been no such impairments. Depreciation expense is computed using
the straight-line method. Buildings and improvements are based upon estimated
useful lives of 30 years. Tenant improvements will be depreciated over the
related lease period.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned and the cash rent due under
the provisions of the lease agreements is recorded as deferred rent receivable.
The Company believes that the interest rate associated with the mortgage
payable approximates the market interest rates for this type of debt
instrument, and as such, the carrying amount of the mortgage payable
approximates its fair value.
F-7
<PAGE> 167
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
The carrying amount of cash and cash equivalents, restricted cash, accounts and
rents receivable, accounts payable and other liabilities, accrued offering
costs to Affiliates, accrued offering costs to non-Affiliates, accrued interest
payable to Affiliates, accrued real estate taxes, and distributions payable
approximate fair value because of the relative short maturity of these
instruments.
In the opinion of management, the financial statements contain all the
adjustments necessary, which are of a normal recurring nature, to present
fairly the financial position and results of operations for the periods
presented herein. Results of interim periods are not necessarily indicative of
the results to be expected for the year.
(2) Transactions with Affiliates
As of March 31, 1996, the Company had incurred $4,105,670 of organization and
offering costs. Pursuant to the terms of the Offering, the Advisor is required
to pay organization and offering expenses (excluding sales commissions, the
marketing contribution and the due diligence expense allowance fee) in excess
of 5.5% of the gross proceeds of the Offering (the "Gross Offering Proceeds")
or all organization and offering expenses (including such selling expenses)
which together exceed 15% of Gross Offering Proceeds. As of March 31, 1996,
organizational and offering costs did exceed the 5.5% and 15% limitations. The
Company anticipates that these costs will not exceed these limitations upon
completion of the Offering, however, any excess amounts will be reimbursed by
the Advisor.
The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to the
Offering and to the administration of the Company. In addition, an Affiliate
of the Advisor serves as dealer manager of the Offering and is entitled to
receive selling commissions, a marketing contribution and a due diligence
expense allowance fee from the Company in connection with the Offering. Such
commissions incurred were $2,526,845 and $1,719,406 as of March 31, 1996 and
December 31, 1995, respectively, of which $192,632 and $102,084 were unpaid as
of March 31, 1996 and December 31, 1995, respectively. Other costs to
Affiliates incurred relating to the Offering were $369,426 and $409,858 as of
March 31, 1996 and December 31, 1995, respectively, of which $76,938 and
$120,269 were unpaid as of March 31, 1996 and December 31, 1995, respectively.
F-8
<PAGE> 168
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
As of March 31, 1996, the Advisor has contributed $200,000 to the capital of
the Company for which it received 20,000 Shares.
During 1994, the Advisor advanced $193,300 to the Company for costs incurred
with the Offering. These advances were repaid with a market rate of interest
to the Advisor in January 1995 with interest ranging from 7.75% to 9.50%. The
principal of $193,300 and interest totaling $3,162 were paid from Gross
Offering Proceeds.
The Advisor may receive an annual Advisor Asset Management Fee of not more than
1% of the Average Invested Assets, paid quarterly. For any year in which the
Company qualifies as a REIT, the Advisor must reimburse the Company: (i) to
the extent that the Advisor Asset Management Fee plus Other Operating Expenses
paid during the previous calendar year exceed 2% of the Company's Average
Invested Assets for that calendar year or 25% of the Company's Net Income for
that calendar year; and (ii) to the extent that Stockholders have not received
an annual Distribution equal to or greater than the 8% Current Return. As of
March 31, 1996, the Company has incurred $48,540 of such fees, all of which
remains unpaid at March 31, 1996. (Defined terms in this paragraph have the
same definitions from the prospectus.)
An Affiliate of the Advisor is entitled to receive Property Management Fees for
management and leasing services. The Company incurred and paid property
management fees of $29,136 and $2,882 for the three months ended March 31, 1996
and 1995, respectively.
F-9
<PAGE> 169
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(3) Commitments and Contingencies
The Company adopted an Independent Director Stock Option Plan which granted
each Independent Director an option to acquire 3,000 Shares as of October 14,
1994 and an additional 500 Shares on the date of each annual stockholders'
meeting commencing with the annual meeting in 1995 if the Independent Director
is a member of the Board on such date. The options for the initial 3,000 Share
grant are exercisable as follows: 1,000 Shares on the date of grant and 1,000
Shares on each of the first and second anniversaries of the date of grant. The
succeeding options are exercisable on the second anniversary of the date of
grant. No options have been exercised.
In addition to sales commissions, Soliciting Dealers will also receive one
Soliciting Dealer Warrant for each 40 Shares sold by such Soliciting Dealer
during the Offering, subject to state and federal securities laws. The holder
of a Soliciting Dealer Warrant will be entitled to purchase one Share from the
Company at a price of $12 during the period commencing with the first date upon
which the Soliciting Dealer Warrants are issued and ending upon the first to
occur of: (i) October 14, 1999; or (ii) the closing date of a secondary
offering of the Shares by the Company. Notwithstanding the foregoing, no
Soliciting Dealer Warrant will be exercisable until one year from the date of
issuance.
On the behalf of the Company, the Advisor is currently exploring the purchase
of additional shopping centers from unaffiliated third parties.
F-10
<PAGE> 170
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(4) Investment Properties
<TABLE>
<CAPTION>
Gross amount at which carried
Initial Cost (A) at end of period
--------------------- ----------------------------------
Buildings Adjustments Land Buildings
Date and to and and
Acq Land improvements Basis (B) improvements improvements Total
------ ------ ------------ ----------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Single-user Retail
Walgreens/Decatur
Decatur, IL............. 01/95 $ 78,330 1,130,723 - 78,330 1,130,723 1,209,053
Neighborhood Retail Centers
Eagle Crest Shopping Center
Naperville, IL.......... 03/95 1,878,618 2,938,352 - 1,878,618 2,938,352 4,816,970
Montgomery-Goodyear
Montgomery, IL.......... 09/95 315,000 832,909 (6,632) 315,000 826,277 1,141,277
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,426,211 22,082 990,000 3,448,293 4,438,293
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,352,833 (15,026) 1,908,000 2,337,807 4,245,807
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,487,372 (41,638) 268,000 1,445,734 1,713,734
Mundelein Plaza
Mundelein, IL........... 03/96 1,803,000 3,854,980 - 1,803,000 3,854,980 5,657,980
----------- ----------- ----------- ------------ ----------- -----------
$ 7,240,948 16,023,380 (41,214) 7,240,948 15,982,166 23,223,114
=========== =========== =========== =========== =========== ===========
</TABLE>
(A) The initial cost to the Company, represents the original purchase price of
the property, including amounts incurred subsequent to acquisition, which
were contemplated at the time the property was acquired.
(B) Adjustments to basis includes additions to investment properties and
payments received under master lease agreements. As part of the
Montgomery-Goodyear, Hartford/Naperville Plaza, Nantucket Square and Antioch
Plaza purchases, the Company will receive rent under master lease
agreements on the spaces currently vacant for periods ranging from one year
to eighteen months or until the spaces are leased. Generally accepted
accounting principles require that as these payments are received, they be
recorded as a reduction in the purchase price of the properties rather than
as rental income. As of March 31, 1996, the Company has recorded $242,349
of such payments.
F-11
<PAGE> 171
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(5) Operating Leases
Master Lease Agreements
As part of the Montgomery-Goodyear, Hartford/Naperville Plaza, Nantucket Square
and Antioch Plaza purchases, the Company will receive rent under master lease
agreements on the spaces currently vacant for periods ranging from one year to
eighteen months or until the spaces are leased. Generally Accepted Accounting
Principles require that as these payments are received, they be recorded as a
reduction in the purchase price of the properties rather than as rental income.
Hartford/Naperville Plaza is fully leased and tenant improvements are
substantially completed. Master lease payments amounted to $29,114 for the
three months ended March 31, 1996.
The seller of Nantucket Square entered into a master lease agreement with the
Company for 4,500 square feet at $15 per square foot for 12 months or until the
space is leased. In addition, the Company received a credit at closing for
rent abatement agreements under current leases. Master lease payments amounted
to $37,268 for the three months ended March 31, 1996.
At March 31, 1996, Antioch Plaza was 49% leased and tenant improvements are
being completed. Certain tenants have begun paying rent. The master lease
payments amounted to $39,921 for the three months ended March 31, 1996. The
master lease agreement on this property expires June 1997.
Master lease payments at Montgomery-Goodyear amounted to $3,030 for the three
months ended March 31, 1996.
Certain tenant leases contain provisions providing for stepped rent increases.
Generally accepted accounting principles require that rental income be recorded
for the period of occupancy using the effective monthly rent, which is the
average monthly rent for the entire period of occupancy during the term of the
lease. The accompanying financial statements include $7,284 and $740 for the
three months ended March 31, 1996 and 1995, respectively, of rental income for
the period of occupancy for which stepped rent increases apply and $19,697 and
$740 in related accounts receivable as of March 31, 1996 and December 31, 1995,
respectively. These amounts will be collected over the terms of the related
leases as scheduled rent payments are made.
F-12
<PAGE> 172
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(6) Mortgage Payable and Note Payable to Affiliates
Mortgage payable and note payable to Affiliates consist of the following at
March 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
7.655% first mortgage secured by Walgreens,
Decatur, Illinois, monthly principal and
interest payments of $5,689, with the
remaining balance due May 2004............ $ 748,011 750,727
----------- -----------
Mortgage payable............................ $ 748,011 750,727
=========== ===========
9.5% promissory note payable to Inland
Real Estate Investment Corporation, paid
in full on January 9, 1996................ - 360,000
----------- -----------
Note payable to Affiliates.................. $ - 360,000
=========== ===========
</TABLE>
(7) Subsequent Events
During April 1996, the Company paid distributions of $183,457 to the
Stockholders of record at March 31, 1996 on a weighted average basis for the
month.
On April 5, 1996, the Company completed the acquisition of the Regency Point
Shopping Center located in Lockport, Illinois ("Regency Point"), from a third
party unaffiliated with the Company, for a purchase price of $5,700,000. In
connection with the acquisition of Regency Point, the Company assumed the
existing first mortgage loan of approximately $4,473,200, along with a related
interest rate swap agreement which has the effect of fixing the interest rate
on the mortgage loan at 7.91% per annum. The remainder of the purchase price
was funded, after prorations, with proceeds of the Offering. The related
interest rate swap agreement was terminated on April 18, 1996 resulting in
$48,419 proceeds to the Company. As a result, the first mortgage loan has a
floating interest rate of 180 basis points over the 30-day LIBOR rate, which
rate is adjusted monthly (currently 7.2375%), amortizes over 25 years and
matures August 2000.
F-13
<PAGE> 173
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Monthly Income Fund III, Inc.:
We have audited the financial statements of Inland Monthly Income Fund III,
Inc. (the Company) as listed in the accompanying index. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Inland Monthly Income Fund
III, Inc. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the year ended December 31, 1995 and for the period from
May 12, 1994 (formation date) to December 31, 1994 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 19, 1996
F-14
<PAGE> 174
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
December 31, 1995 and 1994
Assets
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Investment properties (Notes 1 and 4):
Land............................................ $ 5,437,948 -
Building and improvements....................... 12,074,484 -
----------- ---------
17,512,432 -
Less accumulated depreciation................... 169,894 -
----------- ---------
Net investment properties....................... 17,342,538 -
----------- ---------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 738,931 10,934
Restricted cash (Note 1).......................... 150,000 -
Escrowed funds (Note 1)........................... - 1,699,381
Accounts and rents receivable (Note 5)............ 333,823 -
Deposits and other assets (Note 4)................ 158,123 4,117
Offering costs (Note 1)........................... - 687,941
Deferred organization costs (Note 1).............. 27,462 -
----------- ---------
Total assets.................................. $18,750,877 2,402,373
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 175
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
(continued)
December 31, 1995 and 1994
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Liabilities:
Liability for subscriptions received (Note 1)... $ - 1,699,381
Accounts payable................................ 6,875 -
Accrued offering costs to Affiliates (Note 2)... 222,353 54,981
Accrued offering costs to non-affiliates........ 6,444 254,711
Accrued interest payable to Affiliates.......... 5,242 -
Accrued real estate taxes....................... 374,180 -
Distributions payable (Note 7).................. 129,532 -
Security deposits............................... 54,483 -
Notes payable to Affiliates (Notes 4 and 7)..... 360,000 -
Mortgage payable (Notes 4 and 6)................ 750,727 -
Unearned income................................. 39,846 -
Other liabilities............................... 178,852 -
Due to Affiliates (Note 2)...................... 7,277 193,300
----------- ---------
Total liabilities............................. 2,135,811 2,202,373
----------- ---------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 2,000,073 and 20,000 issued and
outstanding at December 31, 1994 and
December 31, 1995, respectively.............. 19,996 200
Additional paid-in capital (net of offering
costs of $3,121,175 at December 31, 1995, of
which $2,129,264 was paid to Affiliates)...... 16,835,183 199,800
Accumulated distributions in excess
of net income................................. (240,113) -
----------- ---------
Total stockholders' equity.................... 16,615,066 200,000
----------- ---------
Commitments and contingencies (Notes 3, 5 and 7)..
----------- ---------
Total liabilities and stockholders' equity........ $18,750,877 2,402,373
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 176
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Operations
For the year ended December 31, 1995
<TABLE>
<S> <C>
Income:
Rental income (Notes 1 and 5).................... $ 869,485
Additional rental income......................... 228,024
Interest income.................................. 82,913
-----------
1,180,422
-----------
Expenses:
Professional services to Affiliates.............. 7,277
Professional services to non-affiliates.......... 1,615
General and administrative expenses
to non-affiliates.............................. 13,880
Property operating expenses to Affiliates........ 46,791
Property operating expenses to non-affiliates.... 279,930
Mortgage interest to Affiliates.................. 146,821
Mortgage interest to non-affiliates.............. 17,340
Depreciation..................................... 169,894
Acquisition costs expensed....................... 360
-----------
683,908
-----------
Net income..................................... $ 496,514
===========
Net income per weighted average
common stock shares outstanding
(943,156 for the year ended
December 31, 1995)............................... $ .53
============
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 177
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Stockholders' Equity
For the year ended December 31, 1995 and
for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
<TABLE>
<CAPTION>
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
---------- ---------- ------------- --------
<S> <C> <C> <C> <C>
Proceeds from initial
offering.................. $ 200 199,800 - 200,000
---------- ---------- -------- ----------
Balance December 31, 1994... 200 199,800 - 200,000
Net income.................. - - 496,514 496,514
Distributions declared
($.78 per weighted average
common stock shares
outstanding).............. - - (736,627) (736,627)
Proceeds from Offering (net
of Offering costs of
$3,121,175).............. 19,826 16,662,162 - 16,681,988
Repurchases of Shares....... (30) (26,779) - (26,809)
---------- ---------- -------- ----------
Balance December 31, 1995... $ 19,996 16,835,183 (240,113) 16,615,066
========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 178
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Cash Flows
For the year ended December 31, 1995
and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 496,514
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 169,894 -
Rental income under master lease agreements... 133,016 -
Changes in assets and liabilities:
Accounts and rents receivable............... (333,823) -
Deposits and other assets................... (4,006) -
Accounts payable............................ 6,875 -
Accrued interest payable.................... 5,242 -
Accrued real estate taxes................... 374,180 -
Security deposits........................... 54,483 -
Other liabilities........................... 28,852 -
Due to Affiliates........................... 7,277 -
Unearned income............................. 39,846 -
------------ ---------
Net cash provided by operating activities......... 978,350 -
------------ ---------
Cash flows from investing activities:
Escrowed funds.................................. - (1,699,381)
Payments for acquisition expenses............... - (4,117)
Purchase of investment properties............... (6,376,708) -
Tenant improvements............................. (51,135) -
Deposit for tenant improvements................. (150,000) -
------------ ---------
Net cash used in investing activities............. (6,577,843) (1,703,498)
------------ ---------
Cash flows from financing activities:
Repayment of loan from Advisor.................. (193,300) 193,300
Proceeds from offering.......................... 19,803,163 200,000
Repurchase of Shares............................ (26,809) -
Subscriptions received.......................... - 1,699,381
Payments of offering costs...................... (2,514,129) (378,249)
Distributions paid.............................. (607,095) -
Principal payments of debt...................... (10,106,878) -
Payment of deferred organization costs.......... (27,462) -
------------ ---------
Net cash provided by financing activities......... 6,327,490 1,714,432
------------ ---------
Net increase in cash and cash equivalents......... 727,997 10,934
Cash and cash equivalents at beginning of period.. 10,934 -
------------ ---------
Cash and cash equivalents at end of period........ $ 738,931 10,934
============ =========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 179
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the year ended December 31, 1995
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<S> <C>
Purchase of Walgreens, Decatur, Illinois:
Purchase price of investment property......................... $ (1,209,053)
Assumption of debt (Note 4)................................... 1,061,409
------------
(147,644)
------------
Purchase of the Eagle Crest Shopping Center, Naperville, Illinois:
Purchase price of investment property......................... (4,816,970)
Assumption of debt............................................ 3,533,769
Note payable (Note 4)......................................... 1,212,427
------------
(70,774)
------------
Purchase of Montgomery-Goodyear, Montgomery, Illinois:
Purchase price of investment property......................... (1,145,992)
Note payable (Note 4)......................................... 600,000
------------
(545,992)
------------
Purchase of Hartford/Naperville Plaza, Naperville, Illinois:
Purchase price of investment property......................... (4,414,015)
Note payable (Note 4)......................................... 600,000
------------
(3,814,015)
------------
Purchase of Nantucket Square, Schaumburg, Illinois:
Purchase price of investment property......................... (4,257,918)
Note payable (Note 4)......................................... 3,550,000
------------
(707,918)
------------
Purchase of Antioch Plaza, Antioch, Illinois:
Purchase price of investment property......................... (1,750,365)
Note payable (Note 4)......................................... 660,000
------------
(1,090,365)
------------
Purchase of investment properties............................... $ (6,376,708)
============
Distributions payable........................................... $ 129,532
============
Cash paid for interest.......................................... $ 158,919
============
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 180
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
For the year ended December 31, 1995 and
for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
(1) Organization and Basis of Accounting
Inland Monthly Income Fund III, Inc. (the "Company") was formed on May 12, 1994
to invest in neighborhood retail centers located within an approximate 150-mile
radius of its headquarters in Oak Brook, Illinois. The Company may also
acquire single-user retail properties in locations throughout the United
States, certain of which may be sale and leaseback transactions, net leased to
creditworthy tenants. On October 14, 1994, the Company commenced an initial
public offering ("Offering") of 5,000,000 shares of common stock ("Shares") at
a price of $10 per Share and the issuance of 1,000,000 Shares at a price of
$9.05 per Share which may be distributed pursuant to the Company's distribution
reinvestment program (the "DRP"). Inland Real Estate Advisory Services, Inc.
(the "Advisor"), an Affiliate of the Company, is the advisor to the Company.
At December 31, 1994, subscriptions for a total of 189,938.145 Shares had been
received from the public resulting in $1,899,381 in Gross Offering Proceeds,
which includes $200,000 received from the Advisor for 20,000 Shares.
Subscriber funds were held in an interest-bearing escrow account with the
Company's unaffiliated escrow agent until January 3, 1995. At December 31,
1994, escrowed funds of $1,699,381 were reflected as escrowed deposits, along
with the corresponding liability for subscriptions received, in the
accompanying financial statements. Offering proceeds were released from escrow
on January 3, 1995 when subscriptions were accepted and Shares issued by the
Company. Subscribers received their pro rata share of interest income earned
on their subscriptions while in escrow. At December 31, 1995, subscriptions
for a total of 2,000,073 Shares have been received, resulting in $19,976,354 in
Gross Offering Proceeds. As of December 31, 1995, the Company has repurchased
30 Shares.
The Company qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, for federal income tax purposes
commencing with the tax year ending December 31, 1995. Since the Company
qualified for taxation as a REIT, the Company generally will not be subject to
federal income tax to the extent it distributes its REIT taxable income to its
stockholders. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its income
and property and federal income and excise taxes on its undistributed income.
The preparation of 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
F-21
<PAGE> 181
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
The Company considers all highly liquid investments purchased with a maturity
of three months of less to be cash equivalents and are carried at cost, which
approximates fair value. Included in cash and equivalents is $142,720 held by
the Company's affiliated property manager which is unrestricted and held in the
Company's name.
Restricted cash represents amounts held in escrow for tenant improvements at
Naperville/Hartford Plaza. The Company has recorded a corresponding payable as
a component of other liabilities.
Deferred organization costs will be amortized over a 60-month period.
Offering costs were offset against the Stockholders' equity accounts once the
Shares sold exceeded the Minimum Number of Shares and Gross Offering Proceeds
were released from escrow. Offering costs consist principally of printing,
selling and registration costs.
The investment properties are carried at the lower of aggregate cost or net
realizable value. Periodically, the Company will review its real estate
portfolio and if investment properties suffer an impairment in value which is
deemed to be other than temporary, the investment in properties would be
reduced to the net realizable value of the properties. As of December 31,
1995, there have been no such impairments. Depreciation expense is computed
using the straight-line method. Buildings and improvements are based upon
estimated useful lives of 30 years. Tenant improvements will be depreciated
over the related lease period.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned and the cash rent due under
the provisions of the lease agreements is recorded as deferred rent receivable.
The Company believes that the interest rates associated with the mortgage
payable and notes payable to Affiliates approximate the market interest rates
for these types of debt instruments, and as such, the carrying amount of the
mortgage payable and notes payable to Affiliates approximate their fair value.
The carrying amount of cash and cash equivalents, restricted cash, accounts and
rents receivable, accounts payable and other liabilities, accrued offering
costs to Affiliates, accrued offering costs to non-Affiliates, accrued interest
payable to Affiliates, accrued real estate taxes, and distributions payable
approximate fair value because of the relative short maturity of these
instruments.
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation. Such reclassifications did not change the
1994 reported results.
F-22
<PAGE> 182
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" was issued in March 1995 and
is effective for fiscal years beginning after December 15, 1995.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation Plans" was issued in October 1995. The Statement is
effective for fiscal years beginning after December 15, 1995. As allowed by
the new Statement, the Company plans to continue to use Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting
for its stock options.
Neither of these accounting pronouncements are expected to have a material
effect on the financial position or results of operations of the Company.
Inflation
(2) Transactions with Affiliates
Pursuant to the terms of the Offering, the Advisor is required to pay
organizational and offering expenses (excluding sales commissions, the
marketing contribution and the due diligence expense allowance fee) in excess
of 5.5% of the gross proceeds of the Offering (the "Gross Offering Proceeds")
or all organization and offering expenses (including selling commissions) which
together exceed 15% of Gross Offering Proceeds. As of December 31, 1995,
organizational and offering costs did exceed the 5.5% and 15% limitations. The
Company anticipates that these costs will not exceed these limitations upon
completion of the Offering, however, any excess amounts will be reimbursed by
the Advisor.
The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to the
Offering and to the administration of the Company. In addition, an Affiliate
of the Advisor serves as dealer manager of the Offering and is entitled to
receive selling commissions, a marketing contribution and a due diligence
expense allowance fee from the Company in connection with the Offering. Such
commissions incurred were $1,719,406 for the year ended December 31, 1995, of
which $102,084 was unpaid as of December 31, 1995. Other costs to Affiliates
incurred relating to the Offering were $409,858 for the year ended December 31,
1995, of which $120,269 was unpaid as of December 31, 1995. Other costs to
Affiliates incurred relating to the administration of the Company were $7,277,
all of which was unpaid at December 31, 1995.
As of December 31, 1995, the Advisor has contributed $200,000 to the capital of
the Company for which it received 20,000 Shares.
During 1994, the Advisor advanced $193,300 to the Company for costs incurred
with the Offering. These advances were repaid to the Advisor in January 1995
with interest ranging from 7.75% to 9.50%. The principal of $193,300 and
interest totaling $3,162 were paid from Gross Offering Proceeds.
F-23
<PAGE> 183
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
The Advisor may receive an annual Advisor Asset Management Fee of not more than
1% of the Average Invested Assets, paid quarterly. For any year in which the
Company qualifies as a REIT, the Advisor must reimburse the Company: (i) to
the extent that the Advisor Asset Management Fee plus Other Operating Expenses
paid during the previous calendar year exceed 2% of the Company's Average
Invested Assets for the calendar year or 25% of the Company's Net Income for
that calendar year; and (ii) to the extent that Stockholders have not received
an annual Distribution equal to or greater than the 8% Current Return. As of
December 31, 1995, the Company has not incurred or paid any of such fees.
An Affiliate of the Advisor is entitled to receive Property Management Fees for
management and leasing services. The Company incurred and paid Property
Management Fees of $46,791 for the year ended December 31, 1995.
(3) Commitments and Contingencies
The Company adopted an Independent Director Stock Option Plan which granted
each Independent Director an option to acquire 3,000 Shares as of October 19,
1994 and an additional 500 Shares on the date of each annual stockholders'
meeting commencing with the annual meeting in 1995 if the Independent Director
is a member of the Board on such date. The options for the initial 3,000
Shares granted shall be exercisable as follows: 1,000 Shares on the date of
grant and 1,000 Shares on each of the first and second anniversaries of the
date of grant. The succeeding options are exercisable on the second
anniversary of the date of grant. No options have been exercised.
In addition to sales commissions, Soliciting Dealers will also receive one
Soliciting Dealer Warrant for each 40 Shares sold by such Soliciting Dealer
during the Offering, subject to state and federal securities laws. The holder
of a Soliciting Dealer Warrant will be entitled to purchase one Share from the
Company at a price of $12 during the period commencing with the first date upon
which the Soliciting Dealer Warrants are issued and ending upon the first to
occur of: (i) October 14, 1999 or (ii) the closing date of a secondary offering
of the Shares by the Company. Notwithstanding the foregoing no Soliciting
Dealer Warrant will be exercisable until one year from the date of issuance.
On behalf of the Company, the Advisor is currently exploring the purchase of
additional Neighborhood Retail Centers and single-user retail properties from
unaffiliated third parties.
F-24
<PAGE> 184
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties
Purchase of Walgreens, Decatur, Illinois
On January 31, 1995, the Company acquired this property from Inland Property
Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the total purchase price
of $1,209,053, including acquisition costs of $482, and the assumption of the
first mortgage loan with a balance of $750,727 at December 31, 1995, which is
secured by the property. This mortgage has an interest rate of 7.655% and
amortizes over a 25-year period and matures May 31, 2004. The Company is
responsible for monthly payments of principal and interest of $5,689.
Purchase of Eagle Crest Shopping Center, Naperville, Illinois
On March 1, 1995, the Company acquired this property from IPS for the purchase
price of $4,816,970, including acquisition costs of $11,059, and the assumption
of the first mortgage loan which was secured by the property. The Company made
monthly principal payments of $500,000 on the first mortgage loan. The balance
of the purchase price as funded through a loan from IPS, totaling $1,212,427,
with interest accruing at 10.5%. On April 20, 1995, the Company paid off the
first mortgage totaling approximately $1,328,000 secured by this property. The
deferred portion of the purchase price, totaling $1,212,427, was paid to IPS in
May 1995 from Gross Offering Proceeds. In addition, accrued interest of
$22,009 was paid from Company operations.
Purchase of Montgomery-Goodyear Shopping Center, Montgomery, Illinois
On September 14, 1995, the Company acquired this property from an unaffiliated
third party for a purchase price of $1,145,992, including closing costs of
$5,992, a portion of which was evidenced by a promissory note payable to Inland
Mortgage Investment Corporation ("IMIC"), an affiliate of the Advisor, in the
gross amount of $600,000. The remainder of the purchase price was funded with
proceeds of the Offering. The promissory note was paid in full in October
1995, with interest at a rate of 10.9% per annum. The principal amount paid
was $600,000 from Gross Offering Proceeds and interest of $4,260 was paid from
Company operations.
Purchase of Hartford Plaza, Naperville, Illinois
On September 14, 1995, the Company acquired this newly constructed property
from an unaffiliated third party for a purchase price of $4,414,015 including
closing costs of $14,015, and deposited $150,000 in an escrow account for
future tenant buildout. A portion of the purchase price was evidenced by a
promissory note payable to IMIC, in the gross amount of $600,000. The
remainder of the purchase price was funded with proceeds of the Offering. The
promissory note was paid in full in October 1995, with interest at a rate of
10.9% per annum. The principal amount paid was $600,000 from Gross Offering
Proceeds and interest of $5,102 was paid from Company operations.
F-25
<PAGE> 185
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
Purchase of Nantucket Square Shopping Center, Schaumburg, Illinois
On September 20, 1995, the Company acquired this property from an unaffiliated
third party for a purchase price of $4,257,918, including closing costs of
$4,913, a portion of which was evidenced by a promissory note payable to IMIC,
in the gross amount of $3,550,000. The remainder of the purchase price was
funded with proceeds of the Offering. In addition, as part of the purchase,
the Company agreed to and has paid $51,135 for tenant improvements for two
tenants expanding their space, which was added to the cost of the property.
The promissory note was paid in full in December 1995, with interest at a rate
of 10.5% per annum. The principal amount paid was $3,550,000 from Gross
Offering Proceeds and interest of $62,011 was paid from Company operations.
Purchase of Antioch Plaza, Antioch, Illinois
On December 28, 1995, the Company acquired Antioch Plaza from an unaffiliated
third party for a purchase price of $1,750,365, including closing costs of
$365, a portion of which was evidenced by a promissory note payable to Inland
Real Estate Investment Corporation, an affiliate of the Advisor ("IREIC"), in
the gross amount of $660,000. As of December 31, 1995, the unpaid balance of
this note was $360,000. The note which bore interest at a rate of 9.5% per
annum was repaid in full on January 9, 1996 and the total amount paid was
$661,163, of which $660,000 was principal paid from Gross Offering Proceeds and
$1,163 was interest paid from Company operations. The remainder of the
purchase price, net of prorations of approximately $1,100,000 was funded with
proceeds of the Offering. Its major tenant is Blockbuster Video which leases
6,500 square feet of gross leasable area and is considered creditworthy by the
Company.
Cost and accumulated depreciation of the above properties are summarized as
follows:
<TABLE>
<CAPTION>
1995
<S> <C>
Single-user retail:
Cost................................ $ 1,209,053
Less accumulated depreciation....... 34,550
-------------
1,174,503
Neighborhood Shopping Centers:
Cost................................ 16,303,379
Less accumulated depreciation....... 135,344
-------------
16,168,635
Total................................. $ 17,342,538
=============
</TABLE>
F-26
<PAGE> 186
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
(5) Operating Leases
Master Lease Agreements
As part of the Montgomery-Goodyear, Hartford/Naperville Plaza, Nantucket Square
and Antioch Plaza purchases, the Company will receive rent under master lease
agreements on the spaces currently vacant for periods ranging from one year to
eighteen months or until the spaces are leased. Generally Accepted Accounting
Principles require that as these payments are received, they be recorded as a
reduction in the purchase price of the properties rather than as rental income.
Hartford/Naperville Plaza is fully leased and tenant improvements are
substantially completed. Master lease payments amounted to $98,804 and were
received through December 31, 1995, at which time the majority of tenants began
paying rent.
The seller of Nantucket Square entered into a master lease agreement with the
Company for 4,500 square feet at $15 per square foot for 12 months or until the
space is leased. In addition, the Company received a credit at closing of
approximately $48,000 for rent abatement agreements under current leases,
$28,893 of which is included as a component of master lease payments recorded
at December 31, 1995 and the balance is recorded as prepaid rent.
At December 31, 1995, Antioch Plaza was 33% leased and tenant improvements are
being completed. Certain tenants have begun paying rent. The master lease
payments amounted to $1,717 through December 31, 1995. The master lease
agreement on this property expires June 1997.
Minimum lease payments to be received, excluding master lease payments, in the
future from the operating leases are as follows:
<TABLE>
<CAPTION>
1995
----
<S> <C>
1996.................................. $ 2,024,010
1997.................................. 2,002,852
1998.................................. 1,851,929
1999.................................. 1,692,580
2000.................................. 1,546,352
Thereafter............................ 10,837,583
-----------
Total................................. $19,955,306
===========
</TABLE>
Remaining lease terms range from one year to thirty-three years. Pursuant to
the lease agreements, tenants of the properties are required to reimburse the
Company for some or all of their pro rata share of the real estate taxes and
operating expenses of the property. Such amounts are included in additional
rent income.
F-27
<PAGE> 187
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
Certain tenant leases contain provisions providing for stepped rent increases.
Generally Accepted Accounting Principles require that rental income be recorded
for the period of occupancy using the effective monthly rent, which is the
average monthly rent for the entire period of occupancy during the term of the
lease. The accompanying financial statements include an increase of $12,413 of
rental income for the period of occupancy for which stepped rent increases
apply and $12,413 in related accounts receivable as of December 31, 1995.
These amounts will be collected over the terms of the related leases as
scheduled rent payments are made.
(6) Mortgage Payable
As of December 31, 1995, the required principal payments on the Company's
mortgage payable over the next five years are as follows:
<TABLE>
<CAPTION>
1995
----
<S> <C>
1996.................................. $ 11,185
1997.................................. 12,072
1998.................................. 13,029
1999.................................. 14,062
2000.................................. 15,177
Thereafter............................ 685,202
</TABLE>
(7) Subsequent Events
As of March 28, 1996, subscriptions for a total of 2,869,084 Shares were
received, bringing total Gross Offering Proceeds to $28,679,020.
The Company, through the Advisor, is currently completing its due diligence on
Regency Point and anticipates purchasing the property in March 1996 from a
third party unaffiliated with the Company for a purchase price of $5,700,000.
As part of the acquisition, it is anticipated the Company will assume the
existing first mortgage loan of approximately $4,473,200, along with a related
interest rate swap agreement. The remainder of the purchase price of
approximately $1,226,800 will be funded, after prorations, with proceeds of the
Offering.
The first mortgage loan has a floating interest rate of 180 basis points over
the 30-day LIBOR rate, which rate is adjusted monthly and amortizes over 25
years. The interest rate swap agreement, in conjunction with the first
mortgage, provides for Bank One, Chicago, to receive from or pay to the Company
the difference between 6.11% and the 30-day LIBOR rate, so that the first
mortgage loan has an effective fixed rate of 7.91% per annum. The first
mortgage loan matures in August 2000. The interest rate swap agreement expires
concurrently therewith.
F-28
<PAGE> 188
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
In January 1996, the Company paid a distribution of $129,532 to the
Stockholders of which approximately $7,460 was a return of capital.
In January 1996, the balance of $360,000 on the note payable to Affiliates of
relating to the purchase of Antioch Plaza, was paid in full along with interest
of $1,163.
Regency Point, built in 1993 and 1994, consists of a one-story, multi-tenant
brick and block strip center aggregating 54,875 of rentable square feet. Its
anchor tenants include nationally recognized tenants such as Walgreens with
13,000 square feet, Ace Hardware with 15,505 square feet and the United States
Postal Service with 2,503 square feet and are considered creditworthy by the
Company.
The Company, through the Advisor, is currently completing its due diligence on
Mundelein Plaza, located in Mundelein, Illinois and anticipates purchasing the
property in March 1996 from a third party unaffiliated with the Company for a
purchase price of $5,650,000, on an all cash basis. Mundelein Plaza, built in
1990, consists of two one-story, multi-tenant brick and block strip centers
aggregating approximately 68,000 rentable square feet. Mundelein Plaza is
currently 100% leased and is anchored by Sears Home Life with 47,000 square
feet and is considered creditworthy by the Company.
The Directors, including the Independent Directors approved the acquisitions of
Regency Point and Mundelein Plaza on February 8, 1996 and March 28, 1996,
respectively, as being fair and reasonable to the Company, subject to the
satisfactory completion of the due diligence process.
F-29
<PAGE> 189
Walgreens/Decatur Property
Historical Summary of Gross Income and Direct Operating Expenses
Six Month Period Ended December 31, 1994
Unaudited
<TABLE>
<S> <C>
Gross Income:
Base Rental Income............................... $ 63,910
Real Estate Tax Recovery......................... 12,080
---------
75,990
---------
Direct Operating Expenses:
Real Estate Taxes................................ 12,080
Management Fees.................................. 1,917
Operating Expenses............................... 295
Insurance Expense................................ 810
---------
15,102
---------
Excess of Gross Income over
Direct Operating Expenses........................ $ 60,888
=========
</TABLE>
F-30
<PAGE> 190
Independent Auditor's Report
The Board of Directors
Inland Property Sales, Inc.:
We have audited the accompanying Historical Summaries of Gross Income and
Direct Operating Expenses (Historical Summaries) of the Walgreens/Decatur
Property for each of the years in the three-year period ended June 30, 1994.
These Historical Summaries are the responsibility of the management of the
Company. Our responsibility is to express an opinion on the Historical
Summaries 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 Historical Summaries are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summaries. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement of Form S-11 of
Inland Monthly Income Fund III, Inc. as described in Note 2. The presentation
is not intended to be a complete presentation of the Walgreens/Decatur Property
revenues and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the gross income and direct operating expenses described
in Note 2 for each of the years in the three-year period ended June 30, 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 29, 1994
F-31
<PAGE> 191
Walgreens/Decatur Property
Historical Summaries of Gross Income and Direct Operating Expense
Years ended June 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gross Income:
Base rental income.................. $ 127,820 127,820 127,820
Real estate tax recovery............ 24,733 23,732 23,479
---------- ------- -------
152,533 151,552 151,299
---------- ------- -------
Direct Operating Expenses:
Real estate taxes................... 24,733 23,732 23,479
Management fees..................... 3,811 3,820 3,809
Operating expenses.................. 933 338 496
Insurance expense................... 1,537 1,636 1,577
---------- ------- -------
31,014 29,526 29,361
---------- ------- -------
Excess of gross income over direct
operating expenses $ 121,539 122,026 121,938
========== ======= =======
</TABLE>
See accompanying notes to Historical Summaries
F-32
<PAGE> 192
Walgreens/Decatur Property
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
1. Business
The Walgreens/Decatur Property (the Property) is a free-standing, single-
tenant retail property located in Decatur, Illinois. The Property consists
of 13,500 square feet of gross leasable area, and is leased to the
Walgreens Company (Walgreens). The Property is owned by Inland Property
Sales, Inc. (IPS).
2. Basis of Presentation
The Historical Summaries have been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulations S-X
and for inclusion in the Registration Statement on Form S-11 of Inland
Monthly Income Fund III, Inc. and are not intended to be a complete
presentation of the Walgreens/Decatur Property revenues and expenses. The
Historical Summaries have been prepared on the accrual basis of accounting.
3. Gross Income
Walgreens leases the property under an operating lease agreement whereby
Walgreens is responsible for all operating expenses of the property except
for expenses related to the exterior and structural portions of the
building, roof and entryways. In addition, Walgreens reimburses the
Property for real estate taxes and is responsible for insurance on the
Property. The lease provides for payment of contingent rent based on a
percentage applied to the amount by which Walgreens' sales, as defined,
exceed predetermined levels. No such contingent rent was due for the years
ended June 30, 1994, 1993 and 1992. The lease expires on April 30, 2028,
and Walgreens has the option to exercise up to five, five-year extensions.
Minimum rents to be received from Walgreens under the operating lease in
effect at June 30, 1994 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1995 $ 128,000
1996 128,000
1997 128,000
1998 128,000
1999 128,000
Thereafter 3,691,000
----------
$4,331,000
==========
</TABLE>
F-33
<PAGE> 193
Walgreens/Decatur Property
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of the Property. Costs such
as mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summaries.
The Property was managed by Mid-America Corp., an affiliate of Inland
Monthly Income Fund III, Inc., under an agreement in principle through
December 31, 1993, for a fee of 2.5% of gross revenues, as defined.
Effective January 1, 1994, Mid-America Corp. assigned the agreement to
Inland Commercial Property Management, Inc., also an affiliate of Inland
Monthly Income Fund III, Inc.
5. Commitments and Contingencies
It is anticipated that Inland Monthly Income Fund III, Inc. will purchase
the Property from IPS at a price expected to be no greater than its
historical cost. In no event will the purchase price exceed the current
appraised value of the Property. There can be no assurance that the
purchase price will not exceed that which would be paid by an unaffiliated
buyer.
F-34
<PAGE> 194
Eagle Crest Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Six Month Period Ended December 31, 1994
Unaudited
<TABLE>
<S> <C>
Gross Income:
Base Rental Income............................... $283,338
Real Estate Tax Recovery......................... 50,870
Other tenant income.............................. 1,785
--------
335,993
--------
Direct Operating Expenses:
Real Estate Taxes................................ 37,343
Management Fees.................................. 15,792
Operating Expenses............................... 26,024
Utilities........................................ 6,717
Insurance Expense................................ 2,109
--------
87,985
--------
Excess of Gross Income over
Direct Operating Expenses........................ $248,008
========
</TABLE>
F-35
<PAGE> 195
Independent Auditor's Report
The Board of Directors
Inland Property Sales, Inc.
We have audited the accompanying Historical Summaries of Gross Income and
Direct Operating Expenses (Historical Summaries) of the Eaglecrest/Naperville
Property for each of the years in the three-year period ended June 30, 1994.
These Historical Summaries are the responsibility of the management of the
Company. Our responsibility is to express an opinion on the Historical
Summaries 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 Historical Summaries are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summaries. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement on Form S-11 of
Inland Monthly Income Fund III, Inc. as described in Note 2. The presentation
is not intended to be a complete presentation of the Eaglecrest/Naperville
Property revenues and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the gross income and direct operating expenses described
in Note 2 for each of the years in the three-year period ended June 30, 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 29, 1994
F-36
<PAGE> 196
Eagle Crest Shopping Center
Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gross income:
Base rental income.................. $ 442,077 367,367 373,609
Operating expense and real estate
tax recoveries.................... 112,031 106,865 100,683
Other tenant income................. 15,881 1,361 839
---------- ------- -------
569,989 475,593 475,131
---------- ------- -------
Direct operating expenses:
Real estate taxes................... 72,908 71,119 71,640
Management fees..................... 25,226 21,769 21,976
Operating expenses.................. 90,263 79,843 50,532
Utilities........................... 15,586 15,235 13,554
Insurance expense................... 3,220 3,283 6,944
---------- ------- -------
207,203 191,249 164,646
---------- ------- -------
Excess of gross income over direct
operating expenses.................. $ 362,786 284,344 310,485
========== ======= =======
</TABLE>
See accompanying notes to Historical Summaries
F-37
<PAGE> 197
Eagle Crest Shopping Center
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
1. Business
Eagle Crest Shopping Center (Eagle Crest) is a shopping center located in
Naperville, Illinois. It consists of approximately 68,000 square feet of
gross leasable area and was 100% occupied at June 30, 1994. Its major
tenant is Eagle Foods, Inc. (Eagle) which leases 46,096 square feet of the
shopping center. Eagle Crest is owned by Inland Property Sales, Inc.
