<PAGE> 1
As filed with the Securities and Exchange Commission on June 24, 1997
Registration No. 333-26701
================================================================================
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 60523
(Address of principal executive offices)
Robert H. Baum, Esq.
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
(Name and address of agent for service)
With a copy to:
Michael J. Choate, Esq.
Shefsky & Froelich 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.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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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..... 20,000,000 $10.00 $200,000,000.00 $60,606
Common Stock, $.01 par value(1)... 875,000 12.00 10,500,000.00 3,182
Common Stock, $.01 par value(2).. 1,000,000 $ 9.50 9,500,000.00 2,879
Soliciting Dealer Warrants(3)..... 875,000 .0008 700.00 1.00
</TABLE>
(1) Represents shares of the Company's common stock which are issuable upon
exercise of warrants granted to Inland Securities Corporation pursuant
to the Warrant Purchase Agreements dated July ___, 1997, July 22, 1996
and October 14, 1994, respectively.
(2) Represents shares issuable pursuant to the Company s Distribution
Reinvestment Program.
(3) Represents warrants issuable to the Dealer Manager to purchase 875,000
shares of common stock to Inland Securities Corporation pursuant to the
Warrant Purchase Agreements dated July __, 1997, July 22, 1996 and October
14, 1994.
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.
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<PAGE> 2
INLAND REAL ESTATE CORPORATION
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
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<CAPTION>
Item Number and Caption Location or Heading in Registration Statement
----------------------- ---------------------------------------------
<S> <C>
1. Forepart of Registration Statement Registration Statement Cover Page and Prospectus Cover Page
and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page of Prospectus; Outside Back Cover
Cover Pages of Prospectus Page of Prospectus
3. Summary Information, Risk Prospectus Cover Page; Prospectus Summary; Compensation
Factors and Ratio of Earnings to Table; Risk Factors; Conflicts of Interest; Plan of Distribution
Fixed Charges
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;
Investment, Reinvestment and Share Repurchase Programs
8. Use of Proceeds Estimated Use of Proceeds of Offering
9. Selected Financial Data Not Applicable
10. Management's Discussion and Capitalization; Management's Discussion and Analysis of the
Analysis of Financial Condition Financial Condition of the Company
and Results of Operations
11. General Information as to Registrant Prospectus Summary; Prior Performance of
the Company's Affiliates; Management; Summary of the
Organizational Documents; Prior Performance Tables
12. Policy with Respect to Certain Activities Risk Factors; Conflicts of Interest; 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 Organi-
zational Documents
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2
<PAGE> 3
<TABLE>
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Item Number and Caption Location or Heading in Registration Statement
--------------------------- ---------------------------------------------------
<S> <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 Considerations; ERISA
Its Security Holders Considerations
17. Market Price of and Distributions Risk Factors
on the Registrant's Common
Equity and Related Stockholder
Matters
18. Description of Registrant's Securities Description of 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; Investment
Transactions Objectives and Policies; Real Property Investments
24. Selection, Management and Prospectus Summary; Investment Objectives and Policies;
Custody of Registrant's Investments Real Property Investments
25. Policies with Respect to Certain Conflicts of Interest; Investment Objectives and Policies;
Transactions Summary of the Organizational Documents
26. Limitations of Liability Fiduciary Responsibility of Directors and the Advisor; Indemnification
27. Financial Statements and Information Financial Statements
28. Interests of Named Experts and Counsel Not Applicable
29. Disclosure of Commission Fiduciary Responsibility of Directors and the Advisor;
Position on Indemnification for Indemnification; Plan of Distribution
Securities Act Liabilities
</TABLE>
3
<PAGE> 4
PROSPECTUS
INLAND REAL ESTATE CORPORATION
$10.00 PER SHARE MINIMUM INITIAL PURCHASE - 300 SHARES
(100 SHARES FOR TAX-EXEMPT ENTITIES)
Inland Real Estate Corporation (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. The Company owns 33
properties comprised of 28 Neighborhood Retail Centers and five single-user
retail properties. The Company intends to use the Net Proceeds of this
Offering (after funding appropriate working capital reserves) to acquire
additional properties. See "Investment Objectives and Policies" and "Real
Property Investments."
Of the 21,875,000 shares of the Company's common stock, $.01 par value
per share (the "Shares") offered hereby, a total of 20,000,000 Shares are
being offered on a "best efforts" basis (the "Offering") a total of 1,000,000
Shares are being offered to Stockholders who are participating in the Company's
Distribution Reinvestment Program (the "DRP"); and up to 875,000 Shares may be
issued upon the exercise of warrants granted to the Dealer Manager. See
"Description of Securities - - Soliciting Dealer Warrants." The Company's
day-to-day operations are 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."
AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 16. THESE RISKS INCLUDE THE FACT THAT:
- There is currently no public trading market for the Shares and therefore
the offering price of the Shares may not be indicative of the price that
the Shares may trade at if they were listed on an exchange or of the
proceeds that a Stockholder may receive if the Company was liquidated or
dissolved. An investment in the Shares is suitable only for those able to
make a long-term investment; (page 16)
- The Offering is not conditioned upon the Company raising a minimum
amount of proceeds. The Company may not raise proceeds sufficient to apply
to any use other than payment of organization and offering expenses
associated with the Offering; (page 16)
- Although the Company intends to purchase properties, whenever possible,
on an all-cash basis, the Company utilized financing to acquire 15 of its
33 properties;
- The Company may incur additional indebtedness on its existing properties
or properties acquired in the future. Defaults on this indebtedness could
cause the Company to lose its investment in such properties; (page 17)
- Except for two properties, the Company has not specified any additional
properties in which to invest; (page 16)
- The Company relies on the Advisor and its Affiliates to operate the Company
on a daily basis and manage its assets and pays the Advisor and its
Affiliates substantial fees for rendering these services; (page 20)
- No person may own more than 9.8% of the Shares; (page 17)
- Affiliates of the Advisor are engaged in similar real estate activities
which subject them to various conflicts of interest in managing the
Company's operations. These conflicts include competition for the time and
services of these individuals which may not be on fair market terms 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; and (page 19)
- Stockholders have no preemptive rights, and, therefore, further issuance(s)
of Shares by the Company may dilute the interests of investors purchasing
in this Offering. (page 20)
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=========================================================================================================
Selling Proceeds to
Price to Public Commissions (1) Company (2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 10.00 $ .70 $ 9.30
Minimum Purchase 300 Shares $ 3,000.00 $ 210.00 $ 2,790.00
Total Maximum if 21,000,000 Shares Sold(3) $209,500,000.00 $14,000,000.00 $195,500,000.00
=========================================================================================================
</TABLE>
<PAGE> 5
(1) A total of 20,000,000 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, in certain instances,
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").
the Dealer Manager may retain or reallow all or a part of THIS
compensation to certain Soliciting Dealers unless prohibited by either
federal or state securities laws; provided that the Company will not issue
more than 875,000 Soliciting Dealer Warrants. See "Description of
Securities - Soliciting Dealer Warrants" for additional terms of the
Soliciting Dealer Warrants. The Dealer Manager will also 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. 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 which would increase the net proceeds to the
Company in this instance.
(2) Before deducting Organization and Offering Expenses which will be charged
to the Company, estimated at $4,961,995 if 21,000,000 Shares (the "Maximum
Offering") 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 the excess expenses.
(3) Of the 21,000,000 Shares offered hereby, a total of 20,000,000 Shares are
being offered on a "Best Efforts" basis and a total of 1,000,000 Shares are
being offered to Stockholders who are participating in the Company's
Distribution Reinvestment Program. Participation in the DRP is limited to
those investors who purchased Shares in the Prior Offerings or who purchase
Shares in this Offering. Participants may purchase Shares at a reduced
price due to lower administrative costs ($9.50 per Share). In addition,
assuming all 875,000 warrants are issued to the Dealer Manager, a total of
$700.00 of additional proceeds will be raised; assuming these warrants are
exercised at the warrant price of $12.00, a total of $10,500,000 will be
raised. No commission will be paid in connection with the issuance of the
warrants or the Shares issuable upon exercise thereof.
The Shares offered hereby 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 _________, 1999. Subscription proceeds received from
investors will be held in escrow by the Escrow Agent, pending release to the
Company. Since no minimum offering amount has been specified, subscription
proceeds are expected to be released to the Company as subscriptions are
accepted. All subscriptions will be accepted or rejected within 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.
(end of cover page)
ii
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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 25
WHO MAY INVEST 27
COMPENSATION TABLE 28
NonSubordinated Payments 29
Subordinated Payments 34
CONFLICTS OF INTEREST 37
Competition for the Time and Service of the Advisor and Affiliates 37
Process for Resolving 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
The Company and the Advisor have the Same Legal Counsel 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
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 51
Effects of Property Exchanges on Investors 54
Additional Information 55
MANAGEMENT 56
</TABLE>
iii
<PAGE> 7
<TABLE>
<S> <C>
General 56
Directors and Executive Officers 57
Committees of the Board of Directors 59
Compensation of Directors 59
The Advisor 60
The Advisory Agreement 61
The Management Agent 63
Other Services 65
Independent Director Stock Option Plan 65
SELECTED FINANCIAL DATA 67
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 73
Certain Investment Limitations 73
Appraisals 74
Return of Uninvested Proceeds 74
Additional Offerings and Exchange Listing 74
Joint Ventures 74
Other Policies 75
REAL PROPERTY INVESTMENTS 75
** 1 Lansing Square Shopping Center, Lansing, Illinois 83
** 2 Maple Park Place Shopping Center, Bolingbrook, Illinois 86
The Walgreens/Decatur Property 89
The Eagle Crest Shopping Center 90
Montgomery-Goodyear Shopping Center 91
The Hartford/Naperville Plaza Property 91
Nantucket Square Shopping Center 92
Antioch Plaza 92
The Mundelein Plaza Property 92
Regency Point Shopping Center 92
Prospect Heights Plaza 92
Montgomery-Sears Shopping Center 93
The Zany Brainy Store 93
Salem Square Shopping Center, Countryside, Illinois 93
Hawthorn Village Commons, Vernon Hills, Illinois 93
Six Corners Plaza, Chicago, Illinois 94
Spring Hill Fashion Corner, West Dundee, Illinois 94
Grand & Hunt Club Outlot Center, Gurnee, Illinois 94
The Quarry Outlot, Hodgkins, Illinois 94
Crestwood Plaza Shopping Center, Crestwood, Illinois 95
Park St. Clair Plaza, Schaumburg, Illinois 95
</TABLE>
iv
<PAGE> 8
<TABLE>
<S> <C>
* 1 moved from here; text not shown
The Summit of Park Ridge, Park Ridge, Illinois 95
* 2 moved from here; text not shown
Aurora Commons Shopping Center, Aurora, Illinois 95
Lincoln Park Place Shopping Center, Chicago, Illinois 95
Niles Shopping Center, Niles, Illinois 96
Cobblers Mall, Elgin, Illinois 96
Mallard Mall, Elk Grove Village, Illinois 96
Ameritech Outlot Building, Joliet, Illinois 96
Dominick's Finer Foods, Schaumburg, Illinois 97
Calumet Square Shopping Center, Calumet City, Illinois 97
Dominick's Finer Foods, Highland Park, Illinois 97
Sequoia Plaza Shopping Center, Milwaukee, Wisconsin 97
River Square Shopping Center, Naperville, Illinois 97
Potential Property Acquisitions 98
CAPITALIZATION 99
PRINCIPAL STOCKHOLDERS 100
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS 101
FEDERAL INCOME TAX CONSIDERATIONS 106
Taxation of the Company 107
Taxation of Stockholders 113
Other Tax Considerations 116
ERISA CONSIDERATIONS 116
DESCRIPTION OF SECURITIES 118
General 118
Soliciting Dealer Warrants 119
Issuance of Additional Securities and Debt Instruments 119
Restrictions on Transfer 120
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS 121
Certain Article and Bylaw Provisions 121
Stockholders' Meetings 121
Board of Directors 122
Stockholder Voting Rights 122
Stockholder Lists; Inspection of Books and Records 123
Amendment of the Organizational Documents 123
Dissolution or Termination of the Company 123
Advance Notice of Director Nominations and New Business 124
Restrictions on Certain Conversion Transactions and Roll-Ups 124
Limitation on Total Operating Expenses 126
Transactions with Affiliates 126
Restrictions on Borrowing 127
Restrictions on Investments 127
PLAN OF DISTRIBUTION 129
General 129
Escrow Conditions 129
</TABLE>
v
<PAGE> 9
<TABLE>
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Advisor Capital Contribution 129
Subscription Process 130
Determination of Investor Suitability 130
Compensation 131
Volume Discounts 132
Transfer of Shares 132
Indemnification 133
HOW TO SUBSCRIBE 133
SALES LITERATURE 134
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS 135
Distribution Reinvestment Program 135
Share Repurchase Program 136
REPORTS TO STOCKHOLDERS 137
LEGAL MATTERS 138
EXPERTS 138
ADDITIONAL INFORMATION 139
GLOSSARY 140
INDEX TO FINANCIAL STATEMENTS F-i
PRIOR PERFORMANCE TABLES A-1
DISTRIBUTION REINVESTMENT PROGRAM B-1
SUBSCRIPTION AGREEMENT I-1
</TABLE>
vi
<PAGE> 10
PROSPECTUS SUMMARY
The following summary is 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 The Company owns and operates 28 Neighborhood Retail
Centers (as hereinafter defined) and five single-user
retail properties. The Company intends to acquire additional
existing Neighborhood Retail Centers which are 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 may also acquire
single-user retail properties located throughout the United
States including single-user retail properties 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 $10,000,000
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:
- Selectively acquiring well-located Neighborhood
Retail Centers, as well as single-user retail
properties, triple-net leased by creditworthy tenants.
- Whenever possible, acquire properties on an all-cash
basis to provide the Company with a competitive
advantage over potential purchasers who must secure
financing. The Company may, however, acquire
properties subject to existing indebtedness if it is in
its best interest. The Company utilized financing to
acquire fifteen of its 33 properties. The financing
for eight of the properties was obtained from an
Affiliate and was retired within 90 days of the date of
acquisition. See "Real Property Investments."
Operations:
- Actively manage costs and minimize operating
expenses by centralizing all management, leasing,
marketing, financing, accounting, renovation and
data processing activities.
- Improve rental income and cash flow by
aggressively marketing rentable space.
1
<PAGE> 11
_ Emphasize regular maintenance and periodic
renovation to meet the needs of tenants and to
maximize long-term returns.
_ Maintain a diversified tenant base at its
Neighborhood Retail Centers, consisting primarily of
retail tenants providing consumer goods and
services.
_ 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 has elected
to be treated as a real estate investment trust
("REIT") for federal income tax purposes. See,
generally "Federal Income Tax Considerations." The
Company is located at 2901 Butterfield Road, Oak Brook,
Illinois 60523 (630) 218-8000.
SHARES OUTSTANDING
BEFORE OFFERING A total of ___________ Shares (including _________
Shares issued under the Company's Dividend Reinvestment
Program (the "DRP") and _________ Shares purchased by
the Advisor) were outstanding as of the date of this
Prospectus. The Company previously sold 5,000,000
Shares in a "best efforts" offering that commenced on
October 14, 1994 and was completed on July 22, 1996, at
a price of $10 per Share, and an additional 11.0 million
Shares in a best efforts offering that commenced on July
24, 1996 and was completed on ________, 1997, also at
$10 per Share (collectively the "Prior Offerings").
SHARES OUTSTANDING
POST OFFERING After giving effect to the Offering and assuming the
sale of all Shares offered on a "best efforts" basis
(20,000,000), the Company will have _____________ Shares
outstanding (not taking into account issuance of Shares
under the Company's DRP or Shares issuable upon exercise
of the Soliciting Dealer Warrants or upon exercise of
options granted under the Company's Stock Option Plan)
based on the number of Shares outstanding as of the date
of this Prospectus.
TERMS OF THE OFFERING The Company is offering 21,875,000 shares of common
stock, $.01 par value per share (the "Shares"), of which
20,000,000 Shares are being offered on a "best efforts"
basis; 1,000,000 Shares which may be issued to
Stockholders who are participating in the Company'S DRP;
and up to 875,000 Shares underlying 875,000
warrants (also offered hereby) which may be issued upon
the exercise of the warrants granted to the Dealer
Manager. A "best efforts" offering is one in which the
securities dealers participating in the Offering are
under no obligation to purchase any of the Shares being
offered 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).
2
<PAGE> 12
Minimum investment standards for Tax-Exempt Entities may
be higher in certain states. 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 _________,
1999 (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:
_ There is currently no public trading market for the
Shares and, therefore, the Shares constitute an
illiquid investment. In addition, the offering
price of the Shares may not be indicative of the
price that the Shares may trade at if they were
listed on an exchange or of the proceeds that a
Stockholder may receive if the Company was
liquidated or dissolved.
_ As of the date of this Prospectus, the Company had
approximately $10,000,000 available for additional
acquisitions, and, except for two properties, has
not specified any additional properties for
acquisition.
_ 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 may be
less advantageous to the Company than an arms-
length transaction. The Company competes for the
acquisition of properties with many other entities
engaged in real estate investment activities, some
of which have greater resources than the Company,
which may result in the Company being unable to
acquire properties which it desires and have an
adverse impact on the Company's business.
3
<PAGE> 13
_ 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 and,
hence, the Company's results of operations and
financial condition, including the Company's ability
to pay dividends.
_ Defaults on any secured indebtedness may result in
foreclosure on the Company's assets which would
result in the Company losing its investment in the
properties securing the loan.
_ 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. These
limitations may discourage, impede or prevent a
merger, tender offer or proxy contest, even if such
an event would be favorable to the interests of
stockholder.
_ Although the Company has a working capital reserve
of approximately $1.5 million (equal to 1% of the
gross offering proceeds from the Company's Prior
Offerings) 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 cash needs of the Company
and the Company may have to obtain financing from
either affiliated or unaffiliated sources.
Additional financing would increase the Company's
indebtedness and the risks associated therewith.
_ Under certain circumstances, the Company may borrow
funds to maintain operations of one or more of its
properties or enable it to maintain its REIT status,
thus increasing the Company's indebtedness.
Company Risks:
_ 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 which
may not be on market terms and the possibility
that the Company may do business with entities that
have pre-existing relationships with the Advisor or
its Affiliates which may result in a conflict
between the ongoing business relationship of the
Advisor or its Affiliates and the Company's
business.
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<PAGE> 14
_ The Company's ability to achieve its goals will
depend, to a large extent, on the quality of
management provided by the Advisor and its
Affiliates. Since January 1, 1987, Affiliates of
the Advisor have sponsored twenty-three programs.
Certain of these programs have experienced setbacks,
such as commercial tenant defaults or move-outs,
unfavorable changes in the tax laws and higher than
expected vacancies as apartment markets weakened.
These negative events, which vary by program, have
had the effect of reducing the benefits which
investors in those programs have received. See
"Prior Performance of the Company's Affiliates" and
"Prior Performance Tables."
_ The Advisor and its Affiliates are paid substantial
fees and payments for services rendered to the
Company whether or not Stockholders receive
Distributions.
_ The Directors may authorize the issuance of shares
or other securities in addition to Shares issued
pursuant to this Offering, thereby diluting the
interest of existing Stockholders, including
investors in this Offering, none of whom have
preemptive rights.
_ In most cases, matters requiring stockholder
approval may be approved by a vote of only a
majority of the Stockholders. 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:
_ All equity real estate investments are subject to
some degree of general economic risks, including
lease defaults, which could adversely affect the
Company's results of operations and financial
condition, including the Company's ability to make
Distributions. This risk is borne by Stockholders
in proportion to the number of Shares owned by each
Stockholder.
_ 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 results of operations and financial
condition, including the Company's ability to make
Distributions.
_ Violation of environmental and other governmental
regulations could result in substantial expenditures
by, or damages to, the Company and adversely affect
the Company's results of operations and financial
condition, including the Company's ability to make
Distributions.
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<PAGE> 15
_ Unanticipated renovation or remodeling costs
incurred to re-lease the Company's properties could
adversely affect the Company's results of operations
and financial condition, including the Company's
ability to make Distributions.
Tax Risks:
_ The Company's ability to qualify as a REIT involves
the application of 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 the Company
will be able to satisfy these requirements. In
addition, the actions and transactions the Company
will undertake to maintain its REIT status may not
produce the highest economic profit. For example,
due to certain of the Code provisions applicable to
REITS, the Company does not intend to hold property
as Inventory Property even though holding as
Inventory Property may produce higher selling
prices.
_ If the Company fails to qualify as a REIT, its
Distributions would not be deductible, which would
increase its tax liability and substantially
reducing the funds available for distribution to
Stockholders. The Company could be forced to borrow
to pay these tax liabilities, liquidate certain
investments or take other steps which could
adversely affect the Company's results of operations
and financial conditions, including its ability to
pay Distributions.
_ Shefsky & Froelich Ltd. ("Counsel") has rendered its
opinion that as of June 24, 1997, and, based on
certain representations of the Company as described
throughout the Prospectus regarding the Company's
operations, 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 has enabled and
will enable the Company to satisfy the REIT
Requirements, and that distributions to certain
qualified organizations will not 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. 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
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<PAGE> 16
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.
ERISA Risks:
_ 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."
Failure by the Company to effectively manage the
impact of these risks may impair the Company's
ability to meet its investment objectives and,
therefore, the benefits to the Stockholders from
their investment in the Company may be reduced or
entirely eliminated. See "Risk Factors" and "Prior
Performance of the company's Affiliates."
INVESTMENT OBJECTIVES
AND POLICIES The Company's investment objectives are to:
_ Provide regular Distributions to Stockholders; the
amount of these Distributions may exceed the
Company's taxable income, particularly in the early
years of the Company's operations, due to the
"non-cash" nature of depreciation expense and, to
such extent, will constitute a 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, these Distributions would constitute
a return of capital and would be sheltered from
current taxation for Stockholders. This return of
capital, however, will reduce a Stockholder's tax
basis in his Shares, which will result in more
taxable gain or less taxable loss 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 upon
sale of a property. 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;
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<PAGE> 17
_ 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; and
_ Preserve Stockholders' capital by acquiring
well-located Neighborhood Retail Centers and
single-user retail properties on an all-cash basis,
whenever possible. The Company will, in certain
instances, utilize borrowing to acquire properties.
The Company has utilized financing in connection
with acquisition of fifteen of its 33 properties.
See "Real Property Investments."
There can be no assurance the Company will achieve
these objectives.
To the extent possible, the Company seeks to avoid
fluctuations in Distributions which might result if
Distributions were based on actual cash received during
the Distribution period. To do this, the Company may
use income earned during prior periods, or income
earned subsequent to the Distribution declaration date
but prior to the payment date, in order to distribute
annualized Distributions consistent with the
Distribution level established from time to time by the
Board. The Company's ability to utilize this policy is
dependent upon the availability of Cash Flow and the
applicable REIT rules. The Company seeks, 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. Since
inception through September 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 properties owned by the
Company are currently generating sufficient cash flow
to cover operating expenses of the Company plus pay a
monthly Distribution of 8.5% per annum on weighted
average shares.
The Company intends, 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. The Company has, however, utilized financing to
acquire fifteen of its 33 properties and may do so in
the future where the Board deems it to be in the
Company s best interest. In addition, the Company has
also pledged properties purchased on an all-cash basis
to secure indebtedness incurred post-acquisition and
anticipates doing so in the future. The proceeds from
these loans have been, and will be, used primarily to
acquire additional properties. The Company may also
incur indebtedness to finance improvements to the
acquired properties. The Company anticipates that
aggregate borrowings secured by the Company's
properties will not exceed
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<PAGE> 18
50% of their combined fair market value. Notwithstanding
the foregoing, the maximum amount of borrowings may not
exceed 300% of Net Assets without approval of a majority
of the Stockholders. The Company does not anticipate
incurring indebtedness to fund Distributions payable to
Stockholders, unless necessary to maintain its status as
a REIT. See "Investment Objectives and
Policies--Borrowing" and "Summary of the Organizational
Documents--Restrictions on Borrowing."
Affiliates of the Advisor have extensive experience in
acquiring and managing properties similar to those which
have been acquired, or which the Company anticipates
acquiring. There is no assurance that the Company will
achieve its investment objectives. Although the Company
owns 28 Neighborhood Retail Centers and five
single-user properties, except for two properties, it
has not specified any other properties to be acquired.
Due to competition for suitable properties, the Company
may not be able to acquire other properties meeting its
investment criteria. See "Risk Factors--Investment
Risks-- Partially Specified Fund," "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 acquire
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"), serves as
Advisor to the Company. The Advisor is an Illinois
corporation with its principal place of business located
at 2901 Butterfield Road, Oak Brook, Illinois 60523
(630) 218-8000. As of June 30, 1996, IREIC had an
audited net worth of approximately $93 million, much of
which is illiquid. Limited partnerships for which IREIC
is responsible own in excess of 11.9 million square feet
of commercial property. As of April 30, 1997, IREIC had
an unaudited net worth of approximately $95 million
and owned in excess of 11.9 million square feet of
commercial property. See "Management."
COMPENSATION TO BE The Advisor and its Affiliates will be paid substantial
PAID TO THE ADVISOR amounts for managing the Company's business. The most
AND ITS AFFILIATES 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"),
some of which may be retained or reallowed to
Soliciting Dealers. As of
9
<PAGE> 19
March 31, 1997, the Company had paid selling
commissions and Marketing Contribution and Due Diligence
Expense Allowance Fees totaling $9,830,285 in
connection with the Prior Offerings. A total of
$525,886 was unpaid at March 31, 1997. Approximately
$8,436,000 of this amount was reallowed to Soliciting
Dealers as of March 31, 1997. In certain cases,
Soliciting Dealers will 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 equal 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 also
receives 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 this 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 three months ended March 31, 1997, the Company
incurred Advisor Asset Management Fees of $233,337
all of which remains unpaid. The Company incurred and
paid Property Management Fees of $172,537 for the
three months ended March 31, 1997. 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 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."
The Advisor and its Affiliates may receive a number of
other incidental fees for services or expense
reimbursement during the operational and liquidation
stages of the Company. See, generally, "Compensation
Table" and "Management--Other Services."
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<PAGE> 20
REAL PROPERTY
INVESTMENTS The Company owns 28 Neighborhood Retail Centers and
five single-user retail properties. The Company
utilized $107,000,000 raised in the Prior Offerings to
acquire these properties. Twenty-five of the
properties are encumbered by outstanding indebtedness of
approximately $72,000,000, as of the date of this
Prospectus. The Company has approximately $10,000,000
available for investment in additional properties. The
Company has specified two additional properties for
investment. See "Real Property Investments--Potential
Property Acquisitions."
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. With respect to investments made with
Affiliates, the Company will be able to increase its
equity participation in such entity as additional
proceeds of the Offering are received by the Company
with the result that the Company can ultimately own
100% of the property, provided however that the
affiliated general or joint venture partner will not be
entitled to any profit or other benefit on such sale of
its equity participation to the Company. See
"Investment Objectives and Policies--Joint Ventures."
PRIOR OFFERINGS
SUMMARY The Inland organization, during the past ten years, has
sponsored seven public and sixteen private real estate
programs which have raised in excess of $206,000,000
from over 17,000 investors.
Two of the Inland-sponsored public programs and a
majority of the private programs have investment
objectives similar to the Company's. 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, which vary by program, have had
the effect of reducing the benefits which investors in
those programs have received from those originally
contemplated. See "Prior Performance of the Company's
Affiliates" and "Prior Performance Tables."
ARTICLES OF
AMENDMENT AND
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<PAGE> 21
RESTATEMENT Investors should be particularly aware of the following
provisions contained in the Company's Second Articles of
Amendment and Restatement, as amended (the "Articles"):
_ Limitation on accumulation of shares: In order for
the Company to qualify as a REIT, no more than 50%
of the outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals at any time
during the last half of the Company's taxable year.
To ensure that the Company will not fail to qualify
as a REIT under this test, the Articles contain
restrictions on the number of Shares that may be
owned 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."
_ 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 are
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.
_ 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. These
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.
_ Changes in investment objectives and policies: The
Company s investment objectives or policies may only
be changed by amending the Articles, which requires
the affirmative vote of Stockholders holding a
majority of the outstanding Shares.
_ Distributions: Distributions are payable out of
funds legally available to pay distributions.
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<PAGE> 22
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:
_ The Distribution Reinvestment Program (the "DRP")
allows Stockholders who have purchased Shares in the
Prior Offerings or who purchase Shares in this
Offering to automatically reinvest Distributions by
purchasing additional Shares from the Company,
subject to the limitations on Share ownership
contained in the Articles. These purchases may be
made at $9.50 per share, a reduction from the
Offering Price reflecting lower costs associated
with these issuances. See "Distribution
Reinvestment and Share Repurchase Programs --
Distribution Reinvestment Program."
_ The Share Repurchase Program allows, subject to
certain restrictions, existing Stockholders to sell
Shares back to the Company at a price equal to $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). The Company repurchases Shares on a
first come, first served basis, subject to the
following limits: (i) not more than $500,000 worth
of the outstanding Shares may be repurchased in any
given year; and (ii) the funds utilized to
repurchase are limited to available proceeds
received by the Company from the sale of Shares
under the Distribution Reinvestment Program. Shares
purchased by the Company are not available for
resale. The Company may terminate the Share
Repurchase Program if a secondary market for the
Company's Shares develops or if the Shares are
listed on a national securities exchange or included
for quotation on a national market system. See
"Distribution Reinvestment and Share Repurchase
Programs -- Share Repurchase Program."
WHO MAY INVEST The section of the Prospectus titled "Who May Invest"
describes minimum net worth, income and other suitability
requirements which investors must satisfy prior to
subscribing for Shares. In particular, investors must have
either: (i) a minimum annual gross income of $45,000 and a
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 for investors residing 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
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<PAGE> 23
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
through the fiscal year ended December 31, 1997. There can
be no assurance that: (i) Stockholders will actually
receive $10 per Share upon liquidation (in part because
estimates of value do not necessarily indicate the price at
which assets could be sold, and because no attempt will be
made to estimate the expenses of selling any asset of the
Company); (ii) Stockholders would receive $10 per Share on
sale of their Shares; or (iii) this valuation would comply
with the ERISA requirements. The Company will cease
providing these annual statements of value if the Shares
become listed on a national stock exchange or included for
quotation on a national market system. See "ERISA
Considerations."
GLOSSARY OF TERMS For definitions of terms used in this Prospectus that are
not defined in the text, see "Glossary."
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<PAGE> 24
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
Joel G. Herter
Heidi N. Lawton
Solid lines indicate ownership. Broken lines indicate services.
15
<PAGE> 25
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
Share Price/Limited Liquidity. The offering price of the Shares was
determined by the Board in the exercise of its business judgment but may not be
indicative of the price that the Shares may trade if they were listed on an
exchange or of the proceeds that a Stockholder may receive if the Company was
liquidated or dissolved. Further, there is currently no public trading market
for the Shares and no assurance exists that one will develop. An investor may
not be able to liquidate his or her investment on favorable terms, if at all.
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."
No Minimum Offering. The Offering is not conditioned upon the Company
raising a minimum amount of proceeds and the release of subscription proceeds
from the escrow is not conditioned upon the Company's selling a minimum number
of Shares. As a result, the Company may not raise proceeds sufficient to apply
to any use other than payment of the organization and offering expenses
associated with the Offering.
Partially Specified Fund. The Company owns 28 Neighborhood Retail
Centers and five 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 unanimous 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, only two additional properties
have been specified for acquisition by the Company. 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 funds available for
investment ($10,000,000) or with the Net Proceeds of this Offering (after
funding of appropriate working capital reserves). There may be a delay between
the sale of the Shares and the Company's purchase of other properties, which
could result in a delay in the benefits to investors, if any, of an investment
in the Company.
The Advisor evaluates potential additional property acquisitions and
engages in discussions with sellers on behalf of the Company. During the
pendency of the Offering, as soon as the Advisor believes a reasonable
probability exists that a property will be acquired on specified terms upon
completion of due diligence, which includes review of the title insurance
commitment, 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 a property will be acquired on the same terms as described in
the relevant supplement or other disclosure document prepared with respect
thereto. In addition, properties which are identified for acquisition 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
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<PAGE> 26
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
until after a supplement to this Prospectus describing the acquisition has been
provided to potential investors, and financial statements for recently
constructed properties may not be available at all.
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 $1.5 million (equal to 1% of the gross offering proceeds from the
Prior Offerings) and will supplement this reserve with an additional 1% of the
Gross Offering Proceeds from this Offering. However, if these reserves prove
insufficient to meet the Company s cash needs, the Company may have to obtain
financing from either affiliated or unaffiliated sources to fund these cash
requirements. 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. The Company intends to acquire properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price of each
property in cash or shares of the Company's stock. However, if it is
determined to be in the best interests of the Company, the Company has and will
continue, in certain instances, to utilize borrowing to acquire properties and
incur or increase mortgage indebtedness by obtaining loans secured by selected
properties. The proceeds from these loans have been and will be used to
acquire additional properties. The Company may incur indebtedness if necessary
to satisfy the requirement that the Company distribute at least 95% of its REIT
taxable income (as defined in the Code), or otherwise as is necessary or
advisable to assure that the Company maintains its qualification as a REIT for
federal income tax purposes. The Company anticipates that aggregate borrowings
secured by all of the Company's properties will not exceed 50% of their
combined fair market values; provided that in the absence of the consent of a
majority of the Stockholders, indebtedness may not exceed 300% of Net Assets.
Incurring mortgage indebtedness increases the risk of loss since defaults
on indebtedness secured by the Company' properties may result in foreclosure
actions initiated by the lenders and loss by the Company of the property
securing the loan which is in default. Any such foreclosure would be treated
as a sale of the property for a purchase price equal to the outstanding balance
of the debt secured by the mortgage. If the outstanding balance of the debt
secured by the mortgage exceeds the Company s basis in the property, the
Company would recognize taxable income on foreclosure, but would not receive
any cash proceeds. The Company seeks to limit its indebtedness to
"non-recourse" indebtedness meaning that the lender may look only to the
property or properties securing the mortgage indebtedness for satisfaction of
the indebtedness. See "Investment Objectives and Policies--Borrowing" and
"Real Property Investments."
Further, incurrence of indebtedness may decrease the amount of cash
available for distributions since the Company must pay debt service on the
indebtedness.
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
17
<PAGE> 27
five or fewer individuals at any time during the last half of each 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. 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. The Company may, from time to time, make property investments in
joint ventures between the Company and Affiliates of the Advisor. Investments
in joint ventures which own properties may involve risks not otherwise present
when the Company purchases the property directly. For example, the Company's
co-venturer may file for bankruptcy protection, may have economic or business
interests or goals which are inconsistent with the interests or goals of the
Company or take actions contrary to the Company's instructions, requests,
policies or objectives. Among other things, actions by such co-venturer might
subject 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 property 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 down payments (cash and other
property) in the year of sale in an amount less than the selling price and
subsequent payments will be spread over a number of years. See "Investment
Objectives and Policies--Sale or Disposition of Properties."
Loss on Dissolution and Termination. At the date of dissolution or
termination of the Company, the undistributed proceeds realized from the
liquidation of assets, if any, will be distributed to Stockholders after
satisfying creditor 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 sponsored seven public and sixteen private real estate programs
during the past ten years, raising in excess of $206,000,000. 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 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
18
<PAGE> 28
investment objectives since the Company's management, the Advisor and its
Affiliates have limited experience in managing and operating a REIT.
2. COMPANY RISKS
Prices Paid for Properties Acquired from Affiliates may Exceed Prices that
would have been 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: (i) a majority
of the Directors (including a majority of the Independent Directors) not
interested in the transaction approve the purchase as fair and reasonable to
the Company; and (ii) the price to the Company is no greater than the cost of
the asset to the Affiliate unless substantial justification for a greater price
exists and the additional price is reasonable. In no event may the cost to the
Company exceed the property's current appraised value. All of the Directors
(including all of the then Independent Directors) approved the purchases
described above. 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
operation and management of the Company may be influenced or affected by
conflicts of interest arising out of the Advisor's relationship with its
Affiliates on the one hand, and the Company on the other hand. For example,
the Company will compete with the Affiliates for the Advisor's time and
services. Further, the due diligence investigation of the Company by the
Dealer Manager, also an Affiliate, cannot be considered to be an independent
review of the Company and, therefore, may not be as meaningful as a review
conducted by an unaffiliated broker-dealer. Additionally, a substantial
portion of the proceeds of the Offering will be paid to an Affiliate for
managing the Company, including sales commissions and due diligence expense
allowances to the Dealer Manager, and reimbursements to an Affiliate for costs
related to organizing and offering the Shares for sale. Further, an Advisor
Asset Management Fee of not more than 1% per annum of the Average Invested
Assets will be paid quarterly to the Advisor and 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 to an Affiliate. These fees may cause the
Advisor to delay sale of properties or liquidation of the Company. 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 option to buy any Neighborhood Retail Centers placed
under contract by the Advisor or its Affiliates for a period of 60 days. The
Advisory Agreement also grants the Company the option 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 is 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 the property by the Advisor;
(iii) the property meets the Company's acquisition criteria; provided that more
than one real estate investment program sponsored by Affiliates of the Advisor
has funds available to make the purchase, the property will first be offered to
the program which has had funds available for the longest period of time. The
Board, in 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
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<PAGE> 29
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. See "Compensation
Table" and "Management--The Advisory Agreement."
Dependence on the Directors and Advisor. The Board has supervisory
control over all aspects of the Company's operations. The Company's ability to
achieve its investment objectives will depend to a large extent on the Board's
ability to oversee, and the quality of, the management provided by the Advisor,
the Management Agent, their Affiliates and employees for day-to-day operations.
Therefore, the Company is dependent, in large part, on the ability of the
Advisor and its Affiliates to retain the services of each of its executive
officers and key employees, however, none of these individuals has an
employment agreement with the Advisor or its Affiliates. The loss of any of
these individuals could have a materially adverse effect on the Company. The
Company does not currently maintain key man life insurance policies on any of
the individuals employed by the Advisor or its Affiliates. See "Management."
Dilution. Stockholders have no preemptive rights, and therefore, in the
event the Company: (i) commences a subsequent public offering of its Shares or
of convertible debt or Preferred 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 Offerings and to be issued in
connection with this Offering 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 will 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 Articles, in the case of the Directors, and the Advisory
Agreement, in the case of the Advisor, require the Company to indemnify these
individuals of the Advisor for certain actions taken by them in good faith and
without negligence or misconduct. As a result, the Company and the
Stockholders may have more limited rights against the Directors 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, neither the Directors nor the Advisor will be liable to
the Company or the Stockholders unless: (i) a court finds that the person
actually received an improper benefit or profit in money, property or services;
and (ii) 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."
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<PAGE> 30
3. RISKS OF REAL ESTATE OWNERSHIP
General. All real property investments are subject to some degree of
risk. Equity real estate investments are generally illiquid and, therefore,
the Company's ability to promptly vary its portfolio in response to changing
economic, financial and investment conditions is limited. Real property
investments are also subject to adverse changes in general economic conditions
or local conditions which reduce the demand for the goods or services of
tenants, as well as other factors affecting real estate values, including: (i)
possible federal, state or local regulations and controls affecting rents,
prices of goods, fuel and energy consumption and prices, water and
environmental restrictions; (ii) increasing labor and material costs; and (iii)
the attractiveness of the property to tenants in the neighborhood.
The 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 Company's results of operations and financial
condition. See "Prior Performance of the Company's Affiliates--Loan
Modifications and Work-Outs."
Competition for Tenants and Customers. The Company could be adversely
affected if competitive types of properties 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. These statutes typically allow liens to
be placed on the affected property. In addition, there are various local,
state and federal health and safety regulations which the Company may, under
certain circumstances, be required to comply with, and liability in the form of
fines or damages for noncompliance. The Company's properties are 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 complying 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 indemnification. State and federal laws in
this area are constantly evolving, and the Company intends to monitor these
laws and take commercially reasonable steps to protect itself from the impact
thereof, including obtaining environmental audits of each property acquired.
However, there can be no assurance that the Company's results of operations or
financial condition will not be adversely affected by these laws.
Costs Associated with Complying with the Americans with Disabilities Act.
Under the ADA, all public accommodations are required to comply with 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 acquire
properties which comply with the ADA or place the
21
<PAGE> 31
burden on the seller to ensure compliance with the ADA, although there can be
no assurance that the Company will be able to acquire properties utilizing this
criterion.
Potential Additional Costs in Connection with Acquiring Single-User Retail
Properties. Certain of the properties or portions thereof may be designed or
built primarily for a particular tenant or a specific type of use. If the
tenant fails to renew or defaults on its lease obligations, the property may
not be readily marketable to a new tenant without substantial capital
improvements or remodeling which may adversely affect the Company's results of
operation and financial condition.
Competition with Others for the Acquisition of Properties. The Company
competes with many other entities engaged in real estate investment activities,
some of which have greater resources than the Company. 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's results of operations and
financial condition and ability to make Distributions may be adversely affected
by the bankruptcy or insolvency, or a downturn in the business, of 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"), including the decision by an Anchor Tenant not to
renew its lease. 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.
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 when due. 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 Company's
results of operation and financial position, including its ability to pay
Distributions.
Restrictions on Re-leasing Space. In many cases, tenant leases contain
provisions giving the tenant the exclusive right to sell certain types of
merchandise or provide certain types of services within the particular
Neighborhood Retail Center, or limit the ability of other tenants to sell such
merchandise or provide such services. When re-leasing space after a vacancy
occurs, these provisions may limit the number and types of prospective tenants
for the vacant space.
Uninsured Losses; Unavailability of Insurance. Each lessee is responsible
for insuring its goods and premises and, in certain circumstances, may be
required to reimburse the Company for a share of the cost of acquiring
comprehensive insurance for the property, including casualty, liability, fire
and extended coverage customarily obtained for similar properties in amounts
which the Advisor determines are sufficient to cover reasonably foreseeable
losses. Tenants of single-user, net leased properties typically are required
to pay all insurance costs associated with 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
22
<PAGE> 32
economically insurable. If such an event occurred to, or caused the
destruction of, a property owned by the Company, the Company could lose both
its invested capital and anticipated profits from such property. See
"Investment Objectives and Policies--Description of Leases."
Risk of Recharacterization of Sale and Leaseback Transactions. 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
Company may invest up to 10% of its assets in unimproved real property.
Investment in unimproved properties, in addition to the risks of real estate
investment in general, are also subject to risks and uncertainties associated
with re-zoning the land for a higher use or development and environmental
concerns of governmental entities and/or community groups.
4. TAX RISKS
General. There are various federal income tax risks associated with
investing in the Company. Although the provisions of the Code relevant to an
investment in the Company are generally described in the Section of the
Prospectus titled "Federal Income Tax Considerations," each potential investor
is strongly urged to consult his or her own tax advisor concerning the effects
of federal income tax law on an investment in the Company and on his or her
individual tax situation.
Investors should recognize that many of the advantages and economic
benefits of investing in the Company depend upon the continued treatment of the
Company as a REIT for federal income tax purposes. If the Company were no
longer taxed as a REIT, the Company would pay a corporate level tax on its
income which would reduce its cash available to pay Distributions and the yield
from investing in the Company. The continued treatment of the Company as a
REIT is dependent on laws and regulations, 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 its taxable income.
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<PAGE> 33
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, the Company may be required to borrow funds, liquidate certain of its
investments or take other steps which could affect its operating results due to
this tax liability. Moreover, if the Company's REIT status is terminated
because of the failure to meet a technical REIT test or it voluntarily revokes
its election, the Company would be disqualified from electing treatment as a
REIT for the four taxable years following the year in which REIT status is
lost.
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 (as defined
herein) 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, 1995 and that its prior, current and anticipated methods of
operation have enabled and should 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 requirements
necessary to maintain status as a REIT, and Counsel will not review compliance
with the REIT Requirements on a continuing basis after the initial effective
date of the Registration Statement or issue any opinions in the future unless
expressly requested to do so. Accordingly, no assurance can be given that the
Company's actual operating results will allow the Company to satisfy the REIT
requirements. In addition, this opinion represents Counsel's legal judgment
based on the law in effect as of the initial effective date, and is not binding
on the Service and could be subject to modification or withdrawal due to future
changes in the law.
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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. The determination of whether the Company will constitute a
Pension-Held REIT will depend on the concentration of ownership by one or more
Qualified Plans, a factor that is not within the control of the Company. See
"Federal Income Tax Considerations" and "Description of
Securities--Restrictions on 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 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
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<PAGE> 35
benefit of the Stockholders, to be used only for the purposes set forth above
and will not be commingled with the accounts of the Advisor and its Affiliates.
As of the date of this Prospectus, the Company owned 33 properties comprised
of 28 Neighborhood Retail Centers and five single-user retail properties and
had approximately $10,000,000 available for additional investments. The
Company estimates that 87.06% of Gross Offering Proceeds will be used to
acquire properties if the Maximum Offering is sold. If the Maximum Offering is
sold, 8.56% of the Gross Offering Proceeds will be utilized to pay selling
and due diligence expenses to unaffiliated third parties and 2.88% 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.
