<PAGE> 1
As filed with the Securities and Exchange Commission on January 29, 1998
Registration No. 333-
----------------
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
Proposed Proposed
Title of each class of Amount be- maximum maximum Amount of
securities being ing regis- offering price aggregate registration
registered tered per Share offering fee
price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value . . . . . . 25,000,000 $11.00 $275,000,000 $83,333
Common Stock, $.01 par value (1). . . . . 625,000 13.20 8,250,000 2,500
Common Stock, $.01 par value(2). . . . . 2,000,000 10.45 20,900,000 6,333
Soliciting Dealer Warrants(3) . . . . . . 625,000 .0008 500 0
===============================================================================================================================
</TABLE>
(1) Represents Shares which are issuable upon exercise of warrants issuable
to Inland Securities Corporation or its assignees pursuant to the
Warrant Purchase Agreement dated _______, 1998
(2) Represents Shares issuable pursuant to the Company's Distribution
Reinvestment Program.
(3) Represents warrants issuable to the Dealer Manager to purchase 625,000
Shares pursuant to the Warrant Purchase Agreement dated______, 1998.
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
PROSPECTUS
INLAND REAL ESTATE CORPORATION
$11.00 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 38
Neighborhood Retail Centers and nine single-user retail properties and intends
to use the Net Proceeds of this Offering (after funding appropriate working
capital reserves) primarily to acquire additional properties. See "Investment
Objectives and Policies." The Company's day-to-day operations are managed by
Inland Real Estate Advisory Services, Inc.
(the "Advisor").
Of the 27,625,000 shares of the Company's common stock, $.01 par value
per share offered hereby (the "Shares"), a total of 25,000,000 Shares are being
offered on a "best efforts" basis (the "Offering"); a total of 2,000,000 Shares
are being offered for distribution to Stockholders participating in the
Company's Distribution Reinvestment Program (the "DRP"); and up to 625,000
Shares may be issued upon the exercise of warrants granted in connection with
the Offering. 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 17. THESE RISKS INCLUDE THE FACT THAT:
o 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 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 17)
o 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 17)
o Although the Company intends to purchase properties, whenever
possible, on an all-cash basis, the Company assumed debt as part of
the acquisition price on six properties and utilized short-term
financing acquired from an Affiliate to acquire six properties. The
Company may incur additional indebtedness secured by existing
properties or properties acquired in the future. Defaults on this
indebtedness could cause the Company to lose its investment in such
properties; (page 18)
o Except for five properties, the Company has not specified any
additional acquisitions; (page 17)
o 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)
o No person may own more than 9.8% of the Shares; (page 19)
o Affiliates of the Advisor are engaged in similar real estate
activities which may 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, payments
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 20)
o 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 21)
<TABLE>
<CAPTION>
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Selling Proceeds to
Price to Public Commissions (1) Company (2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 11.00 $ .77 $ 10.23
Minimum Purchase 300 Shares $ 3,300.00 $ 231.00 $ 3,069.00
Total Maximum if 27,000,000 Shares Sold(3) $ 295,900,000.00 $19,250,000.00 $ 276,650,000.00(3)
=========================================================================================================================
</TABLE>
The date of this Prospectus is January ___, 1998.
(cover page continued)
<PAGE> 3
(1) A total of 25,000,000 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 $13.20 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, including the
Soliciting Dealer Warrants, to certain Soliciting Dealers unless
prohibited by either federal or state securities laws; provided that
the Company will not issue warrants to purchase more than 625,000
shares. 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 22,000
Shares or more.
(2) Before deducting Organization and Offering Expenses, payable from
proceeds of the Offering, estimated at $6,974,110 if 27,000,000
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) A total of 25,000,000 Shares are being offered on a "best efforts"
basis and a total of 2,000,000 Shares are being offered for
distribution to Stockholders 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 ($10.45
per Share). In addition, assuming all 625,000 warrants are issued to
the Dealer Manager, the Company will receive additional proceeds of
$800.00; assuming these warrants are exercised at the warrant price of
$13.20, the Company will receive additional proceeds of $8,250,000.
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 ___________, 2000. 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> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ORGANIZATIONAL CHART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Company Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Risks of Real Estate Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Tax Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ERISA Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ESTIMATED USE OF PROCEEDS OF OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
WHO MAY INVEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Nonsubordinated Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Subordinated Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Competition for the Time and Service of the Advisor and Affiliates . . . . . . . . . . . . . . . . . . . . . 41
Process for Resolving Conflicting Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Acquisition from Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
The Company may Purchase Properties from Persons with whom Affiliates of the
Advisor have Prior Business Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Property Management Services are being Rendered by an Affiliate of the Advisor . . . . . . . . . . . . . . . 43
Receipt of Commissions, Fees and Other Compensation by the Advisor and
its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Non-Arm's-Length Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
The Company and the Advisor have the Same Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Inland Securities Corporation is Participating as Dealer Manager in the Sale of
the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
The Advisor may have Conflicting Fiduciary Obligations in the Event the Company Acquires Properties with
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND THE ADVISOR; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 45
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Limitation of Liability and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Business Judgment Presumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Prior Investment Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Summary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Publicly Registered Limited Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Private Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Private Placement Real Estate Equity Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Private Placement Mortgage and Note Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
iii
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<TABLE>
<S> <C>
Loan Modifications and Work-Outs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Effects of Property Exchanges on Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
The Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Advisor Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
The Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
The Management Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Independent Director Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Types of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Acquisition Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Description of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Property Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Sale or Disposition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Change in Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Certain Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Return of Uninvested Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Additional Offerings and Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Other Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
REAL PROPERTY INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
The Walgreens/Decatur Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Eagle Crest Shopping Center, Naperville, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Montgomery-Goodyear Shopping Center, Montgomery, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . 99
The Hartford/Naperville Plaza, Naperville, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Nantucket Square Shopping Center, Schaumburg, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Antioch Plaza, Antioch, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Mundelein Plaza, Mundelein, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Regency Point Shopping Center, Lockport, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Prospect Heights Plaza, Prospect Heights, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Montgomery-Sears Shopping Center, Montgomery, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
The Zany Brainy Store, Wheaton, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Salem Square Shopping Center, Countryside, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
</TABLE>
iv
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<TABLE>
<S> <C>
Hawthorn Village Commons, Vernon Hills, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Six Corners Plaza, Chicago, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Spring Hill Fashion Corner, West Dundee, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Grand & Hunt Club Outlot Center, Gurnee, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
The Quarry Outlot, Hodgkins, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Crestwood Plaza Shopping Center, Crestwood, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Lansing Square Shopping Center, Lansing, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Park St. Clair Plaza, Schaumburg, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
The Summit of Park Ridge, Park Ridge, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Maple Park Place, Bolingbrook, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Aurora Commons Shopping Center, Aurora, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Lincoln Park Place Shopping Center, Chicago, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Niles Shopping Center, Niles, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Cobblers Mall, Elgin, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Mallard Mall, Elk Grove Village, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Ameritech Outlot Building, Joliet, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Dominick's Finer Foods, Schaumburg, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Calumet Square Shopping Center, Calumet City, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Dominick's Finer Foods, Highland Park, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Sequoia Plaza Shopping Center, Milwaukee, Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
River Square Shopping Center, Naperville, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Rivertree Court Shopping Center, Vernon Hills, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Dominick's Finer Foods, Glendale Heights, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Party City, Oak Brook Terrace, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Roselle Eagle, Roselle, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Countryside Shopping Center, Countryside, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Terramere Plaza, Arlington Heights, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Wilson Plaza, Batavia, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Iroquois Center, Naperville, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Fashion Square Shopping Center, Skokie, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Naper West Shopping Center, Naperville, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Woodfield Plaza, Schaumburg, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
The Shops at Coopers Grove, Country Club Hills, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Dominick's Finer Foods, West Chicago, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Potential Property Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . 116
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Taxation of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Other Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
1997 Taxpayer Relief Act of 1997 - Significant REIT Provisions . . . . . . . . . . . . . . . . . . . . . . . 135
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Soliciting Dealer Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Issuance of Additional Securities and Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Certain Article and Bylaw Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Stockholder Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Stockholder Lists; Inspection of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Amendment of the Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Dissolution or Termination of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Advance Notice of Director Nominations and New Business . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Restrictions on Certain Conversion Transactions and Roll-Ups . . . . . . . . . . . . . . . . . . . . . . . . 147
Limitation on Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Restrictions on Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Restrictions on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Escrow Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Advisor Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Subscription Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Determination of Investor Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Volume Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
HOW TO SUBSCRIBE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
SALES LITERATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Distribution Reinvestment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Share Repurchase Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
REPORTS TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-i
PRIOR PERFORMANCE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
DISTRIBUTION REINVESTMENT PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
</TABLE>
vi
<PAGE> 8
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 38 Neighborhood Retail Centers
(as hereinafter defined) and nine single-user retail
properties. The Company intends to acquire additional
existing Neighborhood Retail Centers and 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. The
Company is currently permitted to acquire only those
Neighborhood Retail Centers located primarily within a 150
mile radius of its headquarters in Oak Brook, Illinois. The
Company anticipates seeking approval of its stockholders at
the Company's annual meeting scheduled to be held in the
Spring of 1998 to expand this area to a 400 mile radius of
the Company's headquarters and to permit the Company to
acquire Community Centers within that region. As of January
27, 1998, the Company had approximately $24,000,000
available for acquisition of additional properties.
The Company's primary business objective is to enhance the
performance and value of its properties through management
strategies designed to address the needs of an evolving
retail marketplace. Key elements of the Company's strategy
are:
Acquisitions:
o Selectively acquiring well-located Neighborhood Retail
Centers, as well as single-user retail properties,
triple-net leased by creditworthy tenants.
o 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 or incur indebtedness secured by
properties previously purchased on an all-cash basis if
the Company believes favorable financing terms are
available. The proceeds from these loans are used
primarily to acquire additional properties. A total of 34
of the Company's 47 properties are encumbered by mortgage
indebtedness including one property where financing by an
Affiliate was assumed.
1
<PAGE> 9
Operations:
o Actively manage costs and minimize operating expenses by
centralizing all management, leasing, marketing,
financing, accounting, renovation and data processing
activities.
o Improve rental income and cash flow by aggressively
marketing rentable space.
o Emphasize regular maintenance and periodic renovation to
meet the needs of tenants and to maximize long-term
returns.
o Maintain a diversified tenant base at its Neighborhood
Retail Centers, consisting primarily of retail tenants
providing consumer goods and services.
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 A total of ____________ Shares (including ___________ Shares
BEFORE OFFERING issued under the Company's Distribution Reinvestment Program
(the "DRP") and 20,000 Shares purchased by the Advisor) were
outstanding as of the date of this Prospectus. The Company
previously sold (i) 5,000,000 shares in a best efforts
offering at $10 per share and 78,509 shares under the DRP
that commenced on October 14, 1994 and was completed on July
22, 1996; (ii) an additional 10,000,000 shares in a best
efforts offering, also at $10 per share, plus 318,388 shares
under the DRP that commenced on July 24, 1996 and was
completed on July 10, 1997; and (iii) an additional
20,000,000 shares in a "best efforts" offering at a price of
$10 per share plus ____ shares under the DRP that commenced
on July 14, 1997 and was completed on __________, 1998
(collectively the "Prior Offerings").
SHARES OUTSTANDING Assuming the sale of all Shares offered hereby on a "best
POST OFFERING efforts" basis, the Company will have 60,000,000 shares
outstanding (not taking into account shares which may be
issued 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).
TERMS OF The Company is offering 27,625,000 shares of common stock,
THE OFFERING $.01 par value per share (the "Shares"), of which 25,000,000
Shares are being offered on a "best efforts" basis;
2,000,000 Shares which may
2
<PAGE> 10
be issued to Stockholders who are participating in the
Company's DRP; and up to 625,000 Shares underlying 625,000
warrants (also offered hereby) which may be issued upon the
exercise of the warrants granted in connection with the
Offering. 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. Except for shares purchased through the DRP or
acquired upon exercise of Soliciting Dealers Warrants,
subscribers must initially purchase a minimum of 300 Shares
($3,300), except for Tax-Exempt Entities (as defined herein)
who must purchase a minimum of 100 Shares. 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 __________, 2000 (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 17. The following is a summary of the
risks which the Company believes are most relevant to an
investment in the Shares.
Investment Risks:
o There is currently no public trading market for the Shares
and, 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 if they were listed on an exchange or of the
proceeds that a Stockholder may receive if the Company was
liquidated or dissolved.
o As of January 27, 1998, the Company had approximately
$24,000,000 available for additional acquisitions, and,
except for five properties, has not specified any
additional properties for acquisition.
o The Eagle Crest Shopping Center and the Walgreens/Decatur
property were acquired by the Company from Inland Property
3
<PAGE> 11
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 arm's-length transaction.
o 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.
o Acquisition of Neighborhood Retail Centers (but not
single-user retail properties) is primarily limited to the
approximate 150-mile radius surrounding the Advisor's
headquarters in Oak Brook, Illinois. Adverse economic
conditions affecting that area could adversely affect the
Company's ability to acquire, lease and dispose of such
properties and, hence, the Company's results of operations
and financial condition, including the Company's ability
to pay dividends. The Company anticipates seeking approval
of its Stockholders at the Company's annual meeting,
scheduled to be held in the Spring of 1998, to expand the
150 mile radius to 400 miles and to allow the Company to
acquire Community Centers. The Company believes that
expanding the geographic local and type of property able
to be acquired, will lessen the risk of adverse economic
developments in any particular area within the Company's
region.
o Defaults on indebtedness secured by the Company's
properties may result in the Company losing its investment
in the properties securing the loan.
o To satisfy certain federal income tax requirements for
qualification as a REIT, 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 Company's
shares of common stock. 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 stockholders.
o The Company has established a working capital reserve of
approximately $3,500,000 (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 which may be
4
<PAGE> 12
forced to obtain financing from either affiliated or
unaffiliated sources. Additional financing would increase
the Company's indebtedness and the risks associated
therewith.
o 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:
o Conflicts of interest between the Company and its
Affiliates, such as competition for the time and services
of the Advisor and its Affiliates, receipt by the Advisor
and its Affiliates of compensation from the Company for
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 may result in a conflict between the
ongoing business relationship of the Advisor or its
Affiliates and the Company's business.
o 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. For the past ten years,
Affiliates of the Advisor have sponsored seven programs.
Certain of these programs have experienced setbacks, such
as commercial tenant defaults or move-outs. These negative
events, which vary by program, have had the effect of
reducing the benefits which investors in those programs
have received. See "Prior Performance of the Company's
Affiliates" and "Prior Performance Tables."
o The Advisor and its Affiliates are paid substantial fees
and payments for services rendered to the Company whether
or not Stockholders receive Distributions.
o The Company may issue shares or other securities in
addition to Shares issued in this Offering, thereby
diluting the interest of existing Stockholders, including
investors in this Offering, none of whom have preemptive
rights.
o 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
common stock.