(IPS).
2. Basis of Presentation
The Historical Summaries have been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and
for inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc. and are not intended to be a complete presentation of
Eagle Crest's revenues and expenses. The Historical Summaries have been
prepared on the accrual basis of accounting.
3. Gross Income
Eagle Crest leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. Certain of the
leases include provisions under which Eagle Crest is reimbursed for certain
common area, real estate tax, and insurance costs. In addition, certain
leases provides for payment of contingent rentals based on a percentage
applied to the amount by which the tenant's sales, as defined, exceed
predetermined levels. No such contingent rent was due for the years ended
June 30, 1994, 1993 and 1992. Certain leases contain renewal options for
various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provision of the leases. However, when rental vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $123,394
and $67,079 for the years ended June 30, 1994 and 1992, respectively, and
decreased base rental income by $5,100 for the year ended June 30, 1993.
Minimum rents to be received from tenants under operating leases in effect
at June 30, 1994 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $ 582,000
1996 568,000
1997 560,000
1998 476,000
1999 374,000
Thereafter 4,518,000
-----------
$ 7,078,000
===========
</TABLE>
F-38
<PAGE> 198
Eagle Crest Shopping Center
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Eagle Crest. Costs such as
mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summaries.
Eagle Crest was managed by Mid-America Corp., an affiliate of Inland
Monthly Income Fund III, Inc., through December 31, 1993 for a fee of 4.5%
of gross revenues,, as defined. The management agreement, which expires on
March 31, 1995, is renewable annually. Effective January 1, 1994, Mid-
America Corp. assigned the management contract to Inland Commercial
Property Management, Inc., also an affiliate of Inland Monthly Income Fund
III, Inc.
5. Commitments and Contingencies
It is anticipated that Inland Monthly Income Fund III, Inc. will purchase
Eagle Crest from IPS at a price expected to be no greater than its
historical cost. In no event will the purchase price exceed the current
appraised value of the Property. There can be no assurance that the
purchase price will not exceed that which would be paid by an unaffiliated
buyer.
F-39
<PAGE> 199
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE GENERAL PARTNERS OF
SCHAUMBEACH ASSOCIATES, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the NANTUCKET SQUARE SHOPPING CENTER for the year ended December
31, 1994. This Statement is the responsibility of the management of the
Company. Our responsibility is to express an opinion on this Statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. 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 audit provides a reasonable basis for our
opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Nantucket Square Shopping Center revenues and
expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of Nantucket
Square Shopping Center as described in Note 2 for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 7, 1995
F-40
<PAGE> 200
NANTUCKET SQUARE SHOPPING CENTER
STATEMENT OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Gross Income:
Base Rental Income...................................... $ 480,770
Operating Expense and Real Estate Tax Recoveries........ 193,753
Other Tenant Income..................................... 4,533
---------
Total Gross Income................................... $ 679,056
---------
Direct Operating Expenses:
Real Estate Taxes....................................... 156,122
Management Fees......................................... 35,002
Operating Expenses...................................... 74,954
Utilities............................................... 10,355
Insurance............................................... 14,254
---------
Total Direct Operating Expenses...................... $ 290,687
---------
Excess of Gross Income over Direct Operating Expenses..... $ 388,369
=========
</TABLE>
F-41
<PAGE> 201
Nantucket Square Shopping Center
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1994
1. Business
Nantucket Square Shopping Center (Nantucket Square) is located in
Schaumburg, Illinois. It consists of approximately 57,263 square feet of
gross leasable area and was 82.9 percent occupied at December 31, 1994.
Nantucket Square is owned by Schaumbeach Associates, LTD. Schaumbeach
Associates, LTD. has signed a sale and purchase agreement for the sale of
Nantucket Square to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of Nantucket
Square's revenues and expenses. The statement has been prepared on the
accrual basis of accounting.
3. Gross Income
Nantucket Square leases retail space under various lease agreements with
its tenants. All leases are accounted for as operating leases. Certain of
the leases include provisions under which Nantucket Square is reimbursed
for certain common area, real estate and insurance costs. Operating
Expense and Real Estate Tax Recoveries reflected on the Statement of Gross
Income and Direct Operating Expenses includes amounts due for 1994 expenses
for which the tenants have not yet been billed. In addition, certain
leases provide for payment of contingent rentals based on a percentage
applied to the amount by which the tenant's sales, as defined, exceeds
predetermined levels. Contingent rent for the year ended December 31, 1994
was not material to base rental income. Certain leases contain renewal
options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provision of the leases. However, rentals from
tenants with rent abatements or escalating rents during the lease term
should be recognized as revenue on a straight-line basis over the
respective lease term. An adjustment to recognize rents on a straight-line
basis increased base rental income by $22,337 for the year ended December
31, 1994.
F-42
<PAGE> 202
Nantucket Square Shopping Center
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1994
3. Gross Income (continued)
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1994, are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $ 495,242
1996 487,846
1997 493,751
1998 405,826
1999 383,787
Thereafter 909,056
-----------
$ 3,175,508
===========
</TABLE>
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Nantucket Square. Costs
such as mortgage interest, depreciation, amortization and professional fees
are excluded from the statement.
Nantucket Square has not received its final real estate tax bill for 1994.
Real Estate tax expense is estimated upon bills for 1993. The difference
between this estimate and the final bill is not expected to have a material
impact on the Statement of Gross Income and Direct Operating Expenses.
Subsequent to the sale of Nantucket Square (see Note 1), property value may
be reassessed. Such reassessment may cause future real estate tax expense
to be incomparable to that reflected in 1994.
Nantucket Square is managed by Mid-America Asset Management Company.
Subsequent to the sale of Nantucket Square (see Note 1), the current
management agreement ceases. Any new management agreement may cause future
management fees to be incomparable to that reflected in 1994.
F-43
<PAGE> 203
The following unaudited Statement of Gross Income and Direct Operating Expenses
for Nantucket Square is for the seven months ended July 31, 1995 and is
included as additional information subsequent to the audited financial
statements for the period ended December 31, 1994.
Nantucket Square Shopping Center
Statement of Gross Income and Direct Operating Expenses
For the Seven Month Period Ended July 31, 1995
(unaudited)
<TABLE>
<S> <C>
Gross Income:
Base Rental Income................................ $ 274,572
Operating Expense and
Real Estate Tax Recoveries...................... 121,123
Other Tenant Income............................... 4,878
---------
Total Gross Income.............................. 400,573
---------
Direct Operating Expenses:
Real Estate Taxes................................. 100,061
Management Fees................................... 20,417
Operating Expenses................................ 34,456
Utilities......................................... 4,927
Insurance......................................... 11,910
---------
Total Direct Operating Expenses................. 171,771
---------
Excess of Gross Income over
Direct Operating Expenses......................... $ 228,802
=========
</TABLE>
F-44
<PAGE> 204
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
NATIONAL SHOPPING PLAZAS, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the Mundelein Plaza for the year ended December 31, 1995. This
Statement is the responsibility of the management of the Company. Our
responsibility is to express an opinion on this Statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Mundelein Plaza revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of Mundelein
Plaza as described in Note 2 for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
BRUCE GORLICK, C.P.A., LTD.
A PROFESSIONAL CORPORATION
BUFFALO GROVE, ILLINOIS
MARCH 14, 1996
F-45
<PAGE> 205
Mundelein Plaza
Statement of Gross Income and Direct Operating Expenses
For the year ended December 31, 1995
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 639,124
Operating expense and real estate
tax recoveries................................ 66,518
Other tenant income............................. 151
----------
Total Gross Income.............................. 705,793
----------
Direct operating expenses:
Real estate taxes............................... 84,768
Management fees................................. 26,300
Operating expenses.............................. 15,277
Utilities....................................... 4,966
Insurance expense............................... 10,171
----------
Total Direct Operating Expenses................. 141,482
----------
Excess of Gross over Direct Operating............. $ 564,311
==========
</TABLE>
F-46
<PAGE> 206
Mundelein Plaza
Notes to the Statement of Income and Direct Operating Expenses
December 31, 1995
1. Business
Mundelein Plaza is located in Mundelein, Illinois. It consists of
approximately 67,896 square feet of gross leasable area and was 100%
occupied at December 31, 1995. Mundelein Plaza is owned by Amalgamated
Bank of Chicago, Trust No. 5457. Amalgamated Bank of Chicago, Trust No.
5457 has signed a sale and purchase agreement for the sale of Mundelein
Plaza to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of revenues and
expenses. The Statement has been prepared on the accrual basis of
accounting.
3. Gross Income
National Shopping Plazas, Inc. leases retail space under various lease
agreements with its tenants. All leases are accounted for as operating
leases. Certain of the leases include provisions under which Mundelein
Plaza is reimbursed for certain common area, real estate, and insurance
costs. Operating Expense and Real Estate Tax Recoveries reflected on the
Statement of Gross Income and Direct Operating Expenses includes amounts
due for 1995 expenses for which the tenants have not yet been billed.
Certain leases have rent due for the year ended December 31, 1995. Certain
leases contain renewal options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. The adjusted increase in base rental income is $1,944 for
the year ended December 31, 1995, which we consider immaterial.
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 684,649
1997 570,844
1998 552,623
1999 565,086
2000 554,840
Thereafter 937,770
-----------
$ 3,865,812
===========
</TABLE>
F-47
<PAGE> 207
Mundelein Plaza
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1995
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Mundelein Plaza. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Statement.
Mundelein Plaza has not received its final real estate bill for 1995. The
difference between this estimate and the final bill is not expected to
have a material impact on the Statement of Gross Income and Direct
Operating Expenses.
Mundelein Plaza is managed by National Shopping Plazas, Inc. For the year
ended December 31, 1995, Mundelein Plaza paid approximately $26,000 for
management fees, as per the management agreement.
F-48
<PAGE> 208
[KMPG PEAT MARWICK LLP LOGO]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Monthly Income Fund III, Inc.:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (Historical Summary) of the Regency Point
Shopping Center for the year ended December 31, 1995. This Historical
Summary is the responsibility of the management of the Company. Our
responsibility is to express an opinion on the Historical Summary based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the Historical Summary is
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose
of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the Registration Statement on
Form S-11 of Inland Monthly Income Fund III, Inc., as described in note
2. It is not intended to be a complete presentation of the Regency
Point Shopping Center's revenues and expenses.
In our opinion, the Historical Summary referred to above presents
fairly, in all material respects, the gross income and direct operating
expenses described in note 2 for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 8, 1996
F-49
<PAGE> 209
REGENCY POINT SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
Gross income:
Base rental income $541,085
Operating expense and real estate tax recoveries 63,294
- -----------------------------------------------------------------------
Total gross income $604,379
- -----------------------------------------------------------------------
Direct operating expenses:
Real estate taxes 16,867
Management fees 23,660
Operating expenses 17,645
Utilities 4,013
Insurance 9,430
- -----------------------------------------------------------------------
Total direct operating expenses $71,615
- -----------------------------------------------------------------------
Excess of gross income over direct operating expenses $532,764
- -----------------------------------------------------------------------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-50
<PAGE> 210
REGENCY POINT SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
- --------------------------------------------------------------------------------
(1) BUSINESS
Regency Point Shopping Center (Regency Point) is located in Lockport,
Illinois. It consists of approximately 53,480 square feet of gross
leasable area and was 93 percent occupied at December 31, 1995. Regency
Point is owned by Metropolitan Real Estate Co. (Metropolitan).
Metropolitan has signed a sale and purchase agreement for the sale of
Regency Point to Inland Monthly Income Fund III, Inc., an unaffiliated
third party.
(2) BASIS OF PRESENTATION
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc. and is not intended to be a complete presentation of
Regency Point's revenues and expenses. The Historical Summary has been
prepared on the accrual basis of accounting.
(3) GROSS INCOME
Regency Point leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. Certain of the
leases include provisions under which Regency Point is reimbursed for
certain common area, real estate, and insurance costs. Operating expense
and real estate tax recoveries reflected on the Historical Summary include
amounts due for 1995 expenses for which the tenants have not yet been
billed. In addition, certain leases provide for payment of contingent
rentals based on a percentage applied to the amount by which the tenant's
sales, as defined, exceed predetermined levels. No such contingent rent
was due for the year ended December 31, 1995. Certain leases contain
renewal options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $15,289
for the year ended December 31, 1995.
F-51
<PAGE> 211
REGENCY POINT SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
- --------------------------------------------------------------------------------
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995, are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
- ---------------------------------------------------
<S> <C>
1996 $584,000
1997 568,000
1998 552,000
1999 399,000
2000 352,000
Thereafter 3,203,000
- ---------------------------------------------------
$5,658,000
- ---------------------------------------------------
</TABLE>
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Regency Point. Costs such
as mortgage interest, depreciation, amortization and professional fees are
excluded from the Historical Summary.
Regency Point has not received its final real estate tax bill for 1995.
Real estate tax expense is estimated based upon bills for 1994. The
difference between this estimate and the final bill is not expected to have
a material impact on the Historical Summary. Regency Point is located in a
tax enterprise zone and, as such, the assessed value of the property is
anticipated to remain constant through 2003.
Regency Point is managed by Philip's Management, Inc., for a fee of 4.5% of
gross revenues, as defined. Subsequent to the sale of Regency Point (note
1), the current management agreement ceases. Any new management agreement
may cause future management fees to differ from the amounts reflected in
1995.
F-52
<PAGE> 212
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
NATIONAL SHOPPING PLAZAS, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the Prospect Heights Plaza for the year ended December 31, 1995.
This Statement is the responsibility of the management of the Company. Our
responsibility is to express an opinion on this Statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Prospect Heights Plaza revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of Prospect
Heights Plaza as described in Note 2 for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
BRUCE GORLICK, C.P.A., LTD.
A PROFESSIONAL CORPORATION
BUFFALO GROVE, ILLINOIS
MAY 24, 1996
F-53
<PAGE> 213
Prospect Heights Plaza
Statement of Gross Income and Direct Operating Expenses
For the year ended December 31, 1995
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 164,152
Operating expense and real estate
tax recoveries................................ 116,075
Other tenant income............................. 100
----------
Total Gross Income.............................. 280,327
----------
Direct operating expenses:
Real estate taxes............................... 127,033
Management fees................................. 16,600
Operating expenses.............................. 29,678
Utilities....................................... 3,339
Insurance expense............................... 4,169
----------
Total Direct Operating Expenses................. 180,819
----------
Excess of Gross over Direct Operating............. $ 99,508
==========
</TABLE>
F-54
<PAGE> 214
Prospect Heights Plaza
Notes to the Statement of Income and Direct Operating Expenses
December 31, 1995
1. Business
Prospect Heights Plaza is located in Prospect Heights, Illinois. It
consists of approximately 27,830 square feet of gross leasable area and was
78% occupied at December 31, 1995. Prospect Heights Plaza is owned by
Amalgamated Bank of Chicago, Trust No. 5073. Amalgamated Bank of Chicago,
Trust No. 5073 has signed a sale and purchase agreement for the sale of
Prospect Heights Plaza to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of revenues and
expenses. The Statement has been prepared on the accrual basis of
accounting.
3. Gross Income
National Shopping Plazas, Inc. leases retail space under various lease
agreements with its tenants. All leases are accounted for as operating
leases. Certain of the leases include provisions under which Prospect
Heights Plaza is reimbursed for certain common area, real estate, and
insurance costs. Operating Expense and Real Estate Tax Recoveries
reflected on the Statement of Gross Income and Direct Operating Expenses
includes amounts due for 1995 expenses for which the tenants have not yet
been billed. Certain leases have rent due for the year ended December 31,
1995. Certain leases contain renewal options for various periods at
various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. The adjusted increase in base rental income is $11 for the
year ended December 31, 1995, which we consider immaterial.
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $178,710
1997 179,910
1998 116,630
1999 94,450
2000 94,450
Thereafter 332,062
--------
$996,212
========
</TABLE>
F-55
<PAGE> 215
Prospect Heights Plaza
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1995
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Prospect Heights Plaza.
Costs such as mortgage interest, depreciation, amortization, and
professional fees are excluded from the Statement.
Prospect Heights Plaza has not received its final real estate bill for
1995. The difference between this estimate and the final bill is not
expected to have a material impact on the Statement of Gross Income and
Direct Operating Expenses.
Prospect Heights Plaza is managed by National Shopping Plazas, Inc. For
the year ended December 31, 1995, Prospect Heights Plaza paid approximately
$17,000 for management fees, as per the management agreement.
F-56
<PAGE> 216
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
NATIONAL SHOPPING PLAZAS, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the Montgomery-Sears Shopping Center ("Montgomery-Sears") for the
year ended December 31, 1995. This Statement is the responsibility of the
management of the Company. Our responsibility is to express an opinion on this
Statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Montgomery-Sears revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of
Montgomery-Sears as described in Note 2 for the year ended December 31, 1995,
in conformity with generally accepted accounting principles.
BRUCE GORLICK, C.P.A., LTD.
A PROFESSIONAL CORPORATION
BUFFALO GROVE, ILLINOIS
MAY 29, 1996
F-57
<PAGE> 217
Montgomery-Sears Shopping Center
Statement of Gross Income and Direct Operating Expenses
For the year ended December 31, 1995
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 327,610
Operating expense and real estate
tax recoveries................................ 75,642
----------
Other tenant income............................. 540
----------
Total Gross Income.............................. 403,792
----------
Direct operating expenses:
Real estate taxes............................... 60,996
Management fees................................. 14,800
Operating expenses.............................. 12,596
Utilities....................................... 5,311
Insurance expense............................... 8,364
----------
Total Direct Operating Expenses................. 102,067
----------
Excess of Gross over Direct Operating............. $ 301,725
==========
</TABLE>
F-58
<PAGE> 218
]
Montgomery-Sears Shopping Center
Notes to the Statement of Income and Direct Operating Expenses
December 31, 1995
1. Business
Montgomery-Sears is located in Montgomery, Illinois. It consists of
approximately 34,600 square feet of gross leasable area and was 85%
occupied at December 31, 1995. Montgomery-Sears is owned by Amalgamated
Bank of Chicago, Trust No. 5435. Amalgamated Bank of Chicago, Trust No.
5435 has signed a sale and purchase agreement for the sale of Montgomery-
Sears to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of revenues and
expenses. The Statement has been prepared on the accrual basis of
accounting.
3. Gross Income
National Shopping Plazas, Inc. leases retail space under various lease
agreements with its tenants. All leases are accounted for as operating
leases. Certain of the leases include provisions under which Montgomery-
Sears is reimbursed for certain common area, real estate, and insurance
costs. Operating Expense and Real Estate Tax Recoveries reflected on the
Statement of Gross Income and Direct Operating Expenses includes amounts
due for 1995 expenses for which the tenants have not yet been billed.
Certain leases contain renewal options for various periods at various
rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. The adjusted increase in base rental income is $56 for the
year ended December 31, 1995, which we consider immaterial.
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 335,180
1997 355,440
1998 321,560
1999 258,950
2000 205,800
Thereafter -
-----------
$ 1,476,930
===========
</TABLE>
F-59
<PAGE> 219
Montgomery-Sears Shopping Center
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1995
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Montgomery-Sears. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Statement.
Montgomery-Sears has not received its final real estate bill for 1995. The
difference between this estimate and the final bill is not expected to
have a material impact on the Statement of Gross Income and Direct
Operating Expenses.
Montgomery-Sears is managed by National Shopping Plazas, Inc. For the year
ended December 31, 1995, Montgomery-Sears paid approximately $15,000 for
management fees, as per the management agreement.
F-60
<PAGE> 220
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
effect (1) the acquisitions of Mundelein Plaza, the Regency Point Shopping
Center, Prospect Heights Plaza, Montgomery-Sears Shopping Center and the Zany
Brainy store and (2) the completion of the Company's Offering of 6,000,000
Shares that commenced on October 14, 1994 and the completion of the Company's
Offering of an additional 11,000,000 Shares, as though these transactions
occurred on December 31,1995. This unaudited Pro Forma Balance Sheet should be
read in conjunction with the December 31, 1995 Financial Statements and the
notes thereto as filed on Form 10-K.
This unaudited Pro Forma Balance Sheet is not necessarily indicative of what
the actual financial position would have been at December 31, 1995, nor does it
purport to represent the future financial position of the Company. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-61
<PAGE> 221
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
December 31,
December 31, Pro Forma Pro Forma 1995
1995 Adjustments Adjustments Pro Forma
Historical(A) (B) (C) Balance Sheet
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Net investment in
properties.................. $ 17,342,538 19,397,230 - 36,739,768
Cash and cash equivalents..... 738,931 - 117,121,706 117,860,637
Restricted cash............... 150,000 - - 150,000
Accounts and rents
receivable.................. 333,823 167,855 - 501,678
Other assets.................. 185,585 - - 185,585
------------- ---------- ----------- -----------
Total assets.................. $ 18,750,877 19,565,085 117,121,706 155,437,668
============ ========== =========== ===========
Liabilities and Stockholders' Equity
Accounts payable and accrued
expenses.................... $ 288,037 7,500 - 295,537
Accrued real estate taxes..... 374,180 202,049 - 576,229
Distributions payable (D)..... 129,532 - - 129,532
Security deposits............. 54,483 52,221 - 106,704
Mortgage payable.............. 750,727 4,473,200 - 5,223,927
Notes payable to Affiliate.... 360,000 - - 360,000
Other liabilities............. 178,852 - - 178,852
------------- ---------- ----------- -----------
Total liabilities............. 2,135,811 4,734,970 - 6,870,781
------------- ---------- ----------- -----------
Common Stock.................. 19,996 17,245 132,759 170,000
Additional paid in capital
(net of Offering costs)..... 16,835,183 14,812,870 116,988,947 148,637,000
Accumulated distributions in
excess of net income........ (240,113) - - (240,113)
------------- ---------- ----------- -----------
Total Stockholders' equity.... 16,615,066 14,830,115 117,121,706 148,566,887
------------- ---------- ----------- -----------
Total liabilities and
Stockholders' equity........ $ 18,750,877 19,565,085 117,121,706 155,437,668
============ ========== =========== ===========
</TABLE>
See accompanying notes to pro forma balance sheet.
F-62
<PAGE> 222
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(A) The December 31, 1995 Historical column represents the historical balance
sheet as presented in the December 31, 1995 10-K as filed with the SEC and
includes the following properties acquired by the Company as of December
31, 1995.
Walgreens, Decatur, Illinois
On January 31, 1995, the Company acquired this property from Inland
Property Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the total
purchase price of $1,209,053, including acquisition costs of $482, and the
assumption of the first mortgage loan with a balance of $750,727 at
December 31, 1995, which is secured by the property. This mortgage has an
interest rate of 7.655% and amortizes over a 25-year period. The Company
is responsible for monthly payments of principal and interest of $5,689.
Eagle Crest Shopping Center, Naperville, Illinois
On March 1, 1995, the Company acquired this property from IPS for the
purchase price of $4,816,970, including acquisition costs of $11,059, and
the assumption of the first mortgage loan of approximately $3,534,000,
which was secured by the property. The balance of the purchase price was
funded through a loan from IPS, totaling $1,212,427, with interest accruing
at 10.5%. On April 20, 1995, the Company paid off the first mortgage
secured by this property. The deferred portion of the purchase price,
totaling $1,212,427, was paid to IPS in May 1995 from Gross Offering
Proceeds. In addition, accrued interest of $22,009 was paid from Company
operations.
Montgomery-Goodyear Shopping Center, Montgomery, Illinois
On September 14, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $1,145,992, including
closing costs of $5,992, a portion of which was evidenced by a promissory
note payable to Inland Mortgage Investment Corporation ("IMIC"), an
Affiliate of the Advisor, in the gross amount of $600,000. The remainder
of the purchase price net of prorations, of approximately $535,000 was
funded with proceeds of the Offering. The promissory note was paid in full
in October 1995, with interest at a rate of 10.9% per annum. The total
amount paid was $604,260, of which $600,000 was principal paid from Gross
Offering Proceeds and $4,260 was interest paid from Company operations.
F-63
<PAGE> 223
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Hartford Plaza, Naperville, Illinois
On September 14, 1995, the Company acquired this newly constructed property
from an unaffiliated third party for a purchase price of $4,414,015
including closing costs of $14,015, and deposited $150,000 in an escrow
account for leasehold improvements to the Blockbuster, Inc. space. A
portion of the purchase price was evidenced by a promissory note payable to
IMIC, in the gross amount of $600,000. The remainder of the purchase price
was funded with proceeds of the Offering. The promissory note was paid in
full in October 1995 with interest at a rate of 10.9% per annum. The total
amount paid was $605,102, of which $600,000 was principal paid from Gross
Offering Proceeds and $5,102 was interest paid from Company operations.
Nantucket Square Shopping Center, Schaumburg, Illinois
On September 20, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $4,257,918, including
closing costs of $4,913, a portion of which was evidenced by a promissory
note payable to IMIC, in the gross amount of $3,550,000. The remainder of
the purchase price was funded with proceeds of the Offering. In addition,
as part of the purchase, the Company agreed to pay $51,135 for tenant
improvements for two tenants expanding their space, which was added to the
cost of the property. The promissory note was paid in full in December
1995 with interest at a rate of 10.5% per annum. The principal amount paid
was $3,550,000 from Gross Offering Proceeds and interest of $62,011 was
paid from Company operations.
Antioch Plaza, Antioch, Illinois
On December 28, 1995, the Company acquired Antioch Plaza from an
unaffiliated third party for a purchase price of $1,750,365, including
closing costs of $365, a portion of which was evidenced by a promissory
note payable to Inland Real Estate Investment Corporation, an affiliate of
the Advisor ("IREIC"), in the gross amount of $660,000. As of December 31,
1995, the unpaid balance of this note was $360,000. The note which bore
interest at a rate of 9.5% per annum was repaid in full on January 9, 1996
and the total amount paid was $661,163, of which $660,000 was principal
paid from Gross Offering Proceeds and $1,163 was interest paid from Company
operations. The remainder of the purchase price, net of prorations of
approximately $1,100,000 was funded with proceeds of the Offering.
F-64
<PAGE> 224
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(B) The following pro forma adjustment relates to the acquisition or probable
acquisition of the subject properties as though they were acquired on
December 31, 1995. The terms are described in the notes that follow.
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------------------------- Total
Mundelein Regency Prospect Montgomery- Zany Pro Forma
Plaza Point Heights Sears Brainy Adjustment
----------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Net investment in
properties.................. $ 5,658,230 5,700,000 2,165,000 3,419,000 2,455,000 19,397,230
Cash and cash equivalents..... - - - - - -
Restricted cash............... - - - - - -
Accounts and rent
receivable.................. 84,375 16,867 38,771 27,842 - 167,855
Other assets.................. - - - - - -
----------- --------- --------- --------- --------- ----------
Total assets.................. $ 5,742,605 5,716,867 2,203,771 3,446,842 2,455,000 19,565,085
=========== ========= ========= ========= ========= ==========
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C> <C> <C> <C> <C>
Accounts payable and accrued
expenses.................... $ 7,500 - - - - 7,500
Accrued real estate taxes..... 89,010 16,867 63,517 32,655 - 202,049
Distributions payable (D)..... - - - - - -
Security deposits............. 15,000 28,621 8,600 - - 52,221
Mortgage payable.............. - 4,473,200 - - - 4,473,200
Notes payable to Affiliate.... - - - - - -
Other liabilities............. - - - - - -
----------- --------- --------- --------- --------- ----------
Total liabilities............. 111,510 4,518,688 72,117 32,655 - 4,734,970
----------- --------- --------- --------- --------- ----------
Common Stock.................. 6,548 1,393 2,479 3,970 2,855 17,245
Additional paid in capital
(net of Offering costs)..... 5,624,547 1,196,786 2,129,175 3,410,217 2,452,145 14,812,870
Accumulated distributions in
excess of net income........ - - - - - -
----------- --------- --------- --------- --------- ----------
Total Stockholders' equity.... 5,631,095 1,198,179 2,131,654 3,414,187 2,455,000 14,830,115
----------- --------- --------- --------- --------- ----------
Total liabilities and
Stockholders' equity........ $ 5,742,605 5,716,867 2,203,771 3,446,842 2,455,000 19,565,085
=========== ========= ========= ========= ========= ==========
</TABLE>
F-65
<PAGE> 225
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Acquisition of Mundelein Plaza, Mundelein, Illinois
On March 29, 1996, the Company acquired the Mundelein Plaza property
located in Mundelein, Illinois ("Mundelein Plaza") from an unaffiliated
third party for a purchase price of $5,658,230, including closing costs of
$8,230, on an all cash basis, funded from offering proceeds.
Acquisition of Regency Point Shopping Center, Lockport, Illinois
On April 5, 1996, the Company completed the acquisition of the Regency
Point Shopping Center located in Lockport, Illinois ("Regency Point"), from
an unaffiliated third party for a purchase price of $5,700,000. As part of
the acquisition, the Company will assume the existing first mortgage loan
of $4,473,200 along with a related interest rate swap agreement, with the
balance funded with Offering proceeds.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The first mortgage loan matures
in August 2000. The related interest rate swap agreement was terminated on
April 18, 1996 resulting in $48,419 proceeds to the Company. No pro forma
adjustment has been made as a result of this termination.
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
On June 17, 1996, the Company acquired Prospect Heights Plaza located in
Prospect Heights, Illinois ("Prospect Heights") from an unaffiliated third
party for the purchase price of $2,165,000 on an all cash basis, funded from
Offering proceeds.
Acquisition of Montgomery-Sears, Montgomery, Illinois
On June 17, 1996, the Company, through the Advisor, acquired
Montgomery-Sears Shopping Center located in Montgomery, Illinois
("Montgomery-Sears") from an unaffiliated third party for the purchase price
of $3,419,000 on an all cash basis, funded from Offering proceeds.
Acquisition of Zany Brainy, Wheaton, Illinois
On July 1, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $2,455,000 on an all cash basis,
funded from Offering proceeds.
F-66
<PAGE> 226
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Additional Offering Proceeds
Additional Offering Proceeds of $17,244,320, net of additional Offering
costs of $2,414,205, are reflected as received as of December 31, 1995,
prior to the purchase of the properties. Offering costs consist
principally of registration costs, printing and selling costs, including
commissions.
(C) This pro forma adjustment reflects the completion of the Company's Offering
of 6,000,000 Shares that commenced on October 14, 1994, net of additional
Offering costs of $986,120, as though this occurred on December 31, 1995.
In addition, this pro forma adjustment reflects the completion of the
Company's Offering of an additional 11,000,000 Shares, net of Offering
costs of $12,771,500, as though this also occurred on December 31, 1995.
(D) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
F-67
<PAGE> 227
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
For the year ended December 31, 1995
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of the Walgreens/Decatur property, Eagle
Crest Shopping Center, Montgomery-Goodyear property, Nantucket Square Shopping
Center, Mundelein Plaza, Regency Point Shopping Center, Prospect Heights Plaza
and Montgomery-Sears Shopping Center as of January 1, 1995. The remaining
three properties acquired or proposed to be acquired by the Company were
constructed in 1995 and acquired shortly after construction was completed.
Therefore, the unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisition of Hartford/Naperville Plaza, Antioch Plaza
and the Zany Brainy store, as of August 17, 1995, September 1, 1995 and
November 22, 1995, respectively, the date occupancy commenced at these
properties. This unaudited Pro Forma Statement of Operations should be read in
conjunction with the December 31, 1995 Financial Statements and the notes
thereto as filed on Form 10-K.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the year ended
December 31, 1995, nor does it purport to represent the future results of
operations of the Company. Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Prospectus.
F-68
<PAGE> 228
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
for the year ended December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
1995 1995 1996
Historical Acquisitions Acquisitions 1995
(A) (B) (C) Pro Forma
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
Rental
income.......... $ 869,485 585,614 1,700,614 3,155,713
Additional
Rental income... 228,024 162,536 327,350 717,910
Interest
income (D)...... 82,913 - - 82,913
---------- ------- --------- ---------
Total income.... 1,180,422 748,150 2,027,964 3,956,536
---------- ------- --------- ---------
Professional
services and
general and
administrative 23,132 - - 23,132
Property operating
expenses........ 326,721 275,218 501,485 1,103,424
Interest expense.. 164,161 429,997 351,900 946,058
Depreciation (E).. 169,894 111,767 425,255 706,916
---------- ------- --------- ---------
Total expenses.... 683,908 816,982 1,278,640 2,779,530
---------- ------- --------- ---------
Net income(loss) $ 496,514 (68,832) 749,324 1,177,006
========== ======= ========= =========
Weighted average
common stock shares
outstanding (F). 943,156 15,755,521
========== ==========
Net income per weighted
average common stock
outstanding (F). $ .53 .07
========== ==========
</TABLE>
See accompanying notes to pro forma statement of operations.
F-69
<PAGE> 229
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1995
(unaudited)
(A) The December 31, 1995 Historical column represents the historical statement
of operations of the Company for the year ended December 31, 1995, as filed
with the SEC on Form 10-K.
(B) Total pro forma adjustments for 1995 acquisitions as though they were
acquired the earlier of January 1, 1995 or date that operations commenced.
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------------------------------------------
Hartford Total
Montgomery- Naperville Nantucket Antioch 1995
Walgreens Eagle Crest Goodyear Plaza Square Plaza Pro Forma
--------- ----------- ---------- ---------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental
income.......... 10,651 95,232 101,359 15,077 340,545 22,750 585,614
Additional
Rental income... - 2,218 19,203 662 140,453 - 162,536
Interest
income (D)...... - - - - - - -
------ ------- ------- ------ ------- ------ -------
Total income.... 10,651 97,450 120,562 15,739 480,998 22,750 748,150
------ ------- ------- ------ ------- ------ -------
Professional
services and
general and
administrative - - - - - - -
Property operating
expenses........ 533 17,376 47,758 3,436 205,903 212 275,218
Interest expense.. 4,840 77,170 46,325 13,625 267,137 20,900 429,997
Depreciation (E).. 3,141 16,324 20,682 8,867 57,357 5,396 111,767
------ ------- ------- ------ ------- ------ -------
Total expenses.... 8,514 110,870 114,765 25,928 530,397 26,508 816,982
------ ------- ------- ------ ------- ------ -------
Net income(loss) 2,137 (13,420) 5,797 (10,189) (49,399) (3,758) (68,832)
====== ======= ======= ====== ======= ====== =======
</TABLE>
F-70
<PAGE> 230
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Walgreens/Decatur, Decatur, Illinois
In conjunction with the acquisition, the Company assumed a portion of the
first mortgage loan with a balance of $775,000. This mortgage has an
interest rate of 7.655%, amortizes over a 25-year period and matures May
31, 2004. The Company is responsible for monthly payments of principal
and interest of $5,689. The pro forma adjustment for interest expense for
the period prior to acquisition was estimated using the described loan
terms.
Acquisition of Eagle Crest Shopping Center, Naperville, Illinois
As part of the acquisition, the Company assumed a portion of the first
mortgage loan with a balance of $3,534,000, as well as entering into a
loan agreement with Inland Property Sales, Inc. ("IPS"), an Affiliate of
the Advisor, for the balance of the purchase price for $1,212,427. The
first mortgage bears interest at 9.5% per annum and the loan to IPS bears
interest at 10.5%. The pro forma adjustment for interest expense for the
period prior to acquisition was estimated using the described loan terms.
Acquisition of Montgomery-Goodyear, Montgomery, Illinois
As part of the acquisition, the Company entered into a loan agreement with
Inland Mortgage Investment Corporation ("IMIC"), an affiliate of the
Advisor, for $600,000 which bears interest of 10.9% per annum. The pro
forma adjustment for interest expense for the period prior to acquisition
was estimated using the described loan terms.
Acquisition of Hartford/Naperville Plaza, Naperville, Illinois
In conjunction with the acquisition, the Company entered into a loan
agreement with IMIC for $600,000 which bears interest of 10.9% per annum.
The pro forma adjustment for interest expense was estimated using the
described loan terms.
Acquisition of Nantucket Square Shopping Center, Schaumburg, Illinois
As part of the acquisition, the Company entered into a loan agreement with
IMIC for $3,550,000 which bears interest of 10.5% per annum. The pro
forma adjustment for interest expense for the period prior to acquisition
was estimated using the described loan terms.
F-71
<PAGE> 231
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Antioch Plaza, Antioch, Illinois
This pro forma adjustment reflects the purchase of the Antioch Plaza
property as if the Company had purchased the property as of September 1,
1995, the date the first tenant occupied this newly constructed property.
The pro forma adjustment for operations for the period September 1, 1995
to December 28, 1995 (date of acquisition) was estimated using applicable
lease information. Blockbuster Video was the only tenant occupying the
property during that period. No pro forma adjustment was made for real
estate tax expense and the related recovery income since the property was
vacant land for most of 1995 and the amount would be difficult to estimate
and have an immaterial effect.
As part of the acquisition, the Company entered into a loan agreement with
Inland Real Estate Investment Corporation, an affiliate of the Advisor,
for $660,000 which bears interest of 9.5% per annum. The pro forma
adjustment for interest expense was estimated using the described loan
terms.
F-72
<PAGE> 232
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
for the year ended December 31, 1995
(unaudited)
(C) Total pro forma adjustments for 1996 Acquisitions as though they were
acquired the earlier of January 1, 1995 or date that operations commenced.
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------------------
Total
Mundelein Regency Prospect Montgomery- Zany 1995
Plaza Point Heights Sears Brainy Pro Forma
--------- ------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Rental
income.......... 639,124 541,085 164,152 327,610 28,643 1,700,614
Additional
Rental income... 66,669 63,294 116,175 76,182 5,030 327,350
Interest
income (D)...... - - - - - -
------- ------- ------- ------- ------ ---------
Total income.... 705,793 604,379 280,327 403,792 33,673 2,027,964
------- ------- ------- ------- ------ ---------
Professional
services and
general and
administrative - - - - - -
Property operating
expenses........ 141,482 71,615 180,819 102,067 5,502 501,485
Interest expense.. - 351,900 - - - 351,900
Depreciation (E).. 128,233 162,500 46,900 83,200 4,422 425,255
------- ------- ------- ------- ------ ---------
Total expenses.... 269,715 586,015 227,719 185,267 9,924 1,278,640
------- ------- ------- ------- ------ ---------
Net income...... 436,078 18,364 52,608 218,525 23,749 749,324
======= ======= ======= ======= ====== =========
</TABLE>
F-73
<PAGE> 233
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Mundelein Plaza, Mundelein, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Mundelein Plaza
----------------------------------
*As Pro Forma
Reported Adjustments Total
---------- ----------- -------
<S> <C> <C> <C>
Rental income....... $ 639,124 - 639,124
Additional rental
income............ 66,669 - 66,669
Interest income..... - - -
---------- ------- -------
Total income........ 705,793 - 705,793
---------- ------- -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 141,482 - 141,482
Interest expense.... - - -
Depreciation (E).... - 128,233 128,233
---------- ------- -------
Total expenses...... 141,482 128,233 269,715
---------- ------- -------
Net income.......... $ 564,311 (128,233) 436,078
========== ======= =======
</TABLE>
F-74
<PAGE> 234
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Regency Point, Lockport, Illinois
As part of the acquisition, the Company will assume the existing first
mortgage loan of $4,473,200, along with a related interest rate swap
agreement.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The pro forma adjustment for
interest expense for 1995 was estimated using the described loan terms.
The related interest rate swap agreement was terminated on April 18, 1996
resulting in $48,419 proceeds to the Company. The pro forma adjustment
does not give effect to the termination of this agreement.
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Regency Point
----------------------------------
*As Pro Forma
Reported Adjustments Total
---------- ------- -------
<S> <C> <C> <C>
Rental income....... $ 541,085 - 541,085
Additional rental
income............ 63,294 - 63,294
Interest income..... - - -
---------- ------- -------
Total income........ 604,379 - 604,379
---------- ------- -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 71,615 - 71,615
Interest expense.... - 351,900 351,900
Depreciation (E).... - 162,500 162,500
---------- ------- -------
Total expenses...... 71,615 514,400 586,015
---------- ------- -------
Net income.......... $ 532,764 (514,400) 18,364
========== ======= =======
</TABLE>
F-75
<PAGE> 235
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Prospect Heights
--------------------------------
*As Pro Forma
Reported Adjustments Total
-------- ----------- -------
<S> <C> <C> <C>
Rental income....... $ 164,152 - 164,152
Additional rental
income............ 116,175 - 116,175
Interest income..... - - -
---------- ------ -------
Total income........ 280,327 - 280,327
---------- ------ -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 180,819 - 180,819
Interest expense.... - - -
Depreciation (E).... - 46,900 46,900
---------- ------ -------
Total expenses...... 180,819 46,900 227,719
---------- ------ -------
Net income.......... $ 99,508 (46,900) 52,608
========== ====== ========
</TABLE>
F-76
<PAGE> 236
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Montgomery-Sears, Montgomery, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Montgomery-Sears
----------------------------------
*As Pro Forma
Reported Adjustments Total
---------- ----------- -------
<S> <C> <C> <C>
Rental income....... $ 327,610 - 327,610
Additional rental
income............ 76,182 - 76,182
Interest income..... - - -
---------- ------ -------
Total income........ 403,792 - 403,792
---------- ------ -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 102,067 - 102,067
Interest expense.... - - -
Depreciation (E).... - 83,200 83,200
---------- ------ -------
Total expenses...... 102,067 83,200 185,267
---------- ------ -------
Net income.......... $ 301,725 (83,200) 218,525
========== ====== =======
</TABLE>
Acquisition of Zany Brainy, Wheaton, Illinois
This pro forma adjustment reflects the purchase of Zany Brainy as if the
Company had purchased the property as of January 1, 1995. Operations for
this property for the period from November 22, 1995 (date of occupancy) to
December 31, 1995 were estimated using the lease and operating expense
information supplied by the seller. This property was purchased on an
all cash basis.