<TABLE>
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
DISTRIBUTION REINVESTMENT PROGRAM) (1)
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
Gross Offering Proceeds: $209,500,000.00 100.00%
Less Expenses:
Selling Commissions (2) 14,000,000.00 6.68%
Marketing Contribution and Due Diligence
Expense Allowance Fee (2) 5,000,000.00 2.39%
Organization and Offering Expenses (3) 4,961,995.00 2.37%
--------------- ------
Total Public Offering Expenses 23,961,995.00 11.44%
--------------- ------
Gross Amount Available for Investment 185,538,005.00 88.56%
Acquisition Expenses (4)(5) 1,047,500.00 0.50%
Working Capital Reserve (6) 2,095,000.00 1.00%
--------------- ------
Net Cash Payments Relating to the
Purchase of Properties $182,395,505.00 87.06%
=============== ======
</TABLE>
- -------------------
(1) The amounts shown in this table represent the Company's current
estimates of the uses of the Gross Offering Proceeds if the Maximum Offering
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% or $14,000,000 of the gross offering proceeds from the Shares offered
on the "best efforts" basis and, under certain circumstances, one Soliciting
Dealer Warrant for every 40 Shares sold, all or part of which compensation may
be retained or reallowed to Soliciting Dealers; provided that the Company will
not issue more than 875,000 Soliciting Dealer Warrants. The Dealer Manager
will also receive the Marketing Contribution and Due Diligence Expense
Allowance Fee equal up to 2.5% or $5,000,000 of the gross offering proceeds
from the Shares offered on the "best efforts" basis, some portion of which may
be reallowed to Soliciting Dealers. This category of expense includes 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
in respect of these volume discounts; however, these discounts will not affect
the amount of proceeds to the Company. The Company will not pay any selling
commission on Shares purchased by the Advisor, its Affiliates, the Dealer
Manager or Soliciting Dealers. Any Shares purchased by the Advisor or its
Affiliates will be purchased for investment purposes only and not with a view
toward resale. A maximum of 1,000,000 Shares available for issuance under the
Distribution Reinvestment Program will be sold at reduced price due to
decreased costs
26
<PAGE> 36
associated with these issuances and will be sold at a price of $9.50 per Share
($9,500,000 if all of those 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) Reflects the Advisor's best estimates of legal, accounting, printing
and other offering expenses, including amounts to reimburse the Advisor for
marketing, salaries and direct expenses of its employees while directly engaged
in registering and marketing the Shares and other marketing and organization
expenses. The Advisor has guaranteed payment of all public offering expenses
(excluding selling commissions and the marketing contribution and due diligence
expense allowance 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 equal to 0.5% of the Gross Offering
Proceeds ($1,047,500, 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. Expenses incurred in connection with incurring
indebtedness will be payable from the proceeds of such borrowings ($523,750,
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 selecting, evaluating, acquiring and investing in the Company's properties,
whether or not acquired, including, but not limited to: surveys, appraisals,
title insurance and escrow fees, non-refundable option payments, legal and
accounting fees and expenses, computer use related expenses, architectural and
engineering reports, environmental and asbestos audits, travel and
communication expenses and personnel and miscellaneous expenses related to the
selection and acquisition of properties.
(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 for investors
resident in the State of Iowa where the minimum investment for IRAs will be 300
Shares ($3,000) and for investors resident in the State of Minnesota where the
minimum investment for IRAs and qualified plan accounts will be 200 Shares
($2,000). In addition, the Company has established financial suitability
standards for investors who purchase Shares. These standards require investors
to have either: (i) a minimum annual gross income of $45,000 and a 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. Investors in
Maine must have either: (i) a minimum annual gross income of $50,000 and a net
worth (exclusive of home, home furnishings and automobiles) of $50,000; or (ii)
a net worth (determined with the foregoing exclusions) of $200,000. 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.
27
<PAGE> 37
In purchasing Shares, custodians or trustees of employee pension benefits
plans or IRAs may be subject to the fiduciary duties imposed by ERISA or other
applicable laws and to the prohibited transaction rules prescribed by ERISA and
related provisions of the Code. In addition, prior to purchasing Shares, the
trustee or custodian of an employee pension benefit plan or an IRA should
determine that such an investment would be permissible under the governing
instruments of such plan or account and applicable law. See "Federal Income
Tax Considerations--Taxation of Stockholders--Taxation of Tax-Exempt
Stockholders" and "ERISA Considerations."
Suitability standards may be higher in certain states. Investors must
meet all of the applicable requirements set forth in the Subscription
Agreement. Under the laws of certain states, an investor may transfer his/her
Shares only to persons who meet similar standards, and the Company may require
certain assurances that these standards are met. Investors should carefully
read the requirements in connection with resales of Shares set forth in the
Subscription Agreement and under "Description of Securities--Restrictions on
Transfer."
The agreements between the Dealer Manager and each of the Soliciting
Dealers requires each Soliciting Dealer to make diligent inquiries as required
by law of all prospective purchasers in order to ascertain whether a purchase
of Shares is suitable and appropriate based upon information provided by the
prospective purchaser regarding his financial situation and investment
objectives and to transmit promptly to the Company, the fully completed
subscription documentation and any other supporting documentation reasonably
required by the Company. By executing the subscription agreement relating to
the Shares (the "Subscription Agreement"), by tendering payment for Shares and
by accepting confirmation of purchase or delivery of the Shares, an investor
represents that he or she satisfies any applicable suitability standards.
In addition, each Soliciting Dealer will, by completing the Subscription
Agreement, acknowledge its determination that the Shares are a suitable and
appropriate investment for the 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 compensation arrangements between the Company and Advisor and its
Affiliates were not determined by arm's-length negotiations. See "Conflicts of
Interest." The following table discloses the significant compensation which
may be received by the Advisor and its Affiliates from the Company. In those
instances in which there are maximum amounts or ceilings on the compensation
which may be received by the Advisor and its Affiliates for services rendered
to the Company, the Advisor and its Affiliates may not recover any excess
amounts for those services by reclassifying such services under a different
compensation or fee category. See "Conflicts of Interest--Receipt of
Commissions, Fees and Other Compensation by the Advisor and its Affiliates."
28
<PAGE> 38
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.
<TABLE>
<S> <C> <C>
Upon Completion of Offering:
Selling Commissions (payable to the Dealer The Dealer Manager will receive Actual amount depends upon the
Manager and Soliciting Dealers) $0.70 per Share for each Share number of Shares sold. Selling
sold and, under certain commissions of $10,500,000 were
circumstances, a Soliciting incurred in the Prior Offerings,
Dealer Warrant for each 40 including $7,454,358 incurred
Shares sold; provided that the through March 31, 1997. A total
Company will not issue more than of $14,000,000 in selling
875,000 of these warrants. The commissions will be paid if the
Dealer Manager may reallow the Maximum Offering is sold.
selling commissions and
Soliciting Dealer Warrants to
Soliciting Dealers for each Shar
they sell. (1) Shares purchased
under the Distribution Program
will be purchased at a reduced
price to reflect decreased
administrative costs.
Marketing Contribution and Due Diligence An amount equal to up to 2.0% of Actual amount depends upon the
Expense Allowance Fee (payable to the the Gross Offering Proceeds, some number of Shares sold. Expenses
Dealer Manager and Soliciting Dealers) portion of which may be reallowed of $3,000,000 and $750,000 were
to Soliciting Dealers to pay the incurred in the Prior Offerings
expenses associated with the for the Marketing Contribution
Marketing Contribution. An and Due Diligence Expense Allowance
additional 0.5% of the Gross respectively, including
Offering Proceeds may be paid $2,129,348 and $531,720 incurred
to the Dealer Manager or through March 31, 1997. A total
reallowed to the Soliciting of $5,000,000 will be paid for the
Dealers for the Due Diligence Marketing Contribution and Due
Expense Allowance Fee. Shares Diligence Expense Allowance if the
purchased under the Distribution Maximum Offering is sold.
Reinvestment Program will be
purchased at a reduced price to
reflect decreased costs
associated with these issuances.
</TABLE>
29
<PAGE> 39
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
Reimbursable Expenses (payable to the The Advisor or its Affiliates may Reimbursable Expenses of
Advisor and its Affiliates) advance Organization and Offering approximately $3,455,000 were
Expenses to the Company and will incurred through March 31, 1997
be reimbursed for actual costs in connection with the Prior
incurred in connection with the Offerings (for Organization and
Offering on behalf of the Offering Expenses, but excluding
Company, including legal and selling commissions and the
accounting fees, registration and Marketing Contributions and Due
filing fees, printing costs and Diligence Expense Allowance Fee).
selling expenses. However, if the No estimate is available for the
aggregate of all Organization and amount of reimbursable expenses
Offering Expenses, including that may be incurred in this Offering.
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 the selling
expenses, exceeds 5.5% of the
Gross Offering Proceeds, the
Advisor or its Affiliates will
promptly pay such excess expenses
and the Company will have no
liability for such expenses at
any time thereafter.
</TABLE>
30
<PAGE> 40
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
ACQUISITION STAGE:
Acquisition Expenses for the An amount estimated to be up to Acquisition Expenses of
costs and expenses of the 0.5% of the Gross Offering approximately $173,000 were
acquisition of properties Proceeds in connection with the incurred through March 31, 1997
including surveys, appraisals, expenses associated with a in connection with the
title insurance and escrow fees, property acquisition. (2) Prior Offerings. If the Maximum
legal and accounting fees and Offering is sold, Acquisition
expenses, computer use Expenses may not exceed
related expenses, architectural $1,047,500; however, the actual
and engineering reports, amounts cannot be determined at
environmental and asbestos the present time. In no event
audits, travel and communication will such amount exceed 6% of the
expenses and other related purchase price of any single
expenses (payable to the Advisor property.
and its Affiliates).
OPERATIONAL STAGE (3):
Property Management Fee A Property Management Fee equal Actual amounts are dependent
(payable to an Affiliate of the Advisor) to not more than 4.5% of the upon results of operations.
gross revenues from the Property Management Fees of
properties will be paid monthly approximately $172,537 were
to Inland Commercial Property incurred and paid through March
Management, Inc., an Affiliate of 31, 1997.
the Advisor (the "Management
Agent").
</TABLE>
31
<PAGE> 41
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
Compensation for Services In addition to property Actual amounts are dependent upon
management, the Advisor and its results of operations and,
Affiliates will provide other therefore, cannot be determined
property-level services to the at the present time.
Company, and may receive
compensation for such services,
including leasing fees,
development fees, construction
management fees, loan origination
and servicing fees, property tax
reduction fees and risk
management fees. However, this
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 Certain expenses of the Actual amounts are dependent upon
(payable to the Advisor and Advisor and its Affiliates will results of operations; approximately
its Affiliates) be reimbursed by the Company. $26,436 was incurred and
(4)(5) (6) paid through March
31, 1997 in connection with the
Prior Offerings.
</TABLE>
32
<PAGE> 42
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
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 of depend upon the sale price of
its Affiliates) the Company's properties, in an Company properties and,
amount equal to the lesser of: therefore, cannot be determined
(i) 3% of the contract sales at the present time.
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 ("Competitive Real
Estate Commission"). The amount
paid, when added to the sums paid
to unaffiliated parties, shall
not exceed the lesser of the
Competitive Real Estate
Commission or an amount equal to
6% of the contracted for sales
price. Payment of such fees
shall be made only if the Advisor
provides a substantial amount of
services in connection with the
sale of the property. See
"Management--The Advisory
Agreement."
</TABLE>
33
<PAGE> 43
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:
<TABLE>
<S> <C> <C>
OPERATIONAL STAGE (3):
Advisor Asset Management Fee An Advisor Asset Management Fee Actual amounts are dependent upon
(payable to the Advisor) of not more than 1% of the results of operations. Advisor
Average Invested Assets. The fee Asset Management Fees of approximately
will be payable quarterly in an $233,337 were
amount equal to 1/4 of 1% of the incurred but remain unpaid
Average Invested Assets of the through March 31, 1997.
Company, as of the last day of
the immediately preceding
quarter, pursuant to the Advisory
Agreement. For any year in
which the Company qualifies as a
REIT, the Advisor must reimburse
the Company: (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.
</TABLE>
34
<PAGE> 44
<TABLE>
<S> <C> <C>
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 Capital, therefore, cannot be determined at
an Incentive Advisory Fee equal the present time.
to 15% of the net 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 _____________. No
Soliciting Dealer Warrants will be exercisable until one year from the date of
issuance. See "Plan of Distribution--Compensation."
(2) The total of all Acquisition Expenses paid by the Company in
connection with the purchase of a property by the Company may not exceed an
amount equal to 6% of the Contract Price for the Property (as defined herein),
unless a majority of the Directors (including a majority of the Independent
Directors), not otherwise interested in the transaction, approve the
transaction as being commercially competitive, fair and reasonable to the
Company. Notwithstanding the foregoing, the total of all Acquisition Expenses
paid by the Company in connection with the purchase of a property by the
Company from an Affiliate may not exceed 6% of the Contract Price for the
Property.
(3) The Advisor and its Affiliates assist the Company in determining the
types of transactions entered into by the Company. The Advisor benefits, in
the form of fees, by the Company retaining ownership of its properties and
leveraging its properties, while Stockholders may be better served by sale or
disposition of the properties or not incurring indebtedness secured by the
properties. Furthermore, the Advisor s ability to receive or retain certain
fees and reimbursements is dependent upon the Company continuing to invest in
properties. Therefore, the interest of the Advisor in receiving such fees may
conflict with the interest of the Stockholders to earn income on their
investment in Shares and may result in the Company entering into transactions
which may not be in the best interest of the Stockholders.
(4) (i) The Advisor and its Affiliates are reimbursed for: (a) the cost to
the Advisor or its Affiliates of goods and services used for and by the
Company and obtained from unaffiliated parties; and (b) administrative
35
<PAGE> 45
services related thereto. "Administrative services" include only
ministerial services such as typing, record keeping, preparing and
disseminating Company reports, preparing and maintaining records
regarding Stockholders, record keeping and administration of the
DRP and Share Repurchase Programs, preparing and disseminating
responses to Stockholder inquiries and other communications with
Stockholders and any other record keeping required for the Company.
(ii) In extraordinary circumstances fully justified to the
official or agency administering the state securities laws, the
Advisor and its Affiliates may provide other goods and services to
the Company if all of the following criteria are met: (a) the
goods or services must be necessary to the prudent operation of the
Company; (b) the compensation, price or fee must be equal to the
lesser of 90% of the compensation, price or fee the Company would
be required to pay to independent parties who are rendering
comparable services or selling or leasing comparable goods on
competitive terms in the same geographic location, or 90% of the
compensation, price or fee charged by the Advisor or its Affiliates
for rendering comparable services or selling or leasing comparable
goods on competitive terms; 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 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 is 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 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 may not (in
the absence of a satisfactory showing to the contrary) in any
fiscal year exceed the greater of: (a) 2% of the Average Invested
Assets; or (b) 25% of its Net Income for such year. The
Independent Directors may, upon a finding of unusual and
non-recurring factors which they deem sufficient, determine that a
higher level of expenses is justified in any given year. There are
certain additional restrictions on expenses that will be borne by
the Company.
(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.
36
<PAGE> 46
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 Company believes that the compensation payable 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, by its terms, may be terminated by a majority
vote of the Stockholders upon 60 days prior written notice. See
"Management--The Advisory Agreement."
2. Process for Resolving 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 the Company's. 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.
The Advisory Agreement grants 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 the property
within 60 days. The Advisory Agreement also grants the Company a right to
purchase 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 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 the property by the Advisor; (iii) the property meets the
Company's acquisition criteria; provided that if more than one real estate
program sponsored by Affiliates of the Advisor has funds available to make the
purchase, the 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 evaluating 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> 47
The Company believes that these factors, together with the obligations of
the Advisor and the Affiliates to present the Company with any investment
opportunity which could be suitable for the Company, will help to lessen the
competition or conflicts with respect to the purchase of properties by other
entities and the Company.
3. Acquisition from Affiliates. The Company acquired two of its
properties from an Affiliate. The purchase prices for these properties were
not the subject of arm's-length negotiations. The Articles provide that the
purchase price of any property acquired from an Affiliate: (i) may not exceed
its fair market value as determined by a competent independent appraiser who is
a member in good standing of the American Institute of Real Estate Appraisers;
and (ii) must be approved by a majority of the Directors (including a majority
of the Independent Directors) not interested in the transaction 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 these which
would have been paid by an unaffiliated purchaser.
4. The Company may Purchase Properties from Persons with whom Affiliates
of the Advisor have Prior Business Relationships. The Company may purchase
properties from third parties who have sold properties in the past or who may
sell properties in the future to the Advisor or its Affiliates. In the event
the Company purchases properties from these third parties, the Advisor will
experience a conflict between the current interests of the Company and its
interests in preserving any ongoing business relationship. Nevertheless, the
Advisor will not consummate purchases in a manner which would cause it to
breach its fiduciary obligations to the Company. See "Management."
5. Property Management Services are being Rendered by an Affiliate of the
Advisor. An Affiliate of the Advisor, Inland Commercial Property Management,
Inc., provides property management services to the Company on a competitive
basis in a manner consistent with customary business practices. See
"Compensation Table--Nonsubordinated Payments--Operational Stage." The Advisor
and the Management Agent believe that the Management Agent has sufficient
personnel and other required resources to discharge all responsibilities to the
Company.
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 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 sale or disposition or
not incurring indebtedness secured by the properties. Furthermore, the receipt
and retention of certain fees and reimbursements is dependent upon the Company
s continuing to invest 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 have represented to the Company that their actions and decisions will be
made in the manner most favorable to the Company and its Stockholders, so as
not to breach their respective fiduciary duties. See also "Risk Factors --
Dilution" regarding issuance of Soliciting Dealer Warrants to the Dealer
Manager.
7. Non-Arm's-Length Agreements. The agreements and arrangements,
including those relating to compensation, between the Company and the Advisor
or any of its Affiliates are not the result of arm's-length negotiations, but
the Company believes that these agreements and arrangements approximate the
terms of arm's-length transactions.
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While the Company does not make 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 funding working capital requirements,
but only on terms as to interest rate, security, fees and other charges at
least as favorable to the Company as determined by a majority of the Directors
(including a majority of the Independent Directors) as those charged by
unaffiliated lending institutions in the same locality on comparable loans for
the same purpose. See "Real Property Investments."
The Advisor and its Affiliates may provide services to, and otherwise deal
or do business with, persons who deal with the Company, although there are no
present arrangements with respect to any such services. However, no rebates or
"give-ups" may be received by the Advisor or its Affiliates, nor may the
Advisor or any such Affiliates participate in any reciprocal business
arrangements which would have the effect of circumventing any provision of the
Advisory Agreement.
8. The Company and the Advisor have the Same Legal Counsel. Shefsky &
Froelich Ltd. serves as general counsel to the Company, as well as to the
Advisor and some of its Affiliates. Shefsky & Froelich 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, Shefsky
& Froelich Ltd. may be precluded from representing any one or all of these
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 adequate
protection of their respective interests. 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 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 the Dealer Manager of the Offering and is
entitled to selling commissions and Soliciting Dealer Warrants, some or all of
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 an independent review and 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 joint
ventures with Affiliates. In addition, the Articles require a majority of the
Directors (including a majority of the Independent Directors) not otherwise
interested in the transaction to determine that the transaction is fair and
reasonable to the Corporation and is on terms and conditions no less favorable
than from unaffiliated third parties to the Company entering into the venture.
See "Investment Objectives and Policies--Joint Ventures."
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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 may not be held liable to the Company or its Stockholders for monetary
damages unless: (a) it is proven that the person actually received an improper
benefit or profit in money, property or services; and (b) to the extent that a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding.
The Company's Articles 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 assets of
the Stockholders. The Company may 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.
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<PAGE> 50
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 advancement; and (iii) the
indemnified party receiving these advances undertakes to repay the monies
advanced to the Company, together with interest at the applicable legal rate
thereon, if the party is found not to be entitled to indemnification.
The Company may 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 may not incur the costs of any liability insurance which
insures any person against liability for which he, she or it could not be
indemnified under the Articles or the Bylaws. As of the date of this
Prospectus, the Company has not purchased any insurance on behalf of an
indemnified party.
Neither the amendment nor the adoption of any other provision of the
Articles or the Bylaws will apply to or affect, in any respect, the Indemnitee
s right to indemnification for actions or failures to act which occurred prior
to such amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising
under the Act, the Company has been advised that, in the opinion of the
Commission, such indemnification is contrary to public policy and, therefore,
unenforceable.
DEFENSES AVAILABLE
There are certain defenses which may be raised by the Directors, officers
or the Advisor under Maryland law and 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 complaint 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 and counsel who were selected with reasonable care.
However, the Directors, officers and the Advisor may 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 16 private real estate programs which have raised in excess in
$206,800,000. In excess of 17,100 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, 1987 through December 31, 1996, 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 16
Aggregate amount raised from investors ............ $181,706,000 $ 25,112,454
Aggregate number of investors ..................... 16,500 656
Number of properties purchased .................... 87 31 (1)
Aggregate cost of properties ...................... $163,913,000 (2) $118,233,000 (3)
Percentage of properties (based on cost) that were:
Commercial
Retail .......................................... 2.5% 0.0%
Single-user retail net-lease .................... 8.7% 27.5%
Nursing homes ................................... 8.7% 0.0%
Offices ......................................... 0.0% 0.0%
Industrial ...................................... 0.0% 0.0%
Health clubs .................................... 4.7% 0.0%
Mini-storage .................................... 0.0% 0.3%
Total commercial .............................. 24.6% 28.5%
Multi-family residential ......................... 19.0% 72.2%
Land ............................................. 56.4% 0.3%
Percentage of properties (based on cost) that were:
Newly constructed (within a year of acquisition .. 8.7% 4.9%
Existing ......................................... 91.3% 95.1%
Construction ..................................... 0.0% 0.0%
Number of properties sold ......................... 12 6
Number of properties exchanged .................... 23.2%(4) 6
</TABLE>
(1) Includes 14 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 $32,479,315 in properties acquired following the disposition of a
program's original real estate asset.
(4) Based on costs of property including portions of land parcels sold at
December 31, 1996, and costs capitalized subsequent to acquisition.
During the three years prior to December 31, 1996, publicly registered
investment programs sponsored by IREIC purchased a total of 17 parcels of land
totaling 2,993 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.
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<PAGE> 53
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 March 31, 1997, cash distributions have been maintained at an 8%
level and on an accrual basis have totaled $385.67 per $500 unit or
$21,877,436 including $18,859,641 from operating cash flow, $380,207 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.
The major tenant at McHenry Plaza is a Walgreens drug store. Other
tenants are Don Robert's Beauty School, Northern Federal Savings Bank, Merit
Medical Equipment and Family Entertainment Center. These tenants took
possession of their spaces at the center from 1990 through 1996, 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 80% of the property is
currently leased. Additional expenditures for build-out and leasing commissions
are anticipated as the remaining rentable space is leased. The lease-up of
McHenry Plaza will increase the cash flow available for distribution by Monthly
Income Fund I.
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<PAGE> 54
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
March 31, 1997 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 Euro-Fresh Market Plaza
(formerly Eagle Plaza), a neighborhood retail center in Illinois, for a total
acquisition cost of $21,224,542. Through March 31, 1997, cash distributions
have been maintained at or above an 8% level and on an accrual basis have
totaled $391.58 per $500 unit or $18,390,582, including $13,995,017 from
operations and an additional $4,395,565 which constitutes the net proceeds from
the sale of the Wholesale Club.
One of Monthly Income Fund II's properties, which represents 35.44% of its
total assets, as measured by its original purchase price, is a nursing center
which is 100% leased to Elite. 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
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<PAGE> 55
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. On February 4, 1994 and with the
approval of IREIC, Eagle Foods assigned its lease to Certified Grocers Midwest,
Inc. ("Certified") who vacated in August 1995. During May 1996, Euro-Fresh
Market ("Euro-Fresh") began its occupancy if the anchor store and the shopping
center has been renamed Euro-Fresh Market Plaza. Under the original lease, as
well as the assignment of the lease, Eagle Foods has guaranteed payments until
November 1998.
In the opinion of IREIC, the partnership is meeting its investment
objective to provide a minimum 8% cash distribution and has, through an early
and profitable sale of the Wholesale Club, achieved capital appreciation on 16%
of the partnership's investment in properties.
INLAND REAL ESTATE GROWTH FUND, 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 through March 31,
1997 totaled $529.22 per $1,000 unit or $4,711,954, including $1,476,241
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.
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<PAGE> 56
As of January 1, 1997, the partnership has listed and is actively
marketing Scottsdale Sierra Apartments for sale at an amount in excess of its
carrying value and has suspended depreciation. As of the date of this report,
the partnership has received and is currently negotiating an offer for the
purchase of Scottsdale Sierra Apartments for an amount which exceeds the
carrying value of the property.
INLAND REAL ESTATE GROWTH FUND II, L.P. ("GROWTH FUND II") -- The offering
period for Growth Fund II began September 21, 1987 and ended September 21,
1989. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on a moderately leveraged
basis for capital appreciation through increases in property values, tax-
sheltered quarterly cash distributions and the build-up of equity through
reduction of mortgage indebtedness.
Growth Fund II raised $4,038,250 from 336 investors and purchased two
properties, a multi-family residential property in Illinois and a health club
in Ohio. These properties were purchased for a total acquisition cost of
$5,615,826. The health club is currently approximately 60% financed with 40%
equity. Cash distributions to limited partners through March 31, 1997 totaled
$1,146.04 per $1,000 unit or $4,551,628, including $894,857 from operations
and $3,656,771 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 March 31, 1997, Land Fund I
has had multiple sales transactions involving all or portions of 13 parcels
which generated $6,177,137 in net sales proceeds. Land Fund I's cost basis in
the land parcels sold was $3,318,400 resulting in a gain, net of selling
expenses and commissions, of $2,858,737 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 March 31, 1997 totaled $4,146,515, 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
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$41,314,301. As of March 31, 1997, Land Fund II has had multiple sales
transactions involving all or portions of NINE parcels which generated
$10,883,302 in net sales proceeds. Land Fund II's cost basis in the land
parcels sold was $6,760,384 resulting in a gain, net of selling expenses and
commissions, of $4,122,918 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
March 31, 1997 totaled $2,837,059, including $2,116,059 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 $25,945,989. 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 March 31, 1997
totaled $646,629, 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, 281 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 the first quarter of 1997, investors in
Inland's private partnerships have received total distributions in excess of
$113,507,500, 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.
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
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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. Arguments were heard by the Appellate Court in February 1997,
but a decision has not yet been reached by the court regarding this appeal.
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 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
September 30, 1996 totaled $4,294,216, including $1,226,419 from operations and
subsidy income of $67,797 from IREIC, pursuant to the guarantee for that
program. $3,000,000 was a return of capital resulting from a payoff by the
Affiliate. This partnership was liquidated in 1996.
10% INCOME FUND, L.P., an Illinois limited partnership offering
investments in promissory notes, was formed in May 1992. The offering period
for the purchase of notes began in May 1992 and
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ended June 1992 with the maximum amount of $2,000,000 raised. Notes with a term
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 November 30, 1996
totaled $2,878,335 of which $861,051 was interest earnings and $17,284 was from
working capital reserves. $2,000,000 was a return of capital resulting from a
payoff by the Affiliate. This partnership was liquidated in 1996.
9% INCOME JUNIOR MORTGAGE FUND, L.P., an Illinois limited partnership, was
formed in July 1992. The principal investment objectives of the partnership
were to invest in third-party junior mortgage loans owned by an Affiliate of
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 March 31,
1997 totaled $489,764, of which $386,145 was interest earnings, $103,561 was
a return of capital resulting from the amortization of mortgage loans and
$9,893 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 May 31, 1996 totaled $502,198, of which
$99,769 was interest earnings and $2,429 was subsidy income from IREIC,
pursuant to the guarantee for that program. The balance of $400,000 was a
return of capital. This partnership was liquidated in 1996.
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 and the 9% annual
return are guaranteed by IREIC. Cash distributions through March 31, 1997
totaled $1,347,915, of which $1,343,605 was interest earnings and $4,310 was
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
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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 March 31,
1997 totaled $1,286,137, of which $1,282,944 was interest earnings and $3,193
was 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 March 31, 1997 totaled
$1,733,121, of which $1,713,665 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 the principal amount of $1,031,000
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, 1997 totaled $306,539, 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. In February 1996, 20 limited partners exercised their put option and IMIC
bought their interests. Cash distributions through January 28, 1997 have
totaled $541,156, including $131,156 from interest earnings and $410,000 return
of capital from loan repayments. All capital has been returned and the
partnership will be liquidated in 1997.
LOAN MODIFICATIONS AND WORK-OUTS
Between 1990 and December 31, 1996, 40 Inland-sponsored partnerships
owning 27 properties ceased making debt service payments to unaffiliated
lenders which held the underlying financing on the properties. These actions
were taken with the objective of reducing or restructuring the debt to levels
commensurate with the levels of performance of the operating properties. In the
case of six of these partnerships, namely 14 W. Elm Limited Partnership, 1445
North State Parkway Limited Partnership, 5600 Sheridan Limited Partnership,
5630 Sheridan Limited Partnership, 6030 Sheridan Limited Partnership and Oak
Brook Commons Limited Partnership, the original asset of each of these
partnerships was transferred to a new partnership which was 100% owned by the
old partnership. IREIC believed that the new partnerships were better
positioned to accomplish a work-out with the lender. In connection with
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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 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.
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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 40 Inland-sponsored partnerships described in the first
paragraph of this section owned four adjacent office buildings in Park Ridge,
Illinois. These four operating partnerships were, in turn, owned by 21 other
Inland-sponsored partnerships which had sold their original real estate assets
and reinvested a portion of the proceeds from those sales in ownership units in
the four operating partnerships. During 1991, the lenders which held the first
mortgages encumbering the four office buildings acquired the deeds to the
properties in lieu of foreclosure. The four operating partnerships were
subsequently liquidated. The general partner of the 21 partnerships which had
owned the four operating partnerships arranged for the transfer to each of the
21 partnerships of certain ownership interests in five net-lease commercial
properties having long-term leases with creditworthy tenants. The debt service
on the indebtedness used to acquire the commercial properties consists of
principal and interest payments which fully amortize the indebtedness over the
term of the store leases, with the net-lease payments received from the tenants
equal to the required debt service payments. The possibility of cash flow
distributions to the limited partners in the 21 partnerships is, therefore,
precluded. However, the expectation exists for equity accumulation through the
amortization of the loan and, therefore, a future distribution to the limited
partners upon the disposition of the commercial properties. The 21
partnerships experienced minimal adverse tax consequences from the liquidation
of the four operating partnerships and their receipt of the ownership interests
in the commercial properties. IREIC believes that the limited partners of the
21 partnerships are now positioned to realize a return of their capital
investment through the ultimate disposition of the commercial properties.
In the case of the 900 DeWitt and the Hoffman Ridge Limited Partnerships,
two of the 40 limited partnerships mentioned in the first paragraph of this
section, tax-deferred exchanges of the partnerships' properties were
accomplished, in the same manner as described above. The partnerships acquired
net-lease commercial properties. Subsequent to the exchanges, the 900 DeWitt
and Hoffman Ridge properties were acquired by the first-mortgage lenders whose
loans were secured by those properties.
In the case of the Park Colony Limited Partnership, one of the 40 limited
partnerships mentioned in the first paragraph of this section, the partnership
defaulted on a loan secured by a second mortgage against the Park Colony
property. The lender which owned the second-mortgage loan purchased the
position of the lender which had funded the first mortgage loan secured by the
property. The lender then sold the debt, at a substantial discount, to an
Affiliate of the general partner of Park Colony Limited Partnership, and all
legal actions associated with the loan default were dismissed. The partnership
then refinanced the debt at the lower principal amount, retiring the debt owned
by the Affiliate. IREIC believes that this debt reduction is of significant
benefit to the partnership, which is now better positioned to realize its
investment objectives.
In 1990, the New England Limited Partnership, acting as nominee for 14
Florida limited partnerships which own the Sunset Ridge Apartments in
Manchester, New Hampshire, ceased making
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payments on the bond financing for that property, which bonds were issued by
the New Hampshire Housing Finance Authority. In August 1993, an Affiliate of
the general partner for those partnerships purchased the bonds and the
interests of two savings and loan associations which had acted as bond
credit-enhancers, at a substantial discount. The partnerships which own the
property obtained refinancing funds to pay off the bonds and the amounts due to
the Affiliate under the credit- enhancement instruments for approximately the
discounted price paid by the Affiliate.
In April 1993, the West Haven Limited Partnership ceased making payments
on the first mortgage loan for that partnership's property. The general
partner attempted to negotiate with the lender to modify the terms of the loan
to a level commensurate with the operating performance of the West Haven
property, but no agreement was reached. A tax-deferred exchange was
accomplished and the partnership acquired an interest in a net-lease commercial
property. The West Haven property was subsequently acquired by the lender whose
loan was secured by a first mortgage against the property.
In the case of the other partnerships referred to in the first paragraph
of this section, subsequent to the acquisition of net- leased commercial
properties via tax-deferred exchanges, the Townsgate, Riverdale, Northwoods and
Bridgeview properties were acquired by the first-mortgage lenders whose loans
were secured by the properties. The Covington Associates and Westbrooke
Limited Partnerships' tax-deferred exchange property, Townsgate II, was
acquired by the first mortgage lender and the two partnerships acquired net-
lease commercial properties via second tax-deferred exchanges. In the case of
the Bensenville Industrial Limited Partnership, subsequent to the acquisition
of a replacement net- lease commercial property, the Bensenville property was
acquired by the first-mortgage lender whose loan was secured by the property.
In addition to the above-described developments, the corporate general
partner of the Walton Place Limited Partnership and the Barrington Lakes
Limited Partnership settled litigation with the lenders for the properties
which resulted in the transfer of the properties and an agreement to make cash
settlements by the partnerships to the lenders. In each case, the litigation
resulted after the partnership ceased making debt service payments in an effort
to bring about a renegotiation of the terms of the financing. The lenders
agreed to permit a tax-deferred exchange of the partnerships' respective
properties.
In January 1995, the Timberlake Limited Partnership ceased making payments
on the first mortgage loan for that partnership's property. IREIC attempted to
negotiate with the lender to modify the terms of the loan to a level
commensurate with the operating performance of the Timberlake property, but no
agreement was reached. During August 1996, IREIC initiated a tax-deferred
exchange whereby the partnership acquired an interest in a net-lease commercial
property prior to the Timberlake property being acquired by the lender whose
loan is secured by a first mortgage against the property.
In October 1996, two limited partnerships owning contiguous apartment
buildings in south suburban Chicago ceased making payments on their respective
HUD-insured first mortgage loans. The Chateaux Versailles and Marsailles
Limited Partnerships, through their General Partner, are attempting to
negotiate with the lenders to modify the terms of the loans to levels
commensurate with the operating performance of the properties. To date, no
agreement has been reached.
EFFECTS OF PROPERTY EXCHANGES ON INVESTORS
The Inland organization has used a strategy of tax-deferred property
exchanges to mitigate the adverse effects of 1986 tax law changes and the
weakening of apartment markets in the late 1980s on
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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 March 31, 1997, eighteen 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 March 31, 1997, 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.
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.
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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 Company s affairs.
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 are reviewed and approved
by the Directors (including a majority of the Independent Directors) with
sufficient frequency (but not less than annually) to ensure that the policies
being followed are in the best interest of the Stockholders. All Directors are
responsible, as a result of their fiduciary duties, for determining the
reasonableness of the Company s total fees and expenses in light of the Company
s investment experience and the fees and expenses of companies performing
comparable services. Each determination, along with the supporting rationale,
is set forth in the minutes of the meetings of the Board.
The Independent Directors are required to determine, from time to time,
but not less than annually, that the compensation paid by the Company to the
Advisor is reasonable in relation to the nature and quality of the services
performed and within the limits prescribed by applicable state regulatory
authorities. The Independent Directors are also required to supervise the
Advisor s performance and the compensation paid to it by the Company to
determine that the provisions of the Advisory Agreement are being carried out.
Each such determination must be based on at least the factors set forth below
and other factors that the Independent Directors may deem relevant. The
findings of the Independent Directors on each such factor must be recorded in
the minutes of the Board. These 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.
The Board is comprised of five individuals, a majority of whom are
independent (the "Independent Directors"). Election of Board members is
conducted on an annual basis. Each individual elected to the Board serves a
one-year term or until his or her successor is elected. See "Summary of
Organizational Documents."
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company s Directors and executive officers:
Name Age Position and Office with the Company
- ---- --- ------------------------------------
Robert D. Parks 53 President, Chief Executive Officer, Chief
Operating Officer and Affiliated Director
G. Joseph Cosenza 53 Affiliated Director
Roland W. Burris 59 Independent Director
Joel G. Herter 59 Independent Director
Heidi N. Lawton 35 Independent Director
Roberta S. Matlin 52 Vice President -- Administration
Kelly Tucek 34 Secretary, Treasurer and Chief Financial Officer
Patricia A. Challenger 44 Assistant Secretary
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 and is a Director and Vice Chairman
of TIGI. Mr. Cosenza oversees, coordinates and directs Inland s many
enterprises and, in addition, immediately supervises a staff of eight 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, he
taught at the LaGrange School District in Hodgkins, Illinois, and from 1968 to
1972, he served as Assistant Principal and taught in the Wheeling, Illinois
School District. Mr. Cosenza has been a licensed real estate broker since 1968
and an active member of various national and local real estate associations,
including the National Association of Realtors and the Urban Land Institute.
Mr. Cosenza has also been Chairman of the Board of the American National Bank
of DuPage and has served on the Board of Directors of Continental Bank of
Oakbrook Terrace. He is presently Chairman of the Board of Westbank in
Westchester, Illinois.
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
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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.
JOEL G. HERTER. Independent Director since May 1997. Joel G. Herter is
senior partner of Wolf & Company LLP ("Wolf"). A business graduate of Elmhurst
College, Mr. Herter's experience includes accounting and auditing, tax and
general business services including venture and conventional financing,
forecasts and projections and strategic planning for a variety of industries.
From 1978 to 1991, Mr. Herter served as managing partner for Wolf. In 1992,
Mr. Herter became senior partner to focus on managing the development and
growth of the firm's consulting practice. Mr. Herter has long been involved in
professional and community service activities. He is a member of the American
Institute of Certified Public Accountants and the Illinois CPA Society. He is
past president and director of the Elmhurst Chamber of Commerce and was
appointed by Governor Thompson to serve on the 1992 World's Fair Authority.
Mr. Herter currently serves as chairman of the Board of Trustees, Elmhurst
Memorial Hospital; director of Suburban Bank and Trust Company; Chairman Elect
of the Board of Trustees, Elmhurst College; chairman of the Dupage Water
Commission; treasurer to the House Republican Campaign Committee and Friends of
Lee Daniels Committee; treasurer for Attorney General, Jim Ryan; and has been
appointed by Governor Edgar to the Illinois Sports Facilities Authority.
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 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 Vice-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.
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Ms. Matlin received her B.A. Degree from the University of Illinois. She is
registered with the NASD as a general securities principal.
KELLY TUCEK. Secretary, Treasurer and Chief Financial Officer of the
Company since August 1996. Ms. Tucek joined Inland in 1989 and is an Assistant
Vice President of IREIC. Ms. Tucek 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. Tucek was on the audit staff of
Coopers and Lybrand since 1984. She received her B.A. Degree in Accounting and
Computer Science from North Central College.
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 broker,
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.
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 attending (in person or by
telephone) at each meeting of the Board or committee thereof. The Directors
who are affiliated with the Advisor or its affiliates (Messrs. Parks and
Cosenza) do not receive director fees. Each Independent Director has also been
granted options to purchase 3,000 Shares at a price of $9.05 per Share under
the Company's Independent Director Stock Option Plan. In addition, each year
on the date of the annual meeting of the Company's Stockholders, each
Independent Director then in
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office receives an additional grant of options to purchase 500 Shares at an
exercise price of $9.05 per Share. See "--Independent Director Stock Option
Plan" in this Section.
THE ADVISOR
The Advisor, an Illinois corporation, is a wholly owned subsidiary of
IREIC. The following table sets forth information regarding the executive
officers and directors of the Advisor. The biographies of Robert D. Parks, G.
Joseph Cosenza, Roberta S. Matlin and Patricia A. Challenger are set forth
above.
Name Position and Office with the Advisor
--------------- ------------------------------------
Robert D. Parks Chairman of the Board and President
G. Joseph Cosenza Director
Norbert J. Treonis Director
Roberta S. Matlin Director
Patricia A. Challenger Vice President -- Asset Management
Catherine L. Lynch Treasurer and Secretary
NORBERT J. TREONIS (age 46) 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.
CATHERINE L. LYNCH (age 38) joined Inland in 1989 and is the Treasurer of
Inland Real Estate Investment Corporation. Ms. Lynch is responsible for
managing the Corporate Accounting Department. Prior to joining Inland, Ms.
Lynch worked in the field of public accounting for KPMG Peat Marwick LLP since
1980. She received her B.S. Degree in Accounting from Illinois State
University. Ms. Lynch is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants and the Illinois CPA
Society. She is registered with the National Association of Securities Dealers
as a Financial Operations Principal.
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.
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-
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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 31, 1997, owned a $56,878,995 loan portfolio, and IMSC serviced
a loan portfolio of 398 loans exceeding approximately $440,000,000.
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
performing 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
renewable for successive one-year terms upon the mutual consent of the parties.
The agreement 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. If the Advisory Agreement is terminated, the Advisor is required to
cooperate with the Company and to take all reasonable steps requested by the
Board to assist it in making an orderly transition of the advisory function.
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.
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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 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; and (iii) the property meets the Company's acquisition criteria;
provided that if 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, the Company will compensate the Advisor or the
Affiliate at such rates and in such amounts as agreed by the Advisor and the
Independent Directors. The Directors (including a majority of its Independent
Directors) have 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, such as an advisor, to perform management functions on
its behalf. Accordingly, should the Company 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 on terms and conditions agreed to by the
Company and the Advisor. In the event the Advisor is merged into the Company,
certain key employees of the Advisor would become employees of the Company.
If the Advisory Agreement is terminated because the Shares are listed for
trading on a national stock exchange or market system, the Advisor will no
longer be paid any fees. 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 forgone 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 will also
terminate.
The Company has agreed to indemnify the Advisor and to 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
a loss or liability was in the best interest of the Company; (ii) the Advisor
was acting on behalf of or performing services for the Company; (iii) such
liability or loss was not the result of misconduct on the part of the Advisor;
and (iv) such indemnification or agreement to hold harmless is recoverable only
out of the Company's net assets and not from the assets of the Stockholders.
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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 is an Illinois corporation and is a wholly-owned subsidiary
of Mid-America Management Corp. ("Mid-America"), which manages approximately
14,600 multi-family units, including approximately 13,600 units in the Chicago
metropolitan area which Mid-America believes is 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 11.8 million square feet in May 1997.
ICPM is responsible for collecting, leasing and maintaining 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, which means the tenant operates and
maintains the property and pays rent which 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.
Name Age Position and Office with ICPM
------------------ --- ----------------------------------
Norbert J. Treonis 46 Chairman of the Board of Directors
Robert H. Baum 53 Director
Daniel L. Goodwin 53 Director
D. Scott Carr 31 President
Kristi Wells 31 Vice President
Robert M. Barg 43 Secretary/Treasurer
ROBERT H. BAUM has been with TIGI and its affiliates since 1968 and is one of
the four original principals. Mr. Baum is a Vice Chairman and Executive Vice
President-General Counsel of TIGI. In his capacity as General Counsel, Mr.
Baum is responsible for supervising the legal activities of TIGI and its
affiliates, including supervising the Inland Law Department and serving as
liaison with outside counsel. Mr. Baum has served as a member of the North
American Securities Administrators Association Real Estate Advisory Committee
and as a member of the Securities Advisory Committee to the Secretary of State
of Illinois. He is a member of the American Corporation Counsel Association
and has also been a guest lecturer for the Illinois State Bar Association. Mr.
Baum has been admitted to practice before the Supreme Court of the United
States, as well as the bars of several federal courts of appeals and federal
district courts and the State of Illinois. Mr. Baum has served as a director
of American National Bank of DuPage. Currently, he serves as a director of
Westbank and is a member of the Governing Council of Wellness House, a
charitable organization that provides emotional support for cancer patients and
their families.
DANIEL L. GOODWIN is Chairman of the Board of Directors of TIGI, a
billion dollar real estate and financial organization located in Oak Brook,
Illinois. Among Inland s 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 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.
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HOUSING
Mr. Goodwin has been in the housing industry for more than 28 years and
has demonstrated a lifelong interest in housing-related issues. He is a
licensed real estate broker and a member of the National Association of
Realtors. He has developed thousands of housing units in the Midwest, New
England, Florida and the Southwest. He is also the author of a nationally
recognized real estate reference book for managing residential properties.
Mr. Goodwin has served on the Board of the Illinois State Affordable
Housing Trust Fund for the past six years. He is an advisor for the Office of
Housing Coordination Services of the State of Illinois and a member of the
Seniors Housing Committee of the National Multi-Housing Council. Recently,
Governor Edgar appointed him Chairman of the Housing Production Committee for
the Illinois State Affordable Housing Conference. He also served as a member
of the Cook County Commissioner s Economic Housing Development Committee , and
he was the Chairman of the DuPage County Affordable Housing Task Force. The
1992 Catholic Charities Award was presented to Mr. Goodwin for his work in
addressing affordable housing heeds. The City of Hope designated him as the
Man of the Year for the Illinois construction industry. In 1989, the Chicago
Metropolitan Coalition on Aging presented 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 The Inland Group as the leading corporate
provider of transitional housing for the homeless people of DuPage County. Mr.
Goodwin also serves as Chairman of New Directions Housing Corporation, a
leading provider of affordable housing in northern Illinois.
EDUCATION
Mr. Goodwin is a product of Chicago-area schools and obtained his
Bachelor's and Masters s Degrees from Illinois Universities. Following
graduation, he taught for five years in the Chicago Public Schools. His
commitment to education has continued through his work with the Better Boys
Foundation s Pilot Elementary School in Chicago and the development of the
Inland Vocational Training Center for the Handicapped located at Little City in
Palatine, Illinois. He personally established an endowment which funds a
perpetual scholarship program for inner-city disadvantaged youth. In 1990, he
received the Northeastern Illinois University President s Meritorious Service
Award. Mr. Goodwin holds a Master s Degree in Education from Northern Illinois
University, and in 1986, he was awarded an Honorary Doctorate from Northeastern
Illinois University College of Education. More than 12 years ago, under Mr.
Goodwin s direction, Inland instituted a program to educate disabled students
about the workplace. Most of those original students are still employed at
Inland today, and Inland continues as one of the largest employers of the
disabled in DuPage County. Mr. Goodwin has served as a member of the Board of
Governors of Illinois State Colleges and Universities, and he is currently a
trustee of Benedictine University. He was elected Chairman of the Northeastern
Illinois University Board of Trustees in January 1996.
ACKNOWLEDGMENTS
Mr. Goodwin served as a member of Governor Jim Edgar s Transition Team.
In 1988, he received the Outstanding Business Leader Award from the Oak Brook
Jaycees and has been the General Chairman of the National Football League
Players Association Mackey Awards for the benefit of inner-city youth. He
served as the recent Chairman of the Speakers Club of the Illinois House of
Representatives. In March 1994, he won the Excellence in Business Award for
the DuPage Area Association of Business and Industry.
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Additionally, he was honored by Little Friends on May 17, 1995 for rescuing
their Parent-Handicapped Infant Program when they lost their lease. He was the
recipient of the 1995 March of Dimes Life Achievement Award and was recently
recognized as the 1997 Corporate Leader of the Year by the Oak Brook Area
Association of Commerce and Industry.
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.