5
<PAGE> 13
Risks of Real Estate Ownership:
o All equity real estate investments are subject to some
degree of general economic risks, including lease
defaults, which could adversely affect the Company's
results of operations and financial condition, and the
Company's ability to make Distributions. This risk is
borne by Stockholders in proportion to the number of
shares of common stock owned by each Stockholder.
o Adverse trends for the property types to be acquired by
the Company or adverse economic developments in general
could have an adverse effect on the Company's results of
operations and financial condition, including the
Company's ability to make Distributions.
o 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.
o 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:
o The Company's ability to qualify as a REIT involves the
application of technical and highly complex provisions of
the Internal Revenue Code of 1986, as amended (the "Code")
to various factual matters and circumstances which are
often not within the Company's control. The Company's
qualification as a REIT depends upon its ability to meet,
through actual operations, various tests imposed by the
Code, and there can be no assurance that 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.
o If the Company fails to qualify as a REIT, its
Distributions would not be deductible, which would
increase its tax liability substantially reducing the
funds available for distribution to Stockholders. The
Company could be forced to borrow to pay these tax
6
<PAGE> 14
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 future Distributions.
o Shefsky & Froelich Ltd. ("Counsel") has rendered its
opinion that as of __________, 1998, 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 represents its legal
judgment based on the law in effect as of the date of this
Prospectus; it 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:
o In deciding whether to purchase Shares, each fiduciary of
an employee benefit plan subject to ERISA, in consultation
with its advisors, should carefully consider its fiduciary
responsibilities under ERISA, the prohibited transaction
rules of ERISA and the Code, the UBTI consequences and the
effect of the "plan asset" regulations issued by the
Department of Labor. See "ERISA Considerations."
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."
7
<PAGE> 15
INVESTMENT The Company's investment objectives are to:
OBJECTIVE AND
POLICIES
o 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. A return of capital, however, will reduce a
Stockholder's tax basis in his or her 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;
o 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
o Minimize leverage 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
or incur mortgage indebtedness secured by the property if
the Company believes that post-acquisition financing terms
are favorable.
Currently, 34 of the Company's 47 properties are encumbered
by mortgage indebtedness. See "Real Property Investments."
The proceeds from these loans have been, and any such future
loans 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 50% of its combined
fair market value and the maximum amount of borrowings may
not exceed 300% of Net Assets without approval of a majority
of the Stockholders. As of January 27, 1998, the Company had
approximately $113,000,000 indebtedness secured by its
properties.
8
<PAGE> 16
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."
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 utilize Cash
Flow generated during prior periods, or utilize Cash Flow
generated 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 $.85 per share (8.5% per annum on weighted
average shares). Distributions after August, 1997 were
increased to $.87 per share.
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, however, that the Company
will achieve its investment objectives. Although the Company
owns 38 Neighborhood Retail Centers and nine single-user
properties, except for five 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,
pay expenses of the Offering and Acquisition Expenses, and
to pay
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expenses associated with operating the Company (primarily
the fees due to Affiliates described herein) 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" and "Compensation to be
Paid to the Advisor and Its Affiliates."
THE ADVISOR Inland Real Estate Advisory Services, Inc. (the "Advisor"),
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, 1997, IREIC had an audited net
worth of approximately $95.1 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. See "Management."
COMPENSATION TO The Advisor and its Affiliates will be paid substantial
BE PAID TO THE amounts for managing the Company's business. The most
ADVISOR AND ITS significant items of compensation are:
AFFILIATES
Offering Stage: Selling commissions to Inland Securities
Corporation, the Dealer Manager, of 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 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 December
31, 1997, the Company had paid selling commissions and
Marketing Contribution and Due Diligence Expense Allowance
Fees totaling $23,125,028 in connection with the Prior
Offerings. Approximately $19,580,000 of this amount was
reallowed to Soliciting Dealers as of December 31, 1997. In
certain cases, the Dealer Manager will receive one
Soliciting Dealer Warrant for each 40 Shares sold by each
Soliciting Dealer during the Offering, some or all of which
may be retained or reallowed to the Soliciting Dealers. Each
Soliciting Dealer Warrant will entitle the holder to
purchase one Share from the Company at a price of $13.20
during the Exercise Period. See "Compensation Table" and
"Description of Securities-- Soliciting Dealer Warrants."
Acquisition Stage: Reimbursement for actual out-of-pocket
acquisition expenses to the Advisor of approximately 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 to the Advisor. Payment of this fee is
subordinated to the payment of
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Distributions in an amount equal to a non-compounded return
equal to 8% per annum on Invested Capital (the "Current
Return"). An Affiliate of the Advisor, Inland Commercial
Property Management, Inc., also receives a Property
Management Fee equal to not more than 4.5% of the gross
income earned from the Company's properties (90% of the fee
typically charged by a third party), paid monthly. For the
year ended December 31, 1997, the Company incurred and paid
Advisor Asset Management Fees of $843,000. The Company
incurred and paid Property Management Fees of $1,120,000 for
the year ended December 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 paid to the
Advisor equal to the lesser of: (i) 3% of the sale price of
a property; or (ii) 50% of the commission customarily paid
to third parties. After receipt by 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 paid to the
Advisor. In the event the Company's shares of common stock
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 of
common stock 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."
REAL PROPERTY The Company owns 38 Neighborhood Retail Centers and nine
INVESTMENTS single-user retail properties. The Company utilized
$199,000,000 raised in the Prior Offerings to acquire these
properties. Thirty-four of the properties are encumbered by
outstanding indebtedness of approximately $113,000,000, as
of January 27, 1998. The Company has approximately
$24,000,000 available for investment in additional
properties plus an additional $12,500,000 available from
loan commitments not yet funded. The Company has specified
five 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 price of any
particular property did not exceed its appraised value at
the time of acquisition. Two of the properties were
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<PAGE> 19
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. The Company anticipates seeking Stockholder
approval at the Company's annual meeting scheduled to be
held in the Spring of 1998 to permit the Company to enter
into joint venture or other partnership arrangements with
entities unaffiliated with the Advisor or its Affiliates.
The Advisor believes the Company will be more competitive
with other real estate investment trusts if it is permitted
to enter into these types of joint venture or other
partnership arrangements. See "Investment Objectives and
Policies--Joint Ventures."
PRIOR OFFERINGS The Inland organization, during the past ten years, has
SUMMARY sponsored six public real estate programs and one private
real estate program which have raised in excess of
$174,500,000 from over 15,800 investors.
Two of the Inland-sponsored public 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. 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."
ORGANIZATIONAL Investors should be particularly aware of the following
DOCUMENTS provisions contained in the Company's Second Articles of
Amendment and Restatement, as amended (the "Articles"):
o Limitation on accumulation of shares: In order for the
Company to qualify as a REIT, no more than 50% of the
outstanding shares of common stock may be owned, directly
or indirectly, by five or fewer individuals at any time
during the last half of the Company's
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<PAGE> 20
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 of common stock 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 of common stock, which offers may be
attractive to Stockholders; or (iii) limit the opportunity
for Stockholders to receive a premium for their shares of
common stock in the event an investor is making purchases
of shares of common stock in order to acquire a block of
shares of common stock. See "Description of
Securities--Restrictions on Transfer."
o Voting rights: Each share of common stock is entitled to
one vote and the Articles do not provide for cumulative
voting. Stockholders owning a majority of the outstanding
shares of common stock 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 of common stock, even
if a Stockholder does not vote with the majority.
Stockholders owning in the aggregate at least 10% of the
outstanding shares of common stock may request the
Directors to call a meeting for the purpose of voting on
any of the foregoing.
o Stockholders owning at least two-thirds of the outstanding
shares of common stock 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, which offers may be
attractive to Stockholders; and (iii) limiting the
opportunity for Stockholders to receive a premium for
their shares of common stock in the event an investor is
making purchases of shares of common stock in order to
acquire a block of shares of common stock.
o 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 of common stock.
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<PAGE> 21
o Distributions: Distributions are payable out of funds
legally available to pay distributions.
See "Summary of the Organizational Documents" and
"Description of Securities."
DISTRIBUTION The Company provides the following programs to facilitate
REINVESTMENT AND investment in the Shares and to provide limited liquidity
SHARE REPURCHASE for Stockholders:
PROGRAMS
o The Distribution Reinvestment Program (the "DRP") allows
Stockholders who have purchased shares in the Prior
Offerings or who purchase Shares in this Offering to
purchase additional shares by automatically reinvesting
Distributions, subject to the limitations on share
ownership contained in the Articles. These purchases may
be made at $10.45 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."
o 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. 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 (based on the
repurchase price) 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 pursuant to the Share
Repurchase Program will be canceled and have the status as
authorized but unissued shares. The repurchased shares
will not be reissued unless they are first registered with
the Commission. 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 "Distri bution Reinves tment
and Share Repurch ase Programs -- Share Repurch ase
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."
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<PAGE> 22
ANNUAL VALUATIONS Stockholders subject to ERISA will be provided with an
annual statement of value reporting the value of each Share
based upon an estimated amount they would receive if the
Company's assets were sold as of the close of the Company's
fiscal year and if such proceeds (without reduction for
selling expenses) and all the other funds of the Company
were distributed in liquidation of the Company. The Company
will cease providing these annual statements of value if the
shares become listed on a national stock exchange or are
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> 23
ORGANIZATIONAL CHART
________THE INLAND GROUP, INC._____
| |
| |
| |
| |
Mid-America Inland Real Estate
Management Corporation Investment Corporation
| | |
| | |
Inland Commercial Inland Real Estate Inland Securities
Property Management Inc. Advisory Services Inc. Corporation
| | |
| | |
Property Management and Organization, Advisory Securities
Related Services 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.
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<PAGE> 24
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."
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. As of the date of this Prospectus,
only five 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 ($24,000,000) 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 to the termination of the Offering but are not
retained, subsequently acquired
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<PAGE> 25
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 properties. The Company anticipates
seeking Stockholder approval at the Company's annual meeting scheduled to be
held in the Spring of 1998 to expand the 150-mile radius to 400 miles and to
permit the Company to acquire Community Centers within the radius in addition to
Neighborhood Retail Centers. The Company believes that expanding the geographic
locale and the type of properties the Company may acquire, will lessen the risk
of adverse economic developments in any particular area within the Company's
region.
Insufficient Reserves. The Company has established a working
capital reserve of $3,500,000 (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 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 primarily 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. Incurring mortgage indebtedness increases the risk
of loss since defaults on indebtedness secured by the Company's properties may
result in foreclosure actions initiated by the lenders and loss by the Company
of the property securing the loan which is in default. For tax purposes, any
such foreclosure would be treated as a sale of the property for a purchase price
equal to the outstanding balance of the debt secured by the mortgage. If the
outstanding balance of the debt secured by the mortgage exceeds the Company's
basis in the property, the Company would recognize taxable income on
foreclosure, but would not receive any cash proceeds. The Company 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. As of January 27, 1998, the Company's total indebtedness is
approximately $113,000,000.
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<PAGE> 26
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 of common stock may be owned, directly or indirectly, by 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 of common stock, which offers may
be attractive to Stockholders; or (iii) limit the opportunity for Stockholders
to receive a premium for their shares of common stock in the event an investor
is making purchases of shares of common stock in order to acquire a block of
shares of common stock. 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.
The Company anticipates seeking Stockholder approval at the Company's annual
meeting scheduled to be held in the Spring of 1998 to permit the Company to
enter into joint venture or other partnership arrangements with entities
unaffiliated with the Company's Advisor or its Affiliates. Investments in joint
ventures which own properties may involve risks not otherwise present when the
Company purchases the property directly. For example, the Company's co-venturer
may file for bankruptcy protection, may have economic or business interests or
goals which are inconsistent with the interests or goals of the Company or take
actions contrary to the Company's instructions, requests, policies or
objectives. Among other things, actions by such co-venturer might subject
property owned by the joint venture to liabilities in excess of those
contemplated by the terms of the joint venture or result in other adverse
consequences. See "Investment Objectives and Policies--Joint Ventures."
Seller Financing by Company May Delay Liquidation or
Reinvestment. The Company may sell its properties by providing financing to
purchasers. The terms of payment to the Company will be affected by custom in
the area where the property being sold is located and the then prevailing
economic conditions. To the extent the Company receives promissory notes or
other property in lieu of cash from property sales, the Company bears the risk
of default by the borrower and is subject to remedies provided by law.
Additionally, as a result of accepting promissory notes or other property in
lieu of cash from property sales, distribution of sales proceeds may be delayed
or spread over a number of years. See "Investment Objectives and Policies--Sale
or Disposition of Properties."
Loss on Dissolution and Termination. In the event of
dissolution or termination of the Company, the undistributed proceeds realized
from the liquidation of assets, if any, will be distributed to Stockholders
after satisfying claims of creditors. Accordingly, a Stockholder's ability to
recover all of his or her investment under such circumstances will depend on the
amount of funds so realized and claims to be satisfied therefrom. There can be
no assurance that any proceeds will be available after satisfying the claims of
creditors and paying the expenses of liquidation.
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<PAGE> 27
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 payable 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 income earned from each of the Company's properties on a monthly basis
will be paid 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. These fees may
result in greater costs to the Company than if the Company was self-
administered and performed these services in-house. If an Affiliate breaches its
fiduciary obligations to the Company, or does not resolve conflicts of interest
in the manner described in the section of this Prospectus titled "Conflicts of
Interest--Process for Resolution of Conflicting Opportunities," the Company may
not meet its investment objectives. See "Compensation Table" and
"Management--The Advisory Agreement."
Dependence on the Directors and Advisor. 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,
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<PAGE> 28
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
of common stock 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 of
common stock 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
those 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 costs incurred by the Directors or the Advisor in
certain cases. Neither the Directors nor the Advisor may be held liable to the
Company or the 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. See "Fiduciary Responsibility of Directors and the Advisor;
Indemnification."
The Company anticipates seeking approval of Stockholders at the
Company's annual meeting scheduled to be held in the Spring of 1998 to amend the
Articles to permit the Company to indemnify its officers, employees and agents
to the fullest extent permitted by Maryland statutory or decisional law.
Although each of the Company's officers, agents and employees are presently also
officers, agents, or employees of the Advisor and its Affiliates and thus,
indemnified under the above-described provisions, future officers, agents or
employees of the Company may not be
21
<PAGE> 29
officers, agents, or employees of the Advisor or its Affiliates. The Directors
seek to provide the same type of indemnification protection to these individuals
as the Company currently accords to Directors and the Advisor and its
Affiliates. The Directors believe this indemnification is necessary to attract
and retain qualified personnel to serve in these positions.
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 and may require the Company to make capital improvements to its properties
which it would not have otherwise made which may have a material adverse effect
on the Company's results of operations and financial condition.
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
22
<PAGE> 30
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 burden on the seller to ensure compliance
with the ADA, although there can be no assurance that the Company will be able
to do so.
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 have a material adverse effect on
the Company's results of operation and financial condition. The Company
anticipates seeking stockholder approval at the Company's annual meeting
scheduled to be held in the Spring of 1998 to permit the Company to acquire
Community Centers. In the event the Company's Stockholders vote to approve the
Company's acquisition of Community Centers, which typically lease to only one or
two tenants, this same risk is applicable to the Company's acquisition of
Community Centers.
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. All of which could have a material adverse effect
on the Company's results of operations, financial condition and prospects.
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. Currently, 23 of the Company's 38 Neighborhood
Retail Centers have one or more tenants which individually occupy 30% or more of
the GLA of these Neighborhood Retail Centers and there are nine Anchor Tenants.