(D) No pro forma adjustment has been made relating to interest income which
would have been earned on the additional Offering Proceeds raised.
(E) Depreciation expense is computed using the straight-line method, based
upon an estimated useful life of thirty years.
(F) The pro forma weighted average common stock shares for the year ended
December 31, 1995 was calculated by adding to the historical weighted
average number of shares at December 31, 1995, the number of shares to
complete the Company's Offerings of 17,000,000 Shares.
F-77
<PAGE> 237
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
March 31, 1996
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
effect (1) the acquisition of the Regency Point Shopping Center, Prospect
Heights Plaza, Montgomery-Sears Shopping Center and the Zany Brainy store and
(2) the completion of the Company's Offering of 6,000,000 shares that commenced
on October 14, 1994 and the completion of the Company's Offering of an
additional 11,000,000 Shares, as though these transactions occurred on March
31, 1996. This unaudited Pro Forma Balance Sheet should be read in conjunction
with the March 31, 1996 Financial Statements and the notes thereto as filed on
Form 10-Q.
This unaudited Pro Forma Balance Sheet is not necessarily indicative of what
the actual financial position would have been at March 31, 1996, nor does it
purport to represent the future financial position of the Company. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-78
<PAGE> 238
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
March 31,
March 31, Pro Forma Pro Forma 1996
1996 Adjustments Adjustments Pro Forma
Historical(A) (B) (C) Balance Sheet
------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Assets
Net investment in
properties.................. $ 22,950,129 13,739,000 - 36,689,129
Cash and cash equivalents..... 2,937,473 - 114,647,690 117,585,163
Accounts and rents
receivable.................. 492,081 155,731 - 647,812
Other assets.................. 48,398 - - 48,398
------------ ---------- ----------- -----------
Total assets.................. $ 26,428,081 13,894,731 114,647,690 154,970,502
============ ========== =========== ===========
Liabilities and Stockholders' Equity
Accounts payable and accrued
expenses.................... $ 418,393 - - 418,393
Accrued real estate taxes..... 463,751 207,738 - 671,489
Distributions payable (D).... 183,457 - - 183,457
Security deposits............. 71,133 37,221 - 108,354
Mortgage payable.............. 748,011 4,473,200 - 5,221,211
Other liabilities............. 42,120 - - 42,120
------------ ---------- ----------- -----------
Total liabilities............. 1,926,865 4,718,159 - 6,645,024
------------ ---------- ----------- -----------
Common Stock ................. 29,103 10,671 130,226 170,000
Additional paid in capital
(net of Offering costs)..... 24,953,635 9,165,901 114,517,464 148,637,000
Accumulated distributions in
excess of net income........ (481,522) - - (481,522)
------------ ---------- ----------- -----------
Total Stockholders' equity.... 24,501,216 9,176,572 114,647,690 148,325,478
------------ ---------- ----------- -----------
Total liabilities and
Stockholders' equity........ $ 26,428,081 13,894,731 114,647,690 154,970,502
============ ========== =========== ===========
</TABLE>
See accompanying notes to pro forma balance sheet.
F-79
<PAGE> 239
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
March 31, 1996
(unaudited)
(A) The March 31, 1996 Historical column represents the historical balance
sheet as presented in the March 31, 1996 10-Q as filed with the SEC and
includes the following properties acquired by the Company as of March 31,
1996.
Walgreens, Decatur, Illinois
On January 31, 1995, the Company acquired this property from Inland
Property Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the total
purchase price of $1,209,053, including acquisition costs of $482, and the
assumption of the first mortgage loan with a balance of $748,011 at March
31, 1996, which is secured by the property. This mortgage has an interest
rate of 7.655% and amortizes over a 25-year period. The Company is
responsible for monthly payments of principal and interest of $5,689.
Eagle Crest Shopping Center, Naperville, Illinois
On March 1, 1995, the Company acquired this property from IPS for the
purchase price of $4,816,970, including acquisition costs of $11,059, and
the assumption of the first mortgage loan of approximately $3,534,000,
which was secured by the property. The balance of the purchase price was
funded through a loan from IPS, totaling $1,212,427, with interest accruing
at 10.5%. On April 20, 1995, the Company paid off the first mortgage
secured by this property. The deferred portion of the purchase price,
totaling $1,212,427, was paid to IPS in May 1995 from Gross Offering
Proceeds. In addition, accrued interest of $22,009 was paid from Company
operations.
Montgomery-Goodyear Shopping Center, Montgomery, Illinois
On September 14, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $1,145,992, including
closing costs of $5,992, a portion of which was evidenced by a promissory
note payable to Inland Mortgage Investment Corporation ("IMIC"), an
Affiliate of the Advisor, in the gross amount of $600,000. The remainder
of the purchase price net of prorations, of approximately $535,000 was
funded with proceeds of the Offering. The promissory note was paid in full
in October 1995, with interest at a rate of 10.9% per annum. The total
amount paid was $604,260, of which $600,000 was principal paid from Gross
Offering Proceeds and $4,260 was interest paid from Company operations.
F-80
<PAGE> 240
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1996
(unaudited)
Hartford Plaza, Naperville, Illinois
On September 14, 1995, the Company acquired this newly constructed property
from an unaffiliated third party for a purchase price of $4,414,015
including closing costs of $14,015, and deposited $150,000 in an escrow
account for leasehold improvements to the Blockbuster, Inc. space. The
leasehold improvements were completed in January, 1996 and were added to
the cost of the property. A portion of the purchase price was evidenced by
a promissory note payable to IMIC, in the gross amount of $600,000. The
remainder of the purchase price was funded with proceeds of the Offering.
The promissory note was paid in full in October 1995 with interest at a
rate of 10.9% per annum. The total amount paid was $605,102, of which
$600,000 was principal paid from Gross Offering Proceeds and $5,102 was
interest paid from Company operations.
Nantucket Square Shopping Center, Schaumburg, Illinois
On September 20, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $4,257,918, including
closing costs of $4,913, a portion of which was evidenced by a promissory
note payable to IMIC, in the gross amount of $3,550,000. The remainder of
the purchase price was funded with proceeds of the Offering. In addition,
as part of the purchase, the Company agreed to pay $51,135 for tenant
improvements for two tenants expanding their space, which was added to the
cost of the property. The promissory note was paid in full in December
1995 with interest at a rate of 10.5% per annum. The principal amount paid
was $3,550,000 from Gross Offering Proceeds and interest of $62,011 was
paid from Company operations.
Antioch Plaza, Antioch, Illinois
On December 28, 1995, the Company acquired Antioch Plaza from an
unaffiliated third party for a purchase price of $1,750,365, including
closing costs of $365, a portion of which was evidenced by a promissory
note payable to Inland Real Estate Investment Corporation, an affiliate of
the Advisor ("IREIC"), in the gross amount of $660,000. The note which
bore interest at a rate of 9.5% per annum was repaid in full on January 9,
1996 and the total amount paid was $661,163, of which $660,000 was
principal paid from Gross Offering Proceeds and $1,163 was interest paid
from Company operations. The remainder of the purchase price, net of
prorations of approximately $1,100,000 was funded with proceeds of the
Offering.
Mundelein Plaza, Mundelein, Illinois
On March 29, 1996, the Company acquired the Mundelein Plaza property
("Mundelein Plaza") from an unaffiliated third party for a purchase price
of $5,658,230, including closing costs of $8,230, on an all cash basis,
funded from offering proceeds.
F-81
<PAGE> 241
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1996
(unaudited)
(B) The following pro forma adjustment relates to the acquisition or probable
acquisition of the subject properties as though they were acquired on March
31, 1996. The terms are described in the notes that follow.
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------------- Total
Regency Prospect Montgomery- Zany Pro Forma
Point Heights Sears Brainy Adjustments
---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Net investment in
properties...... $5,700,000 2,165,000 3,419,000 2,455,000 13,739,000
Cash and cash
equivalents..... - - - - -
Accounts and rents
receivable...... 21,072 80,632 54,027 - 155,731
Other assets...... - - - - -
---------- --------- --------- --------- ----------
Total assets...... $5,721,072 2,245,632 3,473,027 2,455,000 13,894,731
========== ========= ========= ========= ==========
<Captio>
Liabilities and Stockholders' Equity
<S> <C> <C> <C> <C> <C>
Accounts payable
and accrued
expenses........ $ - - - - -
Accrued real estate
taxes........... 21,072 123,284 63,382 - 207,738
Distributions
payable(D)...... - - - - -
Security Deposits. 28,621 8,600 - - 37,221
Mortgage payable.. 4,473,200 4,473,200
Other liabilities. - - - - -
---------- --------- --------- --------- ----------
Total liabilities. 4,522,893 131,884 63,382 - 4,718,159
---------- --------- --------- --------- ----------
Common Stock...... $ 1,393 2,458 3,965 2,855 10,671
Additional paid in
capital (net of
Offering
Costs).......... 1,196,786 2,111,290 3,405,680 2,452,145 9,165,901
Accumulated
distributions in
excess of net
income.......... - - - - -
---------- --------- --------- --------- ----------
Total Stockholders'
equity.......... 1,198,179 2,113,748 3,409,645 2,455,000 9,176,572
---------- --------- --------- --------- ----------
Total liabilities
and Stockholders'
equity.......... $5,721,072 2,245,632 3,473,027 2,455,000 13,894,731
========== ========= ========= ========= ==========
</TABLE>
F-82
<PAGE> 242
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1996
(unaudited)
Acquisition of Regency Point, Lockport, Illinois
On April 5, 1996, the Company completed the acquisition of the Regency
Point from an unaffiliated third party for a purchase price of $5,700,000.
As part of the acquisition, the Company assumed the existing first mortgage
loan of $4,473,200 along with a related interest rate swap agreement, with
the balance funded with Offering Proceeds.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The first mortgage loan matures
in August 2000. The interest rate swap agreement was terminated on April
18, 1996 resulting in $48,419 proceeds to the Company. No pro forma
adjustment has been made as a result of this termination.
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
On June 17, 1996, the Company acquired Prospect Heights located in Prospect
Heights, Illinois ("Prospect Heights") from an unaffiliated third party for
the purchase price of $2,165,000 on an all cash basis, funded from Offering
proceeds.
Acquisition of Montgomery-Sears, Montgomery, Illinois
On June 17, 1996, the Company acquired Montgomery-Sears Shopping Center
located in Montgomery, Illinois ("Montgomery-Sears") from an unaffiliated
third party for the purchase price of $3,419,000 on an all cash basis,
funded from Offering proceeds.
Acquisition of the Zany Brainy Store, Wheaton, Illinois
On July 1, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $2,455,000 on an all cash basis, from
Offering proceeds.
Additional Offering Proceeds
Additional Offering Proceeds of $10,670,432, net of additional Offering
costs of $1,493,860 are reflected as received as of March 31, 1996, prior
to the purchase of the properties. Offering costs consist principally of
registration costs, printing and selling costs, including commissions.
(C) This pro forma adjustment reflects the completion of the Company's Offering
of 6,000,000 Shares that commenced on October 14, 1994, net of additional
Offering costs of $949,432, as though this occurred on of March 31, 1996.
In addition, this pro forma adjustment reflects the completion of the
Company's Offering and sale of an additional 11,000,000 Shares, net of
Offering costs of $12,771,500, as though this also occurred on March 31,
1996.
(D) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
F-83
<PAGE> 243
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
For the three months ended March 31, 1996
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of Mundelein Plaza, Regency Point Shopping
Center, Prospect Heights Plaza, Montgomery-Sears Shopping Center and the Zany
Brainy store as of January 1, 1996. This unaudited Pro Forma Statement of
Operations should be read in conjunction with the March 31, 1996 Financial
Statements and the notes thereto as filed on Form 10-Q.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the three months
ended March 31, 1996, nor does it purport to represent the future financial
position of the Company. Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Prospectus.
F-84
<PAGE> 244
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
for the three months ended March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1996 Total
Historical Pro Forma 1996
(A) Adjustments(B) Pro Forma
---------- ------------- ---------
<S> <C> <C> <C>
Rental income............... $ 475,038 505,299 980,337
Additional rental income.... 242,290 120,227 362,517
Interest income (C)......... 43,751 - 43,751
---------- ------- -------
Total income.............. 761,079 625,526 1,386,605
---------- ------- -------
Professional services and
general and
administrative fees....... 38,168 - 38,168
Advisor asset management
fee....................... 48,540 34,348 82,888
Property operating expenses. 310,613 166,660 477,273
Interest expense............ 15,043 88,455 103,498
Depreciation (D)............ 103,091 117,108 220,199
Amortization................ 1,373 - 1,373
Acquisition costs expensed.. 8,985 - 8,985
---------- ------- -------
Total expenses.............. 525,813 406,571 932,384
---------- ------- -------
Net income................ $ 235,266 218,955 454,221
========== ======= =======
Weighted average
common stock shares
outstanding (E)........... 2,394,092 16,297,997
========== ==========
Net income per weighted
average common stock
outstanding (E)........... $ .12 .03
========== ==========
</TABLE>
See accompanying notes to pro forma statement of operations.
F-85
<PAGE> 245
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
For the three months ended March 31, 1996
(unaudited)
(A) The March 31, 1996 Historical column represents the historical statement of
operations of the Company for the three months ended March 31, 1996, as
filed with the SEC on Form 10-Q.
(B) Total pro forma adjustments as though the acquisitions of the following
properties occurred on January 1, 1996 on an all cash basis except for
Regency Point where the Company assumed the existing first mortgage loan of
$4,473,200, along with a related interest rate swap agreement.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The pro forma adjustment for
interest expense for 1996 was estimated using the described loan terms.
The related interest rate swap agreement was terminated on April 18, 1996
resulting in $48,419 proceeds to the Company. The pro forma adjustment
does not give effect to the termination of this agreement.
<TABLE>
<CAPTION>
Mundelein Regency Prospect Montgomery- Zany Pro Forma
Plaza Point Heights Sears Brainy Adjustments Total
---------- ------- ------- ------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income..... $ 163,381 139,271 44,552 89,350 68,745 - 505,299
Additional rental
income.......... 32,975 16,034 33,410 25,736 12,072 - 120,227
Interest income... - - - - - - -
---------- ------- ------ ------- ------ ------- -------
Total income...... 196,356 155,305 77,962 115,086 80,817 - 625,526
---------- ------- ------ ------- ------ ------- -------
Professional services
and general and
administrative.. - - - - - - -
Advisor asset
management fee.. - - - - - 34,348 34,348
Property operating
expenses........ 53,986 19,046 44,325 33,348 15,955 - 166,660
Interest expense.. - - - - - 88,455 88,455
Depreciation (D).. - - - - - 117,108 117,108
---------- ------- ------ ------- ------ ------- -------
Total expenses.... 53,986 19,046 44,325 33,348 15,955 239,911 406,571
---------- ------- ------ ------- ------ ------- -------
Net income........ $ 142,370 136,259 33,637 81,738 64,862 (239,911) 218,955
========== ======= ====== ====== ====== ======= =======
</TABLE>
F-86
<PAGE> 246
EXHIBIT A
PRIOR PERFORMANCE TABLES
The prior performance tables contain information concerning public real
estate limited partnerships sponsored by Affiliates of the Advisor. This
information has been summarized, in part, in narrative form under "Prior
Performance of the Company's Affiliates." The purpose of the tables is to
provide information on the performance of those partnerships in evaluating the
experience of the Affiliates of the Advisor as sponsors of such programs.
However, the inclusion of these tables does not imply that the Company will
make investments comparable to those reflected in the tables or that investors
in the Company will experience returns comparable to those experienced in the
programs referred to in these tables. Persons who purchase Shares in the
Company will not thereby acquire any ownership in any of the partnerships to
which these tables relate. The tables consist of:
Table I Experience in Raising and Investing Funds
Table II Compensation to IREIC and Affiliates
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs*
* Prospective investors in the Company may obtain copies of Table VI by
contacting the Advisor.
Except with respect to Inland Land Appreciation Fund, L.P., Inland Land
Appreciation Fund II, L.P., and Inland Capital Fund, L.P. the partnerships
presented in the tables are public real estate limited partnerships formed
primarily to acquire, operate and sell existing residential and commercial real
properties. Generally, the investment objectives of those partnerships were as
follows:
(1) Capital appreciation; and
(2) Cash distributions for limited partners.
In addition, with respect to private limited partnerships, an objective
was the generation of tax loss deductions which generally will be used to
offset taxable income from other sources.
The Company's investment objectives are to: (i) provide regular
Distributions to Stockholders in amounts which may exceed the Company's taxable
income due to the non-cash nature of depreciation expense and, to such extent,
will constitute a tax-deferred return of capital, but in no event less than 95%
of the Company's taxable income, pursuant to the REIT qualification
requirements; (ii) provide a hedge against inflation by entering into leases
which contain clauses for scheduled rent escalations or participation in the
growth of tenant sales, permitting the Company to increase Distributions and
provide capital appreciation; and (iii) preserve Stockholders' capital.
A-1
<PAGE> 247
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I presents information on a dollar and percentage basis showing the
experience of Inland Real Estate Investment Corporation (IREIC), of which the
Advisor is a wholly owned subsidiary, in raising and investing funds in prior
partnerships where the offering closed in the three years prior to December 31,
1995. The Table particularly focuses upon the dollar amount available for
investment in properties expressed as a percentage of total dollars raised.
Since 1986, Inland Real Estate Investment Corporation has organized and
completed the offerings of four public partnerships which have primarily
invested in existing residential real property and three public partnerships
which have invested in undeveloped land.
A-2
<PAGE> 248
TABLE I(CONTINUED)
EXPERIENCE IN RAISING AND INVESTING FUNDS (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
-------------------
<S> <C> <C>
Dollar amount offered .................................... $60,000
Dollar amount raised ..................................... 32,399 100.00%
Less offering expenses:
Selling Commissions:
Affiliated parties ...................................... 3,239 10.00
Unaffiliated parties .................................... 0 0.00
Organizational expenses .................................. 15 0.05
Other offering expenses (B) .............................. 1,227 3.79
Reserves (C) ............................................. 1,972 6.08
------- --------
Available for investment ................................. $25,946 80.08%
------- --------
Acquisition costs:
Cash down payments (D) ................................... $24,286 74.96%
Acquisition fees ......................................... 1,444 4.46
Other cash expenditures capitalized (E) .................. 821 2.53
------- --------
Acquisition costs related to the purchase of properties .. $26,551 81.95%
------- --------
Percent leverage ......................................... 0.00%
Date offering began ...................................... 12-13-91
Length of offering (in months) ........................... 20
Months to invest 90% of amount available for
investment (measured from beginning of offering) ......... 36
</TABLE>
A-3
<PAGE> 249
TABLE I-(CONTINUED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
(000'S OMITTED)
NOTES TO TABLE I
(A) The figures in this table are cumulative and are as of December 31,
1995. The dollar amount raised represents the cash proceeds collected by the
partnerships. The Table reflects payments made from investor capital
contributions upon receipt.
(B) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and amounts
for reimbursement of the IREIC for marketing, salaries and direct expenses of
its employees while directly engaged in registering and marketing the Units and
other marketing and organization expenses.
(C) Includes 1% of the offering proceeds committed to the Unit Repurchase
Program of each partnership. Partnership expenses, including operating expenses
during the offering period or thereafter not related to the offering, may be
paid from these reserves.
(D) Cash down payments include amounts paid and mortgage financing at
closing.
(E) Consists of acquisition expenses and improvements to the property
subsequent to acquisition which are capitalized and paid or to be paid from the
proceeds of the offering.
A-4
<PAGE> 250
TABLE II
COMPENSATION TO IREIC AND AFFILIATES(A)
Table II summarizes the amount and type of compensation paid to IREIC in
connection with prior partnerships.
Some partnerships acquired their properties from Affiliates of the Advisor
which had purchased such properties from unaffiliated third parties.
A-5
<PAGE> 251
TABLE II
COMPENSATION TO IREIC AND AFFILIATES(A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Other
Public
Inland Programs
Capital ----------
Fund, L.P. 6 Programs
---------- ----------
<S> <C> <C>
Date offering commenced ....................................... 12-13-91 -
Dollar amount raised .......................................... $32,399 $149,306
======= ========
Amounts paid or payable to general partner or affiliates
from proceeds of offerings:
Selling commissions and underwriting fees (B) ................ $ 3,239 $ 2,819
Other offering expenses (C) .................................. 249 2,225
Acquisition cost and expense (D) ............................. 1,444 9,591
Dollar amount of cash available (deficiency) from operations
before deducting (adding) payments to (from) general partner
or affiliates (E) ............................................. $ 1,559 $ 13,615
======= ========
Amounts paid to (received from) general partner or affiliates
related to operations:
Property management fees (F) ................................. $ 94 $ 952
Partnership subsidies received (G) ........................... 0 (582)
Accounting services .......................................... 60 285
Data processing service ...................................... 39 228
Legal services ............................................... 48 121
Other administrative services ................................ 96 652
Property upgrades ............................................ 19 186
Property operating expenses .................................. 1 6
Dollar amount of property sales and refinancings before
payments to general partner and affiliates (H):
Cash ......................................................... $ 647 $ 19,534
Equity in notes and undistributed sales proceeds ............. 0 9,686
Dollar amounts paid or payable to general partner or affiliates
from sales and refinancings (I):
Sales commissions ............................................ $ 0 $ 467
Property upgrade ............................................. 0 172
Mortgage brokerage fee ....................................... 0 15
Participation in cash distributions .......................... 0 93
</TABLE>
A-6
<PAGE> 252
TABLE II(CONTINUED)
COMPENSATION TO IREIC AND AFFILIATES
(000'S OMITTED)
NOTES TO TABLE II
(A) The figures in this Table II relating to proceeds of the offerings are
cumulative and are as of December 31, 1995 and the figures relating to cash
available from operations are for the three years ending December 31, 1995. The
dollar amount raised represents the cash proceeds collected by the
partnerships. Amounts paid or payable to IREIC or affiliates from proceeds of
the offerings represent payments made or to be made to IREIC and affiliates
from investor capital contributions.
(B) Inland Capital Fund paid all commissions to an affiliate of the
general partner, who in turn paid $2,711,791 to third party soliciting dealers.
(C) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and amounts
for reimbursement of the general partner for marketing, salaries and direct
expenses of its employees while directly engaged in registering and marketing
the Units and other marketing and organization expenses.
(D) Represents initial cash down payments and future principal payments
and prepaid items and fees paid to IREIC and its affiliates in connection with
the acquisition of properties less amounts paid to unaffiliated third parties
to acquire such properties. Cash down payments include amounts received at
closing.
<TABLE>
<CAPTION>
Inland Public
Capital Programs
Fund, L.P. 6 Programs
---------- ----------
<S> <C> <C>
Acquisition fees ....................... $ 1,444 $ 9,478
Reimbursement (at cost) for upgrades and
acquisition due diligence .............. 0 113
Partnership down payments .............. 0 44,585
Inland down payments ................... 0 (44,585)
-------- --------
Acquisition cost and expense ........... $ 1,444 $ 9,591
</TABLE> ======== ========
(E) See Note (G) to Table III.
(F) An Affiliate of the Advisor provides property management services for
all properties acquired by the partnerships. Management fees have not exceeded
6% of the gross receipts from the properties managed. With respect to Inland
Capital Fund, L.P., Inland Land Appreciation Fund II, L.P. and Inland Land
Appreciation Fund, L.P. (included in "Other Public Programs"), IREIC receives
an asset management fee equal to 1/4% of total partnership capital limited to a
cumulative total over the life of the partnership of 2% of the land's original
cost to the partnership.
(G) The amounts shown in the table for Other Public Programs represent
supplemental capital contributions from IREIC in accordance with the terms of
the partnership agreements.
(H) See Table V and Notes thereto regarding sales and disposals of
properties.
(I) Real estate sales commissions and participations in cash distributions
are paid or payable to IREIC and/or its affiliates in connection with the sales
of properties. Payments of all amounts shown are subordinated to the receipt by
the limited partners of their original capital investment. See Table V and
Notes thereto.
A-7
<PAGE> 253
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for limited partnerships the
offerings of which closed during each of the five years ended prior to December
31, 1995. The operating results consist of:
-The components of taxable income (loss);
-Taxable income or loss from operations and property sales;
-Cash available and source, before and after cash distributions to
investors; and
-Tax and distribution data per $1,000 invested.
A-8
<PAGE> 254
TABLE III- (CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Gross revenues ........................................... $457 $744 $564 $104 $0
Profit on sale of properties ............................. 229 0 0 0 0
Less:
Operating expenses ....................................... 146 64 4 1 0
Interest expense ......................................... 0 0 0 0 0
Partnership expenses ..................................... 167 175 86 1 0
Depreciation and amortization ............................ 5 4 3 3 1
---- ----- ----- ----- ----
Net income (loss)-GAAP basis ............................. $368 $501 $471 $99 $ (1)
Taxable income (loss) (A):
Allocated to investors from operations ................... 137 495 466 100 (1)
Allocated to general partner from operations ............. 1 5 5 1 0
---- ----- ----- ----- ----
Total from operations .................................... 138 500 471 101 (1)
From gain on sale:
Capital (allocated to investors) ........................ 231 0 0 0 0
Capital (allocated to general partner) .................. 0 0 0 0 0
Ordinary (recapture) .................................... 0 0 0 0 0
---- ----- ----- ----- ----
$369 $500 $471 $101 $ (1)
Cash available (deficiency) from operations (G) .......... 172 633 397 94 0
Cash available from sales (B) ............................ 646 0 0 0 0
Cash (deficiency) from refinancings ...................... 0 0 0 0 0
---- ----- ----- ----- ----
Total cash available (deficiency) before
distributions and special items .......................... 818 633 397 94 0
Less distributions to investors:
From operations .......................................... 0 0 0 0 0
From sales and refinancings .............................. 645 0 0 0 0
From return of capital ................................... 0 0 0 0 0
From supplemental capital
contribution (return on capital) (E) (H) ................. 0 0 0 0 0
Less distributions to general partner:
From operations .......................................... 0 0 0 0 0
From sales and refinancings .............................. 0 0 0 0 0
---- ----- ----- ----- ----
Cash available after distributions before special items .. 173 633 397 94 0
Inland Land
Appreciation Fund II, L.P.
1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues ........................................... $508 $494 $545 $841 $1,386 $896 $0
Profit on sale of properties ............................. 2,858 219 485 0 0 0 0
Less:
Operating expenses ....................................... 248 263 266 132 67 13 0
Interest expense ......................................... 0 0 0 0 0 0 0
Partnership expenses ..................................... 230 191 180 254 181 80 0
Depreciation and amortization ............................ 3 4 5 2 2 2 1
------ ---- --------- --------- --------- ---- ----
Net income (loss)-GAAP basis ............................. $2,885 $255 $579 $453 $1,136 $801 $ (1)
Taxable income (loss) (A):
Allocated to investors from operations ................... 315 227 144 477 1,141 800 (1)
Allocated to general partner from operations ............. 3 2 1 5 12 8 0
------ ---- --------- --------- --------- ---- ----
Total from operations .................................... 318 229 145 482 1,153 808 (1)
From gain on sale:
Capital (allocated to investors) ........................ 2,333 219 351 0 0 0 0
Capital (allocated to general partner) .................. 329 0 93 0 0 0 0
Ordinary (recapture) .................................... 0 0 0 0 0 0 0
------ ---- --------- --------- --------- ---- ----
$2,980 $448 $589 $482 $1,153 $808 $ (1)
Cash available (deficiency) from operations (G) .......... 5 9 164 511 1,253 694 0
Cash available from sales (B) ............................ 7,488 450 1,176 0 0 0 0
Cash (deficiency) from refinancings ...................... 0 0 0 0 0 0 0
------ ---- --------- --------- --------- ---- ----
Total cash available (deficiency) before
distributions and special items .......................... 7,493 459 1,340 511 1,253 694 0
Less distributions to investors:
From operations .......................................... 0 0 0 454 267 0 0
From sales and refinancings .............................. 1,000 0 1,116 0 0 0 0
From return of capital ................................... 0 0 0 00 0 0 0
From supplemental capital
contribution (return on capital) (E) (H) ................. 0 0 0 0 0 0 0
Less distributions to general partner:
From operations .......................................... 0 0 0 0 0 0 0
From sales and refinancings .............................. 0 0 0 0 93 0 0
------ ---- --------- --------- --------- ---- ----
Cash available after distributions before special items .. 6,493 459 131 57 986 694 0
</TABLE>
A-9
<PAGE> 255
TABLE III(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Special items:
Fixed asset additions (C) ......................... $ 0 $ 0 $ 0 $ 0 $ 0
Advances (repayments) from (to)
general partner or affiliates ..................... 23 2 1 (85) 85
Repurchase of units (I) ........................... 0 (2) 0 0 0
Use of partnership reserves ....................... 0 2 0 0 0
Use of cash available for offering purposes ....... 0 0 0 0 0
---- ---- ---- ---- ----
Cash available (deficiency) after distributions and
special items (J) ................................. $196 $635 $398 $ 9 $ 85
==== ==== ==== ==== ====
Tax and distribution data per $1,000 invested (D):
Federal income tax results:
Ordinary income (loss):
From operations (E) ............................... $ 4 $ 15 $ 14 $ 3 $ 0
==== ==== ==== ==== ====
From recapture .................................... 0 0 0 0 0
Capital gain ...................................... 7 0 0 0 0
Cash distributions to investors:
Source (on GAAP basis):
Investment income ................................. 0 0 0 0 0
Return of capital ................................. 20 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0
Source (on cash basis):
Sales ............................................. 20 0 0 0 0
Refinancings ...................................... 0 0 0 0 0
Operations ........................................ 0 0 0 0 0
Return of capital ................................. 0 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0
Percent of properties remaining unsold (F) ........ 98.43%
=======
<CAPTION>
Inland Land
Appreciation Fund II, L.P.
------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Special items:
Fixed asset additions (C) ......................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Advances (repayments) from (to)
general partner or affiliates ..................... 31 (19) 10 (5) (272) 287
Repurchase of units (I) ........................... (36) (52) (143) (47) 0 0 0
Use of partnership reserves ....................... 36 52 143 47 0 0 0
Use of cash available for offering purposes ....... 0 0 0 (50) 0 0 0
---- ---- ---- ---- ---- ---- ----
Cash available (deficiency) after distributions and
special items (J) ................................. $6,496 $460 $112 $ 17 $981 $422 $287
======= ==== ==== ==== ==== ==== ====
Tax and distribution data per $1,000 invested (D):
Federal income tax results:
Ordinary income (loss):
From operations (E) ............................... $ 6 $ 5 $ 3 $ 9 $ 23 $ 16 $ 0
From recapture .................................... 0 0 0 0 0 0 0
Capital gain ...................................... 46 4 7 0 0 0 0
Cash distributions to investors:
Source (on GAAP basis):
Investment income ................................. 0 0 0 9 5 0 0
Return of capital ................................. 20 0 22 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0 0 0
Source (on cash basis):
Sales ............................................. 20 0 22 0 0 0 0
Refinancings ...................................... 0 0 0 0 0 0 0
Operations ........................................ 0 0 0 9 5 0 0
Return of capital ................................. 0 0 0 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0 0 0
Percent of properties remaining unsold (F) ........ 89.13%
======
</TABLE>
A-10
<PAGE> 256
TABLE III(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(A) "Taxable income (loss)" represents the aggregate amounts shown on the
partnerships' tax returns for such years. One of the principal differences
between the tax basis of reporting and generally accepted accounting principles
(GAAP) is that depreciation is based upon the rates established by the
Accelerated Cost Recovery System (ACRS) for property placed in service after
January 1, 1981. Use of ACRS usually results in a higher charge against
operations than would be the result if the depreciation rate was based upon the
economic useful life as required by GAAP. Further, under GAAP, to the extent
that interest rates on notes received in connection with the sale of a property
are deemed to be below market interest rates at the date of sale, such notes
would be required to be discounted based upon market interest rates.
(B) See Table V and Notes thereto regarding sales and disposals of
properties.
(C) Fixed asset additions represent betterments and improvements to
properties which have been paid for from the operations of the respective
properties.
(D) Tax data per $1,000 is based on the income (loss) allocated to
investors for federal income tax purposes. Tax and distribution data per $1,000
invested is based on total capital raised.
(E) Taxable ordinary income from operations relating to Inland Monthly
Income Fund II, L.P. include taxable income at the limited partner level due to
taxable guaranteed payments relating to the IREIC's supplemental capital
contributions. A limited partner's basis in his partnership interest will be
increased by the amount of supplemental capital contributions allocated to him
and reduced by distributions from supplemental capital contributions. The
amount of supplemental capital contributions per $1,000 invested are $0 for
1989 through 1995 and $1 for 1988 for Inland Monthly Income Fund, II, L.P.
(F) Percent of properties remaining unsold represents original total
acquisition cost of properties retained divided by original total acquisition
cost of all properties in the program, plus the total of uninvested offering
proceeds (if any).
A-11
<PAGE> 257
TABLE III(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(G) "Cash Available (Deficiency) from Operations," represents all cash
revenues and funds received by the partnerships, including but not limited to
operating income less operating expenses, and interest income. These amounts do
not include payments made by the partnerships from offering proceeds nor do
they include proceeds from sales or refinancings. These amounts also exclude
advances from or repayments to IREIC and affiliates which are disclosed
elsewhere in the table and include principal payments on long-term debt. For
example:
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
--------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities
per the Form 10-K annual report or 10-Q
quarterly report ........................ 195 635 398 9 85
Payments to (from) general partner and
affiliates .............................. (23) (2) (1) 85 (85)
Principal payments on long-term debt .... 0 0 0 0 0
Payments for deferred loan fees 0 0 0 0 0
--- --- --- -- ---
172 633 397 94 0
=== === === == ===
<CAPTION>
Inland Land
Appreciation
Fund II, L.P.
-------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by operating activities
per the Form 10-K annual report or 10-Q
quarterly report ........................ 8 10 145 521 1,248 422
Payments to (from) general partner and
affiliates .............................. (3) (1) 19 (10) 5 272
Principal payments on long-term debt .... 0 0 0 0 0 0
Payments for deferred loan fees 0 0 0 0 0 0
--- --- --- --- ----- ---
5 9 164 511 1,253 694
=== === === === ===== ===
</TABLE>
(H) IREIC was required to make supplemental capital contributions if
necessary, in sufficient amounts to allow the partnerships to make
distributions to limited partners equal to an 8% per annum non-compounded
return on their invested capital through August 4, 1993. The cumulative amounts
of such supplemental capital contributions for Monthly Income Fund II was
$30,155, which was repaid in 1993.
(I) Each entity established a unit repurchase program which provides
limited liquidity to eligible investors who have suffered severe adverse
financial conditions or who have died or become legally incapacitated. These
funds were utilized by the partnerships to repurchase units, on a limited
basis, for pre-determined amounts pursuant to the terms of the prospectus.
(J) Cash deficiencies for certain years are the result of (1) current year
distributions from operations that include a portion of accumulated cash flows
from operations of prior years or; (2) current year distributions from sales
which include proceeds relating to prior year property sales.
A-12
<PAGE> 258
TABLE IV
RESULTS OF COMPLETED PROGRAMS
Table IV is a summary of operating and disposition results of prior public
partnerships sponsored by Affiliates of the Advisor, which during the five
years ended prior to December 31, 1995 have sold their properties and either
hold notes with respect to such sales or have liquidated. No public partnership
has disposed of all its properties.
A-13
<PAGE> 259
TABLE V
SALES OR DISPOSALS OF PROPERTIES
Table V presents information on the results of the sale or disposals of
public partnership properties during the three years ended prior to December
31, 1995. Since 1993, partnerships sponsored by Affiliates of the Advisor have
sold 14 properties in whole or in part. The table provides certain information
to evaluate property performance over the holding period such as:
- Sale proceeds received by the partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
-Cash invested in properties;
-Cash flow (deficiency) generated by the property;
-Taxable gain (ordinary and total); and
-Terms of notes received at sale.
A-14
<PAGE> 260
TABLE V(CONTINUED)
SALES OR DISPOSALS OF PROPERTIES(A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Selling Price, net of closing costs
-----------------------------------------------------------------
Cash Selling
Received, commissions Secured
net of paid or Notes Net
Date Date of Closing payable to Mortgage at Received at Selling
Property Acquired Sale Costs(B) Inland Time of Sale Sale(C) Price
- ------------------------------------------ -------- ------- ------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
LAND I .52 ACRE OF PARCEL #18 ............. 1/29/90 3/11/93 33 0 0 0 33
LAND I 4.41 ACRES OF PARCEL #23 ........... 5/8/90 Var 93 170 0 0 0 170
LAND II PARCEL #23A ....................... 10/30/92 3/16/93 183 0 0 0 183
LAND II PARCELS #11 & #13 ................. 8/20/91 5/3/93 70 0 0 828(F) 898
&
9/23/92
LAND II 5 ACRES OF PARCEL #15 ............. 9/4/91 9/1/93 95 0 0 0 95
GROWTH FUND I - COUNTRY CLUB, 55 UNITS .... 12/30/85 Var 93 5,673 0 1,650 0 4,023
LAND II 10 ACRES OF PARCEL #22 ............ 10/30/92 1/6/94 166 0 0 0 166
LAND II .258 ACRES OF PARCEL #6 ........... 4/16/91 10/1/94 10 0 0 0 10
LAND II 11 ACRES OF PARCEL #15 ............ 9/4/91 12/1/94 274 0 0 0 274
GROWTH FUND I - COUNTRY CLUB, 31 UNITS .... 12/30/85 Var 94 2,432 0 0 0 2,432
LAND I 35.88 ACRES OF PARCEL #23 .......... 5/8/90 Var 94 1,149 0 0 156 1,305
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 22 BUILDINGS ......... 6/24/88 Var 94 701 0 0 4,912(G) 5,613
LAND I 3.44 ACRES OF PARCEL #23 ........... 5/8/90 Var 95 139 0 0 0 139
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 16 BUILDINGS ......... 6/24/88 Var 95 409 0 0 3,790(G) 4,199
LAND II 60 ACRES OF PARCEL #23 ............ 10/30/92 Var 95 4,196 0 0 0 4,196
LAND II PARCEL #25 ........................ 1/28/93 10/31/95 3,292 0 0 0 3,292
CAPITAL FUND PARCEL #10A .................. 9/16/94 4/21/95 286 0 0 0 286
CAPITAL FUND 17.742 ACRES OF PARCEL #2 .... 11/9/93 8/2/95 361 0 0 0 361
LAND I 27.575 ACRES OF PARCEL #4 .......... 4/18/89 8/25/95 542 0 0 0 542
<CAPTION>
Cost of Properties including closing
costs and other cash expenditures
-------------------------------------
Original Partnership
Mortgage Capital
Property Financing Invested(D) Total
- ------------------------------------------ --------- ----------- -----
<S> <C> <C> <C>
LAND I .52 ACRE OF PARCEL #18 ............. 0 4 4
LAND I 4.41 ACRES OF PARCEL #23 ........... 0 128 128
LAND II PARCEL #23A ....................... 0 183 183
LAND II PARCELS #11 & #13 ................. 0 453 453
LAND II 5 ACRES OF PARCEL #15 ............. 0 55 55
GROWTH FUND I - COUNTRY CLUB, 55 UNITS .... 1,168 1,495 2,663
LAND II 10 ACRES OF PARCEL #22 ............ 0 105 105
LAND II .258 ACRES OF PARCEL #6 ........... 0 4 4
LAND II 11 ACRES OF PARCEL #15 ............ 0 122 122
GROWTH FUND I - COUNTRY CLUB, 31 UNITS .... 658 843 1,501
LAND I 35.88 ACRES OF PARCEL #23 .......... 0 971 971
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 22 BUILDINGS ......... 0 5,019 5,019
LAND I 3.44 ACRES OF PARCEL #23 ........... 0 98 98
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 16 BUILDINGS ......... 0 3,683 3,683
LAND II 60 ACRES OF PARCEL #23 ............ 0 2,900 2,900
LAND II PARCEL #25 ........................ 0 1,730 1,730
CAPITAL FUND PARCEL #10A .................. 0 221 221
CAPITAL FUND 17.742 ACRES OF PARCEL #2 .... 0 196 196
LAND I 27.575 ACRES OF PARCEL #4 .......... 0 231 231
</TABLE>
A-15
<PAGE> 261
TABLE V(CONTINUED)
SALES OR DISPOSALS OF PROPERTIES(A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Excess
(deficiency)
of property Amount of
operating subsidies Total
cash receipts included in Taxable Ordinary
over cash operating Gain Income Capital
Property expenditures(E) cash receipts from Sale from Sale Gain
<S> <C> <C> <C> <C> <C>
LAND I .52 ACRE OF PARCEL #18 ............ 0 0 29 0 29
LAND I 4.41 ACRES OF PARCEL #23 .......... 0 0 42 0 42
LAND II PARCEL #23A ...................... (6) 0 0 0 0
LAND II PARCELS #11 & #13 ................ 9 0 445 0 445
LAND II 5 ACRES OF PARCEL #15 ............ 1 0 40 0 40
GROWTH FUND I - COUNTRY CLUB, 55 UNITS ... 1,375 0 1,592 0 1,592
LAND II 10 ACRES OF PARCEL #22 ........... 0 0 61 0 61
LAND II .258 ACRES OF PARCEL #6 .......... 0 0 6 0 6
LAND II 11 ACRES OF PARCEL #15 ........... 1 0 152 0 152
GROWTH FUND I - COUNTRY CLUB, 31 UNITS ... 775 0 1,223 0 1,223
LAND I 35.88 ACRES OF PARCEL #23 ......... 4 0 360 360 0
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 22 BUILDINGS ........ 1,556 0 1,609 0 1,609
LAND I 3.44 ACRES OF PARCEL #23 .......... 0 0 33 33 0
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 16 BUILDINGS ........ 1,152 0 1,398 0 1,398
LAND II 60 ACRES OF PARCEL #23 ........... (80) 0 1,100 1,100 0
LAND II PARCEL #25 ....................... 60 0 1,562 0 1,562
CAPITAL FUND PARCEL #10A ................. (9) 0 67 67 0
CAPITAL FUND 17.742 ACRES OF PARCEL #2 ... 1 0 164 0 164
LAND I 27.575 ACRESOF PARCEL #4 .......... 14 0 311 0 311
</TABLE>
A-16
<PAGE> 262
TABLE V(CONTINUED)
SALES OR DISPOSALS OF PROPERTIES
(000'S OMITTED)
NOTES TO TABLE V
(A) The table includes all sales of properties by the partnerships during
the three years ended December 31, 1995. All sales have been made to parties
unaffiliated with the partnership.