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, 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
management fees. However, under no circumstances will such compensation exceed
90% of that which would be paid to third parties providing such services and
all such compensation must have the prior approval of a majority of the
Directors, including a majority of the Independent Directors.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
The Company has an Independent Director Stock Option Plan (the
"Independent Director Stock Option Plan") under which non-employee Directors
who are "disinterested persons" as defined under Rule 16b-3 of the Exchange Act
are eligible to participate.
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 will be made in the number and kind of shares that may be issued
pursuant to options. A corresponding adjustment to the exercise price of the
options granted prior to any change will also be made.
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<PAGE> 75
Any such adjustment, however, will be made without change in the total payment,
if any, applicable to the portion of the options not exercised but with a
corresponding adjustment in the exercise price for each share.
The independent Director Stock Option Plan provides for the grant of
non-qualified stock options to purchase 3,000 Shares to each Independent
Director as of the date such individuals became Directors (the "Initial
Options"), and subsequent grants of options to purchase 500 Shares on the date
of each annual stockholder's meeting to each Independent Director then in
office (the "Subsequent Options," collectively with the Initial Options
referred to herein as "Option" or "Options"). As of the date of this
Prospectus, Options to purchase an aggregate of 19,500 Shares at $9.05 per
Share (the "Option Price") have been granted, of which options to purchase
12,000 Shares have vested in the current Independent Directors. The Option
Price for subsequent options will be equal to the fair market value of the
Common Stock on the last business day preceding the annual meeting.
Options granted under the Independent Director Stock Option Plan are
generally exercisable on the second anniversary of the date of grant. To date,
options to purchase 3,500 Shares have vested in Joel G. Herter, options to
purchase 4,000 Shares have vested in Roland W. Burris, and options to purchase
4,500 Shares have vested in Heidi Lawton. Options granted under the
Independent Director Stock Option Plan are 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 will terminate, and any outstanding
options will 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 exercise prices; (ii) for the continuance of the Independent
Director Stock Option Plan by such successor corporation in which event the
Independent Director Stock Option Plan and the options will continue in the
manner and under the terms so provided; or (iii) for the payment in cash or
Shares in lieu of and in complete satisfaction of such options.
(Remainder of page intentionally left blank)
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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, 1997
and income statement data for the three months ended March 31, 1997, have been
derived from unaudited financial statements of the Company. Balance sheet data
at December 31, 1996, 1995 and 1994 and income statement data for the years
ended December 31, 1996, 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.
<TABLE>
<CAPTION>
Three Months Ended Year ended December 31,
================== ----------------------------
March 31, 1997 1996 1995 1994
================== ------------ ---------- ----------
<S> <C> <C> <C> <C>
Total assets ....................... $151,510,409 $104,508,686 18,750,877 2,402,373
Mortgages payable .................. 53,182,067 30,838,233 750,727 -
Total income ....................... 4,857,771 6,327,734 1,180,422 -
Net income ......................... 884,700 2,452,221 496,514 -
Net income per share (b) ........... .09 .55 .53 -
Distributions declared ............. 1,941,390 3,704,943 736,627 -
Distributions per share (b) ........ .21 .82 .78 -
Funds from Operations (b)(c) ....... 1,626,620 3,391,365 666,408 -
Funds available for distribution (c) 1,598,808 3,709,818 787,011 -
Cash flows from operating
activities..................... 1,575,693 5,529,709 978,350 -
Cash flows from investing
activities .................... (14,970,487) (68,976,841) (6,577,843) (1,703,498)
Cash flows from financing
activities ...................... 27,550,217 71,199,936 6,327,490 1,714,432
Weighted average number
of common shares
outstanding ..................... 9,384,792 4,494,620 943,156 20,000
</TABLE>
(1) The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this
Prospectus.
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(2) The net income and distributions per share are based upon the weighted
average number of common shares outstanding. The $.82 per share
Distribution for the year ended December 31, 1996, represented 109.3% of
the Company's Funds From Operations ("FFO") and 99.9% of funds available
for distribution for that period. 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. For 1996, $611,418 (or 16.50% of the
$3,704,943 Distribution paid for 1996 represented a return of capital. In
order to maintain its qualification as a REIT, the Company must make
annual distributions to Stockholders of at least 95% of its taxable income
which was approximately $2,938,800 (or 79.32% of the Distribution paid).
Taxable income does not include net capital gains. 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 expenditures, the annual
distribution required to maintain REIT status under the Code and other
factors the Board of Directors may deem relevant.
(3) "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 other non-cash items. FFO and funds available for distribution are
calculated as follows:
<TABLE>
<CAPTION>
March 31, 1997 1996 1995
-------------- ----------- --------
<S> <C> <C> <C>
Net income .......................... $ 884,700 $2,452,221 496,514
Depreciation ........................ 741,920 939,144 169,894
Funds from operations(1) .......... 1,626,620 3,391,365 666,408
Deferred rent receivable (2) ........ (99,411) (119,225) (12,413)
Rental income received under
master lease agreements (3) ...... 71,599 437,678 133,016
---------- ---------- -------
Funds available for distribution .. $1,598,808 $3,709,818 787,011
========== ========== =======
</TABLE>
(a) FFO does not represent cash generated from operating
activities calculated 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.
(b) Certain tenant leases contain provisions providing for
stepped rent increases. GAAP requires the Company to record rental
income 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 increases of $119,225 and $12,413 in 1996 and 1995, of
rental income for the period of occupancy for which stepped rent
increases apply and $131,638 and $12,413 in related accounts
receivable as of December 31, 1996 and 1995, respectively. The
Company anticipates collecting these amounts over the terms of the
related leases as scheduled rent payments are made.
(c) As part of several 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.
The Company has recorded $437,678 and $133,016 of such payments as
of December 31, 1996 and 1995, respectively.
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<PAGE> 78
INVESTMENT OBJECTIVES AND POLICIES
1. General. The Company's investment objectives are to: (i) make regular
Distributions to the Stockholders, which may be in amounts which may exceed the
Company's taxable income due to the non-cash nature of depreciation expense
and, to such extent, will constitute a tax-deferred return of capital, but in
no event less than 95% of the Company's taxable income; (ii) provide a hedge
against inflation by entering into leases which contain clauses for scheduled
rent escalations or participation in the growth of tenant sales, permitting the
Company to increase Distributions and realize capital appreciation; and (iii)
preserve Stockholders' capital.
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
properties owned by the Company are currently generating sufficient cash flow
to cover operating expenses of the Company plus pay a monthly Distribution of
8.5% per annum on weighted average Shares. The Company's ability to pay
Distributions and the size of these 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 and December 31, 1996
totaled $736,627 and $3,704,943, respectively, of which $42,414 and $611,418,
respectively constituted a return of capital for federal income tax purposes.
In addition, Distributions declared for the three months ended March 31, 1997
totaled $1,941,390, a portion of which may be a return of capital.
To the extent possible, the Company seeks to avoid the fluctuations in
Distributions which might result if Distributions were based on actual cash
received during the Distribution period. To 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 is dependent upon the Company's Cash Flow and applicable REIT
rules. There can be no assurance that there will be Cash Flow available to pay
Distributions, or that Distribution amounts will not fluctuate. Monthly
Distributions will be calculated with daily record and Distribution declaration
dates. However, the Board could, at any time, elect to pay Distributions
quarterly, to reduce administrative costs. As a matter of policy, the Company,
subject to applicable REIT rules, seeks to reinvest proceeds from the sale,
financing, refinancing or other disposition of its properties through the
purchase of additional properties. See "--Sale or Disposition of Properties"
in this Section.
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. The Company intends, whenever
possible, to acquire properties free and clear of permanent mortgage
indebtedness by paying the entire purchase price in cash or for shares of the
Company's stock. The Company has in the past incurred, and may in the future
incur, indebtedness to acquire properties where the Board determines that
incurring such indebtedness is in the Company's best interest. The Company
utilized financing to acquire 15 of its 33 properties. In addition, from time
to time, the Company has acquired properties on an all-cash basis and later
incurred mortgage indebtedness secured by the property if favorable financing
terms are available. The Company intends to continue this strategy. The
proceeds from such loans are used to acquire additional properties. Certain of
these properties may be subject to "net" leases. "Net" leases typically
require tenants to pay all or a majority of the operating expenses including
real estate taxes, special assessments and sales and use
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<PAGE> 79
taxes, utilities, insurance and building repairs related to the property, as
well as lease payments. The leases are long-term (typically 15 to 25 years,
but generally not less than ten years) and require the lessee to pay a base
minimum annual rent with periodic increases. For purposes hereof, a
creditworthy tenant is 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 purchases 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 evaluating a property for
acquisition, the Advisor requires the seller to provide a current 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 by the
Company. All acquisitions from Affiliates must be approved by a majority of
the Directors, including a majority of the Independent Directors.
The Advisor and its Affiliates may purchase properties in their own name,
assume loans in connection therewith and temporarily hold title thereto for the
purpose of facilitating acquisition or financing by the Company, the completion
of construction of the property or any other purpose related to the business of
the Company. In no event, however, may the Advisor or its Affiliates transfer
any property to the Company which the Advisor or its Affiliates have held in
excess of twelve months prior to commencement of this Offering, except as
specified herein.
4. Acquisition Standards. Through its experience, gained through the
acquisition of approximately 750 properties by Company's Affiliates, the
Advisor believes the Company has the ability to identify quality properties
capable of meeting the investment objectives. In evaluating potential
acquisitions, the Company considers a number of factors, including a
property's: (i) geographic location and type; (ii) construction quality and
condition; (iii) current and projected cash flow; (iv) potential for capital
appreciation; (v) rent roll, including the potential for rent increases; (vi)
potential for economic growth in the tax and regulatory environment of the
community in which the property is located; (vii) potential for expanding the
physical layout of the property and/or the number of sites; (viii) occupancy
and demand by tenants for properties of a similar type in the same geographic
vicinity; (ix) prospects for liquidity through sale, financing or refinancing
of the property; (x) competition from existing properties and the potential for
the construction of new properties in the area; and (xi) treatment under
applicable federal, state and local tax and other laws and regulations.
Statistics in this section are excerpted from Woods & Poole Economics,
Inc., 1997 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 1992 "constant" dollars.
In 1994, Chicago had the third largest population among 315 metropolitan
areas in the nation with more than 7.6 million people. The Chicago
metropolitan area is one of the nation's largest metropolitan areas and retail
market. While the rate of growth of this market from 1994 through 2020 is
forecast to trail that of the nation as a whole, in absolute numbers Chicago
will likely still be a leader in increases in population, jobs, per capita
income and retail sales. Population is forecast to increase 0.32% per year in
the Chicago metropolitan area, compared to 1.02% for the nation as a whole; for
jobs, the forecasted
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<PAGE> 80
annual increase is 0.93% for Chicago, compared to 1.05% for the nation; for
retail sales, the total forecasted increase from 1994 to 2020 is 33% for
Chicago and 49% for the nation.
Woods & Poole Economics, Inc. projects that from 1994 through 2020, the
Chicago metropolitan area will add 867,850 persons, the 17th largest increase
among the nation's 315 metropolitan areas, with Chicago retaining its current
place as third largest metropolitan area in the nation.
For the same period, Woods & Poole projects that the Chicago area will:
(i) see a 43% rise in per capita income, improving the area's ranking from 21st
to 14th among the nation's 315 metropolitan areas; (ii) lead the nation in the
number of new jobs, with 1,225,860; and (iii) see a rise in annual retail sales
from $64.4 billion to $85.6 billion, the fourth largest increase among any
metropolitan area in the nation and will at that time be the largest retail
market in the nation.
5. Description of Leases. The Company anticipates that 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. The Company intends to include provisions which increase the
amount of base rent payable at certain points during the lease term and/or
provide for the payment of additional rent calculated as a percentage of a
tenant's gross sales above predetermined thresholds in most of its leases. The
leases with most Anchor Tenants generally have initial terms of ten to
twenty-five years, with one or more renewal options available to the lessee.
By contrast, smaller tenant leases typically have three- to five-year terms.
During the initial term of a "net" lease, which generally covers fifteen
to twenty-five years (typically not less than ten years), the tenant is
required to 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 is required to pay its share of the cost of the
liability insurance covering the properties owned by the Company. The
third-party liability coverage insures, among others, the Company and the
Advisor. Each tenant is required to obtain, at its own expense, property
insurance naming the Company as the insured party for fire and other casualty
losses in an amount equal to the full value of 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 must remain liable under the lease unless the assignee meets
certain income and net worth tests.
6. Property Acquisition. The Company has acquired to date, and in the
future anticipates acquiring, 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.
As of the date of this Prospectus, the Company had acquired 28
Neighborhood Retail Centers and five single-user retail properties. A total
of two properties, the Eagle Crest Shopping Center and the Walgreen/Decatur
property, were acquired from an Affiliate. The prices paid for each of these
properties were not the subject of arm's-length negotiations. Under the
Articles, the Company is prohibited from purchasing a property from an
Affiliate unless a majority of the Directors (including a majority of the
Independent Directors) not interested in the transaction approve the purchase
as fair and reasonable to the Company and at a price to the Company no greater
than the cost of the asset to such Affiliate, 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
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<PAGE> 81
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. For example, the Company has entered into letter agreements
to purchase two Neighborhood Retail Centers which will be redeveloped. See
"Potential Property Acquisition - Oak Forest Commons, Oak Park, Illinois --
Downers Grove Plaza, Downers Grove, Illinois" below. 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 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.
7. Borrowing. The Company intends, 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, incur indebtedness to acquire
properties. With respect to 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. The Company
may also incur indebtedness to finance improvements to its properties. The
Company anticipates that aggregate borrowings secured by all of the Company's
properties will not exceed 50% of their combined fair market value; however,
the maximum amount of borrowings as a percentage of Net Assets will, in the
absence of the consent of a majority of the Stockholders, not exceed 300% of
Net Assets.
If the Company does incur indebtedness secured by its properties, it
intends to do so only on a non-recourse basis, which means that a lender s
rights on default will generally be limited to foreclosing on the property
which secured the obligation. The Company will not borrow funds from a program
sponsored by the Advisor or its Affiliates which makes or invests in mortgage
loans. The Company also seeks to obtain level payment financing, meaning that
the amount of debt service payable would be substantially the same each year,
although some mortgages might provide for a so-called "balloon" payment. 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."
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8. Sale or Disposition of Properties. The Board will determine whether a
particular property should be sold or otherwise disposed of after considering
the relevant factors, including performance or projected performance of the
property and market conditions, with a view toward achieving the principal
investment objectives of the Company.
In general, the Company holds its properties prior to sale, for a minimum
of four years. See "Federal Income Tax Considerations--Taxation of the
Company--Prohibited Transactions." Furthermore, the Company generally reinvests
proceeds from the sale, financing, refinancing or other disposition of its
properties into additional properties or uses these proceeds to fund
maintenance or repair of existing properties or to increase reserves for such
purposes. The objective of reinvesting the sale, financing and refinancing
proceeds in new properties is to increase the real estate assets owned by the
Company, and the Company s net income which the Board believes will enhance the
Company s chances of listing the Company's Shares on a national securities
exchange or market. 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 to distribute these proceeds to Stockholders, the Board will consider,
among other factors, the desirability of properties available for purchase,
real estate market conditions, the likelihood of the listing of the Company's
shares on a national stock exchange or including the Shares for quotation on a
national market system and compliance with REIT regulations. Because the
Company may reinvest the proceeds from the sale, financing or refinancing of
its properties, the Company could hold Stockholders' capital indefinitely.
However, the affirmative vote of the Stockholders, controlling a majority of
the Shares, will force the Company to liquidate its assets and dissolve. See
"Summary of the Organizational Documents--Dissolution or Termination of the
Company." To date, the Company has reinvested all sale or refinancing
proceeds.
In selling a property, the Company generally seeks to obtain an all-cash
sale price. However, a purchase money obligation secured by a mortgage on the
property may be taken as partial payment, and there are no limitations or
restrictions on the Company taking such purchase money obligations. The terms
of payment to the Company will be affected by custom in the area in which the
property being sold is located and the then prevailing economic conditions. To
the extent the Company receives notes and other property instead of cash from
sales, such proceeds (other than any interest payable thereon) will not be
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.
To date the Company has not sold any properties.
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."
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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.
Appraisals are, however, estimates of value and should not be relied on as
measures of true worth or realizable value. The appraisal will be maintained
in the Company's records for at least five years, and copies of each appraisal
will be available for review by Stockholders upon their request.
12. Return of Uninvested Proceeds. Any of the proceeds of this Offering
allocable to investments in real property which have not been invested in real
property or committed for investment within the later of: (i) twenty-four
months from the original effective date of this Prospectus; or (ii) twelve
months from the termination of the Offering, will be returned by the Company to
the Stockholders. All funds received by the Company out of the escrow account
will be available for the general use of the Company from the time of receipt
until expiration of the period discussed above and may be used to fund expenses
incurred 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 calendar year 1999, the Board of Directors will determine whether it
is in the best interests of the Company to apply to have the Shares listed for
trading on a national stock exchange or included for quotation on a national
market system, provided the Company meets the then applicable listing
requirements. The Company believes that an exchange listing may allow the
Company to increase its size, portfolio diversity, stockholder liquidity,
access to capital and stability, and decrease its operating costs through
economies of scale. 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.
14. Joint Ventures. The Company is permitted to invest in joint venture
arrangements with other public real estate programs formed by the Advisor or
any of its Affiliates if a majority of Directors (including a majority of
Independent Directors) not otherwise interested in the transaction approve the
transaction as being fair and reasonable to the Company and the investment by
each such joint venture partner is substantially on the same terms and
conditions as those received by other joint venturers.
The Company is 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 has 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 is permitted to invest in
general partnerships or joint venture arrangements with Affiliates as co-owners
of a property. The Company will be able to increase its equity participation
in such entity as additional proceeds of the Offering are received by the
Company with the result that the Company will end up with up to a 100% equity
ownership of the property, provided, however that the affiliated general or
joint venture partner will not be entitled to any profit or other benefit on
such sale of its equity participation to the Company.
Investors should consider the potential risk of the Company and its joint
venture partner being unable to agree on a matter material to the joint
venture. Furthermore, there can be no assurance that the Company will have
sufficient financial resources to exercise its right of first refusal. The
Company will
74
<PAGE> 84
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 the property. The
amount paid for the option, if any, usually would be surrendered if the
property was not purchased and normally would be credited against the purchase
price if the property was purchased.
The Company 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. These
investments are highly liquid and provide for appropriate safety of principal
and may include, but are not limited to, investments such as GNMA bonds and
real estate mortgage investment conduits ("REMICs"). See "Federal Income Tax
Considerations--Taxation of the Company--REIT Qualification Tests."
The Company will not make distributions-in-kind, except for: (i)
distributions of readily marketable securities; (ii) distributions of
beneficial 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 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 28 Neighborhood Retail Centers and FIVE
single-user retail properties. In each case, the Company received an
appraisal of fair market value prior to acquiring the particular property.
Appraisals are, however, estimates of value and should not be relied on as a
measure of true worth or realizable value. The terms of the leases at each
property vary depending upon tenant size, but in many cases contain contractual
provisions which automatically increase the amount of base rent payable at
certain points during the term of the lease. These leases may also contain
provisions which provide for the payment of additional rent calculated as a
percentage of a tenant's gross sales above pre-determined thresholds. The
Directors, including the Independent Directors, approved these acquisitions as
being fair and reasonable to the Company. A total of two out of these 33
properties, Lansing Square and Maple Park (the "Ten Percent Properties"),
individually account for more than 10% of the book value of the Company's total
assets or gross revenues for the Company's fiscal year ended March 31, 1997.
75
<PAGE> 85
The following tables describe the Company's properties and tenants at
those properties.
<TABLE>
<CAPTION>
Property Mix
(at June 20, 1997)
Gross % of Annualized % of Total
Leasable Total Base Base
Area (Sq GLA Rental Rental
No. Ft) Revenue Revenue
<S> <C> <C> <C> <C> <C>
Single User
Retail Property 5 173,345 8.64% $2,947,095 14.12%
Neighborhood
Retail Centers 28 1,832,559 91.36% 17,927,569 85.88%
33 2,005,904 100.00% $20,874,664 100.00%
</TABLE>
76
<PAGE> 86
<TABLE>
<CAPTION>
Gross Percent Percent of 1997
Leasable of GLA Leased Annualized Current
Date Year Area Total as of Base Rental No. Of
Property Acq. Built (Sq.Ft.) GLA 06/20/97 Revenue(2) Tenants Anchor Tenants(1)
-------- ----- ----- --------- ------- ----------- ----------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single User
Retail Property
Walgreens,
Decatur, IL 01/95 1988 13,500 0.67 100% 579,495 1 Walgreens
Zany Brainy,
Wheaton, IL 07/96 1995 12,499 0.62% 100% 274,978 1 Zany Brainy
Ameritech Outlet,
Joliet, IL 05/97 1995 4,504 0.22% 100% 109,492 1 Ameritech
Schaumburg Dominick's,
Schaumburg, IL 05/97 1996 71,400 3.56% 100% 1,108,842 1 Dominick's Finer Foods
Highland Park Dominick's
Highland Park, IL 06/97 1996 71,442 3.56% 100% 1,325,964 1 Dominick's Finer Foods
Neighborhood Retail Centers
Eagle Crest Shopping Center
Naperville, IL 03/95 1991 67,650 3.37% 97% 579,495 12 Eagle Foods
Montgomery-Goodyear Goodyear Tire & Rubber
Montgomery, IL 09/95 1991 12,863 0.64% 77% 115,080 2 Merlin Corp.
Hartford/Naperville Plaza Blockbuster Video
Naperville, Il 09/95 1995 43,862 2.19% 94% 548,170 7 Sears Hardware
Keller/Williams Realty
</TABLE>
77
<PAGE> 87
<TABLE>
<CAPTION>
Gross Percent Percent of 1997
Leasable of GLA lease Annualized Current
Date Year Area Total as of Base Rental No. of
Property Acq. Built (Sq. Ft.) GLA 05/31/97 Revenue Tenants Anchor Tenants*
-------- ---- ----- --------- ------- ---------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nantucket Square Shopping Center
Schaumburg, IL 09/95 1980 56,981 2.84% 94% 560,955 18 Nuttco, Inc.
Super Trak
Antioch Plaza,
Antioch, IL 12/95 1995 19,810 0.99% 57% 224,330 4 Blockbuster Video
Mundelein Plaza,
Mundelein, IL 03/96 1990 67,896 3.38% 94% 645,058 8 Sears, Roebuck & co
04/96 1993 49,826
Regency Point,
Lockport, IL 04/96 1995 5,050 2.74% 100% 630,936 19 Walgreens
Ace Hardware
Prospect Heights,
Prospect Heights, IL 06/96 1985 28,080 1.40% 83% 199,450 4 Walgreens
Montgomery-Sears
Montgomery, IL 06/96 1990 34,600 1.72% 85% 416,640 3 Sears Paint &
Hardware
Blockbuster Video
Salem Square,
Countryside, IL 08/96 1973/ 112,310 5.60% 97% 682,542 5 Tj Maxx
1985 Marshalls
Hawthorn Village,
Vernon Hills, IL 08/96 1979 98,686 4.92% 98% 906,771 21 Dominick's
Walgreens
Six Corners,
Chicago, IL 10/96 1966 80,650 4.02% 94% 966,416 8 Chicago Health Club
IL Masonic Health
Center
TJ Maxx
Spring Hill Fashion Corner 11/96 1985 125,198 6.24% 96% 1,153,920 19 Michaels Crafts
West Dundee, IL
Crestwood Plaza,
Crestwood, IL 12/96 1992 20,044 1.00% 100% 203,007 2 Entenmann's
Pet Supplies Plus
</TABLE>
78
<PAGE> 88
<TABLE>
<CAPTION>
Gross Percent Percent of 1997
Leasable of GLA leased Annualized Current
Date Year Area Total as of Based Rental No. of
Property Acq. Built (Sq. Ft) GLA 05/31/97 Revenue Tenants Anchor Tenants*
-------- ---- ----- -------- ------- ---------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Park St. Claire,
Schaumburg, IL 12/96 1994 11,859 0.59% 100% 179,120 2 Ameritech
Hallmark Showcase
Lansing Square,
Lansing, IL 12/96 1991 233,508 11.64 90% 1,794,141 18 Sam's Club
Baby Superstore
Office Max
Summit of Park Ridge
Park Ridge, IL 12/96 1986 33,252 1.66% 81% 346,774 12 LePeep Restaurant
Giappos Pizza
Grand and Hunt Club,
Gurnee, IL 12/96 1996 21,222 1.06% 100% 394,844 2 Jewelry 3
Super Crown Books
Quarry Outlot,
Hodgkins, IL 12/96 1996 9,650 0.48% 100% 201,450 3 Dunkin Donuts
Baskin Robbins
The Casual Male
Jewelry 3
Maple Park Place,
Bolingbrook, IL 01/97 1992 215,722 10.75% 99% 1,809,262 19 Kmart
Eagle Foods
Aurora Commons,
Aurora, IL 01/97 1988 127,510 6.36% 99% 1,180,637 1 Jewel/Osco
Lincoln Park Place,
Chicago, IL 01/97 1990 10,678 0.53% 100% 235,633 2 Lechter's Housewares
Nordic Trak
Niles Shopping Center,
Niles, IL 04/97 1982 26,117 1.30% 100% 361,048 7 Intermac Technologies
Wolf Camera
Jennifer Convertibles
Crown Books
ACEL Cell Phones
</TABLE>
79
<PAGE> 89
<TABLE>
<CAPTION>
Gross Percent Percent of 1997
Leasable of Gla Leased Annualized Current
Date Year Area Total as of Base Rental No. of
Property Acq. Built (sq. ft.) Gla 05/31/97 Revenue Tenants Anochor Tenants*
-------- ----- ----- --------- ----- ---------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mallard Crossing,
Elk Grove Village, IL 05/97 1993 82,949 4.14% 95% 1,068,112 10 Eagle Foods
Cobblers Crossing, Elgin, IL 05/97 1993 102,643 5.12% 91% 1,024,776 13 Jewel/Osco
Calumet Square, Calumet
City, IL 06/97 1967 39,936 1.99% 100% 313,592 3 Super Trak
Aronson Furniture
Sequoia Plaza, Milwaukee, WI 06/97 1988 35,447 1.77% 96% 409,740 13 U.S. Post Office
Kinko's
Play It Again Sports
Riversquare, Naperville, IL 06/97 1988 58,557 2.92% 100% 775,670 22 Harbour Contractors
Salon Suites
</TABLE>
(1) Anchor tenants only include tenants leasing more than 10% of the gross
leasable area of a property.
(2) Annual Base Rental Revenue is the monthly contractual base rent as of
January 1, 1997 under existing leases, multiplied by 12.
80
<PAGE> 90
TENANTS
The following table sets forth, at June 20, 1997, information regarding
space leased to retail tenants which, in each case, individually account for
more than 1.0% of the Company's 1997 total annualized base rental revenues from
the Properties.
<TABLE>
<CAPTION>
Percent of
Annualized Aggregate
Total Percent Base Annualized
Number of GLA of Rental Base Rental
Stores (Sq. Ft.) Total GLA Revenue (1) Revenue
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Walgreens 4 51,074 2.55% 426,990 2.05%
Blockbuster 6 40,415 2.01% 538,788 2.58%
Sears 3 88,000 4.39% 800,836 3.84%
Eagle Foods 3 159,764 7.96% 1,586,904 7.60%
Dominick's 3 189,826 9.46% 2,663,447 12.76%
Super Trak 4 42,502 2.12% 342,273 1.64%
Bally's 1 45,803 2.28% 489,176 2.34%
Ameritech 3 13,195 0.66% 240,861 1.15%
Sams 1 107,927 5.38% 788,946 3.78%
Kmart 1 104,231 5.20% 589,157 2.82%
Jewel 1 64,938 3.24% 636,639 3.05%
Zany Brainy 1 12,499 0.62% 274,978 1.32%
TJ Maxx 2 88,696 4.42% 528,872 2.53%
Illinois Masonic 1 15,338 0.76% 283,538 1.36%
Michaels Crafts 1 30,000 1.50% 210,000 1.01%
Crown Books 1 16,722 0.83% 280,094 1.34%
Jewelry 3 2 9,200 0.46% 227,550 1.09%
Baby Superstore 1 43,596 2.17% 283,374 1.36%
</TABLE>
(1) Amounts shown reflect 1997 annualized base rental revenue. Annualized
rental revenue excludes: (a) percentage rents; (b) additional charges paid
for by tenants including common area maintenance, real estate taxes and
other expense requirements; and (c) future contractual rent escalations.
Annualized base rental revenue is the monthly contractual base rent as of
January 1, 1997 under existing leases, multiplied by 12.
Tenant Lease Expirations
81
<PAGE> 91
The following table sets forth lease expirations for the next ten years at
the single user retail properties, assuming that no renewal options are
exercised.
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Building Annual
Approx. GLA Annual Total Per Square GLA Base Rent
Number of of Expiring Base Rent Annual Foot Under Represented by Represented by
Year Ending Leases Leases of Expiring Base Expiring Expiring Expiring
December 31 Expiring (Sq. Ft.) Leases Rent (1) Leases Leases Leases
- ----------- --------- ----------- ----------- --------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - - - $2,947,095 - - -
1998 - - - 2,950,372 - - -
1999 - - - 2,953,761 - - -
2000 - - - 2,971,834 - - -
2001 - - - 2,985,830 - - -
2002 - - - 2,989,535 - - -
2003 - - - 3,076,248 - - -
2004 - - - 3,139,364 - - -
2005 2 17,003 $435,591 3,140,343 $25.62 9.81% 13.87%
2006 - - - 2,787,660 - - -
</TABLE>
82
<PAGE> 92
The following table sets forth lease expirations for the next ten years at
the Neighborhood Retail Center Properties, assuming that no renewal options are
exercised.
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual
Approx. Annual Per Square GLA Base Rent
Number GLA of Base Rent Total Foot Under Represented by Represented by
Year Ending of Leases Expiring Leases of Expiring Annual Base Expiring Expiring Expiring
December 31 Expiring (Sq. Ft.) Leases Rent (1) Leases leases Leases
<S> <C> <C> <C> <C> <C> <C> <C>
1997 22 57,421 $ 574,698 $17,927,569 $10.01 3.13% 3.21%
1998 47 96,527 1,365,368 17,400,770 14.14 5.27% 7.85%
1999 61 157,892 2,204,791 16,207,708 13.96 8.62% 13.60%
2000 42 209,779 2,543,156 14,133,355 12.12 11.45% 17.99%
2001 28 114,651 1,431,007 11,651,224 12.48 6.26% 12.28%
2002 17 90,314 1,007,716 10,341,480 11.16 4.93% 9.74%
2003 9 81,597 656,064 9,412,036 8.04 4.45% 6.97%
2004 6 79,805 584,894 8,777,844 7.33 4.35% 6.66%
2005 12 65,600 806,812 8,217,426 12.30 3.58% 9.82%
2006 16 134,629 1,496,385 7,789,965 11.11 7.35% 19.21%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates. Annualized base rental revenue is the monthly contractual base
rent as of January 1, 1997 under existing leases, multiplied by 12.
Additional Information Regarding Lansing Square and Maple Park.
** 3 Lansing Square Shopping Center, Lansing, Illinois
** 4 On December 31, 1996, the Company acquired a Neighborhood Retail
Center located at Torrence Avenue and Interstate 80/94 in Lansing, Illinois
known as Lansing Square Shopping Center ("Lansing Square") from Lansing Square
RPF II Limited Partnership, an unaffiliated third party, for approximately
$16.3 million. The purchase price was funded using cash and cash equivalents as
well as the proceeds of a series of loans from LaSalle Bank. The proceeds of
the loans from LaSalle Bank (the "LaSalle Loans") totaling $12,850,000, were
received on December 30, 1996. The LaSalle Loans are secured by properties the
Company previously acquired. Of the total of $12,850,000, approximately
$8,000,000 was used in the acquisition of Lansing Square. The LaSalle Loans
require the payment of interest only at a rate of 7.6%, fixed for five years
and then variable for an additional two years. The purchase price for Lansing
Square was approximately $69.80 per square foot, which the Company concluded
was fair and reasonable and within the range of values indicated in an
appraisal received by the Company and presented to the Company's board of
directors.
83
<PAGE> 93
** 5 Lansing Square was built in 1991 and consists of three one-story
buildings aggregating 233,508 rentable square feet. As of May 31, 1997,
Lansing Square was 90.3% leased. In evaluating Lansing Square as a potential
acquisition, the Company considered a variety of factors including location,
demographics, tenant mix, price per square foot, existing rental rates compared
to market rates, and the occupancy of the center. The Company believes that
the center is located in a vibrant economic area. Although 75.5% of the
rentable square feet at Lansing Square is leased to three tenants, the
Company's management believes that retenanting of any space which is vacated in
the future should be accomplished relatively quickly and at rental rates
comparable to those currently paid by the tenants at the facility. The Company
did not consider any other factors materially relevant to the decision to
acquire the property.
** 6 The Company does not anticipate making any significant repairs and
improvements to Lansing Square over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
** 7 The table below sets forth certain information with respect to the
occupancy rate at Lansing Square expressed as a percentage of total gross
leasable area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Year Ending Effective Annual Rental
December 31, Occupancy Rate Per Square Foot
<S> <C> <C>
1996 89.0% $5.51
1995 76.0 5.81
1994 75.0 7.28
1993 92.0 7.38
1992 90.8 7.26
</TABLE>
** 8 Tenants leasing more than 10% of the total square footage are Sams
Club, which leases 107,927 square feet, or approximately 46% of the rentable
square feet, Baby Superstore, which leases 43,596 square feet, or approximately
19% of the rentable square feet, and Office Max, which leases 24,700 square
feet, or approximately 11% of the rentable square feet. Sams Club is a
national warehouse club, Baby Superstore is a national retailer of merchandise
for infants and children and Office Max is a national office supply chain. The
lease with Sams Club requires Sams Club to pay base rent equal to $7.31 per
square foot per annum payable monthly until November 30, 2011. The Sams Club
lease contains no option to renew. The lease with Baby Superstore requires
Baby Superstore to pay base rent equal to $6.50 per square foot per annum
payable monthly until October 31, 2000 and $7.00 per square foot per annum
payable monthly until December 31, 2001. The Baby Superstore lease contains no
option to renew. The lease with Office Max requires Office Max to pay base
rent equal to $7.75 per square foot per annum payable monthly until April 30,
2002 and $8.25 per square foot per annum payable monthly until January 31,
2008. The Office Max lease contains no option to renew.
** 9 For federal income tax purposes, the Company's depreciable basis in
Lansing Square is approximately $13,000,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
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<PAGE> 94
** 10 Real estate taxes paid in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $1,252,577. The real
estate taxes payable were calculated by multiplying Lansing Square's assessed
value by an equalizer of 2.1243 and a tax rate of 11.494%.
** 11 At May 31, 1997, a total of 210,810 square feet were leased to
eighteen tenants at Lansing Square. The following tables set forth certain
information with respect to the amount of and expiration of leases at this
Neighborhood Retail Center.
<TABLE>
<CAPTION>
Current Rent per
Square Feet Lease Renewal Annual Square
Lessee Leased Ends Options rent Foot
<S> <C> <C> <C> <C> <C>
Sam's Club 107,927 11/2011 none $788,946 $7.31
Office Max 24,700 01/2008 none 191,425 7.75
Baby Superstore 43,596 01/2006 none 283,374 6.50
Furniture Max 8,000 07/2002 none 116,000 14.50
Blockbuster 6,275 12/2001 none 100,400 16.00
Ameritech 3,600 06/2000 none 59,328 16.48
Wolf Camera 1,200 06/2002 1/5 yr. 23,376 19.48
Norwest Financial 1,500 01/1999 1/5 yr. 19,875 13.25
Racers Row 1,500 09/2000 none 23,250 15.50
Cost Cutters 900 11/2001 none 14,751 16.39
Papa Johns 1,200 01/2007 none 16,800 14.00
Great American Bagels 2,400 10/2000 none 34,800 14.50
Sterling Vision 1,200 05/1999 none 18,600 15.50
Pappy's Gyros 1,200 08/1997 1/5 yr. 19,200 16.00
Dunkin Donuts 1,112 04/2002 none 21,128 19.00
Discus CD's 1,200 06/1999 1/3 yr. 18,000 15.00
Home Systems 1,200 02/1998 none 17,400 14.50
Happiness Is Pets 2,100 03/2007 none 29,400 14.00
Vacant 22,698 none none none none
</TABLE>
85
<PAGE> 95
<TABLE>
<CAPTION>
Average Percent of
Approx. Base Rent Total Percent of
GLA of Annual Per Building Annual
Number Expiring Base Rent Total Square GLA Base Rent
Year ending of Leases Leases of Expiring Annual Foot Represented by Represented by
December 31 Expiring Square Leases Base Under Expiring Expiring
Feet Rent(1) Expiring Leases Leases
Leases
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1 1,200 $19,200 $1,794,141 $16.00 .51% 1.07%
1998 1 1,200 17,400 1,783,586 14.50 .51 1.00
1999 3 3,900 59,250 1,775,810 15.19 1.67 3.34
2000 3 7,500 127,663 1,727,680 17.02 3.21 7.39
2001 2 7,175 132,065 1,635,291 18.41 3.07 8.08
2002 3 10,312 169,720 1,511,946 16.46 4.42 11.23
2003 none none none 1,346,893 none none none
2004 none none none 1,349,043 none none none
2005 none none none 1,349,593 none none none
2006 2 45,696 337,722 1,349,643 7.39 19.57 25.02
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
** 12 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 which reported a fair market value for the Lansing Square
property, as of January 1, 1997, of $16.3 Million.
** 13 MAPLE PARK PLACE SHOPPING CENTER, BOLINGBROOK, ILLINOIS
** 14 On January 9, 1997, the Company acquired a Neighborhood Retail
Center located at Naperville and Boughton Roads in Bolingbrook, Illinois known
as Maple Park Place Shopping Center ("Maple Park") from KBS Retail Limited
Partnership, a Delaware limited partnership, an unaffiliated third party, for
approximately $15.3 million. The Company funded the purchase using: (i) the
proceeds of a short-term loan maturing April 7, 1997 in the amount of
approximately $8.0 million from Inland Mortgage Investment Corporation
("IMIC"), an Affiliate of the Company (the "Short-Term Loan"); and (ii) cash
and cash equivalents. The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of 9% per annum. The Company
repaid the Short-Term Loan on January 25, 1997 using the proceeds of two loans
(the "Mortgage Loans") totaling $12,840,000 from an unaffiliated lender. The
Company paid a 1.25% fee in connection with these Mortgage Loans. The Mortgage
Loans have a term of seven years and, prior to the maturity date, require
payments of interest only, at a rate of 7.8% per year, fixed for the first five
years with interest for the remaining two years payable at an annual rate equal
to the prime rate plus 0.5%. A majority of the Company's board, including a
majority of the Independent Directors, have approved the terms and conditions
of the Short-Term Loan. The purchase price for Maple Park was approximately
$69.52 per square foot, which the Company concluded was fair and reasonable and
within the range of values indicated in an appraisal received by the Company
and presented to the Company's board of directors.
86
<PAGE> 96
** 15 Maple Park was built in 1992, with expansions made in 1994, and
consists of a one-story building aggregating 215,722 rentable square feet. As
of May 31, 1997, Maple Park was 99% leased. In evaluating Maple Park as a
potential acquisition, the Company considered a variety of factors including
location, demographics, tenant mix, price per square foot, existing rental
rates compared to market rates, and the occupancy of the center. The Company
believes that the center is located in a vibrant economic area. Although
75.3% of the rentable square feet at Maple Park is leased to two tenants, the
Company's management believes that retenanting of any space which is vacated in
the future should be accomplished relatively quickly and at rental rates
comparable to those currently paid by the tenants at the facility. The Company
did not consider any other factors materially relevant to the decision to
acquire the property.
** 16 The Company does not anticipate making any significant repairs and
improvements to Maple Park over the next few years . Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
** 17 The table below sets forth certain information with respect to the
occupancy rate at Maple Park expressed as a percentage of total gross leasable
area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
YEAR ENDING EFFECTIVE ANNUAL RENTAL
DECEMBER 31, OCCUPANCY RATE PER SQUARE FOOT
<S> <C> <C>
1996 100% $8.18
1995 94 8.15
</TABLE>
** 18 Tenants leasing more than 10% of the total square footage are Kmart,
which leases 104,231 square feet, or approximately 49.5% of the rentable square
feet and Eagle Foods, which leases 56,706 square feet, or approximately 25.8%
of the rentable square feet. Kmart is a national discount retailer of
household goods and clothing and Eagle Foods is a national grocery store chain.
The lease with Kmart requires Kmart to pay base rent equal to $5.40 per square
foot per annum payable monthly until January 31, 2020. The Kmart lease
contains no option to renew. The lease with Eagle Foods requires Eagle Foods
to pay base rent equal to $10.16 per square foot per annum payable monthly
until October 31, 2002 and $10.41 per square foot per annum payable monthly
until August 31, 2017. The Eagle Foods lease contains no option to renew.
** 19 For federal income tax purposes, the Company's depreciable basis in
Maple Park is approximately $12,205,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
** 20 Real estate taxes paid in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $358,415. The real
estate taxes payable were calculated by multiplying Maple Park's assessed
value by an equalizer of 1.00 and a tax rate of 8.0013%.
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** 21 At May 31, 1997, a total 212,932 square feet were leased to
nineteen tenants at Maple Park. The following tables set forth certain
information with respect to the amount of and expiration of leases at this
Neighborhood Retail Center.
<TABLE>
<CAPTION>
Current Rent per
Square Feet Lease Renewal Annual Square
Lessee Leased Ends Options Rent Foot
<S> <C> <C> <C> <C> <C>
Forrestor Vision 1,400 02/2002 none $22,400 $16.00
Jamaica Me Crazy 1,400 04/1999 none 19,600 14.00
One Hour Cleaners 1,400 03/2002 none 24,500 17.50
Cellular One 1,610 03/1998 1/5 yr. 20,930 13.00
Fantastic Sams 1,190 02/2002 2/5 yr. 19,635 16.50
Joann's Hallmark 5,070 10/2000 1/4 yr. 55,770 11.00
Sonia Video 4,124 10/1997 none 43,302 10.50
GNC 1,600 10/1999 1/5 yr. 25,600 16.00
Dentist 1,600 09/2005 2/5 yr. 30,912 19.32
Gold Gym 13,200 04/2006 none 105,600 8.00
Associates
Financial 3,200 10/1999 1/5 yr. 41,600 13.00
Inbound Sports 4,012 08/1999 1/5 yr. 60,180 15.00
Mail Boxes 1,200 12/1999 1/5 yr. 20,400 17.00
Prudential
Properties 3,600 08/1999 1/5 yr. 46,800 13.00
Once Upon a Child 2,400 03/2000 1/5 yr. 36,000 15.00
Brueggers Bagels 2,295 01/2005 none 36,720 16.00
Prairie Paint, J.C.
Licht 2,400 11/1998 1/3 yr. 38,400 16.00
Eagle Foods 57,000 08/2017 none 576,133 10.16
Kmart 104,231 01/2020 none 589,157 5.65
Vacant 2,790 -- -- -- --
</TABLE>
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<TABLE>
<CAPTION>
Average
Base
Rent Per Percent of Percent of
Approx. Square Total Annual Base
GLA of Annual Foot Building Rent
Number of Expirng Base Rent Total Under GLA Represented
Year Ending Leases Leases of Expiring Annual Expiring Represented by Expiring
December 31, Expiring (Square Leases Base Rent(1) Leases by Expiring Leases
feet) Leases
<S> <C> <C> <C> <C> <C> <C> <C>
1997 4 9,654 $ 89,502 $1,809,262 $12.45 4.39% 4.95%
1998 2 3,935 58,130 1,728,492 14.77 1.80 3.36
1999 6 15,012 217,386 1,676,871 14.48 6.82 12.96
2000 2 7,470 96,705 1,462,096 12.95 3.39 6.61
2001 none none none 1,363,455 none none none
2002 1 1,190 22,015 1,368,279 18.50 0.50 1.61
2003 none none none 1,358,219 none none none
2004 none none none 1,359,610 none none none
2005 2 3,895 74,923 1,359,610 19.24 1.77 5.51
2006 1 13,200 105,600 1,284,687 8.00 6.00 8.22
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
** 22 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 which reported a fair market value for the Maple Park
Property, as of December 10, 1996, of not less than $15.3 million.
The following sets forth information regarding the Company's remaining
properties.
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 down payment 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.
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The following table describes the formulation of the purchase price paid
by the Company:
<TABLE>
<S> <C>
IPS 1990 cash down payments 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 May 31, 1997, the balance of the assumed mortgage was approximately
$736,000. 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 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 $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 determined, 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. Eagle Crest aggregates 67,650 square feet of GLA and as of May 31,
1997 was 97% leased. Its major tenant is Eagle Foods, Inc. ("Eagle"). IPS
purchased Eagle Crest in April 1991 for $3,200,000, including a cash down
payment of $457,813, 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. 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.
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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 ................................... 1,059
----------
Total Purchase Price ................................ $4,816,970
==========
</TABLE>
* Amount of principal and accrued interest due as of July 1, 1994.
Interest accrued at the rate of $1,970 per month and this amount was
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 and $17,340 was interest. The deferred portion of the
purchase price, totaling $1,212,427, was paid to IPS in full, including accrued
interest of $22,009, in May 1995.
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 $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 one of the Prior Offerings.
The promissory note was paid in full in October 1995. The total amount paid
was $604,260, of which $600,000 was principal and $4,260 was interest.
Montgomery-Goodyear, built in 1991, aggregates 12,863 square feet of gross
leasable area ("GLA") and, its major tenant is Goodyear Tire & Rubber Co.
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 $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 one of the Prior Offerings. The promissory note was paid in
full in October 1995. The total amount paid was $605,102, of which $600,000
was principal and $5,102 was interest. Hartford/Naperville aggregates 43,862
square feet of GLA and construction was completed in July 1995. Its anchor
tenants include nationally
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<PAGE> 101
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.
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 one of the Prior Offerings. 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 and $62,011 was interest. 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.
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 $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 aggregate principal 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 one of
the Prior Offerings. The loan to IREIC was repaid in full on January 9, 1996
including $1,163 in interest. 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 .
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 $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. The seller is providing a lease guaranty for 6,181
square feet of space, on a net basis, through December 1997. A total of 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.
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<PAGE> 102
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 $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 one of
the Prior Offerings. 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. 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.