In addition, lease termination by one or more Anchor Tenants could result
23
<PAGE> 31
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. 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 a material 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 war) which are either uninsurable or not 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 the property
back to the seller. 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. Although the Company will only acquire newly
constructed buildings on a "turnkey basis", the
24
<PAGE> 32
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 the Construction and Development of
Property. The Company currently may not construct or develop properties or
render any services in connection with such development or construction. The
Company anticipates seeking Stockholder approval at the Company's annual meeting
scheduled to be held in the Spring of 1998 to permit the Company to construct
and develop properties and to render services in connection therewith, subject
to the rules governing real estate investment trusts under the Code. If approved
by the Stockholders, this type of investment may expose the Company to certain
risks such as cost overruns, carrying costs of projects under construction and
development, availability and costs of materials and labor, weather conditions,
and governmental regulation.
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 is inherently speculative because, in
addition to the risks of real estate investment in general, its success depends
upon events beyond the Company's control, such as 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
25
<PAGE> 33
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. 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 of common stock
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."
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<PAGE> 34
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.
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. 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.
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<PAGE> 35
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.
28
<PAGE> 36
ESTIMATED USE OF PROCEEDS OF OFFERING
The amounts set forth in the table below represent the Company's
current estimates concerning the use of the Gross Offering Proceeds. All
proceeds of the Offering are held in trust by the Company for the benefit of the
Stockholders, to be used only for the purposes set forth above and will not be
commingled with the accounts of the Advisor and its Affiliates. As of the date
of this Prospectus, the Company owns 47 properties comprised of 38 Neighborhood
Retail Centers and nine single-user retail properties and has approximately
$24,000,000 available for additional investments plus an additional $12,500,000
available from loan commitments not yet funded. The Company estimates that
87.31% of Gross Offering Proceeds will be used to acquire properties if the
Maximum Offering is sold. If the Maximum Offering is sold, 8.37% of the Gross
Offering Proceeds will be utilized to pay selling and due diligence expenses to
unaffiliated third parties and 2.82% of the Gross Offering Proceeds will be paid
to the Advisor and its Affiliates to pay for the costs of the Offering and the
Marketing Contribution and Due Diligence Expense Allowance.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
DISTRIBUTION REINVESTMENT PROGRAM) (1)
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
Gross Offering Proceeds: $295,900,000 100.00%
Less Expenses:
Selling Commissions (2) 19,250,000 6.51%
Marketing Contribution and Due Diligence
Expense Allowance Fee (2) 6,875,000 2.32%
Organization and Offering Expenses (3) 6,974,110 2.36%
Total Public Offering Expenses 33,099,110 11.19%
Gross Amount Available for Investment 262,800,890 88.81%
Acquisition Expenses (4)(5) 1,479,500 0.50%
Working Capital Reserve (6) 2,959,000 1.00%
Net Cash Payments Relating to the
Purchase of Properties $258,362,390 87.31%
============ =====
</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.
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<PAGE> 37
(2) The Company will pay the Dealer Manager selling commissions equal to up to
7% or $19,250,000 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 625,000 Soliciting Dealer
Warrants. The Dealer Manager will also receive the Marketing Contribution
and Due Diligence Expense Allowance Fee equal up to 2.5% or $6,875,000 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 22,000 Shares or more. 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 2,000,000 Shares available for issuance
under the Distribution Reinvestment Program will be sold at reduced price
due to decreased costs associated with these issuances and will be sold at
a price of $10.45 per Share ($20,900,000 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 ($1,479,500, 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 ($739,750, 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.
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<PAGE> 38
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 ($3,300) or Tax-Exempt
Entities which purchase a minimum of 100 Shares ($1,100), except for investors
resident in the State of Iowa where the minimum investment for IRAs will be 300
Shares ($3,300) and for investors resident in the State of Minnesota where the
minimum investment for IRAs and qualified plan accounts will be 200 Shares
($2,200). 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.
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 Company's subscription
agreement relating to the Shares (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 require 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 or her financial situation and investment
objectives and to transmit promptly to the Company, the fully completed
subscription documentation and any other supporting documentation reasonably
required by the Company. By executing the Subscription Agreement, by tendering
payment for Shares and by accepting confirmation of purchase or delivery of the
Shares, an investor represents that he or she satisfies any applicable
suitability standards.
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<PAGE> 39
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."
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.
32
<PAGE> 40
UPON COMPLETION OF OFFERING:
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
-------------------- ---------------------- -------------
<S> <C> <C>
Selling Commissions (payable The Dealer Manager will Actual amount depends upon
to the Dealer Manager and receive $0.77 per Share for the number of Shares sold.
Soliciting Dealers) each Share sold and, under $24,500,000 was incurred in
certain circumstances, a the Prior Offerings, including
Soliciting Dealer Warrant for $17,054,160 incurred and paid
each 40 Shares sold; provided as of December 31, 1997. A
that the Company will not total of $19,250,000 in selling
issue more than 625,000 of commissions will be paid if
these warrants. The Dealer the Maximum Offering is
Manager may reallow the sell- sold.
ing commissions and So-
liciting Dealer Warrants to
Soliciting Dealers for each
Share they sell. (1) Shares
purchased under the
Distribution Program will be
purchased at a reduced price
to reflect decreased
administrative costs.
Marketing Contribution and An amount equal to up to Actual amount depends upon
Due Diligence Expense 2.0% of the Gross Offering the number of Shares sold.
Allowance Fee (payable to the Proceeds, some portion of Expenses of $7,000,000 and
Dealer Manager and Soliciting which may be reallowed to $1,750,000 were incurred in
Dealers) Soliciting Dealers to pay the the Prior Offerings for the
expenses associated with the Marketing Contribution and
Marketing Contribution. An Due Diligence Expense
additional 0.5% of the Gross Allowance respectively,
Offering Proceeds may be including $4,858,241 and
paid to the Dealer Manager or $1,212,627 incurred and paid
reallowed to the Soliciting as of December 31, 1997. A
Dealers for the Due Diligence total of $6,875,000 will be
Expense Allowance Fee. paid for the Marketing
Shares purchased under the Contribution and Due
Distribution Reinvestment Diligence Expense Allowance
Program will be purchased at if the Maximum Offering is
a reduced price to reflect sold.
decreased costs associated
with these issuances.
</TABLE>
33
<PAGE> 41
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
-------------------- ---------------------- -------------
<S> <C> <C>
Reimbursable Expenses (pay- The Advisor or its Affiliates Reimbursable Expenses of
able to the Advisor and its Af- may advance Organization approximately $5,216,691
filiates) and Offering Expenses to the were incurred and paid as of
Company and will be December 31, 1997 in
reimbursed for actual costs connection with the Prior
incurred in connection with Offerings (for Organization
the Offering on behalf of the and Offering Expenses, but
Company, including legal and excluding selling
accounting fees, registration commissions and the
and filing fees, printing costs Marketing Contributions and
and selling expenses. Due Diligence Expense
However, if the aggregate of Allowance Fee). No estimate
all Organization and Offering is available for the amount of
Expenses, including selling reimbursable expenses that
commissions and the may be incurred in this
Marketing Contribution and Offering.
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>
34
<PAGE> 42
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
-------------------- ---------------------- -------------
ACQUISITION STAGE:
<S> <C> <C>
Acquisition Expenses for the An amount estimated to be up Acquisition Expenses of
costs and expenses of the to 0.5% of the Gross Offering approximately $973,000 were
acquisition of properties in- Proceeds in connection with incurred and paid for as of
cluding surveys, appraisals, the expenses associated with a December 31, 1997 in
title insurance and escrow property acquisition. (2) connection with the Prior
fees, legal and accounting fees Offerings. If the Maximum
and expenses, computer use Offering is sold, Acquisition
related expenses, architectural Expenses may not exceed
and engineering reports, $1,479,500; however, the ac-
environmental and asbestos tual amounts cannot be deter-
audits, travel and communi mined at the present time. In
cation expenses and other no event will such amount
related expenses (payable to exceed 6% of the purchase
the Advisor and its Affiliates). price of any single property.
OPERATIONAL STAGE (3):
Property Management Fee A Property Management Fee Actual amounts are dependent
(payable to an Affiliate of the equal to not more than 4.5% upon results of operations.
Advisor) of the gross income earned Property Management Fees of
from the properties will be approximately $1,120,000
paid monthly to Inland were incurred and paid for the
Commercial Property year ended December 31,
Management, Inc., an Affil- 1997.
iate of the Advisor (the
"Management Agent").
</TABLE>
35
<PAGE> 43
<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
management, the Advisor and upon results of operations
its Affiliates will provide and, therefore, cannot be
other property-level services determined at the present
to the Company, and may time.
receive compensation for such
services, including leasing
fees, development fees, con
struction management fees,
loan origination and servicing
fees, property tax reduction
fees and risk management
fees. However, this compen
sation will not exceed 90% of
that which would be paid to
third parties providing such
services and all such com-
pensation must be approved
by a majority of the
Independent Directors. See
"Management--Other
Services."
Reimbursable Expenses (pay- Certain expenses of the Advi- Actual amounts are dependent
able to the Advisor and its sor and its Affiliates will be upon results of operations;
Affiliates) reimbursed by the Company. approximately $211,429 was
(4) (5) (6) incurred and paid through
December 31, 1997 in connection
with the Prior Offerings.
</TABLE>
36
<PAGE> 44
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
-------------------- ---------------------- -------------
LIQUIDATION STAGE:
<S> <C> <C>
Property Disposition Fee A property disposition fee, Actual amounts to be received
(payable to the Advisor and its payable upon the sale of each depend upon the sale price of
Affiliates) of the Company's properties, Company properties and,
in an amount equal to the therefore, cannot be
lesser of: (i) 3% of the determined at the present
contract sales price of the time.
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 sub-
stantial amount of services in
connection with the sale of the
property. See "Management--
The Advisory Agreement."
</TABLE>
SUBORDINATED PAYMENTS
The following fee payable to the Advisor and its Affiliates by the
Company will be payable only after specified returns have been paid to the
Stockholders as set forth below:
37
<PAGE> 45
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
-------------------- ---------------------- -------------
OPERATIONAL STAGE (3):
<S> <C> <C>
Advisor Asset Management An Advisor Asset Management Fee of Actual amounts are dependent
(payable to the Advisor) not more than 1% of the Average upon results of operations.
In-vested Assets. The fee will be Advisor Asset Management
payable quarterly in an amount Fees of $843,000 were
equal to 1/4 of 1% of the Average incurred and paid for
Invested Assets of the Company, as the year ended December
of the last day of the immediately 31, 1997.
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>
38
<PAGE> 46
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
-------------------- ---------------------- -------------
LIQUIDATION STAGE (3):
<S> <C> <C>
Incentive Advisory Fee After the Stockholders have Actual amounts to be received
(payable to the Advisor) first received: (i) their 8% depend upon the sale price of
Cumulative Return; and (ii) a Company properties and,
return of their Invested therefore, cannot be
Capital, an Incentive Advisory determined at the present
Fee equal to 15% of the net time.
proceeds from the sale of a
property. At such time as the
Advisory Agreement is
terminated due to the listing
for trading of the Shares on a
national exchange or market,
the Incentive Advisory Fee
shall also terminate. The
Advisor and Management
Agent may be merged into the
Company at the time of listing
and may receive shares in the
Company, in an amount
which may be determined at
that time, based upon the val-
ue of all fees given up or
waived by the Advisor and
Management Agent through
the merger. See "Man-
agement--The Advisory
Agreement."
</TABLE>
- ---------------------
(1) Each Soliciting Dealer Warrant grants the holder a right to purchase one
Share at a price of $13.20 per Share during the period beginning from the
date the Soliciting Dealer Warrants are issued and ending on __________,
2003. 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.
39
<PAGE> 47
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
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
40
<PAGE> 48
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.
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 to manage and oversee the
daily operation of the Company and 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
41
<PAGE> 49
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 and the 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."
The Company believes that these factors, together with the
obligations of the Advisor and its 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
42
<PAGE> 50
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 of the
Company. The Company pays the Management Agent a monthly management fee of no
greater than four and one half percent (4.5%) of gross income for the month for
which the payment is made. The property management services agreement between
the Company and the Management Agent is for a term of one year and is subject to
one-year successive renewals unless thirty (30) days prior to the expiration of
the agreement, either party notifies the other in writing that it elects to
terminate the agreement.
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 encumbering the
Company's properties with indebtedness, 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 ability to continue investing 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
its Affiliates are not the result of arm's-length negotiations, but the Company
believes that these agreements and arrangements approximate the terms of
arm's-length transactions.
While the Company does not make loans to the Advisor or its
Affiliates, the Company has borrowed money from an Affiliate 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. All money
borrowed from an Affiliate was repaid within 90 days. See "Real Property
Investments."
43
<PAGE> 51
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."
44
<PAGE> 52
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 the Advisors and its Affiliates is
limited to the fullest extent permitted by the MGCL. Accordingly, the Directors
and the Advisors and its Affiliates may not be held liable to the Company or its
Stockholders for monetary damages unless: (a) it is proven that the person
actually received an improper benefit or profit in money, property or services;
and (b) to the extent that a judgment or other final adjudication adverse to the
person is entered in a proceeding based on a finding in the proceeding that the
person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The Company's Articles 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
45
<PAGE> 53
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 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 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.
The Company anticipates seeking Stockholder approval at the Company's
annual meeting scheduled to be held in the Spring of 1998 to amend the Company's
Articles and Bylaws to authorize the Company to indemnify its officers,
employees, and agents to the same extent permitted for the Company's Directors
and the Advisor and its Affiliates. Currently, the Company's officers,
employees, and agents are also the officers, employees, and agents of the
Advisor and thus, they are covered under the above-described indemnification
provisions. In the future, however, the Company's officers, employees, and
agents may not also be the Advisor's officers, agents or employees. The
Directors believe it is necessary to extend this type of protection to the
Company's officers, agents, and employees in order for the Company to attract
and retain qualified personnel to serve in these positions.
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.
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BUSINESS JUDGMENT PRESUMPTION
Generally, the Directors owe fiduciary duties to the Company and its
Stockholders. These fiduciary obligations include the duty of care and the duty
of loyalty. The duty of care requires that Directors exercise the care that a
reasonably prudent person would exercise under similar circumstances. The duty
of loyalty prohibits the Director from self-dealing. The "business judgment
rule" is a specific application of this directorial standard of conduct. It is a
legal presumption provided by Maryland law which presumes that when making a
business decision, the Director acted on an informed basis, in good faith, and
in the honest belief that the action taken was in the best interest of the
Company. Therefore, should a Director by sued by the Stockholders because of the
Director's business decision, the court will examine the directorial decision
only to the extent necessary to verify the presence of a business decision,
disinterestedness and independence of the Director, due care of the Director,
good faith of the Director, and the absence of an abuse of discretion on behalf
of the Director. These elements are presumed to be present unless the
Stockholder is able to provide evidence to overcome the presumption. Thus, the
business judgment rule is a tool of judicial review rather than a standard of
conduct and it applies both in actions seeking to impose liability for money
damages upon Directors for their decision and in actions seeking injunctive
relief. In proving his or her case of breach of fiduciary duty, the Stockholder
bears the burden of overcoming this presumption and, if successful, the burden
shifts to the Director to show that he/she acted both in good faith and as a
reasonable prudent person. In making the Company's business decisions, the
Directors are entitled to rely on information, opinions, reports, or records
prepared by experts including accountants, consultants and counsel who were
selected with reasonable care.