(B) Consists of cash payments received from the buyers and the assumption
of certain liabilities by the buyers at the date of sale, less expenses of
sale.
(C) The stated principal amount of the notes is shown in the table under
"Secured Notes Received at Sale." All sales with notes received at sale are
being reported for tax purposes on the installment basis.
(D) Amounts represent the dollar amount raised from the offerings of
limited partnership units, less sales commissions and other offering expenses.
(E) Represents "Cash Available (Deficiency) from Operations (including
subsidies)" as adjusted for appli-cable "Fixed Asset Additions" through the
year of sale.
(F) The partnership provided financing in the amount of $828,000. The
amount financed earned interest at 8% annually, paid monthly, until maturity
and was paid off on October 27, 1993.
(G) As of December 31, 1995, the Partnership has sold all of the
thirty-eight six-unit condominium buildings comprising the Schaumburg Terrace
condominium complex to unaffiliated third parties. The Partnership received
$249,596 from one all cash sale in 1994. In addition, the Partnership received
$823,518 in down payment proceeds, and provided mortgage loans totaling
$8,701,439 to the purchasers for the thirty-seven additional sales. The
principal balances of these loans range from approximately $211,000 to
$256,000. These loans require monthly principal and interest payments totaling
$67,763 with an interest rate of 8.625% per annum for ten years (based on a
thirty year amortization) and payment of all remaining principal at the end of
that period.
A-17
<PAGE> 263
INLAND REAL ESTATE CORPORATION
DISTRIBUTION REINVESTMENT PROGRAM
Inland Real Estate Corporation, a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation, as amended and restated
to date (the "Articles") has adopted a Distribution Reinvestment Program (the
"DRP"), the terms and conditions of which are set forth below. Capitalized
terms shall have the same meaning as set forth in the Articles unless otherwise
defined herein.
1. As agent for the Stockholders who purchased Shares pursuant to
the Company's prior public offering which commenced October 14, 1994 and was
completed July __, 1996 (the "Prior Offering") and the current offering of
Shares by the Company pursuant to the prospectus dated July __, 1996 (the
"Offering") and elect to participate in the DRP (the "Participants"), the
Company will apply all distributions, paid with respect to the Shares held by
each Participant (the "Distributions"), including Distributions paid with
respect to any full or fractional Shares acquired under the DRP, to the
purchase of the Shares for said Participants directly, if permitted under state
securities laws and, if not, through the Dealer-Manager or Participating
Dealers registered in the Participant's state of residence. Neither the
Company nor its Affiliates will receive a fee for selling Shares under the DRP.
2. Procedure for Participation. Any Stockholder who purchased
Shares pursuant to the Company's Prior Offering or this Offering may elect to
become a Participant by completing and executing the Subscription Agreement or
other appropriate authorization form as may be available from the Company, the
Dealer-Manager or Soliciting Dealer. Participation in the DRP will begin with
the next Distribution payable after receipt of a Participant's subscription or
authorization. Shares will be purchased under the DRP on the record date for
the Distribution used to purchase the Shares. Distributions for Shares
acquired under the DRP are currently paid monthly and are calculated with a
daily record and Distribution declaration date. Each Participant agrees that
if, at any time prior to listing of the Shares on a national stock exchange or
inclusion of the Shares for quotation on a national market system, he fails to
meet the suitability requirements for making an investment in the Company or
cannot make the other representations or warranties set forth in the
Subscription Agreement, he will promptly so notify the Company in writing.
3. Purchase of Shares. Participants will acquire Shares from the
Company at a fixed price of $9.05 per Share until the termination of the
Offering. Participants in the DRP may also purchase fractional Shares so that
100% of the Distributions will be used to acquire Shares. However, a
Participant will not be able to acquire Shares under the DRP to the extent such
purchase would cause it to exceed the Ownership Limit.
It is possible that a secondary market will develop for the Shares,
and that the Shares may be bought and sold on the secondary market at prices
lower or higher than the $9.05 per Share price which will be paid under the
DRP.
The Company shall endeavor to acquire Shares on behalf of Participants
at the lowest price then available. However, the Company does not guarantee or
warrant that the Participant will be acquiring Shares at the lowest
possible price.
If the Company's Shares are listed on a national stock exchange or
included for quotation on a national market system, Shares purchased by the
Company for the DRP will be purchased on such exchange or market, at the
prevailing market price, and will be sold to Stockholders at such price. The
reservation of any Shares from this Offering remaining for issuance under the
DRP will be cancelled. The Shares will continue to have
B-1
<PAGE> 264
the status of authorized but unissued Shares. These Shares will not be issued
unless they are first registered with the Securities and Exchange Commission
(the "Commission") under the Act and under appropriate state securities laws or
are otherwise issued in compliance with such laws.
It is understood that reinvestment of Distributions does not relieve a
Participant of any income tax liability which may be payable on the
Distributions.
4. Share Certificates. Within 90 days after the end of the
Company's fiscal year, the Company will issue certificates evidencing ownership
of Shares purchased through the DRP during the prior fiscal year. The
ownership of the Shares will be in book-entry form prior to the issuance of
such certificates.
5. Reports. Within 90 days after the end of the Company's fiscal
year, the Company will provide each Participant with an individualized report
on his or her investment, including the purchase date(s), purchase price and
number of Shares owned, as well as the dates of distribution and amounts of
Distributions received during the prior fiscal year. The individualized
statement to Stockholders will include receipts and purchases relating to each
Participant's participation in the DRP including the tax consequences relative
thereto.
6. Termination by Participant. A Participant may terminate
participation in the DRP at any time, without penalty, by delivering to the
Company a written notice. Prior to listing of the Shares on a national stock
exchange or inclusion of the Shares for quotation on a national market system,
any transfer of Shares by a Participant to a non-Participant will terminate
participation in the DRP with respect to the transferred Shares. IF a
Participant terminates DRP participation, the Company will provide the
terminating Participant with a certificate evidencing the whole shares in his
or her account and a check for the cash value of any fractional share in such
account. Upon termination of DRP participation, Distributions will be
distributed to the Stockholder in cash.
7. Amendment or Termination of DRP by the Company. The Directors
of the Company may by majority vote (including a majority of the Independent
Directors) amend or terminate the DRP for any reason upon 30 days' written
notice to the Participants.
8. Liability of the Company. The Company shall not be liable for
any act done in good faith, or for any good faith omission to act, including,
without limitation, any claims or liability: (a) arising out of failure to
terminate a Participant's account upon such Participant's death prior to
receipt of notice in writing of such death; and (b) with respect to the time
and the prices at which Shares are purchased or sold for a Participant's
account. To the extent that indemnification may apply to liabilities arising
under the Act or the securities act of a state, the Company has been advised
that, in the opinion of the Commission and certain state securities
commissioners, such indemnification is contrary to public policy and,
therefore, unenforceable.
9. Governing Law. This DRP shall be governed by the laws of the
State of Maryland.
B-2
<PAGE> 265
EXHIBIT I
INLAND REAL ESTATE CORPORATION
SUBSCRIPTION AGREEMENT
[INLAND LOGO]
PLEASE MAIL THE WHITE COPY, THE YELLOW COPY, AND YOUR
CHECK MADE PAYABLE TO "LNB/ESCROW AGENT FOR IREC" TO: Inland
Securities Corporation, 2901 Butterfield Road, Oak Brook,
Illinois 60521, Attn: Investor Services. Please use ballpoint
pen or type the information.
INLAND REAL ESTATE CORPORATION INSTRUCTIONS TO PURCHASERS
INSTRUCTIONS Any Person desiring to subscribe for Shares should carefully
read and review the Prospectus and, if he/she desires to
subscribe for Shares, complete the Subscription
Agreement/Signature Page which follows these instructions.
Follow the appropriate instruction listed below for the items
indicated. Please print in ink or type the information.
INVESTMENT Item 1--Enter the number of Shares to be purchased and the
A dollars and cents amount of the purchase. Minimum purchase 300
Shares ($3,000). Qualified Plans 100 Shares ($1,000).
(Iowa requires 300 Shares ($3,000) for IRA accounts.) Item
2--Check if you desire to participate in Distribution
Reinvestment Program.
REGISTRATION Item 3--Enter the exact name in which the Shares are to be
INFORMATION held. For co-owners enter the names of all owners. For
B investments by qualified plans, include the exact name of the
plan. If this is an additional purchase by a qualified
plan, please use the same exact plan name as previously used.
Item 4--Enter mailing address, state of residence and
telephone number of owner.
Item 5--Check the appropriate box. If the owner is a
non-resident alien, he must apply to the United States
Internal Revenue Service for an identification number via Form
SS-4 for an individual or SS-5 for a corporation, and supply
the number to the Company as soon as it is available.
Item 6-- Check this box if the owner is an employee of
Inland or an individual who has been continuously affiliated
with Inland as an independent contractor. Item 7--Enter birth
date(s) or date of incorporation. Item 8--Enter the Social
Security number or Taxpayer I.D. number. The owner is
certifying that this number is correct.
C Item 9--The residence address if different.
D Item 10--Check the appropriate box to indicate the type of
entity which is subscribing. If additional purchase,
this should be exactly the same as previous investment.
SIGNATURE Item 11--The Subscription Agreement/Signature Page must be
E executed and initialed by the owner(s), or if applicable, the
trustee or custodian.
ALTERNATE ADDRESS Item 12--If owners desire direct deposit of his/her/their cash
FOR DISTRIBUTIONS distributions to an account or address other than as
(OPTIONAL) set forth in the Subscription Agreement/Signature Page,
F please complete. Please make sure account has been opened and
account number is provided, as well as informing recipient
that distribution will be forthcoming and is an asset
transfer.
BROKER/DEALER Item 13--Enter the name of the Broker/Dealer and the
REGISTERED name of the Registered Representative, along with the street
REPRESENTATIVE address, city, state, zip code and telephone number of the
G Registered Representative. By executing the Subscription
Agreement/Signature Page, the Registered Representative
substantiates compliance with the Conduct Rules of the NASD
by certifying that the Registered Representative has
reasonable grounds to believe, based on information obtained
from the investor concerning his, her or its investment
objectives, other investments, financial situation and needs
and any other information known by such Registered
Representative, that investment in the Company is suitable for
such investor in light of his, her or its financial position,
net worth and other suitability characteristics and that the
Registered Representative has informed the investor of all
pertinent facts relating to the liability, liquidity and
marketability of an investment in the Company during its term.
The Registered Representative (authorized signature) should
sign and date.
SUBMISSION OF The properly completed and executed White and Yellow
SUBSCRIPTION copies of the Subscription Agreement/ Signature Page together
with a CHECK MADE PAYABLE TO "LNB/ESCROW AGENT FOR IREC"
should be returned to the owner's Registered Representative or
the offices of Inland Securities Corporation, 2901 Butterfield
Road, Oak Brook, Illinois 60521.
NOTE: If a Person other than the Person in whose name the Shares will be held
is reporting the income received from the Company, you must notify the Company
in writing of that Person's name, address and Social Security number.
This Specimen Copy of the Subscription Agreement/Signature Page (Exhibit I
of the Prospectus) should not be executed.
ALL INVESTORS AND THEIR REGISTERED REPRESENTATIVES MUST SIGN THE SUBSCRIPTION
AGREEMENT/ SIGNATURE PAGE PRIOR TO TENDERING ANY FUNDS FOR INVESTMENT IN
SHARES.
CALIFORNIA INVESTORS
All Certificates representing Shares which are sold in the State of California
will bear the following legend conditions: IT IS UNLAWFUL TO CONSUMMATE A SALE
OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
01-94-100-2
I-1
<PAGE> 266
[INLAND LOGO]
INLAND REAL ESTATE CORPORATION
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
PLEASE READ THIS SUBSCRIPTION AGREEMENT/SIGNATURE PAGE AND THE TERMS AND
CONDITIONS BEFORE SIGNING.
SUBSCRIBER MUST READ THE SUBSCRIPTION INSTRUCTIONS.
A
(1) INVESTMENT MAKE CHECK PAYABLE TO LNB/ESCROW AGENT FOR IREC
This subscription is in the amount of $_________________ for the purchase
of ______________ Shares of Inland Real Estate Corporation at $10 per
Share. Minimum initial investment: 300 Shares (100 Shares for IRA, Keogh
and qualified plan accounts-Iowa requires 300 Shares for IRA accounts)
This is an: / / INITIAL INVESTMENT / / ADDITIONAL INVESTMENT
(2) DISTRIBUTION REINVESTMENT PROGRAM: / / YES Subscriber elects to
participate in the Distribution Reinvestment Program described in the
Prospectus.
Distributions will be made by check unless box is marked.
B
<TABLE>
<S><C>
(3) REGISTERED OWNER
/ / Mr. / / Mrs. / / Ms. - -
- ----
CO-OWNER ---------------------------------------------------------- --------------------------
/ / Mr. / / Mrs. / / Ms. (AREA CODE) HOME TELEPHONE
- ---- ----------------------------------------------------------
(4) MAILING ADDRESS ----------------------------------------------------------
- ---- - -
-----------------------------
CITY, STATE & ZIP CODE ---------------------------------------------------------- (AREA CODE) BUSINESS TELEPHONE
- ----
STATE OF RESIDENCE (7) BIRTH DATE
- ---- ------------------ ----- ---- ---- ----- --- ----
MONTH DAY YEAR MONTH DAY YEAR
- ----
(5) PLEASE INDICATE
CITIZENSHIP STATUS
/ / U.S. CITIZEN
/ / RESIDENT ALIEN
/ / NON-RESIDENT ALIEN
(6) / / EMPLOYEE OR AFFILIATE
(8) SOCIAL SECURITY #
- -----------------------------------------
CO-OWNER
- ---- SOCIAL SECURITY #
CORPORATE OR CUSTODIAL
TAX IDENTIFICATION NUMBER
- -----------------------------------------
(9)
RESIDENCE ADDRESS IF DIFFERENT FROM ABOVE
- ------------------------------------------------------------------------------------------------------------------------------------
STREET CITY STATE ZIP CODE
(10) CHECK ONE--IMPORTANT--REFER TO REGISTRATION REQUIREMENTS ON BACK
A / / INDIVIDUAL OWNERSHIP H/ / IRA L/ / PENSION OR PROFIT SHARING PLAN
B / / JOINT TENANTS WITH RIGHT M/ / TRUST/DATE TRUST ESTABLISHED
OF SURVIVORSHIP I/ / QUALIFIED PLAN (KEOGH) ------------
C / / COMMUNITY PROPERTY NAME OF TRUSTEE OR OTHER ADMINISTRATOR
D / / TENANTS IN COMMON J/ /SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.)
E / / TENANTS BY THE ENTIRETY K/ / UNIFORM GIFTS TO MINORS ACT ----------------------------------------
F / / CORPORATE OWNERSHIP STATE OF A CUSTODIAN / / TAXABLE / / GRANTOR A OR B
G/ / PARTNERSHIP OWNERSHIP --------------- N/ / ESTATE
FOR O/ / OTHER (SPECIFY)
----------------------------- ------------------------
/ / TAXABLE / / NON-TAXABLE
</TABLE>
E
(11) The undersigned certifies, under penalties of perjury (i) that the
taxpayer identification number shown on the Subscription Agreement/Signature
Page is true, correct and complete, and (ii) is not subject to backup
withholding either because he has not been notified that he is subject to
backup withholding as a result of a failure to report all interest or
distributions, or the Internal Revenue Service has notified him that he is no
longer subject to backup withholding.
The undersigned futher acknowledges and/or represents (or in the case of
fiduciary accounts, the person authorized to sign on such Investor's behalf)
the following:
(a) acknowledges receipt of the Prospectus of the Company relating to the
Shares, wherein the terms and conditions of the offering of the Shares
are described.
(b) represents that I (we) either: (i) have a net worth (excluding home,
home furnishings and automobiles) of at least $45,000 and estimate that
(without regard to investment in the Company) I (we) have gross income
due in the current year of at least $45,000; or (ii) have a net worth
(excluding home, home furnishings and automobiles) of at least $150,000
or such higher suitability as may be required by certain states and set
forth on page I-3 herein; In the case of sales to fiduciary accounts,
the suitability standards must be met by the beneficiary, the fiduciary
account or by the donor or grantor who directly or indirectly supplies
the funds for the purchase of the Shares.
(c) represents that the investors purchasing the Shares for his or her
own account and if I am (we are) purchasing Shares on behalf of a trust
or other entity of which I am (we are) trustee(s) or authorized
agent(s) I (we) have due authority to execute the Subscription
Agreement/Signature Page and do hereby legally bind the trust or other
entity of which I am (we are) trustee(s) or authorized agent(s).
(d) acknowledges that the Shares are not liquid; (not required for
Minnesota residents)
(e) if an Affiliate of the Company, represents that the Shares are being
purchased for investment purposes only and not with a view toward
immediate resale.
<TABLE>
<S><C>
AGREEMENT DATED 19
-------------------------- -----
X X
- ----------------------------------------------------------- ----------------------------
SIGNATURE--REGISTERED OWNER SIGNATURE--CO-OWNER
- -----------------------------------------------------------
(PRINT NAME OF CUSTODIAN OF TRUSTEE)
- -----------------------------------------------------------
AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE)
</TABLE>
A sale of the Shares may not be completed by the Soliciting Dealers until
at least five business days after receipt of the Prospectus.
F
<TABLE>
<S><C>
(12) (OPTIONAL) DIRECTLY DEPOSIT CASH DISTRIBUTIONS TO:
--------------------------------
ACCOUNT NUMBER MUST BE FILLED IN
NAME OF BANK,
BROKERAGE FIRM
OR INDIVIDUAL X
------------------------------------------------------------------- ---------------------------------------
SIGNATURE--REGISTERED OWNER
MAILING ADDRESS
-------------------------------------------------------------------
CITY, STATE &
ZIP CODE X
------------------------------------------------------------------- ---------------------------------------
SIGNATURE--CO-OWNER
</TABLE>
(13) BROKER/DEALER DATA--COMPLETED BY SELLING REGISTERED REPRESENTATIVE (PLEASE
USE REP'S ADDRESS--NOT HEADQUARTERS)
NAME OF
SALESPERSON - -
------------------------------------ ---------------------
/ / Mr. / / Mrs. / / Ms. SALESPERSON'S TELEPHONE
IS THIS A NEW BROKER/DEALER?
MAILING ADDRESS
-------------------------------- / / YES / / NO
CITY, STATE &
ZIP CODE
--------------------------------
BROKER/DEALER
NAME X
MAILING ADDRESS -------------------------------- ----------------------------
SIGNATURE--REGISTERED
CITY, STATE & REPRESENTATIVE
ZIP CODE
---------------------------------
INLAND REAL ESTATE CORPORATION
I-2
<PAGE> 267
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
CERTAIN STATES HAVE IMPOSED SPECIAL FINANCIAL SUITABILITY STANDARDS FOR
INVESTORS WHO PURCHASE SHARES.
IF THE INVESTOR IS A RESIDENT OF CALIFORNIA, THE INVESTOR MUST HAVE
EITHER: (I) A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$225,000; OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A NET WORTH
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
IF THE INVESTOR IS A RESIDENT OF MAINE, THE INVESTOR MUST HAVE EITHER: (I)
A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $200,000; OR
(II) A MINIMUM ANNUAL GROSS INCOME OF $50,000 AND A NET WORTH (EXCLUSIVE OF
HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $50,000.
IF THE INVESTOR IS A RESIDENT OF MASSACHUSETTS, THE INVESTOR MUST HAVE
EITHER: (I) A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$225,000; OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A NET WORTH
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
IF THE INVESTOR IS A RESIDENT OF TENNESSEE, THE INVESTOR MUST HAVE EITHER:
(I) A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $225,000;
OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A NET WORTH (EXCLUSIVE OF
HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
THE COMPANY INTENDS TO ASSERT THE FOREGOING REPRESENTATIONS AS A DEFENSE
IN ANY SUBSEQUENT LITIGATION WHERE SUCH ASSERTION WOULD BE RELEVANT. THE
COMPANY SHALL HAVE THE RIGHT TO ACCEPT OR REJECT THIS SUBSCRIPTION IN WHOLE OR
IN PART, SO LONG AS SUCH PARTIAL ACCEPTANCE OR REJECTION DOES NOT RESULT IN AN
INVESTMENT OF LESS THAN THE MINIMUM AMOUNT SPECIFIED IN THE PROSPECTUS. AS USED
ABOVE, THE SINGULAR INCLUDES THE PLURAL IN ALL RESPECTS IF SHARES ARE BEING
ACQUIRED BY MORE THAN ONE PERSON. AS USED IN THIS AGREEMENT, "INLAND" REFERS TO
THE INLAND COMPANIES AND ITS AFFILIATES. THIS AGREEMENT AND ALL RIGHTS
HEREUNDER SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF ILLINOIS.
OFFICE USE ONLY Investor Check Date _______________
Investor Check # ________________
Check Amount $ ________________
BROKER/DEALER
NUMBER ________________________________
OWNER ACCOUNT
NUMBER _________________
CO-OWNER _______________
ACCOUNT NUMBER
I-3
<PAGE> 268
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in the
Prospectus and supplemental literature authorized by the Company and referred
to in this Prospectus, and, if given or made, such information and
representations must not be relied upon. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such
offer. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates at which
information is given herein, or the date hereof. However, if any material
change in the affairs of the Company shall occur during the time when a copy of
this Prospectus is required to be delivered, the Company will amend or
supplement this Prospectus to reflect such change.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
PROSPECTUS SUMMARY ............................. 1
ORGANIZATIONAL CHART ........................... 15
RISK FACTORS ................................... 16
ESTIMATED USE OF PROCEEDS OF OFFERING .......... 26
WHO MAY INVEST ................................. 28
COMPENSATION TABLE ............................. 29
CONFLICTS OF INTEREST .......................... 37
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND
THE ADVISOR; INDEMNIFICATION .................. 40
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES .. 42
MANAGEMENT ..................................... 56
SELECTED FINANCIAL DATA ........................ 66
INVESTMENT OBJECTIVES AND POLICIES ............. 69
REAL PROPERTY INVESTMENTS ...................... 76
CAPITALIZATION ................................. 96
PRINCIPAL STOCKHOLDERS ......................... 98
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION OF THE COMPANY ........ 98
FEDERAL INCOME TAX CONSIDERATIONS 104
ERISA CONSIDERATIONS 114
DESCRIPTION OF SECURITIES 116
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS 119
PLAN OF DISTRIBUTION ........................... 127
HOW TO SUBSCRIBE ............................... 132
SALES LITERATURE ............................... 132
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE..
PROGRAMS ...................................... 133
REPORTS TO STOCKHOLDERS ........................ 135
LEGAL MATTERS .................................. 137
EXPERTS ........................................ 137
ADDITIONAL INFORMATION ......................... 137
GLOSSARY ....................................... 138
INDEX TO FINANCIAL STATEMENTS .................. F-i
PRIOR PERFORMANCE TABLES ....................... A-1
DISTRIBUTION REINVESTMENT PROGRAM .............. B-1
SUBSCRIPTION AGREEMENT ......................... I-1
</TABLE>
Until ________, 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver prospectuses when acting as Soliciting Dealers with respect to their
unsold allotments or subscriptions.
INLAND
REAL ESTATE
CORPORATION
11,000,000 Shares
_________________
PROSPECTUS
July ___, 1996
_________________
Inland Securities
Corporation
<PAGE> 269
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Registration Fee....... $ 39,155
NASD Filing Fee .......................................... 11,855
Printing and Mailing Expenses ............................ 525,000
Blue Sky Fees and Expenses (including counsel fees)....... 75,000
Legal Fees and Expenses .................................. 375,000
Accounting Fees and Expenses ............................. 200,000
Advertising and Sales Literature ......................... 650,000
Due Diligence ............................................ 475,000
Miscellaneous ............................................ 920,490
----------
Total .............................................. $3,271,500
==========
ITEM 31. SALES TO SPECIAL PARTIES.
Employees and associates of the Company and its Affiliates will be
permitted to purchase Shares net of sales commissions.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
On May 12, 1994, Inland Real Estate Advisory Services, Inc. (the
"Advisor") acquired 100 Shares at a price of $10 per Share, paid in cash. No
sales commission or other consideration was paid in connection with such sale,
which was effective without registration under the Securities Act of 1933, as
amended (the "Act"), in reliance upon the exemption from registration in
Section 4(2) of the Act as a transaction not involving any public offering. On
May 25, 1994 the Advisor purchased an additional 19,900 Shares at a price of
$10 per Share, paid in cash. No sales commission or other consideration was
paid in connection with such sale, and the sale was made in reliance upon the
exemption from registration in Section 4(2) of the Act.
Options to purchase up to 11,500 Shares have been granted as of the date
of this Prospectus to the Independent Directors pursuant to the Independent
Director Stock Option Plan, none of which have been exercised.
II-1
<PAGE> 270
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second Articles of Amendment and Restatement, as amended,
and the Amended and Restated Bylaws authorize it, to the fullest extent
permitted by Maryland statutory or decisional law, as amended or interpreted
and, without limiting the generality of the foregoing, in accordance with
Section 2-418 of the Maryland General Corporation Law, to indemnify and pay or
reimburse reasonable expenses to: any Director, Advisor or its Affiliates (each
an "Indemnified Party"), provided, that: (i) the Director, Advisor or its
Affiliates have determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interest of the Company; (ii) the
Director, the Advisor or its Affiliates were acting on behalf of or performing
services on the part of the Company; (iii) such liability or loss was not the
result of negligence or misconduct on the part of the Indemnified Party, except
that in the event the Indemnified Party is or was an Independent Director, such
liability or loss shall not have been the result of gross negligence or willful
misconduct; and (iv) such indemnification or agreement to be held harmless is
recoverable only out of the assets of the Company and not from the
Stockholders. The Company shall not indemnify a Director, the Advisor or its
Affiliates for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of the Tennessee
Securities Division and any other state securities regulatory authority in
which securities of the Company were offered and sold as to indemnification for
securities law violations.
The Company may advance amounts to persons entitled to indemnification
hereunder for legal and other expenses and costs incurred as a result of any
legal action for which indemnification is being sought only if all of the
following conditions are satisfied: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party for or on behalf of the Company; (ii) the legal action is
initiated by a third party who is not a Stockholder or the legal action is
initiated by a Stockholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes to repay the advanced
funds to the Company, together with the applicable legal rate of interest
thereon, in cases in which such party is found not to be entitled to
indemnification.
The Company shall have the power to purchase and maintain insurance on
behalf of an indemnified party against any liability asserted which was
incurred in any such capacity with the Company or arising out of such status;
provided, however, that the Company shall not incur the costs of any liability
insurance which insures any person against liability for which he, she or it
could not be indemnified under the Articles.
Neither the amendment nor the adoption of any other provision of the
Articles or the Bylaws shall apply to or affect in any respect the
applicability of indemnification with respect to any act or failure to act
which occurred prior to such amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising
under the Act, the Company has been advised that, in the opinion of the
Commission, such indemnification is contrary to public policy and, therefore,
unenforceable.
II-2
<PAGE> 271
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Balance Sheets for the Company (unaudited) at March 31, 1996
and December 31, 1995
Statements of Operations for the three months ended March 31,
1996 and 1995
Statements of Stockholders' Equity at March 31, 1996 and
December 31, 1995
Statement of Cash Flows for the three months ended March 31,
1996 and 1995 (unaudited)
Notes to Financial Statements
Independent Auditors' Report
Balance Sheets for the Company as of December 31, 1995 and
1994
Statement of Operations for the year ended December 31, 1995
Statement of Stockholders' Equity for the year ended December
31, 1995 and for the period from May 12, 1994 (formation of
the Company) to December 31, 1994
Statement of Cash Flows for the year ended December 31, 1995
and for the period May 12, 1994 (formation of the Company) to
December 31, 1994
Notes to Financial Statements
Historical Summary of Gross Income and Direct Operating
Expenses (unaudited) of the Walgreens/Decatur property for
the six-month period ended December 31, 1994
Independent Auditor's Report
Historical Summaries of Gross Income and Direct Operating
Expenses of the Walgreens/Decatur property for each of the
three years in the three year period ended June 30, 1994
Notes to Historical Summaries of Gross Income and Direct
Operating Expenses
II-3
<PAGE> 272
Historical Summary of Gross Income and Direct Operating
Expenses (unaudited) of the Eagle Crest Shopping Center for
the six-month period ended December 31, 1994
Independent Auditors' Report
Historical Summaries of Gross Income and Direct Operating
Expenses of the Eagle Crest/Naperville property for each of
the three years in the three year period ended June 30, 1994
Notes to the Historical Summaries of Gross Income and Direct
Operating Expenses
Report of Independent Public Accountants
Statement of Gross Income and Direct Operating Expenses for
the year ended December 31, 1994 of Nantucket Square Shopping
Center
Notes to the Statement of Gross Income and Direct Operating
Expenses for the year ended December 31, 1994 of Nantucket
Square Shopping Center
Statement of Gross Income and Direct Operating Expenses for
the seven-month period ended July 31, 1995 of Nantucket
Square Shopping Center (unaudited)
Report of Independent Public Accountants
Statement of Gross Income and Direct Operating Expenses for
the Year Ended December 31, 1995 of Mundelein Plaza
Notes to the Statement of Gross Income and Direct Operating
Expenses for the year ended December 31, 1995 of Mundelein
Plaza
Independent Auditors' Report
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1995 of the Regency
Point Shopping Center
Notes to Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1995 of
the Regency Point Shopping Center
Report of Independent Public Accountants
Statement of Gross Income and Direct Operating Expenses for
the year ended December 31, 1995 of Prospect Heights Plaza
Notes to the Statement of Income and Direct Operating
Expenses for the year ended December 31, 1995 of Prospect
Heights Plaza
II-4
<PAGE> 273
Report of Independent Public Accountants
Statement of Gross Income and Direct Operating Expenses for
the year ended December 31, 1995 of Montgomery-Sears Shopping
Center
Notes to the Statement of Gross Income and Direct Operating
Expenses for the year ended December 31, 1995 of
Montgomery-Sears Shopping Center
Pro Forma Balance Sheet of the Company (unaudited) at
December 31, 1995
Notes to Pro Forma Balance Sheet of the Company (unaudited)
at December 31, 1995
Pro Forma Statement of Operations of the Company (unaudited)
for the year ended December 31, 1995
Notes to Pro Forma Statement of Operations of the Company
(unaudited) for the year ended December 31, 1995
Pro Forma Balance Sheet of the Company (unaudited) at March
31, 1996
Notes to Pro Forma Balance Sheet of the Company (unaudited)
at March 31, 1996
Pro Forma Statement of Operations of the Company (unaudited)
for the three months ended March 31, 1996
Notes to Pro Forma Statement of Operations of the Company
(unaudited) for the three months ended March 31, 1996
All financial statement schedules have been omitted as the required
information is inapplicable or is presented in the financial statements
or related notes.
(b) Exhibits
1.1 Dealer Manager Agreement
1.2 Form of Soliciting Dealers Agreement
1.3 Form of Warrant Purchase Agreement
3.1 Second Articles of Amendment and Restatement *
3.2 Amended and Restated Bylaws
3.3 Articles of Amendment
4 Specimen Stock Certificate
II-5
<PAGE> 274
5 Opinion of Shapiro and Olander as to the legality of the
securities being registered
8 Opinion of Shefsky Froelich & Devine Ltd. as to tax
matters
10.1 Escrow Agreement
10.2 Advisory Agreement*
10.3 Form of Management Agreement
10.4 Amended and Restated Independent Director Stock Option
Plan
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Shefsky Froelich & Devine Ltd.
23.3 Consent of Arthur Andersen L.L.P.
23.4 Consent of Bruce Gorlick, C.P.A., Ltd.
23.5 Consent of Shapiro and Olander
24 Power of Attorney*
27 Financial Data Schedule
- ---------------
* Previously filed
ITEM 36. UNDERTAKINGS.
A. The Registrant undertakes:
(a) to file any prospectuses required by Section 10(a)(3) of the
Act as post-effective amendments to this Registration
Statement;
(b) that for the purpose of determining any liability under the
Act, each such post-effective amendment may be deemed to be a
new registration statement relating to the securities offered
therein and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof;
(c) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in
effect at the time such post-effective amendments are filed;
and
(d) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-6
<PAGE> 275
B. The Registrant undertakes to file, during any period in which offers
or sales are being made, a post-effective amendment to the Registration
Statement to: (a) include any prospectus required by Section 10(a)(3) of the
Act; (b) reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
and (c) include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
C. The Registrant undertakes to send to each Stockholder at least on an
annual basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid or
accrued to the Advisor or its Affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services performed.
D. The Registrant undertakes to provide to the Stockholders the financial
statements required by Form 10-K for the first full fiscal year of operations of
the Company.
E. The Registrant hereby undertakes to send to the Stockholders, within
60 days after the close of each quarterly fiscal period, the information
specified by Form 10-Q, if such report is required to be filed with the
Securities and Exchange Commission.
F. The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period describing each
property not identified in the prospectus at such time as there arises a
reasonable probability that such property will be acquired and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months, with the information contained in such amendment provided
simultaneously to the existing Stockholders. Each sticker supplement should
also disclose all compensation and fees received by the Advisor and its
Affiliates in connection with any such acquisition. The post-effective
amendment shall include audited financial statements meeting the requirements of
Rule 3-14 of Regulation S-X only for properties acquired during the distribution
period.
The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of 10
% or more (on a cumulative basis) of the net proceeds of the offering and to
provide the information contained in such report to the Stockholders at least
once each quarter after the distribution period of the offering has ended.
G. Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question
II-7
<PAGE> 276
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR SQUARE FEET OR ACRES)
[TABLE VI TO BE INSERTED HERE]
II-8
<PAGE> 277
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR SQUARE FEET OR ACRES)
Table VI presents information concerning the acquisition of real
properties by real estate limited partnerships sponsored by Inland Real Estate
Investment Corporation in the three years ended December 31, 1995. The detail
provided with respect to each acquisition includes the property size, location,
purchase price and the amount of mortgage financing. This information is
intended to assist the prospective investor in evaluating the property mix as
well as the terms involved in acquisitions by prior partnerships sponsored by
IREC.
II-9
<PAGE> 278
TABLE VI(CONTINUED)
ACQUISITION OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR NUMBER OF APARTMENT UNITS, SQUARE FEET OR ACRES)
<TABLE>
<CAPTION>
Number Mortgage Other
of Units/ Purchase Financing Cash Cash Total
Square Feet/ Date of Price Plus at Date of Down Expenditures Acquisition
Property Acres Purchase Acquisition Fee Purchase Payment Capitalized(A) Cost(B)
- -------------------------------------- ------------- -------- ---------------- ---------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
LAND APPRECIATION FUND-II
Parcel #24 - Kendall County, Illinois 4 Acres 1/21/93 691 0 691 10 701
Parcel #24A - Kendall County, Illinois 2,400 Sq. Ft. 1/21/93 166 0 166 3 169
Parcel #25 - Kendall County, Illinois 657 Acres 1/28/93 1,701 0 1,701 15 1,716
Parcel #26 - Kane County, Illinois 90 Acres 3/10/93 1,266 0 1,266 53 1,319
Parcel #27 - Kendall County, Illinois 84 Acres 3/11/93 1,030 0 1,030 9 1,039
------------- --------- --- ------ --- -------
TOTAL 835 Acres $ 4,854 $ 0 $4,854 $90 $ 4,944
============= ========= === ====== === =======
</TABLE>
II-10
<PAGE> 279
TABLE VI(CONTINUED)
ACQUISITION OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR NUMBER OF APARTMENT UNITS, SQUARE FEET OR ACRES)
<TABLE>
<CAPTION>
Number Mortgage Other
of Units/ Purchase Financing Cash Cash Total
Square Feet/ Date of Price Plus at Date of Down Expenditures Acquisition
Property Acres Purchase Acquisition Fee Purchase Payment Capitalized(B) Cost(C)
- ------------------------------------------ ------------ -------- --------------- ---------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INLAND CAPITAL FUND, L.P.
Parcel #2 - McHenry County, Illinois ..... 201 Acres 11/9/93 2,133 0 2,133 71 2,204
Parcel #3 - Will County, Illinois ........ 34 Acres 3/4/94 1,322 0 1,322 2 1,324
Parcel #4 - Will County, Illinois ........ 87 Acres 3/30/94 1,903 0 1,903 39 1,942
Parcel #5 - LaSalle County, Illinois ..... 191 Acres 4/1/94 537 0 537 26 563
Parcel #6 - DeKalb County, Illinois ...... 59 Acres 5/11/94 717 0 717 57 774
Parcel #7 - Kendall County, Illinois ..... 201 Acres 7/28/94 1,579 0 1,579 19 1,598
Parcel #8 - Kendall County, Illinois ..... 133 Acres 8/17/94 1,395 0 1,395 15 1,410
Parcel #9 - LaSalle County, Illinois ..... 336 Acres 8/30/94 1,058 0 1,058 18 1,076
Parcel #10 - Kendall County, I.linois .... 224 Acres 9/16/94 2,891 0 2,891 25 2,916
Parcel #10A - Kendall County, Illinois ... 7 Acres 9/16/94 222 0 222 2 224
Parcel #11 - Kane County, Illinois ....... 123 Acres 9/26/94 1,427 0 1,427 4 1,431
Parcel #12 - Kendall County, Illinois .... 110 Acres 9/28/94 644 0 644 7 651
Parcel #13 - LaSalle County, Illinois .... 353 Acres 10/6/94 1,108 0 1,108 20 1,128
Parcel #14 - Kendall County, Illinois .... 135 Acres 10/26/94 1,073 0 1,073 11 1,084
Parcel #15 - McHenry County, Illinois .... 170 Acres 10/31/94 2,968 0 2,968 46 3,014
Parcel #16 - McHenry County, Illinois .... 207 Acres 11/30/94 1,845 0 1,845 55 1,900
Parcel #17 - LaSalle County, Illinois .... 236 Acres 12/7/94 1,122 530 592 13 1,135
Parcel #18 - Kendall County, Illinois .... 387 Acres 11/02/95 1,028 0 1,028 33 1,061
----------- ------- ---- ------- ---- -------
TOTAL 3,194 Acres $24,972 $530 $24,442 $463 $25,435
=========== ======= ==== ======= ==== =======
</TABLE>
II-11
<PAGE> 280
TABLE VI-(CONTINUED)
ACQUISITION OF PROPERTIES BY PROGRAMS
NOTES TO TABLE VI
(A) "Other Cash Expenditures Capitalized" consists of improvements to the
property and acquisition expenses which are capitalized and paid or to be paid
from the proceeds of the offering.
(B) "Total Acquisition Cost" is the sum of columns captioned "Purchase
Price Plus Acquisition Fee" and "Other Cash Expenditures Capitalized.
II-12
<PAGE> 281
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-11 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oak Brook, State of Illinois, on the
17th day of July, 1996.
INLAND REAL ESTATE CORPORATION
By: /s/Robert D. Parks
------------------------------------------------
Title: President, Chief Executive Officer, Chief
Operating Officer and Chairman of the
Board of Directors
II-13
<PAGE> 282
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/Robert D. Parks President, Chief Executive Officer, July 17, 1996
- -------------------------------------- Chief Operating Officer and Chairman
Robert D. Parks of the Board of Directors
/s/G. Joseph Cosenza Director July 17, 1996
- --------------------------------------
G. Joseph Cosenza
/s/Cynthia M. Hassett Secretary, Treasurer and Chief July 17, 1996
- -------------------------------------- Financial Officer (Principal Accounting
Cynthia M. Hassett Officer)
/s/Roland W. Burris Director July 17, 1996
- --------------------------------------
Roland W. Burris
/s/Douglas R. Finlayson, M.D. Director July 17, 1996
- --------------------------------------
Douglas R. Finlayson, M.D.
/s/Heidi N. Lawton Director July 17, 1996
- --------------------------------------
Heidi N. Lawton
</TABLE>
II-14
<PAGE> 283
INDEX TO EXHIBITS
Exhibit Page
Number Exhibit Number
- ------ ------- ------
1.1 Dealer Manager Agreement
1.2 Form of Soliciting Dealers Agreement between
Dealer Manager and Soliciting Dealers
1.3 Form of Warrant Purchase Agreement
3.1 Second Articles of Amendment and Restatement*
3.2 Amended and Restated Bylaws
3.3 Articles of Amendment
4 Specimen Stock Certificate
5 Opinion of Shapiro and Olander as to the legality of the
securities being registered
8 Opinion of Shefsky Froelich & Devine Ltd. as to tax
matters
10.1 Escrow Agreement
10.2 Advisory Agreement*
10.3 Form of Management Agreement
<PAGE> 284
Exhibit Page
Number Exhibit Number
- ------ ------- ------
10.4 Amended and Restated Independent Director Stock
Option Plan
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Shefsky Froelich & Devine Ltd.