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
Center's major tenants are Walgreens with 12,600 square feet, United Farm
Stands Corp. with 4,680 square feet and Blockbuster Video with 6,250 square
feet.
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 Center's major tenants are Sears Hardware with 20,000 square
feet and Blockbuster Video with 7,000 square feet.
THE ZANY BRAINY STORE
On July 1, 1996, the Company acquired 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. This facility has been leased 100% to
Children's Concepts, Inc. which does business as Zany Brainy and sells
children's books, computer software, toys, and related items. The facility
aggregates 12,499 rentable square feet.
SALEM SQUARE SHOPPING CENTER, COUNTRYSIDE, ILLINOIS
On August 2, 1996, the Company acquired a Neighborhood Retail Center
located at the intersection of Plainfield Road and Brainard Avenue in
Countryside, Illinois known as Salem Square Shopping Center ("Salem Square")
from Salem Square Ltd., an Illinois limited partnership and American National
Bank & Trust of Chicago, not individually but as trustee under Trust No. 57190,
an unaffiliated third party, for approximately $6.2 million which was funded
entirely out of the Company's cash and cash equivalents. Salem Square was
built in two phases in 1961 and 1985 and consists of a single-story commercial
multi-tenant retail facility
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aggregating 112,310 rentable square feet. The center's major tenants are
Marshall's, which leases 29,827 square feet and T.J. Maxx, which leases 63,535
square feet.
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HAWTHORN VILLAGE COMMONS, VERNON HILLS, ILLINOIS
On August 15, 1996, the Company acquired a Neighborhood Retail Center
located at the northeast corner of Town Line Road and Lakeview Parkway in
Vernon Hills, Illinois known as Hawthorn Village Commons ("Hawthorn Village")
from LaSalle National Trust, N.A., successor to LaSalle National Bank, as
Trustee under Trust Agreement known as Trust 106520 and Endowment and
Foundation Realty, Ltd. - JMB I, an unaffiliated third party, for approximately
$8.4 million. The Company funded the purchase using: (i) the proceeds of a
short-term loan maturing August 23, 1996 in the amount of approximately $2.9
million from Inland Mortgage Investment Corporation ("IMIC"), an Affiliate of
the Company (the "Short-Term Loan"); and (ii) cash and cash equivalents. The
Company did not pay any fees in connection with the Short-Term Loan, which
bears interest at a rate of 8% per annum. A majority of the Company's board,
including a majority of the Independent Directors, has approved the terms and
conditions of the Short-Term Loan. The Company repaid the Short-Term Loan
using the proceeds of a loan (the "Mortgage Loan") in the amount of $3,955,000
from LaSalle National Bank, an unaffiliated lender. The Company has paid a 1%
origination fee to the lender of the Mortgage Loan. The Mortgage Loan has a
term of five years and, prior to the maturity date, requires payments of
interest only, at an annual rate of 7.85%. Hawthorn Village was built in 1978
and remodeled in 1993 and consists of two single-story buildings comprising a
multi-tenant neighborhood retail facility aggregating 98,686 rentable square
feet. The Company's major tenants are Dominick's, a grocery store, which
leases 46,984 square feet, and Walgreens, a drug store, which leases 11,974
square feet.
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SIX CORNERS PLAZA, CHICAGO, ILLINOIS
On October 18, 1996, the Company acquired a Neighborhood Retail Center
located at 3920 North Cicero Avenue in Chicago, Illinois known as Six Corners
Plaza ("Six Corners") from MBL Life Assurance Corporation, an unaffiliated
third party, for approximately $6.0 million. The purchase price was funded
using cash and cash equivalents. Six Corners was built in 1966 and consists
of a two-story building aggregating 80,650 rentable square feet. The center's
major tenants are Bally's Chicago Health & Tennis Club, which
leases 45,803 square feet, or approximately 57% of the rentable square feet,
and Illinois Masonic, which leases 15,338 square feet, or approximately 19% of
the rentable square feet.
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SPRING HILL FASHION CORNER, WEST DUNDEE, ILLINOIS
On November 13, 1996, the Company acquired a Neighborhood Retail Center
located at 830-890 West Main Street, West Dundee, Illinois known as Spring Hill
Fashion Corner ("Spring Hill") from JMB/Spring Hill
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<PAGE> 104
Associates, an unaffiliated third party, for approximately $9.2 million. The
purchase price was funded using cash and cash equivalents, including the
proceeds of monies previously drawn against the Company's line of credit
provided by LaSalle Bank on September 30, 1996. Spring Hill was built in 1985
and consists of a one-story building aggregating 125,198 rentable square feet.
The center's major tenants are Michael's, which leases 30,000 square feet, and
T. J. Maxx, which leases 25,161 square feet.
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GRAND & HUNT CLUB OUTLOT CENTER, GURNEE, ILLINOIS
On December 24, 1996, the Company acquired a Neighborhood Retail Center
located at Grand Avenue and Hunt Club Road in Gurnee, Illinois known as Grand &
Hunt Club Outlot Center ("Hunt Club") from Butler Real Estate, Inc., an
unaffiliated third party, for approximately $3.6 million. The purchase price
was funded using cash and cash equivalents. Hunt Club was built in 1996 and
consists of a one-story building aggregating 21,222 rentable square feet. The
center's main tenants are Super Crown Books, which leases 16,722 square feet
and Helzberg's Diamond Shops d/b/a Jewelry 3 ("Jewelry 3"), which leases 4,500
square feet.
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THE QUARRY OUTLOT, HODGKINS, ILLINOIS
On December 24, 1996, the Company acquired a Neighborhood Retail Center
located at La Grange Road and Joliet Road in Hodgkins, Illinois known as The
Quarry Outlot ("The Quarry") from Butler Real Estate, Inc., an unaffiliated
third party, for approximately $1.8 million. The purchase price was funded
using cash and cash equivalents. The Quarry was built in 1996 and consists of
a one-story building aggregating 9,650 rentable square feet. The center's main
tenants are Helzberg's Diamond Shops d/b/a Jewelry 3, which leases 4,700 square
feet, Casual Male Big and Tall, which leases 3,150 square feet, and Dunkin
Donuts/Baskin Robbins, which leases 1,800 square feet.
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CRESTWOOD PLAZA SHOPPING CENTER, CRESTWOOD, ILLINOIS
On December 27, 1996, the Company acquired a Neighborhood Retail Center
located at 13335 South Cicero Avenue in Crestwood, Illinois known as Crestwood
Plaza Shopping Center ("Crestwood Plaza") from Inland Property Sales, Inc., an
affiliated third party, for approximately $1.81 million. The purchase price was
funded using cash and cash equivalents. Crestwood Plaza was built in 1992 and
consists of a one-story building aggregating 20,044 rentable square feet. The
center's main tenants are Entenmann's Inc., which leases 13,644 square feet,
and Pet Supplies Plus, which leases 6,400 square feet.
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PARK ST. CLAIR PLAZA, SCHAUMBURG, ILLINOIS
On December 31, 1996, the Company acquired a Neighborhood Retail Center
located at the corner of Higgins and Meacham Roads in Schaumburg, Illinois
known as Park St. Clair Plaza ("Park St. Clair") from KHF Land Partnership, an
unaffiliated third party, for approximately $1.525 million. The purchase price
was funded using cash and cash equivalents. Park St. Clair was built in 1994
and consists of a one-story building aggregating 11,859 rentable square feet.
The center's main tenants are Hallmark Cards, which leases 7,669 square feet,
and Ameritech Mobile Comm, which leases 4,190 square feet
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THE SUMMIT OF PARK RIDGE, PARK RIDGE, ILLINOIS
On December 31, 1996, the Company acquired a Neighborhood Retail Center
located at 100-150 Euclid Avenue in Park Ridge, Illinois known as The Summit of
Park Ridge ("The Summit") from WHPX-S Real Estate Limited Partnership, an
unaffiliated third party, for approximately $3.2 million. The purchase price
was funded using cash and cash equivalents. The Summit was built in 1986 and
consists of a one-story building aggregating 33,248 rentable square feet. The
center's main tenants are Giappo's Pizza, which leases 3,683 square feet, and
Le Peep Restaurant, which leases 3,621 square feet.
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AURORA COMMONS SHOPPING CENTER, AURORA, ILLINOIS
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On January 24, 1997, the Company acquired a Neighborhood Retail Center
located at Route 31 and Indian Trail Road in Aurora, Illinois known as Aurora
Commons Shopping Center ("Aurora Commons") from Aurora Commons Limited
Partnership and Northpoint Two Limited Partnership, unaffiliated third parties,
for approximately $11.5 million. The purchase price was funded using cash and
cash equivalents as well as by issuing a note assuming the existing first
mortgage (the "Mortgage") granted in favor of the John Hancock Life Insurance
Company, which has a remaining principal balance of approximately $9.58
million. The Mortgage requires the payment of principal and interest at a rate
of 9.0% per annum until the maturity date of October 31, 2001 and is cross
defaulted with a separate mortgage on the Southpoint Shopping Center located in
Arlington Heights, Illinois, which was simultaneously acquired by an Affiliate
of the Advisor. Aurora Commons was built in 1988 and consists of a one-story
building aggregating 127,510 rentable square feet. The center's major tenant
is Jewel/Osco, which leases 64,965 square feet.
LINCOLN PARK PLACE SHOPPING CENTER, CHICAGO, ILLINOIS
On January 24, 1997, the Company acquired a Neighborhood Retail Center
located at 666-670 West Diversey Parkway in Chicago, Illinois known as Lincoln
Park Place Shopping Center ("Lincoln Park") from Clark & Diversey Limited
Partnership, an unaffiliated third party, for approximately $2.1 million.
The Company funded the purchase using: (i) the proceeds of a short-term loan
maturing February 3, 1997 in the amount of approximately $2.0 million from
Inland Mortgage Investment Corporation ("IMIC"), an Affiliate of the Company
(the "Short-Term Loan"); and (ii) cash and cash equivalents. The Company did
not pay any fees in connection with the Short-Term Loan, which bears interest
at a rate of 9% per annum. A majority of the Company's board, including a
majority of the Independent Directors, have approved the terms and conditions
of the Short-Term Loan. The Company repaid the Short-Term Loan on January 25,
1997 using the proceeds of two loans (the "Mortgage Loans") totaling
$12,840,000 from an unaffiliated lender. The Company paid a 1.25% fee in
connection with these Mortgage Loans. The Mortgage Loans have a term of seven
years and, prior to the maturity date, require payments of interest only, at a
rate of 7.8% per year, fixed for the first five years with interest for the
remaining two years payable at an annual rate equal to the prime rate plus
0.5%. Lincoln Park was built in 1990 consists of a one-story building
aggregating 10,678 rentable square feet. The center has two tenants which
lease all of the leasable area, Nordic Trak and Lechter's.
NILES SHOPPING CENTER, NILES, ILLINOIS
On April 11, 1997, the Company acquired a Neighborhood Retail Center
located at 8351 West Golf Road in Niles, Illinois known as Niles Shopping
Center ("Niles Center") from American National Bank and Trust Company as
Trustee for Trust No. 77302, an unaffiliated third party, for approximately
$3.28 million. The purchase price was funded using cash and cash equivalents.
Niles Center was built in 1982 and consists of a one-story building
aggregating 26,117 rentable square feet. The center's major tenants are
Intermac Technologies, which leases 7,000 square feet; Wolf Camera, which
leases 6,600 square feet; Jennifer Convertibles, which leases 3,375 square
feet; Crown Books, which leases 3,367 square feet; and Acel Cell Phones, which
leases 3,275 square feet.
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<PAGE> 107
COBBLERS MALL, ELGIN, ILLINOIS
On May 6, 1997, the Company acquired a Neighborhood Retail Center located
at Summit Road and Route 58 in Elgin, Illinois known as Cobblers Mall from
Hamilton Partners, an unaffiliated third party, for approximately $10.953
million. The purchase price was funded using cash and cash equivalents.
Cobblers Mall was built in 1993 and consists of a one-story, multi-tenant
retail facility aggregating 102,643 rentable square feet. The center's major
tenant is a Jewel/Osco, which leases 64,938 square feet.
MALLARD MALL, ELK GROVE VILLAGE, ILLINOIS
On May 6, 1997, the Company acquired a Neighborhood Retail Center located
at the northeast corner of Meacham Road and Nerge Road in Elk Grove Village,
Illinois known as Mallard Mall from Hamilton Partners, an unaffiliated third
party, for approximately $8.1 million. The purchase price was funded using cash
and cash equivalents. Mallard Mall was built in 1993 and consists of a
one-story, multi-tenant retail facility aggregating 82,949 rentable square
feet. The center's major tenant is Eagle Foods, which leases 56,668 square
feet.
AMERITECH OUTLOT BUILDING, JOLIET, ILLINOIS
On May 9, 1997, the Company acquired a Neighborhood Retail Center located
at 3330 West Mall Loop Drive in Joliet, Illinois known as Ameritech Outlot
Building ("Ameritech Outlot") from LJ Partners, an unaffiliated third party,
for approximately $1.050 million. The purchase price was funded using cash and
cash equivalents. Ameritech Outlot was built in 1995 and consists of a
one-story, single tenant retail outlot building aggregating 4,504 rentable
square feet. The center's only tenant (leasing 100% of the leasable area) is
Ameritech Cellular.
DOMINICK'S FINER FOODS, SCHAUMBURG, ILLINOIS
On May 29, 1997, the Company acquired a Neighborhood Retail Center
located at 1293 East Higgins Road in Schaumburg, Illinois which is leased to
Dominick's Finer Foods from Rybychi, L.P., an unaffiliated third party, for
approximately $10.691 million. The purchase price was funded using cash and
cash equivalents. Due to the nature of the property, the Property Management
Fee charged by on of the Advisor's Affiliates will be reduced from 4.5% of the
property's gross revenues to 2.0% of the property's gross revenues. This
Property Management Fee will not be subordinated to DIstributions. This store
was built in 1996 and consists of a one-story, single-tenant retail facility
aggregating 71,400 rentable square feet.
CALUMET SQUARE SHOPPING CENTER, CALUMET CITY, ILLINOIS
On June 2, 1997, the Company acquired a Neighborhood Retail Center located
at 777 River Oaks Drive in Calumet City, Illinois known as Calumet Square
Shopping Center from River Oaks Limited Partnership, an unaffiliated third
party, for approximately $2.108 million. The purchase price was funded using
cash and cash equivalents. Calumet Square was built in 1967, with upgrades in
1987 and
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<PAGE> 108
1994, and consists of a one-story two tenant retail facility and an outlot
building, aggregating 39,936 rentable square feet. The center's two tenants
are Super Trak, which leases 18,828 square feet, and Aronson Furniture, which
leases 18,828 square feet.
DOMINICK'S FINER FOODS, HIGHLAND PARK, ILLINOIS
On June 17, 1997, the Company acquired a Neighborhood Retail Center
located at the southwest corner of West Park Avenue and Skokie Road in Highland
Park, Illinois which is leased to Dominick's Finer Foods from Rybychi L.P., an
unaffiliated third party, for approximately $12.8 million. The purchase price
was funded using cash and cash equivalents. Due to the nature of the property,
the Property Management Fee charged by on of the Advisor's Affiliates will be
reduced from 4.5% of the property's gross revenues to 2.0% of the property's
gross revenues. This Property Management Fee will not be subordinated to
Distributions. This store was built in 1996 and consists of a one-story,
single tenant retail facility aggregating 71,838 rentable square feet.
SEQUOIA PLAZA SHOPPING CENTER, MILWAUKEE, WISCONSIN
On June 17, 1997, the Company acquired a Neighborhood Retail Center
located at 6807 West Brown Deer Road in Milwaukee, Wisconsin known as Sequoia
Plaza Shopping Center from Chicago Title & Trust Company as a qualified
intermediary for the Sequoia Company, an unaffiliated third party, for
approximately $3.010 million. The Purchase price was funded using cash and
cash equivalents. Sequoia Plaza was built in 1988 and consists of a one-story,
multi-tenant retail facility aggregating 35,447 rentable square feet. The
center's major tenants are Play It Again Sports, which leases 3,984 square
feet, U.S. Post Office, which leases 5,580 square feet and Kinko's, which
leases 4,960 square feet.
RIVER SQUARE SHOPPING CENTER, NAPERVILLE, ILLINOIS
On June 20, 1997, the Company acquired a Neighborhood Retail Center
located at Washington Street and Chicago Avenue in Naperville, Illinois known
as River Square Shopping Center from General American Life Insurance Company,
an unaffiliated third party, for approximately $6.050 million. The purchase
price was funded using cash and cash equivalents. River Square was built in
1988 and consists of a two-story, multi-tenant retail facility aggregating
58,566 rentable square feet. The center's major tenants are Harbour
Contractors, which leases 11,730 square feet and Salon Suites, which leases
7,720 square feet.
POTENTIAL PROPERTY ACQUISITIONS
OAK FOREST COMMONS, OAK FOREST, ILLINOIS. The Company has entered into a
letter agreement to purchase a Neighborhood Retail Center located at the
northeast corner of 159th Street and Central Avenue in Oak Forest, Illinois
known as Oak Forest Commons ("Oak Forest"). Under the terms of the
acquisition, the Company would purchase Oak Forest from T-L Oak Forest Commons,
Inc., an unaffiliated third party, for approximately $11.84 million. The
Company has made an initial deposit on the purchase of approximately 10% of the
purchase price using cash and cash equivalents. The Company anticipates that
the remainder of the purchase price will be payable in stages as the property
is redeveloped and the anticipated main tenant, Dominick s Finer Foods, Inc.,
begins paying rent under a lease agreement. The Company anticipates that
redevelopment of the property will be completed, the balance of the purchase
price will be paid and title to the property will be transferred, within one
year after a definitive agreement is signed. Execution of a definitive
agreement is subject to completion of business and legal due diligence, which
the Advisor is undertaking on behalf of the Company, and receipt of a final
environmental report indicating no environmental concerns on
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<PAGE> 109
the property. No acquisition fees will be payable in connection with the
acquisition of Oak Forest. There can be no assurance that the Company will
complete the acquisition of Oak Forest. Oak Forest is anticipated to be
completed within one year after a definitive purchase agreement is signed, and
is expected to consist of a one-story building comprising a multi-tenant
community retail facility aggregating approximately 106,200 rentable square
feet. The center is expected to be anchored by a Dominick's "Fresh Store,"
which is expected to lease approximately 70,000 square feet.
DOWNERS GROVE PLAZA, DOWNERS GROVE, ILLINOIS. The Company has entered
into a letter agreement to purchase a Neighborhood Retail Center located at the
northwest corner of Ogden Avenue and Williams Street in Downers Grove, Illinois
known as Downers Grove Plaza ("Downers Grove"). Under the terms of the
acquisition, the Company would purchase Downers Grove from T-L Downers Grove
Plaza, Inc., an unaffiliated third party, for approximately $16.65 million.
The Company has made an initial deposit on the purchase of approximately 10% of
the purchase price using cash and cash equivalents. The Company anticipates
that the remainder of the purchase price will be payable in stages as the
property is redeveloped and the anticipated main tenant, Dominick's Finer
Foods, Inc., begins paying rent under a lease agreement. The Company
anticipates that redevelopment of the property will be completed, the balance
of the purchase price will be paid and title to the property will be
transferred, within one year after a definitive agreement is signed. Execution
of a definitive agreement is subject to completion of business and legal due
diligence, which the Advisor is undertaking on behalf of the Company, and
receipt of a final environmental report indicating no environmental concerns on
the property. No acquisition fees will be payable in connection with the
acquisition of Downers Grove. There can be no assurance that the Company will
complete the acquisition of Downers Grove.
Downers Grove is anticipated to be completed within one year after a
definitive purchase agreement is signed, and is expected to consist of a
one-story building comprising a multi-tenant community retail facility
aggregating approximately 102,385 rentable square feet. The center is expected
to be anchored by a Dominick's "Fresh Store," which is expected to lease
approximately 72,000 square feet.
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<PAGE> 110
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company as of March 31, 1997 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 Offerings and in this Offering (as if all 21,000,000 Shares, including
1,000,000 Shares to be issued pursuant to the DRP, 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."
* 23 Moved from here; text not shown
<TABLE>
<CAPTION>
MARCH 31, 1997
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Mortgage notes payable ....................................... $ 53,182 $ 53,182
STOCKHOLDER'S EQUITY:
Preferred Stock, $.01 par value, 6,000,000 authorized,
none outstanding .......................................... -- --
Common Stock, $.01 par value, 100,000,000 authorized,
10,855,216 shares issued and outstanding historical;
36,240,000 shares issued and outstanding pro forma (1) .. 108 360
Paid-in capital .............................................. 94,623 317,511
Accumulated Distributions in Excess of Net Income ............ (2,549) (2,549)
Total stockholders' equity ................................ 92,182 315,322
Total capitalization ...................................... 145,364 368,504
</TABLE>
(1) Does not include Shares issuable upon the exercise of outstanding
options granted under the Company's Stock Option Plan for Independent
Directors, but does include Share issued pursuant to the Company's Distribution
Reinvestment Program.
(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.
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<PAGE> 111
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Shares 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; (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 beneficially owned by such person.
<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) 9,647.0571 * 9,647.0571 *
G. Joseph Cosenza (a)(b) 22,569.0610 * 22,569.0610 *
Roland W. Burris (c)(f) 1,000.00 * 1,000.00 *
Joel G. Herter (d) -- * -- *
Heidi N. Lawton (e)(f) -- * -- *
Kelly Tucek(a) -- * -- *
Roberta S. Matlin (a) 145.7250 * 145.7250 *
</TABLE>
Directors and Executive Officers as a Group
(seven persons)
___________________________
(a) The business address of each of Messrs. Parks and Cosenza, Ms. Tucek and
Ms. Matlin is c/o The Inland Group, Inc., 2901 Butterfield Road, Oak
Brook, Illinois 60523.
(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 Joel G. Herter is 2100 Clearwater Drive,
Oakbrook, Illinois 60523.
(e) The business address of Ms. Lawton is c/o Lawton Realty Group, 2100
Clearwater Drive, Suite 106, Oak Brook, Illinois 60523.
(f) Does not include 3,500, 4,000, and 4,500 Shares issuable upon exercise
of options granted to Mr. Herter, Mr. Burris and Ms. Lawton,
respectively, pursuant to the Company's Independent Director Stock Option
Plan.
* Less than 1% of the Company's outstanding Shares, as of the date of this
Prospectus.
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<PAGE> 112
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Prospectus
constitute "forward-looking statements" within the meaning of the Federal
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the Company's actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors
include, among other things, limitations on the area in which the Company may
acquire properties; risks associated with borrowings secured by the Company's
properties; competition for tenants and customers; federal, state or local
regulations; adverse changes in general economic or local conditions;
competition for property acquisitions with third parties that have greater
financial resources than the Company; inability of lessees to meet financial
obligations; uninsured losses; risks of failing to qualify as a REIT; and
potential conflicts of interest between the Company and its affiliates
including the Advisor.
LIQUIDITY AND CAPITAL RESOURCES
As of July 24, 1996, the Company had received subscriptions for a total
of 5,000,000 Shares, thereby completing the initial Offering. On July 24,
1996, the Company commenced a follow-on Offering of 10,000,000 shares plus an
additional 1,000,000 shares available for distribution through the DRP. As of
March 31, 1997, the Company had received subscriptions for a total of 5,878,866
shares of the follow-on Offering, resulting in $108,357,364 in Gross Offering
Proceeds. As of March 31, 1997, the Company has repurchased 6,350 shares
through the Share Repurchase Program.
The Company's capital needs and resources are expected to undergo changes
as a result of the completion of the initial public offering of Shares, the
commencement of the follow-on Offering and the acquisition of properties.
Operating cash flow is expected to increase as these additional properties are
added to the portfolio. 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, 1997, the Company had acquired twenty-four
properties utilizing approximately $86,523,702 of cash and cash equivalents.
Cash and cash equivalents consists of cash and short-term investments.
Cash and cash equivalents at March 31, 1997 and December 31, 1996 were
$22,647,158 and $8,491,735 respectively. This increase was due to the
additional sales proceeds raised and $38,510,000 in loan proceeds from
financing the properties. Partially offsetting the increase in cash and cash
equivalents was the purchase of seventeen additional properties since March
31, 1996 and the payment of Offering costs.
The Company intends to use cash and cash equivalents to purchase
additional properties, to pay distributions and to pay offering costs.
The properties owned by the Company are currently generating sufficient
cash flow to cover operating expenses of the Company plus pay a monthly
distribution on weighted average shares. Commencing with the fourth quarter
of 1996, the Company increased the monthly distributions from 8.0% to 8.3% per
annum on weighted average shares. Beginning March 1, 1997, the Company
increased the monthly distribution paid to 8.5% per annum on weighted average
shares. Distributions declared for the three months ended March
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<PAGE> 113
31, 1997 were $1,941,390, a portion of which represents a return of capital for
federal income tax purposes. The return of capital portion of the
distributions cannot be determined at this time and will be calculated at year
end.
Management of the Company 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. Beginning with the year ended December 31, 1995, the Company
qualified as a REIT.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities increased by approximately
$980,000 for the three months ended March 31, 1997 to $1,575,693 from
$596,106 for the same period in 1996. This increase is due primarily to an
increase in net income for the three months ended March 31, 1997, as compared
to the net income for the three months ended March 31, 1996. This increase in
net income is due to the purchase of additional properties. As of March 31,
1997, the Company had acquired twenty-four properties, as compared to seven
properties as of March 31, 1996.
CASH FLOWS FROM INVESTING ACTIVITIES
During the three months ended March 31, 1997, the Company utilized
$11,429,015 in investing activities for the purchase of three properties, as
compared to the $5,657,980 utilized in the three months ended March 31,
1996 for the purchase of one property.
CASH FLOWS FROM FINANCING ACTIVITIES
For the three months ended March 31, 1997, the Company generated
$27,550,217 of cash flows from financing activities as compared to $7,413,866
of cash flows generated from financing activities for the three months ended
March 31, 1996. This increase is due primarily to the increase in proceeds
raised from the Offering of $27,207,053 for the three months ended March 31,
1997, as compared to $9,084,592 of Offering proceeds raised for the three
months ended March 31, 1996. This increase is partially offset by an
increase in the cash used for the payment of Offering costs for the three
months ended March 31, 1997. The increase is also partially offset by an
increase in the amount of distributions paid for the three months ended March
31, 1997 of $1,740,481 as compared to the distributions paid for the three
Months ended March 31, 1996 of $422,750.
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. As of March 31, 1997, organizational and
offering costs did not exceed this limitation.
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<PAGE> 114
RESULTS OF OPERATIONS
As of March 31, 1997, subscriptions for a total of 10,878,866 Shares
were received from the public resulting in $108,357,364 in Gross Offering
Proceeds, which includes the Advisor's capital contribution of $200,000 and
Shares purchased through the DRP.
Funds from operations ("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 other
non-cash items. FFO and funds available for distribution for the three months
ended March 31, 1997 and 1996 are calculated as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
<S> <C> <C>
Net income ........................ $ 884,700 235,266
Depreciation ...................... 741,920 103,091
Funds from operations(1) ...... 1,626,620 338,357
Deferred rent receivable (2) ...... (99,411) (7,295)
Rental income received under
Master lease agreements (3) ... 71,599 109,333
----------- -------
Funds available for distribution .. $ 1,598,808 440,395
=========== =======
</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.
(2) Reference is made to Note (5) of the Notes to Financial Statements of the
Company.
(3) As part of the purchase of some of the properties, the Company will
receive rent under master lease agreements on some of the spaces currently
vacant for periods ranging from one to two years 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. For the three
months ended March 31, 1997 and 1996, the Company has recorded $71,599 and
$109,333, respectively of such payments. Reference is made to Note (5) of
the Notes to Financial Statements of the Company.
Total income for the three months ended March 31, 1997 and 1996 was
$4,857,771 AND $761,079, respectively. This increase was due to the purchase
of additional properties. As of March 31, 1997, the Company had acquired
twenty-four properties, as compared to seven properties as of March 31,
1996. The purchase of additional properties also resulted in increases in
property operating expenses to Affiliates and non-affiliates and depreciation
expense.
The increase in mortgage interest to Affiliates and non-affiliates for
the three months ended March 31, 1997, as compared to the three months
ended March 31, 1996, is due to several factors. The
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<PAGE> 115
Company assumed mortgages as part of the purchases of Regency Point and Aurora
Commons. The Company also obtained $38,510,000 of financing from an
unaffiliated lender, on fourteen properties previously acquired. The Company
continues to have a mortgage collateralized by the Walgreens, Decatur property
payable to an Affiliate.
Interest income is the result of cash and cash equivalents being invested
in short-term investments until a property is purchased.
The increases in professional services to non-affiliates and general and
administrative expenses to Affiliates and non-affiliates for the three months
ended March 31, 1997, as compared to the three months ended March 31,
1996, is due to the management of an increased number of real estate assets.
The following is a list of approximate physical occupancy levels for the
Company's investment properties as of the end of each quarter during 1996 and
1997. N/A indicates the property was not owned by the Company at the end of
the quarter.
<TABLE>
<CAPTION>
1996 1997
-------------------------- -----
AT AT AT AT AT
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Properties 03/31 06/30 09/30 12/31 03/31
Walgreens 100% 100% 100% 100% 100%
Decatur, Illinois
Eagle Crest 100% 100% 100% 100% 97%*
Naperville, Illinois
Montgomery-Goodyear 100% 100% 100% 100% 77%
Montgomery, Illinois
Hartford/Naperville Plaza 100% 100% 100% 100% 100%
Naperville, Illinois
Nantucket Square 81% 81% 94% 85% 94%
Schaumburg, Illinois
Antioch Plaza 49% 49% 49% 57% 59%*
Antioch, Illinois
Mundelein Plaza 100% 100% 100% 100% 100%
Mundelein, Illinois
Regency Point N/A 97% 97% 97% 100%
Lockport, Illinois
Prospect Heights N/A 78% 100% 100% 83%*
Prospect Heights, Illinois
Montgomery-Sears N/A 85% 85% 85% 85%*
Montgomery, Illinois
Zany Brainy N/A N/A 100% 100% 100%
Wheaton, Illinois
Salem Square N/A N/A 97% 97% 97%*
Countryside, Illinois
Hawthorn Village N/A N/A 99% 98% 97%
Vernon Hills, Illinois
</TABLE>
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<PAGE> 116
<TABLE>
<CAPTION>
1996 1997
AT AT AT AT AT
Properties 03/31 06/30 09/30 12/31 03/31
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Six Corners N/A N/A N/A 92% 94%
Chicago, Illinois
Spring Hill Fashion Ctr. N/A N/A N/A 95% 96%
West Dundee, Illinois
Crestwood Plaza N/A N/A N/A 100% 100%
Crestwood, Illinois
Park St. Claire N/A N/A N/A 100% 100%
Schaumburg, Illinois
Lansing Square N/A N/A N/A 89% 90%
Lansing, Illinois
Summit of Park Ridge N/A N/A N/A 81% 82%*
Park Ridge, Illinois
Grand and Hunt Club N/A N/A N/A 100% 100%
Gurnee, Illinois
Quarry Outlot N/A N/A N/A 100% 100%
Hodgkins, Illinois
Maple Park Place N/A N/A N/A N/A 99%
Bolingbrook, Illinois
Aurora Commons N/A N/A N/A N/A 99%
Aurora, Illinois
Lincoln Park Place N/A N/A N/A N/A 100%
Chicago, Illinois
</TABLE>
*As part of the purchase of these properties the Company receives rent
under master lease agreements on the space which was vacant at the time
of the purchase, resulting in 100% economic occupancy at March 31, 1997
for Antioch, Montgomery-Sears and Salem Square.
As part of the purchase of Summit of Park Ridge, a portion of the
Seller's proceeds were escrowed for the monthly release of master lease
payments.
The master lease agreements along with credits for signed leases
resulted in 93% economic occupancy at March 31, 1997.
The master lease agreements are for periods ranging from one to two years
or until the spaces are leased.
The Company has received termination fees resulting in 100% economic
occupancy for Eagle Crest and Prospect Heights.
SUBSEQUENT EVENTS
On April 11, 1997, the Company purchased the Niles Shopping Center from an
unaffiliated third party for approximately $3,280,000. The property is located
in Niles, Illinois and contains 26,117 square feet of leasable space.
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On May 6, 1997, the Company purchased the Mallard Crossing Shopping Center
from an unaffiliated third party for approximately $8,000,000. The property is
located in Elk Grove Village, Illinois and contains 82,949 square feet of
leasable space. Its anchor tenant is Eagle Foods.
On May 6, 1997, the Company purchased Cobblers Crossing Shopping Center
from an unaffiliated third party for approximately $10,800,000. The property
is located in Elgin, Illinois and contains 102,642 square feet of leasable
space. Its anchor tenant is Jewel/Osco.
On May 9, 1997, the Company purchased Ameritech Outlot from an
unaffiliated third party for approximately $1,050,000. The property is located
in Joliet, Illinois. It consists of a 4,504 square foot building occupied
solely by Ameritech.
On May 29, 1997, the Company purchased the Schaumburg Dominick's Finer
Foods Store, located in Schaumburg, Illinois, from an unaffiliated third party
for approximately $10,691,000. The property contains 71,400 square feet of
leasable space and is 100% leased to Dominick's Finer Foods.
On May 30, 1997, the Company purchased Calumet Square from an unaffiliated
third party for approximately $2,108,000. The property is located in Calumet
City, Illinois and contains 39,936 rentable square feet. Its anchor tenants
include Super Trak and Aronson Furniture.
On June 17, 1997, the Company purchased the Highland Park Dominick's Finer
Foods Store, located in Highland Park, Illinois, from an unaffiliated third
party for approximately $12,800,000. The property contains 71,442 square feet
of leasable space and is 100% leased to Dominick's Finer Foods.
On June 17, 1997, the Company purchased Sequoia Plaza Shopping Center,
located in Milwaukee, Wisconsin, from an unaffiliated third party for
approximately $3,010,000. The property contains 35,447 square feet of leasable
space and its anchor tenants include Play It Again Sports, U.S. Post Office and
Kinko's.
On June 20, 1997, the Company purchased River Square Shopping Center,
located in Naperville, Illinois, from our unaffiliated third party for
approximately $6,050,000. The property contains 58,566 square feet of leasable
space and its anchor tenants include Harbour Contractors and Salon Suites.
On the behalf of the Company, the Advisor is currently exploring the
purchase of additional shopping centers from unaffiliated third parties.
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 sets forth the rules with which the Company must comply in order to
qualify for treatment as a REIT for tax purposes, the federal income tax
consequences to the Company and its Stockholders from the Company s status as a
REIT 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 Ltd. has acted as tax counsel to the Company in
connection
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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 to his particular tax
situation.
In general, a corporation that invests primarily in real estate can
qualify as a REIT, if it complies with the detailed REIT provisions in Code
Sections 856-860, and as a REIT can 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 to which a corporation is generally subject. 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 a reduction in cash available for distribution
to the Stockholders. 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 Ltd. is of the opinion that as of June 24, 1997, and
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 Statement of which this Prospectus is a part, and is based and
conditioned on various assumptions and representations as to certain factual
matters made by the Company and the Advisor to Shefsky & Froelich Ltd. The
Company's qualification and taxation as a REIT will depend upon the Company's
ability to meet the REIT Requirements, through the operation of its current
properties and those properties it acquires in the future. Shefsky & Froelich
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.
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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 the 95% Test or the 75% 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. Any tax the Company pays due to any of the
aforementioned provisions will reduce the cash available to pay dividends.
If the Company acquires any asset from a C corporation (generally, a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the asset in the Company's hands is determined by reference to the
basis of the asset (or any other property) in the hands of the transferor
corporation (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, 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.
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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 at least 100
persons (determined without attribution 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 it: (i) has
issued sufficient Capital Stock pursuant to the Offering to allow the Company
to satisfy these requirements; (ii) did not admit investors as Stockholders
until the admission allowed there to be sufficient Stockholders to meet these
requirements; and (iii) 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 if it did not acquire any additional assets and the failure
is due solely to changes in the value of its existing assets. In addition, if
the failure to satisfy the Asset Tests results from an acquisition during a
quarter, the failure can be cured by disposing of non-qualifying assets within
30 days after the close of that quarter. The Company intends to maintain
adequate records of the value of its assets to insure compliance with the Asset
Tests, and will take such other actions as may be required to cure any
non-compliance.
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
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(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 to reflect the fair market value of such non-real estate
assets. 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
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 would
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 constitute "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.
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(ii) The portion of rent attributable to personal property rented
with real property will not qualify unless the portion attributable to
personal property is 15% or less of the total rent received under the
lease.
(iii) Rent will not qualify if it is based in whole, or in part, on
the income or profits of any person. However, rent will not fail to
qualify if it is based on a fixed percentage (or designated varying
percentages) of receipts or sales, including amounts above a base amount
so long as the base amount is fixed at the time the lease is entered
into, the provisions are in accordance with normal business practice and
the arrangement is not an indirect method for basing rent on income or
profits.
(iv) Rental income will not qualify if the Company furnishes or
renders 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) It has not and will not charge rent that is based on the income
or profits of any person in certain properties and that the percentage
rent clauses, if any, in its current 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 operations 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
property disposed of through 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 lower 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.
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. 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.
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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 by a REIT 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.
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 the adjustment in tax basis
will result in increased gain or decreased loss upon the sale of the Shares.
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. 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
adjusted tax basis in the Shares sold. However, any loss from a sale or
exchange of Shares by a Stockholder who has held such 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 increase the gain or decrease the loss upon the sale
of Shares.
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
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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", Qualified Plans that hold 10% or more of the Shares could recognize UBTI
even without incurring debt to acquire 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 their own tax advisors to determine the impact of
United States, state, and local income tax laws on an investment in the
Company, including any reporting requirements, as well as the tax consequences
in other countries in which they are subject to tax.
In general, Foreign Stockholders will be subject to regular U.S. income
tax with respect to their investment in the Company if the investment is
"effectively connected" with the conduct of a trade or business in the 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."
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
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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
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.
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OTHER TAX CONSIDERATIONS
Company - Purchase with Shares. If the Company acquires properties with
Shares, the Company, will not have any gain or loss on the issuance of its
Shares in return for such properties, regardless of the tax consequences for
the seller. If the transaction is structured as a tax-free transaction for the
seller, such as a merger, the Company will take a carry-over basis for tax
purposes in the assets. Such a carry-over basis will produce a lower basis for
purposes of depreciation then would arise if the Company acquired the real
estate in a taxable transaction, in which event, the Company's basis in the
acquired property would be the same as if the property was purchased outright.
this lower basis will result in lower depreciation deductions on an annual
basis which, all things equal, will increase the company's income, and,
therefore, increase the amount of distributions the company must pay in order
to maintain its status as a REIT as compared to the effects on income and
distributions had the property been acquired in a taxable transaction. In
addition, if the Company acquires the property in a tax-free transaction, the
rules described above regarding section 1374 will apply, and, therefore, the
company will only acquire those properties which it intends to hold for more
than ten (10) years.
Distribution Reinvestment Program. Stockholders who purchased Shares
pursuant to the Company's Prior Offerings 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; (iii) will result in UBTI
to the Plan (see "Federal Income Tax Considerations--Taxation of
Stockholders--Taxation of Tax-
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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. The DOL Regulations provide that a
restriction or prohibition against a transfer or assignment which would result
in a termination or reclassification of an entity for federal or state income
tax purposes will not affect whether securities are freely transferable. 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, 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.
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DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 106,000,000 Shares of capital stock
comprised of 100,000,000 shares of common stock, $.01 par value per share (the
"Common Stock"), and 6,000,000 shares of preferred stock, $.01 par value per
share (the "Preferred Stock"). The Shares of Common Stock offered hereby are
duly authorized, fully paid and nonassessable when issued for the consideration
contemplated herein. As of the date of this Prospectus, the Company has issued
____ shares of Common Stock, reserved __________ shares of Common Stock for
issuance pursuant to the exercise of options or warrants granted or issued by
the Company and reserved an additional ______________ shares of Common Stock
for issuance pursuant to the Company's Distribution Reinvestment Program.
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 of
the Common Stock on a national securities exchange or market. The Company does
not intend to list the Common Stock prior to the termination of this Offering.
However, the Company anticipates that by 1999 it will apply to have the Common
Stock listed, or included on the Nasdaq National Market subject to the Company
meeting the applicable listing requirements and the Board determining that such
action is in the best interest of the Company.
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.
The Company intends to issue the Shares and Soliciting Dealer Warrants
(including the Shares issuable on exercise of the 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 Share transfer being recorded on the books and records
of the Company. Additionally, the transferee Stockholder must
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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 to the Dealer Manager, one
warrant to purchase one Share for every 40 Shares sold by the Dealer Manager
(the "Soliciting Dealer Warrants") up to a maximum of 875,000 (375,000 of
which are warrants which were to have been, but were not issued pursuant to
Warrant Purchase Agreements Dated July 22, 1996 and October 14, 1994) warrants
to purchase an equivalent number of Shares. The Dealer Manager has agreed to
pay the Company $0.0008 for each Soliciting Dealer Warrant. These warrants will
be issued on a quarterly basis commencing 60 days after the date on which the
Shares are first sold pursuant to this Offering. The Dealer Manager may retain
or reallow Soliciting Dealer Warrants to Soliciting Dealers except where
prohibited by either federal or state securities laws. The Company will not
issue Soliciting Dealer Warrants to the Dealer Manager, and the Dealer Manager
will not transfer soliciting Dealer Warrants, in connection with the
sale of Shares to residents of the States of Minnesota, South Carolina,
Nebraska or Texas.
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 on ___________ (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 Company has previously issued no warrants in connection with
the Prior Offerings.
The terms of the Soliciting Dealer Warrants, including the exercise price
and the number and type of securities issuable upon exercise of a Soliciting
Dealer Warrant and the number of such Warrants may be adjusted in the event of
stock dividends, certain subdivisions, combinations and reclassification of
Shares or the issuance to Stockholders of rights, options or warrants entitling
them to purchase Shares or securities convertible into Shares. The terms of
the Soliciting Dealer Warrants also may be adjusted if the Company engages in
certain merger or consolidation transactions or if all or substantially all of
the Company's assets are sold. Soliciting Dealer Warrants are not transferable
or assignable except by the Dealer Manager, the Soliciting Dealers, their
successors in interest, or to individuals who are both officers and directors
of such a person. Exercise of these Soliciting Dealer Warrants will be under
the terms and conditions detailed in this Prospectus and in the Warrant
Purchase Agreement, which is an exhibit to the Registration Statement.
As holders of Soliciting Dealer Warrants, persons do not have the rights
of Stockholders, may not vote on Company matters and are not entitled to
receive Distributions.
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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 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,
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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 is bound by and deemed to have agreed to the terms of the
Organizational Documents by his, her or its election to become a Stockholder.
The Organizational Documents, consisting of the Articles and Bylaws, were
reviewed and ratified by a majority of the Directors (including a majority of
the Independent Directors) at the first meeting of the Board. The following is
a summary of certain provisions of the Organizational Documents and does not
purport to be complete. This summary is qualified in its entirety by specific
reference to the Organizational Documents filed as Exhibits to the Company's
Registration Statement.
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 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
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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 the 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 fifteen 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 must nominate a replacement. Vacancies occurring as a result of the
removal of a Director by Stockholders must be filled by a majority vote of the
Stockholders. Any Director may resign at any time and may be removed with or
without cause by the Stockholders owning at least a majority of the outstanding
Shares.
A Director must have at least three years of relevant experience and
demonstrate the knowledge required to successfully acquire and manage the type
of assets being acquired by the Company. At least one of the Independent
Directors shall have three years of relevant real estate experience.
STOCKHOLDER VOTING RIGHTS
Except as otherwise provided, all Shares 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 may 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 are 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 must 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 approval 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 of the Stockholders, including
amendments to provisions relating to Director qualification, fiduciary duties,
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
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Company. For purposes of (b) above, a sale of all or substantially all of the
Company's assets means 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
or by written proxy received by the Board prior to the meeting signed by the
Stockholder directing the manner in which he or she desires that his or her
vote be cast; or (ii) without a meeting by a consent in writing signed by the
Stockholder directing the manner in which he or she desires that his or her
vote be cast. The written consent 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, is
maintained as part of the books and records of the Company at the Company's
principal office. This list is updated at least quarterly and is open for
inspection by a Stockholder or his designated agent upon such Stockholder's
request. This list will 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 the list and may require the
Stockholder requesting the list to represent that the request is related to
Stockholders' voting rights under the Articles and the exercise of
Stockholders' rights under federal proxy laws.
Any Stockholder and any designated representative thereof is permitted
access to all records of the Company at all reasonable times and may inspect
and copy any of them. In addition, the books and records of the Company are
open for inspection by state securities administrators upon reasonable notice
and during normal business hours at the principal place of business of the
Company.
AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS
The Articles may be amended by the affirmative vote of a majority of the
then outstanding Shares, without the concurrence of 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
any amendment 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.
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
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<PAGE> 135
quotation on a national market system, provided the Company meets the then
applicable listing requirements; and/or (ii) commence subsequent offerings
after completion of this Offering. If listing of the Shares is not feasible by
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 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 be approved by all of the Independent Directors and by the
holders of 66 2/3 of the Shares, except for any such transaction effected
because of changes in applicable law, or to preserve tax advantages for a
majority in interest of the Stockholders. 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 must be obtained from a person with no current or
prior business or personal relationship with the Advisor or the Directors.
Further, the person must be engaged, to a substantial extent, in the business of
rendering valuation opinions of assets held by the Company (an "Independent
Expert"). The appraisal will be included in a prospectus used to offer the
securities of a Roll-Up Entity, as defined below, and filed with the Commission
and the state regulatory commissions as an exhibit to the registration statement
for the offering. Accordingly, an issuer using the appraisal will be subject to
liability for violation of Section 11 of the Act and comparable provisions under
state laws for any material misrepresentations or material omissions in the
appraisal. The Company's assets must be appraised in a consistent manner and the
appraisal must be based on an evaluation of all relevant information indicating
the value of the Company's assets as of a date immediately prior to the
announcement of the proposed Roll-Up transaction. The appraisal must 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
<PAGE> 136
directly or indirectly, of the Company and the issuance of securities of a
Roll-Up Entity, as defined below. A Roll-Up does not include: (i) a
transaction involving securities of the Company that have been listed on a
national securities exchange or traded through the Nasdaq National Market for at
least twelve months; or (ii) a transaction involving the conversion of the
Company to corporate, trust or association form if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following: (a) Stockholders' voting rights; (b) the term and existence of the
Company; (c) Sponsor or Advisor compensation; or (d) the Company's investment
objectives. A Roll-Up Entity is a partnership, 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) reduce in the Stockholders voting rights below 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;
provided, however, that the Company may participate in a proposed Roll-Up if
the Stockholders would have rights and be subject to restrictions comparable to
those contained in the Articles, with the prior approval of a majority of the
Stockholders.