There are also certain defenses which may be raised by the Company's
Directors and officers, the Advisor and its Affiliates under Maryland law and
the Articles in the event of a Stockholder action. For example, 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 absent a Stockholder vote in certain circumstances.
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES
PRIOR INVESTMENT PROGRAMS
The Inland organization, during the past ten years, has sponsored six
public real estate programs and one private real estate program which have
raised in excess in $174,500,000. In excess of 15,800 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, pre-development land and whole or partial interests in
mortgage loans.
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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, 1988 through December 31, 1997, 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 . . . . . . . . . . . . . . 6 1
Aggregate amount raised from investors . . . . . . . . . $172,240,771 $2,275,000
Aggregate number of investors . . . . . . . . . . . . . . 15,800 85
Number of properties purchased . . . . . . . . . . . . . 84 7
Aggregate cost of properties (1) . . . . . . . . . . . . $145,020,714 $1,951,930
Percentage of properties (based on cost) that were:
Commercial
Retail . . . . . . . . . . . . . . . . . . . . . . . 2.9% 0.0%
Single-user retail net-lease . . . . . . . . . . . . 9.8% 0.0%
Nursing homes . . . . . . . . . . . . . . . . . . . 9.9% 0.0%
Offices . . . . . . . . . . . . . . . . . . . . . . 0.0% 0.0%
Industrial . . . . . . . . . . . . . . . . . . . . . 0.0% 0.0%
Health clubs . . . . . . . . . . . . . . . . . . . . 5.2% 0.0%
Mini-storage . . . . . . . . . . . . . . . . . . . . 0.0% 0.0%
Total commercial . . . . . . . . . . . . . . . . . 27.8% 0.0%
Multi-family residential . . . . . . . . . . . . . . . 8.5% 0.0%
Land . . . . . . . . . . . . . . . . . . . . . . . . . 63.8% 100.0%
Percentage of properties (based on cost) that were:
Newly constructed (within a year of acquisition . . . . 0.0% 0.0%
Existing . . . . . . . . . . . . . . . . . . . . . . . 100.0% 0.0%
Construction . . . . . . . . . . . . . . . . . . . . . 0.0% 0.0%
Number of properties sold . . . . . . . . . . . . . . . . 11 1
22.9% (2)
Number of properties exchanged . . . . . . . . . . . . . 0 0
</TABLE>
- ------------------
(1) Includes purchase price and acquisition fees and expenses.
(2) Based on costs of property including portions of land parcels sold at
December 31, 1997, and costs capitalized subsequent to acquisition.
During the three years prior to December 31, 1997, publicly registered
investment programs sponsored by IREIC purchased one parcel of land totaling 387
acres 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 this
acquisition.
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PUBLICLY REGISTERED LIMITED PARTNERSHIPS
INLAND'S MONTHLY INCOME FUND, L.P. ("MONTHLY INCOME FUND I") -- The
offering period for Monthly Income Fund I began August 3, 1987 and ended August
3, 1988. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on an all-cash basis to provide
monthly cash distributions of at least 8% per annum throughout the life of the
partnership and to provide a hedge against inflation through capital
appreciation.
Monthly Income Fund I raised $30,000,000 from over 2,200 investors.
Originally, Monthly Income Fund I purchased seven properties, including five in
Illinois, one in Ohio and one in Oklahoma, for a total investment of $27,511,692
which includes acquisition costs of $25,831,542 plus an additional $1,487,500
expended for the upgrade of the McHenry Plaza, a neighborhood retail center, in
McHenry, Illinois, plus $192,650 for upgrade costs at other properties. The
properties owned by Inland Monthly Income Fund I include, in addition to McHenry
Plaza, two nursing centers, two retail stores leased on a triple-net basis by
Wal-Mart Stores Inc., a health club facility and an apartment complex, which was
sold on an installment basis in 1994 and 1995. Through December 31, 1997, cash
distributions have been maintained at an 8% level and on an accrual basis have
totaled $415.41 per $500 unit or $23,641,195 including $20,623,400 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, Family Entertainment Center, a Mexican restaurant and a
cigarette store. These tenants took possession of their spaces at the center
from 1990 through 1997, 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
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$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.
The partnership successfully completed the conversion of the apartment
complex to condominiums. Condominium sales began during the first quarter of
1994. As of December 31, 1995, all of the 38 six-unit buildings at the property
had been sold.
The defaults by ALC and Alco, the expense of upgrades and build-out at
the McHenry Plaza and lower than expected net rental income from the apartment
complex have reduced cash available for distribution by Monthly Income Fund I.
Under the terms of a guarantee agreement, IREIC has made supplementary capital
contributions totaling $2,095,863 from the inception of the program through
December 31, 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 December 31, 1997, cash
distributions have been maintained at or above an 8% level and on an accrual
basis have totaled $416.49 per $500 unit or $19,636,316, including $15,240,751
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
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month when ALC was the tenant to $71,895 from Elite. Under the terms of the
lease agreement for the nursing center the partnership must approve any sublease
transaction. The current operator of this facility has negotiated with a new
operator to sublease the facility. IREIC has reviewed and approved the
transaction with no significant changes to the terms of the lease.
On January 8, 1991, Monthly Income Fund II sold its Wholesale Club
property in Indiana for $4,400,000. Net sales proceeds of $4,395,565 were
distributed to investors on February 1, 1991. The property was purchased by
Monthly Income Fund II in December 1988 for $3,427,278, which included
acquisition fees of $275,013 and acquisition costs of $9,265. The gain on sale
for financial reporting purposes was $847,467, which is net of selling expenses
and commissions.
On January 21, 1994, the anchor tenant at Eagle Plaza neighborhood
retail center, Eagle Foods, closed its store. 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 December 31, 1997 totaled $528.35 per
$1,000 unit or $4,697,141, including $1,461,428 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
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<PAGE> 60
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.
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 December 31, 1997 totaled
$1,162.12 per $1,000 unit or $4,590,702, including $927,931 from operations and
$3,662,771 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.
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INLAND LAND APPRECIATION FUND, L.P. ("LAND FUND I") -- The offering
period for Land Fund I began October 12, 1988 and ended October 6, 1989. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund I raised $30,001,000 from 3,425 investors and purchased 25
land parcels, all in suburban counties surrounding Chicago, Illinois, for an
aggregate purchase price of $25,187,069. As of December 31, 1997, Land Fund I
has had multiple sales transactions involving all or portions of 15 parcels
which generated $12,173,287 in net sales proceeds. Land Fund I's cost basis in
the land parcels sold was $9,068,698 resulting in a gain, net of selling
expenses and commissions, of $3,104,589 for financial reporting purposes. In the
opinion of IREIC, the partnership is currently meeting its investment objectives
and has, through completed sales transactions, realized significant capital
appreciation on the assets sold. Cash distributions to limited partners through
December 31, 1997 totaled $5,996,219, all from the sale of land parcels.
INLAND LAND APPRECIATION FUND II, L.P. ("LAND FUND II") -- The offering
period for Land Fund II began October 25, 1989 and ended October 24, 1991. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund II raised $50,476,170 from 5,055 investors and purchased 27
land parcels and two buildings, all in suburban counties surrounding Chicago,
Illinois, for an aggregate purchase price of $41,314,301. As of December 31,
1997, Land Fund II has had multiple sales transactions involving all or portions
of nine parcels which generated $12,415,359 in net sales proceeds. Land Fund
II's cost basis in the land parcels sold was $7,690,453 resulting in a gain, net
of selling expenses and commissions, of $4,724,906 for financial reporting
purposes. In the opinion of IREIC, the partnership is currently meeting its
investment objectives and has, through completed sales transactions, realized
significant capital appreciation on the assets sold. Cash distributions to
limited partners through December 31, 1997 totaled $6,836,753, including
$6,115,753 from sales and $721,000 from operations.
INLAND CAPITAL FUND, L.P. ("LAND FUND III") -- The offering period for
Land Fund III began December 13, 1991 and ended August 23, 1993. The objectives
were to invest in pre-development land on an all-cash basis and realize
appreciation of such land upon resale.
Land Fund III raised $32,399,282 from 2,683 investors and purchased 18
land parcels, one of which included a house and several outbuildings, for an
aggregate purchase price of $25,945,989. As of December 31, 1997, Land Fund III
has had multiple sales transactions, involving the house and portions of three
parcels which generated $1,974,816 in net sales proceeds. Land Fund III's cost
basis in the land parcels sold was $742,595 resulting in a gain, net of selling
expenses and commissions, of $1,232,221 for financial reporting purposes. In the
opinion of IREIC, the partnership is currently meeting its investment objectives
and has, through completed sales transactions, realized significant capital
appreciation on the assets sold. Cash distributions to limited partners through
December 31, 1997 totaled $1,646,334, all from the sale of land parcels.
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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, 299 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 1997, investors in Inland's private
partnerships have received total distributions in excess of $174,806,500,
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 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
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heard by the Appellate Court in February, 1997, and subsequently the Appellate
Court affirmed the trial court decision in favor of IREIC.
PRIVATE PLACEMENT REAL ESTATE EQUITY PROGRAM
WISCONSIN CAPITAL LAND FUND, L.P., an Illinois limited partnership, was
formed in October 1992. The objectives were to invest in pre-development land in
the Madison, Wisconsin area on an all-cash basis and realize appreciation of
such land upon resale. The offering period for units in this privately offered
partnership began 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. Parcel 5, which consists of
sixty-three improved lots in the Village of Mount Horeb has had twenty-eight lot
sales since 1995 for a total gross sales proceed amount of $1,117,400.
Thirty-five remaining lots continue to be marketed for sale. On October 1, 1997,
Parcel 6, located in Windsor, Wisconsin, was sold for $566,597 which represents
191% of original parcel capital.
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 ended June 1992 with the maximum
amount of $2,000,000 raised. Notes with a term of five years and providing a 10%
annual return for the first four years and 10.5% in the fifth year were issued
by the partnership. The return of capital to noteholders and the specified
annual returns are guaranteed by IREIC. 10% Income Fund, L.P. invested in loans
made to an Affiliate of IREIC, which were secured by collateral assignments of
third-party mortgage loans owned by the Affiliate. Noteholders received their
first monthly interest distribution on July 17, 1992. Cash distributions
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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 December 31, 1997 totaled $557,185, of which $433,747
was interest earnings, $110,544 was a return of capital resulting from the
amortization of mortgage loans and $12,894 was a loan from IREIC, pursuant to
the distribution guarantee for that program.
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 December 31,
1997 totaled $1,619,147, of which $1,614,837 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
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began April 5, 1993 and ended July 23, 1993, with the maximum amount of
$4,000,000 raised. Notes maturing February 1, 2000 and providing a 9% annual
return were issued by the partnership. 9% Monthly Cash Fund II, L.P. has
invested in a loan made to an Affiliate of IREIC, secured by collateral
assignments of third-party mortgage loans owned by the Affiliate. The return of
capital to noteholders and the 9% annual return are guaranteed by IREIC. Cash
distributions through December 31, 1997 totaled $1,557,369, of which $1,554,176
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 December 31, 1997 totaled
$2,142,984, of which $2,123,528 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 December 31, 1997 totaled $1,411,617, of which
$380,617 was interest earnings and $1,031,000 was a return of capital. This
partnership was liquidated in 1997.
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
was liquidated in 1997.
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LOAN MODIFICATIONS AND WORK-OUTS
Between 1990 and December 31, 1997, 40 Inland-sponsored partnerships
owning 27 properties ceased making debt service payments to unaffiliated lenders
which held the underlying financing on the properties. These actions were taken
with the objective of reducing or restructuring the debt to levels commensurate
with the levels of performance of the operating properties. In the case of six
of these partnerships, namely 14 W. Elm Limited Partnership, 1445 North State
Parkway Limited Partnership, 5600 Sheridan Limited Partnership, 5630 Sheridan
Limited Partnership, 6030 Sheridan Limited Partnership and Oak Brook Commons
Limited Partnership, the original asset of each of these partnerships was
transferred to a new partnership which was 100% owned by the old partnership.
IREIC believed that the new partnerships were better positioned to accomplish a
work-out with the lender. In connection with the transfers of three of these
properties to the new partnerships discussed above, the lender holding the first
mortgages on these properties filed a separate proceeding against the general
partner and its Affiliates, claiming contractual interference and other
allegations. This complaint was withdrawn as part of a final settlement reached
with the lender in February 1993.
Each of these new partnerships filed for financial reorganization in
federal court. In addition, 1036 N. Dearborn Limited Partnership also filed for
financial reorganization in federal court. All of these filings for
reorganization were an extension of negotiations with the lenders, with the
objective of reducing or restructuring the debt on the properties owned by the
partnerships. In the case of the filing for reorganization by each of the new
partnerships owned by 1445 North State Parkway Limited Partnership, 5600
Sheridan Limited Partnership and 5630 Sheridan Limited Partnership, the
reorganization proceedings were dismissed after each lender approved a
tax-deferred exchange transaction between the new partnership and an
unaffiliated third party. The general partner of the 1036 North Dearborn Limited
Partnership was able to purchase the debt encumbering that property at a
discount from the lender and the filing for reorganization of that partnership
was dismissed. The 1036 North Dearborn property was subsequently refinanced with
a third-party lender and then sold to a third party. The new partnerships owned
by the 14 W. Elm, 6030 Sheridan and Oak Brook Commons Limited Partnerships
participated with the general partner and its affiliates and with 16 other
affiliated limited partnerships, all of whose properties were subject to
first-mortgage loans from the same third-party lender, in a settlement agreement
with that lender. Under the terms of the settlement agreement, the 16 other
affiliated limited partnerships- -none of which were in default on their
mortgage loans--provided additional security to the lender with respect to each
of their loans by transferring administration of property tax escrow accounts to
the lender. The transfer of the escrow accounts had no financial impact on the
16 partnerships. Five of the 16 other partnerships also obtained favorable loan
modifications from the lender. In the case of the new partnership owned by the
14 W. Elm Limited Partnership, the lender cooperated in a tax-deferred exchange
of the partnership's real estate asset. 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
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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.
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
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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 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
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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 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
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net-leased properties are sold or refinanced, there is no assurance that
investors will realize any profit or a complete return of capital. Because the
duration of these partnerships has been extended, when the net-leased properties
are sold or refinanced, the annual rate of appreciation realized by investors,
if any, will be less than if the tax law had not been changed and apartment
markets had not declined in the late 1980s.
ADDITIONAL INFORMATION
Through December 31, 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. Fifteen
of the properties that were re-acquired were subsequently sold. One property was
returned to the lender and the remaining properties are being operated by the
partnerships.
Through December 31, 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.
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.