23.3 Consent of Arthur Andersen L.L.P.
23.4 Consent of Bruce Gorlick, C.P.A., Ltd.
23.5 Consent of Shapiro and Olander
24 Power of Attorney*
27 Financial Data Schedule
______________________
* Previously filed
<PAGE> 1
EXHIBIT 1.1
Dealer Manager Agreement
<PAGE> 2
INLAND REAL ESTATE CORPORATION
11,000,000
SHARES OF COMMON STOCK
$.01 PAR VALUE
DEALER MANAGER AGREEMENT
July 16, 1996
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Ladies/Gentlemen:
Inland Real Estate Corporation (the "Company"), a Maryland corporation, is
qualified as a real estate investment trust (a "REIT") under federal income tax
laws. The Company was formed on May 12, 1994 and will be governed by the
Bylaws, as amended (the "Bylaws") and the Articles of Amendment and Restatement
(the "Articles") in the form included as Exhibits to the Registration
Statement, as described in Section 1(a) hereof (such Bylaws and Articles being
hereinafter referred to as the "Organizational Documents"). The advisor to the
Company is Inland Real Estate Advisory Services, Inc., an Illinois corporation
(the "Advisor").
The Company is offering on a "best efforts" basis up to 10,000,000
shares of common stock (the "Shares") for a purchase price of $10.00 per Share
with a minimum initial investment of $3,000 ($1,000 in the case of tax-exempt
investors, except Iowa where Individual Retirement Accounts must have a minimum
investment of $3,000) and up to 1,000,000 Shares for a purchase price of $9.05
per Share pursuant to the Distribution Reinvestment Program, all upon the other
terms and conditions set forth in the Prospectus, as described in Section 1(a)
hereof. The subscribers, each of whom will be required to enter into a
subscription agreement substantially similar to the form of Subscription
Agreement (the "Subscription Agreement") attached as Exhibit I to the
Prospectus, will, upon acceptance of their subscriptions by and in the
discretion of the Company, become stockholders of the Company (the
"Stockholders").
1. Representation and Warranties of the Company. The Company hereby
represents, warrants and agrees with you that:
(a) Registration Statement and Prospectus. A registration statement
(File No. 333-6459) on Form S-11 with respect to 11,000,000 Shares, has
been
1
<PAGE> 3
prepared by the Company pursuant to the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission under the
Act; one or more amendments to such registration statement have been or
may be so prepared and filed. As used in this Agreement, the term
"Registration Statement" means such registration statement in the form in
which it becomes effective, the term "Effective Date" means the date upon
which the Registration Statement is or was first declared effective by
the Commission and the term "Prospectus" means the prospectus in the form
constituting a part of the Registration Statement as well as in the form
first filed with the Commission pursuant to its Rule 424 after the
Registration Statement becomes effective. The Commission has not issued
any stop order suspending the effectiveness of the Registration Statement
and no proceedings for that purpose have been instituted or are pending
before or threatened by the Commission under the Act.
(b) Compliance with the Act. From the time the Registration
Statement becomes effective and at all times subsequent thereto up to and
including the Termination Date (as defined in Section 2(c) hereof):
(i) the Registration Statement, the Prospectus and any amendments or
supplements thereto will contain all statements which are required to be
stated therein by the Act and the Rules and Regulations and will comply
in all material respects with the Act and the Rules and Regulations; and
(ii) neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto will at any such time include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) No Subsequent Material Events. Subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus and prior to the Termination Date, except as contemplated in
the Prospectus or as disclosed in a supplement or amendment thereto or in
the periodic financial statements of the Company, the Company has not and
will not have:
(i) incurred any material liabilities or obligations, direct or
contingent;
or
(ii) entered into any material transaction, not in the ordinary
course of business and, except as so disclosed, there has not been and
will not be any material adverse change in the financial position or
results of operations of the Company.
(d) Corporation Status. The Company is a corporation duly formed
and validly existing under the Maryland General Corporation Law (the
"MGCL").
2
<PAGE> 4
(e) Authorization of Agreement. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of the Company
and constitutes the valid and binding agreement of the Company
enforceable in accordance with its terms (except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws of the United States, any state or any political
subdivision thereof which affect creditors' rights generally or by
equitable principles relating to the availability of remedies); the
performance of this Agreement and the Organizational Documents and the
consummation of the transactions contemplated herein and therein,
respectively, and the fulfillment of the terms hereof and thereof,
respectively, do not and will not result in a breach of any of the terms
and provisions of, or constitute a default under, any statute, indenture,
mortgage, deed of trust, voting trust agreement, note, lease or other
agreement or instrument to which the Company is a party or by which the
Company or its property is bound, or under any rule or regulation or
order of any court or other governmental agency or body with jurisdiction
over the Company or any of its properties; and no consent, approval,
authorization or order of any court or governmental agency or body has
been or is required for the performance of this Agreement or by the
Organizational Documents, or for the consummation of the transactions
contemplated hereby and thereby, respectively (except as have been
obtained under the Act, from the National Association of Securities
Dealers, Inc. (the "NASD") or as may be required under state securities
or blue sky laws in connection with the offer and sale of the Shares or
under the laws of states in which the Company may own real properties in
connection with its qualification to transact business in such states or
as may be required by subsequent events which may occur).
(f) Pending Actions. There is no material action, suit or
proceeding pending or, to the knowledge of the Company, threatened, to
which the Company is a party, before or by any court or governmental
agency or body which adversely affects the offering of the Shares.
(g) Required Filings. There are no contracts or other documents
required to be filed by the Act or the Rules and Regulations of the
Commission thereunder as exhibits to the Registration Statement which
have not been so filed.
(h) Federal Income Tax Laws. The Corporation has obtained an
opinion of Shefsky Froelich & Devine Ltd. stating that, under existing
federal income tax laws and regulations, assuming the Company acts as
described in the "Federal Income Tax Considerations" section of the
Prospectus and timely files the requisite elections, counsel is of the
opinion that the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year
ending December
3
<PAGE> 5
31, 1995 and that its proposed method of operation (as described in the
Prospectus and represented by management) has enabled and will enable it
to satisfy the REIT Requirements (as defined in the Prospectus).
(i) Independent Public Accountants. To the best of the Company's
knowledge, the accountants who have certified certain financial
statements appearing in the Prospectus are independent public accountants
within the meaning of the Act and the Rules and Regulations.
(j) Escrow Agreement. The Company has entered into an escrow
agreement (the "Escrow Agreement") with Inland Securities Corporation,
Oak Brook, Illinois (the "Dealer Manager"), and LaSalle National Bank,
N.A., Chicago, Illinois (the "Escrow Agent"), in the form included as an
exhibit to the Registration Statement, which provides for the
establishment of an escrow account (the "Escrow Account"). During the
period commencing with the Effective Date and ending on the Termination
Date, the Company will deposit subscribers funds in the Escrow Account,
which funds shall be dealt with as indicated in Section 2 hereof.
(k) Sales Literature. In addition to and apart from the Prospectus,
the Company will use certain supplemental sales material in connection
with the offering of the Shares. This material, prepared by the Advisor,
will consist of a brochure describing the Advisor and its Affiliates and
the objectives of the Company. It will also contain pictures and summary
descriptions of properties similar to those to be acquired by the Company
that Affiliates of the Company have previously acquired. This material
may also include pictures and summary descriptions of properties similar
to those to be acquired by the Company, as well as a brochure,
audio-visual materials and tape presentations highlighting and explaining
various features of the Offering, properties of prior real estate
programs and real estate investments in general; and articles and
publications concerning real estate. Business reply cards, introductory
letters and seminar invitation forms may be sent to Soliciting Dealers
(as hereinafter defined) and prospective investors. These materials
shall be hereinafter referred to collectively as the "sales literature."
No person has been authorized to prepared for, or furnish to, a
prospective investor any sales literature other than: (i) that described
herein; and (ii) newspaper advertisements or solicitations of interested
limited to identifying the Offering and the location of sources of
further information. Use of any sales literature is conditioned upon
filing with and, if required, clearance by appropriate regulatory
agencies. Such clearance (if provided), however, does not indicate that
the regulatory agency allowing the use of the materials has passed on the
merits of the Offering or the adequacy or accuracy of the sales
materials. Except as described herein, the Company has not authorized
the use of other supplemental literature or sales material in connection
with this Offering. Although it is believed that the information
contained in the sales literature does not conflict with any of the
information set forth in the Prospectus, the sales literature does not
purport to be complete, and should not be considered as a part of the
Prospectus, or as incorporated in the Prospectus by reference, or as
forming the basis of the Offering.
4
<PAGE> 6
(l) Authorization of the Shares. The Company has an authorized and
outstanding capitalization as set forth in the Registration Statement and
Prospectus. The sale of the Shares has been duly and validly authorized
by the Company, and when subscriptions for the Shares have been accepted
by the Company as contemplated in the Prospectus and the Shares have been
issued to the respective subscribers, the Shares will represent ownership
in the Company and will conform to the description thereof contained in
the Prospectus. Stockholders have no preemptive rights to purchase or
subscribe for securities of the Company, and the Shares are not
convertible or subject to redemption at the option of the Company. The
Shares are entitled to one vote per Share and do not have cumulative
voting rights. Subject to the rights of the holders of any class of
capital stock of the Company having any preference or priority over the
Shares, the Stockholders are entitled to distributions in such amounts as
may be declared by the Board of Directors from time to time out of funds
legally available for such payments and, in the event of liquidation, to
share ratably in any assets of the Company remaining after payment in
full of all creditors and provisions for any liquidation preferences on
any outstanding preferred stock ranking prior to the Shares.
2. Offering and Sale of the Shares. On the basis of the
representations, warranties and agreements herein contained, and subject
to the terms and conditions herein set forth, the Company hereby appoints
you as its exclusive Dealer Manager to solicit and to cause other dealers
(as described in subparagraph (a) below) to solicit subscriptions for the
Shares at the subscription price and upon the other terms and conditions
set forth in the Prospectus and in the Subscription Agreement, and you
agree to use your best efforts as such Dealer Manager to procure
subscribers for up to 10,000,000 Shares, during the period commencing
with the Effective Date and ending on the Termination Date (the "Offering
Period"). The number of Shares, if any, to be reserved for sale by each
Soliciting Dealer may be decided by the mutual agreement, from time to
time, of you and the Company. In the absence of such mutual agreement,
the Company shall, subject to the provisions of Section 2(b) hereof,
accept Subscription Agreements based upon a first-come, first accepted
reservation or other similar method.
(a) Soliciting Dealers. The Shares offered and sold through you
under this Agreement shall be offered and sold only by you and, at your
sole option, any other securities dealers (collectively the "Soliciting
Dealers"), each of whom are members of the NASD, executing agreements
with you substantially in the form of the Soliciting Dealers Agreement
attached hereto as Exhibit A.
(b) Subscription Agreements and Subscribers' Funds. Each person
desiring to purchase Shares through you or any other Soliciting Dealer
will be required to complete and execute the Subscription Agreement and
to deliver such document to you or such Soliciting Dealer, together with
a check payable to the order of "LNB, Escrow Agent for IREC" in the
amount of $10 per Share.
5
<PAGE> 7
Each Soliciting Dealer shall forward any such Subscription
Agreement and check to you not later than noon of the next business day
after receipt of such Subscription Agreement and if the Soliciting Dealer
conducts its internal supervisory procedures at the location where the
Subscription Agreement and check were initially received. When such
internal supervisory procedures are performed at a different location
(the "Final Review Office"), the Subscription Agreement and check must be
transmitted to the Final Review Office by the end of the next business
day following receipt of the Subscription Agreement and check by the
Soliciting Dealer. The Final Review Office will, by the next business
day following receipt of the Subscription Agreement and check, forward
both to you as processing broker-dealer in order that you may complete
your review of the documentation and process the Subscription Agreement
and check. The Company will have representatives available to review the
Subscription Agreement at your location in order to determine whether it
wishes to accept the proposed purchaser as a Stockholder, it being
understood that the Company reserves the unconditional right to reject
the tender of any Subscription Agreement and to reject all tenders after
10,000,000 Shares have been sold (exclusive of the Company's distribution
reinvestment program). Any check received by you directly or as
processing broker-dealer from the Soliciting Dealers will, in all cases,
be forwarded to the Escrow Agent as soon as practicable, but in any event
by the end of the second business day following receipt by you of the
Subscription Agreement and check. Should the Company determine to reject
the tender of any Subscription Agreement, the Company will promptly
notify you or such Soliciting Dealer of such determination, and you shall
send the check and the Subscription Agreement to the Escrow Agent with
directions to promptly return both to the rejected subscriber. All
subscription funds may be deposited directly with the Company.
Nothing contained in this Section 2 shall be construed to
impose upon the Company the responsibility of assuring that prospective
purchasers meet the suitability standards contained in the Prospectus or
to relieve you or any of the Soliciting Dealers of the responsibility of
complying with the Conduct Rules of the NASD.
(c) Termination of the Offering. The Offering Period will terminate
on a date on or before one year from the date of the Prospectus (subject
to requalification in certain states, the Company may extend the Offering
Period from time to time, but no event for longer than two years from the
date of the original Prospectus), subject in any event to the Company's
right to terminate the Offering at any time (the "Termination Date") and
the proceeds will be applied as set forth in the Prospectus.
(d) Dealer-Manager Compensation.
(i) The Company agrees to pay to you a sales commission of up to 7%
of the sales price (or up to $.70) for each Share sold, as set forth in
the Prospectus under the caption "Plan of Distribution", subject to the
limitation described below, as well as one Soliciting Dealer Warrant for
every 40 Shares sold, of which such compensation may
6
<PAGE> 8
be retained or reallowed, subject to federal and state securities laws,
to the Soliciting Dealer who sold the Shares as described more fully in
the Soliciting Dealers Agreement. Soliciting Dealer Warrants shall not
be reallowed to Soliciting Dealers registered in South Carolina selling
Shares to residents of South Carolina. You will also receive a marketing
contribution and due diligence expense allowance fee equal to 2.5% of the
sale price, some portion of which may be reallowed to the Soliciting
Dealers.
Commissions will be reduced for obtaining subscriptions from
Stockholders, in accordance with the following:
<TABLE>
<CAPTION>
Maximum
Commission
Amount of Purchaser's Investment Per Share
-------------------------------- ----------
<S> <C> <C>
From To
---- --
$250,000 $499,999 5.5%
500,000 999,999 4.0
1,000,000 and over 2.5
</TABLE>
Any reduction from the amount otherwise payable to you and
reallowable to a Soliciting Dealer in respect of a purchaser's
subscription will be credited to such purchaser in the form of additional
whole or fractional Shares purchased net of commissions.
Subscriptions may be combined for the purpose of crediting a
purchaser with additional Shares and determining commissions payable to
you and reallowable to Soliciting Dealers so long as all such purchases
are made through the same Soliciting Dealer and approved by the Company.
Tax-exempt entities may be combined in computing amounts invested only if
they each have the same person who exercises investment discretion. The
Subscription Agreement Signature Page must indicate that subscriptions
are to be combined. The Company cannot be held responsible for
failing to properly combine subscriptions.
Notwithstanding the foregoing, it is understood and agreed that no
commission shall be payable with respect to particular Shares if the
Company rejects a proposed subscriber's Subscription Agreement.
(ii) The sales commissions to you shall be paid on a monthly basis,
substantially concurrently with the acceptance of a subscriber as a
Stockholder by the Company, an amount equal to the sales commissions
payable with respect to such Shares.
3. Covenants of the Company. The Company covenants and agrees with you as
follows:
7
<PAGE> 9
(a) Registration Statement. The Company will use its best efforts
to cause the Registration Statement and any subsequent amendments thereto
to become effective as promptly as possible and will not, at any time
after the Effective Date of the Registration Statement, file any
amendment to the Registration Statement or supplement to the Prospectus
of which you shall not previously have been advised and furnished a copy
at a reasonable time prior to the proposed filing or to which you shall
have reasonably objected or which is not, to the best of the Company's
knowledge, in compliance with the Act and the Rules and Regulations; the
Company will prepare and file with the Commission and will use its best
efforts to cause to become effective as promptly as possible:
(i) any amendments to the Registration Statement or supplements to
the Prospectus which may be required pursuant to the undertakings in the
Registration Statement; and
(ii) upon your reasonable request, any amendments to the
Registration Statement or supplements to the Prospectus which, in the
opinion of you or your counsel, may be necessary or advisable in view of
the requirements of the Act and the Rules and Regulations in connection
with the offer and sale of the Shares during the Offering Period.
(b) SEC Orders. As soon as the Company is advised or obtains
knowledge thereof, it will advise you of any request made by the
Commission for amending the Registration Statement, supplementing the
Prospectus or for additional information, or of the issuance by the
Commission of any stop statement or of any order preventing or suspending
the use of the Prospectus or the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any
such order and, if any such order is issued, to obtain the removal
thereof as promptly as possible.
(c) Blue Sky Qualifications. The Company will use its best efforts
to qualify the Shares for offering and sale under the securities or blue
sky laws of such jurisdictions as you may reasonably request and to make
such applications, file such documents and furnish such information as
may be reasonably required for that purpose. The Company will, at your
request, furnish you copies of all material documents and correspondence
sent to or received from such jurisdictions (including, but not limited
to, summaries of telephone calls and copies of telegrams) and will
promptly advise you as soon as the Company obtains knowledge thereof when
the Shares are qualified for offering and sale in each such jurisdiction.
The Company will promptly advise you of any request made by the
securities administrators of each such jurisdiction for revising the
Registration Statement or the Prospectus or for additional information or
of the issuance by such securities administrators of any stop order
preventing or suspending the use of the Prospectus or of the institution
of any proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such order and if any such order is issued,
to obtain the removal thereof as promptly as possible. The Company will
furnish you with a Blue
8
<PAGE> 10
Sky Survey dated as of the Effective Date, which will be supplemented to
reflect changes or additions to the information disclosed in such
survey.
(d) Amendments and Supplements. If at any time when a Prospectus
relating to the Shares is required to be delivered under the Act, any
event shall have occurred to the knowledge of the Company as a result of
which the Prospectus as then amended or supplemented would include any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements therein not misleading in light of the
circumstances existing at the time it is so required to be delivered to a
subscriber, or if it is necessary at any time to amend the Registration
Statement or supplement the Prospectus relating to the Shares to comply
with the Act, the Company will promptly notify you thereof and will
prepare and file with the Commission an amendment or supplement which
will correct such statement or effect such compliance.
(e) Copies of Registration Statement. The Company will furnish you
copies of the Registration Statement (only one of which need be signed
and need include all exhibits), the Prospectus and all amendments and
supplements thereto, including any amendment or supplement prepared after
the Effective Date, and such other information with respect to the
Company as you may from time to time reasonably request, in each case as
soon as available and in such quantities as you may reasonably request.
(f) Qualification to Transact Business. The Company will take all
steps necessary to ensure that at all times the Company will be validly
existing as a corporation and will be qualified to do business in all
jurisdictions in which the conduct of its business requires such
qualification and where such qualification is required under local law.
(g) Authority to Perform Agreements. The Company undertakes to
obtain all consents, approvals, authorizations or orders of any court or
governmental agency or body which are required for the performance of
this Agreement and under the Organizational Documents or the
consummation of the transactions contemplated hereby and thereby,
respectively, or the conducting by the Company of the business described
in the Prospectus.
(h) Copies of Reports. The Company will use its best efforts to
furnish to you as promptly as shall be practicable the following:
(i) a copy of each report or general communication (whether
financial or otherwise) sent to the Stockholders;
(ii) a copy of each report (whether financial or otherwise) filed
with the Commission; and
9
<PAGE> 11
(iii) such other information as you may from time to time reasonably
request regarding the financial condition and operations of the Company
including, but not limited to, copies of operating statements of
properties acquired by the Company.
(i) Use of Proceeds. The Company will apply the proceeds from the
sale of the Shares as stated in the Prospectus or, if for any reason
whatsoever all or a portion of the proceeds of the Offering are not
applied or committed for use as stated within 12 months of the
Termination Date, the Company shall promptly return those proceeds from
the sale of the Shares not so applied or committed as stated in the
Prospectus to the subscribers, each subscriber sharing in the return in
the ratio that the number of the Shares owned by such subscriber bears to
the total number of the Shares owned by all subscribers.
(j) Organization and Offering Expenses. In no event shall the total
of the organizational expenses and expenses of the Offering to be paid
directly by the Company exceed 15% of the gross proceeds of the Offering.
4. Covenants of the Dealer Manager. You covenant and agree with the
Company on your behalf and on behalf of the Soliciting Dealers as follows:
(a) Compliance with Laws. With respect to your participation and
the participation by each Soliciting Dealer in the offer and sale of the
Shares (including, without limitation, any resales and transfers of
Shares), you agree, and each Soliciting Dealer agrees, to comply and
shall comply with any applicable requirements of the Act, the Securities
Exchange Act of 1934, as amended, and the published rules and regulations
of the Commission thereunder, and the applicable state securities or blue
sky laws, the Conduct Rules of the NASD, specifically including, but not
in any way limited to, Rules 2440, 2730, 2740, and 2750 therein. In
particular, you agree not to deliver the sales literature to any person
prior to the Effective Date and, after the Effective Date, not to deliver
the sales literature to any person unless the sales literature is
accompanied or preceded by the Prospectus. In addition, you shall, in
accordance with applicable law or any state securities administrator,
provide or cause Soliciting Dealers to provide to any prospective
investor copies of any document which is part of the Registration
Statement; including, without limitation, the Articles and Bylaws to
Mississippi and Ohio investors.
With respect to your and each Soliciting Dealer's participation in
any resales or transfers of the Shares, you agree, and each Soliciting
Dealer agrees, to comply and shall comply with any applicable
requirements, as set forth above. In addition, you and each Soliciting
Dealer agree that should you assist with the resale or transfer of the
Shares, you and each Soliciting Dealer will fulfill the obligations
pursuant to Sections 3(b) and 4(d) of Rule 2810 of the Conduct Rules of
the NASD.
(b) No Additional Information. In offering the Shares for sale, you
and each Soliciting Dealer shall not give or provide any information or
make any representation
10
<PAGE> 12
other than those contained in the Prospectus, the sales literature or any
other document provided to you for such purpose by the Company.
(c) Sales of Shares. You and each Soliciting Dealer shall solicit
purchases of the Shares only in the jurisdictions in which you and such
Soliciting Dealer are legally qualified to so act and in which you and
each Soliciting Dealer have been advised by the Company that such
solicitations can be made.
(d) Subscription Agreement. Subscriptions will be submitted by you
and each Soliciting Dealer to the Company only on the form which is
included in Exhibit I to the Prospectus. You and each Soliciting Dealer
understand and acknowledge that the Subscription Agreement must be
executed and initialled by the subscriber.
(e) Suitability. In offering the Shares to any person, you and each
Soliciting Dealer shall have reasonable grounds to believe (based on such
information as the investment objectives, other investments, financial
situation and needs of the person or any other information known by you
after due inquiry) that: (i) such person has the capability of
understanding the fundamental aspects of the Company, which capacity may
be evidenced by the following: (A) the nature of employment experience;
(B) educational level achieved; (C) access to advice from qualified
sources, such as attorneys, accountants, tax advisors, etc.; and (D)
prior experience with investments of a similar nature; (ii) such person
has apparent understanding of: (A) the fundamental risks and possible
financial hazards of this type of investment; (B) the lack of liquidity
of this investment; (C) the Advisor's role in directing or managing the
investment; and (D) the tax consequences of the investment; and (iii)
such person has the financial capability to invest in the Company and you
or each Soliciting Dealer (as the case may be) shall maintain records
disclosing the basis upon which you and each Soliciting Dealer determined
the suitability of any persons offered Shares. Notwithstanding the
foregoing, you and each Soliciting Dealer shall have reasonable grounds
to believe that such person has either: (a) a minimum annual gross
income of $45,000 and a net worth (exclusive of home, home furnishing and
automobiles) of $45,000; or (b) a net worth (determined with the
foregoing exclusions) of $150,000. Suitability standards may be higher
in certain states as set forth in the Subscription Agreement. You and/or
the Soliciting Dealers shall maintain for at least six years a record of
the information obtained to determine that an investor meets the
suitability standards imposed on the offer and sale of the Shares (both
at the time of the initial subscription and at the time of any additional
subscriptions) and a representation of the investor that the investor is
investing for the investor's own account or, in lieu of such
representation, information indicating that the investor for whose
account the investment was made met the suitability standards.
(f) Due Diligence. Prior to offering the Shares for sale, you and
each Soliciting Dealer shall have conducted an inquiry such that you have
reasonable grounds to believe, based on information made available to you
by the Company through the Prospectus or other materials, that all
material facts are adequately and accurately
11
<PAGE> 13
disclosed and provide a basis for evaluating the purchase of the Shares.
In determining the adequacy of disclosed facts pursuant to the foregoing,
you and each Soliciting Dealer may obtain, upon request, information on
material facts relating at a minimum to the following:
(1) items of compensation;
(2) Company properties;
(3) tax aspects;
(4) conflicts and risk factors; and
(5) appraisals and other pertinent reports.
Notwithstanding the foregoing, you and each Soliciting Dealer may rely upon the
results of an inquiry conducted by another Soliciting Dealer, provided that:
(i) such Soliciting Dealer has reasonable grounds to believe
that such inquiry was conducted with due care;
(ii) the results of the inquiry were provided to you with the
consent of the Soliciting Dealer conducting or directing the inquiry; and
(iii) no Soliciting Dealer that participated in the inquiry is an
affiliate of the Company or the Advisor.
Prior to the sale of the Shares, you and each Soliciting Dealer shall inform
the prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment.
5. Expenses. The Company agrees with you that, whether or not the
transactions contemplated in this Agreement are consummated, the Company will
pay all fees and expenses incident to the performance of its obligations under
this Agreement, including, but not limited to:
(a) the Commission's registration fee;
(b) expenses of printing the Registration Statement, the Prospectus
and any amendment or supplement thereto and the expense of furnishing to
you copies of the Registration Statement, the Prospectus and any
amendment or supplement thereto as herein provided;
12
<PAGE> 14
(c) fees and expenses of its and your accountants and counsel in
connection with the Offering contemplated by this Agreement;
(d) fees and expenses incurred in connection with any required
filing with the NASD;
(e) all of your expenses in connection with the Offering
contemplated hereby as limited by the Prospectus, including, but not
limited to, the salaries, fringe benefits, travel expenses and similar
expenses of your employees and personnel incurred in connection with the
Offering; and
(f) expenses of qualification of the Shares for offering and sale
under state blue sky and securities laws, and expenses in connection with
the preparation and printing of the Blue Sky Survey.
In no event, however, will the total of: (a) the selling
commissions paid to the Soliciting Dealers; (b) the marketing contribution and
due diligence expense allowance fee paid to the Soliciting Dealers; and (c)
reimbursement of certain expenses to be paid to Soliciting Dealers for special
incentive marketing programs as described in the Prospectus, exceed 10.5% of
the gross proceeds of the Offering.
6. Conditions of Obligations. Your obligations hereunder shall be
subject to the accuracy of the representations and warranties on the part of the
Company contained in Section 1 hereof, the accuracy of the statements of the
Company made pursuant to the provisions hereof, to the performance by the
Company of its covenants, agreements and obligations contained in Sections 3
and 5 hereof, and to the following additional conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement shall have become effective not later than 5:00 p.m., Chicago,
Illinois time, on the day following the date of this Agreement, or such
later time and date as you and the Company shall have agreed; no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and, to the best knowledge of the Company or you, no
proceedings for that purpose shall have been instituted, threatened or
contemplated by the Commission; and any request by the Commission for
additional information (to be included in the Registration Statement or
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of you or your counsel.
(b) Accuracy of Registration Statement. You shall not have advised
the Company that the Registration Statement or the Prospectus, or any
amendment or any supplement thereto, in the reasonable opinion of you or
your counsel, contains any untrue statement of fact which is material, or
omits to state a fact which is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
13
<PAGE> 15
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless you, each
Soliciting Dealer and each person, if any, who controls you or any
Soliciting Dealer within the meaning of the Act (collectively, the
"Indemnified Parties"), against any and all loss, liability, claim,
damage and expense whatsoever caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Such
indemnification shall be subject to the provisions of Sections 7(b) and
(c) of this Agreement.
The Company shall not provide indemnification for any liability or
loss suffered by you, nor shall it provide that you be held harmless for
any loss or liability suffered by the Company unless all of the following
conditions are met: (i) the party seeking indemnification has
determined, in good faith, that its course of conduct, if such course of
conduct caused the loss or liability, was in the best interest of the
Company; (ii) the other person seeking indemnification was acting on
behalf of or performing services on the part of the Company; (iii) such
liability or loss was not the result of negligence or misconduct on the
part of the indemnified party; and (iv) such indemnification or agreement
to be held harmless is recoverable only out of the assets of the Company
and not from the Stockholders.
In no case shall the Company be liable under this indemnity
agreement with respect to any claim made against any of the Indemnified
Parties unless the Company shall be notified in writing (as provided in
Section 10) of the nature of the claim within a reasonable time after the
assertion thereof, but failure to so notify the Company shall not relieve
the Company from any liability which the Company may have incurred
otherwise than on account of this indemnity agreement. The Company shall
be entitled to participate, at its own expense, in the defense of, or if
it so elects within a reasonable time after receipt of such notice, to
assume the defense of any claim or suit for which the Indemnified Parties
seek indemnification hereunder. If the Company elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
reasonably satisfactory to the Indemnified Parties. In the event that
the Company elects to assume the defense of any such suit and retain such
counsel, the Company shall not be liable to the Indemnified Parties in
the suit under this Section 7 for any legal or other expenses
subsequently incurred by the Indemnified Parties, and the Indemnified
Parties shall bear the fees and expenses of any additional counsel
thereafter retained by the Indemnified Parties unless: (A) the employment
of counsel by the Indemnified Party has been authorized by the Company;
or (B) the Company shall not in fact have employed counsel to assume the
defense of such action, in any of which events such fees and expenses
shall be borne by the Company.
14
<PAGE> 16
The Company may advance amounts to the Indemnified Parties for legal
and other expenses and costs incurred as a result of any legal action for
which indemnification is being sought only if all of the following
conditions are satisfied: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party for or on behalf of the Company; (ii) the legal action
is initiated by a third party who is not a Stockholder and a court of
competent jurisdiction specifically approves such advancement; and (iii)
the Indemnified Parties receiving such advances undertake to repay the
advanced funds to the Company, together with the applicable legal rate of
interest thereon, in cases in which such Indemnified Parties are found
not to be entitled to indemnification.
Notwithstanding the foregoing provisions of this Section 7, the
Company will not be liable in any such case to the extent that any loss,
liability, claim, damage or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of you or any Soliciting Dealer
specifically for use with reference to you or such Soliciting Dealer in
the preparation of the Registration Statement (or any amendment thereof)
or the Prospectus (or any supplement thereto). The foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any
untrue statement, alleged untrue statement, omission or alleged omission
made in the Prospectus but eliminated or remedied in any amendment or
supplement thereto, such indemnity agreement shall not inure to your
benefit or any Soliciting Dealer from whom the person asserting any loss,
liability, claim, damage or expense purchased the Shares which are the
subject thereof (or to the benefit of any person who controls you or any
Soliciting Dealer), if a copy of the Prospectus as so amended or
supplemented was not sent or given to such person at or prior to the time
the subscription of such person was accepted by the Company but only if a
copy of the Prospectus (as so amended or supplemented) has been supplied
by the Company to you or any Soliciting Dealer prior to such acceptance.
This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) The Company agrees to indemnify and hold harmless you and the
Soliciting Dealers in the manner and to the extent provided in
subparagraph (a) of this Section 7; provided, however, that no such
indemnification by the Company of you or a Soliciting Dealer shall be
permitted under this Agreement from or out of an alleged violation of
federal or state securities laws unless one or more of the following
conditions are met: (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations by you
or any Soliciting Dealer and a court of competent jurisdiction has
approved indemnification of the litigation costs; (ii) such claims
against you or any Soliciting Dealer have been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the particular
indemnitee and the court has approved indemnification of the litigation
costs; or (iii) a court of competent jurisdiction approves a settlement
of the claims against you or any Soliciting Dealer and finds that
indemnification of the settlement and related costs should be made and
the court
15
<PAGE> 17
considering the request has been advised of the position of the
Commission and of the published positions of the Tennessee Securities
Division and any other state securities regulatory authority in which
securities of the Company were offered and sold as to indemnification for
securities law violations.
(c) You and each Soliciting Dealer agree to indemnify and hold
harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act and any controlling person of the Company:
(i) to the same extent as in the foregoing indemnity from the Company to
you and each Soliciting Dealer but only with reference to statements or
omissions based upon the information relating to you or any Soliciting
Dealer furnished in writing by you or such Soliciting Dealer or on your
or their behalf expressly for use in the Registration Statement or the
Prospectus, or any amendment or supplement thereto; and (ii) for any
violation by you or any Soliciting Dealer, in the sale of the Shares, of
any applicable state or federal law or any rule, regulation or
instruction thereunder, provided that such violation is not in reliance
on any violation by the Company of such law, rule, regulation or
instruction.
You and each Soliciting Dealer further agree to indemnify and hold
harmless the Company and any controlling person of the Company against
any losses, liabilities, claims, damages or expenses to which the Company
or any such controlling person may become subject under the securities or
blue sky laws of any jurisdiction insofar as such losses, liabilities,
claims, damages or expenses (or actions, proceedings or investigations in
respect thereof) arise by reason of a sale of the Shares through the
efforts of you (with respect to sales effected without the assistance of
a Soliciting Dealer) or a Soliciting Dealer (with respect to sales
effected by such Soliciting Dealer) which is effected other than in
accordance with the Blue Sky Survey supplied to you by the Company (a
"Non-Permitted Sale"), whether such Non-Permitted Sale is caused by a
sale in a jurisdiction other than those specified in the Blue Sky Survey,
by a sale in a jurisdiction in which you or the Soliciting Dealer is not
registered to sell the Shares or which results in a sale in a
jurisdiction in excess of the number of Shares permitted to be sold in
such jurisdiction, and will reimburse the Company or any such controlling
person for any legal fees, monetary penalties or other expenses
reasonably incurred by any of them in connection with investigating,
curing or defending against any such losses, liabilities, claims,
damages, actions, proceedings or investigations. This indemnity
agreement will be in addition to any liability which you or any
Soliciting Dealer may otherwise have.
(d) The notice provisions contained in Section 7(a) hereof, relating
to notice to the Company, shall be equally applicable to you and each
Soliciting Dealer if the Company or any controlling person of the Company
seeks indemnification pursuant to Section 7(c) hereof. In addition, you
and each Soliciting Dealer may participate in the defense, or assure the
defense, of any such suit so brought under Section 7(c) hereof and have
the same rights and privileges as the Company enjoys with respect to such
suits under Section 7(a) hereof.
16
<PAGE> 18
8. Termination of this Agreement. This Agreement may be terminated by you
in the event that the Company shall have materially failed to comply with any
of the material provisions of this Agreement on its part to be performed at or
prior to the Effective Date or if any of the representations, warranties,
covenants or agreements of the Company herein contained shall not have been
materially complied with or satisfied within the times specified.
In any case, this Agreement shall terminate at the close of business on
the Termination Date. Termination of this Agreement pursuant to this Section 8
shall be without liability of any party to any other party other than as
provided in Sections 5 and 7 hereof which shall survive such termination.
9. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of the Company submitted pursuant hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of you or any person who controls you, or by or on behalf of the
Company and shall survive the Termination Date.
10. Notices. All communications hereunder shall be in writing and, if
sent to you, shall be mailed by registered mail or delivered or telegraphed and
confirmed in writing to Inland Securities Corporation, 2901 Butterfield Road,
Oak Brook, Illinois 60521, (Attention: Ms. Roberta Matlin) and, if sent to the
Company, shall be mailed by registered mail or delivered or telegraphed and
confirmed in writing to Inland Real Estate Corporation, 2901 Butterfield Road,
Oak Brook, Illinois 60521 (Attention: Mr. James Pokin).
11. Reference to Inland Securities Corporation. All references herein to
Inland Securities Corporation or the Dealer Manager hereunder shall be deemed
to include all successors and assigns of Inland Securities Corporation.
12. Parties. This Agreement shall inure to the benefit of and be binding
upon you, the Company and its successors and assigns. This Agreement and the
conditions and provisions hereof, are intended to be and shall be for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and for the benefit of no other person, firm or
corporation, and the term "successors and assigns," as used herein, shall not
include any purchaser of Shares as such.
13. Applicable Law. This Agreement and any disputes relative thereto
shall be governed by and construed under the laws of the State of Illinois.
14. Effectiveness of Agreement. This Agreement shall become effective at
5:00 p.m., Chicago, Illinois time, on the Effective Date, or at such earlier
time as you and the Company agree.
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<PAGE> 19
15. Not a Separate Entity. Nothing contained herein shall constitute you
and/or the Soliciting Dealers or any of them an association, partnership,
limited liability company, unincorporated business or other separate entity.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return it to us, whereupon this instrument will
become a binding agreement between you and the Company in accordance with its
terms.
Inland Real Estate Corporation, Inc., a
Maryland corporation
By:_____________________________________
Title:_______________________________
Accepted as of the date
first above written:
Inland Securities Corporation
By:___________________________
Title:_____________________
18
<PAGE> 1
EXHIBIT 1.2
Form of Soliciting Dealers Agreement between
Dealer Manager and Soliciting Dealers
<PAGE> 2
INLAND REAL ESTATE CORPORATION
SOLICITING DEALERS AGREEMENT
Ladies and Gentlemen:
We have entered into an agreement (the "Dealer Manager Agreement") which
is a part hereof and attached hereto, with Inland Real Estate Corporation, a
Maryland corporation (the "Company"), under which we have agreed to use our
best efforts to solicit subscriptions for the shares of Common Stock (the
"Shares") in the Company. The Company is offering to the public an aggregate
maximum of up to 10,000,000 Shares at a price of $10 per Share and up to
1,000,000 Shares under the Distribution Reinvestment Program at a price of
$9.05 per Share (as defined in the Prospectus) (the "Offering").
In connection with the performance of our obligations under Section 2 of
the Dealer Manager Agreement, we are authorized to use the services of
securities dealers who are members of the National Association of Securities
Dealers, Inc. (the "Soliciting Dealers") to solicit subscriptions. You are
hereby invited to become a Soliciting Dealer and, as such, to use your best
efforts to solicit subscribers for Shares, in accordance with the following
terms and conditions:
1. A registration statement (the "Registration Statement") with respect to
11,000,000 Shares has been filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act"),
and has become effective. The 11,000,000 Shares and the Offering are more
particularly described in the enclosed prospectus (the "Prospectus") which is
part of the Registration Statement. Additional copies of the Prospectus will
be supplied to you in reasonable quantities upon request. We will also provide
you with reasonable quantities of any supplemental literature prepared by the
Company in connection with the offering of the Shares.
2. Solicitation and other activities by the Soliciting Dealers hereunder
shall be undertaken only in accordance with the Dealer Manager Agreement, this
Agreement, the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the applicable rules and regulations of the Commission, the
Blue Sky Survey hereinafter referred to and the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD"), specifically including,
but not in any way limited to, Rules 2440, 2730, 2740, and 2750. In offering
the sale of Shares to any person, each Soliciting Dealer shall have reasonable
grounds to believe (based on such information as the investment objectives,
other investments, financial situation and needs of the person or any other
information known by you after due inquiry) that: (i) such person is or will
be in a financial position appropriate to enable such person to realize to a
significant extent the benefits described in the Prospectus and has a net worth
sufficient to sustain the risks inherent in the program, including loss of
investment and lack of liquidity; (ii) the purchase of the Shares is otherwise
suitable for such person, and each Soliciting Dealer shall maintain records
disclosing the basis upon which each Soliciting Dealer determined the
suitability of any persons offered Shares; and (iii) such person has either:
(a) a minimum annual gross income of $45,000 and a
<PAGE> 3
net worth (exclusive of home, home furnishings and automobiles) of $45,000; or
(b) a net worth (determined with the foregoing exclusions) of $150,000.
If the investor is a resident of California, the investor must have
either: (i) a net worth (excluding home, home furnishings and automobiles) of
$225,000; or (ii) a minimum annual gross income of $60,000 and a net worth
(exclusive of home, home furnishings and automobiles) of $60,000.
If the investor is a resident of Maine, the investor must have either:
(i) a net worth (excluding home, home furnishings and automobiles) of $200,000;
or (ii) a minimum annual gross income of $50,000 and a net worth (exclusive of
home, home furnishings and automobiles) of $50,000.
If the investor is a resident of Massachusetts, the investor must have
either: (i) a net worth (excluding home, home furnishings and automobiles) of
$225,000; or (ii) a minimum annual gross income of $60,000 and a net worth
(exclusive of home, home furnishings and automobiles) of $60,000.
If the investor is a resident of Tennessee, the investor must have either:
(i) a net worth (excluding home, home furnishings and automobiles) of
$225,000; or (ii) a minimum annual gross income of $60,000 and a net worth
(exclusive of home, home furnishings and automobiles) of $60,000.
Each Soliciting Dealer agrees: (i) to deliver to each person who
subscribes for the Shares, a Prospectus, as then supplemented or amended, prior
to the tender of his subscription agreement (the "Subscription Agreement");
(ii) to comply promptly with the written request of any person for a copy of
the Prospectus during the period between the effective date of the Registration
Statement and the later of the termination of the distribution of the Shares or
the expiration of 90 days after the first date upon which the Shares were
offered to the public; (iii) deliver in accordance with applicable law or as
prescribed by any state securities administrator to any person a copy of any
document included within the Registration Statement, including delivering the
Articles and Bylaws (as each is defined in the Prospectus) to Mississippi and
Ohio investors; and (iv) to maintain in its files for at least six years,
documents disclosing the basis upon which the determination of suitability was
reached as to each purchaser of Shares.