Stockholders who vote "no" on the proposed Roll-Up must have the
choice of:
(i) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up; or
(ii) one of either:
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<PAGE> 137
(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 may 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 these limitations. The Independent
Directors may, however, determine that a higher level of Total Operating
Expenses is justified for a particular period because of unusual and
non-recurring expenses. Any such finding by the Independent Directors and the
reasons in support thereof must be recorded in the minutes of the meeting of
Directors. If Total Operating Expenses exceed these limitations during any
fiscal quarter on a rolling twelve-month basis, then within 60 days after the
end of the fiscal quarter in question, the Company must send a written report to
the Stockholders, together with an explanation of the facts the Independent
Directors considered in arriving at the conclusion that the higher operating
expenses were justified. If the Total Operating Expenses exceed the limitations
described above and if the Independent Directors are unable to conclude that the
excess was justified then, within 60 days after the end of the Company's fiscal
year, the Advisor must 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 on transactions 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 the transaction determines that it is
fair and 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 the 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. Notwith-
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<PAGE> 138
standing the above, the Company was permitted 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 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 borrowings of the Company, secured and unsecured, must
be reasonable in relation to the Net Assets of the Company and reviewed by the
Board at least quarterly. The Company anticipates that aggregate borrowings
secured by all of the Company's properties will not exceed 50% of their combined
fair market value. The maximum amount of indebtedness as a percentage of Net
Assets may not, in the absence of a satisfactory showing that a higher level of
borrowing is appropriate, exceed 300% of Net Assets. Any borrowings in excess
of 300% may only be incurred with the consent of a majority of the Stockholders.
See "Investment Objectives and Policies--Borrowing." The Company may 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 the 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 have been 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 observes the following restrictions on its investments set forth in
its Articles:
(i) Not more than 10% of the Company's total assets may 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. This limitation does not apply to interest rate
futures when used solely for hedging purposes;
(iii) The Company may not invest in or make mortgage loans unless an
appraisal of the underlying property is obtained. Mortgage
indebtedness on any property may not exceed the property's
appraised value. In cases in which the majority of Independent
Directors so determine, and in all cases in which the mortgage
loan involves the Advisor, the Sponsor, the Directors or any
Affiliates, the appraisal must be obtained from an Independent
Expert. The appraisal must be maintained in the Company's
records for at least five years, and must
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<PAGE> 139
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 secured by the property,
including the loans of the Company, would exceed an amount
equal to 85% of the appraised value of the property as
determined by appraisal unless substantial justification exists
because of the presence of other underwriting criteria provided
that such loans would in no event exceed the appraised value of
the property at the date of the loans;
(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 may not invest in equity securities unless a
majority of the Directors (including a majority of the
Independent Directors) not otherwise interested in the
transaction approves the transaction as being fair, competitive
and commercially reasonable. Investments in entities affiliated
with the Advisor, the Sponsor, any Director or Affiliates
thereof are subject to the restrictions on joint venture
investments. Notwithstanding these restrictions, the Company
may purchase its own securities, when traded on a national
securities exchange or market, if a majority of the Directors
(including a majority of the Independent Directors) determine
such purchase to be in the best interests of the Company;
(vii) The Company may 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 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) 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) must determine that the
consideration paid for the real property is equal to fair
market value as determined by a qualified independent real
estate appraiser selected by the Independent Directors;
(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 the Junior Debt,
plus the outstanding amount of the Senior Debt, does not exceed
90% of the appraised value of the property and, if after giving
effect thereto, the value of all such investments of the
Company (as shown
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<PAGE> 140
on the books of the Company in accordance with generally
accepted accounting principles, after all reasonable reserves
but before provision for depreciation) would not then exceed
25% of the Company's tangible assets. The value of all
investments in Junior Debt of the Company which does not meet
these requirements is 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 a change is in the best
interests of the Company.
PLAN OF DISTRIBUTION
GENERAL
Of the 21,875,000 Shares offered by this Prospectus, the Company is
offering 20,000,000 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 for Iowa where the minimum investment for IRAs
will be $3,000 and for Minnesota where the minimum investment for IRAs and
qualified plan accounts will be $2,000); 1,000,000 Shares at a purchase price
of $9.50 per Share are being offered for issuance through the Distribution
Reinvestment Program; 875,000 Soliciting Dealer Warrants to purchase 875,000
Shares and the Shares underlying the Soliciting Dealer Warrants (which includes
375,000 Soliciting Dealer Warrants and the Shares underlying the Soliciting
Dealer Warrants pursuant to Warrant Purchase Agreement from the Prior Offerings)
are being offered. See "Description of Securities - - Soliciting Dealer
Warrants." "Best efforts" means that the Dealer Manager is not guaranteeing
that any specified amount of capital will be raised. The Offering will commence
as of the date of this Prospectus and will terminate not later than July __,
1999. The Company reserves the right to terminate the Offering at any time.
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 twenty-four 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 an offering of Shares by the Company which commenced on
October 14, 1994 and terminated on July 22, 1996. The Advisor received 20,000
Shares in consideration of this capital contribution. The Advisor may
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<PAGE> 141
not sell or otherwise transfer these Shares while it remains the Advisor except
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 outstanding Shares. Any purchases of
Shares by the Advisor during the Offering will be for investment purposes only
and not with a view toward distribution.
SUBSCRIPTION PROCESS
The Shares are being offered to the public by the Dealer Manager and the
Soliciting Dealers. The form of Soliciting Dealers Agreement between the
Dealer Manager and the Soliciting Dealers requires the Soliciting Dealers to
make diligent inquiries, as required by law, of all prospective purchasers in
order to ascertain whether a purchase of Shares is suitable for the person and
transmit promptly to the Company the completed subscription documentation and
any supporting documentation reasonably required by the Company.
The Shares are being sold when, as and if subscriptions therefor are
received and accepted by the Company, subject to the satisfaction by the
Company of certain other conditions and approval by counsel of certain legal
matters. The Company has the unconditional right to accept or reject any
subscription. 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 business days after acceptance by the Company. 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 for investors in the State of Iowa where the minimum
investment for IRAs will be 300 Shares ($3,000) and investors in the State of
Minnesota where the minimum investment for IRAs and qualified plan accounts
will be 200 Shares ($2,000). Subscriptions will be accepted for fractional
Shares only in the discretion of the Company.
DETERMINATION OF INVESTOR SUITABILITY
The Company, the Dealer Manager and each Soliciting Dealer will make every
reasonable effort to determine that those persons being offered or sold the
Shares satisfy the suitability standards set forth herein and that an
investment in the Shares is an appropriate investment for the investor. The
Soliciting Dealers must ascertain that the investors can reasonably benefit
from an investment in the Company. In making the determination, the Soliciting
Dealers will consider whether: (i) the investor has the capability of
understanding the fundamental aspects of the Company based on the investor s
employment experience, education, access to advice from qualified sources such
as attorneys, accountants and tax advisors and prior experience with
investments of a similar nature; (ii) the investor has apparent understanding
of: (a) the
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fundamental risks and possible financial hazards of this type of investment;
(b) the lack of liquidity of this investment; (c) the Advisor's role in
directing or managing the investment; and (d) the tax consequences of the
investment; and (iii) the investor has the financial capability to invest in
the Company.
By executing the subscription agreement, each Soliciting Dealer
acknowledges its determination that the Shares are a suitable investment for
the investor. Each Soliciting Dealer is required to represent and warrant that
it has complied with all applicable laws in determining the suitability of the
Shares as an investment for the subscriber. The Company and its Affiliates
will coordinate the processes and procedures utilized by the Dealer Manager and
Soliciting Dealers and, where necessary, implement such additional reviews and
procedures deemed necessary to determine that investors meet the suitability
standards set forth herein. The Dealer Manager and/or the Soliciting Dealers
must maintain a record of the information obtained to determine that an
investor meets the suitability standards and a representation of the investor
that the investor is investing for the investor's own account or, in lieu of
such representation, information indicating that the investor for whose account
the investment was made met the suitability standards for at least six years.
COMPENSATION
The Company will pay the Dealer Manager selling commissions equal to up to
seven percent (7%) on all Shares sold for serving as the dealer manager of the
Offering and for the sale of Shares through its efforts. A portion of these
selling commissions may be retained or reallowed to Soliciting Dealers, as
compensation for their services in soliciting and obtaining subscribers for the
purchase of Shares. Up to an additional 2.0% of the Gross Offering Proceeds, a
portion of which may be reallowed to Soliciting Dealers, may be paid to the
Dealer Manager as a Marketing Contribution for marketing fees, wholesaling
fees, expense reimbursements, bonuses and incentive compensation and volume
discounts. In addition, the Dealer Manager and the Soliciting Dealers may be
reimbursed by the Company for bona fide due diligence expenses not to exceed a
maximum of 0.5% of the Gross Offering Proceeds. 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. 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 may also
reallow commissions to Soliciting Dealers on an incentive basis. Any incentive
compensation will be paid quarterly and will not exceed 1% of the price of the
Shares. Marketing and due diligence costs paid by the Dealer Manager on behalf
of, or to, the Soliciting Dealers will be deducted from any incentive
compensation.
Except in the case of Shares sold to residents of the States of Minnesota,
Nebraska, South Carolina or Texas, where the Company will not issue and
the Dealer Manager will not transfer Soliciting Dealer Warrants, Soliciting
Dealers will also receive one Soliciting Dealer Warrant for each forty (40)
Shares sold by such Soliciting Dealer during the Offering, subject to federal
and state securities laws subject to a maximum of 875,000 warrants. 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 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 Warrant will be exercisable until one year from the date of issuance.
Holders of the Soliciting Dealer Warrants, therefore, have, at nominal cost,
the opportunity to profit from a rise in the market price for the Common Stock
without assuming the risk of ownership. Exercise of these warrants will dilute
the interest of other security holders. Moreover, the holders of the Soliciting
Dealer Warrants might be expected to exercise them at a time when the Company
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would, in all likelihood, be able to obtain needed capital by a new offering of
its securities on terms more favorable than those provided by the Soliciting
Dealer Warrants. See "Description of Securities--Soliciting Dealer Warrants."
The maximum compensation to be paid in connection with the Offering will
not exceed: (i) a total of 7% of the Gross Offering Proceeds for selling
commissions; and (ii) a total of 2% of the Gross Offering Proceeds for
marketing fees, wholesaling fees, expense reimbursements, bonuses and incentive
compensation and volume discounts. The aggregate of these commissions and
expenses plus the value attributable to the warrants that may be issued to the
Dealer Manager and the Soliciting Dealers will not exceed 10% of the Gross
Offering Proceeds. In addition, the Dealer Manager and the Soliciting Dealers
may be reimbursed for bona fide due diligence expenses not to exceed a maximum
of 0.5% of the Gross Offering Proceeds.
The Company may not pay or award, directly or indirectly, any commissions
or other compensation to any person engaged by a potential investor for
investment advice as an inducement to such advisor to advise the investor to
purchase Shares; provided that nothing herein shall prohibit the registered
broker-dealer or other properly licensed person from earning a sales commission
in connection with sale of the Shares.
VOLUME DISCOUNTS
Investors purchasing at least $250,000 worth of Shares (25,000 Shares)
will be entitled to a reduction in the selling commission payable in connection
with the sale of these Shares in accordance with the following schedule:
<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 in the selling commission in respect of volume discounts
otherwise payable to the Dealer Manager, some or all of which may be reallowed
to a Soliciting Dealer in respect of an investor's subscription will be
credited to the investor in the form of additional whole Shares or fractional
Shares purchased net of commissions.
Subscriptions may be combined for the purpose of crediting an investor
with additional Shares and determining commissions payable to the Dealer
Manager and reallowable to Soliciting Dealers so long as all combined purchases
are made through the same Soliciting Dealer. Investors which are Tax-Exempt
Entities may combine their subscriptions for purposes of computing a discount
of the entities seeking to combine subscriptions if investment decisions are
made by the same person. If the investor fails to mark the "Additional
Purchase" space on the Subscription Agreement/Signature Page, the Company
cannot be held responsible for failing to properly combine subscriptions.
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).
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TRANSFER OF SHARES
A Stockholder may assign all or some of his Shares, subject to the
Ownership Limit contained in the Articles. An assignment will confer upon the
assignee, the right to become a Stockholder in the following manner and subject
to certain conditions, including the following: (i) an instrument of
assignment executed by both the assignor and assignee of the Shares
satisfactory in form to the Company delivered to the Company; (ii)
reimbursement of the Company for reasonable expenses and filing costs incurred
in connection with such transfer not to exceed $100; (iii) no assignment will
be effective until the first day of the month following the month in which the
Company actually receives the instrument of assignment which complies with the
requirements of (i) and (ii) above; (iv) no assignment will be effective if
such assignment would, in the opinion of counsel to the Company, result in the
termination of the Company's status as a REIT under the Code; (v) an assignment
may be rejected if it would cause 25% or more of the issued and outstanding
Shares to be held by Tax-Exempt Entities that are considered "benefit plan
investors" under ERISA or otherwise cause the assets of the Company to be Plan
Assets; and (vi) no assignment will be effected if the assignment would, to the
knowledge of the Company, violate the provisions of any applicable federal or
state securities laws.
The Shares will not initially be listed on a national stock exchange or
included for quotation on a national market system. The Company anticipates
that by 1999 the Board will determine whether it is in the best interests of
the Company to apply to have the Shares listed for trading on a national stock
exchange or included for quotation on a national market system, provided the
Company meets the then applicable listing requirements.
INDEMNIFICATION
The Company will indemnify the Dealer Manager and the Soliciting Dealers
against certain liabilities, including liabilities under the Act; provided,
however, that the Company will not indemnify the Dealer Manager or any
Soliciting Dealer from any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee and a court of competent
jurisdiction has approved indemnification of the litigation costs; or (ii) the
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court has approved
indemnification of the litigation costs; or (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular
indemnitee and approves indemnification of the settlement and related costs
after being advised of the position of the Commission and the published
opinions of any state securities regulatory authority in which securities of
the Company were offered and sold 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 "underwriter" as that term is
defined in the Act.
HOW TO SUBSCRIBE
Shares may be purchased by investors who meet the suitability standards
described above under "Plan of Distribution--Suitability of the Investment" by
proceeding as follows:
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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 or she meets
the suitability standards as stated in the Subscription Agreement and agrees to
be bound by all of the terms of the Subscription Agreement.
Within ten days (and generally within twenty-four 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 made through IRAs, Keogh plans and 401(k) plans must be
processed through and forwarded to the Company by an approved trustee. In the
case of IRA, Keogh plans and 401(k) plan Stockholders, the confirmation will be
sent to the trustee.
SALES LITERATURE
In addition to and apart from this Prospectus, the Company may use certain
supplemental sales material in connection with the Offering. This material,
prepared by the Advisor may consist of a brochure describing the Advisor and
its Affiliates and the objectives of the Company. 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
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.
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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") provides the Company s
Stockholders with an opportunity to purchase additional Shares by reinvesting
Distributions. Stockholders who elect to take part in the DRP ("Participants")
will authorize the Company to use Distributions payable to them to purchase
additional Shares. A Participant will not be able to acquire Shares under the
DRP to the extent such purchase would cause it to exceed the Ownership Limit.
Purchases under the DRP are made at a price equal to $9.50 per Share, a
reduction from the $10 offering price which price reflects a decrease in costs
associated with these issuances. Participants in the DRP may also purchase
fractional Shares, so that 100% of Distributions will be used to acquire
Shares. Shares will be purchased under the DRP on the record date for the
Distribution used to purchase the Shares. Distributions for Shares acquired
under the DRP are currently paid monthly and are calculated with a daily record
and Distribution declaration date. Each Participant agrees that if, at any time
prior to listing of the Shares on a national stock exchange or inclusion of the
Shares for quotation on a national market system, he or she fails to meet the
suitability requirements for making an investment in the Company or cannot make
the other representations or warranties set forth in the Subscription
Agreement, he or she will promptly so notify the Company in writing.
Commencing with the first Distribution paid after the effective date of
the Offering and continuing until the termination of the Offering, Participants
will acquire Shares from the Company at a fixed price of $9.50 per Share. It
is possible that a secondary market will develop for the Shares, and that
Shares may be bought and sold on the secondary market at prices lower or higher
than the $9.50 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 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
these Shares will be in book-entry form prior to the issuance of certificates);
and (ii) provide each Participant with an individualized report on his or her
investment, including the purchase date(s), purchase price and number of Shares
owned, as well as the dates of distribution and amount of Distributions
received during the prior fiscal year. The individualized statement to
Participants 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. The Board
anticipates amending or terminating the DRP upon completion of this Offering.
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Stockholders who participate in the DRP will recognize dividend income,
taxable to the extent of the Company s current or accumulated earnings and
profits, in the amount and as though they had 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.
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 are 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 may be repurchased in
any given year; and (ii) the funds available for repurchase are limited to
available proceeds received by the Company from the sale of Shares under the
DRP. The determination of available funds from sales under the DRP is made at
the sole discretion of the Board. In making this determination, the Board
considers 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 are given priority over the need to
allocate funds to the SRP. To be eligible to offer Shares for purchase to the
SRP, the Stockholder must have beneficially held the Shares for at least one
year.
The Company cannot guarantee that funds will be available for repurchase.
If no funds are available for the SRP at the time when repurchase is requested,
the Stockholder could: (i) withdraw his request for repurchase; or (ii) ask
that the Company honor the request at such time, if any, when funds are
available. Such pending requests will be honored on a first come, first served
basis. There is no requirement that Stockholders sell their Shares to the
Company. The SRP is only intended to provide interim liquidity for
Stockholders until a secondary market develops for the Shares. No such market
presently exists and no assurance can be given that one will develop. The SRP
will exist during the Offering period and will be terminated following the
close of the Offering period: (i) at such time as a secondary market-maker
quotes a bid and ask price for at least 30 continuous trading days; or (ii) 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 canceled, and will
have the status of authorized but unissued Shares. Shares acquired by the
Company through the SRP will not be reissued unless they are first registered
with the Commission under the Act and under appropriate state securities laws
or otherwise issued in compliance with such laws.
In the event that the Company begins selling its properties, the purchase
price paid by the SRP for Shares will be adjusted accordingly. Since the
availability of purchase funds for the SRP cannot be
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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.
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
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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 for the property; (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.
LEGAL MATTERS
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 Ltd. (counsel to the Company). Shefsky & Froelich 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 legality of the Shares offered
hereby will be passed upon for the Company by Shapiro and Olander, Baltimore,
Maryland.
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 Ltd.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1995,
for the years ended 1996 and 1995 and for the period from May 12, 1994
(formation of the Company) to December 31, 1994 and the statement of gross
income and direct operating expenses of Maple Park Place Shopping Center for
the year ended December 31, 1996, the statement of gross income and direct
operating expenses of Niles Shopping Center for the year ended December 31,
1996, the statement of gross income and direct operating
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expenses of Cobblers Mall for the year ended December 31, 1996, the statement
of gross income and direct operating expenses for Mallard Mall for the year
ended December 31, 1996, the statement of gross income and direct operating
expenses for Sequoia Shopping Center for the year ended December 31, 1996 and
the statement of gross income and direct operating expenses for River Square
Shopping Center for the year ended December 31, 1996 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.
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 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.
"DUE DILIGENCE EXPENSE ALLOWANCE FEE" means an amount up to 0.5% of the Gross
Offering Proceeds paid to the Dealer Manager, a portion of which may be
reallowed to Soliciting Dealers, to reimburse the Dealer Manager or Soliciting
Dealers for bona fide due diligence expenses.
"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 ___________, 2002.
"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 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 $9.50 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.
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"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 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" means an amount up to 2.39% of the Gross Offering
Proceeds paid to the Dealer Manager, a portion of which may be reallowed to
Soliciting Dealers to pay expenses associated with marketing fees, wholesaling
fees, expense reimbursements, bonuses and incentive compensation and volume
discounts.
"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 21,875,000 Shares (which includes 1,000,000 Shares
available for distribution under the Distribution Reinvestment Program and
875,000 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.
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<PAGE> 155
"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.
"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 21,000,000 Shares of the Company (including
1,000,000 Shares available for distribution under the Distribution Reinvestment
Program) pursuant to this Prospectus plus the 875,000 Soliciting Dealer
Warrants and 875,000 Shares which are issuable on exercise of Soliciting
Dealer Warrants.
"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 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: (i) Company's public offering of 6,000,000 Shares
(including 1,000,000 Shares available under the DRP) which commenced October
14, 1994 and was completed July 22, 1996; and (ii) the Company s public
offering of 11,375,000 Shares (including 1,000,000 Shares available for
146
<PAGE> 156
distribution under the DRP and 375,000 Shares issuable on the exercise of
warrants granted to soliciting dealers) which commenced July 24, 1996 and was
completed on July ___, 1997.
"PROPERTY DISPOSITION FEE" means a real estate disposition fee, payable (under
certain conditions) to the Advisor and its Affiliates upon the sale of the
Company's property in an amount equal to the lesser of: (i) 3% of the
contracted for sales price of the property; or (ii) 50% of the commission paid
to third parties which is reasonable, customary and competitive in light of the
size, type and location of such property.
"PROPERTY MANAGEMENT FEE" 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 dated July__, 1997 as
may be supplemented in connection with the registration of Shares offered
hereby.
"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 registration of the Shares and warrants
offered hereby on Form S-11 and related exhibits, as amended, filed by the
Company on May 8, 1997 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
147
<PAGE> 157
(ii) a transaction involving the conversion to corporate, trust or
association form of only the Company if, as a consequence of
the transaction, there will be no significant adverse change in
any of the following:
(a) Stockholders' voting rights;
(b) the term and existence of the Company;
(c) Sponsor or Advisor compensation; or
(d) the Company's investment objectives.
"ROLL-UP ENTITY" means a partnership, 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
148
<PAGE> 158
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.
"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 ____________.
"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.
149
<PAGE> 159
INDEX TO FINANCIAL STATEMENTS
PAGE
INLAND REAL ESTATE CORPORATION
<TABLE>
<S> <C>
Balance Sheets at March 31, 1997 (unaudited) and December 31, 1996 ........ F-1
Statements of Operations for the three months ended
March 31, 1997 and 1996 (unaudited) ....................................... F-3
Statements of Stockholders' Equity at March 31, 1997 (unaudited) and
** 23 December 31, 1996 ................................................... F-4
Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 (unaudited) ........................................ f-5
Notes to Financial Statements at March 31, 1997 (unaudited) ................ f-6
Independent Auditors' Report ............................................... F-16
Balance Sheets at December 31, 1996 and 1995 ............................... F-17
Statements of Operations for the years ended December 31, 1996 and 1995 .... F-19
Statements of Stockholders' Equity for the years ended December 31, 1996 and
1995 and the period from May 12, 1994 (formation of the Company) to
December 31, 1994 .......................................................... F-20
Statements of Cash Flows for the years ended December 31, 1996 and
1995 and the period from May 12, 1994 (formation of the Company) to
December 31, 1994 .......................................................... F-21
Notes to Financial Statements for the years ended December 31, 1996
and 1995 and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994 ....................................................... F-23
Pro Forma Balance Sheet at March 31, 1997 (unaudited) .................... F-35
Notes to Pro Forma Balance Sheet at March 31, 1997 (unaudited) ............ F-37
Pro forma Statement of Operations for the three months ended
March 31, 1997 (unaudited) ................................................. F-40
Notes to Pro Forma Statement of Operations for the three months
ended March 31, 1997 (unaudited) ........................................... F-42
</TABLE>
F-i
<PAGE> 160
<TABLE>
<S> <C>
Pro Forma Statement of Operations for the year ended
December 31, 1996 (unaudited) .............................................. F-45
Notes to Pro Forma Statement of Operations for the year
ended December 31, 1996 (unaudited) ........................................ F-47
MAPLE PARK PLACE SHOPPING CENTER
Independent Auditors' Report ............................................... F-58
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Maple Park Place Shopping Center ........... F-59
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Maple Park Place Shopping Center ... F-60
</TABLE>
* 24 moved from here; text not shown
* 25 moved from here; text not shown
* 26 moved from here; text not shown
NILES SHOPPING CENTER
<TABLE>
<S> <C>
Independent Auditors' Report ............................................ F-62
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Niles Shopping Center ................... F-63
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Niles Shopping Center ........... F-64
COBBLERS MALL
Independent Auditors' Report ............................................ F-66
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Cobblers Mall ........................... F-67
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Cobblers Mall ................... F-68
MALLARD MALL
Independent Auditors' Report ............................................ F-70
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Mallard Mall ............................ F-71
</TABLE>
F-ii
<PAGE> 161
<TABLE>
<S> <C> <C>
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Mallard Mall .................... F-72
SEQUOIA SHOPPING CENTER
Independent Auditors' Report ............................................ F-74
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Sequoia Shopping Center ................. F-75
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Sequoia Shopping Center ......... F-76
RIVER SQUARE SHOPPING CENTER
** 24 Independent Auditors' Report ...................................... F-78
** 25 Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of River Square Shopping Center..... F-79
** 26 Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of River Square
Shopping Center ......................................................... F-80
</TABLE>
F-iii
<PAGE> 162
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
March 31, 1997 and December 31, 1996
(unaudited)
Assets
------
1997 1996
Investment properties (Notes 1, 4 and 5): ---- ----
Land............................................ $ 31,859,748 24,705,743
Building and improvements....................... 91,746,576 69,927,238
------------- ------------
123,606,324 94,632,981
Less accumulated depreciation................... 1,850,958 1,109,038
------------- ------------
Net investment properties....................... 121,755,366 93,523,943
------------- ------------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 22,647,158 8,491,735
Restricted cash (Note 1).......................... 1,117,333 122,043
Accounts and rents receivable (Notes 1 and 5)..... 2,666,872 1,914,756
Deposits and other assets (Note 7)................ 2,808,079 95,828
Deferred organization costs (net of accumulated
amortization of $6,865 and $5,492 at March 31,
1997 and December 31, 1996, respectively)
(Note 1)........................................ 20,597 21,970
Loan fees (net of accumulated amortization
of $48,866 and $11,875 at March 31, 1997 and
December 31, 1996, respectively) (Note 1)....... 495,004 338,411
------------- ------------
Total assets.................................. $151,510,409 104,508,686
============= ============
See accompanying notes to financial statements.
F-1
<PAGE> 163
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
March 31, 1997 and December 31, 1996
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
1997 1996
Liabilities: ---- ----
Accounts payable................................ $ 445,536 289,912
Accrued offering costs to Affiliates............ 838,302 298,341
Accrued offering costs to non-affiliates........ 29,926 4,236
Accrued interest payable to Affiliates.......... 4,699 4,718
Accrued interest payable to non-affiliates...... - 52,402
Accrued real estate taxes....................... 3,134,066 2,770,889
Distributions payable (Note 8).................. 749,856 548,947
Security deposits............................... 320,966 247,769
Mortgage payable (Note 6)....................... 53,182,067 30,838,233
Unearned income................................. 375,570 64,590
Other liabilities............................... - 32,820
Due to Affiliates (Note 2)...................... 247,191 255,591
------------- ------------
Total liabilities............................. 59,328,179 35,408,448
------------- ------------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 10,885,216 and 10,878,866, issued
and outstanding at March 31, 1997 and 8,144,116
and 8,137,766 issued and outstanding at
December 31, 1996, respectively............... 108,280 81,000
Additional paid-in capital (net of offering
costs of $13,568,479 and $10,500,108 at March
31, 1997 and December 31, 1996, respectively,
of which $10,926,010 and $8,096,213 was paid
to Affiliates, respectively).................. 94,623,475 70,512,073
Accumulated distributions in excess
of net income................................. (2,549,525) (1,492,835)
------------- ------------
Total stockholders' equity.................... 92,182,230 69,100,238
------------- ------------
Total liabilities and stockholders' equity........ $151,510,409 104,508,686
============= ============
See accompanying notes to financial statements.
F-2
<PAGE> 164
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
---- ----
Income:
Rental income (Notes 1 and 5)................... $ 3,603,584 475,038
Additional rental income........................ 1,061,507 242,290
Interest income................................. 156,436 43,751
Other income.................................... 36,244 -
------------ ------------
4,857,771 761,079
------------ ------------
Expenses:
Professional services to Affiliates............. 9,500 2,000
Professional services to non-affiliates......... 30,410 26,068
General and administrative expenses
to Affiliates................................. 16,936 7,903
General and administrative expenses
to non-affiliates............................. 28,312 2,197
Advisor asset management fee.................... 233,337 48,540
Property operating expenses to Affiliates....... 172,537 29,136
Property operating expenses to non-affiliates... 1,686,924 281,477
Mortgage interest to Affiliates................. 44,454 15,043
Mortgage interest to non-affiliates............. 961,287 -
Depreciation.................................... 741,920 103,091
Amortization.................................... 38,364 1,373
Acquisition costs expensed...................... 9,090 8,985
------------ ------------
3,973,071 525,813
------------ ------------
Net income.................................... $ 884,700 235,266
============ ============
Net income per weighted average common stock shares
outstanding (9,384,792 and 2,000,073 for the
three months ended March 31, 1997 and 1996,
respectively.................................... $ .09 .12
============ ============
See accompanying notes to financial statements.
F-3
<PAGE> 165
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
March 31, 1997 and December 31, 1996
(unaudited)
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
----------- ----------- ----------- ------------
Balance January 1, 1996..... $ 19,996 16,835,183 (240,113) 16,615,066
Net income.................. - - 2,452,221 2,452,221
Distributions declared
($.82 for the year ended
December 31, 1996 per
weighted average common
stock shares outstanding). - - (3,704,943) (3,704,943)
Proceeds from Offering (net
of Offering costs of
$7,378,933................ 61,038 53,707,177 - 53,768,215
Repurchases of Shares....... (34) (30,287) - (30,321)
----------- ----------- ----------- ------------
Balance December 31, 1996... 81,000 70,512,073 (1,492,835) 69,100,238
Net income.................. - - 884,700 884,700
Distributions declared
($.21 for the three months
ended March 31, 1997 per
weighted average common
stock shares outstanding). - - (1,941,390) (1,941,390)
Proceeds from Offering (net
of Offering costs of
$3,068,371)............... 27,280 24,111,402 - 24,138,682
----------- ----------- ----------- ------------
Balance March 31, 1997...... $ 108,280 94,623,475 (2,549,525) 92,182,230
=========== =========== =========== ============
See accompanying notes to financial statements.
F-4
<PAGE> 166
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
For the three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
Cash flows from operating activities: ---- ----
Net income.................................... $ 884,700 235,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................ 741,920 103,091
Amortization................................ 38,364 1,373
Rental income under master lease agreements. 71,599 109,333
Changes in assets and liabilities:
Accounts and rents receivable............... (752,116) (158,258)
Other assets................................ (218,111) 135,814
Accrued interest payable.................... (52,421) (471)
Accrued real estate taxes................... 363,177 89,571
Accounts payable............................ 155,624 36,669
Unearned income............................. 310,980 (26,578)
Other current liabilities................... (32,820) -
Due to Affiliates........................... (8,400) 53,646
Security deposits........................... 73,197 16,650
------------ ------------
Net cash provided by operating activities......... 1,575,693 596,106
------------ ------------
Cash flows from investing activities:
Restricted cash................................. (995,290) -
Additions to investment properties.............. (52,042) (153,450)
Purchase of investment properties............... (11,429,015) (5,657,980)
Deposits on investment properties............... (2,494,140) -
------------ ------------
Net cash used in investing activities............. (14,970,487) (5,811,430)
------------ ------------
Cash flows from financing activities:
Repayment of note to Affiliate.................. - (360,000)
Proceeds from offering.......................... 27,207,053 9,084,592
Payments of offering costs...................... (2,502,720) (885,260)
Loan proceeds................................... 12,840,000 -
Loan fees....................................... (193,584) -
Distributions paid.............................. (1,740,481) (422,750)
Principal payments of debt...................... (8,060,051) (2,716)
------------ ------------
Net cash provided by financing activities......... 27,550,217 7,413,866
------------ ------------
Net increase in cash and cash equivalents......... 14,155,423 2,198,542
Cash and cash equivalents at beginning of period.. 8,491,735 738,931
------------ ------------
Cash and cash equivalents at end of period........ $22,647,158 2,937,473
============ ============
See accompanying notes to financial statements.
F-5
<PAGE> 167
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the three months ended March 31, 1997 and 1996
(unaudited)
Supplemental schedule of noncash investing and financing activities:
1997 1996
---- ----
Purchase of investment properties................ $(28,992,900) (5,657,980)
Assumption of mortgage debt.................... 9,563,885 -
Note payable to Affiliate...................... 8,000,000 -
------------- -------------
$(11,429,015) (5,657,980)
============= =============
Distributions payable............................ $ 749,856 183,457
============= =============
Cash paid for interest........................... $ 1,058,162 15,513
============= =============
See accompanying notes to financial statements.
F-6
<PAGE> 168
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
March 31, 1997
(unaudited)
Readers of this Quarterly Report should refer to the Company's audited
financial statements for the fiscal year ended December 31, 1996, which are
included in the Company's 1996 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 Real Estate Corporation (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. Inland Real Estate Advisory Services, Inc. (the
"Advisor"), an Affiliate of the Company, is the advisor to the Company. On
October 14, 1994, the Company commenced an initial public offering, on a best
efforts basis, ("Offering") of 5,000,000 shares of common stock ("Shares") at a
price of $10 per Share and 1,000,000 Shares at a price of $9.05 per Share to be
distributed pursuant to the Company's distribution reinvestment program (the
"DRP"). As of July 24, 1996, the Company had received subscriptions for a
total of 5,000,000 Shares, thereby completing the initial Offering. On July
24, 1996, the Company commenced an offering of an additional 10,000,000 Shares,
on a best efforts basis, (the "Second Offering") plus an additional 1,000,000
Shares for distribution through the DRP. As of March 31, 1997, the Company had
received subscriptions for a total of 5,878,866 Shares from the Second
Offering, resulting in $108,357,364 in gross offering proceeds, including
Shares purchased through the Distribution Reinvestment Program. As of March
31, 1997, the Company has repurchased 6,350 Shares through the Share Repurchase
Program.
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-7
<PAGE> 169
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
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.
Restricted cash at March 31, 1997 includes $995,290 held in escrow for the
principal payments on the Aurora Commons mortgage payable. Restricted cash at
March 31, 1997 and December 31, 1996 also includes amounts held in escrow for
tenant improvements, concessions and leasing commissions at Antioch Plaza.
Such amounts will be added to the basis of the property as tenant improvements
are completed.
The Partnership adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121") as required in the first quarter of 1996. SFAS
121 requires that the Partnership record an impairment loss on its property to
be held for investment whenever its carrying value cannot be fully recovered
through estimated undiscounted future cash flows from their operations and
sale. The amount of the impairment loss to be recognized would be the
difference between the property's carrying value and the property's estimated
fair value. The adoption of SFAS 121 did not have any effect on the
Partnership's financial position, results of operations or liquidity.
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.
Loan fees are amortized on a straight line basis over the life of the related
loans.
Deferred organization costs are amortized over a 60-month period.
Offering costs are offset against the Stockholders' equity accounts. Offering
costs consist principally of printing, selling and registration costs.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned on a straight-line basis
and the cash rent due under the provisions of the lease agreements is recorded
as deferred rent receivable.
F-8
<PAGE> 170
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(2) Transactions with Affiliates
As of March 31, 1997, the Company had incurred $13,568,479 of organization and
offering costs. 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 the completion of the
initial Offering, organizational and offering did not exceed the 5.5% or 15%
limitations. As of March 31, 1997, organizational and offering costs of the
Second Offering did not exceed the 5.5% and 15% limitations. The Company
anticipates that these costs will not exceed these limitations upon completion
of the offerings, 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. Such costs to Affiliates incurred relating to the offering were
$964,824 and $692,248 as of March 31, 1997 and December 31, 1996, respectively,
of which $260,555 and $120,269 were unpaid as of March 31, 1997 and December
31, 1996, respectively. 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 amounts incurred were $9,961,186
and $7,403,965 as of March 31, 1997 and December 31, 1996, respectively, of
which $577,747 and $270,365 was unpaid as of March 31, 1997 and December 31,
1996, respectively. As of March 31, 1997, approximately $8,436,000 of these
commissions had been passed through from the Affiliate to unaffiliated
soliciting broker/dealers.
The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to the
administration of the Company. Such costs are included in professional
services to Affiliates, general and administrative expenses to Affiliates and
acquisition costs expensed of which $13,854 remained unpaid at March 31, 1997.
As of March 31, 1997, the Advisor has contributed $200,000 to the capital of
the Company for which it received 20,000 Shares.
F-9
<PAGE> 171
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
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. For the
three months ended March 31, 1997, the Company has incurred $233,337 of such
fees, all of which remains unpaid at March 31, 1997.
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 $172,537 and $29,136 for the three months ended March 31,
1997 and 1996, respectively, all of which has been paid.
(3) Stock Option and Dealer Warrant Plan
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. As of March 31, 1997, options for 1,000
Shares have been exercised $9.05.
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 offerings, 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.
As of December 31, 1996, none of these warrants were exercised.
F-10
<PAGE> 172
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties
<TABLE>
<CAPTION>
Gross amount at which carried
Initial Cost (A) at end of period
-------------------------- Net -----------------------------------------
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
Zany Brainy
Wheaton, IL............. 07/96 838,000 1,626,033 - 838,000 1,626,033 2,464,033
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.......... 09/95 315,000 834,659 (12,692) 315,000 821,967 1,136,967
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,427,961 11,244 990,000 3,439,205 4,429,205
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,349,918 (72,214) 1,908,000 2,277,704 4,185,704
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,360,445 (161,464) 268,000 1,198,981 1,466,981
Mundelein Plaza
Mundelein, IL........... 03/96 1,695,000 3,965,560 (30,620) 1,695,000 3,934,940 5,629,940
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (24,225) 1,000,000 4,696,575 5,696,575
Prospect Heights
Prospect Heights, IL.... 06/96 494,300 1,683,755 (11,989) 494,300 1,671,766 2,166,066
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,714,173 (46,150) 768,000 2,668,023 3,436,023
------------ ------------ ----------- ------------ ------------ ------------
Subtotal $10,233,248 26,752,379 (348,110) 10,233,248 26,404,269 36,637,517
</TABLE>
F-11
<PAGE> 173
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties (continued)
<TABLE>
<CAPTION> Gross amount at which carried
Initial Cost (A) at end of period
-------------------------- Net -----------------------------------------
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>
Subtotal $10,233,248 26,752,379 (348,110) 10,233,248 26,404,269 36,637,517
Salem Square
Countryside, IL......... 08/96 1,735,000 4,449,217 (12,075) 1,735,000 4,437,142 6,172,142
Hawthorn Village
Vernon Hills, IL........ 08/96 2,619,500 5,887,640 - 2,619,500 5,887,640 8,507,140
Six Corners
Chicago, IL............. 10/96 1,440,000 4,538,152 - 1,440,000 4,538,152 5,978,152
Spring Hill Fashion Corner
West Dundee, IL......... 11/96 1,794,000 7,415,396 (3,500) 1,794,000 7,411,896 9,205,896
Crestwood Plaza
Crestwood, IL........... 12/96 325,577 1,483,183 750 325,577 1,483,933 1,809,510
Park St. Claire
Schaumburg, IL.......... 12/96 319,578 1,205,672 5,537 319,578 1,211,209 1,530,787
Lansing Square
Lansing, IL............. 12/96 4,075,000 12,179,383 3,158 4,075,000 12,182,541 16,257,541
Summit of Park Ridge
Park Ridge, IL.......... 12/96 672,000 2,497,950 187 672,000 2,498,137 3,170,137
Grand and Hunt Club
Gurnee, IL.............. 12/96 969,840 2,622,575 (53,343) 969,840 2,569,232 3,539,072
Quarry Outlot
Hodgkins, IL............ 12/96 522,000 1,278,431 5,099 522,000 1,283,530 1,805,530
Maple Park Place
Bolingbrook, IL......... 01/97 3,115,005 12,220,332 - 3,115,005 12,220,332 15,335,337
Aurora Commons
Aurora, IL.............. 01/97 3,220,000 8,318,661 - 3,220,000 8,318,661 11,538,661
Lincoln Park Place
Chicago, IL............. 01/97 819,000 1,299,902 - 819,000 1,299,902 2,118,902
------------ ------------ ----------- ------------ ------------ ------------
Total $31,859,748 92,148,873 (402,297) 31,859,748 91,746,576 123,606,324
============ ============ =========== ============ ============ ============
</TABLE>
F-12
<PAGE> 174
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(4) Investment Properties (continued)
(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 several
purchases, the Company will receive rent under master lease agreements on
the spaces currently vacant for periods ranging from one to two years or
until the spaces are leased. Generally Accepted Accounting Principles
("GAAP") 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. The cumulative amount of such payments was $642,293 and $570,694
as of March 31, 1997 and December 31, 1996, respectively. (Note 5)
(5) Operating Leases
As part of the purchases of several of the properties, the Company will receive
rent under master lease agreements on spaces currently vacant for periods
ranging from one to two years or until the spaces are leased and tenants begin
paying rent. GAAP requires the Company to reduce the purchase price of the
properties as these payments are received, rather than record the payments as
rental income.
Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income 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 increases of $99,411 and $7,295 for the three
months ended March 31, 1997 and 1996, of rental income for the period of
occupancy for which stepped rent increases apply and $230,732 and $131,638 in
related accounts receivable as of March 31, 1997 and December 31, 1996,
respectively. The Company anticipates collecting these amounts over the terms
of the related leases as scheduled rent payments are made.
F-13
<PAGE> 175
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(6) Mortgages and Note Payable
Mortgages payable consist of the following at March 31, 1997 and December 31,
1996:
Current Current Balance at
Property as Interest Maturity Monthly March 31, December 31,
Collateral Rate Date Payment(a) 1997 1996
- ----------- ---------- --------- ---------- ----------- ------------
Mortgage payable to Affiliate:
Walgreens 7.655% 05/2004 $ 5,689 $ 736,611 739,543
Mortgages payable to non-affiliates:
Regency Point 7.2375% 08/2000 (b) 4,412,963 4,428,690
Eagle Crest 7.850% 10/2003 15,373 2,350,000 2,350,000
Nantucket Square 7.850% 10/2003 14,392 2,200,000 2,200,000
Antioch Plaza 7.850% 10/2003 5,724 875,000 875,000
Mundelein Plaza 7.850% 10/2003 18,382 2,810,000 2,810,000
Montgomery-Goodyear 7.850% 10/2003 4,121 630,000 630,000
Montgomery-Sears 7.850% 08/2003 10,761 1,645,000 1,645,000
Hartford/Naperville 7.850% 08/2003 15,111 2,310,000 2,310,000
Zany Brainy 7.590% 01/2004 7,875 1,245,000 1,245,000
Prospect Heights
Plaza 7.590% 01/2004 6,926 1,095,000 1,095,000
Hawthorn Village
Commons 7.590% 01/2004 27,071 4,280,000 4,280,000
Six Corners Plaza 7.590% 01/2004 19,608 3,100,000 3,100,000
Salem Square
Shopping Center 7.590% 01/2004 19,797 3,130,000 3,130,000
Lansing Square 7.800% 01/2004 52,975 8,150,000 -
Spring Hill Fashion
Mall 7.800% 01/2004 30,485 4,690,000 -
Aurora Commons (c) 9.000% 10/2001 85,423 9,522,493 -
----------- ------------
Mortgages Payable.................................... $53,182,067 30,838,233
=========== ============
(a) All payments are interest only, with the exception of the loans secured by
the Walgreens, Regency Point and Aurora Commons properties.
(b) Payments on this mortgage are based on a floating interest rate of 180
basis points over the 30-day LIBOR rate, which adjusts monthly, amortizing
over 25 years.
(c) The Company received a credit for interest expense on the debt at closing,
which is included in restricted cash, along with an amount set aside by the
Company for principal payments on the debt. Interest income earned on the
restricted cash amounts, when netted with interest expense on the debt,
results in an adjusted interest rate on the debt of approximately 8.2%.
F-14
<PAGE> 176
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(7) Deposits on Investment Properties
On February 7, 1997, the Company made an initial deposit of $1,228,510 for the
purchase of Forest Commons. The balance of the purchase price, approximately
$10,607,000 will be paid upon completion of the redevelopement of the center
and when the anticipated main tenant, Dominick's Finer Foods, Inc., begins
paying rent under a lease agreement.
On February 7, 1997, the Company made an initial deposit of $1,265,630 for the
purchase of Downers Grove Plaza. The balance of the purchase price,
approximately $15,382,000 will be paid upon completion of the redevelopement of
the center and when the anticipated main tenant, Dominick's Finer Foods, Inc.
begins paying rent under a lease agreement.
The Company earns interest on these deposits at the rate of 9.3% per annum.
(8) Subsequent Events
As of May 13, 1997, subscriptions for a total of 12,462,632 Shares were
received, bringing total gross offering proceeds to $124,445,135.
In April 1997, the Company paid a distribution of $749,856 to the Stockholders.
On April 11, 1997, the Company purchased the Niles Shopping Center from an
unaffiliated third party for approximately $3,280,000. The property is located
in Niles, Illinois and contains 26,117 square feet of leasable space.
On May 6, 1997, the Company purchased the Mallard Crossing Shopping Center from
an unaffiliated third party for approximately $8,000,000. The property is
located in Elk Grove Village, Illinois and contains 82,949 square feet of
leasable space. Its anchor tenant is Eagle Foods.
On May 6, 1997, the Company purchased Cobblers Crossing Shopping Center from an
unaffiliated third party for approximately $10,800,000. The property is
located in Elgin, Illinois and contains 102,642 square feet of leasable space.
Its anchor tenant is Jewel/Osco.
On May 9, 1997, the Company purchased Ameritech Outlot from an unaffiliated
third party for approximately $1,050,000. The property is located in Joliet,
Illinois. It consists of a 4,504 square foot building occupied solely by
Ameritech.