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MANAGEMENT
GENERAL
The Company operates under the direction of a Board of Directors which
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 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:
<TABLE>
<CAPTION>
Name Age Position and Office with the Company
---- --- -------- --- ------ ---- --- -------
<S> <C> <C>
Robert D. Parks 54 President, Chief Executive Officer, Chief Operating Officer
and Affiliated Director
G. Joseph Cosenza 54 Affiliated Director
Roland W. Burris 60 Independent Director
Joel G. Herter 60 Independent Director
Heidi N. Lawton 36 Independent Director
Roberta S. Matlin 53 Vice President -- Administration
Kelly Tucek 35 Secretary, Treasurer and Chief Financial Officer
Patricia A. Challenger 45 Assistant Secretary
</TABLE>
ROBERT D. PARKS President, Chief Executive Officer, Chief Operating
Officer and Director of the Company since its formation in 1994. Mr. Parks
joined The Inland Group, Inc. ("TIGI") and its affiliates in 1968. Mr. Parks
is a Director of TIGI and is Chairman of Inland Real Estate Investment
Corporation ("IREIC") and is a Director of both Inland Securities Corporation
and the Advisor. Mr. Parks is responsible for the ongoing administration of
existing partnerships, corporate budgeting and administration for IREIC. In
this capacity he oversees and coordinates the marketing of all investments
nationwide and has overall responsibility for investor relations. Mr. Parks
received his B.A. Degree from Northeastern Illinois University in 1965 and M.A.
from the University of Chicago in 1968. 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 Director of the Company since its formation in 1994.
Mr. Cosenza is a Director and Vice Chairman of The Inland Group, Inc. Mr.
Cosenza oversees, coordinates and directs TIGI's many enterprises and, in
addition, immediately supervises a staff of eight property acquisition
personnel. 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 in 1966 and his M.S. Degree
from Northern Illinois University in 1972. From 1967 to 1968, Mr. Cosenza 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 American National Bank of DuPage, and has
served on the board of directors of
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Continental Bank of Oakbrook Terrace. He is presently chairman of the board
of Westbank, in Westchester, Illinois.
ROLAND W. BURRIS Independent Director of the Company 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 law. From 1973 to 1995, Mr.
Burris held various governmental positions in the State of Illinois including
State Comptroller (1979 to 1991) and Attorney General (1991 to 1995). Mr. Burris
completed his undergraduate studies at Southern Illinois University in 1959 and
studied international law as an exchange student at the University of Hamburg in
Germany. Mr. Burris graduated from Howard University Law School in 1963. Mr.
Burris serves on the board of 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 and is an adjunct professor in the Master of Public Administration
Program at Southern Illinois University.
JOEL G. HERTER Independent Director of the Company since 1997, Mr.
Herter is a senior partner of Wolf & Company LLP ("Wolf") where he has been
employed since 1978. Mr. Herter graduated from Elmhurst College in 1959 with a
Bachelor of Science degree in business administration. His business experience
includes accounting and auditing, tax and general business services including
venture and conventional financing, forecasts and projections and strategic
planning to a variety of industries. From 1978 to 1991, Mr. Herter served as
managing partner for Wolf. Mr. Herter is a member of the American Institute of
Certified Public Accountants and the Illinois CPA Society and was a past
president and director of the Elmhurst Chamber of Commerce and was appointed by
Governor Thompson of the State of Illinois 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 Illinois Attorney General
Jim Ryan. Mr. Herter has also been appointed by Governor Edgar of the State of
Illinois 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. The
firm specializes in commercial, industrial and investment real estate brokerage.
Ms. Lawton is responsible for all aspects of the operations of the company,
including structuring real estate investments, 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, Ms.
Lawton was managing broker for VCR Realty in Addison, Illinois. Ms. Lawton has
been licensed as a real estate professional since 1982 and has served as a
member of the Certified Commercial Investment
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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 TIGI in 1984 as Director of Investor
Administration and currently serves as Senior Vice President - Investments of
IREIC directing the day-to-day internal operations. Ms. Matlin is a Director
of both Inland Securities Corporation and the Advisor. Prior to joining TIGI,
Ms. Matlin was employed for eleven years by the Chicago Region of the Social
Security Administration of the United States Department of Health and Human
Services. Ms. Matlin received her B.A. Degree from the University of Illinois
in 1966 and 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 TIGI 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 TIGI, 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 in 1984.
PATRICIA A. CHALLENGER Assistant Secretary of the Company since March
1995. Ms. Challenger joined TIGI in 1985. She is currently a Senior Vice
President of IREIC in charge of the Asset Management Department where she is
responsible for developing operating and disposition strategies for properties
owned by IREIC related entities. Ms. Challenger received her B.S. Degree from
George Washington University in 1975 and her Master's Degree from Virginia Tech
University in 1980. 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 governmental 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.
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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 office receives an additional grant of options to purchase 500
Shares at fair market value. 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.
<TABLE>
<CAPTION>
Name Position and Office with the Advisor
---- ------------------------------------
<S> <C>
Robert D. Parks Chairman of the Board and President
G. Joseph Cosenza Director
Norbert J. Treonis Director
Roberta S. Matlin Director
Patricia A. Challenger Vice President -- Asset Management
Catherine L. Lynch Treasurer and Secretary
</TABLE>
NORBERT J. TREONIS (age 47) 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
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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 39) 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.
ADVISOR BACKGROUND
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 were started by a group of
Chicago school teachers in 1967, and incorporated the following year. The
founders of TIGI all remain actively involved in overseeing these companies. The
businesses of these TIGI-affiliated companies are still centered in the Chicago
metropolitan area, since the founders of TIGI believe that sound real estate
operations require detailed knowledge of local conditions. Over the past 30
years, TIGI-affiliated companies have experienced significant growth.
TIGI-affiliated companies, in the aggregate, in April 1997 were ranked by
Crain's Chicago Business as the 37th 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.
The TIGI-affiliated companies developed expertise in real estate
financing as it bought and sold properties over the years. In 1977, Inland
Mortgage Corporation, an Illinois corporation ("IMC") was incorporated. IMC,
during its history, 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
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Mortgage Servicing Corporation ("IMSC"). IMIC, as of December 31, 1997, owned a
$79,375,000 loan portfolio, and IMSC serviced a loan portfolio of 381 loans
exceeding approximately $431,000,000.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor generally is
responsible 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 by another party (the "Management Agent") the
Company's properties and renders other services as the Directors deem
appropriate. The Advisor is subject to the supervision of the Directors and
performs only those functions delegated to it by the Directors.
The Advisor bears the expenses it incurs in connection with performing
its duties under the Advisory Agreement, including employee expenses; certain
travel and other expenses of its directors, officers and employees; rent;
telephone; and equipment expenses to the extent such expenses relate to the
office maintained by both the Company and the Advisor and miscellaneous
administrative expenses incurred in supervising, monitoring and inspecting real
property or other investments of the Company or relating to its performance
under the Advisory Agreement. The Advisor is reimbursed for the cost to the
Advisor and its Affiliates of goods and services used for and by the Company and
obtained from unaffiliated parties and administrative services related thereto.
The Company bears its own expenses for functions not required to be performed by
the Advisor under the Advisory Agreement, which generally include capital
raising and financing activities, corporate governance matters and other
activities not directly related to the Company's properties.
The Advisory Agreement, which was entered into by the Company with the
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.
The Advisor receives an Acquisition Expense reimbursement up 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. If the Advisor or its Affiliates
perform services that are outside of the scope of the Advisory Agreement, the
Company will compensate the Advisor or the Affiliate at such rates and in such
amounts as agreed upon by the Advisor and the Independent Directors. See
"Compensation Table."
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For any year in which the Company qualifies as a REIT, the Advisor must
reimburse the Company: (i) to the extent that the Advisor Asset Management Fee
plus Other Operating Expenses paid during the previous calendar year exceed 2%
of the Company's Average Invested Assets for that calendar year; or (ii) 25% of
the Company's Net Income for that calendar year.
The Advisory Agreement 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.
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 and the Management Agent to merge into 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 of the fees described above. 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. 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.
Under the Advisory Agreement, the Company is required to indemnify the
Advisor and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding 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 Company will advance amounts to persons entitled to indemnification
for legal and other expenses only if: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party; (ii) the legal action is initiated by a third party and a
court of competent jurisdiction specifically approves such advancement; and
(iii) the indemnified party receiving such advances undertakes to repay the
advanced funds to the Company, together with the applicable legal rate of
interest thereon, in which such party would not be entitled to indemnification.
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 13.1 million square feet by December 1997.
ICPM is responsible for collecting rent and leasing and maintaining the
commercial properties which it manages. A substantial portion of the portfolio,
approximately 8.8 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.
ICPM is paid a monthly management fee of no greater than four and one
half percent (4.5%) of gross income for the month for which the payment is made.
The Company and ICPM have entered into an agreement for a term of one year,
subject to one-year successive renewals, unless either party notifies the other
in writing of its intent to terminate the agreement.
The following table sets forth information with respect to the
executive officers and directors of ICPM. The biography of Mr. Norbert J.
Treonis is set forth above.
<TABLE>
<CAPTION>
Name Age Position and Office with ICPM
---- --- -------- --- ------ ---- ----
<S> <C> <C>
Norbert J. Treonis 47 Chairman of the Board of Directors
Robert H. Baum 54 Director
Daniel L. Goodwin 54 Director
D. Scott Carr 32 President
Kristi Wells 32 Vice President
Robert M. Barg 44 Secretary/Treasurer
</TABLE>
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<PAGE> 80
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 Oak Brook 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.
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, entitled The Landlord's
Handbook.
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
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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. 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.
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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. 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 of common stock at fair
market value to each individual becoming an Independent Director (the "Initial
Options"), and subsequent grants of options to purchase 500 Shares on the date
of each annual stockholder's meeting so long as the individual is still 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 12,000 shares at
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$9.05 per share (the "Option Price") have been granted to the existing
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 been granted to Joel G. Herter of which
1,000 have vested; options to purchase 4,000 Shares have been granted to Roland
W. Burris of which 2,000 have vested and 1,000 of which have been exercised; and
options to purchase 4,500 Shares have been granted to Heidi Lawton of which
3,500 have vested. 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 of common
stock in lieu of and in complete satisfaction of such options.
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SELECTED FINANCIAL DATA (1)
The following table sets forth selected financial information derived
from the financial statements of the Company. Balance sheet data at September
30, 1997 and income statement data for the nine months ended September 30, 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>
Nine Months Ended Year ended December 31,
September 1997 -----------------------
(unaudited) 1996 1995 1994
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . $262,725,479 $104,508,686 $18,750,877 $2,402,373
Mortgages payable . . . . . . . . . . . 88,774,835 30,838,233 750,727 -
Total income . . . . . . . . . . . . . 19,655,649 6,327,734 1,180,422 -
Net income . . . . . . . . . . . . . . 5,329,961 2,452,221 496,514 -
Net income per share (2) . . . . . . . .41 .55 .53 -
Distributions declared . . . . . . . . 8,285,244 3,704,943 736,627 -
Distributions per share (2) . . . . . . .64 .82 .78 -
Funds from Operations (2)(3) . . . . . 8,337,639 3,391,365 666,408 -
Funds available for distribution (3) . 8,193,223 3,709,818 787,011 -
Cash flows from operating
activities. . . . . . . . . . . . . 9,809,108 5,529,709 978,350 -
Cash flows from investing
activities . . . . . . . . . . . . (103,895,412) (68,976,841) (6,577,843) (1,703,498)
Cash flows from financing
activities . . . . . . . . . . . . 115,598,014 71,199,936 6,327,490 1,714,432
Weighted average number
of common shares
outstanding . . . . . . . . . . . 12,854,708 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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<PAGE> 85
(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 on real property
and amortization and other non-cash items except financing costs. FFO
and funds available for distribution are calculated as follows:
<TABLE>
<CAPTION>
September 30, 1997 1996 1995
------------------ ---- ----
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . $ 5,329,961 $ 2,452,221 $ 496,514
Depreciation . . . . . . . . . . . . . . . . 3,007,678 939,144 169,894
------------ ----------- -------
Funds from operations(a) . . . . . . . . 8,337,639 3,391,365 666,408
Deferred rent receivable (b) . . . . . . . . (441,104) (119,225) (12,413)
Rental income received under
master lease agreements (c) . . . . . . . 296,688 437,678 133,016
------------ ----------- -------
Funds available for distribution . . . . $ 8,193,223 $ 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) 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 $441,104 and $63,007
for the nine months ended September 30, 1997 and 1996, of
rental income for the period of occupancy for which stepped
rent increases apply and $572,742 and $131,638 in related
accounts receivable as of September 30, 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.
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<PAGE> 86
(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.
INVESTMENT OBJECTIVES AND POLICIES
1. General. The Company's investment objectives are to: (i) make
regular Distributions to the Stockholders equal to at least 95% of the Company's
taxable income, provided that these Distributions may be in amounts which 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; (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. Currently Leases
representing approximately 42% of the Company's total GLA provide for scheduled
rent escalations.
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 have generated sufficient cash flow to cover
operating expenses of the Company plus pay a monthly Distribution of $.85 per
share (8.5% per annum on weighted average shares). Beginning August 1997,
Distributions were increased to $.87 per share. 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 twelve months ended December 31, 1997
totaled $13,127,597, a portion of which represents a return of capital for
federal income tax purposes.
To the extent possible, the Company seeks to avoid the
fluctuations in Distributions which might result if Distributions were based on
actual cash received during the Distribution period. To avoid fluctuation, the
Company may use Cash Flow received during prior periods, or Cash Flow received
subsequent to the Distribution period and prior to the payment date for such
Distribution, in order to pay annualized Distributions consistent with the
Distribution level established from time to time by the Board. The Company's
ability to maintain this policy is dependent upon the Company's Cash Flow and
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
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<PAGE> 87
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 anticipates seeking Stockholder approval at the
Company's annual meeting scheduled to be held in the Spring of 1998 to expand
the geographic area in which the Company may acquire properties from an area
within a 150-mile radius of the Company's headquarters in Oak Brook, Illinois to
an area within a 400-mile radius of the Company's headquarters and to permit the
Company to acquire Community Centers in addition to Neighborhood Retail Centers
and single-user properties, within that region. The Advisor believes that by
expanding the geographic locale and the type of properties acquired, the Company
will be able to lessen the risk of adverse economic developments in any
particular area within the Company's region.
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. Currently, the Company has financing on 34 of its 47
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 primarily to
acquire additional properties. Certain of the Company's 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 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.
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
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<PAGE> 88
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. Currently, the Company is not
permitted to construct or develop properties, or render any services in
connection with such development or construction. The Company anticipates
seeking its Stockholders' approval at the Company's annual meeting scheduled to
be held in the Spring of 1998 to permit the Company to construct and develop
properties and render services in connection therewith, subject to the Company's
compliance with the rules governing real estate investment trusts under the
Code, as amended. The Advisor has advised the Directors that, in its view, the
Company's investment opportunities will be enhanced if the Company has the
opportunity to undertake construction and development activities. In particular,
the Advisor believes these opportunities may be able to reduce the Company's
overall purchase costs. The construction and development, however, would expose
the Company to certain risks such as cost overruns, carrying costs of projects
under construction and development, availability and costs of materials and
labor, weather conditions, and government regulation. Nevertheless, the
Directors believe these opportunities would provide an overall benefit to the
Company, provided the Company does not lose its REIT status under the Code.
Before purchasing a property, the Advisor examines and
evaluates the potential value of the site, the financial condition and business
history of the property, the demographics of the area in which the property is
located or to be located, the proposed purchase price, geographic and market
diversification and potential sales. In evaluating a property for acquisition,
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, since the seller of the property generally is assuming the operating
risk the price paid for the property by the Company may be greater than if it
was not leased back to the Seller. All acquisitions from Affiliates must be
approved by a majority of the Directors, including a majority of the Independent
Directors.