3. Subject to the terms and conditions set forth herein and in the Dealer
Manager Agreement, the Company shall pay to you a selling commission of up to
7% per Share for all Shares sold for which you have acted as Soliciting Dealer
pursuant to this Agreement. Soliciting Dealers will also receive, subject to
applicable federal and state securities laws, one Soliciting Dealer Warrant for
each 40 Shares sold by such Soliciting Dealer during the Offering (the
"Soliciting Dealer Warrants"). The Soliciting Dealer Warrants will be issued
quarterly commencing 60 days after the date on which Sharers are first sold
pursuant to the Offering. Soliciting Dealer Warrants shall not be issued to
Soliciting Dealers registered in South Carolina selling Shares to residents of
South Carolina. All Shares sold by the Company, other
2
<PAGE> 4
than through the Distribution Reinvestment Program, will be included in the
computation of the number of Shares sold to determine the number of Soliciting
Dealer Warrants to be issued. The holder of a Soliciting Dealer Warrant will
be entitled to purchase one Share from the Company at a price of $12 (120% of
the initial public offering price per Share) during the time period beginning
one year from the date the Soliciting Dealer Warrants are issued and ending
October 13, 2000 (the "Exercise Period"). If a Soliciting Dealer Warrant has
not been exercised by the end of the Exercise Period, it will terminate and the
holder thereof will have no further rights thereunder. Soliciting Dealers
should consult their tax advisors regarding the income tax aspects of receiving
the Soliciting Dealer Warrants.
Commissions will be reduced below 7% for obtaining subscriptions from
stockholders in accordance with the following:
<TABLE>
<CAPTION>
Amount of Maximum Commission
Purchaser's Investment Per Share
--------------------------------------------------
<S> <C> <C>
From To
$ 250,000 $499,999 5.5 %
500,000 999,999 4.0
1,000,000 and over 2.5
</TABLE>
Any reduction from the 7% commission otherwise payable to you in respect
of a subscription will be credited to such purchaser in the form of additional
whole Shares or fractional Shares purchased net of commissions.
Subscriptions may be combined for the purpose of crediting a purchaser
with additional Shares and determining commissions reallowable to you so long
as all such purchases are made through you and approved by the Company.
Tax-exempt entities may be combined in computing accounts invested only if they
each have the same person who exercises investment discretion. The
Subscription Agreement Signature Page (as such term is defined in the
Prospectus) must indicate that subscriptions are to be combined. The Company
cannot be held responsible for failing to properly combine subscriptions.
You (and other Soliciting Dealers) also may receive up to an additional
2.5% per Share sold by you as a marketing contribution and due diligence
expense allowance fee.
Employees and associates of the Company and its Affiliates will be
permitted to purchase Shares net of sales commissions.
3
<PAGE> 5
Notwithstanding the foregoing, it is understood and agreed that no
commission shall be payable with respect to particular Shares if the Company
rejects a proposed subscriber's Subscription Agreement.
4. We reserve the right to notify you by telegram or by other means of the
number of Shares reserved for sale by you. Such Shares will be reserved for
sale by you until the time specified in our notification to you. Sales of any
reserved Shares after the time specified in the notification to you or any
requests for additional Shares will be subject to rejection in whole or in
part.
5. Payments for Shares shall be made by checks payable to "LNB, Escrow
Agent for IREC" and forwarded together with a copy of the Subscription
Agreement, which is attached as Exhibit I to the Prospectus, executed by the
subscriber, to Inland Securities Corporation, 2901 Butterfield Road, Oak Brook,
Illinois 60521, not later than noon of the next business day after receipt of
such Subscription Agreement and check (when your internal supervisory
procedures are completed at the site at which the Subscription Agreement and
check were received by you) or, when your internal supervisory procedures are
performed at a different location (the "Final Review Office"), you shall
transmit the check and Subscription Agreement to the Final Review Office by the
end of the next business day following your receipt of the Subscription
Agreement and check. The Final Review Office will, by the end of the next
business day following its receipt of the Subscription Agreement and check,
forward both to the Dealer Manager as processing broker-dealer. If any
Subscription Agreement solicited by you is rejected by the Company, the
Subscription Agreement and check will be forwarded to the Escrow Agent for
prompt return to the rejected subscriber.
6. We will inform you as to the jurisdictions in which we have been
advised by the Company that the Shares have been qualified for sale or are
exempt under the respective securities or "blue sky" laws of such
jurisdictions; but we have not assumed and will not assume any obligation or
responsibility as to your right to act as a broker with respect to the Shares
in any such jurisdiction. You agree that you will not make any offers except
in states in which we may advise you that the Offering has been qualified or is
exempt and further agree to assure that each person to whom you sell Shares (at
both the time of the initial purchase as well as at the time of any subsequent
purchases) meets any special suitability standards which apply to sales in a
particular jurisdiction, as described in the Blue Sky Survey and the
Subscription Agreement. Neither we nor the Company assume any obligation or
responsibility in respect of the qualification of the Shares covered by the
Prospectus under the laws of any jurisdiction or your qualification to act as a
broker with respect to the Shares in any jurisdiction. The Blue Sky Survey
which has been or will be furnished to you indicates the jurisdictions in which
it is believed that the offer and sale of Shares covered by the Prospectus is
exempt from, or requires action under, the applicable blue sky or securities
laws thereof, and what action, if any, has been taken with respect thereto.
It is understood and agreed that under no circumstances will you, as a
Soliciting Dealer, engage in any activities hereunder in any jurisdiction in
which you may not lawfully so
4
<PAGE> 6
engage or in any activities in any jurisdiction
with respect to the Shares in which you may lawfully so engage unless you have
complied with the provisions hereof.
7. Neither you nor any other person is authorized by the Company or by us
to give any information or make any representations in connection with this
Agreement or the offer of Shares other than those contained in the Prospectus,
as then amended or supplemented, or any sales literature approved by us and the
Company. You agree not to publish, circulate or otherwise use any other
advertisement or solicitation material without our prior written approval. You
are not authorized to act as our agent in any respect, and you agree not to act
as such agent and not to purport to act as such agent.
8. We shall have full authority to take such action as we may deem
advisable with respect to all matters pertaining to the Offering or arising
thereunder. We shall not be under any liability (except for our own want of
good faith and for obligations expressly assumed by us hereunder) for or in
respect of the validity or value of or title to, the Shares; the form of, or
the statements contained in, or the validity of, the Registration Statement,
the Prospectus or any amendment or supplement thereto, or any other instrument
executed by Inland Real Estate Advisory Services, Inc., the Company's advisor
(the "Advisor"), the Company or by others; the form or validity of the Dealer
Manager Agreement or this Agreement; the delivery of the Shares; the
performance by the Advisor, the Company or by others of any agreement on its or
their part; the qualification of the Shares for sale under the laws of any
jurisdiction; or any matter in connection with any of the foregoing; provided,
however, that nothing in this paragraph shall be deemed to relieve the Company
or the undersigned from any liability imposed by the Act. No obligations on
the part of the Company or the undersigned shall be implied or inferred
herefrom.
9. Under the Dealer Manager Agreement, the Company has agreed to indemnify
you and us and each person, if any, who controls you or us, in certain
instances and against certain liabilities, including liabilities under the Act
in certain circumstances. You agree to indemnify the Company and each person
who controls it as provided in the Dealer Manager Agreement and to indemnify us
to the extent and in the manner that you agree to indemnify the Company in such
Dealer Manager Agreement.
10. Each Soliciting Dealer hereby authorizes and ratifies the execution
and delivery of the Dealer Manager Agreement by us as Dealer Manager for
ourselves and on behalf of the Soliciting Dealers and authorizes us to agree to
any variation of its terms or provisions and to execute and deliver any
amendment, modification or supplement thereto. Each Soliciting Dealer hereby
agrees to be bound by all provisions of the Dealer Manager Agreement relating
to Soliciting Dealers. Each Soliciting Dealer also authorizes us to exercise,
in our discretion, all the authority or discretion now or hereafter vested in
us by the provisions of the Dealer Manager Agreement and to take all such
action as we may believe desirable in order to carry out the provisions of the
Dealer Manager Agreement and of this Agreement.
11. This Agreement, except for the provisions of Sections 8 and 9 hereof,
may be terminated at any time by either party hereto by two days' prior written
notice to the other party and, in all events, this Agreement shall terminate on
the termination date of the Dealer Manager Agreement, except for the provisions
of Sections 8 and 9 hereof.
5
<PAGE> 7
12. Any communications from you should be in writing addressed to us at
Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois
60521, Attention: Ms. Roberta Matlin. Any notice from us to you shall be
deemed to have been duly given if mailed, telegraphed or delivered by overnight
courier to you at your address shown below.
13. Nothing herein contained shall constitute the Soliciting Dealers or
any of them as an association, partnership, limited liability company,
unincorporated business or other separate entity.
14. Prior to offering the Shares for sale, each Soliciting Dealer shall
have conducted an inquiry such that you have reasonable grounds to believe,
based on information made available to you by the Company or the Advisor
through the Prospectus or other materials, that all material facts are
adequately and accurately disclosed and provide a basis for evaluating a
purchase of Shares. In determining the adequacy of disclosed facts pursuant to
the foregoing, each Soliciting Dealer may obtain, upon request, information on
material facts relating at a minimum to the following:
(1) items of compensation;
(2) physical properties;
(3) tax aspects;
(4) financial stability and experience of the Company and the Advisor;
(5) conflicts and risk factors; and
(6) appraisals and other pertinent reports.
Notwithstanding the foregoing, each Soliciting Dealer may rely upon the results
of an inquiry conducted by another Soliciting Dealer, provided that:
(i) such Soliciting Dealer has reasonable
grounds to believe that such inquiry was conducted
with due care;
(ii) the results of the inquiry were
provided to you with the consent of the Soliciting
Dealer conducting or directing the inquiry; and
(iii) no Soliciting Dealer that participated
in the inquiry is an affiliate of the Company.
6
<PAGE> 8
Prior to the sale of the Shares, each Soliciting Dealer shall inform the
prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment.
If the foregoing is in accordance with your understanding, please sign and
return the attached duplicate. Your indicated acceptance thereof shall
constitute a binding agreement between you and us.
Very truly yours,
INLAND SECURITIES CORPORATION
By:________________________________
Title:_____________________________
____________________, 199___
7
<PAGE> 9
We confirm our agreement to act as a Soliciting Dealer pursuant to all
the terms and conditions of the above Soliciting Dealer Agreement and
the attached Dealer Manager Agreement. We hereby represent that we will comply
with the applicable requirements of the Act and the Exchange Act and the
published Rules and Regulations of the Commission thereunder, and applicable
blue sky or other state securities laws. We confirm that we are a member in
good standing of the NASD. We hereby represent that we will comply with the
Conduct Rules of the NASD and all rules and regulations promulgated by the
NASD.
Dated: ____________________, 199__
___________________________________
Name of Soliciting Dealer
___________________________________
Address of Soliciting Dealer
___________________________________
Federal Identification Number
By:________________________________
Authorized Signature
Kindly have checks representing commissions forwarded as follows (if different
than above):
(Please type or print)
Name of Firm: ______________________________
Address: ______________________________
Street
______________________________
City
______________________________
State and Zip Code
______________________________
(Area Code) Telephone No.
Attention: ______________________________
216353
8
<PAGE> 1
EXHIBIT 1.3
Form of Warrant Purchase Agreement
<PAGE> 2
INLAND REAL ESTATE CORPORATION
10,000,000 Shares of Common Stock
$.01 Par Value
WARRANT PURCHASE AGREEMENT
July ___, 1996
This Warrant Purchase Agreement (the "Agreement") is made by and
between Inland Real Estate Corporation, a Maryland corporation (the "Company"),
and Inland Securities Corporation, an Illinois corporation (the
"Warrantholder").
The Company hereby agrees to issue and sell, and the Warrantholder
agrees to purchase, for the price of $.0008 per warrant, warrants as hereinafter
described (the "Soliciting Dealer Warrants") to purchase one share of the
Company's Common Stock, $.01 par value (the "Shares") for each 40 Shares sold by
the Dealer Manager and/or Soliciting Dealers, up to a maximum of 250,000
Soliciting Dealer Warrants. The price per Share at which the Soliciting Dealer
Warrants are exercisable and the number of Shares purchasable per Soliciting
Dealer Warrant are subject to adjustment pursuant to Section 8 hereof. The
Soliciting Dealer Warrants are being purchased in connection with a public
offering of an aggregate of 10,000,000 Shares (the "Offering"), pursuant to that
certain Dealer Manager Agreement (the "Dealer Manager Agreement"), dated July
16, 1996 between the Company and the Warrantholder as the Dealer Manager and a
representative of the Soliciting Dealers who may receive warrants.
The issuance of the Soliciting Dealer Warrants shall occur quarterly
commencing 60 days after the date on which Shares are first sold pursuant to the
Offering and such issuances shall be subject to the terms and conditions set
forth in the Dealer Manager Agreement.
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Soliciting Dealer Warrants and the respective rights
and obligations thereunder, the Company and the Warrantholder, for value
received, hereby agree as follows:
1. FORM AND TRANSFERABILITY OF SOLICITING DEALER WARRANTS.
(a) REGISTRATION. The Soliciting Dealer Warrant(s) shall be numbered
and shall be registered on the books of the Company when issued.
(b) FORM OF SOLICITING DEALER WARRANTS. The text and form of the
Soliciting Dealer Warrant and of the Election to Purchase shall be substantially
as set forth in Exhibit "A" and Exhibit "B" respectively, attached hereto and
incorporated herein. The price per Share (the "Warrant Price") and the number
of Shares issuable upon exercise of the Soliciting Dealer Warrants are subject
to adjustment upon the occurrence of certain events, all as hereinafter
<PAGE> 3
provided. The Soliciting Dealer Warrants shall be dated as of the date of
signature thereof by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.
(c) TRANSFER. The Soliciting Dealer Warrants shall be transferable
only on the books of the Company maintained at its principal office or that of
its designated transfer agent, if designated, upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Soliciting Dealer Warrant to the person entitled
thereto. Assignments or transfers shall be made pursuant to the form of
Assignment attached as Exhibit "C" hereto.
(d) LIMITATIONS ON TRANSFER OF SOLICITING DEALER WARRANT. The
Soliciting Dealer Warrants shall not be sold, transferred, assigned,
exchanged or hypothecated by the Warrantholder, except to: (i) one or more
persons, each of whom on the date of transfer is an officer and director of the
Warrantholder or an officer and director or partner of a successor to the
Warrantholder as provided in clause (iv) of this Subsection (d); (ii) a
partnership or partnerships, all of the partners of which are a Warrantholder
and one or more persons, each of whom on the date of transfer is an officer
(including an officer-director) of a Warrantholder or an officer (including an
officer-director) or partner of a successor to a Warrantholder; (iii)
broker-dealer firms which have executed, and are not then in default of, the
Soliciting Dealers Agreement regarding the Offering (the "Selling Group") and
one or more persons, each of whom on the date of transfer is an officer or
partner of a member of the Selling Group or an officer (including an
officer-director) or partner of a successor to a member of the Selling Group;
(iv) a successor to a Warrantholder through merger or consolidation; (v) a
purchaser of all or substantially all of a Warrantholder's assets; or (vi)
stockholders of a Warrantholder or the stockholders or partners of its
transferee in the event of liquidation or dissolution of a Soliciting Dealer;
provided, however, that commencing one year from the date of issuance, a
transfer may be made to a third party solely for the purpose of immediate
exercise of the Soliciting Dealer Warrant and sale of the underlying Shares by
such third party. The Soliciting Dealer Warrant may be divided or combined,
upon written request to the Company by the Warrantholder, into a certificate or
certificates representing the right to purchase the same aggregate number of
shares.
Unless the context indicates otherwise, the term "Warrantholder" shall
include any transferee of the Soliciting Dealer Warrant pursuant to this
Subsection (d), and the term "Warrant" shall include any and all Soliciting
Dealer Warrants outstanding pursuant to this Agreement, including those
evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
(e) EXCHANGE OR ASSIGNMENT OF SOLICITING DEALER WARRANT. Any
Soliciting Dealer Warrant certificate may be exchanged without expense for
another certificate or certificates entitling the Warrantholder to purchase a
like aggregate number of Shares as the certificate or certificates surrendered
then entitled such Warrantholder to purchase. Any Warrantholder desiring to
exchange a Soliciting Dealer Warrant certificate shall make such
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<PAGE> 4
request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate evidencing the Soliciting Dealer Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Soliciting Dealer Warrant certificate as so requested.
Any Warrantholder desiring to assign a Soliciting Dealer Warrant shall make
such request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate evidencing the Soliciting Dealer Warrant to be so
assigned, with an instrument of assignment duly executed accompanied by proper
evidence of assignment, succession or authority to transfer, and funds
sufficient to pay any transfer tax, whereupon the Company shall, without charge,
execute and deliver a new Soliciting Dealer Warrant certificate in the name of
the assignee named in such instrument of assignment and the original Soliciting
Dealer Warrant certificate shall promptly be cancelled.
2. TERMS AND EXERCISE OF SOLICITING DEALER WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Agreement, the
Warrantholder shall have the right to purchase one Share from the Company at a
price of $12 (120% of the initial public offering price per Share) during the
time period beginning one year from the date the Soliciting Dealer Warrants are
issued and ending on October 13, 2000 (the "Exercise Period"), or if any such
date is a day on which banking institutions are authorized by law to close, then
on the next succeeding day which shall not be such a day, to purchase from the
Company up to the number of fully paid and nonassessable Shares which the
Warrantholder may at the time be entitled to purchase pursuant to the Soliciting
Dealer Warrant, a form of which is attached hereto as Exhibit "A."
(b) METHOD OF EXERCISE. The Soliciting Dealer Warrant shall be
exercised by surrender to the Company, at its principal office in Oak Brook,
Illinois or at the office of the Company's stock transfer agent, if any, or at
such other address as the Company may designate by notice in writing to the
Warrantholder at the address of the Warrantholder appearing on the books of the
Company, of the certificate evidencing the Soliciting Dealer Warrant to be
exercised, together with the form of Election to Purchase, included as Exhibit
"B" hereto, duly completed and signed, and upon payment to the Company of the
Warrant Price (as determined in accordance with the provisions of Sections 7 and
8 hereof), for the number of Shares with respect to which such Soliciting Dealer
Warrant is then exercised together with all taxes applicable upon such exercise.
Payment of the aggregate Warrant Price shall be made in cash or by certified
check or cashier's check, payable to the order of the Company. A Soliciting
Dealer Warrant may not be exercised if the Shares to be issued upon the exercise
of the Soliciting Dealer Warrant have not been registered (or be exempt from
registration) in the state of residence of the holder of the Soliciting Dealer
Warrant or if a Prospectus required under the laws of such state cannot be
delivered to the buyer on behalf of the Company. In addition, holders of
Soliciting Dealer Warrants may not exercise the Soliciting Dealer Warrant to the
extent such exercise will cause them to exceed the ownership limits set forth
in the Company's Articles of Incorporation, as amended. If any Soliciting
Dealer Warrant has not been exercised by the
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<PAGE> 5
end of the Exercise Period, it will terminate and the Warrantholder will have no
further rights thereunder.
(c) PARTIAL EXERCISE. The Soliciting Dealer Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that the Soliciting Dealer Warrant is
exercised with respect to less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
Soliciting Dealer Warrants shall be issued by the Company.
(d) SHARE ISSUANCE UPON EXERCISE. Upon such surrender of the
Soliciting Dealer Warrant certificate and payment of such Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch to the Warrantholder in such name or name as the Warrantholder may
designate in writing, a certificate of certificates for the number of full
Shares so purchased upon the exercise of the Soliciting Dealer Warrant, together
with cash, as provided in Section 9 hereof, with respect to any fractional
Shares otherwise issuable upon such surrender. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of such Shares as of the close
of business on the date of the surrender of the Soliciting Dealer Warrant and
payment of the Warrant Price, as hereinafter defined, notwithstanding that the
certificates representing such Shares shall not actually have been delivered or
that the stock transfer books of the Company shall then be closed.
3. MUTILATED OR MISSING SOLICITING DEALER WARRANT.
In case the certificate or certificates evidencing the Soliciting
Dealer Warrant shall be mutilated, lost, stolen or destroyed, the Company shall,
at the request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated certificate of
certificates, or in lieu of and in substitution for the certificate or
certificates lost, stolen or destroyed, a new Soliciting Dealer Warrant
certificate or certificates of like tenor and date and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Soliciting Dealer
Warrant, and of reasonable bond of indemnity, if requested, also satisfactory in
form and amount and at the applicant's cost.
4. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Soliciting Dealer Warrant remains outstanding, out of
its authorized Common Stock, such number of Shares as shall be subject to
purchase under the Soliciting Dealer Warrant.
5. LEGEND ON SOLICITING DEALER WARRANT SHARES.
Each certificate for Shares initially issued upon exercise of the
Soliciting Dealer Warrant, unless at the time of exercise such Shares are
registered with the Securities and
-4-
<PAGE> 6
Exchange Commission (the "Commission"), under the Securities Act of 1933, as
amended (the "Act"), shall bear the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES SHALL BE
MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of such counsel as shall be reasonably approved by the Company, the
securities represented thereby need no longer be subject to such restrictions.
6. PAYMENT OF TAXES.
The Company shall pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Shares; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable with
respect to any secondary transfer of the Soliciting Dealer Warrant or the
Shares.
7. WARRANT PRICE.
The price per Share at which Shares shall be purchasable on the
exercise of the Soliciting Dealer Warrant shall be $12 (the "Warrant Price").
8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Soliciting Dealer Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) In case the Company shall: (i) pay a dividend in Common Stock or
make a distribution in Common Stock; (ii) subdivide its outstanding Common
Stock; (iii) combine its outstanding Common Stock into a smaller number of
shares of Common Stock, or (iv) issue by reclassification of its Common Stock
other securities of the Company, the number and kind of securities purchasable
upon the exercise of the Soliciting Dealer Warrant immediately prior thereto
shall be adjusted so that the Warrantholder shall be entitled to receive the
number and kind of securities of the Company which it would have owned or would
have been entitled to receive after the happening of any of the events
described above had the Soliciting Dealer Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this Subsection (a) shall become effective on
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<PAGE> 7
the effective date of such event retroactive to the record date, if any, for
such event.
(b) No adjustment in the number of securities purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of securities (calculated to the
nearest full Share thereof) then purchasable upon the exercise of the Soliciting
Dealer Warrant or, if the Soliciting Dealer Warrant is not then exercisable, the
number of securities purchasable upon the exercise of the Soliciting Dealer
Warrant on the first date thereafter that the Soliciting Dealer Warrant becomes
exercisable; provided, however, that any adjustment which by reason of this
Subsection (b) is not required to be made immediately shall be carried forward
and taken into account in any subsequent adjustment.
(c) Whenever the number of Shares purchasable upon the exercise of the
Soliciting Dealer Warrant is adjusted as herein provided, the Warrant Price
shall be adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of Shares
purchasable upon the exercise of the Soliciting Dealer Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of Shares
so purchasable immediately thereafter.
(d) For the purpose of this Section 8, the term "Common Stock" shall
mean: (i) the class of stock designated as the Common Stock of the Company at
the date of this Agreement; or (ii) any other class of stock resulting from
successive changes or reclassification of such Common Stock consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an adjustment made
pursuant to this Section 8, the Warrantholder shall become entitled to purchase
any shares of the Company other than Common Stock, thereafter the number of such
other shares so purchasable upon the exercise of the Soliciting Dealer Warrant
and the Warrant Price shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 8.
(e) Whenever the number of Shares and/or securities purchasable upon
the exercise of the Soliciting Dealer Warrant or the Warrant Price is adjusted
as herein provided, the Company shall cause to be promptly mailed to the
Warrantholder by first class mail, postage prepaid, notice of such adjustment
setting forth the number of Shares and/or securities purchasable upon the
exercise of the Soliciting Dealer Warrant or the Warrant Price after such
adjustment, a brief statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
(f) In case of any reclassification, capital reclassification, capital
reorganization or other change in the outstanding shares of Common Stock of the
Company (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of an issuance of Common Stock by
way of dividend or other distribution, or of a subdivision or combination of the
Common Stock), or in case of any consolidation or merger of the Company with or
into another corporation or entity (other than a merger with a subsidiary in
which merger the Company is the continuing corporation and which does not result
in any reclassification, capital reorganization or other change in the
outstanding shares of Common Stock of the
-6-
<PAGE> 8
Company) as a result of which the holders of the Company's Common Stock become
holders of other shares of securities of the Company or of another corporation
or entity, or such holders receive cash or other assets, or in case of any sale
or conveyance to another corporation of the property, assets or business of the
Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute with the
Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment for the Warrant Price in effect immediately prior to
such action to purchase upon the exercise of the Soliciting Dealer Warrant the
kind and number of securities and property which it would have owned or have
been entitled to have received after the happening of such reclassification,
capital reorganization, change in the outstanding shares of shares of Common
Stock of the Company, consolidation, merger, sale or conveyance had the
Soliciting Dealer Warrant been exercised immediately prior to such action.
The agreement referred to in this Subsection (f) shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this Subsection
(f) shall similarly apply to successive reclassification, capital
reorganizations, changes in the outstanding shares of Common Stock of the
Company, consolidations, mergers, sales or conveyances.
(g) Except as provided in this Section 8, no adjustment with respect
to any dividends shall be made during the term of the Soliciting Dealer Warrant
or upon the exercise of the Soliciting Dealer Warrant.
(h) No adjustments shall be made in connection with the public sale
and issuance of the Shares pursuant to the Dealer Manager Agreement or the sale
or issuance of Shares upon the exercise of the Soliciting Dealer Warrant.
(i) Irrespective of any adjustments in the Warrant Price or the number
or kind of securities purchasable upon the exercise of the Soliciting Dealer
Warrant, the Soliciting Dealer Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price or number or kind of
securities stated in the Soliciting Dealer Warrant initially issuable pursuant
to this Agreement.
9. FRACTIONAL INTEREST.
The Company shall not be required to issue fractional Shares or
securities upon the exercise of the Soliciting Dealer Warrant. If any such
fractional Share would, except for the provisions of this Section 9, be issuable
upon the exercise of the Soliciting Dealer Warrant (or specified portion
thereof), the Company may, at its election, pay an amount in cash equal to the
then current market price multiplied by such fraction. For purposes of this
Agreement, the term "current market price" shall mean: (a) if the Shares are
traded in the over-the-counter market and not on the Nasdaq National Market
("NNM") or on any national securities exchange, the average
-7-
<PAGE> 9
between the per share closing bid and asked prices of the Shares for
the 30 consecutive trading days immediately preceding the date in questions, as
reported by the NNM or an equivalent generally accepted reporting service; or
(b) if the Shares are traded on the NNM or on a national securities exchange,
the average for the 30 consecutive trading days immediately preceding the date
in question of the daily per share closing prices of the Shares on the NNM or
on the principal national stock exchange on which it is listed, as the case may
be. The closing price referred to in clause (b) above shall be the last
reported sales price or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices on the NNM or on the
principal national securities exchange on which the Shares are then listed, as
the case may be. If the Shares are not publicly traded, then the "current
market price" shall mean $10 for the first three years following the
termination of the Offering.
10. NO RIGHTS AS STOCKHOLDER; NOTICES OF WARRANTHOLDER.
Nothing contained in this Agreement or in the Soliciting Dealer
Warrant shall be construed as conferring upon the Warrantholder or its
transferee any rights as a stockholder of the Company, either at law or in
equity, including the right to vote, receive dividends, consent or notices as a
stockholder with respect to any meeting of stockholders for the election of
directors of the Company or for any other matter.
11. REGISTRATION OF SOLICITING DEALER WARRANTS AND SHARES
PURCHASABLE THEREUNDER.
The Soliciting Dealer Warrants and the Shares purchasable thereunder
are being registered as part of the Offering. At the same time, the Company
also is registering certain Soliciting Dealer Warrants (and the Shares
purchasable thereunder) which were to be but have not been issued to the
Warrantholder pursuant to the Prior Offering. The Company undertakes to make
additional filings with the Commission to the extent required to keep the
Soliciting Dealer Warrants and Shares referenced in this Section 11 registered
through October 13, 2000.
12. INDEMNIFICATION.
In the event of the filing of any registration statement with respect
to the Soliciting Dealer Warrants or the Shares pursuant to Section 11 above,
the Company and the Warrantholder (and/or selling Warrantholder or such holder
of Shares, as the case may be), shall agree to indemnify and hold harmless the
other to the same extent and in the same manner as provided in the Dealer
Manager Agreement.
13. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act
in any case in which: (a) the Warrantholder or any holder of Shares makes a
claim for indemnification pursuant to Section 12 hereof, but it is judicially
determined (by the entry of a final judgment
-8-
<PAGE> 10
or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right to appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of Section 12 hereof provide for indemnification in such
case; or (b) contribution under the Act may be required on the part of the
Warrantholder or any holder of Shares, the Company and the Warrantholder, or
such holder of Shares, shall agree to contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, including, but not limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations in the same manner as provided by the parties
in the Dealer Manager Agreement.
14. NOTICES.
Any notice given pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested:
(a) If to the Warrantholder, addressed to:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
(b) If to the Company, addressed to:
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Each party hereto may, from time to time, change the address to which
notices to it are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
15. PARTIES IN INTEREST.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Warrantholder and, to the extent
expressed, any holder of Shares, any person controlling the Company or the
Warrantholder or any holder of Shares, directors of the Company, nominees for
directors (if any) named in the Prospectus, or officers of the Company who have
signed the registration statement, any legal or equitable right, remedy or claim
under this Agreement, and this Agreement shall be for the sole an exclusive
benefit of the aforementioned parties.
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<PAGE> 11
16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the parties listed in Section 15 above shall bind and inure to the
benefit of their respective executors, administrators, successors and assigns
hereunder; provided, however, that the rights of the Warrantholder or holder of
Shares shall be assignable only to those persons and entities specified in
Section 1, Subsection (d) hereof, in which event such assignee shall be bound
by each of the terms and conditions of this Agreement.
17. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company shall not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless it complies with the provisions of Section 8, Subsection
(f).
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All statements contained in any schedule, exhibit, certificate or
other instrument delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated by this Agreement, shall be deemed
to be representations and warranties hereunder. Notwithstanding any
investigations made by or on behalf of the parties to this Agreement, all
representations, warranties and agreements made by the parties to this Agreement
or pursuant hereto shall survive.
19. CHOICE OF LAW.
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of Illinois,
including all matters of construction, validity, performance and enforcement,
and without giving effect to the principles of conflict of laws.
20. JURISDICTION.
The parties submit to the jurisdiction of the Courts of the State of
Illinois or a Federal Court empaneled in the State of Illinois for the
resolution of all legal disputes arising under the terms of this Agreement.
21. ENTIRE AGREEMENT.
Except as provided herein, this Agreement, including exhibits,
contains the entire agreement of the parties, and supersedes all existing
negotiations, representations or agreements and all other oral, written or other
communications between them concerning the subject matter of this Agreement.
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<PAGE> 12
22. SEVERABILITY.
If any provision of this Agreement is unenforceable, invalid or
violates applicable law, such provision shall be deemed stricken and shall not
affect the enforceability of any other provisions of this Agreement.
23. CAPTIONS.
The captions in this Agreement are inserted only as a matter of
convenience and for reference and shall not be deemed to define, limit, enlarge
or describe the scope of this Agreement or the relationship of the parties, and
shall not affect this Agreement or the construction of any provisions herein.
24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
Inland Real Estate Corporation,
a Maryland corporation
By: ___________________________________
___________________________________
Name and Title
Inland Securities Corporation,
an Illinois corporation
By: ___________________________________
___________________________________
Name and Title
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<PAGE> 13
EXHIBIT A
INLAND REAL ESTATE CORPORATION
SOLICITING DEALER WARRANT NO. ______
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
WARRANT OR THE SHARES PURCHASABLE HEREUNDER SHALL BE
MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AS AMENDED, OR PURSUANT TO AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
REGISTRATION IS NOT REQUIRED. TRANSFER OF THIS
WARRANT IS ALSO RESTRICTED BY THAT CERTAIN WARRANT
PURCHASE AGREEMENT DATED AS OF JULY ___ , 1996 A COPY OF
WHICH IS AVAILABLE FROM THE ISSUER.
WARRANT TO PURCHASE ________________ SHARES OF COMMON STOCK OF
INLAND REAL ESTATE CORPORATION
Exercisable commencing on ___________, 199__
Void after 5:00 P.M. Central Standard Time on OctoberE13, 2000 (the
"Exercise Closing Date").
THIS CERTIFIES that, for value received, _________________________ (the
"Warrantholder"), or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant (the "Warrant"), to purchase from Inland
Real Estate Corporation, a Maryland corporation (the "Company"), ________ fully
paid and nonassessable Shares of common stock (the "Shares") of the Company at
any time during the period commencing on ___________, 199__ and continuing up
to 5:00 P.M. central standard time on _______________, 199__ at $12 per Share,
and is subject to all the terms thereof, including the limitations on
transferability as set forth in that certain Warrant Purchase Agreement between
Inland Securities Corporation and the Company dated July___, 1996.
THIS WARRANT may be exercised by the holder thereof, in whole or in
part, by the presentation and surrender of this Warrant with the form of
Election to Purchase duly executed, with signature(s) guaranteed, at the
principal office of the Company (or at such other address as the Company may
designate by notice to the holder hereof at the address of such holder appearing
on the books of the Company), and upon payment to the Company of the purchase
price in cash or by certified check or bank cashier's check. The Shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such Shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment
<PAGE> 14
EXHIBIT A
made for such Shares. The Shares so purchased shall be registered to
the holder (and, if requested, certificates issued) promptly after this
Warrant shall have been so exercised and unless this Warrant has expired or has
been exercised, in full, a new Warrant identical in form, but representing the
number of Shares with respect to which this Warrant shall not have been
exercised, shall also be issued to the holder hereof.
NOTHING CONTAINED herein shall be construed to confer upon the holder
of this Warrant, as such, any of the rights of a Stockholder of the Company.
Inland Real Estate Corporation,
a Maryland corporation
By: _________________________________
_________________________________
Name and Title
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<PAGE> 15
EXHIBIT B
INLAND REAL ESTATE CORPORATION
ELECTION TO PURCHASE
SOLICITING DEALER WARRANT
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached warrant (the "Warrant"), to purchase
thereunder ____ shares of the common stock of Inland Real Estate Corporation
(the "Shares") provided for therein and hereby tenders $_________ ($12.00 per
Share) in payment of the actual exercise price thereof, and requests that the
Shares be issued in the name of
_________________________________________________________________________
(Please Print Name, Address and SSN or EIN of Stockholder below)
_________________________________________________________________________
and, if said number of Shares shall not be the total possible number of Shares
purchasable hereunder, that a new Warrant certificate for the balance of the
Shares purchasable under the attached Warrant certificate be registered in the
name of the undersigned Warrantholder or his assignee as indicated below and
delivered at the address state below:
Dated: ____________________, 19_____
Name of Warrantholder or Assignee: __________________________________________
(Please Print)
Address: ________________________________________________________________
_________________________________________________________________________
Signature: _______________________________________________________________
<PAGE> 16
EXHIBIT C
INLAND REAL ESTATE CORPORATION
SOLICITING DEALER WARRANT
ASSIGNMENT
(To be signed only upon assignment of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
_________________________________________________________________________
(Please Print Name, Address and SSN or EIN of Assignee Below)
_________________________________________________________________________
the attached Participating Dealer Warrant No. ____, to purchase ________ shares
of common stock of Inland Real Estate Corporation (the "Company"), hereby
irrevocably constituting and appointing the Company and/or its transfer agent
as its attorney to transfer said Warrant on the books of the Company, with full
power of substitution.
Dated: ____________, 19___
________________________________________
Signature of Registered Holder
Signature Guaranteed: ________________________________________
Note: The above signature must correspond
with the name as written upon the face of
the attached Warrant certificate in every
particular respect, without alteration,
enlargement or any change whatever, unless
this Warrant has been duly assigned.
<PAGE> 1
EXHIBIT 3.2
Amended and Restated Bylaws
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
INLAND REAL ESTATE CORPORATION
ARTICLE I
OFFICES
The Company shall continuously maintain in the State of Maryland, the
Company's state of incorporation, a registered office and a registered agent
whose office is identical with such registered office and may have other
offices within or without the state. The address of the Company's registered
office in the State of Maryland is 32 South Street, Baltimore, Maryland 21202.
The name of the Company's registered agent at such address is The Corporation
Trust Incorporated. The Company reserves the power to change its registered
agent and registered office at any time.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders
shall be held not less than 30 days after delivery of the annual report, but
within six months after the end of each fiscal year, for the purpose of
electing directors and for the transaction of such other business, as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders
may be called by the chief executive officer, a majority of the Directors or by
a majority of the Independent Directors and shall be called by an officer of
the Company upon written request of stockholders holding in the aggregate not
less than 10% of the outstanding shares of the Company entitled to vote at such
meeting. Unless requested by the stockholders entitled to cast a majority of
all the votes entitled to be cast at such meeting, a special meeting need not
be called to consider any matter which is substantially the same as a matter
voted on at any special meeting of the stockholders held during the preceding
12 months.
SECTION 3. PLACE OF MEETINGS. Each meeting of the stockholders for
the election of directors shall be held at the offices of the Company in Oak
Brook, Illinois, unless the board of directors shall by resolution designate
any other place for such meeting. Meetings of stockholders for any other
purpose may be held at such place, within or without the State of Maryland, and
at such time as shall be determined pursuant to Section 2 of this Article II,
and stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 4. NOTICE OF MEETINGS. A written notice of each meeting of
stockholders, stating the place, date and hour of the meeting and, in the case
of a special
<PAGE> 3
meeting, the purpose or purposes for which the meeting is called, shall be
given to each stockholder entitled to vote at the meeting and each other
stockholder entitled to notice of the meeting. Unless otherwise provided by
the General Corporation Law of Maryland ("Maryland Law"), the notice shall be
given not less than 15 nor more than 60 days before the date of the meeting,
and, if mailed, shall be deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Company. No notice need be given to any person with whom communication is
unlawful, nor shall there be any duty to apply for any permit or license to
give notice to any such person.
SECTION 5. WAIVER OF NOTICE. Anything herein to the contrary
notwithstanding, with respect to any stockholder meeting, any stockholder who
in person or by proxy shall have waived in writing notice of the meeting,
either before or after such meeting, or who shall attend the meeting in person
or by proxy, shall be deemed to have waived notice of such meeting unless such
stockholder attends for the express purpose of objecting, at the beginning of
the meeting, and does so object to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 6. QUORUM; MANNER OF ACTING AND ORDER OF BUSINESS. Subject
to any other provision of these Bylaws, the Articles of Incorporation, as
amended (the "Amended Articles") and Maryland Law as to the vote that is
required for a specified action, the presence in person or by proxy of the
holders of a majority of the outstanding shares of the Company entitled to vote
at any meeting of stockholders shall constitute a quorum for the transaction of
business and may, without the necessity for concurrence by the Directors, vote
to elect the Directors. The vote of the holders of a majority of the shares of
the Company's stock entitled to vote, present in person or represented by
proxy, shall be binding on all stockholders of the Company, unless the vote of
a greater number or voting by classes is required by Maryland Law or the
Amended Articles or these Bylaws. The stockholders present at a duly called or
held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of stockholders such that less than
a quorum is present.
In the absence of a quorum, stockholders holding a majority of the
shares present in person or by proxy and entitled to vote, regardless of
whether or not they constitute a quorum, or if no stockholders are present, any
officer entitled to preside at or act as secretary of the meeting, may adjourn
the meeting to another time and place. Any business which might have been
transacted at the original meeting may be transacted at any adjourned meeting
at which a quorum is present. No notice of an adjourned meeting need be given
if the time and place are announced at the meeting at which the adjournment is
taken except that, if adjournment is for more than 120 days or if, after the
adjournment, a new record date is fixed for the meeting, notice of the
adjourned meeting shall be given pursuant to Section 4 of this Article II.
Meetings of the stockholders shall be presided over by the chairman of
the board, or in his absence by the president, or in his absence by a vice
president, or in the
2
<PAGE> 4
absence of the foregoing persons by a chairman designated by the board of
directors, or in the absence of such designation by a chairman chosen at the
meeting. The secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting. The order of business at all meetings of the stockholders
shall be determined by the chairman. The order of business so determined,
however, may be changed by vote of the holders of a majority of the shares
present at the meeting in person or represented by proxy.
SECTION 7. VOTING; PROXIES. (a) Except as provided in Section 7(b)
and the Amended Articles, each stockholder of record on the record date, as
determined pursuant to Section 6 of Article VI, shall be entitled to one vote
for every share registered in his name. However, all elections of directors
shall be by written ballot. Each stockholder entitled to vote at any meeting
of stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person to act for him by proxy.
No proxy shall be valid after 11 months from its date of execution, unless the
proxy provides for a longer period.
(b) Notwithstanding any other provision in these Bylaws, Subtitle
7 of Title 3 of Maryland Law (or any successor statute) shall not apply to any
acquisition by any Existing Holder (as defined in the Amended Articles).
SECTION 8. INSPECTORS OF ELECTION. (a) In advance of any meeting of
stockholders, the board of directors may appoint inspectors of election to act
at each meeting of stockholders and any adjournment thereof. If inspectors of
election are not so appointed, the chairman of the meeting may, and upon the
request of any stockholder or his proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one or three. If
appointed at the meeting upon the request of one or more stockholders or
proxies, the vote of the holders of a majority of shares present in person or
by proxy shall determine whether one or three inspectors are appointed. In any
case, if any person appointed as an inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person acting as chairman.
(b) The inspector(s) of election shall determine the outstanding
stock of the Company, the stock represented at the meeting and the existence of
a quorum, shall receive votes, ballots, or consents, shall count and tabulate
all votes and shall determine the result; and in connection therewith, the
inspector(s) shall determine the authority, validity and effect of proxies,
hear and determine all challenges and questions, and do such other ministerial
acts as may be proper to conduct the election or vote with fairness to all
stockholders. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. If no inspectors of election are appointed, the secretary
shall pass upon all questions and shall have all other duties specified in this
Section 8.
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<PAGE> 5
(c) Upon request of the chairman of the meeting or any stockholder
or his proxy, the inspector(s) of election shall make a report in writing of
any challenge or question or other matter determined by him and shall execute a
certificate of any fact found in connection therewith. Any such report or
certificate shall be filed with the record of the meeting.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if a unanimous consent in writing, setting forth such action, is signed
by each stockholder entitled to vote on the matter and any other stockholder
entitled to notice of a meeting of stockholders (but not to vote thereat) has
waived in writing any right to dissent from such action, and such consent and
waiver are filed with the minutes of proceedings of the stockholders.