F-15
<PAGE> 177
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Real Estate Corporation:
We have audited the financial statements of Inland Real Estate Corporation (the
Company) as listed in the accompanying index. In connection with the audits of
the financial statements, we also have audited the financial statement schedule
as listed in the accompanying index. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inland Real Estate Corporation
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years ended December 31, 1996 and 1995 and for the period
from May 12, 1994 (formation date) to December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick
Chicago, Illinois
January 23, 1997
except as to Note 7 which is as of March 24, 1997
F-16
<PAGE> 178
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
December 31, 1996 and 1995
Assets
------
1996 1995
---- ----
Investment properties (Notes 1 and 4):
Land............................................ $ 24,705,743 5,437,948
Building and improvements....................... 69,927,238 12,074,484
------------- -------------
94,632,981 17,512,432
Less accumulated depreciation................... 1,109,038 169,894
------------- -------------
Net investment properties....................... 93,523,943 17,342,538
------------- -------------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 8,491,735 738,931
Restricted cash (Note 1).......................... 122,043 150,000
Accounts and rents receivable (Note 5)............ 1,914,756 333,823
Deposits and other assets (Note 4)................ 95,828 158,123
Deferred organization costs (net of
accumulated amortization of $5,492 and $0 at
December 31, 1996 and 1995, respectively)
(Note 1)........................................ 21,970 27,462
Loan fees (net of accumulated amortization
of $11,875 at December 31, 1996) (Note 1)....... 338,411 -
------------- -------------
Total assets.................................. $104,508,686 18,750,877
============= =============
See accompanying notes to financial statements.
F-17
<PAGE> 179
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
December 31, 1996 and 1995
Liabilities and Stockholders' Equity
------------------------------------
1996 1995
Liabilities: ---- ----
Accounts payable................................ $ 289,912 6,875
Accrued offering costs to Affiliates (Note 2)... 298,341 222,353
Accrued offering costs to non-affiliates........ 4,236 6,444
Accrued interest payable to Affiliates.......... 4,718 5,242
Accrued interest payable to non-affiliates...... 52,402 -
Accrued real estate taxes....................... 2,770,889 374,180
Distributions payable (Note 7).................. 548,947 129,532
Security deposits............................... 247,769 54,483
Note payable to Affiliates (Note 6)............. - 360,000
Mortgages payable (Notes 4 and 6)............... 30,838,233 750,727
Unearned income................................. 64,590 39,846
Other liabilities............................... 32,820 178,852
Due to Affiliates (Note 2)...................... 255,591 7,277
------------- -------------
Total liabilities............................. 35,408,448 2,135,811
------------- -------------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 8,144,116 and 8,137,766 issued and
outstanding at December 31, 1996 and 2,003,073
and 2,000,073 Shares issued and outstanding
at December 31, 1995, respectively............ 81,000 19,996
Additional paid-in capital (net of offering
costs of $10,500,108 and $3,121,175 at
December 31, 1996 and 1995, respectively, of
which $8,096,213 and $2,129,264 was paid
to Affiliates, respectively).................. 70,512,073 16,835,183
Accumulated distributions in excess
of net income................................. (1,492,835) (240,113)
------------- -------------
Total stockholders' equity.................... 69,100,238 16,615,066
------------- -------------
Commitments and contingencies (Notes 3, 5 and 7)..
------------- -------------
Total liabilities and stockholders' equity........ $104,508,686 18,750,877
============= =============
See accompanying notes to financial statements.
F-18
<PAGE> 180
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the years ended December 31, 1996 and 1995
1996 1995
Income: ---- ----
Rental income (Notes 1 and 5).................. $ 4,467,903 869,485
Additional rental income....................... 1,336,809 228,024
Interest income................................ 438,188 82,913
Other income................................... 84,834 -
------------ ------------
6,327,734 1,180,422
------------ ------------
Expenses:
Professional services to Affiliates............ 16,476 7,277
Professional services to non-affiliates........ 46,790 1,615
General and administrative expenses to
Affiliates.................................... 42,904 -
General and administrative expenses
to non-affiliates............................. 77,389 13,880
Advisor asset management fee................... 238,108 -
Property operating expenses to Affiliates...... 229,307 46,791
Property operating expenses to non-affiliates.. 1,643,867 279,930
Mortgage interest to Affiliates................ 64,165 146,821
Mortgage interest to non-affiliates............ 533,320 17,340
Depreciation................................... 939,144 169,894
Amortization................................... 17,367 -
Acquisition costs expensed..................... 26,676 360
------------ ------------
3,875,513 683,908
------------ ------------
Net income.................................... $ 2,452,221 496,514
============ ============
Net income per weighted average
common stock shares outstanding
(4,494,620 and 943,156 for the years
ended December 31, 1996 and 1995,
respectively).................................. $ .55 .53
============ ============
See accompanying notes to financial statements.
F-19
<PAGE> 181
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
For the years ended December 31, 1996, 1995 and
for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
----------- ----------- ----------- ------------
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
$3,121,175).............. 19,826 16,662,162 - 16,681,988
Repurchases of Shares....... (30) (26,779) - (26,809)
----------- ----------- ----------- ------------
Balance December 31, 1995... 19,996 16,835,183 (240,113) 16,615,066
Net income.................. - - 2,452,221 2,452,221
Distributions declared
($.82 per weighted average
common stock shares
outstanding).............. - - (3,704,943) (3,704,943)
Proceeds from Offering (net
of Offering costs of
$10,500,108).............. 61,038 53,707,177 - 53,768,215
Repurchases of Shares....... (34) (30,287) - (30,321)
----------- ----------- ----------- ------------
Balance December 31, 1996... $ 81,000 70,512,073 (1,492,835) 69,100,238
=========== =========== =========== ============
See accompanying notes to financial statements.
F-20
<PAGE> 182
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Cash Flows
For the years ended December 31, 1996 and 1995
and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
1996 1995 1994
Cash flows from operating activities: ---- ---- ----
Net income........................ $ 2,452,221 496,514 -
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation.................... 939,144 169,894 -
Amortization.................... 17,367 - -
Rental income under master
lease agreements.............. 437,678 133,016 -
Straight line rental income..... (119,225) (12,413) -
Changes in assets and liabilities:
Accounts and rents receivable. (1,461,708) (321,410) -
Deposits and other assets..... 62,295 (4,006) -
Accounts payable.............. 283,038 6,875 -
Accrued interest payable...... 51,878 5,242 -
Accrued real estate taxes..... 2,396,709 374,180 -
Security deposits............. 193,286 54,483 -
Other liabilities............. 3,968 28,852 -
Due to Affiliates............. 248,314 7,277 -
Unearned income............... 24,744 39,846 -
------------- ------------- -------------
Net cash provided by operating
activities........................ 5,529,709 978,350 -
------------- ------------- -------------
Cash flows from investing activities:
Escrowed funds.................... - - (1,699,381)
Payments for acquisition expenses. - - (4,117)
Purchase of investment properties. (68,717,979) (6,376,708) -
Tenant improvements............... (136,819) (51,135) -
Deposit for tenant improvements... (122,043) (150,000) -
------------- ------------- -------------
Net cash used in investing
activities........................ (68,976,841) (6,577,843) (1,703,498)
------------- ------------- -------------
Cash flows from financing activities:
Repayment of loan from Advisor.... - (193,300) 193,300
Proceeds from offering............ 61,147,147 19,803,163 200,000
Subscriptions received............ - - 1,699,381
Repurchase of Shares.............. (30,321) (26,809) -
Payments of offering costs........ (7,305,153) (2,514,129) (378,249)
Loan proceeds..................... 25,670,000 - -
Loan fees......................... (350,286) - -
See accompanying notes to financial statements.
F-21
<PAGE> 183
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Cash Flows
(continued)
For the years ended December 31, 1996 and 1995
and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
1996 1995 1994
---- ---- ----
Distributions paid................ (3,285,528) (607,095) -
Repayment of notes from Affiliate. (3,271,185) - -
Principal payments of debt........ (1,374,738) (10,106,878) -
Payment of deferred organization
costs........................... - (27,462) -
------------- ------------- -------------
Net cash provided by financing
activities........................ 71,199,936 6,327,490 1,714,432
------------- ------------- -------------
Net increase in cash and
cash equivalents.................. 7,752,804 727,997 10,934
Cash and cash equivalents at
beginning of period............... 738,931 10,934 -
------------- ------------- -------------
Cash and cash equivalents at
end of period..................... $ 8,491,735 738,931 10,934
============= ============= =============
Supplemental schedule of noncash investing and financing activities:
1996 1995 1994
---- ---- ----
Purchase of investment properties.. $(77,421,408) (17,594,313) -
Assumption of mortgage debt...... 5,803,429 4,595,178 -
Note payable to Affiliate........ 2,900,000 6,622,427 -
------------- ------------- ------------
$(68,717,979) (6,376,708) -
============= ============= ============
Distributions payable.............. $ 548,947 129,532 -
============= ============= ============
Cash paid for interest............. $ 545,607 158,919 -
============= ============= ============
See accompanying notes to financial statements.
F-22
<PAGE> 184
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
For the years ended December 31, 1996, 1995 and
for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
(1) Organization and Basis of Accounting
Inland Real Estate Corporation (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. Inland Real Estate Advisory Services, Inc. (the
"Advisor"), an Affiliate of the Company, is the advisor to the Company. On
October 14, 1994, the Company commenced an initial public offering, on a best
efforts basis, ("Offering") of 5,000,000 shares of common stock ("Shares") at a
price of $10 per Share and 1,000,000 Shares at a price of $9.05 per Share to be
distributed pursuant to the Company's distribution reinvestment program (the
"DRP"). As of July 24, 1996, the Company had received subscriptions for a
total of 5,000,000 Shares, thereby completing the initial Offering. On July
24, 1996, the Company commenced an offering of an additional 10,000,000 Shares,
on a best efforts basis, (the "Second Offering") plus an additional 1,000,000
Shares for distribution through the DRP. As of December 31, 1996, the Company
had received subscriptions for a total of 3,137,776 Shares from the Second
Offering, resulting in $81,150,311 in gross offering proceeds, which includes
$1,470,938 received for 162,534 Shares purchased through the Distribution
Reinvestment Program. As of December 31, 1996, the Company has repurchased
6,350 Shares through the Share Repurchase Program.
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-23
<PAGE> 185
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
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. Cash and equivalents include $865,521 and $142,720
at December 31, 1996 and 1995, respectively, which are held by the Company's
affiliated property manager. Such amounts are unrestricted and held in the
Company's name.
Restricted cash at December 31, 1996 represents amounts held in escrow for
tenant improvements, concessions and leasing commissions at Antioch Plaza.
Such amounts will be added to the basis of the property as tenant improvements
are completed. Restricted cash at December 31, 1995 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.
The Partnership adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121") as required in the first quarter of 1996. SFAS
121 requires that the Partnership record an impairment loss on its property to
be held for investment whenever its carrying value cannot be fully recovered
through estimated undiscounted future cash flows from their operations and
sale. The amount of the impairment loss to be recognized would be the
difference between the property's carrying value and the property's estimated
fair value. The adoption of SFAS 121 did not have any effect on the
Partnership's financial position, results of operations or liquidity.
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.
Loan fees are amortized on a straight line basis over the life of the related
loans.
Deferred organization costs are amortized over a 60-month period.
Offering costs are offset against the Stockholders' equity accounts. Offering
costs consist principally of printing, selling and registration costs.
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.
F-24
<PAGE> 186
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
The Company believes that the interest rates associated with the mortgages
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
mortgages 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 relatively short maturity of these
instruments.
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation. Such reclassifications did not change the
1995 reported results.
(2) Transactions with Affiliates
As of December 31, 1996, the Company had incurred $10,500,108 of organization
and offering costs. 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 the completion of the initial Offering, organizational and offering did not
exceed the 5.5% or 15% limitations. As of December 31, 1996, organizational
and offering costs of the Second Offering did exceed the 5.5% and 15%
limitations. The Company anticipates that these costs will not exceed these
limitations upon completion of the offerings, 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. Such costs to Affiliates incurred relating to the offering were
$692,248 and $409,858 as of December 31, 1996 and 1995, respectively, of which
$27,976 and $120,269 were unpaid as of December 31, 1996 and 1995,
respectively. 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 amounts incurred were $7,403,965
and $1,719,406 for the years ended December 31, 1996 and 1995, respectively, of
which $270,365 and $102,084 was unpaid as of December 31, 1996 and 1995,
respectively. As of December 31, 1996, approximately $6,296,000 of these
commissions had been passed through from the Affiliate to unaffiliated
soliciting broker/dealers.
F-25
<PAGE> 187
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to the
administration of the Company. Such costs are included in professional
services to Affiliates, general and administrative expenses to Affiliates and
acquisition costs expensed of which $749 remained unpaid at December 31, 1996.
As of December 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 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 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. For the
year ended December 31, 1996, the Company has incurred $238,108 of such fees,
all of which remains unpaid at December 31, 1996.
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 $229,307 and $46,791 for the years ended December 31, 1996
and 1995, respectively, all of which has been paid.
The Company has incurred costs to Affiliates relating to the acquisition of the
properties, of which $16,734 is unpaid at December 31, 1996.
F-26
<PAGE> 188
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(3) Stock Option and Dealer Warrant Plan
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. As of December 31, 1996, options for 1,000
Shares have been exercised $9.05.
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 offerings, 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.
As of December 31, 1996, none of these warrants were exercised.
F-27
<PAGE> 189
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties
<TABLE>
<CAPTION>
Initial Cost (A) Gross amount at which carried
-------------------------- at end of period
Net -----------------------------------------
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
Zany Brainy
Wheaton, IL............. 07/96 838,000 1,626,033 - 838,000 1,626,033 2,464,033
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.......... 09/95 315,000 834,659 (12,692) 315,000 821,967 1,136,967
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,427,961 11,244 990,000 3,439,205 4,429,205
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,349,918 (72,214) 1,908,000 2,277,704 4,185,704
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,360,445 (130,984) 268,000 1,229,461 1,497,461
Mundelein Plaza
Mundelein, IL........... 03/96 1,695,000 3,965,560 (22,820) 1,695,000 3,942,740 5,637,740
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (21,900) 1,000,000 4,698,900 5,698,900
Prospect Heights
Prospect Heights, IL.... 06/96 494,300 1,683,755 (11,989) 494,300 1,671,766 2,166,066
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,714,173 (31,525) 768,000 2,682,648 3,450,648
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $10,233,248 26,752,379 (292,880) 10,233,248 26,459,499 36,692,747
</TABLE>
F-28
<PAGE> 190
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties (continued)
<TABLE>
<CAPTION>
Gross amount at which carried
Initial Cost (A) at end of period
-------------------------- Net -----------------------------------------
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>
Subtotal $10,233,248 26,752,379 (292,880) 10,233,248 26,459,499 36,692,747
Salem Square
Countryside, IL......... 08/96 1,735,000 4,449,217 (6,900) 1,735,000 4,442,317 6,177,317
Hawthorn Village
Vernon Hills, IL........ 08/96 2,619,500 5,887,640 - 2,619,500 5,887,640 8,507,140
Six Corners
Chicago, IL............. 10/96 1,440,000 4,538,152 - 1,440,000 4,538,152 5,978,152
Spring Hill Fashion Corner
West Dundee, IL......... 11/96 1,794,000 7,415,396 (9,000) 1,794,000 7,406,396 9,200,396
Crestwood Plaza
Crestwood, IL........... 12/96 325,577 1,483,183 - 325,577 1,483,183 1,808,760
Park St. Claire
Schaumburg, IL.......... 12/96 319,578 1,205,672 (3,463) 319,578 1,202,209 1,521,787
Lansing Square
Lansing, IL............. 12/96 4,075,000 12,179,383 (9,800) 4,075,000 12,169,583 16,244,583
Summit of Park Ridge
Park Ridge, IL.......... 12/96 672,000 2,497,950 (2,364) 672,000 2,495,586 3,167,586
Grand and Hunt Club
Gurnee, IL.............. 12/96 969,840 2,622,575 (58,333) 969,840 2,564,242 3,534,082
Quarry Outlot
Hodgkins, IL............ 12/96 522,000 1,278,431 - 522,000 1,278,431 1,800,431
------------ ------------- ------------ ------------- ------------- ------------
Total $24,705,743 70,309,978 (382,740) 24,705,743 69,927,238 94,632,981
============ ============ =========== ============ ============ ============
</TABLE>
F-29
<PAGE> 191
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
December 31, 1996
(4) Investment Properties (continued)
(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 several
purchases, the Company will receive rent under master lease agreements on
the spaces currently vacant for periods ranging from one to two years or
until the spaces are leased. Generally Accepted Accounting Principles
("GAAP") 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, 1996, the cumulative amount of such payments
was $570,694. (Note 5)
Cost and accumulated depreciation of the above properties are summarized as
follows:
1996 1995
---- ----
Single User Retail Properties:
Cost.................................... $ 3,673,086 1,209,053
Less accumulated depreciation........... 112,871 34,550
------------ ------------
3,560,215 1,174,503
------------ ------------
Neighborhood Retail Centers:
Cost.................................... 90,959,895 16,303,379
Less accumulated depreciation........... 996,167 135,344
------------ ------------
89,963,728 16,168,035
------------ ------------
Total................................... $93,523,943 17,342,538
============ ============
F-30
<PAGE> 192
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(5) Operating Leases
Master Lease Agreements
As part of the purchases of several of the properties, the Company will receive
rent under master lease agreements on spaces currently vacant for periods
ranging from one to two years or until the spaces are leased and tenants begin
paying rent. GAAP requires the Company to reduce the purchase price of the
properties as these payments are received, rather than record the payments as
rental income.
Minimum lease payments under operating leases to be received in the future,
excluding rental income under master lease agreements and assuming no expiring
leases are renewed:
Number of
Minimum Lease Leases
Payments Expiring
------------- ------------
1997...................................... $ 10,796,526 20
1998...................................... 10,269,714 33
1999...................................... 9,264,471 23
2000...................................... 8,471,277 23
2001...................................... 6,891,348 17
Thereafter................................ 45,063,881 60
-------------
Total..................................... $ 90,757,217
=============
No assumptions were made regarding the releasing of expired leases. It is the
opinion of the Company's management that the space will be released at market
rates.
Remaining lease terms range from one year to thirty two years. Pursuant to the
lease agreements, tenants of the property 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 rental
income.
Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income 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 increases of $119,225 and $12,413 in 1996 and
1995, of rental income for the period of occupancy for which stepped rent
increases apply and $131,638 and $12,413 in related accounts receivable as of
December 31, 1996 and 1995, respectively. The Company anticipates collecting
these amounts over the terms of the related leases as scheduled rent payments
are made.
F-31
<PAGE> 193
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(6) Mortgages and Note Payable
Mortgages payable consist of the following at December 31, 1996 and 1995:
Balance at
December 31,
Property as Interest Maturity Monthly ------------
Collateral Rate Date Payment(a) 1996 1995
- ---------------- ---------- --------- ---------- -----------------------
Mortgage payable to Affiliate:
Walgreens 7.655% 05/2004 $ 5,689 $ 739,543 750,727
Mortgages payable to non-affiliates:
Regency Point (b) 08/2000 (b) 4,428,690 -
Eagle Crest 7.850% 10/2003 15,373 2,350,000 -
Nantucket Square 7.850% 10/2003 14,392 2,200,000 -
Antioch Plaza 7.850% 10/2003 5,724 875,000 -
Mundelein Plaza 7.850% 10/2003 18,382 2,810,000 -
Montgomery-Goodyear 7.850% 10/2003 4,121 630,000 -
Montgomery-Sears 7.850% 08/2003 10,761 1,645,000 -
Hartford/Naperville 7.850% 08/2003 15,111 2,310,000 -
Zany Brainy 7.590% 01/2004 7,875 1,245,000 -
Prospect Heights
Plaza 7.590% 01/2004 6,926 1,095,000 -
Hawthorn Village
Commons 7.590% 01/2004 27,071 4,280,000 -
Six Corners Plaza 7.590% 01/2004 19,608 3,100,000 -
Salem Square
Shopping Center 7.590% 01/2004 19,797 3,130,000 -
----------- ------------
Mortgages Payable.................................... $30,838,233 750,727
=========== ============
F-32
<PAGE> 194
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
Note payable to Affiliates consists of the following at December 31, 1996 and
1995:
9.5% promissory note payable to Inland
Real Estate Investment Corporation, paid
in full on January 9, 1996.......................... $ - 360,000
----------- ------------
Note payable to Affiliate............................. $ - 360,000
=========== ============
(a) All payments are interest only, with the exception of the loans secured by
the Walgreens and Regency Point properties.
(b) Payments on this mortgage are based on a floating interest rate of 180
basis points over the 30-day LIBOR rate, which adjusts monthly, amortizing
over 25 years.
As of December 31, 1996, the required future principal payments on the
Partnership's long-term debt over the next five years are as follows:
1997.................................... $ 71,495
1998.................................... 74,454
1999.................................... 84,911
2000.................................... 4,252,170
2001.................................... 16,380
F-33
<PAGE> 195
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(7) Subsequent Events
As of March 24, 1997, subscriptions for a total of 10,628,676 Shares were
received, bringing total gross offering proceeds to $106,137,967.
In January 1997, the Company paid a distribution of $548,947 to the
Stockholders.
On January 9, 1997, the Company purchased the Maple Park Place Shopping Center
from an unaffiliated third party for approximately $15,260,000. The property
is located in Bolingbrook, Illinois and contains 220,095 square feet of
leasable space. Its anchor tenants include Kmart, Eagle Foods and Powerhouse
Gym.
On January 24, 1997, the Company purchased Lincoln Park Place from an
unaffiliated third party for approximately $2,100,000. The property is located
in Chicago, Illinois. It consists of a 10,678 square foot building occupied by
two tenants, Lechters and Nordic Track.
On January 24, 1997, the Company purchased Aurora Commons Shopping Center from
an unaffiliated third party for approximately $11,500,000. The property is
located in Aurora, Illinois and consists of three buildings comprising 127,292
square feet. Its anchor tenants include Jewel/Osco, Boston Market and
Blockbuster.
In January 1997, the Company obtained additional financing secured by the
Lansing Square and Spring Hill Fashion Corner properties totaling $12,840,000
from an unaffiliated lender. The Company paid a 1 1/4% fee in connection with
these mortgage loans. The mortgage loans have a term of seven years and, prior
to maturity date, require payments of interest only, at 7.8%, fixed for the
first five years with the remaining two years at prime plus 1/2%.
On February 7, 1997, the Company made an initial deposit of $1,228,510 for the
purchase of Forest Commons. The balance of the purchase price, approximately
$10,607,000, will be paid upon completion of the redevelopment of the center
and when the anticipated main tenant, Dominick's Finer Foods, Inc., begins
paying rent under a lease agreement.
On February 7, 1997, the Company made an initial deposit of $1,265,630 for the
purchase of Downers Grove Plaza. The balance of the purchase price,
approximately $15,382,000, will be paid upon completion of the redevelopment of
the center and when the anticipated main tenant, Dominick's Finer Foods, Inc.,
begins paying rent under a lease agreement.
F-34
<PAGE> 196
Inland Real Estate Corporation
Pro Forma Balance Sheet
March 31, 1997
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
give effect to the acquisitions of the Niles Shopping Center, Cobblers Mall,
Mallard Mall, Ameritech Outlot, Calumet Square, Sequoia Plaza, Highland Park
Dominicks, Schaumburg Dominicks and River Square as though these transactions
occurred after March 31, 1997. This unaudited Pro Forma Balance Sheet should be
read in conjunction with the March 31, 1997 Financial Statements and the
notes thereto as included herein.
This unaudited Pro Forma Balance Sheet is not necessarily indicative of what
the actual financial position would have been at March 31, 1997, nor does it
purport to represent the future financial position of the Company. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-35
<PAGE> 197
Inland Real Estate Corporation
Pro Forma Balance Sheet
March 31, 1997
(unaudited)
March 31,
March 31, 1997
1997 Pro Forma Pro Forma
Historical(A) Adjustments(B) Balance Sheet
------------- ------------- --------------
Assets
- ------
Net investment in
properties.................. $121,755,366 58,041,900 179,797,266
Cash and cash equivalents..... 22,647,158 - 22,647,158
Restricted cash............... 1,117,333 - 1,117,333
Accounts and rents
receivable.................. 2,666,872 1,551,196 4,218,068
Other assets.................. 3,323,680 - 3,323,680
------------- ------------- -------------
Total assets.................. $151,510,409 59,593,096 211,103,505
============= ============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and accrued
expenses.................... $ 1,318,463 - 1,318,463
Accrued real estate taxes..... 3,134,066 1,650,996 4,785,062
Distributions payable (C)..... 749,856 - 749,856
Security deposits............. 320,966 14,250 335,216
Mortgages payable............. 53,182,067 - 53,182,067
Unearned income............... 375,570 - 375,570
Due to Affiliates............. 247,191 - 247,191
------------- ------------- -------------
Total liabilities............. 59,328,179 1,665,246 60,993,425
------------- ------------- -------------
Common Stock (D).............. 108,280 67,358 175,638
Additional paid in capital
(net of Offering costs) (D). 94,623,475 57,860,492 152,483,967
Accumulated distributions in
excess of net income........ (2,549,525) - (2,549,525)
------------- ------------- -------------
Total Stockholders' equity.... 92,182,230 57,927,850 150,110,080
------------- ------------- -------------
Total liabilities and
Stockholders' equity........ $151,510,409 59,593,096 211,103,505
============= ============= =============
See accompanying notes to pro forma balance sheet.
F-36
<PAGE> 198
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1997
(unaudited)
(A) The March 31, 1997 Historical column represents the historical balance
sheet as presented in the unaudited March 31, 1997 10-Q as filed with the
SEC.
(B) The following pro forma adjustment relates to the acquisition of the
subject properties as though they were acquired on March 31, 1997. The
terms are described in the notes that follow.
Pro Forma Adjustments
--------------------------------------
Niles
Shopping Cobblers Mallard
Center Mall Mall
------------ ------------ ------------
Assets
- ------
Net investment in
properties............ $ 3,280,000 10,953,000 8,099,900
Accounts and rents
receivable............ 154,001 493,734 397,602
------------ ------------ ------------
Total assets............ $ 3,434,001 11,446,734 8,497,502
============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................. $ 154,001 542,971 429,322
Security deposits....... 14,250 - -
------------ ------------ ------------
Total liabilities....... 168,251 542,971 429,322
------------ ------------ ------------
Common Stock............ 3,797 12,679 9,382
Additional paid in capital
(net of Offering
Costs)................ 3,261,953 10,891,084 8,058,798
------------ ------------ ------------
Total Stockholders'
equity................ 3,265,750 10,903,763 8,068,180
------------ ------------ ------------
Total liabilities and
Stockholders' equity.. $ 3,434,001 11,446,734 8,497,502
============ ============ ============
F-37
<PAGE> 199
INLAND REAL ESTATE CORPORATION
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1997
(unaudited)
(B) Continued
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------------------------------------------------------
Highland Total
Ameritech Calumet Sequoia Park Schaumburg River Pro Forma
Outlot Square Plaza Dominicks Dominicks Square Adjustments
----------- ----------- ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
- ------
Net investment in
properties........... 1,050,000 2,108,000 3,010,000 12,800,000 10,691,000 6,050,000 58,041,900
Accounts and rents
receivable........... 6,941 176,750 123,968 - - 198,200 1,551,196
----------- ----------- ------------ ----------- ----------- ------------ -------------
Total assets........... 1,056,941 2,284,750 3,133,968 12,800,000 10,691,000 6,248,200 59,593,096
=========== =========== ============ =========== =========== ============ =============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ 6,941 176,750 132,411 - - 208,600 1,650,996
Security deposits...... - - - - - - 14,250
----------- ----------- ------------ ----------- ----------- ------------ -------------
Total liabilities...... 6,941 176,750 132,411 - - 208,600 1,665,246
----------- ----------- ------------ ----------- ----------- ------------ -------------
Common Stock........... 1,221 2,451 3,490 14,884 12,431 7,023 67,358
Additional paid in capital
(net of Offering
Costs)............... $1,048,779 2,105,549 2,998,067 12,785,116 10,678,569 6,032,577 57,860,492
----------- ----------- ------------ ----------- ----------- ------------ -------------
Total Stockholders'
equity............... 1,050,000 2,108,000 3,001,557 12,800,000 10,691,000 6,039,600 57,927,850
----------- ----------- ------------ ----------- ----------- ------------ -------------
Total liabilities and
Stockholders' equity. 1,056,941 2,284,750 3,133,968 12,800,000 10,691,000 6,248,200 59,593,096
============ ============ ============ =========== =========== ============ =============
</TABLE>
F-38
<PAGE> 200
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1997
(unaudited)
Acquisition of Properties:
On April 11, 1997, the Company acquired Niles Shopping Center, Niles,
Illinois from an unaffiliated third party for the purchase price of
$3,280,000 on an all cash basis, funded from cash and cash equivalents.
On May 6, 1997, the Company acquired Cobblers Mall, Elgin, Illinois from an
unaffiliated third party for the purchase price of $10,953,000 on an all
cash basis, funded from cash and cash equivalents.
On May 6, 1997, the Company acquired Mallard Mall, Elk Grove Village,
Illinois from an unaffiliated third party for the purchase price of
$8,099,900 on an all cash basis, funded from cash and cash equivalents.
On May 9, 1997, the Company acquired Ameritech Outlot, Joliet, Illinois
from an unaffiliated third party for the purchase price of $1,050,000 on an
all cash basis, funded from cash and cash equivalents.
On May 30, 1997, the Company acquired Schaumburg Dominick's, Schaumburg,
Illinois from an unaffiliated third party for the purchase price of
$10,691,000 on an all cash basis, funded from cash and cash equivalents.
On June 2, 1997, the Company acquired Calumet Square, Calumet, Illinois
from an unaffiliated third party for the purchase price of $2,108,000 on an
all cash basis, funded from cash and cash equivalents.
On June 16, 1997, the Company acquired Sequoia Plaza, Milwaukee, Wisconsin
from an unaffiliated third party for the purchase price of $3,010,000 on an
all cash basis, funded from cash and cash equivalents.
On June 16, 1997, the Company acquired Highland Park Dominick's, Highland
Park, Illinois from an unaffiliated third party for the purchase price of
$12,800,000 on an all cash basis, funded from cash and cash equivalents.
On June 19, 1997, the Company acquired River Square, Naperville, Illinois
from an unaffiliated third party for the purchase price of $6,050,000 on an
all cash basis, funded from cash and cash equivalents.
(C) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
(D) Additional Offering Proceeds of $67,358,000, net of additional Offering
costs of $9,430,150 are reflected as received as of March 31, 1997, prior
to the purchase of the properties. Offering costs consist principally of
registration costs, printing and selling costs, including commissions.
F-39
<PAGE> 201
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the three months ended March 31, 1997
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of Maple Park Place Shopping Center,
Aurora Commons Shopping Center, Lincoln Park Place Shopping Center, Niles
Shopping Center, Cobblers Mall, Mallard Mall, Ameritech Outlot, Calumet Square,
Sequoia Plaza, Highland Park Dominicks, Schaumburg Dominicks and River Square
as though they occurred on January 1, 1997. This unaudited Pro Forma Statement
of Operations should be read in conjunction with the March 31, 1997 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, 1997, nor does it purport to represent the future financial
position of the Company. Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Prospectus.
F-40
<PAGE> 202
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the three months ended March 31, 1997
(unaudited)
Pro Forma Adjustments
-----------------------
1997 1997
Historical Acquisitions 1997
(A) (B) Pro Forma
----------- ----------- -----------
Rental income..... $3,603,584 1,541,859 5,145,443
Additional rental
income.......... 1,061,507 543,025 1,604,532
Interest
income(C)....... 156,436 - 156,436
Other income...... 36,244 - 36,244
----------- ----------- ------------
Total income.... 4,857,771 2,084,884 6,942,655
----------- ----------- ------------
Professional services
and general and
administrative
fees............ 85,158 - 85,158
Advisor asset
management fee..(F) 233,337 145,105 378,442
Property operating
expenses........ 1,859,461 605,341 2,464,802
Interest expense.. 1,005,741 26,718 1,032,459
Depreciation (D).. 741,920 389,312 1,131,232
Amortization...... 38,364 - 38,364
Acquisition costs
expensed........ 9,090 - 9,090
----------- ----------- ------------
Total expenses.... 3,973,071 1,166,476 5,139,547
----------- ----------- ------------
Net income...... $ 884,700 918,408 1,803,108
=========== =========== ============
Weighted average
common stock shares
outstanding (E). 9,384,792 16,120,592
=========== ============
Net income per weighted
average common stock
outstanding (E). $ .09 .11
=========== ============
See accompanying notes to pro forma statement of operations.
F-41
<PAGE> 203
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
For the three months ended March 31, 1997
(unaudited)
(A) The 1997 Historical column represents the historical statement of
operations of the Company for the three months ended March 31, 1997
(unaudited), as filed with the SEC on Form 10-Q.
(B) Total pro forma adjustments for the three months ended March 31, 1997 are
as though the 1997 acquisitions of the following properties occurred on
January 1, 1997 on an all cash basis except for Maple Park, Aurora Commons
and Lincoln Park Place. Proforma adjustments for interest expense on these
properties were based on the following terms.
Maple Park Shopping Center
The Company funded the purchase using (i) the proceeds of a short-term loan
maturing April 7, 1997 in the amount of $8 million from Inland Mortgage
Investment Corporation ("IMIC"), an affiliate of the Company (the "Short-
Term Loan"), and (ii) cash and cash equivalents. The Short-Term Loan bears
interest at a rate of 9.0% per annum and requires a loan fee of 1/4%.
Aurora Commons Shopping Center
As part of the acquisition of Aurora Commons Shopping Center, the Company
assumed the existing mortgage loan, maturing December 31, 2001, with the
balance funded with cash and cash equivalents. The loan bears interest at
a rate of 9% per annum with monthly payments of principal and interest on
the first day of each month.
Lincoln Park Place Shopping Center
The Company funded the purchase of Lincoln Park Place Shopping Center using
the proceeds of a short-term loan maturing February 7, 1997 in the amount
of $2,016,110 from Inland Mortgage Investment Corporation ("IMIC"), an
affiliate of the Company (the "Short-Term Loan"). The Company did not pay
any fees in connection with the Short-Term Loan, which bears interest at a
rate of 9% per annum.
F-42
<PAGE> 204
INLAND REAL ESTATE CORPORATION
Notes to Pro Forma Statement of Operations
(continued)
For the three months ended March 31, 1997
(unaudited)
(B) Total pro forma adjustments for 1997 acquisitions are as though they were
acquired January 1, 1997.
<TABLE>
<CAPTION>
Niles
Maple Park Aurora Lincoln Shopping Cobblers Mallard Calumet
Place Commons Park Place Center Mall Mall Square
----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 39,736 82,740 14,159 98,780 255,790 267,028 78,398
Additional rental
income.......... 8,168 26,594 5,714 39,507 142,382 103,809 87,939
----------- ----------- ----------- ----------- ----------- ------------ -----------
Total income...... 47,904 109,334 19,873 138,287 398,172 370,837 166,337
----------- ----------- ----------- ----------- ----------- ------------ -----------
Advisor asset
management fee.. - - - - - - -
Property operating
expenses........ 10,039 30,055 6,352 43,952 153,892 121,290 91,467
Interest expense.. - - - - - - -
Depreciation...... - - - - - - -
----------- ----------- ----------- ----------- ----------- ------------ -----------
Total expenses.... 10,039 30,055 6,352 43,952 153,892 121,290 91,467
----------- ----------- ----------- ----------- ----------- ------------ -----------
Net income (loss). 37,865 79,279 13,521 94,335 244,280 249,547 74,870
=========== =========== =========== =========== =========== =========== ============
<CAPTION>
Total
Highland 1997
Ameritech Schaumburg Sequoia Park River Pro Forma Acquisitions
Outlot Dominicks Plaza Dominicks Square Adjustments Pro Forma
----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 27,576 161,706 99,580 220,994 195,372 - 1,541,859
Additional rental
income.......... 6,068 - 36,786 - 86,058 - 543,025
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total income...... 33,644 161,706 136,366 220,994 281,430 - 2,084,884
----------- ----------- ----------- ----------- ----------- ------------ ------------
Advisor asset
management fee.. - - - - - 145,105 145,105
Property operating
expenses........ 7,309 3,234 42,744 4,420 90,587 - 605,341
Interest expense.. - - - - - 26,718 26,718
Depreciation...... - - - - - 389,312 389,312
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total expenses.... 7,309 3,234 42,744 4,420 90,587 561,135 1,166,476
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net income (loss). 26,335 158,472 93,622 216,574 190,843 (561,135) 918,408
=========== =========== =========== =========== =========== ============ ============
</TABLE>
F-43
<PAGE> 205
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the three months ended March 31, 1997
(unaudited)
(C) No pro forma adjustment has been made relating to interest income which
would have been earned on the additional Offering Proceeds raised.
(D) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years.
(E) The pro forma weighted average common stock shares for the three months
ended March 31, 1997 was calculated by estimating the additional shares
sold to purchase each of the Company's properties on a weighted average
basis.
(F) Advisor Asset Management Fees are calculated as 1% of the Average Invested
Assets (as defined).
F-44
<PAGE> 206
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the year ended December 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, the Zany
Brainy store, Salem Square, Hawthorn Village Commons, Six Corners Plaza, Spring
Hill Fashion Corner, Crestwood Plaza Shopping Center, Park St. Claire, Lansing
Square Shopping Center, Summit of Park Ridge, Maple Park Place Shopping Center,
Aurora Commons Shopping Center, Lincoln Park Place Shopping Center, Niles
Shopping Center, Cobblers Mall, Mallard Mall, Calumet Square, Ameritech Outlot,
Sequoia Plaza, Highland Park Dominicks, Schaumburg Dominicks and River Square
as though they occurred the earlier of January 1, 1996 or the date operations
commenced. Grand and Hunt Club and the Quarry Outlot were constructed in 1996,
and had not commenced significant operations prior to acquisition, therefore,
no operations relating to these properties are presented on the unaudited Pro
Forma Statement of Operations for December 31, 1996. This unaudited Pro Forma
Statement of Operations should be read in conjunction with the December 31,
1996 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, 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-45
<PAGE> 207
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the year ended December 31, 1996
(unaudited)
Pro Forma Adjustments
------------------------
1996 1996 1997
Historical Acquisitions Acquisitions 1996
(A) (B) (C) Pro Forma
----------- ------------ ----------- -----------
Rental income..... $4,467,903 6,127,326 8,636,819 19,232,048
Additional rental
income.......... 1,336,809 3,198,250 2,531,865 7,066,924
Interest
income(E)....... 438,188 - - 438,188
Other income...... 84,834 - - 84,834
----------- ----------- ----------- ------------
Total income.... 6,327,734 9,325,576 11,168,684 26,821,994
----------- ----------- ----------- ------------
Professional services
and general and
administrative
fees............ 183,559 - - 183,559
Advisor asset
management fee..(I) 238,108 708,222 869,040 1,815,370
Property operating
expenses........ 1,873,174 3,656,698 3,107,123 8,636,995
Interest expense.. 597,485 949,958 1,784,433 3,331,876
Depreciation (F).. 939,144 1,448,017 2,232,111 4,619,272
Amortization (H).. 17,367 11,428 6,457 35,252
Acquisition costs
expensed........ 26,676 - - 26,676
----------- ----------- ----------- ------------
Total expenses.... 3,875,513 6,774,323 7,999,164 18,649,000
----------- ----------- ----------- ------------
Net income...... $2,452,221 2,551,253 3,169,520 8,172,994
=========== =========== =========== ============
Weighted average
common stock shares
outstanding (G). 4,494,620 12,110,720
=========== ============
Net income per weighted
average common stock
outstanding (G). $ .55 .67
=========== ============
See accompanying notes to pro forma statement of operations.
F-46
<PAGE> 208
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1996
(unaudited)
(A) The 1996 Historical column represents the historical statement of
operations of the Company for the year ended December 31, 1996, as filed
with the SEC on Form 10-K.
(B) Total pro forma adjustments for the year ended December 31, 1996 are as
though the 1996 acquisitions of the following properties occurred on
January 1, 1996 on an all cash basis except for Regency Point, Hawthorn
Village Commons, Crestwood and Lansing Square. Proforma adjustments for
interest expense on these properties were based on the following terms.
Regency Point
In the purchase of Regency Point 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.
Hawthorn Village Commons
The Company funded the purchase of Hawthorn Village Commons using: (i) the
proceeds of a short-term loan maturing August 23, 1996 in the amount of
$2.9 million from Inland Mortgage Investment Corporation ("IMIC"), an
Affiliate of the Company (the "Short-Term Loan"), and (ii) cash and cash
equivalents. The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of eight percent per annum.
Crestwood Plaza Shopping Center
As part of the December 27, 1996 purchase of Crestwood Plaza, the Company
assumed the existing first mortgage loan of $1,330,253.
F-47
<PAGE> 209
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Lansing Square Shopping Center
The Company funded the purchase using: (i) the proceeds of five long-term
loans totaling $12,850,000 from LaSalle Bank of which approximately
$8,000,000 was used to purchase this property and (ii) cash and cash
equivalents. The Company paid a one point fee in connection with these
long-term loans. The loans have a term of seven years and, prior to the
maturity date, require payments of interest only, at 7.6%, fixed for five
years with the remaining two years at prime plus 1/2%.
Total pro forma adjustments for 1996 acquisitions are as though they were
acquired the earlier of January 1, 1996 or date that operations commenced
(related to Zany Brainy).
Mundelein Regency Prospect Montgomery- Zany
Plaza Point Heights Sears Brainy
----------- ----------- ----------- ----------- -----------
Rental income..... $ 163,381 139,271 89,105 163,700 137,489
Additional rental
income.......... 32,975 16,034 83,593 57,012 24,144
----------- ----------- ----------- ----------- -----------
Total income...... 196,356 155,305 172,698 220,712 161,633
----------- ----------- ----------- ----------- -----------
Property operating
expenses........ 53,986 19,046 91,364 66,944 30,331
----------- ----------- ----------- ----------- -----------
Total expenses.... 53,986 19,046 91,364 66,944 30,331
----------- ----------- ----------- ----------- -----------
Net income........ $ 142,370 136,259 81,334 153,768 131,302
=========== =========== =========== =========== ===========
F-48
<PAGE> 210
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Hawthorn
Salem Village Six Spring
Square Commons Corners Hill Crestwood
----------- ----------- ----------- ----------- -----------
Rental income..... $ 422,146 548,667 790,888 948,906 203,007
Additional rental
income.......... 260,832 270,570 517,804 234,837 69,315
----------- ----------- ----------- ----------- -----------
Total income...... 682,978 819,237 1,308,692 1,183,743 272,322
----------- ----------- ----------- ----------- -----------
Property operating
expenses........ 270,756 293,132 640,772 300,842 78,450
----------- ----------- ----------- ----------- -----------
Total expenses.... 270,756 293,132 640,772 300,842 78,450
----------- ----------- ----------- ----------- -----------
Net income........ $ 412,222 526,105 667,920 882,901 193,872
=========== =========== =========== =========== ===========
Total
1996
Park Lansing Park Pro Forma Acquisitions
St. Claire Square Ridge Adjustments Pro Forma
----------- ----------- ----------- ----------- ------------
Rental income..... $ 178,596 2,001,855 340,315 - 6,127,326
Additional rental
income.......... 62,194 1,332,149 236,791 - 3,198,250
----------- ----------- ----------- ----------- -----------
Total income...... 240,790 3,334,004 577,106 - 9,325,576
----------- ----------- ----------- ----------- -----------
Advisor asset
management fee.. - - - 708,222 708,222
Property operating
expenses........ 103,386 1,507,941 299,748 - 3,656,698
Interest Expense.. - - - 949,958 949,958
Depreciation...... - - - 1,448,017 1,448,017
Amortization...... - - - 11,428 11,428
----------- ----------- ----------- ----------- -----------
Total expenses.... 103,386 1,507,941 299,748 3,117,625 6,774,323
----------- ----------- ----------- ----------- -----------
Net income (loss). $ 137,404 1,826,063 277,358 (3,117,625) 2,551,253
=========== =========== =========== =========== ===========
F-49
<PAGE> 211
INLAND REAL ESTATE CORPORATION
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
(C) Total pro forma adjustments for 1997 acquisitions are as though they were
acquired the earlier of January 1, 1996 or the date operations commenced.
<TABLE>
<CAPTION>
Niles
Maple Park Aurora Lincoln Shopping Cobblers Mallard Calumet
Place Commons Park Place Center Mall Mall Square
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 1,844,314 1,341,448 228,218 375,349 1,014,342 992,972 222,072
Additional rental
income.......... 405,864 534,247 111,997 104,619 376,560 412,024 179,854
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total income...... 2,250,178 1,875,695 340,215 479,968 1,390,902 1,404,996 401,926
----------- ----------- ----------- ----------- ----------- ----------- -----------
Advisor asset
management fee.. 152,621 115,000 21,000 32,800 109,530 80,999 21,080
Property operating
expenses........ 444,390 632,131 130,176 141,974 548,023 420,090 214,748
Interest expense.. 720,000 882,983 181,450 - - - -
Depreciation...... 404,905 334,573 42,260 81,600 273,825 202,498 52,700
Amortization...... 2,857 - 3,600 - - - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses.... 1,724,773 1,964,687 378,486 256,374 931,378 703,587 228,528
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss). 525,405 (88,992) (38,271) 223,594 459,524 701,409 113,398
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
Total
Highland 1997
Ameritech Schaumburg Sequoia Park River Acquisitions
Outlot Dominicks Plaza Dominicks Square Pro Forma
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Rental income..... 106,283 646,825 361,986 883,976 619,034 8,636,819
Additional rental
income.......... 18,265 - 135,404 - 253,031 2,531,865
----------- ----------- ----------- ----------- ----------- -----------
Total income...... 124,548 646,825 497,390 883,976 872,065 11,168,684
----------- ----------- ----------- ----------- ----------- -----------
Advisor asset
management fee.. 10,500 106,910 30,100 128,000 60,500 869,040
Property operating
expenses........ 18,500 12,937 164,126 17,680 362,348 3,107,123
Interest expense.. - - - - - 1,784,433
Depreciation...... 26,250 267,000 75,250 320,000 151,250 2,232,111
Amortization...... - - - - - 6,457
----------- ----------- ----------- ----------- ----------- -----------
Total expenses.... 55,250 386,847 269,476 465,680 574,098 7,999,164
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss). 69,298 259,978 227,914 418,296 297,967 3,169,520
=========== =========== =========== =========== =========== ===========
</TABLE>
F-50
<PAGE> 212
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Maple Park Shopping Center, Bolingbrook, Illinois
The Company funded the purchase using (i) the proceeds of a short-term loan
maturing April 7, 1997 in the amount of $8 million from Inland Mortgage
Investment Corporation ("IMIC"), an affiliate of the Company (the "Short-
Term Loan"), and (ii) cash and cash equivalents. The Short-Term Loan bears
interest at a rate of 9.0% per annum and requires a loan fee of 1/4%.