The Advisor and its Affiliates may purchase properties in their
own name, assume loans in connection therewith and temporarily hold title
thereto for the purpose of facilitating acquisition or financing by the Company,
the completion of construction of the property or any other purpose related to
the business of the Company.
4. Acquisition Standards. Through its experience gained through the
acquisition of approximately 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.
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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 total residential
population among 315 metropolitan areas in the nation with approximately 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; job growth is forecasted to grow 0.93% on an annual basis
for Chicago, compared to 1.05% for the nation while for retail sales are
forecasted to grow from 1994 to 2020 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.
From 1994 through 2020, Woods & Poole projects that the Chicago
area will: (i) experience 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 created, with 1,225,860; and (iii)
experience 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 entering into "net
leases" which require lessees 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.
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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 and own 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 and "Federal Income Tax
Considerations -- 1997 Taxpayer Relief Act - Significant REIT Provisions --
Qualified REIT Subsidiaries."
As of the date of this Prospectus, the Company had acquired 38
Neighborhood Retail Centers and nine 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 the Affiliate, provided that if the price to the Company is
greater, substantial justification for the excess must exist and the excess must
be reasonable. In no event may the cost of the asset exceed its current
appraised value. A majority of the Directors (including a majority of the then
Independent Directors) approved the purchases of the Eagle Crest Shopping Center
and the Walgreen/Decatur property as being fair and reasonable to the Company
which were purchased at a price equal to the Affiliate's cost. 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,
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engineer or other appropriate party, stating that the property complies with all
plans and specifications. Currently, the Company is not permitted to construct
or develop properties, or render any services in connection with such
development or construction, however, as discussed above in "Types of
Investments" in this Section, the Company anticipates seeking the approval of
its Stockholders at the Company's annual meeting scheduled to be held in the
Spring of 1998 to permit the Company to construct and develop properties and
render services in connection therewith, subject to the Company's compliance
with the rules governing REITs under the Code.
If remodeling is required prior to the purchase of a property,
the Company will pay a negotiated maximum amount either upon completion or in
installments commencing prior to completion. The price will be based on the
estimated cost of remodeling. In such instances, the Company will also have the
right to review the 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 primarily 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. See "Summary of the Organizational Documents--Restrictions on
Borrowing."
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.
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
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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 will be 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 of
common stock, 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 not sold any properties.
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
available for distributions until and to the extent the notes or other property
are actually paid, sold, refinanced or otherwise disposed of and, therefore, the
distribution of the proceeds of a sale to the Stockholders may be delayed until
such time. In such cases, the Company will receive payments (cash and other
property) in the year of sale in an amount less than the selling price and
subsequent payments will be spread over a number of years. To date the Company
has not sold any properties. See "Federal Income Tax Considerations."
9. Change in Investment Objectives and Policies. Directors may not make
any material changes in the Company's investment objectives described herein
under the caption "Investment Objectives and Policies" without amending the
Articles, which requires the affirmative vote of Stockholders holding a majority
of the outstanding shares of stock.
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
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other similar arrangement; and (v) operate in such a manner as to be classified
as an "investment company" for purposes of the Investment Company Act of 1940,
as amended. See "Summary of the Organizational Documents--Restrictions on
Investments."
11. Appraisals. All real property acquisitions made and to be made by
the Company have been or will be supported by an appraisal prepared by a
competent, independent appraiser who is a member-in-good standing of the
American Institute of Real Estate Appraisers prior to the purchase of the
property. The purchase price of each property will not exceed its appraised
value. 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 to reimburse the
Advisor for certain expenses of the Company, to the extent allowable under the
Advisory Agreement, and to pay Advisor and Property Management fees. 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 Directors will determine whether it is in the
best interests of the Company to apply to have the Company's 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
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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.
Presently, the Company may not enter into joint venture arrangements with
entities unaffiliated with the Advisor and its Affiliates, however, the Company
contemplates seeking Stockholder approval at the Company's annual meeting
scheduled to be held in the Spring of 1998 to permit the Company to enter into
joint venture or other partnership arrangements with entities unaffiliated with
the Advisor or its Affiliates. The Advisor has advised the Directors that
allowing the Company to enter into joint venture relationships with entities
unaffiliated with the Advisor or its Affiliates, will allow the Company to
remain competitive, when compared to third parties making property acquisitions
from sellers who are desirous of transactions in tax advantaged structures such
as arrangements typically referred to as "Down REITS." See "Risk
Factors--Investment Risks--Objectives of Joint Venture Partners May Conflict
with the Company's Objectives."
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
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<PAGE> 95
(c) the Directors distribute in-kind property only to those Stockholders who
accept the Directors' offer.
REAL PROPERTY INVESTMENTS
The Company currently owns 38 Neighborhood Retail Centers and nine
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. None of the Company's 47 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 December 31, 1997.
The following tables describe the Company's properties and tenants at those
properties.
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<PAGE> 96
PROPERTY MIX
(AT, JANUARY 22, 1998)
<TABLE>
<CAPTION>
GROSS % OF ANNUALIZED % OF TOTAL
LEASABLE TOTAL BASE RENTAL BASE RENTAL
NO. AREA (SQ FT) GLA REVENUE REVENUE
--- ------------ --- ------- -------
<S> <C> <C> <C> <C> <C>
Single User
Retail Property 9 371,551 11.10% $ 4,923,964 14.31%
Neighborhood
Retail Centers 38 2,976,926 88.9 29,484,142 85.69
--- --------- ------- ---------- ------
47 3,348,477 100.00% $34,408,106 100.00%
=== --------- ======== =========== =======
</TABLE>
89
<PAGE> 97
<TABLE>
<CAPTION>
GROSS PERCENT PERCENT OF 1998
LEASABLE OF GLA LEASED ANNUALIZED CURRENT
DATE YEAR AREA TOTAL AS OF BASE RENTAL NO. OF
PROPERTY ACQ. BUILT (SQ.FT.) GLA 12/31/97) REVENUE(2) TENANTS ANCHOR TENANTS(1)
-------- ---- ----- -------- --- -------- ------------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SINGLE USER
- -----------
RETAIL PROPERTY
- ---------------
Walgreens 01/95 1988 13,500 .40% 100% $ 127,819 1 Walgreens
Decatur, IL
Zany Brainy 07/96 1995 12,499 .37 100 274,978 1 Zany Brainy
Wheaton, IL
Ameritech Outlot 05/97 1995 4,504 .13 100 112,768 1 Ameritech
Joliet, IL
Dominick's Finer Foods 05/97 1996 71,400 2.13 100 1,108,842 1 Dominick's Finer Foods
Schaumburg, IL
Dominick's Finer Foods 06/97 1996 71,442 2.13 100 1,325,934 1 Dominick's Finer Foods
Highland Park, IL
Dominick's Finer Foods 09/97 1997 68,923 2.06 100 809,328 1 Dominick's Finer Foods
Glendale Heights, IL
Party City 11/97 1985 10,000 .30 100 200,004 1 Party City
Oak Brook Terrace, IL
Roselle Eagle 11/97 1990 42,283 1.26 100 335,971 1 Eagle Foods
Roselle, IL
Dominick's Finer Foods 1/98 1990 77,000 2.30 100 628,320 1 Dominick's Finer Foods
West Chicago, IL
Neighborhood Retail Centers
- ---------------------------
Eagle Crest 03/95 1991 67,650 2.02 97 584,393 12 Eagle Foods
Naperville, IL
</TABLE>
90
<PAGE> 98
<TABLE>
<CAPTION>
GROSS PERCENT PERCENT OF 1998
LEASABLE OF GLA LEASED ANNUALIZED CURRENT
DATE YEAR AREA TOTAL AS OF BASE RENTAL NO. OF
PROPERTY ACQ. BUILT (SQ. FT.) GLA 12/31/97 REVENUE(2) TENANTS ANCHOR TENANTS(1)
- -------- ---- ----- --------- --- -------- ----------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Montgomery-Goodyear 09/95 1991 12,903 .39% 77% $ 115,080 2 Goodyear Tire & Rubber
Montgomery, IL Merlin Corp.
Hartford/Naperville Plaza 09/95 1995 43,862 1.31 100 545,193 8 Blockbuster Video
Naperville, IL Sears Hardware
Keller/Williams Realty
Nantucket Square 09/95 1980 56,981 1.70 96 580,806 18 Hallmark
Schaumburg, IL Super Trak
Dental Store
Antioch Plaza 12/95 1995 19,810 .59 68 144,945 5 Blockbuster Video
Antioch, IL Radio Shack
Mundelein Plaza 03/96 1990 68,056 2.03 100 689,253 7 Sears, Roebuck & Co.
Mundelein, IL
Regency Point 04/96 1993 49,826 1.64 97 614,533 18 Walgreens
Lockport, IL 04/96 1995 5,050 Ace Hardware
Prospect Heights 06/96 1985 28,080 .84 83 199,450 4 Walgreens
Prospect Heights, IL Blockbuster Video
Montgomery-Sears 06/96 1990 34,600 1.03 95 388,000 5 Sears Paint & Hardware
Montgomery, IL Blockbuster Video
Salem Square 08/96 1973/ 112,310 3.35 97 682,532 5 TJ Maxx
Countryside, IL 1985 Marshalls
Hawthorn Village 08/96 1979 98,686 2.95 99 929,609 21 Dominick's
Vernon Hills, IL Walgreens
Six Corners 10/96 1966 80,650 2.41 90 990,929 7 Chicago Health Club
Chicago, IL IL Masonic Health Center
</TABLE>
91
<PAGE> 99
<TABLE>
<CAPTION>
GROSS PERCENT PERCENT OF 1998
LEASABLE OF GLA LEASED ANNUALIZED CURRENT
DATE YEAR AREA TOTAL AS OF BASE RENTAL NO. OF
PROPERTY ACQ. BUILT (SQ. FT.) GLA 12/31/97 REVENUE(2) TENANTS ANCHOR TENANTS(1)
--------- ----- ----- --------- ---- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Spring Hill Fashion Corner 11/96 1985 125,198 3.74% 100% $1,230,469 20 TJ Maxx
West Dundee, IL Michaels Crafts
Grand and Hunt Club 12/96 1996 21,222 .63 100 394,844 2 Jewelry 3
Gurnee, IL Super Crown Books
Quarry Outlot 12/96 1996 9,650 .29 100 201,450 3 Dunkin Donuts/Baskin
Hodgkins, IL Robbins
The Casual Male
Jewelry 3
Crestwood Plaza 12/96 1992 20,044 .60 100 203,007 2 Entenmann's
Crestwood, IL Pet Supplies Plus
Lansing Square 12/96 1991 233,508 6.97 90 1,804,263 17 Sam's Club
Lansing, IL Baby Superstore
Office Max
Park St. Claire 12/96 1994 11,859 .35 100 181,216 2 Ameritech
Schaumburg, IL Hallmark Showcase
Summit of Park Ridge 12/96 1986 33,252 .99 83 360,447 13 LePeep Restaurant
Park Ridge, IL Giappos Pizza
Maple Park Place 01/97 1992 215,662 6.44 98 1,813,878 19 Kmart
Bolingbrook, IL Eagle Foods
Aurora Commons 01/97 1988 127,292 3.8 100 1,212,740 24 Jewel/Osco
Aurora, IL
Lincoln Park Place 01/97 1990 10,678 .32 60 140,250 1 Lechter's Housewares
Chicago, IL
</TABLE>
92
<PAGE> 100
<TABLE>
<CAPTION>
GROSS PERCENT PERCENT OF 1998
LEASABLE OF GLA LEASED ANNUALIZED CURRENT
DATE YEAR AREA TOTAL AS OF BASE RENTAL NO. OF
PROPERTY ACQ. BUILT (SQ. FT.) GLA 12/31/97 REVENUE(2) TENANTS ANCHOR TENANTS(1)
-------- ---- ----- --------- --- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Niles Shopping Center 04/97 1982 26,117 .78% 60% $ 363,453 5 Wolf Camera
Niles, IL Jennifer Convertibles
ACEL Cell Phones
Cobblers Crossing 05/97 1993 102,643 3.07 89 1,001,469 12 Jewel/Osco
Elgin, IL
Mallard Crossing, 05/97 1993 82,949 2.48 95 1,074,062 10 Eagle Foods
Elk Grove Village, IL
Calumet Square 06/97 1967 39,936 1.19 100 315,260 3 Super Trak
Calumet City, IL Aronson Furniture
Sequoia Plaza 06/97 1988 35,407 1.06 93 402,376 12 U.S. Post Office
Milwaukee, WI Kinko's Copy Center
Play It Again Sports
River Square 06/97 1988 58,158 1.74 95 765,399 18 Harbour Contractors
Naperville, IL Salon Suites
Rivertree Court 07/97 1988 299,055 8.93 97 3,673,586 41 Best Buy
Vernon Hills, IL Plitt Theaters
Shorecrest Plaza 07/97 1977 91,176 2.72 96 669,855 14 Piggly Wiggly
Racine, WI Wisconsin Health &
Fitness
Countryside Shopping Center 12/97 1975 62,344 1.86 100 266,602 1 Dominick's Finer Foods
Countryside, IL
Terramere Plaza 12/97 1980 40,965 1.22 80 469,430 17 No tenants lease more
Arlington Heights, IL than 10% of the GLA
</TABLE>
93
<PAGE> 101
<TABLE>
<CAPTION>
GROSS PERCENT PERCENT OF 1998
LEASABLE OF GLA LEASED ANNUALIZED CURRENT
DATE YEAR AREA TOTAL AS OF BASE RENTAL NO. OF
PROPERTY ACQ. BUILT (SQ. FT.) GLA 12/31/97 REVENUE(2) TENANTS ANCHOR TENANTS(1)
- -------- ---- ----- --------- --- -------- --------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wilson Plaza 12/97 1986 11,160 .33% 100 $ 140,611 7 White Hen Pantry
Batavia, IL Dimples Donuts
Riverside Liquors
Iroquois Center 12/97 1983 140,981 4.21 81 1,281,613 26 Total Beverage
Naperville, IL Sears
Fashion Square 12/97 1984 83,959 2.51 88 905,144 13 Cost Plus
Skokie, IL Designer Shoe Outlet
Naper West 12/97 1985 165,311 4.94 86 1,435,756 23 Douglas T.V.
Naperville, IL T.J. Maxx
Woodfield Plaza 1/98 1992 177,418 5.30 100 2,114,178 10 Kohl's
Schaumburg, IL Linen 'N Things
Barnes & Noble
The Shops at Coopers Grove 1/98 1991 72,518 2.17 96 598,061 7 Eagle Foods
Country Club Hills, IL
</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 annualized contractual base rent as
of January 1, 1998 under existing leases.