SECTION 10. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the board of directors and the proposal of business to be
considered by the stockholders may be made at an annual meeting of
stockholders: (A) pursuant to the Company's notice of meeting; (B) by or at the
direction of the board of directors; or (C) by any stockholder of the Company
who was a stockholder of record at the time of giving of notice provided for in
this Section 10(a), who is entitled to vote at the meeting and who complied
with the notice procedures set forth in this Section 10(a).
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (C) of
paragraph (a)(1) of this Section 10, the stockholder must have given timely
notice thereof in writing to the secretary of the Company. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the Company not less than 75 days nor more than 180 days
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual meeting
or the tenth day following the day on which public announcement of the date of
such meeting is first made. Such stockholder's notice shall set forth: (i) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (ii) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made;
4
<PAGE> 6
and (iii) as to the stockholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made, (x) the name and
address of such stockholder, as they appear on the Company's books, and that
of such beneficial owner, and (y) the class and number of shares of stock of
the Company which are owned beneficially and of record by such beneficial
owner and such stockholder.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 10 to the contrary, in the event that the
number of directors to be elected to the board of directors is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased board of directors made by the Company at
least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 10(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the Company not later than the close of business
on the tenth day following the day on which such public announcement is first
made by the Company.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting. Nominations of
persons for election to the board of directors may be made at a special meeting
of stockholders at which directors are to be elected: (i) pursuant to the
Company's notice of meeting; (ii) by or at the direction of the board of
directors; or (iii) provided that the board of directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Company who is a stockholder of record at the time of giving of notice provided
for in this Section 10(b), who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 10(b). In the
event the Company calls for a special meeting of stockholders for the purpose
of electing one or more directors to the board of directors, any such
stockholder may nominate a person or persons (as the case may be) for election
to such position as specified in the Company's notice of meeting, if the
stockholder's notice required by paragraph (a)(2) of this Section 10 shall be
delivered to the secretary at the principal executive offices of the Company
not earlier than the 90th day prior to such special meeting and not later than
the close of business on the later of the 60th day prior to such special
meeting or the tenth day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by
the board of directors to be elected at such meeting.
(c) Access to Records. Any Stockholder and any designated
representative thereof shall be permitted access to all records of the Company
at all reasonable times, and may inspect and copy any of them for purposes
specified below. Inspection of the Company's books and records by a state
securities administrator shall be provided upon reasonable notice and during
normal business hours at the business office of the Company. In addition, an
alphabetical list of names, addresses and business telephone numbers of the
Stockholders of the Company along with the number of Shares held by each of
them (the "Stockholder List") shall be maintained and updated quarterly as part
5
<PAGE> 7
of the books and records of the Company and shall be available for inspection
by any Stockholder or the Stockholder's designated agent at the business office
of the Company upon the request of the Stockholder. A copy of the Stockholder
List shall be mailed to any Stockholder requesting the Stockholder List within
ten days of the request. The copy of the Stockholder List shall be printed in
alphabetical order, on white paper, and in a readily readable type size (in no
event smaller than 10-point type). The Company may impose a reasonable charge
for expenses incurred in reproducing such list. The permitted purposes for
which a Stockholder may request a copy of the Stockholder List include, without
limitation, matters relating to Stockholders' voting rights under these Amended
Articles and the exercise of Stockholders' rights under federal proxy laws and
regulations. If the Advisor or the Directors of the Company neglect or refuse
to exhibit, produce or mail a copy of the Stockholder List as requested in
accordance with and as required by applicable law and these Amended Articles,
the Advisor and the Directors shall be liable to any Stockholder requesting the
Stockholder List, for the costs, including reasonable attorneys' fees, incurred
by that Stockholder for compelling the production of the Stockholder List, and
for actual damages suffered by any Stockholder by reason of such refusal or
neglect. It shall be a defense to such liability that the actual purpose and
reason for the requests for inspection or for a copy of the Stockholder List is
to secure such list of Stockholders or other information for the purpose of
selling such Stockholder List or copies thereof, or of using the same for a
commercial purpose or other purpose not in the interest of the applicant as a
Stockholder relative to the affairs of the Company. The Company may require
the Stockholder requesting the Stockholder List to represent that the
Stockholder List is not requested for a commercial purpose unrelated to the
Stockholder's interest in the Company. The remedies provided hereunder to
Stockholders requesting copies of the Stockholder List are in addition to, and
shall not in any way limit, other remedies available to Stockholders under
federal law, or the laws of any state.
(d) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 10 shall be eligible
to serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 10. The presiding officer of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 10 and, if any proposed nomination or
business is not in compliance with this Section 10, to declare that such
defective nomination or proposal be disregarded.
(2) For purposes of this Section 10, "public
announcement" shall mean disclosure in a press release prepared by or on behalf
of the Company and reported by the Dow Jones News Service, Associated Press or
comparable news service or in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 10, a stockholder shall also comply with all applicable requirements of
state law and of the
6
<PAGE> 8
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 10. Nothing in this Section 10 shall be
deemed to affect any rights of stockholders to request inclusion of proposals
in any of the Company's proxy statements pursuant to Rule 14a-8 under the
Exchange Act.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Company
shall be managed under the direction of the Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
Directors of the Company, initially shall be two. At any regular meeting or at
any special meeting called for that purpose, a majority of the entire board of
directors may increase or decrease the number of directors, provided that not
later than the effective date of the Company's Registration Statement with the
Securities and Exchange Commission the number thereof shall never be less than
three, nor more than 9, a majority of which shall at all times be Independent
Directors (as such term is defined in the Company's Amended Articles). A
Director shall have had at least three years of relevant real estate experience
demonstrating the knowledge and experience required to successfully acquire and
manage the type of assets being acquired by the Company. At least one of the
Independent Directors shall have three years of relevant real estate
experience. Each director will be elected for a one year term and will hold
office for the term for which he or she is elected and until his or her
successor is duly elected and qualified.
SECTION 3. RESIGNATIONS AND REMOVAL. Any director may resign at any
time by giving written notice to the chairman of the board or to the president.
The stockholders may remove any director with or without cause in the manner
provided in the Amended Articles.
SECTION 4. MEETINGS. Meetings of the board of directors may be
called by or at the request of the chairman of the board, the president or a
majority of the directors. The person or persons authorized to call meetings
of the board of directors may fix any place as the place for holding any
meeting of the board of directors called by them. Meetings of the board of
directors may be held within or outside the State of Maryland.
SECTION 5. BUSINESS OF MEETINGS. Except as otherwise expressly
provided in these Bylaws, any and all business may be transacted at any meeting
of the board of directors.
SECTION 6. NOTICE OF MEETINGS. Notice of any meeting shall be given
to each director at his principal place of business: (i) at least two days
previous thereto if delivered by messenger, overnight courier or facsimile; or
(ii) at least five days previous thereto if mailed.
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<PAGE> 9
SECTION 7. ATTENDANCE BY TELEPHONE. Directors may participate in
meetings of the board of directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear and speak to one another, and such participation shall
constitute presence in person at the meeting.
SECTION 8. QUORUM AND MANNER OF ACTING; ADJOURNMENT. A majority of
the directors, including a majority of the Independent Directors, shall
constitute a quorum for the transaction of business at any meeting of the board
of directors and the act of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the board. If less than a
majority of such directors are present at said meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice, and provided further that if, pursuant to the Amended Articles or these
Bylaws, the vote of a majority of a particular group of directors is required
for action, a quorum must also include a majority of such group.
SECTION 9. INDEPENDENT DIRECTOR ACTION REQUIRED. Notwithstanding
anything herein to the contrary or set forth in the Amended Articles, a
majority of the Independent Directors will ratify and/or approve all matters
required to be approved by such Independent Directors pursuant to the Statement
of Policy regarding Real Estate Investment Trusts promulgated by the North
American Securities Administrators Association, Inc. as well as all contracts,
or other arrangements as may be material to the business of the Company.
SECTION 10. ACTION WITHOUT A MEETING. Any action which could be
taken at a meeting of the board of directors may be taken without a meeting if
all of the directors consent to the action in writing and the writing or
writings are filed with the minutes of proceedings of the board.
SECTION 11. FILLING OF VACANCIES. If for any reason any or all the
directors cease to be directors, such event shall not terminate the Company or
affect these Bylaws or the powers of the remaining directors hereunder (even if
fewer than three directors remain). Any vacancy on the board of directors
caused by the death, resignation or incapacity of a Director or by an increase
in the number of Directors shall be filled by a majority of the remaining
directors, although such majority may be less than a quorum. Any vacancy in
the number of directors created as a result of the removal of a director by the
Stockholders shall be filled by a majority vote of the Stockholders. Any
director may resign at any time and may be removed by the Stockholders owning
at least a majority of the outstanding Shares (with or without cause). Any
individual so elected as director shall hold office for the unexpired term of
the director he is replacing. With respect to a vacancy created by the death,
resignation, or incapacity of an Independent Directors, the remaining
Independent Directors shall nominate a replacement.
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SECTION 12. COMPENSATION OF DIRECTORS. The board of directors shall
have the authority to fix the compensation of directors, unless otherwise
provided in the Amended Articles.
SECTION 13. PRESIDING OFFICER. The presiding officer at any meeting
of the board of directors shall be the chairman of the board, or in his
absence, any other director elected chairman by vote of a majority of the
directors present at the meeting.
SECTION 14. COMMITTEE. After completion of the offering, the Board
of Directors will designate an Audit committee and such other committees as the
directors deem appropriate and appoint the members thereof provided that at
least a majority of the members of each committee are Independent Directors.
Service on such committees shall be at the pleasure of the Board of Directors,
which may by a majority vote taken in accordance with these Bylaws, increase or
decrease committee membership, remove a committee member and appoint members to
fill vacancies in a committee. Any committee of the Board of Directors shall
make such reports as required by the Board of Directors available to the entire
Board for review and any necessary action by the Board of Directors.
Not in lieu of the authority vested in the Board pursuant to this
Section, the Board of Directors may designate an executive committee consisting
of two or more Directors, which committee, to the extent provided by the Board
and otherwise permitted by law, shall have and exercise all of the authority of
the Board of Directors in the management of the Company, such committee to keep
minutes of its proceedings and report the same to the Board when required.
Nothing in this Section shall be construed as precluding the Board of
Directors or officers from appointing such other committees, whether or not
including Board members, as they deem necessary and proper, to aid in the
management and operation of the Company's business.
SECTION 15. RELIANCE. Each director, officer, employee and agent of
the Company shall, in the performance of his duties with respect to the
Company, be fully justified and protected with regard to any act or failure to
act in reliance in good faith upon the books of account or other records of the
Company, upon an opinion of counsel or upon reports made to the Company by any
of its officers or employees or by the Advisor, accountants, appraisers or
other experts or consultants selected by the board of directors or officers of
the Company, regardless of whether such counsel or expert may also be a
director.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Company may consist of the
chairman of the board, the president, one or more vice presidents (the number
thereof to be
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determined by the board of directors), the secretary, the treasurer and such
assistant secretaries and assistant treasurers or any other officers thereunto
authorized or elected by the board of directors. Any two or more offices may
be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Company
shall be elected by the board of directors at their first meeting and
thereafter at any subsequent meeting and shall hold their offices for such term
as determined by the board of directors. Each officer shall hold office until
his successor is duly elected and qualified, or until his death or disability,
or until he resigns or is removed from his duties in the manner hereinafter
provided.
SECTION 3. REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by a majority of the directors then in office, at
any meeting of the board of directors. Any officer may resign at any time by
giving written notice to the Company. Any such resignation shall take effect
at the date of the receipt of such notice or at any later time specified
therein.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation or removal or any other cause may be filled for the unexpired
portion of the term by the board of directors.
SECTION 5. CHAIRMAN OF THE BOARD. The chairman of the board of the
Company shall be the chief executive officer of the Company. The chairman of
the board shall preside at all meetings of the board of directors, and at all
stockholders' meetings, whether annual or special, at which he is present and
shall exercise such other powers and perform such other duties as the board of
directors may from time to time assign to him or as may be prescribed by these
Bylaws. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the Company, or a different
mode of execution is expressly prescribed by the board of directors or these
Bylaws, he may execute for the Company certificates for its shares and any
contracts, deeds, mortgages, bonds or other instruments which the board of
directors have authorized to be executed, and he may accomplish such execution
either under or without the seal of the Company, or either individually or with
the secretary, any assistant secretary or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument or applicable law.
SECTION 6. PRESIDENT. The president shall be the chief operating
officer of the Company. Subject to the direction and control of the board of
directors, the president shall be in charge of the business of the Company; he
shall see that the resolutions and directions of the board of directors are
carried into effect, except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time. Except in those instances in which the authority to execute is expressly
delegated to another officer or agent of the Company, or a different mode of
execution is expressly
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<PAGE> 12
prescribed by the board of directors or these Bylaws, he may execute for the
Company, certificates for its shares, and any contracts, deeds, mortgages,
bonds or other instruments which the board of directors have authorized to be
executed, and he may accomplish such execution either under or without the seal
of the Company, or either individually or with the secretary, any assistant
secretary or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument. He may vote all
securities which the Company is entitled to vote, except as and to the extent
such authority shall be vested in a different officer or agent of the Company
by the board of directors.
SECTION 7. VICE PRESIDENT. The vice president (or in the event there
be more than one vice president, each of the vice presidents), if one shall be
elected, shall assist the president in the discharge of his duties, as the
president may direct, and shall perform such other duties as from time to time
may be assigned to him by the president or by the board of directors. In the
absence of the president or in the event of his inability or refusal to act,
the vice president (or in the event there be more than one vice president, the
vice presidents in the order designated by the board of directors, or in the
absence of any designation, then in the order of seniority of tenure as vice
president) shall perform the duties of the president, and when so acting, shall
have the powers of and be subject to all the restrictions upon the president.
Except in those instances in which the authority to execute is expressly
delegated to another officer or agent of the Company, or a different mode of
execution is expressly prescribed by the board of directors or these Bylaws,
the vice president (or each of them if there are more than one) may execute for
the Company, certificates for its shares and any contracts, deeds, mortgages,
bonds or other instruments which the board of directors have authorized to be
executed, and he may accomplish such execution either under or without the seal
of the Company, and either individually or with the secretary, any assistant
secretary or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
SECTION 8. TREASURER. The treasurer, if any, shall be the principal
accounting and financial officer of the Company. The treasurer shall: (i)
have charge of and be responsible for the maintenance of the adequate books and
records for the Company; (ii) have charge and custody of all funds and
securities of the Company, and be responsible therefor and for the receipt and
disbursement thereof; and (iii) perform all the duties incident to the office
of treasurer and such other duties as from time to time may be assigned to him
by the president or by the board of directors. If required by the board of
directors, the treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the board of directors
may determine.
SECTION 9. SECRETARY. The secretary shall: (i) record the minutes
of the stockholders and of the board of directors' meetings in one or more
books provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (iii) be
custodian of the corporate books and records and of the seal of the Company;
(iv) keep a register of the post-office address of each
11
<PAGE> 13
stockholder which shall be furnished to the secretary by such stockholder; (v)
sign with the chairman of the board or the president or a vice president or any
other officer thereunto authorized by the board of directors, certificates for
the shares of the Company, the issue of which shall have been authorized by the
board of directors, and any contracts, deeds, mortgages, bonds or other
instruments which the board of directors have authorized to be executed,
according to the requirements of the form of the instrument, except when a
different mode of execution is expressly prescribed by the board of directors
or these Bylaws; (vi) have general charge of the stock transfer books of the
Company; and (vii) perform all duties incident to the office of secretary and
such other duties as from time to time may be assigned to him by the president
or by the board of directors.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the board of directors. When the secretary is
unavailable, any assistant secretary may sign with the president, or a vice
president, or any other officer thereunto authorized by the board of directors,
any contracts, deeds, mortgages, bonds or other instruments according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the board of directors or these Bylaws.
The assistant treasurers shall if required by the board of directors, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the board of directors shall determine.
SECTION 11. SALARIES. The salaries of the officers shall be fixed
from time to time by the board of directors (or an appropriately designated
committee of the board of directors) and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Company.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. Subject to Article III, Section 8, the board
of directors may authorize any officer or officers, agent or agents, to enter
into any contract or execute and deliver any instrument in the name of and on
behalf of the Company and such authority may be general or confined to specific
instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Company and no evidences of indebtedness shall be issued in its name, unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
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<PAGE> 14
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the Company shall be signed by such officer or officers or agent or
agents of the Company and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company in such
banks, trust companies or other depositaries as the board of directors may
select.
ARTICLE VI
CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 1. STOCK RECORD AND CERTIFICATES. Records shall be kept by
or on behalf of the Company, which shall contain the names and addresses of
stockholders, the number of shares held by them, respectively, and the number
of certificates, if any, representing the shares, and in which there shall be
recorded all transfers of shares. Every stockholder shall be entitled to a
certificate signed by the chairman of the board of directors, or the president
or a vice president, and by the secretary or an assistant secretary of the
Company, certifying the class and number of shares owned by him in the Company,
provided that any and all signatures on a certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Company with the same effect as if he or it were such officer,
transfer agent or registrar at the date of issue. Each certificate
representing shares which are restricted as to their transferability or voting
powers, which are preferred or limited as to their dividends or as to their
allocable portion of the assets of the Company upon liquidation or which are
redeemable at the option of the Company, shall have a statement of such
restriction, limitation, preference or redemption provision, or a summary
thereof, plainly stated on the certificate. In lieu of such statement or
summary, the Company may set forth upon the face or back of the certificate a
statement that the Company will furnish to any stockholder, upon request and
without charge, a full statement of such information.
SECTION 2. TRANSFER AGENTS AND REGISTRARS. The board of directors
may, in its discretion, appoint one or more responsible banks or trust
companies as the board may deem advisable, from time to time, to act as
transfer agents and registrars of shares of the Company; and, when such
appointments shall have been made, no certificate for shares of the Company
shall be valid until countersigned by one of such transfer agents and
registered by one of such registrars.
SECTION 3. STOCKHOLDERS' ADDRESSES. Every stockholder or transferee
shall furnish the secretary or a transfer agent with the address to which
notice of meetings and all other notices may be served upon or mailed to such
stockholder or
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<PAGE> 15
transferee, and in default thereof, such stockholder or
transferee shall not be entitled to service or mailing of any such notice.
SECTION 4. LOST CERTIFICATES. In the event a certificate for shares
of the Company is lost, stolen or destroyed, the board of directors, in its
discretion, or any transfer agent duly authorized by the board in its
discretion, may authorize the issue of a substitute certificate in place of the
certificate so lost, stolen or destroyed. The Company may require the owner of
the lost, stolen or destroyed certificate or his legal representative to give
the Company a bond sufficient to indemnify the Company against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate or uncertified
shares.
SECTION 5. DISTRIBUTIONS TO STOCKHOLDERS. (a) To the extent
permitted by Maryland Law and subject to any restrictions contained in the
Articles of Incorporation, the directors may declare and pay dividends upon the
shares of the Company's capital stock in the manner and upon the terms and
conditions provided by Maryland Law and the Amended Articles.
(b) Before payment of any dividends, there may be set aside out of
any funds of the Company available for dividends such sum or sums as the board
of directors may from time to time, in its absolute discretion, a reserve fund
for contingencies, for equalizing dividends, for repairing or maintaining any
property of the Company or for such other purpose as the board of directors
shall determine to be in the best interest of the Company, and the board of
directors may modify or abolish any such reserve in the manner in which it was
created.
SECTION 6. RECORD DATES. The board of directors may set, in advance,
a record date for the purpose of determining stockholders entitled to notice of
or to vote at any meeting of stockholders, or stockholders entitled to receive
payment of any dividend or the allotment of any other rights, or in order to
make a determination of stockholders for any other proper purpose. Such date,
in any case, shall not be prior to the close of business on the day the record
date is fixed and shall be not more than 90 days and, in the case of a meeting
of stockholders, not less than ten days, before the date on which the meeting
or particular action requiring such determination of stockholders is to be held
or taken.
In lieu of fixing a record date, the board of directors may provide
that the stock transfer books shall be closed for a stated period but not
longer than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice or of to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not closed
for the determination of stockholders: (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of
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<PAGE> 16
business on the day on which the notice of meeting is mailed or the 30th day
before the meeting, whichever is the closer date to the meeting; and (b) the
record date for the determination of stockholders entitled to receive payment
of a dividend or an allotment of any other rights shall be the close of
business on the day on which the resolution of the directors, declaring the
dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this Section 6, such determination
shall apply to any adjournment thereof, except where the determination has been
made through the closing of the transfer books and the stated period of closing
has expired.
SECTION 7. TRANSFERS OF SHARES. Shares of the Company may be
transferred by delivery of the certificates therefor, accompanied either by an
assignment in writing on the back of the certificates, or by written power of
attorney to sell, assign and transfer the same, signed by the record holder
thereof; but no transfer shall affect the right of the Company to pay any
distribution upon the shares to the holder of record thereof, or to treat the
holder of record as the holder in fact thereof for all purposes, and no
transfer shall be valid, except between the parties thereto, until such
transfer shall have been made upon the books of the Company.
SECTION 8. REPURCHASE OF SHARES ON OPEN MARKET. The Company may
purchase its shares on the open market and invest its assets in its own shares,
provided that in each case the consent of the board of directors shall have
been obtained.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION. The Company shall, to the fullest extent
permitted by Maryland statutory or decisional law, as amended or interpreted
and, without limiting the generality of the foregoing, in accordance with
Section 2-418 of Maryland Law, to indemnify and pay or reimburse reasonable
expenses to: (a) any individual who is a present or former Director, officer,
employee or agent of the Company; or (b) any individual who, while a Director
of the Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee, as the case may
be, provided that: (i) the Director, Advisor or other party seeking
indemnification has determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interest of the Company; (ii) the
Director, the Advisor or other person seeking indemnification was acting on
behalf of or performing services on the part of the Company; (iii) such
liability or loss was not the result of negligence or misconduct on the part of
the indemnified party, except that in the event the indemnified party is or was
an Independent Director, such liability or loss shall not have been the result
of gross negligence or willful misconduct; and (iv) such indemnification or
agreement to be held harmless is recoverable only out of the assets of the
Company and not from the Stockholders.
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<PAGE> 17
The Company shall not indemnify a Director, the Advisor or its
Affiliates for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of the Tennessee
Securities Division and any other state securities regulatory authority in
which securities of the Company were offered and sold as to indemnification for
securities law violations.
The Company may advance amounts to persons entitled to indemnification
hereunder for legal and other expenses and costs incurred as a result of any
legal action for which indemnification is being sought only if all of the
following conditions are satisfied: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party for or on behalf of the Company; (ii) the legal action is
initiated by a third party who is not a Stockholder or the legal action is
initiated by a Stockholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes to repay the advanced
funds to the Company, together with the applicable legal rate of interest
thereon, in cases in which such party is found not to be entitled to
indemnification.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or the Amended Articles of the
Company inconsistent with this Article VII, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
SECTION 2. INDEMNIFICATION INSURANCE. The Company shall have the
power to purchase and maintain insurance on behalf of an indemnified party
against any liability asserted which was incurred in any such capacity with the
Company, or arising out of such status; provided, however, that the Company
shall not incur the costs of any liability insurance which insures any person
against liability for which he, she or it could not be indemnified under the
provisions of this Article VII.
ARTICLE VIII
SEAL
SECTION 1. SEAL. The board of directors may authorize the adoption
of a seal by the Company. The seal shall have inscribed thereon the name of
the Company and
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<PAGE> 18
the year of its organization. The board of directors may authorize one or more
duplicate seals and provide for the custody thereof.
SECTION 2. AFFIXING SEAL. Whenever the Company is required to place
its seal to a document, it shall be sufficient to meet the requirements of any
law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent
to the signature of the person authorized to execute the document on behalf of
the Company.
ARTICLE IX
AMENDMENTS
Unless otherwise provided in the Articles of Incorporation of the
Company, these Bylaws may be altered, amended or repealed and new Bylaws, not
inconsistent with the Articles of Incorporation of the Company or the laws of
the State of Maryland or other applicable law, may be adopted at any properly
constituted meeting of the Board of Directors by a majority vote of the
Directors present at the meeting, except that in the case of a matter which
requires greater than a majority vote of the Directors, any amendment with
respect to such matter must be approved by a vote of Directors equal to or
greater than the number of votes required under these Bylaws to effectuate the
matter in question; provided, further, that no Bylaw adopted by the
Stockholders may be altered, amended or repealed by the Board of Directors if
these Bylaws so restrict alteration, amendment or repeal of these Bylaws
adopted by action of the Stockholders.
ARTICLE X
DISSOLUTION
The affirmative vote of a majority of the holders of all of the votes
entitled to be cast on the matter must approve the dissolution of the Company
and the discontinuance of the operations of the Company.
53768
17
<PAGE> 1
EXHIBIT 3.3
Articles of Amendment
<PAGE> 2
INLAND MONTHLY INCOME FUND III, INC.
ARTICLES OF AMENDMENT
Inland Monthly Income Fund III, Inc., a Maryland corporation having its
principal office c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore Maryland (hereinafter called the Corporation), hereby certifies to
the State Department of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article I of the Second Articles of Amendment and Restatement in its entirety
and inserting in lieu thereof the following new Article I:
ARTICLE I
NAME
The name of the Corporation is: Inland Real Estate Corporation
SECOND: The board of directors of the Corporation on March 28, 1996, duly
adopted a resolution in which was set forth the foregoing amendment to the
charter, declaring that the said amendment of the charter as proposed was
advisable and directing that it be submitted for action thereon by the
stockholders of the Corporation at the annual meeting to be held on June 25,
1996.
THIRD: Notice setting forth the said amendment of the charter and stating
that a purpose of the meeting of the stockholders would be to take action
thereon, was given, as required by law, to all stockholders entitled to vote
thereon. The amendment of the charter of the Corporation as hereinabove
set forth was approved by the stockholders of the Corporation at said meeting
by the affirmative vote of a majority of the votes entitled to be cast thereon.
<PAGE> 3
FOURTH: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the board of directors and approved by the
stockholders of the Corporation.
IN WITNESS WHEREOF, Inland Monthly Income Fund III, Inc. has caused these
presents to be signed in its name and on its behalf by its Vice President and
attested by its Secretary on July 15, 1996.
Inland Monthly Income Fund III, Inc.
By: /s/ Roberta S. Matlin
------------------------------------
Roberta S. Matlin, Vice President
Attest:
/s/ Cynthia M. Hassett
- ------------------------------------
Cynthia M. Hassett, Secretary
THE UNDERSIGNED, Vice President of Inland Monthly Income Fund III, Inc.,
who executed on behalf of said corporation the foregoing Articles of Amendment,
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of
her knowledge, information and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
/s/ Roberta S. Matlin
------------------------------------
Roberta S. Matlin, Vice President
2
<PAGE> 1
EXHIBIT 4
Specimen Stock Certificate
<PAGE> 2
SPECIMEN STOCK CERTIFICATE
Non-Negotiable
Incorporated Under the Laws of Maryland
No. _______ Shares _______
Inland Real Estate Corporation
Authorized Capital 24,000,000 Shares, $.01 Par Value
This certifies that ___________________ is the owner of ____________ Shares of
Capital Stock of Inland Real Estate Corporation transferable on the books of
the Corporation in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof the said Corporation has caused this Certificate to be
signed by its duly authorized officers and sealed with this Seal of the
Corporation,
this _________ day of _____________ A.D. 19____
_______________________________ _______________________________
Cynthia M. Hassett, Secretary Robert D. Parks, President
<PAGE> 3
LEGEND ON BACK OF CERTIFICATE
RESTRICTIONS RELATING TO QUALIFICATIONS
AS A REAL ESTATE INVESTMENT TRUST
The securities represented by this certificate are subject to
restrictions on transfer for the purpose of the Company's maintenance of its
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended. Except as otherwise provided pursuant to the Articles of
Incorporation of the Company, no Person may Beneficially Own shares of Equity
Stock in excess of 9.8% (or such greater percentage as may be determined by the
Board of Directors of the Company) of the number or value of the outstanding
Equity Stock of the Company (unless such Person is an Existing holder). Any
Person who purports or proposes to Beneficially Own shares of Equity Stock in
excess of 9.8% (or such greater percentage as may be determined by the Board of
Directors of the Company) of the number of value of the outstanding Equity
Stock of the Company (unless such Person is an Existing Holder) is in violation
of the restrictions on transfer and any securities so transferred shall be
designated as Excess Stock and held in trust by the Company. Any Person who
purports or proposes to Beneficially Own shares of Equity Stock in excess of
the above limitations must notify the Company in writing immediately, in the
case of a purported Transfer, and at least 15 days prior to a proposed
Transfer. All capitalized terms in this legend have the meanings defined in
the Articles of Incorporation of the Company, a copy of which, including the
restrictions on transfer, will be sent without charge to each stockholder who
so requests. If the restrictions on transfer are violated, the securities
represented hereby will be designated and treated as shares of Excess Stock
which will be held in trust by the Company.
<PAGE> 1
EXHIBIT 5
Opinion of Shapiro and Olander as to the legality of the
securities being registered
<PAGE> 2
July 17, 1996
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Ladies and Gentlemen:
You have requested our opinion as Maryland counsel to Inland Real Estate
Corporation, a corporation organized under the laws of Maryland ("Company"), in
connection with the offering by the Company to the public of 11,000,000 shares
of the Company's common stock, $0.01 par value per share ("Shares").
We have reviewed Amendment No. 1 to the Registration Statement on Form
S-11 ("Amendment No. 1") and the prospectus included therein ("Prospectus")
relating to the Company's issuance of shares, and in connection therewith, have
examined and relied upon the originals or copies of such records, agreements,
documents and other instruments, the Articles of Incorporation of the Company,
as amended, the Bylaws of the Company, as amended, and the minutes of the
meetings of the board of directors of the Company to date relating to the
authorization and issuance of the Shares. In such examination, we have
assumed, without independent verification, the genuineness of all signatures
(whether original or photostat), the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as certified
or photostat copies. We have assumed, without independent verification, the
accuracy of the relevant facts stated therein.
Based upon the foregoing and subject to the qualifications set forth
below, we are of the opinion that, on the basis of such examination, the Shares
referred to in Amendment No. 1, when issued and sold as contemplated in
Amendment No. 1, will be legally issued, fully paid and non-assessable and no
personal liability will attach to the ownership of such Shares.
We hereby consent to the filing of this opinion as an exhibit to Amendment
No. 1 and we consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus.
<PAGE> 3
Opinion Letter
Inland Real Estate Corporation
July 17, 1996
Page 2
The foregoing opinion is being furnished to, and is solely for the benefit
of the addressee named above and except with our prior consent, is not to be
used, circulated, quoted, published or otherwise referred to or disseminated
for any other purpose or relied upon by any person or entity other than said
addressee.
Very truly yours,
Shapiro and Olander
By: /s/ Christopher Dean Olander
---------------------------------
Christopher Dean Olander
<PAGE> 1
EXHIBIT 8
Opinion of Shefsky Froelich & Devine Ltd. as to tax matters
<PAGE> 2
[SHEFSKY FROELICH & DEVINE LTD. LETTERHEAD]
IN REPLY REFER TO:
22457-02-A
July 17, 1996
Board of Directors
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration (the
"Registration") under the Securities Act of 1933, as amended (the "Act") of
11,000,000 shares, par value $.01 per share, of Inland Real Estate Corporation
(the "Company"). In connection with the Registration we have been asked to
provide opinions on certain federal income tax matters related to the Company.
The capitalized terms used in this letter and not otherwise defined herein shall
have the meaning ascribed to them in the Prospectus of the Company included in
the Company's Registration Statement (No. 333-6459) on Form S-11, as amended
(the "Registration Statement"), filed by the Company under the Act with the
United States Securities and Exchange Commission ("SEC").
For purposes of this opinion letter, we have examined and relied upon the
following:
1. A copy of the Prospectus;
2. A copy of the Bylaws, as amended to date;
3. A copy of the Articles of Incorporation, as amended to date;
4. A copy of the Subscription Agreement;
5. Copies of the leases for the properties described in the Prospectus as
supplied to us by the Company;
6. Copies of the Shareholder lists as supplied by the Company;
7. Copies of the Federal income tax return the Company filed for the year
ending December 31, 1995;
8. Copies of the worksheets the Company prepared to monitor its
qualification with the REIT Requirements;
<PAGE> 3
[SHEFSKY FROELICH & DEVINE LTD. LETTERHEAD]
Board of Directors
July 17, 1996
Page 2
9. Copies of the depreciation schedules the Company prepared for
each of the properties and which it used to prepare its
Federal income tax return;
10. Such other additional instruments and documents in connection
with the Company and such other persons as we have deemed
necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures and the
capacity of each party executing a document to so act. For purposes of
opinions contained herein, we have assumed that:
(i) the documents shown to us are complete and no modifications to
any thereof exist;
(ii) the documents shown to us as certified or photostatic copies of
original documents conform to the original documents;
(iii) the documents listed above that have been reviewed in proposed
form will be executed in substantially the form as the proposed documents that
we have reviewed; and
(iv) all of the representations and statements set forth in the
documents listed above, including without limitation, the factual assumptions
and representations of the Company set forth in the section of the Prospectus
entitled "Federal Income Tax Considerations" are true and correct, and that all
obligations imposed by any such documents on the parties thereto have been and
will be performed or satisfied in accordance with their terms.
Our opinions are based upon the facts described in the Prospectus and
upon facts as they have been represented to us or determined by us as of this
date. Any alterations of such facts may adversely affect our opinions. For
purposes of our opinions, we have relied upon the representations made by the
officers and directors of the Company as set forth in the Prospectus or
elsewhere. Further, our opinions are based upon existing statutory law and
currently applicable Treasury Department Regulations promulgated or proposed
under the Internal Revenue Code of 1986, as amended (the "Code"), current
published administrative positions of the Internal Revenue Service (the
"Service") contained in Revenue Rulings and Revenue Procedures, and judicial
decisions, all of which are subject to change either prospectively or
retroactively, which changes could cause this opinion to no longer be valid.
<PAGE> 4
[SHEFSKY FROELICH & DEVINE LTD. LETTERHEAD]
Board of Directors
July 17, 1996
Page 3
We hereby confirm to you the opinions and statements attributed to us
in the section of the Prospectus entitled "Federal Income Tax Considerations,"
subject to all the statements, representations and assumptions accompanying
such opinions and statements. Please note that the Prospectus further states
that the Company's qualification and taxation as a REIT and its ability to
maintain its REIT status will depend upon its ability (based on its actual
operating results) to meet the REIT Requirements, and Shefsky Froelich & Devine
Ltd. will not review compliance with the REIT Requirements on a continuing
basis after the initial effectiveness date of the Registration Statement or
issue any opinions in the future unless expressly requested to do so.
You should note that the opinions contained herein have no binding
effect or official status of any kind. Thus, in the absence of a ruling from
the Service, there can be no assurance that the Service will not challenge the
conclusions or propriety of any of our opinions, nor can there be absolute
assurance that if challenged, the Company will prevail on such issues. In
addition, the federal income tax laws are uncertain as to many of the tax
matters material to an investment in the Company and, therefore, it is not
possible to predict with certainty future legal developments, including
how courts will decide various issues if litigated. Accordingly, there can be
no absolute assurance of the outcome of the issues on which we are opining.
This opinion may not be relied upon by anyone other than the parties
set forth herein and may not be provided to any party other than those set
forth herein without the express written consent of the undersigned.
Very truly yours,
SHEFSKY FROELICH & DEVINE LTD.
/s/ Shefsky Froelich & Devine Ltd.
<PAGE> 1
EXHIBIT 10.1
Escrow Agreement
<PAGE> 2
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day of
_______________, 1996, by and among INLAND REAL ESTATE CORPORATION, a Maryland
corporation (the "Company"), INLAND SECURITIES CORPORATION, an Illinois
Corporation (the "Dealer Manager"), and LASALLE NATIONAL BANK, N.A., CHICAGO,
ILLINOIS (the "Escrow Agent").
1. The Company does hereby open this escrow and Escrow Agent's sole
concern and duties shall be as specifically set forth herein:
1.1 From time to time during the course of this escrow, in
connection with the Company's offering (the "Offering") of up to
10,000,000 shares of Common Stock (the "Shares")(exclusive of Shares
offered and sold pursuant to the Company's distribution reinvestment
program), Escrow Agent will receive from subscribers deposits to be held
in escrow in accordance with the terms hereof. All such funds received
by Escrow Agent shall be placed into an interest-bearing account entitled
"Inland Real Estate Corporation Escrow Account" (the "Escrow Account").
2. All deposits from each subscriber shall be accompanied by a
subscription agreement, stating among other things, subscriber name, current
address and investment amount.
3. Checks deposited in the Escrow Account from the various subscribers
shall be made payable to "LNB, Escrow Agent for IREC."
4. All parties understand and are aware that all funds received during the
course of the escrow and deposited in the Escrow Account must clear the normal
banking channels prior to the release of any funds.
5. The Company understands that it is not entitled to any funds received
into escrow in the event of cancellation of the Offering and in such event,
deposits shall be returned to the subscribers.
6. Subscribers named in any subscription for Shares clearly understand
that this is an impound escrow between the Company, the Dealer Manager, and the
Escrow Agent and that they are not a party to this escrow.
7. All documents, including any instrument necessary for the negotiation
or other transfer of escrow assets, deposited simultaneously with the execution
of this Agreement are approved by the Company, and the Escrow Agent shall not
be obligated to inquire as to the form, manner of execution or validity of
these documents or any document hereafter deposited pursuant to the provisions
hereof, nor shall the Escrow Agent be obligated to inquire as to the identity,
authority or rights of the persons executing the same. The Escrow Agent shall
be liable under this Agreement only for its failure to exercise due care in the
performance of its duties expressly set forth in this Agreement. The Escrow
Agent shall have a lien on all securities, monies and
<PAGE> 3
documents deposited in this escrow by each subscriber to secure Escrow Agent's
reasonable compensation and expenses and for judgments, attorneys' fees
and other liabilities which the Escrow Agent may incur or sustain by reason of
this escrow, and the undersigned agrees to pay to Escrow Agent, upon demand,
amounts to satisfy all such liabilities, fees and expenses. In case of
conflicting demands upon it, the Escrow Agent may withhold performance of this
escrow until such time as the conflicting demands shall have been withdrawn or
the rights of the respective parties shall have been settled by court
adjudication, arbitration, joint order or otherwise.
8. Commencing with the date the Securities and Exchange Commission
declares the Company's Registration Statement on Form S-11 effective
(the "Effective Date"), and ending on the Termination Date (the "Offering
Period"), the Escrow Agent shall disburse (i) to the Dealer Manager on a
monthly basis, pursuant to that certain Dealer Manager Agreement dated July 16,
1996 between the Company and the Dealer Manager (the "Dealer Manager
Agreement"), an amount equal to 7% of the sales price (or up to $.70) for each
Share sold by the Dealer Manager, and (ii) the remainder of any funds received
by the Escrow Agent to the Company on a monthly basis, or otherwise in
accordance with the Company's written request, and any funds held in escrow
shall be invested by the Escrow Agent, subject to paragraph 9 hereof, in such
instruments as the Company may direct. Upon termination of the Offering, which
shall occur not later than 12 months after the Effective Date, provided however
that, subject to requalification in certain states, the Company may extend the
Offering Period from time to time, but in no event more than two years after
the Effective Date (the "Termination Date"), all amounts theretofore
undistributed shall be distributed to the Company and to the Dealer Manager,
and this escrow shall close and be consummated in its entirety.
9. The funds deposited herein shall be invested in federally insured bank
accounts (e.g., savings accounts), short-term certificates of deposit issued by
a bank, short-term securities issued or guaranteed by the United States
government and any other investments permitted under Rule 15c2-4 of the
Securities Exchange Act of 1934, as amended, at the direction of the Company.
The interest on such investments shall, on a monthly basis while subscribers'
deposits remain in escrow and, if all conditions herein are met, when such
deposits are disbursed to the Company, be disbursed by the Escrow Agent to the
Company in accordance with paragraph 8 hereof.
10. Any notices which are required or desired to be given hereunder to the
parties hereto shall be in writing and may be given by mailing the same to the
address indicated below (or to such other address as either of the parties may
have theretofore substituted therefor by written notification to the other
party hereto), by registered or certified United States mail, postage prepaid.
For all purposes hereof, any notice so mailed by the Escrow Agent shall be
treated as though served upon the party to whom it was mailed at the time it is
deposited in the United States mail by the Escrow Agent whether or not such
party thereafter actually receives such notice. Notices to the Escrow Agent
shall be in writing and shall not be deemed to be given until actually received
by the Escrow Agent's trust department. Whenever under the terms
2
<PAGE> 4
hereof the time for giving a notice or performing an act falls upon a
Saturday, Sunday or bank holiday, such time shall be extended to the Escrow
Agent's next business day.
11. The Escrow Agent, when acting as the Escrow Agent, undertakes to
perform only such duties as are expressly set forth herein and the Escrow Agent
shall not be subject to, nor obliged to recognize, any other agreement between,
or direction or instruction of, the Company even though reference thereto may
be made herein; provided, however, this Agreement may be amended at any time or
times by an instrument in writing signed by the Company, the Dealer Manager and
Escrow Agent. In the event the Escrow Agent becomes involved in or is
threatened with litigation by reason hereof, it is hereby authorized to and may
deposit with the clerk of a court of competent jurisdiction any and all funds
held by it pursuant hereto, and thereupon the Escrow Agent shall stand fully
relieved and discharged of any further duties hereunder.
12. If any property subject hereto is at any time attached, garnished or
levied upon, under any court order, or in case the payment, assignment,
transfer, conveyance or delivery of any such property shall be stayed or
enjoined by any court order, or in any case any order, judgment or decree shall
be made or entered by any court affecting such property, or any part thereof,
then in any of such events, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ, judgment or
decree, which it is advised by legal counsel of its own choosing is binding
upon it, and if it complies with any such order, writ, judgment or decree, it
shall not be liable to any of the parties hereto or to any other person, firm
or corporation by reason of such compliance, even though such order, writ,
judgment or decree may be subsequently reversed, modified, annulled, set aside
or vacated.