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Maple Park Place
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $1,844,314 - 1,844,314
Additional rental income......... 405,864 - 405,864
----------- ----------- -----------
Total income..................... 2,250,178 - 2,250,178
----------- ----------- -----------
Advisor asset management fee..... - 152,621 152,621
Property operating expenses...... 444,390 - 444,390
Interest expense................. - 720,000 720,000
Depreciation..................... - 404,905 404,905
Amortization..................... - 2,857 2,857
----------- ----------- -----------
Total expenses................... 444,390 1,280,383 1,724,773
----------- ----------- -----------
Net income (loss)................ $1,807,788 (1,280,383) 525,405
=========== =========== ===========
Acquisition of Aurora Commons Shopping Center, Aurora, Illinois
As part of the acquisition of Aurora Commons Shopping Center, the Company
assumed the existing mortgage loan, maturing December 31, 2001, with the
balance funded with cash and cash equivalents. The loan bears interest at
a rate of 9% per annum with monthly payments of principal and interest on
the first day of each month.
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Aurora Commons
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $1,314,448 - 1,341,448
Additional rental income......... 534,247 - 534,247
----------- ----------- -----------
Total income..................... 1,875,695 - 1,875,695
----------- ----------- -----------
Advisor asset management fee..... - 115,000 115,000
Property operating expenses...... 659,205 (27,074) 632,131
Interest expense................. - 882,983 882,983
Depreciation..................... - 334,573 334,573
----------- ----------- -----------
Total expenses................... 659,205 1,193,482 1,964,687
----------- ----------- -----------
Net income (loss)................ $1,216,490 (1,193,482) (88,992)
=========== =========== ===========
F-51
<PAGE> 213
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Lincoln Park Place Shopping Center, Chicago, Illinois
The Company funded the purchase of Lincoln Park Place Shopping Center using
the proceeds of a short-term loan maturing February 7, 1997 in the amount
of $2,016,110 from Inland Mortgage Investment Corporation ("IMIC"), an
affiliate of the Company (the "Short-Term Loan"). The Company did not pay
any fees in connection with the Short-Term Loan, which bears interest at a
rate of 9% per annum.
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Lincoln Park Place
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 228,218 - 228,218
Additional rental income......... 111,997 - 111,997
----------- ----------- -----------
Total income..................... 340,215 - 340,215
----------- ----------- -----------
Advisor asset management fee..... - 21,000 21,000
Property operating expenses...... 130,176 - 130,176
Interest expense................. - 181,450 181,450
Depreciation..................... - 42,260 42,260
Amortization..................... - 3,600 3,600
----------- ----------- -----------
Total expenses................... 130,176 248,310 378,486
----------- ----------- -----------
Net income (loss)................ $ 210,039 (248,310) (38,271)
=========== =========== ===========
Acquisition of Niles Shopping Center, Niles, Illinois
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Niles Shopping Center
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 375,349 - 375,349
Additional rental income......... 104,619 - 104,619
----------- ----------- -----------
Total income..................... 479,968 - 479,968
----------- ----------- -----------
Advisor asset management fee..... - 32,800 32,800
Property operating expenses...... 141,974 - 141,974
Depreciation..................... - 81,600 81,600
----------- ----------- -----------
Total expenses................... 141,974 114,400 256,374
----------- ----------- -----------
Net income (loss)................ $ 337,995 (114,400) 223,594
=========== =========== ===========
F-52
<PAGE> 214
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Cobblers Mall, Elgin, Illinois
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Cobblers Mall
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $1,014,342 - 1,014,342
Additional rental income......... 376,560 - 376,560
----------- ----------- -----------
Total income..................... 1,390,902 - 1,390,902
----------- ----------- -----------
Advisor asset
management fee................. - 109,530 109,530
Property operating
expenses....................... 548,023 - 548,023
Depreciation..................... - 273,825 273,825
----------- ----------- -----------
Total expenses................... 548,023 383,355 931,378
----------- ----------- -----------
Net income (loss)................ $ 842,879 (383,355) 459,524
=========== =========== ===========
Acquisition of Mallard Mall, Elk Grove Village, Illinois
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Mallard Mall
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 992,972 - 992,972
Additional rental income......... 412,024 - 412,024
----------- ----------- -----------
Total income..................... 1,404,996 - 1,404,996
----------- ----------- -----------
Advisor asset
management fee................. - 80,999 80,999
Property operating
expenses....................... 420,090 - 420,090
Depreciation..................... - 202,498 202,498
----------- ----------- -----------
Total expenses................... 420,090 283,497 703,587
----------- ----------- -----------
Net income (loss)................ $ 984,906 (283,497) 701,409
=========== =========== ===========
F-53
<PAGE> 215
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Calumet Square Shopping Center, Calumet City, Illinois
This pro forma adjustment reflects the purchase of Calumet Square as if the
Company had acquired the property as of January 1, 1996 and is based on
information provided by the Seller.
Calumet Square
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 222,072 - 222,072
Additional rental income.. 179,854 - 179,854
----------- ----------- -----------
Total income.............. 401,926 - 401,926
----------- ----------- -----------
Advisor asset
management fee.......... - 21,080 21,080
Property operating
expenses................ 214,748 - 214,748
Depreciation.............. - 52,700 52,700
----------- ----------- -----------
Total expenses............ 214,748 73,780 288,528
----------- ----------- -----------
Net income (loss)......... $ 187,178 (73,780) 113,398
=========== =========== ===========
Acquisition of Ameritech Outlot, Joliet, Illinois
This pro forma adjustment reflects the purchase of Ameritech as if the
Company had acquired the property as of January 1, 1996 and is based on
information provided by the Seller.
Ameritech Outlot
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 106,283 - 106,283
Additional rental income.. 18,265 - 18,265
----------- ----------- -----------
Total income.............. 124,548 - 124,548
----------- ----------- -----------
Advisor asset
management fee.......... - 10,500 10,500
Property operating
expenses................ 18,500 - 18,500
Depreciation.............. - 26,250 26,250
----------- ----------- -----------
Total expenses............ 18,500 36,750 55,250
----------- ----------- -----------
Net income (loss)......... $ 106,048 (36,750) 69,298
=========== =========== ===========
F-54
<PAGE> 216
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Dominicks, Schaumburg, Illinois
This pro forma adjustment reflects the purchase of Schaumburg Dominicks as
if the Company had acquired the property as of June 1, 1996, the date
operations commenced and is based on information provided by the Seller.
Schaumburg Dominicks
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 646,825 - 646,825
Additional rental income.. - - -
----------- ----------- -----------
Total income.............. 646,825 - 646,825
----------- ----------- -----------
Advisor asset
management fee.......... - 106,910 106,910
Property operating
expenses................ 12,937 - 12,937
Depreciation.............. - 267,000 267,000
----------- ----------- -----------
Total expenses............ 12,937 373,910 386,847
----------- ----------- -----------
Net income (loss)......... $ 633,888 (373,910) 259,978
=========== =========== ===========
Acquisition of Sequoia Plaza, Milwaukee, Wisconsin
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Sequoia Plaza
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $ 361,986 - 361,986
Additional rental income.. 135,404 - 135,404
----------- ----------- -----------
Total income.............. 497,390 - 497,390
----------- ----------- -----------
Advisor asset
management fee.......... - 30,100 30,100
Property operating
expenses................ 164,126 - 164,126
Depreciation.............. - 75,250 75,250
----------- ----------- -----------
Total expenses............ 164,126 105,350 269,476
----------- ----------- -----------
Net income (loss)......... $ 333,264 (105,350) 227,914
=========== =========== ===========
F-55
<PAGE> 217
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Dominicks, Highland Park, Illinois
This pro forma adjustment reflects the purchase of Highland Park Dominicks
as if the Company had acquired the property as of May 1, 1996, the date
operations commenced and is based on information provided by the Seller.
Highland Park Dominicks
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 883,976 - 883,976
Additional rental income.. - - -
----------- ----------- -----------
Total income.............. 883,976 - 883,976
----------- ----------- -----------
Advisor asset
management fee.......... - 128,000 128,000
Property operating
expenses................ 17,680 - 17,680
Depreciation.............. - 320,000 320,000
----------- ----------- -----------
Total expenses............ 17,680 448,000 465,680
----------- ----------- -----------
Net income (loss)......... $ 866,296 (448,000) 418,296
=========== =========== ===========
Acquisition of River Square, Naperville, Illinois
This pro forma adjustment reflects the purchase of Highland Park Dominicks
as if the Company had acquired the property as of May 1, 1996, the date
operations commenced and is based on information provided by the Seller.
River Square
-----------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $ 619,034 - 619,034
Additional rental income.. 253,031 - 253,031
----------- ----------- -----------
Total income.............. 872,065 - 872,065
----------- ----------- -----------
Advisor asset
management fee.......... - 60,500 60,500
Property operating
expenses................ 362,348 - 362,348
Depreciation.............. - 151,250 151,250
----------- ----------- -----------
Total expenses............ 362,348 211,750 574,098
----------- ----------- -----------
Net income (loss)......... $ 509,717 (211,750) 297,967
=========== =========== ===========
F-56
<PAGE> 218
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
(E) No pro forma adjustment has been made relating to interest income which
would have been earned on the additional Offering Proceeds raised.
(F) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years.
(G) The pro forma weighted average common stock shares for the year ended
December 31, 1996 was calculated by estimating the additional shares sold
to purchase each of the Company's properties on a weighted average basis.
(H) Loan fees are amortized over the term of the related loan.
(I) Advisor Asset Management Fees are calculated as 1% of the Average Invested
Assets (as defined).
F-57
<PAGE> 219
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Maple Park Place for the year ended
December 31, 1996. This Historical Summary is the responsibility of the
management of the Inland Real Estate Corporation. 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 Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of Maple Park Place's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Maple Park Place for the year ending December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 8, 1997
F-58
<PAGE> 220
Maple Park Place
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $1,844,314
Operating expense and real estate
tax recoveries................................ 405,223
Other income.................................... 641
-----------
Total Gross Income.............................. 2,250,178
-----------
Direct operating expenses:
Real estate taxes............................... 189,477
Operating expenses.............................. 104,640
Management fees................................. 77,853
Utilities....................................... 49,355
Insurance....................................... 23,065
-----------
Total direct operating expenses................. 444,390
-----------
Excess of gross income over direct
operating expenses.............................. $1,805,788
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-59
<PAGE> 221
Maple Park Place
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Maple Park Place (Maple Park) is located in Bolingbrook, Illinois. It
consists of approximately 220,000 square feet of gross leasable area and
was 100% leased and occupied at December 31, 1996. Inland Real Estate
Corporation has signed a sale and purchase agreement for the purchase of
Maple Park from an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Maple
Park's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Maple Park to
make estimates and assumptions that affect the reported amounts of the
revenues and expenses during the reporting period. Actual results may
differ from those estimates.
3. Gross Income
Maple Park 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 Maple Park is reimbursed for common
area, real estate, and insurance costs. In addition, Maple Park collects
common area and insurance costs from a tenant of the parcel located
adjacent to Maple Park. Operating expenses and real estate tax recoveries
reflected in the Historical Summary include amounts for 1996 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. Related adjustments increased base rental income by $43,819
for the year ended December 31, 1996.
F-60
<PAGE> 222
Maple Park Place
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1996 are as follows:
Year Amount
---- ------
1997 $ 1,773,056
1998 1,741,306
1999 1,682,846
2000 1,500,349
2001 1,434,626
Thereafter 20,758,807
-----------
$28,890,990
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Maple Park. Costs such as
mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summary.
Maple Park has not received its final real estate tax bill for 1996. Real
estate tax expense is estimated based upon bills for 1995. The difference
between this estimate and the final bill is not expected to have a material
impact on the Historical Summary.
Maple Park is managed pursuant to the terms of a management agreement for
an annual fee of 3.75% of rental income (as defined), less a deduction of
$10,000 for unleased space during the year, plus a fixed amount of $20,000
for the salary of the property manager. Subsequent to the sale of Maple
Park (note 1), the current management agreement will cease. Any new
management agreement may cause future management fees to differ from the
amounts reflected in the Historical Summary.
F-61
<PAGE> 223
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Niles Shopping Center for the year
ended December 31, 1996. This Historical Summary is the responsibility of the
management of Inland Real Estate Corporation. 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 Real Estate
Corporation, as described in note 2. The presentation is not intended to be a
complete presentation of Niles 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 of Niles Shopping Center for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 13, 1997
F-62
<PAGE> 224
Niles Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $ 375,349
Operating expense and real estate
tax recoveries................................ 104,619
----------
Total Gross Income.............................. 479,968
----------
Direct operating expenses:
Real estate taxes............................... 121,981
Operating expenses.............................. 11,932
Insurance....................................... 6,808
Utilities....................................... 1,253
----------
Total direct operating expenses................. 141,974
----------
Excess of gross income over direct
operating expenses.............................. $ 337,995
==========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-63
<PAGE> 225
Niles Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Niles Shopping Center (Niles Center) is located in Niles, Illinois. It
consists of approximately 26,092 square feet of gross leasable area and was
100% occupied at December 31, 1996. Inland Real Estate Corporation has
signed a sale and purchase agreement for the purchase of Niles Center from
an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Niles
Center's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Niles Center
to make estimates and assumptions that affect the reported amounts of the
revenues and expenses during the reporting period. Actual results may
differ from those estimates.
3. Gross Income
Niles Center leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Niles Center is reimbursed for certain
common area, real estate, and insurance costs. 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 lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $28,244 for the
year ended December 31, 1996.
F-64
<PAGE> 226
Niles Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1996 are approximately as follows:
Year Amount
---- ------
1997 $ 387,032
1998 368,175
1999 352,750
2000 318,930
2001 279,197
Thereafter 199,925
-----------
$ 1,906,009
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Niles Center. Costs such
as mortgage interest, depreciation, amortization, management fees and
professional fees are excluded from the Historical Summary.
Niles Center has not received its final real estate tax bill for 1996.
Real estate tax expense is estimated based upon the 1995 bill. The
difference between this estimate and the final bill is not expected to
have a material impact on the Historical Summary.
F-65
<PAGE> 227
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Cobblers Mall for the year ended
December 31, 1996. This Historical Summary is the responsibility of the
management of Inland Real Estate Corporation. 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 Real Estate
Corporation as described in note 2. The presentation is not intended to be a
complete presentation of Cobblers Mall's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Cobblers Mall for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 25, 1997
F-66
<PAGE> 228
Cobblers Mall
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $1,014,342
Operating expense and real estate
tax recoveries................................ 376,560
----------
Total gross income.............................. 1,390,902
----------
Direct operating expenses:
Real estate taxes............................... 430,076
Operating expenses.............................. 80,537
Utilities....................................... 32,225
Insurance....................................... 5,185
----------
Total direct operating expenses................. 548,023
----------
Excess of gross income over direct
operating expenses.............................. $ 842,879
==========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-67
<PAGE> 229
Cobblers Mall
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Cobblers Mall (Cobblers) is located in Elgin, Illinois. It consists of
approximately 103,000 square feet of gross leasable area and was
approximately 91% leased and occupied at December 31, 1996. Inland Real
Estate Corporation has signed a sale and purchase agreement for the
purchase of Cobblers from an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Cobbler's
revenues and expenses. The Historical Summary has been prepared on the
accrual basis of accounting and requires management of Cobblers to make
estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from
those estimates.
3. Gross Income
Cobblers leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Cobblers is reimbursed for common area, real
estate, and insurance costs. Operating expenses and real estate tax
recoveries reflected in the Historical Summary include amounts for 1996
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 lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $6,385 for the
year ended December 31, 1996.
F-68
<PAGE> 230
Cobblers Mall
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1996, are as follows:
Year Amount
---- ------
1997 $ 1,002,043
1998 989,849
1999 930,840
2000 861,813
2001 817,835
Thereafter 7,893,319
-----------
$12,495,699
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Cobblers. Costs such as
mortgage interest, depreciation, amortization, management fees, and
professional fees are excluded from the Historical Summary.
Cobblers has not received its final real estate tax bill for 1996. Real
estate tax expense is estimated based upon the 1995 bill. The difference
between this estimate and the final bill is not expected to have a
material impact on the Historical Summary.
F-69
<PAGE> 231
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Mallard Mall for the year ended
December 31, 1996. This Historical Summary is the responsibility of the
management of Inland Real Estate Corporation. 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 Real Estate
Corporation as described in note 2. The presentation is not intended to be a
complete presentation of Mallard Mall's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Mallard Mall for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 25, 1997
F-70
<PAGE> 232
Mallard Mall
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $ 992,972
Operating expense and real estate
tax recoveries................................ 412,024
----------
Total gross income.............................. 1,404,996
----------
Direct operating expenses:
Real estate taxes............................... 340,057
Operating expenses.............................. 63,829
Utilities....................................... 11,804
Insurance....................................... 4,400
----------
Total direct operating expenses................. 420,090
----------
Excess of gross income over direct
operating expenses.............................. $ 984,906
==========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-71
<PAGE> 233
Mallard Mall
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Mallard Mall (Mallard) is located in Elk Grove Village, Illinois. It
consists of approximately 83,000 square feet of gross leasable area and was
approximately 92% leased and occupied at December 31, 1996. Inland Real
Estate Corporation has signed a sale and purchase agreement for the
purchase of Mallard from an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Mallard's
revenues and expenses. The Historical Summary has been prepared on the
accrual basis of accounting and requires management of Mallard to make
estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from
those estimates.
3. Gross Income
Mallard leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Mallard is reimbursed for common area, real
estate, and insurance costs. Operating expenses and real estate tax
recoveries reflected in the Historical Summary include amounts for 1996
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 lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $4,632 for the
year ended December 31, 1996.
F-72
<PAGE> 234
Mallard Mall
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1996, are as follows:
Year Amount
---- ------
1997 $ 1,067,063
1998 1,002,188
1999 960,074
2000 933,976
2001 934,328
Thereafter 8,459,805
------------
$13,357,434
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Mallard. Costs such as
mortgage interest, depreciation, amortization, management fees, and
professional fees are excluded from the Historical Summary.
Mallard has not received its final real estate tax bill for 1996. Real
estate tax expense is estimated based upon the 1995 bill. The difference
between this estimate and the final bill is not expected to have a
material impact on the Historical Summary.
F-73
<PAGE> 235
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Sequoia Shopping Center for the year
ended December 31, 1996. This Historical Summary is the responsibility of the
management of Inland Real Estate Corporation. 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 Real Estate
Corporation as described in note 2. The presentation is not intended to be a
complete presentation of Sequoia 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 of Sequoia Shopping Center for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 10, 1997
F-74
<PAGE> 236
Sequoia Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $ 361,986
Operating expense and real estate
tax recoveries................................ 135,404
-----------
Total gross income.............................. 497,390
-----------
Direct operating expenses:
Real estate taxes............................... 104,880
Operating expenses.............................. 32,526
Management fees................................. 16,094
Utilities....................................... 5,252
Insurance....................................... 5,374
-----------
Total direct operating expenses................. 164,126
-----------
Excess of gross income over direct
operating expenses.............................. $ 333,264
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-75
<PAGE> 237
Sequoia Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Sequoia Shopping Center (Sequoia) is located in Milwaukee, Wisconsin. It
consists of approximately 35,000 square feet of gross leasable area and was
approximately 93% leased and occupied at December 31, 1996. Inland Real
Estate Corporation has signed a sale and purchase agreement for the
purchase of Sequoia from an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Sequoia's
revenues and expenses. The Historical Summary has been prepared on the
accrual basis of accounting and requires management of Sequoia to make
estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from
those estimates.
3. Gross Income
Sequoia leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Sequoia is reimbursed for common area, real
estate, and insurance costs. Operating expenses and real estate tax
recoveries reflected in the Historical Summary include amounts for 1996
expenses for which the tenants have not yet been billed.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $15,079 for the
year ended December 31, 1996.
F-76
<PAGE> 238
Sequoia Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1996, are approximately as follows:
Year Amount
---- ------
1997 $ 342,684
1998 332,688
1999 264,909
2000 252,985
2001 110,684
Thereafter 147,092
------------
$ 1,451,042
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Sequoia. Costs such as
mortgage interest, depreciation, amortization and professional fees are
excluded from the Historical Summary.
Sequoia Center has not received its final real estate tax bill for 1996.
Real estate tax expense is estimated based upon bills for 1995. The
difference between this estimate and the final bill is not expected to
have a material impact on the Historical Summary.
Sequoia is managed pursuant to the terms of a verbal management agreement
for an annual fee of 4% of gross revenues (as defined). Subsequent to the
sale of Sequoia (note 1), the current management agreement will cease. Any
new management agreement may cause future management fees to differ from
the amounts reflected in the Historical Summary.
F-77
<PAGE> 239
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of River Square Shopping Center for the
year ended December 31, 1996. This Historical Summary is the responsibility of
the management of Inland Real Estate Corporation. 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 Real Estate
Corporation as described in note 2. The presentation is not intended to be a
complete presentation of River Square 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 of River Square Shopping Center for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 11, 1997
F-78
<PAGE> 240
River Square Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $ 619,034
Operating expense and real estate
tax recoveries................................ 253,031
-----------
Total gross income.............................. 872,065
-----------
Direct operating expenses:
Real estate taxes............................... 166,906
Operating expenses.............................. 112,459
Utilities....................................... 51,035
Management fees................................. 31,948
-----------
Total direct operating expenses................. 362,348
-----------
Excess of gross income over direct
operating expenses.............................. $ 509,717
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-79
<PAGE> 241
River Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
River Square Shopping Center (River Square) is located in Naperville,
Illinois. It consists of approximately 59,000 square feet of gross
leasable area and was approximately 95% leased and occupied at December 31,
1996. Inland Real Estate Corporation has signed a sale and purchase
agreement for the purchase of River Square from an unaffiliated third party
(Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of River
Square's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of River Square
to make estimates and assumptions that affect the reported amounts of the
revenues and expenses during the reporting period. Actual results may
differ from those estimates.
3. Gross Income
River Square leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which River Square is reimbursed for common area
and real estate tax costs. Operating expenses and real estate tax
recoveries reflected in the Historical Summary include amounts for 1996
expenses for which the tenants have not yet been billed.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $54,318 for the
year ended December 31, 1996.
F-80
<PAGE> 242
River Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1996, are as follows:
Year Amount
---- ------
1997 $ 710,195
1998 741,175
1999 623,650
2000 368,690
2001 261,982
Thereafter 877,731
------------
$ 3,583,423
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of River Square. Costs such
as mortgage interest, depreciation, amortization and professional fees are
excluded from the Historical Summary.
River Square has not received its final real estate tax bill for 1996.
Real estate tax expense is estimated based upon bills for 1995. The
difference between this estimate and the final bill is not expected to
have a material impact on the Historical Summary.
River Square is managed pursuant to the terms of a management agreement for
an annual fee of 3% of gross revenues (as defined). Subsequent to the sale
of River Square (note 1), the current management agreement will cease. Any
new management agreement may cause future management fees to differ from
the amounts reflected in the Historical Summary.
F-81
<PAGE> 243
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 return comparable to those experienced in the
programs referred to in these tables. Persons who purchase Shares in the
Company will not thereby acquire any ownership in any of the partnerships to
which these tables relate. The tables consist of:
<TABLE>
<S> <C>
Table I Experience in Raising and Investing Funds
Table II Compensation to IREIC and Affiliates
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs*
</TABLE>
* Prospective investors in the Company may obtain copies of Table VI by
contacting the Advisor.
Except with respect to Inland Land Appreciation Fund, L.P., Inland Land
Appreciation Fund II, L.P., and Inland Capital Fund, L.P. the partnerships
presented in the tables are public real estate limited partnership 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> 244
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,
1996. 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. All public partnership offerings
closed prior to the three years ended December 31, 1996.
A-2
<PAGE> 245
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
Table II summarizes the amount and type of compensation paid to IREIC
during the three years ended December 31, 1996 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-3
<PAGE> 246
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Public
Programs
----------
7 Programs
----------
<S> <C>
Date offering commenced ...................................................... -
Dollar amount raised ......................................................... $181,706
========
Amounts paid or payable to general partner or affiliates from proceeds
of offerings:
Selling commissions and underwriting fees (B) ......................... $ 6,058
Other offering expenses (C) ........................................... 2,474
Acquisition cost and expense (D) ...................................... 11,035
========
Dollar amount of cash available (deficiency) from operations before
deducting (adding) payments to (from) general partner or
affiliates (E) ............................................................ $ 15,399
========
Amounts paid to (received from) general partner or affiliates related
to operations:
Property management fees (F) .......................................... $ 1,013
Partnership subsidies received (G) .................................... (280)
Accounting services ................................................... 312
Data processing service ............................................... 220
Legal services ........................................................ 192
Other administrative services ......................................... 825
Property upgrades ..................................................... 464
Property operating expenses ........................................... 3
Dollar amount of property sales and refinancings before payments to general
partner and affiliates (H):
Cash .................................................................. $ 16,735
Equity in notes and undistributed sales proceeds ...................... 8,858
Dollar amounts paid or payable to general partner or affiliates from sales and
refinancings (I):
Sales commissions ..................................................... $ 467
Property upgrade ...................................................... 77
Mortgage brokerage fee ................................................ 0
Participation in cash distributions ................................... 0
</TABLE>
A-4
<PAGE> 247
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, 1996 and the figures relating to
cash available from operations are for the three years ending December
31, 1996. The dollar amount raised represents the cash proceeds collected
by the partnerships. Amounts paid or payable to IREIC or affiliates from
proceeds of the offerings represent payments made or to be made to IREIC
and affiliates from investor capital contributions.
(B) The total amount of selling commissions paid to an affiliate of the
general partner include $2,711,791, which was in turn paid to third party
soliciting dealers.
(C) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used
as incentive compensation to its regional marketing representatives and
amounts for reimbursement of the general partner 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>
Public
Programs
----------
7 Programs
----------
<S> <C>
Acquisition fees .................................................... $10,922
Reimbursement (at cost) for upgrades and acquisition due diligence .. 113
Partnership down payments ........................................... 44,585
Inland down payments ................................................ (44,585)
--------
Acquisition cost and expense ........................................ $11,035
========
</TABLE>
(E) See Note (F) to Table III.
(F) An Affiliate of the Advisor provides property management services for all
properties acquired by the partnerships. Management fees have not
exceeded 6% of the gross receipts from the properties managed. With
respect to Inland Capital Fund, L.P., Inland Land Appreciation Fund II,
L.P. and Inland Land Appreciation Fund, L.P., IREIC receives an annual
asset management fee equal to one-quarter of 1% of the original cost to
the partnership of undeveloped land, limited to a cumulative total over
the life of the partnership of 2% of the land's original cost to the
partnership.
A-5
<PAGE> 248
TABLE II--(CONTINUED)
COMPENSATION TO IREIC AND AFFILIATES
(000'S OMITTED)
NOTES TO TABLE II
(G) The amounts shown in the table represents 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-6
<PAGE> 249
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for limited partnership the
offerings of which closed during each of the five years ended prior to December
31, 1996. The operating results consist of:
<TABLE>
<S> <C>
- -- The components of taxable income (loss);
- -- Taxable income or loss from operations and property sales;
- -- Cash available and source, before and after cash distributions to investors; and
- -- Tax and distribution data per $1,000 invested.
</TABLE>
A-7
<PAGE> 250
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.
----------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross revenues ............................ $411 457 744 564 104 0
Profit on sale of properties .............. 0 229 0 0 0 0
Less:
Operating expenses ...................... 145 146 64 4 1 0
Interest expense ........................ 0 0 0 0 0 0
Partnership expenses .................... 170 167 175 86 1 0
Depreciation and amortization ........... 2 5 4 3 3 1
Net income (loss)-GAAP basis .............. $ 94 368 501 471 99 (1)
==== ==== ==== ==== ==== ===
Taxable income (loss) (A):
Allocated to investors from operations .. 93 137 495 466 100 (1)
Allocated to general partner from
operations ........................... 1 1 5 5 1 0
---- ---- ---- ---- ---- ----
Total from operations ..................... 94 138 500 471 101 (1)
From gain on sale:
Capital (allocated to investors) ........ 0 231 0 0 0 0
Capital (allocated to general partner) .. 0 0 0 0 0 0
Ordinary (recapture) .................... 0 0 0 0 0 0
---- ---- ---- ---- ---- ---
$ 94 369 500 471 101 (1)
==== ==== ==== ==== ==== ===
Cash available (deficiency) from
operations (F) .......................... 130 172 633 397 94 0
Cash available from sales (B) ............. 0 646 0 0 0 0
Cash (deficiency) from refinancings ....... 0 0 0 0 0 0
---- ---- ---- ---- ---- ---
Total cash available before distributions
and special items ....................... 130 818 633 397 94 0
Less distributions to investors:
From operations ......................... 0 0 0 0 0 0
From sales and refinancings ............. 0 646 0 0 0 0
From return of capital .................. 0 0 0 0 0 0
From supplemental capital contribution
(return on capital) .................. 0 0 0 0 0 0
</TABLE>
A-8
<PAGE> 251
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.
-------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Less distributions to general partner:
From operations ..................... 0 0 0 0 0 0
From sales and refinancings ......... 0 0 0 0 0 0
------ --- --- --- ---- ---
Cash available after distributions
before special items ................ 130 172 633 397 94 0
Special items:
Fixed asset additions (C) ........... 0 0 0 0 0 0
Advances (repayments) from (to)
general partner or affiliates .... (20) 23 2 1 (85) 85
Repurchase of units (G) ............. (20) 0 (2) 0 0 0
Use of partnership reserves ......... 0 0 2 0 0 0
Use of cash available for offering
purposes ......................... 0 0 0 0 0 0
------ --- --- --- ---- ---
Cash available after distributions
and special items ................... $ 90 195 635 398 9 85
====== === === === ==== ===
Tax and distribution data per $1,000
invested (D):
Federal income tax results:
Ordinary income (loss):
From operations .................. 3 4 15 14 3 0
From recapture ................... 0 0 0 0 0 0
Capital gain ..................... 0 7 0 0 0 0
Cash distributions to investors:
Source (on GAAP basis):
Investment income ................ 0 0 0 0 0 0
Return of capital ................ 0 20 0 0 0 0
Supplemental capital contributions
(return on capital) ............. 0 0 0 0 0 0
Source (on cash basis):
Sales ............................ 0 20 0 0 0 0
Refinancings ..................... 0 0 0 0 0 0
Operations ....................... 0 0 0 0 0 0
Return of capital ................ 0 0 0 0 0 0
Supplemental capital contributions
(return on capital) ............. 0 0 0 0 0 0
Percent of properties remaining
unsold (E) .......................... 98.43%
======
</TABLE>
A-9
<PAGE> 252
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(A) "Taxable income (loss)" represents the aggregate amounts shown on
the partnership's tax returns for such years. One of the principal
differences between the tax basis of reporting and generally accepted
accounting principles (GAAP) is that depreciation is based upon the
rates established by the Accelerated Cost Recovery System (ACRS) for
property placed in service after January 1, 1981. Use of ACRS usually
results in a higher charge against operations than would be the result
if the depreciation rate was based upon the economic useful life as
required by GAAP. Further, under GAAP, to the extent that interest
rates on notes received in connection with the sale of a property are
deemed to be below market interest rates at the date of sale, such
notes would be required to be discounted based upon market interest
rates.
(B) 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) Percent of properties remaining unsold represents original total
acquisition costs of properties retained divided by original total
acquisition cost of all properties in the program, plus the total of
uninvested offering proceeds (if any). (F) "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>
Inland Capital Fund, L.P.
----------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<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 ................. $110 195 635 398 9 85
Payments to (from) general partner
and affiliates ........................ 20 (23) (2) (1) 85 (85)
Principal payments on long-term debt. 0 0 0 0 0 0
Payments for deferred loan fees ......... 0 0 0 0 0 0
---- ---- ---- ---- ---- ----
$130 172 633 397 94 0
==== ==== ==== ==== ==== ====
</TABLE>
A-10
<PAGE> 253
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(G) 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.
A-11
<PAGE> 254
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, 1996 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 during the five years ended
prior to December 31, 1996.
A-12
<PAGE> 255
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, 1996. Since 1994, partnerships sponsored by Affiliates of the Advisor have
sold 11 properties in whole or in part. The table provides certain information
to evaluate property performance over the holding period such as:
- -- Sales proceeds received by the partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
- -- Cash invested in properties;
- -- Cash flow (deficiency) generated by the property;
- -- Taxable gain (ordinary and total); and
- -- Terms of notes received at sale.
A-13
<PAGE> 256
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Date Date of
Acquired Sale
-------- --------
<S> <C> <C>
Land II 10 Acres of Parcel #22 ........................... 10/30/92 01/06/94
Land II .258 Acres of Parcel #6 .......................... 04/16/91 10/01/94
Land II 11 Acres of Parcel #15 ........................... 09/04/91 12/01/94
Growth Fund I-Country Club, 31 Units ..................... 12/30/85 Var 94
Land I 35.88 Acres of Parcel #23 ......................... 05/08/90 Var 94
Monthly Income Fund I-
Schaumburg Terrace, 22 Buildings ................ 06/24/88 Var 94
Land I 3.44 Acres of Parcel #23 .......................... 05/08/90 Var 95
Monthly Income Fund I-
Schaumburg Terrace, 16 Buildings ................ 06/24/88 Var 95
Land II 60 Acres of Parcel #23 ........................... 10/30/92 Var 95
Land II Parcel #25 ....................................... 01/28/93 10/31/95
Capital Fund Parcel #10A ................................. 09/16/94 04/21/95
Capital Fund 17.742 Acres of Parcel #2 ................... 11/09/93 08/02/95
Land I 27.575 Acres of Parcel #4 ......................... 04/18/89 08/25/95
Land II 5.538 Acres of Parcel #22 ........................ 10/30/92 01/05/96
Land I 4.629 Acres of Parcel #24 ......................... 05/23/90 04/01/96
Land II .87 Acres of Parcel #8 ........................... 06/14/91 04/03/96
Land I 3.52 Acres of Parcel #1 ........................... 01/19/89 12/24/96
Land I 10.53 Acres of Parcel #15 ......................... 01/03/90 Var 96
Land II 8.25 Acres of Parcel #23 ......................... 10/30/92 Var 96
<CAPTION>
Selling Price, net of closing costs
---------------------------------------------------------
Cash Selling
Received, Commissions Secured
---------------------------------------------------------
net of paid or Mortgage Notes Net
Closing payable to at Time Received Selling
Costs(B) Inland of Sale at Sale(C) Price
--------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Land II 10 Acres of Parcel #22 ........................... 166 0 0 0 166
Land II .258 Acres of Parcel #6 .......................... 10 0 0 0 10
Land II 11 Acres of Parcel #15 ........................... 274 0 0 0 274
Growth Fund I-Country Club, 31 Units ..................... 2,432 0 0 0 2,432
Land I 35.88 Acres of Parcel #23 ......................... 1,149 0 0 156 1,305
Monthly Income Fund I-
Schaumburg Terrace, 22 Buildings ................ 701 0 0 4,912 (F) 5,613
Land I 3.44 Acres of Parcel #23 .......................... 139 0 0 0 139
Monthly Income Fund I-
Schaumburg Terrace, 16 Buildings ................ 409 0 0 3,790 (F) 4,199
Land II 60 Acres of Parcel #23 ........................... 4,196 0 0 0 4,196
Land II Parcel #25 ....................................... 3,292 0 0 0 3,292
Capital Fund Parcel #10A ................................. 286 0 0 0 286
Capital Fund 17.742 Acres of Parcel #2 ................... 361 0 0 0 361
Land I 27.575 Acres of Parcel #4 ......................... 542 0 9 0 542
Land II 5.538 Acres of Parcel #22 ........................ 154 0 0 0 154
Land I 4.629 Acres of Parcel #24 ......................... 53 0 0 0 53
Land II .87 Acres of Parcel #8 ........................... 10 0 0 0 10
Land I 3.52 Acres of Parcel #1 ........................... 501 0 0 0 501
Land I 10.53 Acres of Parcel #15 ......................... 533 0 0 0 533
Land II 8.25 Acres of Parcel #23 ......................... 1,527 0 0 0 1,527
<CAPTION>
Selling Price, net of closing costs
------------------------------------
Cost of Properties including closing
costs and other cash expenditures
----------------------------------------
Original Partnership
Mortgage Capital
Financing Invested(D) Total
------------ ------------ ------------
<S> <C> <C> <C>
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
Land II 5.538 Acres of Parcel #22 ........................ 0 60 60
Land I 4.629 Acres of Parcel #24 ......................... 0 23 23
Land II .87 Acres of Parcel #8 ........................... 0 10 10
Land I 3.52 Acres of Parcel #1 ........................... 0 281 281
Land I 10.53 Acres of Parcel #15 ......................... 0 265 265
Land II 8.25 Acres of Parcel #23 ......................... 0 1,104 1,104
</TABLE>
A-14
<PAGE> 257
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Excess
(deficiency)
of property
operating Amount of
cash subsidies Total
receipts included in Taxable Ordinary
over cash operating Gain Income Capital
expenditures(E) cash receipts from Sale from Sale Gain
--------------- ------------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
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 Acres of Parcel #4 ... 14 0 311 0 311
Land II 5.538 Acres of Parcel #22 .. 0 0 94 0 94
Land I 4.629 Acres of Parcel #24 ... 0 0 30 0 30
Land II .87 Acres of Parcel #8 ..... 0 0 0 0 0
Land I 3.52 Acres of Parcel #1 ..... 0 0 220 0 220
Land I 10.53 Acres of Parcel #15 ... 0 0 268 0 268
Land II 8.25 Acres of Parcel #23 ... 0 0 423 0 423
</TABLE>
A-15
<PAGE> 258
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, 1996. 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 applicable "Fixed Asset
Additions" through the year of sale.
(F) 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-16
<PAGE> 259
INLAND REAL ESTATE CORPORATION
DISTRIBUTION REINVESTMENT PROGRAM
Inland Real Estate Corporation, a Maryland corporation (the "Company"),
pursuant to its Second Articles of Amendment and Restatement, as amended (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.
i. As agent for the Stockholders who purchased Shares
pursuant to the Company's prior public offerings, the first of
which commenced October 14, 1994 and was completed on July 22,
1996 and the second of which commenced on July 24, 1996 (the
"Prior Offerings") and the current offering of Shares by the
Company pursuant to the prospectus dated July ___, 1997 (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.
ii. Procedure for Participation. Any Stockholder who
purchased Shares pursuant to the Company's Prior Offerings 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.
iii. Purchase of Shares. Participants will acquire Shares
from the Company at a fixed price of $9.50 per Share until the
termination of the Offering. Participants in the DRP may also
purchase fractional Shares so that 100% of the Distributions
will be used to acquire Shares. However, a Participant will
not be able to acquire Shares under the DRP to the extent such
purchase would cause it to exceed the Ownership Limit.
B-1
<PAGE> 260
It is possible that a secondary market will develop for the Shares, and
that the Shares may be bought and sold on the secondary market at prices lower
or higher than the $9.50 per Share price which will be paid under the DRP.
The Company shall endeavor to acquire Shares on behalf of Participants at
the lowest price then available. However, the Company does not guarantee or
warrant that the Participant will be acquiring Shares at the lowest possible
price.
If the Company's Shares are listed on a national stock exchange or
included for quotation on a national market system, Shares purchased by the
Company for the DRP will be purchased on such exchange or market, at the
prevailing market price, and will be sold to Stockholders at such price. The
reservation of any Shares from this Offering remaining for issuance under the
DRP will be canceled. 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 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.
iv. Share Certificates. Within 90 days after the end of the
Company's fiscal year, the Company will issue certificates
evidencing ownership of Shares purchased through the DRP during
the prior fiscal year. The ownership of the Shares will be in
book-entry form prior to the issuance of such certificates.
v. Reports. Within 90 days after the end of the Company's
fiscal year, the Company will provide each Participant with an
individualized report on his or her investment, including the
purchase date(s), purchase price and number of Shares owned, as
well as the dates of distribution and amounts of Distributions
received during the prior fiscal year. The individualized
statement to Stockholders will include receipts and purchases
relating to each Participant's participation in the DRP
including the tax consequences relative thereto.
vi. Termination by Participant. A Participant may terminate
participation in the DRP at any time, without penalty, by
delivering to the Company a written notice. Prior to listing
of the Shares on a national stock exchange or inclusion of the
Shares for quotation on a national market system, any transfer
of Shares by a Participant to a non-Participant will terminate
participation in the DRP with respect to the transferred
Shares. If a Participant terminates DRP participation, the
Company will provide the terminating Participant with a
certificate evidencing the whole shares in his or her account
and a check for the cash value of any fractional share in such
account. Upon termination of DRP participation, Distributions
will be distributed to the Stockholder in cash.
vii. Amendment or Termination of DRP by the Company. The
Directors of the Company may by majority vote (including a
majority of the Independent Directors) amend or terminate the
DRP for any reason upon 30 days' written notice to the
Participants.
B-2
<PAGE> 261
viii. Liability of the Company. The Company shall not be
liable for any act done in good faith, or for any good faith
omission to act, including, without limitation, any claims or
liability: (a) arising out of failure to terminate a
Participant's account upon such Participant's death prior to
receipt of notice in writing of such death; and (b) with
respect to the time and the prices at which Shares are
purchased or sold for a Participant's account. To the extent
that indemnification may apply to liabilities arising under the
Act or the securities 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.
ix. Governing Law. This DRP shall be governed by the laws
of the State of Maryland.
B-3
<PAGE> 262
EXHIBIT I
INLAND REAL ESTATE CORPORATION
SUBSCRIPTION AGREEMENT
I-1
<PAGE> 263
[INLAND LOGO]
PLEASE MAIL THE YELLOW COPY, THE WHITE 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
A the dollars and cents amount of the purchase. Minimum
purchase 300 Shares ($3,000). Qualified Plans 100
Shares ($1,000). (Iowa requires 300 Shares ($3,000) for IRA
accounts; Minnesota requires 200 Shares ($2,000) for IRA and
qualified accounts).
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
INFORMATION be held. For co-owners enter the names of all owners. For
B investments by qualified plans, include the exact name of the
plan. For investments by qualified plans, enter the
name of the custodian or trustee on the first line and FBO
the name of the investor on the second line. If this is an
additional purchase by a qualified plan, please use the same
exact plan name as previously used.
Item 4--Enter mailing address, state of residence and
telephone number of owner. For qualified investments
please enter mailing address of custodian or trustee,
Item 5--Enter birth date(s) or date of incorporation.
Item 6--Check the appropriate box. If the owner is a non-
resident alien, he must apply to the United States Internal
Revenue Service for an identification number via Form SS-4
for an individual or SS-5 for a corporation, and supply the
number to the Company as soon as it is available.
Item 7-- Check this box if the owner is an employee of
Inland or an individual who has been continuously
affiliated with Inland as an independent contractor.
Item 8--Enter the Social Security number or Taxpayer I.D.
number. The owner is certifying that this number is correct.
For qualified investments please enter both the investor's
social security number (for identification purposes) and
the custodian or trustee's Taxpayer I.D. number (for tax
purposes).
- --------------------------------------------------------------------------------
C Item 9--The residence address if different. For
qualified investments, please enter the residence address of
the investor.
- --------------------------------------------------------------------------------
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
E be executed by the owner(s), and if applicable, the trustee
or custodian.
- --------------------------------------------------------------------------------
ALTERNATE ADDRESS Item 12--If owners desire direct deposit of
FOR DISTRIBUTIONS his/her/their cash distributions to an account or address
(Optional) other than as set forth in the Subscription
F Agreement/Signature Page, please complete. Please make sure
account has been opened and account number is provided, as
well as informing recipient that distribution will be
forthcoming and is an asset transfer.
- --------------------------------------------------------------------------------
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 Yellow and White
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.
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.
01-97-316
<PAGE> 264
[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.
<TABLE>
<S><C>
(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
A 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; Minnesota requires 200 Shares for IRA and qualified plan 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.
____________________________________________________________________________________________________________________________________
(3) REGISTERED OWNER
__ [ ] Mr. [ ] Mrs. [ ] Ms. _______________________________________________________ _______-________- ________
(AREA CODE) HOME TELEPHONE
CO-OWNER
__ [ ] Mr. [ ] Mrs. [ ] Ms. _______________________________________________________
(4) MAILING ADDRESS
__
B CITY, STATE & ZIP CODE ____________________________________________________________ _______-__________- __________
__ (AREA CODE) BUSINESS TELEPHONE
STATE OF RESIDENCE
__ ____ (5) BIRTH DATE ____________________ _____________________ (6) PLEASE INDICATE
MONTH DAY YEAR MONTH DAY YEAR CITIZENSHIP STATUS
(8) SOCIAL SECURITY # ___________________________________________________________________ [ ] U.S. CITIZEN
__ [ ] RESIDENT ALIEN
CORPORATE OR CUSTODIAL [ ] NON-RESIDENT ALIEN
TAX IDENTIFICATION NUMBER
CO-OWNER (7) [ ] EMPLOYEE OR AFFILIATE
SOCIAL SECURITY # ______________________________ __________________________________
____________________________________________________________________________________________________________________________________
(9) RESIDENCE ADDRESS IF DIFFERENT FROM ABOVE
C __________________________________________________________________________________________________________________________
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 I [ ] QUALIFIED PLAN (KEOGH) M [ ] TRUST/DATE TRUST ESTABLISHED _______
D OF SURVIVORSHIP J [ ] SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.) NAME OF TRUSTEE OR OTHER
C [ ] COMMUNITY PROPERTY K [ ] UNIFORM GIFTS TO MINORS ACT ADMINISTRATOR ______________________
D [ ] TENANTS IN COMMON STATE OF ______________ A CUSTODIAN [ ] TAXABLE [ ] GRANTOR A OR B
E [ ] TENANTS BY THE ENTIRETY FOR _____________________________ N [ ] ESTATE
F [ ] CORPORATE OWNERSHIP O [ ] OTHER (SPECIFY) ________________
G [ ] PARTNERSHIP OWNERSHIP [ ] TAXABLE [ ] NON-TAXABLE
____________________________________________________________________________________________________________________________________
(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) that he 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 further 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 E-2 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.
E (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.