94
<PAGE> 102
TENANTS
The following table sets forth, at December 31, 1997, information
regarding space leased to retail tenants which, in each case, individually
account for more than 1.0% of the Company's 1998 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 1.53% $ 427,010 1.24%
Blockbuster 7 46,815 1.40 593,932 1.73
Sears 4 109,824 3.28 986,855 2.87
Eagle Foods 5 258,165 7.71 2,371,257 6.89
Dominick's 5 321,049 9.59 3,739,348 10.87
Trak Auto 4 42,502 1.27 342,756 1.00
Bally's 1 45,803 1.37 503,690 1.46
Sams 1 107,927 3.22 788,946 2.29
Kmart 1 104,231 3.11 589,157 1.71
Jewel 2 129,903 3.88 1,029,429 2.99
TJ Maxx 4 146,976 4.39 940,953 2.73
Michaels Crafts 2 47,100 1.41 409,500 1.19
Crown Books 2 25,013 0.75 387,876 1.13
Barnes & Noble 1 22,988 0.69 452,864 1.32
Best Buy 1 44,384 1.33 384,552 1.12
Famous Footwear 6 34,302 1.02 392,802 1.14
Linens 'N Things 1 32,800 0.98 359,160 1.04
Plitt Theaters 1 40,000 1.19 786,666 2.29
</TABLE>
(1) Amounts shown reflect 1998 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 annualized
contractual base rent as of January 1, 1998 under existing leases.
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<PAGE> 103
TENANT LEASE EXPIRATIONS
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>
PERCENT OF
AVERAGE TOTAL PERCENT OF
BASE RENT BUILDING ANNUAL BASE
APPROX. GLA ANNUAL BASE PER SQUARE GLA RENT
NUMBER OF OF EXPIRING RENT OF FOOT UNDER REPRESENTED REPRESENTED
YEAR ENDING LEASES LEASES EXPIRING TOTAL ANNUAL EXPIRING BY EXPIRING BY EXPIRING
DECEMBER 31 EXPIRING (SQ. FT.) LEASES BASE RENT (1) LEASES LEASES LEASES
- ----------- -------- ------- --------- ------------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
1998 -- -- -- $4,923,964 -- -- --
1999 -- -- -- 4,927,356 -- -- --
2000 -- -- -- 4,930,846 -- -- --
2001 -- -- -- 4,934,427 -- -- --
2002 -- -- -- 4,946,882 -- -- --
2003 -- -- -- 5,045,854 -- -- --
2004 -- -- -- 5,103,134 -- -- --
2005 2 17,003 $410,593 5,104,113 $24.15 4.58% 8.04%
2006 -- -- -- 4,782,437 -- -- -
2007 1 10,000 215,004 4,835,820 21.50 2.69 4.45
</TABLE>
96
<PAGE> 104
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 BASE
APPROX. GLA ANNUAL BASE PER SQUARE GLA RENT
NUMBER OF OF EXPIRING RENT OF FOOT UNDER REPRESENTED REPRESENTED
YEAR ENDING LEASES LEASES EXPIRING TOTAL ANNUAL EXPIRING BY EXPIRING BY EXPIRING
DECEMBER 31 EXPIRING (SQ. FT.) LEASES BASE RENT (1) LEASES LEASES LEASES
- ----------- -------- ------- --------- ------------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
1998 81 214,554 $2,272,113 $29,484,142 $10.59 7.21% 7.71%
1999 102 312,166 3,691,735 27,590,902 11.83 10.49 13.38
2000 75 336,613 3,673,544 24,115,561 10.91 11.31 15.23
2001 50 177,387 2,340,881 20,734,061 13.20 5.96 11.29
2002 54 197,351 2,434,737 18,393,436 12.34 6.63 13.24
2003 17 188,812 1,786,637 15,599,068 9.46 6.34 11.45
2004 9 87,179 726,246 13,774,177 8.33 2.93 5.27
2005 15 86,170 1,060,656 13,097,422 12.31 2.89 8.10
2006 16 144,329 1,682,411 12,033,362 11.66 4.85 13.98
2007 13 93,976 1,059,527 10,403,695 11.27 3.16 10.18
</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
annualized contractual base rent as of January 1, 1998 under existing
leases.
THE FOLLOWING SETS FORTH INFORMATION REGARDING THE COMPANY'S PROPERTIES.
THE WALGREENS/DECATUR PROPERTY
On January 31, 1995, the Company acquired the entire fee simple
interest in a single-user retail property located at 1201 E. Wood Street in
Decatur, Illinois known as 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
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<PAGE> 105
Company leases 100% of the free-standing building, which has 13,500 rentable
square feet 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.
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 December 31, 1997, the balance of the assumed mortgage was
approximately $727,000. 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.
EAGLE CREST SHOPPING CENTER, NAPERVILLE, ILLINOIS
On March 1, 1995, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center known as "Eagle Crest Shopping Center" located
at 1260-90 E. Chicago Avenue in Naperville, Illinois, from IPS for $4,816,970.
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 rentable square feet. Its
major tenant is Eagle Foods, Inc. ("Eagle"). IPS purchased Eagle Crest Shopping
Center 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 Shopping
Center, 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
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<PAGE> 106
to its store. In return for the reimbursement Eagle began paying an additional
$157,500 per annum in rent under its lease.
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, MONTGOMERY, ILLINOIS
On September 14, 1995, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at South Douglas Road in
Montgomery, Illinois known as "Montgomery-Goodyear Shopping Center" from an
unaffiliated third party for $1,145,992. 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 Shopping Center was built in 1991 and contains 12,903
rentable square feet. The Center's major tenants are Goodyear Tire & Rubber Co.
which leases 6,000 square feet and Merlin Corp. which leases 3,560 square feet.
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<PAGE> 107
THE HARTFORD/NAPERVILLE PLAZA, NAPERVILLE, ILLINOIS
On September 14, 1995, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at 1267-1275 Rickert Drive in
Naperville, Illinois known as "Hartford/Naperville Plaza" from an unaffiliated
third party for $4,414,015. 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 Plaza was built in July 1995 and contains 43,862
rentable square feet. The Center's major tenants are Sears Hardware which leases
21,000 square feet, Blockbuster Video which leases 6,500 square feet, and
Keller/Williams Realty which leases 6,160 square feet.
NANTUCKET SQUARE SHOPPING CENTER, SCHAUMBURG, ILLINOIS
On September 20, 1995, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at Wise Street and Roselle Road
known as "Nantucket Square Shopping Center" from an unaffiliated third party for
a purchase price of $4,257,918. 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. Nantucket Square Shopping Center was built in 1980 and consists of two
buildings, one of which is a one- story, multi-tenant shopping mall containing
53,720 rentable square feet and the other building is a one-story, free-
standing building aggregating 3,260 rentable square feet. The center's major
tenants are Hallmark which leases 7,156 square feet, Super Trak which leases
11,743 square feet, Dental Store which leases 6,228 square feet, and Burger King
which leases 3,260 square feet.
ANTIOCH PLAZA, ANTIOCH, ILLINOIS
On December 28, 1995, the Company purchased the entire fee simple
interest in a Neighborhood Retail Center located at Highway 173, west of Route
59 in Antioch, Illinois known as "Antioch Plaza" from an unaffiliated third
party for $1,750,365. 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 was built in 1995
and consists of a two-building, free-standing, masonry-constructed strip center
aggregating 19,810 rentable square feet. The Center's major tenants are
Blockbuster Video which leases 6,500 square feet and Radio Shack which leases
2,135 square feet.
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MUNDELEIN PLAZA, MUNDELEIN, ILLINOIS
On March 29, 1996, the Company purchased the entire fee simple interest
in a Neighborhood Retail Center located at 1400 Townline Road in Mundelein,
Illinois known as "Mundelein Plaza" from an unaffiliated third party for
$5,658,230. The purchase was made on an all cash basis. Mundelein Plaza was
built in 1990 and consists of two one-story, multi-tenant brick and block strip
centers aggregating 68,056 rentable square feet. The center's major tenant is
Sears Roebuck & Co. which leases 47,000 square feet.
REGENCY POINT SHOPPING CENTER, LOCKPORT, ILLINOIS
On April 5, 1996, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at 1025-65 East 9th Street in Lockport,
Illinois known as "Regency Point Shopping Center" 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 Center 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 Shopping Center, was
built in 1993 and 1994 and consists of a one-story, multi-tenant brick and block
strip center aggregating 54,875 rentable square feet. The center's major tenants
include Walgreens which leases 13,000 square feet and Ace Hardware which leases
15,505 square feet.
PROSPECT HEIGHTS PLAZA, PROSPECT HEIGHTS, ILLINOIS
On June 17, 1996, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at Camp McDonald Road and Route 83 in
Prospect Heights, Illinois known as "Prospect Heights Plaza" from an
unaffiliated third party for a purchase price of $2,165,000. The purchase was
made on an all cash basis. Prospect Heights Plaza was built in 1985 and consists
of two one-story, multi-tenant brick buildings aggregating 28,080 rentable
square feet. The center's major tenants are Walgreens which leases 12,600 square
feet and Blockbuster Video which leases 6,250 square feet.
MONTGOMERY-SEARS SHOPPING CENTER, MONTGOMERY, ILLINOIS
On June 17, 1996, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at South Douglas Road in Montgomery,
Illinois known as "Montgomery-Sears Shopping Center" from an unaffiliated third
party for a purchase price of $3,419,000. The purchase was made on an all cash
basis. Montgomery-Sears Shopping Center was built in 1990 and consists of a
one-story, multi-tenant concrete masonry building aggregating 34,600 rentable
square feet. The center's major tenants are Sears Paint and Hardware which
leases 20,000 square feet and Blockbuster Video which leases 7,000 square feet.
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THE ZANY BRAINY STORE, WHEATON, ILLINOIS
On July 1, 1996, the Company acquired the entire fee simple interest in
a single-user retail property located at Naperville Road and Blanchard Circle in
Wheaton, Illinois from an unaffiliated third party for a purchase price of
$2,455,000. The purchase was made on an all cash basis. The center was built in
1995 and aggregates 12,499 rentable square feet. The center's only tenant
(leasing 100% of the leasable area) is Children's Concepts, Inc. which does
business as Zany Brainy and sells children's books, computer software, toys, and
related items.
SALEM SQUARE SHOPPING CENTER, COUNTRYSIDE, ILLINOIS
On August 2, 1996, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at the intersection of Plainfield Road
and Brainard Avenue in Countryside, Illinois known as "Salem Square Shopping
Center" 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. The
purchase price was funded using cash and cash equivalents. Salem Square Shopping
Center was built in two phases in 1961 and 1985 and consists of a single-story
commercial multi-tenant retail facility 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.
HAWTHORN VILLAGE COMMONS, VERNON HILLS, ILLINOIS
On August 15, 1996, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at 220-290 Town Line Road in Vernon
Hills, Illinois known as "Hawthorn Village Commons" 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 Commons 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 center's major tenants are
Dominick's Finer Foods which leases 46,984 square feet and Walgreens which
leases 11,974 square feet.
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SIX CORNERS PLAZA, CHICAGO, ILLINOIS
On October 18, 1996, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at 3920 North Cicero Avenue in
Chicago, Illinois known as "Six Corners Plaza" 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 Plaza 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 and Illinois Masonic Health Center which leases
15,338 square feet.
SPRING HILL FASHION CORNER, WEST DUNDEE, ILLINOIS
On November 13, 1996, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at 830-890 West Main Street in
West Dundee, Illinois known as "Spring Hill Fashion Corner" from JMB/Spring Hill
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 Fashion Corner 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 Crafts which leases 30,000
square feet and T. J. Maxx which leases 25,161 square feet.
GRAND & HUNT CLUB OUTLOT CENTER, GURNEE, ILLINOIS
On December 24, 1996, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at Grand Avenue and Hunt Club
Road in Gurnee, Illinois known as "Grand & Hunt Club Outlot Center" from Butler
Real Estate, Inc., an unaffiliated third party, for approximately $3.6 million.
The purchase price was funded using cash and cash equivalents. Grand & Hunt Club
Outlot Center 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.
THE QUARRY OUTLOT, HODGKINS, ILLINOIS
On December 24, 1996, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at La Grange Road and Joliet
Road in Hodgkins, Illinois known as "The Quarry Outlot" 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 Outlot 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 the entire fee simple
interest in a Neighborhood Retail Center located at 13335 South Cicero Avenue in
Crestwood, Illinois known as "Crestwood Plaza Shopping Center" 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 Shopping Center was built in 1992 and consists of a one-story
building aggregating 20,044 rentable square feet. The center's major tenants are
Entenmann's Inc. which leases 13,644 square feet and Pet Supplies Plus which
leases 6,400 square feet.
LANSING SQUARE SHOPPING CENTER, LANSING, ILLINOIS
On December 31, 1996, the Company acquired a the entire fee simple
interest in a Neighborhood Retail Center located at Torrence Avenue and
Interstate 80/94 in Lansing, Illinois known as "Lansing Square Shopping Center"
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 Shopping
Center. 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.
Lansing Square Shopping Center was built in 1991 and consists of three
one-story buildings aggregating 233,508 rentable square feet. The center's major
tenants are Sam's Club which leases 107,927 square feet, Baby Superstore which
leases 43,596 square feet, and Office Max which leases 24,700 square feet.
PARK ST. CLAIR PLAZA, SCHAUMBURG, ILLINOIS
On December 31, 1996, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at the corner of Higgins and
Meacham Roads in Schaumburg, Illinois known as "Park St. Clair Plaza" 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
Plaza was built in 1994 and consists of a one-story building aggregating 11,859
rentable square feet. The center's main tenants are Hallmark which leases 7,669
square feet, and Ameritech Mobile Communications which leases 4,190 square feet.
THE SUMMIT OF PARK RIDGE, PARK RIDGE, ILLINOIS
On December 31, 1996, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at 100-150 Euclid Avenue in
Park Ridge, Illinois known as "The Summit of Park Ridge" 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 of Park Ridge was built in 1986 and consists of a one-story building
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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.
MAPLE PARK PLACE, BOLINGBROOK, ILLINOIS
On January 9, 1997, the Company acquired the entire fee simple interest in a
Neighborhood Retail Center located at Naperville and Boughton Roads in
Bolingbrook, Illinois known as "Maple Park Place" 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%.
Maple Park Place was built in 1992, with expansions made in 1994, and
consists of a one-story building aggregating 215,662 rentable square feet. The
center's main tenants are Kmart which leases 104,231 square feet and Eagle
Foods which leases 56,706 square feet.
AURORA COMMONS SHOPPING CENTER, AURORA, ILLINOIS
On January 24, 1997, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at Route 31 and Indian Trail
Road in Aurora, Illinois known as "Aurora Commons Shopping Center" 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 Shopping Center was built in 1988 and consists of
a one-story building aggregating 127,292 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 the entire fee simple
interest in a Neighborhood Retail Center located at 666-670 West Diversey
Parkway in Chicago, Illinois known as "Lincoln Park Place Shopping Center" from
Clark & Diversey Limited Partnership, an unaffiliated third party,
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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 Place Shopping Center was built in 1990
consists of a one-story building aggregating 10,678 rentable square feet. The
center has one tenant which leases 60% of the leasable area, Lechter's
Housewares.
NILES SHOPPING CENTER, NILES, ILLINOIS
On April 11, 1997, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at 8351 West Golf Road in Niles,
Illinois known as "Niles Shopping 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 Shopping Center was built in 1982 and consists of a one-story
building aggregating 26,117 rentable square feet. The center's major tenants are
Wolf Camera which leases 6,600 square feet, Jennifer Convertibles which leases
3,375 square feet, and ACEL Cell Phones which leases 3,275 square feet.