13. This Agreement shall be construed, enforced and administered in
accordance with the laws of the State of Illinois.
14. The Escrow Agent shall be entitled to reasonable fees in connection
with this Escrow, which fees shall be payable by the Company.
15. The Escrow Agent may resign by giving five days written notice by
registered or first class mail sent to the undersigned at its address herein
set forth; and, thereafter, shall deliver all remaining deposits in said escrow
upon the written and signed order of the undersigned. If no such notice is
received by the Escrow Agent within 30 days after mailing such notice it is
unconditionally and irrevocably authorized and empowered to send any and all
items deposited hereunder by registered mail to the respective depositors
thereof or, at its sole option, to deliver such deposited items to the
respective depositors.
16. Any notice required to be given hereunder by any of the parties hereto
shall be addressed as follows:
If to the Company:
3
<PAGE> 5
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
If to the Dealer Manager:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
If to Escrow Agent:
LaSalle National Bank, N.A.
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Corporate Trust Department
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INLAND REAL ESTATE CORPORATION
By:_______________________________________
Title:____________________________________
INLAND SECURITIES CORPORATION
By:_______________________________________
Title:____________________________________
LASALLE NATIONAL BANK, N.A.
CHICAGO, IL
By:_______________________________________
Title:____________________________________
4
<PAGE> 1
MANAGEMENT AGREEMENT
IN CONSIDERATION of the mutual covenants and agreements herein
contained, Inland Real Estate Corporation, a Maryland corporation ("OWNER")
and Inland Commercial Property Management, Inc., an Illinois Corporation
("AGENT"), agree as follows:
1. OWNER hereby employs the AGENT exclusively to rent, lease,
operate and manage the property (the "Premises") commonly known as
____________________________________________ and located in
____________________________________________________, Illinois, and legally
described on Exhibit "A" attached hereto and made a part hereof, upon the terms
and conditions hereinafter set forth, for a term beginning on the ______ day
of ______________, 199___ and ending on the 31st day of December, 199__ and
thereafter for one year periods, commencing on January 1st of each year and
ending on December 31st of each year, unless on or before thirty (30) days
prior to the date last above mentioned or on or before thirty (30) days prior
to the expiration of any such renewal period, either party shall notify the
other in writing that it elects to terminate this Agreement, in which case this
Agreement shall be thereby terminated on said last mentioned date. In the
event this Agreement is canceled for any reason prior to the expiration of its
original term or any renewal term, the OWNER shall indemnify, protect, defend,
save and hold the AGENT and all of its shareholders, officers, directors,
employees, agents, successors and assigns ( collectively, "Indemnified
Parties") harmless from and against any and all claims, causes of action,
demands, suits, proceedings, loss, judgments, damage, awards, liens, fines,
costs, attorney's fees and expenses, of every kind and
1
<PAGE> 2
nature whatsoever (collectively, "Losses"), which may be imposed on or incurred
by the AGENT by reason of the willful misconduct, gross negligence and/or
unlawful acts (such unlawfulness having been adjudicated by a court of proper
jurisdiction) of OWNER.
2. THE AGENT AGREES:
2.1 To accept the management of the Premises, to the extent, for the
period, and upon the terms herein provided and agrees to furnish the services
of its organization for the rental, leasing, operation and management of the
Premises, and, without limiting the generality of the foregoing, the AGENT
agrees to be responsible for those specific duties and functions set forth in
Section 3 hereof. AGENT shall be entitled at all times to manage the Premises
in accordance with the AGENT'S standard operating policies and procedures,
except to the extent that any specific provisions contained herein are to the
contrary, in which case AGENT shall manage the Premises consistent with such
specific provisions. AGENT agrees to use its best efforts to maintain the
highest occupancy at the highest rents for each space comprising the Premises.
2.2 To render monthly reports for the Premises to the OWNER, to the
attention of the individual and address as directed by the OWNER from time to
time, and to remit to the OWNER the excess of Gross Income (as defined in
Section 3.3 hereof) over expenses paid per Section 3.4 hereof ("Net Proceeds")
for each month on or before the day of the following month. AGENT will
remit the Net Proceeds, to the OWNER at the address as stated in Section 6.1
hereof. The reports to be submitted shall consist of the AGENT'S Consolidated
Cash Report and Budget Variance Report, (samples of which are attached as
"Exhibit B") or such other reports as mutually agreed in writing from time to
time.
2
<PAGE> 3
2.3 In case the expenses paid per Section 3.4 hereof shall be in
excess of the Gross Income for any monthly period, AGENT shall notify OWNER of
same and OWNER agrees to pay such excess immediately upon request from the
AGENT, but nothing herein contained shall obligate the AGENT to advance its own
funds on behalf of the OWNER. All advances by AGENT on behalf of OWNER shall
be paid to AGENT by OWNER within ten (10) days after request.
2.4 To prepare annualized budgets for operation of the Premises and
submit same to the OWNER for approval. Such budgets shall be for planning and
informational purposes only, and the AGENT shall have no liability to the OWNER
for any failure to meet any such budget. However, AGENT will use its best
efforts to operate the Premises within the approved budget. The parties
acknowledge that the first such annual budget has been prepared and approved
for the year commencing _______________, 199______ and ending on
________________________, 199_______. Notwithstanding the period covered by
the first annual budget, all subsequent annual budgets shall cover the period
from January 1st of each year through December 31st of such year. The proposed
annual budget for each calendar year shall be submitted by AGENT to the OWNER
by December 1st of the year preceding the year for which it applies. OWNER
shall notify AGENT within fifteen (15) days as to whether OWNER has approved
the proposed annual budget or not. If the OWNER disapproves the proposed
budget, the OWNER shall notify the AGENT of what, specifically, OWNER
disapproves of, and the OWNER and AGENT shall make the necessary amendments to
the annual budget. During the time OWNER and AGENT are preparing these
amendments, AGENT will continue to operate the Premises according to the last
approved budget. The OWNER'S approval of the annual budget shall constitute
approval for the AGENT to expend sums for all budgeted expenditures, without
the necessity to obtain additional approval of the OWNER under any other
expenditure limitations as set forth elsewhere in this Agreement.
3
<PAGE> 4
3. THE OWNER AGREES:
And does hereby give the AGENT the following exclusive authority and
powers (all of which shall be exercised in the name of AGENT, as agent for the
OWNER) and the OWNER agrees to assume all expenses in connection therewith:
3.1 To advertise the Premises or any part thereof and to display
signs thereon, as permitted by law; and to rent the same; to pay all expenses
of leasing the Premises, including but not limited to, newspaper and other
advertising, signage, banners, brochures, referral commissions, leasing
commissions, finder's fees and salaries, bonuses and other compensation of
leasing personnel responsible for the leasing of the Premises; to cause
references of prospective tenants to be investigated, it being understood and
agreed by the parties hereto that the AGENT does not guarantee the credit
worthiness or collectibility of accounts receivable from tenants, users or
lessees; to negotiate new leases and renewals and cancellations of existing
leases which shall be subject to the AGENT obtaining OWNER'S approval. The
AGENT may collect from tenants all or any of the following: a late rent
administrative charge, a non-negotiable check charge, credit report fee, a
subleasing administrative charge and/or broker's commission and need not
account for such charges and/or commission to the OWNER; to terminate tenancies
and to sign and serve in the name of the OWNER of the Premises such notices as
are deemed necessary by the AGENT; to institute and prosecute actions to evict
tenants and to recover possession of the Premises or portions thereof; with the
OWNER'S authorization, to sue for in the name of the OWNER of the Premises and
recover rent and other sums due; and to settle, compromise, and release such
actions or suits, or reinstate such tenancies. All expenses of litigation
including, but not limited to, attorneys' fees, filing fees, and court costs
which AGENT shall incur in connection with the collecting of rent and other
sums, or to recover possession of the Premises or any portion thereof shall be
deemed to be an operational
4
<PAGE> 5
expense of the Premises. AGENT and OWNER shall concur on the selection of the
attorney to handle such litigation.
3.2 To hire, supervise, discharge, and pay all labor required for
the operation and maintenance of the Premises including but not limited to on
site personnel, managers, assistant managers, leasing consultants, engineers,
janitors, maintenance supervisors and other employees required for the
operation and maintenance of the Premises, including personnel spending a
portion of their working hours (to be charged on a pro rata basis) at the
Premises (all of whom shall be deemed employees of the Premises, not of the
AGENT. All expenses of such employment shall be deemed operational expenses
of the Premises. To make or cause to be made all ordinary repairs and
replacements necessary to preserve the Premises in its present condition and
for the operating efficiency thereof and all alterations required to comply
with lease requirements, and to do decorating on the Premises; to negotiate and
enter into, as AGENT of the OWNER of the Premises, contracts for all items on
budgets that have been approved by OWNER, any emergency services or repairs for
items not exceeding $5,000.00, appropriate service agreements and labor
agreements for normal operation of the Premises, which have terms not to exceed
three (3) years, and agreements for all budgeted maintenance, minor
alterations, and utility services, including, but not limited to, electricity,
gas, fuel, water, telephone, window washing, scavenger service, landscaping,
snow removal, pest exterminating, decorating and legal services in connection
with the leases and service agreements relating to the Premises, and other
services or such of them as the AGENT may consider appropriate; and to purchase
supplies and pay all bills. AGENT shall use its best efforts to obtain the
foregoing services and utilities for the Premises at the most economical costs
and terms available to AGENT. The OWNER hereby appoints AGENT as OWNER'S
authorized agent for the purpose of executing, as managing agent for said
OWNER, all such contracts. In addition, the
5
<PAGE> 6
OWNER agrees to specifically assume in writing all obligations under all such
contracts so entered into by the AGENT, on behalf of the OWNER of the Premises,
upon the termination of this Agreement and the OWNER shall indemnify, protect,
save, defend and hold the AGENT and all of its shareholders, officers,
directors, employees, agents, successors and assigns harmless from and against
any and all claims, causes of action, demands, suits, proceedings, loss,
judgments, damage, awards, liens, fines, costs, attorney's fees and expenses,
of every kind and nature whatsoever, resulting from, arising out of or in any
way related to such contracts and which relate to or concern matters occurring
after termination of this Agreement, but excluding matters arising out of
AGENT's willful misconduct, gross negligence and/or unlawful acts. AGENT shall
secure the approval of, and execution of appropriate contracts by, the OWNER
for any non-budgeted and non-emergency/ contingency capital items, alterations
or other expenditures in excess of $5,000.00 for any one item, securing for
each item at least three (3) written bids, if practicable, or providing
evidence satisfactory to OWNER that the contract amount is lower than industry
standard pricing, from responsible contractors. AGENT shall have the right
from time to time during the term hereof, to contract with and make purchases
from subsidiaries and affiliates of the AGENT, provided that contract rates and
prices are competitive with other available sources. The AGENT may at any time
and from time to time request and receive the prior written authorization of
the OWNER of the Premises of any one or more purchases or other expenditures,
notwithstanding that the AGENT may otherwise be authorized hereunder to make
such purchases or expenditures.
3.3 To collect rents and/or assessments and other items, including
but not limited to tenant payments for real estate taxes, property liability
and other insurance, damages and repairs, common area maintenance, tax
reduction fees and all other tenant reimbursements, administrative charges,
proceeds of rental interruption insurance, parking fees, income from coin
operated machines and
6
<PAGE> 7
other miscellaneous income, due or to become due (all such items being
referred to herein as "Gross Income") and give receipts therefor and to deposit
all such Gross Income collected hereunder in the AGENT'S custodial account
which the AGENT will open and maintain, in a state or national bank of the
AGENT'S choice and whose deposits are insured by the Federal Deposit Insurance
Corporation, exclusively for the Premises and any other properties owned by
OWNER and managed by AGENT. OWNER agrees that AGENT shall be authorized to
maintain a reasonable minimum balance (to be determined jointly from time to
time) in such account. AGENT may endorse any and all checks received in
connection with the operation of the Premises and drawn to the order of the
OWNER and the OWNER shall, upon request, furnish the AGENT'S depository with an
appropriate authorization for the AGENT to make such endorsement.
3.4 To pay all expenses of the Premises from the Gross Income
collected in accordance with 3.3 above, from the AGENT'S custodial account.
It is understood that the Gross Income will be used first to pay the
compensation to the AGENT as contained in Paragraph 5 below, then operational
expenses and then any mortgage indebtedness, including real estate tax and
insurance impounds, but only as directed by the OWNER in writing and only if
sufficient Gross Income is available for such payments.
3.5 Nothing in this Agreement shall be interpreted in such a manner
as to obligate the AGENT to pay from Gross Income, any expenses incurred by
OWNER prior to the commencement of this Agreement, except to the extent the
OWNER advances additional funds to pay such expenses.
3.6 To collect and handle tenants' security deposits, including the
right to apply such security deposits to unpaid rent, and to comply, on behalf
of the OWNER of the Premises, with applicable state or local laws concerning
security deposits and interest thereon, if any.
3.7 The AGENT shall not be required to advance any monies for the
care or management
7
<PAGE> 8
of the Premises, and the OWNER agrees to advance all monies necessary therefor.
If the AGENT shall elect to advance any money in connection with the Premises,
the OWNER agrees to reimburse the AGENT forthwith and hereby authorizes the
AGENT to deduct such advances from any monies due the OWNER.
3.8 In connection with any insured losses or damages, to handle all
steps necessary regarding any such claim; provided that the AGENT will not make
any adjustments or settlements in excess of $10,000.00 without the OWNER'S
prior written consent.
4. THE OWNER FURTHER AGREES:
4.1 To idemnify, defend, protect, save and hold the AGENT and all of
its shareholders, officers, directors, employees, agents, successors and
assigns (collectively, "Indemnified Parties") harmless from any and all
claims, causes of action, demands, suits, proceedings, loss, judgments, damage,
awards, liens, fines, costs, attorney's fees and expenses, of every kind and
nature whatsoever (collectively, "Losses") in connection with or in any way
related to the Premises and from liability for damage to the Premises and
injuries to or death of any person whomsoever, and damage to property;
provided, however, that such indemnification shall not extend to any such
Losses arising out of the willful misconduct, gross negligence and/or unlawful
acts (such unlawfulness having been adjudicated by a court of proper
jurisdiction) of AGENT or any of the other Indemnified Parties. OWNER agrees
to procure and carry at its own expense Public Liability Insurance, Fire and
Extended Coverage Insurance, Burglary and Theft Insurance, Rental Interruption
Insurance, Flood Insurance (if appropriate) and Boiler Insurance (if
appropriate) naming the OWNER and the AGENT as insureds and adequate to protect
their interests and in form, substance, and amounts reasonably satisfactory to
the AGENT, and to furnish to the AGENT certificates and policies evidencing the
8
<PAGE> 9
existence of such insurance. The premiums for all such insurance maintained by
the OWNER shall be paid by either the OWNER directly or, provided sufficient
Gross Income is available, by the AGENT from such Gross Income. Unless the
OWNER shall provide such insurance and furnish such certificate and policy
within ten (l0) days from the date of this Agreement, the AGENT may, in its
sole discretion, but shall not be obligated to, place said insurance and charge
the cost thereof to the account of the OWNER. All such insurance policies
shall provide that the AGENT shall receive thirty (30) days' written notice
prior to cancellation of the policy. AGENT shall not be liable for any error
of judgment or for any mistake of fact or law, or for any thing which it may do
or refrain from doing, except in cases of willful misconduct, gross negligence
and/or unlawful acts (such unlawfulness having been adjudicated by a court of
proper jurisdiction).
4.2 OWNER hereby warrants and represents to AGENT that to the best of
OWNER'S knowledge, neither the Premises, nor any part thereof, has previously
been or is presently being used to treat, deposit, store, dispose of or place
any hazardous substance, that may subject AGENT to liability or claims under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C.A. Section 9607) or any constitutional provision, statute,
ordinance, law, or regulation of any governmental body or of any order or
ruling of any public authority or official thereof, having or claiming to have
jurisdiction thereover. Furthermore, OWNER agrees to indemnify, protect,
defend, save and hold the AGENT and all of its shareholders, officers,
directors, employees, agents, successors and assigns harmless from any and all
claims, causes of action, demands, suits, proceedings, loss, judgments, damage,
awards, liens, fines, costs, attorney's fees and expenses, of every kind and
nature whatsoever, involving, concerning or in any way related to any past,
current or future allegations regarding treatment, depositing, storage,
disposal or placement by any party other than AGENT of hazardous substances on
the Premises.
9
<PAGE> 10
4.3 To give adequate advance written notice to the AGENT if the OWNER
desires that the AGENT make payment, out of Gross Income, to the extent funds
are available after the payment of the AGENT'S compensation, as contained in
Paragraph 5, and all operational expenses, of mortgage indebtedness, general
taxes, special assessments, or fire, boiler, or any other insurance premiums.
In no event shall the AGENT be required to advance its own money in payment of
any such indebtedness, taxes, assessments, or premiums.
5. THE OWNER AGREES TO PAY THE AGENT, AS A MONTHLY MANAGEMENT FEE
HEREUNDER, an amount no greater than four and one half percent (4.5%) of Gross
Income for the month for which the payment is made, which shall be deducted
monthly by the AGENT and retained by the AGENT from Gross Income prior to
payment to OWNER of Net Proceeds. Such Management Fee shall be compensation
for those services specified herein; any services beyond those specified
herein, such as sales brokerage services or construction management services,
loan origination and servicing fees, property tax reduction fees and risk
management fees shall be performed by AGENT and compensated by OWNER only if
the parties agree on the scope of such work and provided that the compensation
to be paid therefor will not exceed 90% of that which would be paid to
unrelated parties providing such services and provided further that all such
compensation must be approved by a majority of the independent directors of
OWNER.
5.1 AGENT shall retain all administrative charges actually
collected from tenants in connection with annual common area maintenance
reconciliations and tenant chargebacks for same.
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<PAGE> 11
6. IT IS MUTUALLY AGREED THAT:
6.l OWNER shall designate one (1) person to serve as OWNER'S
Representative in all dealings with AGENT hereunder. Whenever the notification
and reporting to OWNER or the approval, consent or other action of OWNER is
called for hereunder, such notification, reporting, approval, consent or action
shall be binding on OWNER, if sent to or specified in writing and executed by
OWNER'S Representative. The OWNER'S Representative shall be:
Name Address
---- -------
- ----------------------- -------------------------
Patricia A. Challenger 2901 Butterfield Road
Oak Brook, Illinois 60521
Such representation may be changed at the discretion of the OWNER, at
any time, and shall be effective upon AGENT'S receipt of written notice of the
new OWNER'S Representative.
6.2 The OWNER expressly withholds from the AGENT any power or
authority to make any structural changes in any building or to make any other
major alterations or additions in or to any such building or equipment therein,
or to incur any expense chargeable to the OWNER, other than expenses related to
exercising the express powers above vested in the AGENT without the prior
written direction of the OWNER'S Representative, except such emergency repairs
as may be required to ensure the safety of persons or property or which are
immediately necessary for the preservation and safety of the Premises or the
safety of the tenants and occupants thereof or are
11
<PAGE> 12
required to avoid the suspension of any necessary service to the Premises. The
person identified above shall be the OWNER'S exclusive representative for all
purposes hereof, and the AGENT shall have the absolute right to rely upon all
decisions, approvals and directions of such person. Such representative shall
have the right to designate a successor representative by written notice to the
AGENT.
6.3 The AGENT shall be responsible for notifying OWNER in the
event it receives notice that any building on the Premises or any equipment
therein does not comply with the requirements of any statute, ordinance, law,
or regulation of any governmental body or of any public authority or official
thereof having or claiming to have jurisdiction thereover. AGENT shall
promptly forward to the OWNER any complaints, warnings, notices, or summonses
received by it relating to such matters. The OWNER represents that to the best
of its knowledge the Premises and such equipment comply with all such
requirements and authorizes the AGENT to disclose the OWNER of the Premises to
any such officials and agrees to indemnify, protect, defend, save and hold the
AGENT and the other Indemnified Parties harmless of and from any and all
Losses which may be imposed on them or any of them by reason of the failure of
OWNER to correct any present or future violation or alleged violation of any
and all present or future laws, ordinances, statutes, or regulations of any
public authority or official thereof, having or claiming to have jurisdiction
thereover, of which it has actual notice.
6.4 In the event it is alleged or charged that any building on the
Premises or any equipment therein or any act or failure to act by the OWNER
with respect to the Premises or the sale, rental, or other disposition thereof
fails to comply with, or is in violation of, any of the requirements of any
constitutional provision, statute, ordinance, law, or regulation of any
governmental body or any order or ruling of any public authority or official
thereof having or claiming to have jurisdiction
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<PAGE> 13
thereover, and the AGENT, in its sole and absolute discretion, considers that
the action or position of the OWNER, with respect thereto may result in damage
or liability to the AGENT, the AGENT shall have the right to cancel this
Agreement at any time by written notice to the OWNER of its election so to do,
which cancellation shall be effective upon the service of such notice. Such
notice may be served personally or by registered mail, on or to the person
named to receive the AGENT'S monthly statement at the address designated for
such person as provided in Paragraph 6.1 above, and if served by mail shall be
deemed to have been served when deposited in the mails. Such cancellation
shall not release the indemnities of the OWNER set forth in this Agreement,
including, but not limited to, those set forth in Paragraphs 1, 3.2, 4.1, 4.2
and 6.3 above and shall not terminate any liability or obligation of the OWNER
to the AGENT for any payment, reimbursement, or other sum of money then due and
payable to the AGENT hereunder.
6.5 All personnel expenses, including but not limited to, wages,
salaries, insurance, fringe benefits, employment related taxes and other
governmental charges, shall be charges incurred in connection with the Premises
for purposes of Paragraph 3.4 hereof, to the extent such expenses are
apportioned by the AGENT to services rendered for the benefit of the Premises.
The number and classification of employees serving the Premises shall be as
determined by the AGENT to be appropriate for the proper operation of the
Premises; provided that the OWNER may request changes in the number and/or
classifications of employees, and the AGENT shall make such changes unless in
its judgment the resulting level of operation and/or maintenance of the
Premises will be inadequate. The AGENT shall honor any collective bargaining
contract covering employment at the Premises which is in effect upon the date
of execution of this Agreement; provided that the AGENT shall not assume or
otherwise become a party to such contract for any purpose whatsoever and all
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<PAGE> 14
personnel subject to such contract shall be considered the employees of the
Premises and not the AGENT.
7. The OWNER shall pay or reimburse the AGENT for any sums of
money due it under this Agreement for services and advances prior to
termination of this Agreement. All provisions of this Agreement that
require the OWNER to have insured, or to protect, defend, save, hold and
indemnify or to reimburse the AGENT shall survive any expiration or
termination and, if AGENT is or becomes involved in any claim, proceeding or
litigation by reason of having been the AGENT of the OWNER, such provisions
shall apply as if this Agreement were still in effect. The parties understand
and agree that the AGENT may withhold funds for sixty (60) days after the end
of the month in which this Agreement is terminated to pay bills previously
incurred but not yet invoiced and to close accounts. Should the funds withheld
be insufficient to meet the obligation of the AGENT to pay bills previously
incurred, the OWNER will upon demand advance sufficient funds to the AGENT to
ensure fulfillment of AGENT'S obligation to do so, within ten (10) days of
notice.
8. Nothing contained herein shall be construed as creating any
rights in third parties who are not the parties to this Agreement, nor shall
anything contained herein be construed to impose any liability upon OWNER or
AGENT for the performance by the OWNER or AGENT under any other agreement they
have entered into or may in the future enter into, without the express written
consent of the other having been obtained. Nothing contained in this Agreement
shall be deemed or construed to create a partnership or joint venture between
OWNER and AGENT or to cause either party to be responsible in any way for the
debts or obligations of the other or any other party (but nothing contained
herein shall affect AGENT'S responsibility to transmit payments for the account
14
<PAGE> 15
of OWNER as provided herein), it being the intention of the parties that the
only relationship hereunder is that of AGENT and principal.
9. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited or invalid under
such law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. This Agreement, its validity,
performance and enforcement shall be construed in accordance with, and governed
by, the laws of the State of Illinois.
10. This Agreement shall be binding upon the successors and
assigns of the AGENT and the heirs, administrators, executors, successors, and
assignees of the OWNER. This Agreement contains the entire Agreement of the
parties relating to the subject matter hereof, and there are no understandings,
representations or undertakings by either party except as herein contained.
This Agreement may be modified solely by a written agreement executed by both
parties hereto.
11. If any party defaults under the terms or conditions of this
Agreement, the defaulting party shall pay the non-defaulting party's court
costs and attorney's fees incurred in the enforcement of any provision of this
Agreement.
12. The failure of either party herein to, in any one or more
instances, insist upon the performance of any of the terms, covenants or
conditions of this Agreement, or to exercise any rights or privileges conferred
in this Agreement, shall not be construed as thereafter waiving any such
15
<PAGE> 16
terms, covenants, conditions, rights or privileges, but the same shall continue
in full force and effect as if no such forbearance or waiver had occurred.
13. This Agreement is deemed to have been drafted jointly by the
parties, and any uncertainty or ambiguity shall not be construed for or against
either party as an attribution of drafting to either party.
14. All notices given under this Agreement shall be sent by
certified mail, return receipt requested, sent by facsimile transmission, or
hand delivered at:
<TABLE>
<S> <C>
FOR OWNER: FOR AGENT:
Inland Real Estate Corporation Inland Commercial Property Management, Inc.
ATTN: Patricia Challenger ATTN: Scott Carr, President
2901 Butterfield Road 2901 Butterfield Road
Oak Brook, Illinois 60521 Oak Brook, Illinois 60521
Fax: #708/218-4935 Fax: #708/218-4928
</TABLE>
IN WITNESS WHEREOF, the parties hereto have affixed or caused to be
affixed their respective signatures this _______ day of _______________, 1996.
<TABLE>
<S> <C>
AGENT: OWNER:
INLAND COMMERCIAL PROPERTY INLAND REAL ESTATE CORPORATION
MANAGEMENT, INC.
BY: BY:
---------------------------------- ----------------------------
ITS: ITS:
--------------------------------- ----------------------------
</TABLE>
16
<PAGE> 1
EXHIBIT 10.4
Amended and Restated Independent Director Stock Option Plan
<PAGE> 2
AMENDED AND RESTATED
INLAND REAL ESTATE CORPORATION
INDEPENDENT DIRECTOR STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE:
Inland Real Estate Corporation, a Maryland corporation (the
"Corporation"), hereby adopts this Independent Director Stock Option Plan (the
"Plan"). The purpose of the Plan is to foster and promote the long-term
financial success of the Corporation by attracting and retaining outstanding
non-employee directors by enabling them to participate in the Corporation's
growth through the granting of Options (as defined in Article II) which entitle
them to purchase shares of the Company's common stock, par value $0.01 per
share ("Common Stock").
1.2 PARTICIPATION:
Only directors of the Corporation who at the time an Option is granted
meet the following criteria ("Directors") shall receive an Option under the
Plan: (a) the director is not, and has not been for at least two years, an
employee or officer of the Corporation or any subsidiary of the Corporation;
and (b) the director is a "disinterested person" as such term is defined in
Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act") or any similar rule which may subsequently be in effect ("Rule 16b-3").
1.3 SHARES SUBJECT TO THE PLAN:
Shares of Common Stock to be issued upon exercise of Options granted under
the Plan may be in whole or in part from authorized but unissued shares or
treasury shares of the Corporation's Common Stock. A maximum of 50,000 shares
of Common Stock (the "Plan Maximum") may be issued for all purposes under the
Plan (subject to adjustment pursuant to Section 3.2). Any shares of Common
Stock reserved for issuance under Options which for any reason are cancelled or
terminated without having been exercised shall not be counted in determining
whether the Plan Maximum has been reached. Options for fractional shares
shall not be granted.
1.4 GENDER AND NUMBER:
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender, the singular
shall include the plural, and the plural shall include the singular.
<PAGE> 3
ARTICLE II
STOCK OPTION AWARDS
2.1 AWARD OF STOCK OPTIONS:
Effective on the later of the date on which a Director becomes a member of
the Board of Directors with the Company or October 14, 1994, each Director who
satisfies the conditions set forth in Section 1.2 will automatically be awarded
a stock option (an "Initial Option" or the "Initial Options") under the Plan to
purchase 3,000 (subject to adjustment pursuant to Section 3.2) shares of Common
Stock. Effective on the date of each Annual Meeting, commencing with the
Annual Meeting in 1995, each Director then in office who satisfies the
conditions set forth in Section 1.2 will automatically be awarded a stock
option (a "Subsequent Option" or the "Subsequent Options", collectively with
the "Initial Options" referred to herein as an "Option" or "Options") to
purchase 500 (subject to adjustment pursuant to SectionE3.2) shares of Common
Stock. The Options are not intended to qualify as "incentive stock options" as
defined in Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code").
2.2 STOCK OPTION CERTIFICATES:
The award of an Option shall be evidenced by a certificate executed by an
officer of the Corporation.
2.3 OPTION PRICE:
The purchase price of Common Stock (the "Option Price") under each Initial
Option granted shall be the Fair Market Value (as defined in Section 3.5) of
the Common Stock on the date of the grant, which, until the earlier of (i) the
termination of the Company's offering of Common Stock which commenced on
October 14, 1994 or (ii) October 14, 1996 (the "Initial Offering Period), shall
be $9.05. The Option Price under each Subsequent Option granted on the date of
any Annual Meeting shall be the Fair Market Value of the Common Stock on the
last business day preceding the date of the Annual Meeting, provided however
that during the Initial Offering Period the Option Price shall be $9.05.
2.4 EXERCISE AND TERM OF OPTIONS:
(a) Options may be exercised by the delivery of written notice of
exercise and payment of the aggregate Option Price for the shares to be
purchased to the Corporate Secretary of the Corporation. The Option Price may
be paid in cash (including check, bank draft or money order) or, unless in the
opinion of counsel to the Corporation to do so may result in a possible
violation of law, by delivery of Common Stock already owned by the Director,
valued at Fair Market Value on the date of the exercise. As soon as
practicable after receipt of each notice and full payment, the Corporation
shall deliver to the Director a certificate or certificates representing the
acquired shares of Common Stock.
(b) Each certificate for Shares issued upon exercise of an Option, unless
at the time of exercise such Shares are registered with the Securities and
Exchange Commission (the
2
<PAGE> 4
"Commission"), under the Securities Act of 1933, as amended (the "Act"),
shall bear the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES SHALL BE
MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of such counsel as shall be reasonably approved by the
Company, the securities represented thereby need no longer be subject to such
restrictions.
(c) A Director's Initial Option shall become exercisable: (i) 1,000
shares on the date of grant, (ii) 1,000 shares on the first anniversary of the
date of grant, and (iii) 1,000 shares on the second anniversary of the date of
grant (subject to Section 3.1) and shall continue to be exercisable until the
first to occur of the tenth anniversary of the date of grant or three months
following the date the Director ceases to be a Director. Each of a Director's
Subsequent Options shall become exercisable on the second anniversary of the
date on which the Subsequent Option(s) was granted (subject to Section 3.1) and
shall continue to be exercisable until the first to occur of the tenth
anniversary of the date on which the Subsequent Option(s) was granted or three
months following the date the Director ceases to be a Director. In the event
that the death or disability of the Director occurs, all outstanding Options
will be exercisable by the Director (or his legal representative or designated
beneficiary) for one year following the Director's death or disability,
provided, however, if the Option is exercised within the first six months after
it becomes exercisable, any shares of Common Stock issued on such exercise may
not be sold until the six month anniversary of the date of the grant of the
Option.
(d) Notwithstanding any other terms or provisions herein to the contrary,
no Option may be exercised if such exercise would jeopardize the Corporation's
status as a real estate investment trust under the Code.
ARTICLE III
MISCELLANEOUS PROVISIONS
3.1 NONTRANSFERABILITY; BENEFICIARIES:
No Option awarded under the Plan shall be transferable by the Director
otherwise than by will or, if the Director dies intestate, by the laws of
descent and distribution. All Options shall be exercisable during the
Director's lifetime only by the Director or his legal representative. Any
transfer contrary to this Section 3.1 will nullify the Option. In the event of
a Director's death prior to the exercise of any Options which were then
exercisable, such Options may be exercised within one year after the Director's
death (regardless of the expiration date of such
3
<PAGE> 5
Options under Section 2.4(b)) by the Director's beneficiary, designated as
provided below or, in the absence of any such designation, his estate. Each
Director may name, from time to time, any beneficiary or beneficiaries (who may
be named contingently or successively) who may exercise such Options. Each
designation will revoke all prior designations by such Director, will be in
writing and will be effective only when filed with the Corporate Secretary of
the Corporation during his lifetime.
3.2 ADJUSTMENT UPON CERTAIN CHANGES:
(a) If the outstanding shares of Common Stock are (i) increased,
decreased, or (ii) changed into, or exchanged for, a different number or kind
of shares or securities of the Corporation, through a reorganization or merger
in which the Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to an Option. A
corresponding adjustment to the consideration payable with respect to all
Options granted prior to any such change shall also be made. Any such
adjustment, however, shall be made without change in the total payment, if any,
applicable to the portion of the Option not exercised but with a corresponding
adjustment in the price for each share.
(b) Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger or consolidation of the Corporation with one or more
corporations as a result of which the Corporation is not the surviving
corporation or upon sale of all or substantially all of the Corporation's
property, the Plan shall terminate, and any outstanding Options shall terminate
and be forfeited. Notwithstanding the foregoing, the Board of Directors may
provide in writing in connection with, or in contemplation of, any such
transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the
Options theretofore granted or the substitution by such corporation for such
Options of awards covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind
of shares and prices; (ii) for the continuance of the Plan by such successor
corporation in which event the Plan and the Options shall continue in the
manner and under the terms so provided; or (iii) for the payment in cash or
shares of Common Stock in lieu of and in complete satisfaction of such
Options.
3.3 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN:
The Board of Directors may suspend or terminate the Plan or any portion
thereof at any time and may amend it from time to time in such respects as the
Board of Directors may deem advisable in order that any Options thereunder
shall conform to or otherwise reflect any change in applicable laws or
regulations, or to permit the Corporation or the Directors to enjoy the
benefits of any change in applicable laws or regulations, or in any other
respect the Board of Directors may deem to be in the best interests of the
Corporation; provided, however, that no such amendment shall, without
stockholder approval to the extent required by law, agreement or the rules of
any exchange upon which the Common Stock may be listed or national market on
which it may be traded: (a) except as provided in Section 3.2, materially
increase the number
4
<PAGE> 6
of shares of Common Stock which may be issued under the Plan; (b) materially
modify the requirements as to eligibility for participation in the Plan; (c)
materially increase the benefits accruing to Directors under the Plan; or
(d) extend the termination date of the Plan. No such amendment, suspension or
termination shall: (x) impair the rights of Directors under any outstanding
Option without the consent of the Directors affected thereby; or (y) make any
change that would disqualify the Plan, or any other plan of the Corporation
intended to be so qualified, from the exemption provided by Rule 16b-3. No
provision of the Plan which states the amount and price of securities to be
awarded, specifies the timing of awards or sets forth the formula that
determines the amount, price and timing of awards may be amended more than once
every six months, except to comply with changes in the Code, or the Employee
Retirement Income Security Act, as amended ("ERISA"), or the rules thereunder.
3.4 TAX WITHHOLDING:
(a) The Corporation shall have the power to withhold, or require a
Director to remit to the Corporation, an amount sufficient to satisfy any
withholding or other tax due from the Corporation with respect to any
amount payable and/or shares issuable under the Plan, and the Corporation may
defer such payment or issuance unless indemnified to its satisfaction.
(b) Subject to the consent of the Board of Directors, due to the exercise
of an Option, a Director may make an irrevocable election (an "Election") to:
(A) have shares of Common Stock otherwise issuable hereunder withheld; or (B)
tender back to the Corporation shares of Common Stock received; or (C) deliver
back to the Corporation previously acquired shares of Common Stock of the
Corporation having a Fair Market Value sufficient to satisfy all or part of the
Director's estimated tax obligations associated with the transaction. Such
Election must be made by a Director prior to the date on which the relevant tax
obligation arises (the "Tax Date"). The Board of Directors may disapprove of
any Election, may suspend or terminate the right to make Elections, or may
provide with respect to any Option under this Plan that the right to make
Elections shall not apply to such Option.
3.5 DEFINITION OF FAIR MARKET VALUE:
The term "Fair Market Value" as it relates to Common Stock on any given
date means: (a) the mean of the high and low sales prices of the Corporation's
Common Stock as reported on any national exchange on which the Common Stock is
traded; or (b) if the Common Stock is not listed on any national stock
exchange, the mean of the high and low sales prices of the Corporation's Common
Stock as reported by the National Association of Securities Dealers Automated
Quotation System (or, if not so reported, by the system then regarded as the
most reliable source of such quotations) or, if there are no reported sales on
such date, the mean of the closing bid and asked prices as so reported; or (c)
if the Common Stock is listed on a national exchange or quoted in the domestic
over-the-counter market, but there are no reported sales or quotations, as the
case may be, on the given date, the value determined pursuant to (a) or (b)
above using the reported sale prices or quotations on the last previous date on
which so reported; or (d) if none of the foregoing clauses apply, the fair
value as determined in good faith by the Corporation's Board of Directors
consistently with the provisions of Section 2.3.
5
<PAGE> 7
3.6 PLAN NOT EXCLUSIVE:
The adoption of the Plan shall not preclude the adoption by appropriate
means of any other stock option or other incentive plan for Directors.
3.7 LISTING, REGISTRATION AND LEGAL COMPLIANCE:
Each Option shall be subject to the requirement that if at any time
counsel to the Corporation shall determine that the listing, registration or
qualification thereof or of any shares of Common Stock or other property
subject thereto upon any securities exchange or under any foreign, federal or
state securities or other law or regulation, or the consent or approval of any
governmental body or the taking of any other action to comply with or
otherwise, with respect to any such law or regulation, is necessary or
desirable as a condition to or in connection with the award of such Option or
the issue, delivery or purchase of shares of Common Stock or other property
thereunder, no such Option may be exercised or paid in Common Stock or other
property unless such listing, registration, qualification, consent, approval or
other action shall have been effected or obtained free of any conditions not
acceptable to the Corporation, and the holder of the award will supply the
Corporation with such certificates, representations and information as the
Corporation shall request and shall otherwise cooperate with the Corporation in
effecting or obtaining such listing, registration, qualification, consent,
approval or other action. The Corporation may at any time impose any
limitations upon the exercise, delivery or payment of any Option which, in the
opinion of the Board of Directors, are necessary or desirable in order to cause
the Plan or any other plan of the Corporation to comply with Rule 16b-3. If
the Corporation as part of an offering of securities or otherwise, finds it
desirable because of foreign, federal or state legal or regulatory requirements
to reduce the period during which Options may be exercised, the Board of
Directors may, without the holders' consent, so reduce such period on not less
than 15 days written notice to the holders thereof.
3.8 RIGHTS OF DIRECTORS:
Nothing in the Plan shall confer upon any Director any right to serve as a
Director for any period of time or to continue his present or any other rate of
compensation.
3.9 REQUIREMENTS OF LAW; GOVERNING LAW:
The granting of Options under this Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required. The Plan, and
all agreements hereunder, shall be construed in accordance with and governed by
the laws of the State of Illinois. The provisions of this Plan shall be
interpreted so as to comply with the conditions or requirements of Rule 16b-3
under the Exchange Act, unless a contrary interpretation of any such provision
is otherwise required by applicable law.
6
<PAGE> 1
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP
<PAGE> 2
The Board of Directors
Inland Real Estate Corporation
We consent to the use of our reports relating to the financial statements of
Inland Real Estate Corporation f/k/a Inland Monthly Income Fund III, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the year ended December 31, 1995 and for the period from May 12, 1994
(formation date) to December 31, 1994, the historical summaries of gross income
and direct operating expenses of the Walgreen/Decatur Property for each of the
years in the three-year period ended June 30, 1994, and the historical summaries
of gross income and direct operating expenses of the Eagle Crest Shopping
Center for each of the years in the three-year period ended June 30, 1994, the
historical summary of gross income and direct operating expenses of Regency
Point Shopping Center for the year ended December 31, 1995 included herein and
to the reference to our firm under the heading "Experts" in this Registration
Statement on Form S-11 (Reg. No. 333-6549).
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
July 17, 1996
<PAGE> 1
EXHIBIT 23.2
Consent of Shefsky Froelich & Devine Ltd.
<PAGE> 2
CONSENT OF SHEFSKY FROELICH & DEVINE LTD.
Shefsky Froelich & Devine Ltd. hereby consents to the reference to the use of
our name under the heading "Legal Matters" in this Prospectus constituting a
part of this Registration Statement on Form S-11.
SHEFSKY FROELICH & DEVINE LTD.
/s/ Shefsky Froelich & Devine Ltd.
Chicago, Illinois
July 17, 1996
<PAGE> 1
EXHIBIT 23.3
Consent of Arthur Andersen L.L.P.
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) dated September 7, 1995, on the Statement
of Gross Income and Direct Operating Expenses of the Nantucket Square Shopping
Center for the year ended December 31, 1994, included in or made a part of this
Registration Statement on Form S-11.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
July l7, 1996
<PAGE> 1
EXHIBIT 23.4
Consent of Bruce Gorlick, C.P.A., Ltd.
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) on the Statement of Gross Income and Direct
Operating Expenses of the Mundelein Plaza, Prospect Heights Plaza and
Montgomery-Sears Shopping Center for the year ended December 31, 1995,
including in or made a part of this Registration Statement on Form S-11.
/s/ BRUCE GORLICK, C.P.A., LTD.
A PROFESSIONAL CORPORATION
Buffalo Grove, Illinois
July 17, 1996
<PAGE> 1
EXHIBIT 23.5
Consent of Shapiro and Olander
<PAGE> 2
FILED AS PART OF EXHIBIT 5 HEREIN
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