AGREEMENT DATED ____________________________________ 19 _____ X ____________________________________________________________
SIGNATURE--REGISTERED OWNER
_____________________________________________________________ X ____________________________________________________________
(PRINT NAME OF CUSTODIAN OF TRUSTEE) SIGNATURE--CO-OWNER
_____________________________________________________________ A sale of the Shares may not be completed by the
AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE) Soliciting Dealers until at least five business days after
receipt of the Prospectus.
____________________________________________________________________________________________________________________________________
(12) (OPTIONAL) DIRECTLY DEPOSIT CASH DISTRIBUTIONS TO: _____________________________________________________________________
ACCOUNT NUMBER--MUST BE FILLED IN
NAME OF BANK,
BROKERAGE FIRM
OR INDIVIDUAL _______________________________________________ X_____________________________________________________________
F SIGNATURE--REGISTERED OWNER
MAILING ADDRESS _____________________________________________ X_____________________________________________________________
SIGNATURE--CO-OWNER
CITY, STATE &
ZIP CODE ___________________________________________________
____________________________________________________________________________________________________________________________________
(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
MAILING ADDRESS__________________________________________________
IS THIS A NEW BROKER/DEALER?
CITY, STATE & [ ] YES [ ] NO
G ZIP CODE ________________________________________________________
BROKER/DEALER X _______________________________________
NAME ___________________________________________________________ SIGNATURE--REGISTERED REPRESENTATIVE
MAILING ADDRESS _________________________________________________
CITY, STATE &
ZIP CODE ________________________________________________________
</TABLE>
INLAND REAL ESTATE CORPORATION
#5010
<PAGE> 265
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
Certain states have imposed special financial suitability standards for
investors who purchase Shares.
If the investor is a resident of Maine, the investor must have either: (i)
a 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.
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.
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 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.
OFFICE USE ONLY Investor Check Date _______________
Investor Check # ________________ OWNER ACCOUNT
Check Amount $ ________________ NUMBER _______________
_____
BROKER/DEALER CO-OWNER
NUMBER ________________________________________ ACCOUNT NUMBER ________
<PAGE> 266
[INLAND LOGO]
PLEASE MAIL THE YELLOW COPY, THE WHITE 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 NEBRASKA
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
A the dollars and cents amount of the purchase. Minimum
purchase 300 Shares ($3,000). Qualified Plans 100 Shares
($1,000). (Iowa requires 300 Shares ($3,000) for IRA
accounts; Minnesota requires 200 Shares ($2,000) for IRA and
qualified accounts).
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
INFORMATION be held. For co-owners enter the names of all owners. For
B investments by qualified plans, include the exact name of the
plan. For investments by qualified plans, enter the name of
the custodian or trustee on the first line and FBO the name
of the investor on the second line. If this is an additional
purchase by a qualified plan, please use the same exact plan
name as previously used.
Item 4--Enter mailing address, state of residence and
telephone number of owner. For qualified investments please
enter mailing address of custodian or trustee,
Item 5--Enter birth date(s) or date of incorporation.
Item 6--Check the appropriate box. If the owner is a non-
resident alien, he must apply to the United States Internal
Revenue Service for an identification number via Form SS-4
for an individual or SS-5 for a corporation, and supply the
number to the Company as soon as it is available.
Item 7-- Check this box if the owner is an employee of
Inland or an individual who has been continuously
affiliated with Inland as an independent contractor.
Item 8--Enter the Social Security number or Taxpayer I.D.
number. The owner is certifying that this number is correct.
For qualified investments please enter both the investor's
social security number (for identification purposes) and the
custodian or trustee's Taxpayer I.D. number (for tax
purposes).
- --------------------------------------------------------------------------------
C Item 9--The residence address if different. For
qualified investments, please enter the residence address of
the investor.
- --------------------------------------------------------------------------------
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
E be executed and initialed by the owner(s), and if applicable,
the trustee or custodian.
- --------------------------------------------------------------------------------
ALTERNATE ADDRESS Item 12--If owners desire direct deposit of
FOR DISTRIBUTIONS his/her/their cash distributions to an account or address
(Optional) other than as set forth in the Subscription
F Agreement/Signature Page, please complete. Please make sure
account has been opened and account number is provided, as
well as informing recipient that distribution will be
forthcoming and is an asset transfer.
- --------------------------------------------------------------------------------
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 Yellow and White
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.
01-97-316N
<PAGE> 267
[INLAND LOGO]
Inland Real Estate Corporation
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE FOR NEBRASKA RESIDENTS
Please read this Subscription Agreement/Signature Page and the Terms and
Conditions before signing.
Subscriber must read the Subscription Instructions.
<TABLE>
<S><C>
(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
A Estate Corporation at $10 per Share. Minimum initial investment: 300 Shares .
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.
____________________________________________________________________________________________________________________________________
(3) REGISTERED OWNER
__ [ ] Mr. [ ] Mrs. [ ] Ms. _______________________________________________________ _______-________- ________
(AREA CODE) HOME TELEPHONE
CO-OWNER
__ [ ] Mr. [ ] Mrs. [ ] Ms. _______________________________________________________
(4) MAILING ADDRESS
__
B CITY, STATE & ZIP CODE ____________________________________________________________ _______-__________- __________
__ (AREA CODE) BUSINESS TELEPHONE
STATE OF RESIDENCE
__ ____ (5) BIRTH DATE ____________________ _____________________ (6) PLEASE INDICATE
MONTH DAY YEAR MONTH DAY YEAR CITIZENSHIP STATUS
(8) SOCIAL SECURITY # ___________________________________________________________________ [ ] U.S. CITIZEN
__ [ ] RESIDENT ALIEN
CORPORATE OR CUSTODIAL [ ] NON-RESIDENT ALIEN
TAX IDENTIFICATION NUMBER
CO-OWNER (7) [ ] EMPLOYEE OR AFFILIATE
SOCIAL SECURITY # ______________________________ __________________________________
____________________________________________________________________________________________________________________________________
(9) RESIDENCE ADDRESS IF DIFFERENT FROM ABOVE
C __________________________________________________________________________________________________________________________
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 I [ ] QUALIFIED PLAN (KEOGH) M [ ] TRUST/DATE TRUST ESTABLISHED _______
D OF SURVIVORSHIP J [ ] SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.) NAME OF TRUSTEE OR OTHER
C [ ] COMMUNITY PROPERTY K [ ] UNIFORM GIFTS TO MINORS ACT ADMINISTRATOR ______________________
D [ ] TENANTS IN COMMON STATE OF ______________ A CUSTODIAN [ ] TAXABLE [ ] GRANTOR A OR B
E [ ] TENANTS BY THE ENTIRETY FOR _____________________________ N [ ] ESTATE
F [ ] CORPORATE OWNERSHIP O [ ] OTHER (SPECIFY) ________________
G [ ] PARTNERSHIP OWNERSHIP [ ] TAXABLE [ ] NON-TAXABLE
____________________________________________________________________________________________________________________________________
(11) PLEASE INITIAL WHERE INDICATED BELOW. The undersigned further 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 E-2 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 _________.
E (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; _________.
(e) 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) that he 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 _________.
(f) an Affiliate of the Company, represents that the Shares are being purchased for investment purposes only and not with a
view toward immediate resale _________.
AGREEMENT DATED ____________________________________ 19 _____ X ____________________________________________________________
SIGNATURE--REGISTERED OWNER
_____________________________________________________________ X ____________________________________________________________
(PRINT NAME OF CUSTODIAN OF TRUSTEE) SIGNATURE--CO-OWNER
_____________________________________________________________ A sale of the Shares may not be completed by the
AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE) Soliciting Dealers until at least five business days after
receipt of the Prospectus.
____________________________________________________________________________________________________________________________________
(12) (OPTIONAL) DIRECTLY DEPOSIT CASH DISTRIBUTIONS TO: _____________________________________________________________________
ACCOUNT NUMBER--MUST BE FILLED IN
NAME OF BANK,
BROKERAGE FIRM
OR INDIVIDUAL _______________________________________________ X_____________________________________________________________
F SIGNATURE--REGISTERED OWNER
MAILING ADDRESS _____________________________________________ X_____________________________________________________________
SIGNATURE--CO-OWNER
CITY, STATE &
ZIP CODE ___________________________________________________
____________________________________________________________________________________________________________________________________
(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
MAILING ADDRESS__________________________________________________
IS THIS A NEW BROKER/DEALER?
CITY, STATE & [ ] YES [ ] NO
G ZIP CODE ________________________________________________________
BROKER/DEALER X _______________________________________
NAME ___________________________________________________________ SIGNATURE--REGISTERED REPRESENTATIVE
MAILING ADDRESS _________________________________________________
CITY, STATE &
ZIP CODE ________________________________________________________
</TABLE>
INLAND REAL ESTATE CORPORATION
#5010
<PAGE> 268
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
OFFICE USE ONLY Investor Check Date _______ OWNER ACCOUNT
Investor Check # __________ NUMBER _________________________
Check Amount $ _____________ _____
CO-OWNER
BROKER/DEALER ACCOUNT NUMBER__________________
NUMBER ____________________________________
<PAGE> 269
================================================================================
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 OF CONTENTS
<TABLE>
<CAPTION>
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 .............................................. 38
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND THE ADVISOR;
INDEMNIFICATION ................................................. 41
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES ...................... 43
MANAGEMENT ......................................................... 56
SELECTED FINANCIAL DATA ............................................ 68
INVESTMENT OBJECTIVES AND POLICIES ................................. 69
REAL PROPERTY INVESTMENTS .......................................... 76
CAPITALIZATION ..................................................... 135
PRINCIPAL STOCKHOLDERS ............................................. 136
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................. 137
FEDERAL INCOME TAX CONSIDERATIONS .................................. 140
ERISA CONSIDERATIONS ............................................... 150
DESCRIPTION OF SECURITIES .......................................... 151
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS ............................ 156
PLAN OF DISTRIBUTION ............................................... 164
HOW TO SUBSCRIBE ................................................... 169
SALES LITERATURE ................................................... 170
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS ............ 170
REPORTS TO STOCKHOLDERS ............................................ 172
LEGAL MATTERS ...................................................... 174
EXPERTS ............................................................ 174
ADDITIONAL INFORMATION ............................................. 174
GLOSSARY ........................................................... 176
PRIOR PERFORMANCE TABLES ........................................... A-1
DISTRIBUTION REINVESTMENT PROGRAM .................................. B-1
SUBSCRIPTION AGREEMENT ............................................. I-1
</TABLE>
- --------------------------------------------------------------------------------
Until ________________, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver prospectuses when acting as Soliciting Dealers with respect
to their unsold allotments or subscriptions.
================================================================================
INLAND
REAL ESTATE
CORPORATION
21,875,000 Shares
_________________
PROSPECTUS
JULY ___, 1997
_________________
Inland Securities
Corporation
================================================================================
<PAGE> 270
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company does not engage in hedging or like activities and therefore
does not have any material exposure to risk due to financial instruments,
derivative financial instruments or derivative commodity instruments.
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee .. $ 66,666.84
NASD Filing Fee ...................................... 22,000.07
Printing and Mailing Expenses ........................ 650,000.00*
Blue Sky Fees and Expenses ........................... 78,059.87
Legal Fees and Expenses .............................. 250,000.00*
Accounting Fees and Expenses ......................... 100,000.00*
Advertising and Sales Literature ..................... 700,000.00*
Due Diligence ........................................ 425,000.00*
Miscellaneous ........................................ 770,000.00*
-------------
Total ................................................ $3,061,726.78
=============
</TABLE>
*estimated
ITEM 32. SALES TO SPECIAL PARTIES.
Employees and associates of the Company and its Affiliates will be
permitted to purchase Shares net of sales commissions. Prior to the time that
the Minimum Number of Shares is sold, such persons may be required to pay $10
per Share and will receive a return of the commission amount promptly upon the
receipt of subscriptions for the Minimum Number of Shares.
ITEM 33. 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 19,500 shares (including options granted to
former Independent Directors) have been granted as of the date of this
Prospectus to the Independent Directors pursuant to the Independent Director
Stock Option Plan, 1,000 Shares of which have been issued in connection with
the exercise of options.
II-1
<PAGE> 271
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second Articles of Amendment and Restatement 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 Maryland General
Corporation Law, to indemnify and pay or reimburse reasonable expenses to: any
Director, Advisor or Affiliate (each an "Indemnified Party"), provided, that:
(i) the Director, Advisor or Affiliate 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 Affiliate 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 Affiliate 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.
II-2
<PAGE> 272
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.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
Balance Sheets at March 31, 1997 and
December 31, 1996 (unaudited)
Statements of Operations for the three months ended
March 31, 1997 and 1996 (unaudited)
Statements of Stockholders' Equity at March 31, 1997 and
December 31, 1996 (unaudited)
Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 (unaudited)
Independent Auditors' Report.
Balance Sheets at December 31, 1996 and 1995.
Statements of Operations for the years ended December 31, 1996
and 1995.
Statements of Stockholders' Equity at December 31, 1996 and 1995
and the period from May 12, 1994 (formation of the Company) to
December 31, 1994.
Statement of Cash Flows for the years ended December 31, 1996
and 1995 and the period from May 12, 1994 (formation of the
Company) to December 31, 1994.
Notes to Financial Statements for the years ended December 31,
1996 and 1995 and the period from May 12, 1994 (formation of the
Company) to December 31, 1994.
Inland Real Estate Corporation Pro Forma Balance Sheet at March
31, 1997 (unaudited).
Inland Real Estate Corporation Notes to Pro Forma Balance Sheet
at March 31, 1997 (unaudited).
II-3
<PAGE> 273
Inland Real Estate Corporation Pro Forma Income Statement at
March 31, 1997 (unaudited).
Inland Real Estate Corporation Notes to Pro Forma Income
Statement at March 31, 1997.
Inland Real Estate Corporation Pro Forma Statement of Operations
for the year ended December 31, 1996 (unaudited).
Inland Real Estate Corporation Notes to Pro Forma Statement of
Operations of the Company for the year ended December 31, 1996
(unaudited).
Independent Auditors' Report.
* 27 moved from here; text not shown
* 28 moved from here; text not shown
Maple Park Place Shopping Center Historical Summary of Gross
Income and Direct Operating Expenses for the year ended December
31, 1996.
Maple Park Place Shopping Center Notes to Historical Summary
of Gross Income and Direct Operating Expenses for the year ended
December 31, 1996.
Independent Auditors' Report
Niles Shopping Center Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996.
Niles Shopping Center Notes to Historical Summary of Gross
Income and Direct Operating Expenses for the year ended December
31, 1996.
Independent Auditors' Report
Cobblers Mall Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996.
Cobblers Mall Notes to Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996.
Independent Auditors' Report
Mallard Mall Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996.
Mallard Mall Notes to Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996.
II-4
<PAGE> 274
Independent Auditors' Report
Sequoia Shopping Center Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996.
Sequoia Shopping Center Notes to Historical Summary of Gross
Income and Direct Operating Expenses for the year ended
December 31, 1996.
Independent Auditors' Report
** 27 River Square Shopping Center Historical Summary of Gross
Income and Direct Operating Expenses for the year ended December
31, 1996.
** 28 River Square Shopping Center Notes to Historical Summary
of Gross Income and Direct Operating Expenses for the year ended
December 31, 1996.
(b) EXHIBITS
(i) The following documents are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
1.1 Form of Dealer Manager Agreement by and between
Inland Real Estate Corporation and Inland Securities
Corporation.
1.2 Form of Soliciting Dealers Agreement between
Inland Securities Corporation and Soliciting Dealers.
1.3 Form of Warrant Purchase Agreement.
4 Specimen Stock Certificate
5 Opinion of Shapiro and Olander dated June 24,
1997 as to the legality of the securities being
registered.
8 Opinion of Shefsky & Froelich Ltd. as to tax matters.
10.1 Escrow Agreement between Inland Real Estate
Corporation and LaSalle National Bank, N.A.
23.1 Consent of KPMG Peat Marwick LLP dated June 20, 1997.
</TABLE>
II-5
<PAGE> 275
<TABLE>
<S> <C>
23.2 Consent of Shefsky & Froelich Ltd. dated June 24, 1997.
24 Power of Attorney (included on signature page of Amendment No.
1 to the Registration Statement).
27 Financial Data Schedule.
(ii) The following exhibits are incorporated herein by reference:
3.1 Inland Monthly Income Fund III, Inc. Second Articles of
Amendment and Restatement.(1)
3.2 Amended and Restated Bylaws of Inland Real Estate
Corporation.(2)
3.3 Articles of Amendment of Inland Monthly Income Fund III, Inc.(2)
10.2 Advisory Agreement between Inland Real Estate Corporation and
Inland Real Estate Advisory Services dated October 14, 1994.(1)
10.2(a) Amendment No. 1 to the Advisory Agreement dated October 13,
1995.(3)
10.2(b) Amendment No. 2 to the Advisory Agreement dated October 13,
1996.(3)
10.3 Form of Management Agreement between Inland Real Estate
Corporation and Inland Commercial Property Management, Inc.(2)
10.4 Amended and Restated Independent Director Stock Option Plan.(1)
10.5 Agreement of Sale by and between Lansing Square RFPII Limited
Partnership and Inland Real Estate Corporation dated December
19, 1996.(5)
10.6 Agreement of Purchase and Sale by and between KBS Retail
Limited Partnership and Inland Real Estate Corporation dated
December 20, 1996.(4)
</TABLE>
_____________
(1) Included in the Registrant's Registration Statement on Form S-11 (file
number 333-6459) as filed by Registrant on June 20, 1986.
II-6
<PAGE> 276
2. Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed by the
Registrant on July 18, 1996.
3. Included in Post Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed by the
Registrant on November 1, 1996.
4. Included in the Registrant's Current Report on Form 8-K, dated January 9,
1997 as filed by the Registrant on January 24, 1997.
5. Included in Post-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed by the
Registrant on January 31, 1997.
ITEM 37. 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.
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.
II-7
<PAGE> 277
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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-8
<PAGE> 278
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
Amendment No. 1 to the 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 24th day of June, 1997.
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-9
<PAGE> 279
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Robert D. Parks and Roberta S. Matlin and
each of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and his or her
name, place and stead, in any and all capacities, to sign any and all pre- and
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their, his or her substitutes, may lawfully do or
cease to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Robert D. Parks President, Chief Executive Officer, June 24, 1997
--------------------- Chief Operating Officer and Chairman
Robert D. Parks of the Board of Directors
/s/ G. Joseph Cosenza Director June 24, 1997
---------------------
G. Joseph Cosenza
/s/ Kelly Tucek Secretary, Treasurer and June 24, 1997
-------------------- Chief Financial Officer
Kelly Tucek (Principal Accounting Officer)
/s/ Joel G. Herter Director June 24, 1997
--------------------
Joel G. Herter
/s/ Heidi N. Lawton Director June 24, 1997
--------------------
Heidi N. Lawton
/s/ Roland W. Burris Director June 24, 1997
--------------------
Roland W. Burris
</TABLE>
II-10
<PAGE> 1
EXHIBIT 1.1
FORM OF DEALER MANAGEMENT AGREEMENT
<PAGE> 2
INLAND REAL ESTATE CORPORATION
21,875,000
SHARES OF COMMON STOCK
$.01 PAR VALUE
[FORM OF]
DEALER MANAGER AGREEMENT
JUNE __, 1997
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 is governed by the Bylaws, as
amended (the "Bylaws") and the Second Articles of Amendment and Restatement, as
amended (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"). Unless otherwise defined, capitalized terms used herein shall
have the same meaning as in the Registration Statement on Form S-11.
The Company is offering on a "best efforts" basis up to 20,000,000 shares
of common stock, $.01 par value per share (the "Shares") for a purchase price
of $10.00 per Share with a minimum initial investment of $3,000 ($1,000 in the
case of tax-exempt investors, except for residents of the State of Iowa where
Individual Retirement Accounts must have a minimum investment of $3,000, and
for residents of the State of Minnesota where Individual Retirement Accounts
and qualified plan accounts must have a minimum investment of $2,000), 875,000
Soliciting Dealer Warrants and the Shares issuable on exercise of the
Soliciting Dealer Warrants and up to 1,000,000 Shares for a purchase price of
$9.50 per Share for issuance through 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
<PAGE> 3
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. 333-26701) on Form S-11 with respect to 21,875,000
Shares, including warrants (and shares issuable on exercise of the
warrants) which are issuable in certain circumstances in connection with
sale of the Shares and Shares issuable pursuant to the Company's
Distribution Reinvestment Program has been prepared by the
Company pursuant to the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission under the Act; one or more amendments to
such registration statement have been or may be so prepared and filed.
As used in this Agreement, the term "Registration Statement" means such
registration statement in the form in which it becomes effective, the
term "Effective Date" means the date upon which the Registration
Statement is or was first declared effective by the Commission and the
term "Prospectus" means the prospectus in the form constituting a part of
the Registration Statement as well as in the form first filed with the
Commission pursuant to its Rule 424 after the Registration Statement
becomes effective. The Commission has not issued any stop order
suspending the effectiveness of the Registration Statement and no
proceedings for that purpose have been instituted or are pending before
or threatened by the Commission under the Act.
(b) Compliance with the Act. From the time the Registration
Statement becomes effective and at all times subsequent thereto up to and
including the Termination Date (as defined in Section 2(c) hereof):
(i) the Registration Statement, the Prospectus and any
amendments or supplements thereto will contain all statements which
are required to be stated therein by the Act and the Rules and
Regulations and will comply in all material respects with the Act
and the Rules and Regulations; and
(ii) neither the Registration Statement nor the Prospectus nor
any amendment or supplement thereto will at any such time include
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(c) No Subsequent Material Events. Subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus and prior to the Termination Date, except as contemplated in
the Prospectus or as disclosed in a supplement or amendment thereto or in
the periodic financial statements of the Company, the Company has not and
will not have:
(i) incurred any material liabilities or obligations, direct
or contingent; or
2
<PAGE> 4
(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").
(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 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
3
<PAGE> 5
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 the Prospectus and represented by management) has
enabled and should enable it to satisfy the REIT Requirements (as defined
in the Prospectus).
(i) Independent Public Accountants. To the best of the Company's
knowledge, the accountants who have certified certain financial
statements appearing in the Prospectus are independent public accountants
within the meaning of the Act and the Rules and Regulations.
(j) Escrow Agreement. The Company has entered into an escrow
agreement (the "Escrow Agreement") with Inland Securities Corporation,
Oak Brook, Illinois (the "Dealer Manager"), and LaSalle National Bank,
N.A., Chicago, Illinois (the "Escrow Agent"), in the form included as an
exhibit to the Registration Statement, which provides for the
establishment of an escrow account (the "Escrow Account"). During the
period commencing with the Effective Date and ending on the Termination
Date, the Company will deposit subscribers funds in the Escrow Account as
described in Section 2 below.
(k) Sales Literature. In addition to and apart from the Prospectus,
the Company may use certain supplemental sales material in connection
with the offering of the Shares. This material, prepared by the Advisor,
would consist of a brochure describing the Advisor and its Affiliates and
the objectives of the Company and may also contain pictures and summary
descriptions of properties similar to those to be acquired by the Company
that Affiliates of the Company have previously acquired. This material
may also include pictures and summary descriptions of properties similar
to those to be acquired by the Company, as well as a brochure,
audio-visual materials and tape presentations highlighting and explaining
various features of the Offering, properties of prior real estate
programs and real estate investments in general; and articles and
publications concerning real estate. Business reply cards, introductory
letters and seminar invitation forms may be sent to Soliciting Dealers
(as hereinafter defined) and prospective investors. These materials
shall be hereinafter referred to collectively as the "sales literature."
No person has been authorized to 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 will not conflict with any of the
information set forth in the Prospectus, the sales literature will not
purport to be
4
<PAGE> 6
complete, and should not be considered as a part of the
Prospectus, or as incorporated in the Prospectus by reference, or as
forming the basis of the Offering.
(l) Authorization of the Shares. The Company has an authorized and
outstanding capitalization as set forth in the Registration Statement and
Prospectus. The sale of the Shares has been duly and validly authorized
by the Company, and when subscriptions for the Shares have been accepted
by the Company as contemplated in the Prospectus and the Shares have been
issued to the respective subscribers, the Shares will represent ownership
in the Company and will conform to the description thereof contained in
the Prospectus. Stockholders have no preemptive rights to purchase or
subscribe for securities of the Company, and the Shares are not
convertible or subject to redemption at the option of the Company. The
Shares are entitled to one vote per Share and do not have cumulative
voting rights. Subject to the rights of the holders of any class of
capital stock of the Company having any preference or priority over the
Shares, the Stockholders are entitled to distributions in such amounts as
may be declared by the Board of Directors from time to time out of funds
legally available for such payments and, in the event of liquidation, to
share ratably in any assets of the Company remaining after payment in
full of all creditors and provisions for any liquidation preferences on
any outstanding preferred stock ranking prior to the Shares.
2. Offering and Sale of the Shares. On the basis of the representations,
warranties and agreements herein contained, and subject to the terms and
conditions herein set forth, the Company hereby appoints you as its exclusive
Dealer Manager to solicit and to cause other dealers (as described in
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 the Shares, during
the period commencing with the Effective Date and ending on the Termination
Date (the "Offering Period"). The number of Shares, if any, to be reserved for
sale by each Soliciting Dealer may be decided by the mutual agreement, from
time to time, of you and the Company. In the absence of such mutual agreement,
the Company shall, subject to the provisions of Section 2(b) hereof, accept
Subscription Agreements based upon a first-come, first accepted reservation or
other similar method.
(a) Soliciting Dealers. The Shares offered and sold through you
under this Agreement shall be offered and sold only by you and, at your
sole option, any other securities dealers (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
5
<PAGE> 7
Dealer, together with a check payable to the order of "LNB, Escrow
Agent for IREC" in the amount of $10 per Share.
Each Soliciting Dealer shall forward any such Subscription Agreement
and check to you not later than noon of the next business day after
receipt of such Subscription Agreement, if the Soliciting Dealer conducts
its internal supervisory procedures at the location where the
Subscription Agreement and check were initially received. When such
internal supervisory procedures are 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
the 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. The Company will promptly notify you
or the Soliciting Dealer of any rejection, 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
6
<PAGE> 8
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 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; provided, however, that
Soliciting Dealer Warrants will not be issued in connection with
the sale of Shares to residents of the States of Minnesota,
Nebraska, South Carolina and Texas and provided further that the
company will not issue more than 875,000 warrants in connection
with the Offering of the Shares. 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.
Investors purchasing at least $250,000 worth of Shares (25,000
Shares) will be entitled to a reduction in selling commissions in
accordance with the following schedule:
<TABLE>
<CAPTION>
Maximum
Commission
Amount of Purchaser's Investment Per Share
-------------------------------------- ----------
From To
---- --
<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 amount otherwise payable to you and
reallowable to a Soliciting Dealer in respect of a purchaser's
subscription will be credited to the purchaser in the form of
additional whole or fractional Shares purchased net of commissions.
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.
7
<PAGE> 9
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) All sales commissions payable to you will be paid on a
monthly basis, substantially concurrently with the acceptance of a
subscriber as a Stockholder by the Company, in an amount equal to the
sales commissions payable with respect to such Shares.
3. Covenants of the Company. The Company covenants and agrees with you
as follows:
(a) Registration Statement. The Company will use its best efforts to
cause the Registration Statement and any subsequent amendments thereto to
become effective as promptly as possible and will not, at any time after
the Effective Date 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
8
<PAGE> 10
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 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.
9
<PAGE> 11
(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
(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 investors resident in the States of
Mississippi or Ohio.
10
<PAGE> 12
With respect to your and each Soliciting Dealer's participation in
any resales or transfers of the Shares, you agree, and each Soliciting
Dealer agrees, to comply and shall comply with any applicable
requirements, as set forth above. In addition, you and each Soliciting
Dealer agree that should you or they assist with the resale or transfer
of the Shares, you and each Soliciting Dealer will fulfill the
obligations pursuant to Sections 3(b) and 4(d) of Rule 2810 of the
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 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 initialed by the subscriber.
(e) Suitability. In offering the Shares to any person, you and each
Soliciting Dealer shall have reasonable grounds to believe (based on such
information as the investment objectives, other investments, financial
situation and needs of the person or any other information known by you
after due inquiry) that: (i) such person has the capability of
understanding the fundamental aspects of the Company, which capacity may
be evidenced by the following: (A) the nature of employment experience;
(B) educational level achieved; (C) access to advice from qualified
sources, such as attorneys, accountants and tax advisors; and (D) prior
experience with investments of a similar nature; (ii) such person has
apparent understanding of: (A) the fundamental risks and possible
financial hazards of this type of investment; (B) the lack of liquidity
of this investment; (C) the Advisor's role in directing or managing the
investment; and (D) the tax consequences of the investment; and (iii)
such person has the financial capability to invest in the Company and you
or each Soliciting Dealer (as the case may be) shall maintain records
disclosing the basis upon which you and each Soliciting Dealer determined
the suitability of any persons offered Shares. Notwithstanding the
foregoing, you and each Soliciting Dealer shall have reasonable grounds
to believe that such person has either: (a) a minimum annual gross
income of $45,000 and a 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
11
<PAGE> 13
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 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
12
<PAGE> 14
Registration Statement, the Prospectus and any amendment or supplement
thereto as herein provided;
(c) fees and expenses of its and your accountants and counsel in
connection with the Offering contemplated by this Agreement;
(d) fees and expenses incurred in connection with any required filing
with the NASD;
(e) all of your expenses in connection with the Offering subject to
the limitations contained in the Prospectus, including, but not limited to,
the salaries, fringe benefits, travel expenses and similar expenses of your
employees and personnel incurred in connection with the Offering; and
(f) expenses of qualifying the Shares for offering and sale under
state blue sky and securities laws, and expenses in connection with the
preparation and printing of the Blue Sky Survey.
In no event, however, will the total of: (a) the selling commissions paid
to 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
13
<PAGE> 15
statement of fact which is material, or omits to state a fact which is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless you, each
Soliciting Dealer and each person, if any, who controls you or any
Soliciting Dealer within the meaning of the Act (collectively, the
"Indemnified Parties"), against any and all loss, liability, claim, damage
and expense whatsoever caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, the
Prospectus or any amendment or supplement thereto, or the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Such indemnification shall be
subject to the provisions of Sections 7(b) and (c) of this Agreement.
The Company shall not provide indemnification for any liability or
loss suffered by you, nor shall it provide that you be held harmless for
any 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
14
<PAGE> 16
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.
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
15
<PAGE> 17
any Soliciting Dealer and finds that indemnification of the settlement and
related costs should be made and the court considering the request has been
advised of the position of the Commission and of the published positions of
the Tennessee Securities Division and any other state securities regulatory
authority in which securities of the Company were offered and sold 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 60523, (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 60523 (Attention: Ms. Roberta S. Matlin).
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 internal laws, as opposed to the
conflicts of laws provisions, of the State of Illinois.
14. Effectiveness of Agreement. This Agreement shall become effective at
5:00 p.m., Chicago, Illinois time, on the Effective Date, or at such earlier
time as you and the Company agree.
17
<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
<PAGE> 2
INLAND REAL ESTATE CORPORATION
[FORM OF]
SOLICITING DEALERS AGREEMENT
Ladies and Gentlemen:
We have entered into an agreement (the "Dealer Manager Agreement") which
is a part hereof and attached hereto, with Inland 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 20,000,000 Shares at a price of $10 per Share on a "best
efforts" basis, up to 1,000,000 Shares issued pursuant to the Distribution
Reinvestment Program at a price of $9.50 per Share and 875,000 warrants (and
shares issuable on exercise of the warrants) which are issuable in certain
circumstances in connection with the sale of Shares (as defined in the
Prospectus) (the "Offering"). Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Registration Statement.
In connection with the performance of our obligations under Section 2 of
the Dealer Manager Agreement, we are authorized to 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 the 20,000,000 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 20,000,000 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
<PAGE> 3
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 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 40 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 investors
residing in the States of 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") which warrants will be reallowed from the
Dealer Manager from the warrants issued to it by the Company. The Company will
not issue more than 875,000 of these warrants in connection with the Offering
of the Shares. The Soliciting Dealer Warrants will be issued quarterly
commencing 60 days after the date on which Sharers are first sold pursuant to
the Offering. The Dealer Manager will not transfer and the Company will not
issue Soliciting Dealer Warrants to Soliciting Dealers registered in Minnesota,
Nebraska, South Carolina or Texas in connection with the sale of Shares to
residents of the States of Minnesota, Nebraska, South Carolina or Texas,
respectively. All Shares sold by the Company, other than
2
<PAGE> 4
through the Distribution Reinvestment Program except Shares sold to residents
of the above-referenced states, will be included in the computation of the
number of Shares sold to determine the number of Soliciting Dealer Warrants to
be issued. The holder of a 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 one year from the
date the Soliciting Dealer Warrants are issued and ending __________, 2002 (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.
Investors purchasing at least $250,000 worth of Shares (25,000 Shares)
will be entitled to a reduction in selling commissions in accordance with the
following schedule:
<TABLE>
<CAPTION>
Amount of Maximum Commission
Purchaser's Investment Per Share
-----------------------------------------------------------
From To
<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 amount otherwise payable to you in respect of a
subscription will be credited to such purchaser in the form of additional whole
Shares or fractional Shares purchased net of commissions.
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.
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.
3
<PAGE> 5
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 60523, not later than noon of the next business day after receipt of
such Subscription Agreement and check (when your internal supervisory
procedures are completed at the site at which the Subscription Agreement and
check were received by you) or, when your internal supervisory procedures are
performed at a different location (the "Final Review Office"), you shall
transmit the check and Subscription Agreement to the Final Review Office by the
end of the next business day following your receipt of the Subscription
Agreement and check. The Final Review Office will, by the end of the next
business day following its receipt of the Subscription Agreement and check,
forward both 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 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
4
<PAGE> 6
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.
12. Any communications from you should be in writing addressed to us at
Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois
60523, Attention: Ms. 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.
5
<PAGE> 7
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.
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___
6
<PAGE> 8
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
___________________________________
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: ______________________________
7
<PAGE> 1
EXHIBIT 1.3
FORM OF WARRANT PURCHASE AGREEMENT
<PAGE> 2
INLAND REAL ESTATE CORPORATION
21,875,000 Shares of Common Stock
$.01 Par Value
[FORM OF]
WARRANT PURCHASE AGREEMENT
______________, 1997
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 500,000
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 "best
efforts" offering of 20,000,000 Shares (the "Offering"), pursuant to that
certain Dealer Manager Agreement (the "Dealer Manager Agreement"), dated
_______, 1997 between the Company and the Warrantholder as the Dealer Manager
and a representative of the Soliciting Dealers who may receive warrants.
Unless otherwise defined, capitalized terms used herein shall have the same
meaning as in the Registration Statement on Form S-11.
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
<PAGE> 3
the occurrence of certain events, all as hereinafter provided. The Soliciting
Dealer Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution
or transfer.
(c) TRANSFER. The Soliciting Dealer Warrants shall be transferable
only on the books of the Company maintained at its principal office or that of
its designated transfer agent, if designated, upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Soliciting Dealer Warrant to the person entitled
thereto. Assignments or transfers shall be made pursuant to the form of
Assignment attached as Exhibit "C" hereto.
(d) LIMITATIONS ON TRANSFER OF SOLICITING DEALER WARRANT. The
Soliciting Dealer Warrants shall not be sold, transferred, assigned, exchanged
or hypothecated (collectively a "Transfer") by the Warrantholder, except to:
(i) one or more persons, each of whom on the date of transfer is an officer and
director of the Warrantholder or an officer and director or partner of a
successor to the Warrantholder as provided in clause (iv) of this Subsection
(d); (ii) a partnership or partnerships, all of the partners of which are a
Warrantholder and one or more persons, each of whom on the date of transfer is
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,
a "Soliciting Dealers Agreement" entered into with the Dealer Manager (the
"Selling Group") and one or more persons, each of whom on the date of transfer
is 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; provided that the Dealer Manager may not Transfer Soliciting
Dealer Warrants to members of the Selling Group in connection with the sale of
Shares to residents of the States of Minnesota, Nebraska, South Carolina or
Texas; (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, and the term "Warrant"
shall include any and all Soliciting Dealer Warrants outstanding pursuant to
this Agreement, including those evidenced by a certificate or certificates
issued upon division, exchange, substitution or transfer pursuant to this
Agreement.
(e) EXCHANGE OR ASSIGNMENT OF SOLICITING DEALER WARRANT. Any
Soliciting Dealer Warrant certificate may be assigned or exchanged without
expense for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Soliciting Dealer
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<PAGE> 4
Warrant certificate shall make a request in writing delivered to the Company,
and shall surrender, properly endorsed, the certificate evidencing the
Soliciting Dealer Warrant to be so assigned or exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto a new
Soliciting Dealer Warrant certificate as so requested.
Any Warrantholder desiring to assign a Soliciting Dealer Warrant shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate evidencing the Soliciting Dealer Warrant to
be so assigned, with an instrument of assignment duly executed accompanied by
proper evidence of assignment, succession or authority to transfer, and funds
sufficient to pay any transfer tax, whereupon the Company shall, without
charge, execute and deliver a new Soliciting Dealer Warrant certificate in the
name of the assignee named in such instrument of assignment and the original
Soliciting Dealer Warrant certificate shall promptly be canceled.
(f) Notwithstanding any provision in this Agreement to the contrary,
the Dealer Manager will not transfer and the Company will not issue the
Soliciting Dealer Warrants to Soliciting Dealers registered in Minnesota,
Nebraska, South Carolina or Texas in connection with the sale of Shares to
residents of the States of Minnesota, Nebraska, South Carolina or Texas,
respectively.
2. TERMS AND EXERCISE OF SOLICITING DEALER WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Agreement, the
Warrantholder shall have the right to purchase one Share from the Company at a
price of $12 (120% of the offering price per Share) during the time period
beginning one year from the date the Soliciting Dealer Warrants are issued
and ending on ___________, 2002 (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 Second
3
<PAGE> 5
Articles of Amendment and Restatement, as amended. If any Soliciting Dealer
Warrant has not been exercised by the end of the Exercise Period, it will
terminate and the Warrantholder will have no further rights thereunder.
(c) PARTIAL EXERCISE. The Soliciting Dealer Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that the Soliciting Dealer Warrant is
exercised with respect to less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
Soliciting Dealer Warrants shall be issued by the Company.
(d) SHARE ISSUANCE UPON EXERCISE. Upon such surrender of the
Soliciting Dealer Warrant certificate and payment of such Warrant Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to
the Warrantholder in such name or 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.
4
<PAGE> 6
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 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
5
<PAGE> 7
respect thereto. Any adjustment made pursuant to this Subsection (a) shall
become effective on the effective date of such event retroactive to the record
date, if any, for such event.
(b) No adjustment in the number of securities purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of securities (calculated to the
nearest full Share thereof) then purchasable upon the exercise of the Soliciting
Dealer Warrant or, if the Soliciting Dealer Warrant is not then exercisable, the
number of securities purchasable upon the exercise of the Soliciting Dealer
Warrant on the first date thereafter that the Soliciting Dealer Warrant becomes
exercisable; provided, however, that any adjustment which by reason of this
Subsection (b) is not required to be made immediately shall be carried forward
and taken into account in any subsequent adjustment.
(c) Whenever the number of Shares purchasable upon the exercise of
the Soliciting Dealer Warrant is adjusted as herein provided, the Warrant Price
shall be adjusted by 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 Company) as a result of which
the holders of the Company's Common Stock become holders
6
<PAGE> 8
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 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
7
<PAGE> 9
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
in connection with Shares sold in the Prior Offerings. The Company undertakes
to make additional filings with the Commission to the extent required to keep
the Shares issuable pursuant to the Soliciting Dealer Warrants referenced in
this Section 11 registered through ____________, 2002.
12. INDEMNIFICATION.
In the event of the filing of any registration statement with respect to
the Soliciting Dealer Warrants or the Shares pursuant to Section 11 above, the
Company and the Warrantholder (and/or selling Warrantholder or such holder of
Shares, as the case may be), shall agree to indemnify and hold harmless the
other to the same extent and in the same manner as provided in the Dealer
Manager Agreement.
13. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act in
any case in which: (a) the Warrantholder or any holder of Shares makes a claim
for indemnification pursuant to Section 12 hereof, but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right to appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 12 hereof
provide for 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.
8
<PAGE> 10
Any notice given pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given
if delivered or mailed by certified mail, return receipt requested:
(a) If to the Warrantholder, addressed to:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
(b) If to the Company, addressed to:
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
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.
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.
9
<PAGE> 11
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.
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.
10
<PAGE> 12
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
11
<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
_____________, 1997 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 ____________, 2002 (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 _____________, 2002 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 _________________, 1997.
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 made for such Shares. The Shares so purchased shall be
registered to the holder (and, if requested, certificates
<PAGE> 14
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
2
<PAGE> 15
EXHIBIT B
INLAND REAL ESTATE CORPORATION
ELECTION TO PURCHASE
SOLICITING DEALER WARRANT
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached warrant (the "Warrant"), to purchase
thereunder ____ shares of the common stock 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: ____________________
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: ____________
________________________________________
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 4
SPECIMEN STOCK CERTIFICATE
<PAGE> 2
SPECIMEN STOCK CERTIFICATE
Non-Negotiable
Incorporated Under the Laws of Maryland
No. _______ Shares _______
Inland Real Estate Corporation
Authorized Common Stock 100,000,000 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____
_______________________________
_______________________________
Kelly Tucek, 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
<PAGE> 2
[SHAPIRO AND OLANDER LETTERHEAD]
June 24, 1997
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 21,000,000 shares
of the Company's common stock, $0.01 par value per share ("Shares").
We have reviewed the Registration Statement on Form S-11 (the
"Registration Statement") and the prospectus included therein ("Prospectus")
relating to the Company s issuance of the Shares, and in connection therewith,
have examined and relied upon the originals or copies of such records,
agreements, documents and other instruments, the 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 photocopy), the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, and the conformity
to authenticate original documents of all documents submitted to us as
certified or photocopies. We have assumed, without independent verification,
the accuracy of the relevant facts stated therein.
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 the Registration Statement, when issued and sold as contemplated
in the Registration Statement, 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 the
Registration Statement and we consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus.
<PAGE> 3
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
[SHEFSKY & FROELICH LTD. LETTERHEAD]
June 24, 1997
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
21,000,000 shares, par value $.01 per share, of Inland Real Estate Corporation
(the "Company") 20,000,000 of which will be offered on a "best efforts" basis
and 1,000,000 of which will be offered through the Company's distribution
reinvestment program, warrants to purchase up to 875,000 shares, and the shares
issuable upon exercise of the warrants. 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. 333-26701) 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 Second Articles of Amendment and Restatement, as
amended to date;
4. A copy of the Subscription Agreement;
5. The representation letter delivered to us by the Company;
6. Copies of the leases for the properties described in the
Prospectus as supplied to us by the Company;
<PAGE> 2
SHEFSKY & FROELICH LTD.
Board of Directors
June 24, 1997
Page 2
7. Copies of the Federal income tax returns the Company filed for
the years ending December 31, 1995 and 1996;
8. Copies of the worksheets the Company prepared to monitor its
qualification with the REIT Requirements; and
9. 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> 3
SHEFSKY & FROELICH LTD.
Board of Directors
June 24, 1997
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 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 if
challenged. 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, LTD
SHEFSKY & FROELICH LTD.
296495
<PAGE> 1
EXHIBIT 10.1
ESCROW AGREEMENT
<PAGE> 2
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day of _______,
1997, 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"). Unless otherwise defined, capitalized terms used herein shall have
the same meaning as in the Registration Statement on Form S-11.
1. The Company does hereby open this escrow and Escrow Agent's sole
concern and duties shall be as specifically set forth herein:
1.1 From time to time during the course of this escrow, in
connection with the Company's offering (the "Offering") of up to
20,000,000 shares of Common Stock on a "best efforts" basis (the "Shares")
(exclusive of Shares offered and sold pursuant to the Company's
distribution reinvestment program), Escrow Agent will receive from
subscribers deposits to be held in escrow in accordance with the terms
hereof. All such funds received by Escrow Agent shall be placed into an
interest-bearing account entitled "Inland Real Estate Corporation Escrow
(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
<PAGE> 3
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 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,
subject to the terms and conditions of the Dealer Manager Agreement dated
__________, 1997 between the Company and the Dealer Manager (the "Dealer
Manager Agreement"), up to 7% of the sales price ($.70 based on $10.00 sales
price) 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 hereof
<PAGE> 4
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 internal laws, as opposed to the conflicts of laws
principles, 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.
<PAGE> 5
16. Any notice required to be given hereunder by any of the parties
hereto shall be addressed as follows:
If to the Company:
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
If to the Dealer Manager:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
If to Escrow Agent:
LaSalle National Bank, N.A.
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Corporate Trust Department
* * *
<PAGE> 6
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:______________________________________
<PAGE> 1
(KPMG PEAT MARWICK LLP LETTERHEAD)
The Board of Directors
Inland Real Estate Corporation:
We consent to the use of our reports relating to the balance sheets of Inland
Real Estate Corporation as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995
and for the period from May 12, 1994 (formation date) to December 31, 1994, the
historical summary of gross income and direct operating expenses of Maple Park
Place for the year ended December 31, 1996, the historical summary of gross
income and direct operating expenses of Niles Shopping Center for the year ended
December 31, 1996, the historical summary of gross income and direct operating
expenses of Sequoia Shopping Center for the year ended December 31, 1996, the
historical summary of gross income and direct operating expenses of Mallard Mall
for the year ended December 31, 1996, the historical summary of gross income and
direct operating expenses of Cobblers Mall for the year ended December 31, 1996,
and the historical summary of gross income and direct operating expenses of
River Square Shopping Center for the year ended December 31, 1996 included
herein and to the reference to our firm under the heading "Experts" in this
Registration Statement (No. 333-26701) on Form S-11.
KPMG Peat Marwick LLP
Chicago, Illinois
June 20, 1997
<PAGE> 1
EXHIBIT 23.2
Consent of Shefsky & Froelich LTD
<PAGE> 2
[SHEFSKY & FROELICH LTD. LETTERHEAD]
CONSENT OF SHEFSKY & FROELICH LTD.
Shefsky & Froelich Ltd. hereby consents to the reference of our name
under the heading "Legal Matters" in this Prospectus constituting a part of
this Registration Statement on Form S-11.
SHEFSKY & FROELICH LTD.
/s/ Shefsky & Froelich Ltd.
Chicago, Illinois
June 24, 1997