COBBLERS MALL, ELGIN, ILLINOIS
On May 6, 1997, the Company acquired the entire fee simple interest in
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 the entire fee simple interest in
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.
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AMERITECH OUTLOT BUILDING, JOLIET, ILLINOIS
On May 9, 1997, the Company acquired the entire fee simple interest in
a single-user retail property located at 3330 West Mall Loop Drive in Joliet,
Illinois known as "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 the entire fee simple interest in
a single-user retail property 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 one of the Advisor's Affiliates will be
reduced from 4.5% of the property's gross income to 2.0% of the property's gross
income. 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 the entire fee simple interest in
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
Shopping Center was built in 1967, with upgrades in 1987 and 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 the entire fee simple interest
in a single-user retail property 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 one of
the Advisor's Affiliates will be reduced from 4.5% of the property's gross
income to 2.0% of the property's gross income. 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.
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SEQUOIA PLAZA SHOPPING CENTER, MILWAUKEE, WISCONSIN
On June 17, 1997, the Company acquired the entire fee simple interest
in 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 Shopping Center was
built in 1988 and consists of a one-story, multi-tenant retail facility
aggregating 35,407 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 Copy Center which leases 4,960 square feet.
RIVER SQUARE SHOPPING CENTER, NAPERVILLE, ILLINOIS
On June 20, 1997, the Company acquired the entire fee simple interest
in 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 Shopping Center was built in 1988 and consists of a two-story,
multi-tenant retail facility aggregating 58,158 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.
RIVERTREE COURT SHOPPING CENTER, VERNON HILLS, ILLINOIS
On July 17, 1997, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at 701 N. Milwaukee Avenue in Vernon
Hills, Illinois known as "Rivertree Court Shopping Center" from JMB Income
Properties, LTD., - XIII, an unaffiliated third party, for approximately
$31,750,000 which included the Company assuming the existing first mortgage loan
of $15,700,000. The mortgage requires interest only payments at a rate of 10.03%
per annum until the maturity date of January 1, 1999. The balance of the
purchase price was funded using cash and cash equivalents. Rivertree Court
Shopping Center was built in 1988 and consists of three one-story, multi-tenant
retail facilities aggregating 299,055 rentable square feet. The center's major
tenants are Best Buy which leases 44,384 square feet and Plitt Theatres which
leases 40,000 square feet.
SHORECREST PLAZA SHOPPING CENTER, RACINE, WISCONSIN
On July 25, 1997, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at 3900 Erie Street in Racine, Wisconsin
known as "Shorecrest Plaza Shopping Center" from Shorecrest Shopping Center,
L.L.C., an unaffiliated third party, for approximately $5,956,000. The purchase
price was funded using cash and cash equivalents. Shorecrest Plaza Shopping
Center was built in 1977 and consists of a one-story, multi-tenant retail
facility aggregating 91,176 rentable square feet. The center's major tenants are
Piggly Wiggly which leases 41,262 square feet and Wisconsin Health and Fitness
which leases 14,475 square feet.
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DOMINICK'S FINER FOODS, GLENDALE HEIGHTS, ILLINOIS
On September 30, 1997, the Company acquired the entire fee simple
interest in a single-user retail property located at 23W127 Army Trail Road, in
Glendale Heights, Illinois which is leased to Dominick's Finer Foods
("Dominick's") from S-Prime Partners, an unaffiliated third party, for
approximately $8.196 million. The purchase price was funded using cash and cash
equivalents. Dominick's was built in 1997 and consists of a one-story,
single-tenant retail facility aggregating 68,923 rentable square feet. The
center's only tenant (leasing 100% of the leasable area) is Dominick's.
PARTY CITY, OAK BROOK TERRACE, ILLINOIS
On November 6, 1997, the Company acquired a single-user retail property
located on 17W700 22nd Street in Oak Brook Terrace, Illinois known as "Party
City" from D/M 22nd Street L.L.C., an unaffiliated third party, for
approximately $1,975,000. The purchase price was funded using cash and cash
equivalents. Party City was built in 1985 and consists of a one-story,
single-tenant retail facility aggregating 10,000 rentable square feet. The
center's only tenant (leasing 100% of the leasable area) is Party City.
ROSELLE EAGLE, ROSELLE, ILLINOIS
On November 26, 1997, the Company acquired a single-user retail center
located at 550 West Lake Street in Roselle, Illinois known as "Roselle Eagle"
from Capital Ventures, an unaffiliated third party, for approximately
$2,900,000. The purchase price was funded using cash and cash equivalents.
Roselle Eagle was built in 1990 and consists of a single-tenant retail facility
aggregating 42,283 rentable square feet. The center's only tenant (leasing 100%
of the leasable area) is Eagle Foods.
COUNTRYSIDE SHOPPING CENTER, COUNTRYSIDE, ILLINOIS
On December 15, 1997, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at Joliet Road and Willow
Springs Road in Countryside, Illinois known as "Countryside Shopping Center"
from Arnold Lees Corporation, an unaffiliated third party, for approximately
$2,300,000. The purchase price was funded using cash and cash equivalents.
Countryside Shopping Center was built in 1975 and consists of a one story,
multi- tenant retail facility aggregating 62,344 rentable square feet. The
center's only tenant (leasing 100% of the leasable area) is Dominick's Finer
Foods, who in turn, sub-leases to three tenants.
TERRAMERE PLAZA, ARLINGTON HEIGHTS, ILLINOIS
On December 19,1997, the Company acquired a Neighborhood Retail Center
located at Lake-Cook Road and Arlington Heights Road in Arlington Heights,
Illinois known as "Terramere Plaza" from C.B. Institution Fund VIII, an
unaffiliated third party, for approximately $4,405,000. The purchase price was
funded using cash and cash equivalents. Terramere Plaza was built in 1980 and
consists of two one-story, multi-tenant retail
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facilities aggregating 40,965 rentable square feet. No tenant leases more than
10% of the total rentable square footage of the center.
WILSON PLAZA, BATAVIA, ILLINOIS
On December 22, 1997, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at Wilson Street and Prairie
Street in Batavia, Illinois known as "Wilson Plaza" from American National
Bank and Trust, as trustee under trust agreement dated June 18, 1986, Trust
No. 67678, an unaffiliated third party, for approximately $1,300,000. The
purchase price was funded using cash and cash equivalents. Wilson Plaza
was built in 1986 and consists of a one-story, multi-tenant retail facility
aggregating 11,160 rentable square feet. The center's major tenants are White
Hen Pantry which leases 2,400 square feet, Dimples Donuts which leases 2,100
square feet, and Riverside Liquors which leases 2,485 square feet.
IROQUOIS CENTER, NAPERVILLE, ILLINOIS
On December 29, 1997, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at Ogden Avenue and Iroquois
Avenue in Naperville, Illinois known as "Iroquois Center" from Graystone Realty
Corporation, an unaffiliated third party, for approximately $11,900,000. The
purchase price was funded using cash and cash equivalents. Iroquois Center was
built in 1983 and consists of two one-story, multi-tenant retail facilities
aggregating 140,981 rentable square feet. The center's major tenants are Total
Beverage which leases 20,000 square feet and Sears which leases 21,824 square
feet.
FASHION SQUARE SHOPPING CENTER, SKOKIE, ILLINOIS
On December 30, 1997, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located on Skokie Boulevard in Skokie,
Illinois known as "Fashion Square Shopping Center" from I.D.S./JMB Balanced
Growth, Ltd., an Illinois Limited Partnership, an unaffiliated third party, for
approximately $9,255,000. The purchase price was funded using cash and cash
equivalents of $3,055,000 and assuming the existing bond financing, in the
remaining principal balance of $6,200,000. Monthly interest only payments are
due on the financing through the December 1, 2014 maturity date. The interest
rate changes weekly and is currently 4.1%. The bond financing is secured by a
Letter of Credit issued by LaSalle National Bank, who receives an annual fee of
1.25% of the outstanding principal balance. Fashion Square Shopping Center was
built in 1984 and consists of a one-story, multi-tenant retail facility
aggregating 83,959 rentable square feet. The center's major tenants are Cost
Plus which leases 17,190 square feet and Designer Shoe Center which leases
15,000 square feet.
NAPER WEST SHOPPING CENTER, NAPERVILLE, ILLINOIS
On December 30, 1997, the Company acquired the entire fee simple
interest in a Neighborhood Retail Center located at Route 59 in Naperville,
Illinois known as "Naper West Shopping Center" from Naper West, Ltd., an
unaffiliated third party, for approximately $14,850,000.
110
<PAGE> 118
The purchase price was funded using cash and cash equivalents. Naper West
Shopping Center was built in 1985 and consists of a one-story, multi-tenant
retail facility, a four-unit retail outlot and a single-tenant outlot,
aggregating 165,311 rentable square feet. The center's major tenants are Douglas
T.V. which leases 23,764 square feet and T.J. Maxx which leases 33,260 square
feet.
WOODFIELD PLAZA, SCHAUMBURG, ILLINOIS
On January 2, 1998, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at Golf Road and Basswood Road
in Schaumburg, Illinois known as "Woodfield Plaza" from System Realty Seven,
Inc., an unaffiliated third party, for approximately $19,200,000. The purchase
price was funded using cash and cash equivalents. Woodfield Plaza was built in
1992 and consists of a one-story, multi-tenant retail facility, a free-standing
building and an outlot, aggregating 177,418 rentable square feet. The center's
major tenants are Kohl's which leases 83,258 square feet, Linen 'N Things which
leases 32,800 square feet, and Barnes & Noble which leases 22,988 square feet.
THE SHOPS AT COOPERS GROVE, COUNTRY CLUB HILLS, ILLINOIS
On January 9, 1998, the Company acquired the entire fee simple interest
in a Neighborhood Retail Center located at 183rd and Crawford in Country Club
Hills, Illinois known as the "Shops at Coopers Grove" from Midwest Property
Group, an unaffiliated third party, for approximately $5,800,000. The purchase
price was funded using cash and cash equivalents. The Shops at Coopers Grove was
built in 1991 and consists of a one-story, multi-tenant retail facility
aggregating 72,518 rentable square feet. The center's major tenant is Eagle
Foods which leases 56,118 square feet.
DOMINICK'S FINER FOODS, WEST CHICAGO, ILLINOIS
On January 22, 1998, the Company acquired the entire fee simple
interest in a single-user retail center located at Route 59 and North Avenue in
West Chicago, Illinois which is leased to Dominick's Finer Foods from an
unaffiliated third party, for approximately $6,300,000. The purchase price was
funded using cash and cash equivalents. This store was built in 1990 and
consists of a one-story, single-tenant retail facility aggregating 77,000 square
feet. The center's only tenant (leasing 100% of the leasable area) is Dominick's
Finer Foods.
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.
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<PAGE> 119
On July 31, 1997 the Company made an additional deposit of $524,390.
The Company earns interest on the July 31 deposit at the rate of 9.3% per annum.
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". Under the terms of the acquisition, the Company
would purchase Downers Grove Plaza 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 Plaza. There can be no
assurance that the Company will complete the acquisition of Downers Grove Plaza.
Downers Grove Plaza 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.
LAKEPARK PLAZA, MICHIGAN CITY, INDIANA. The Company anticipates
purchasing the entire fee simple interest in a Neighborhood Retail Center
located in Michigan City, Indiana, known as "Lake Park Plaza" from an
unaffiliated third party for a purchase price of approximately $12,275,000. Lake
Park Plaza was built in 1990 and consists of a one-story, multi-tenant retail
facility aggregating 229,639 square feet. Tenants leasing more than 10% of the
total square footage include Wal-Mart and Roundy's.
ORLAND PARK, ORLAND PARK, ILLINOIS. The Company anticipates purchasing
the entire fee simple interest in a Neighborhood Retail Center located in Orland
Park, Illinois, known as "Orland Park" from an unaffiliated third party for a
purchase price of approximately $1,250,000. Orland Park was built in 1997 and
consists of a one-story, multi-tenant retail facility aggregating 8,500 square
feet. Tenants leasing more than 10% of the total square footage include Video
Update and All Cleaners.
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<PAGE> 120
MAPLE PLAZA, DOWNERS GROVE, ILLINOIS. The Company anticipates
purchasing the entire fee simple interest in a Neighborhood Retail Center
located in Downers Grove, Illinois, known as "Maple Plaza" from an unaffiliated
third party for a purchase price of approximately $3,165,000. Maple Plaza was
built in 1988 and consists of a one-story, multi-tenant retail facility
aggregating 31,298 square feet. Tenants leasing more than 10% of the total
square footage include J.C. Licht, Goodyear Tire and Copy Center.
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<PAGE> 121
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company as of September 30, 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 27,000,000 Shares, including
2,000,000 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."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
HISTORICAL PRO FORMA
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Mortgage notes payable ....................................................... $ 88,775 $ 88,775
STOCKHOLDER'S EQUITY(2):
Preferred Stock, $.01 par value, 6,000,000 authorized,
none outstanding ......................................................... -- --
Common Stock, $.01 par value, 100,000,000 authorized,
19,262,171 shares issued and 19,225,972 shares outstanding historical;
62,485,971 shares issued and 62,449,772 outstanding pro forma (1) ........ 191 649
Paid-in capital .............................................................. 168,745 574,965
Accumulated Distributions in Excess of Net Income ............................ (4,448) (4,448)
Total stockholders' equity ............................................... 164,488 571,166
--------- ---------
Total capitalization ..................................................... 253,263 659,941
========= =========
</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 shares 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> 122
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) 23,043.0499 * 23,043.0499 *
G. Joseph Cosenza (a)(b) 22,569.0610 * 22,569.0610 *
Roland W. Burris (c)(f) 2,032.3295 * 2,032.3295 *
Joel G. Herter (d)(f) -- * -- *
Heidi N. Lawton (e)(f) -- * -- *
Patricia A. Challenger (a) 1,988.95 * 1,988.95 *
Kelly Tucek(a) -- * -- *
Roberta S. Matlin (a) 198.9012 * 198.9012 *
Directors and Executive Officers as a Group 49,832.2916 * 49,832.2916 *
(seven persons)
</TABLE>
- ----------
(a) The business address of each of Messrs. Parks and Cosenza, Ms. Challenger,
Tucek and Matlin is c/o The Inland Group, Inc., 2901 Butterfield Road, Oak
Brook, Illinois 60523.
(b) Includes 20,000 shares owned by the Advisor. The Advisor is a wholly-owned
subsidiary of Inland Real Estate Investment Corporation, which is an
affiliate of The Inand Group, Inc. Messrs. Parks and Cosenza are control
persons with respect to The Inand Group, Inc. and disclaim beneficial
ownership of Shares owned by the Advisor. 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 Wolf & Company LLP, 2100
Clearwater Drive, Oak Brook, 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> 123
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 Second Offering of 10,000,000 shares. As of July 10,
1997, the Company had received subscriptions for a total of 10,000,000 shares,
thereby completing the Second Offering. On July 14, 1997, the Company commenced
a Third Offering of 20,000,000 shares. As of September 30, 1997, the Company had
received subscriptions for a total of 3,732,611 shares from the Third Offering.
In addition, the Company has distributed 529,560 shares through the Company's
Distribution Reinvestment Program. As a result, Gross Offering Proceeds, total
$191,185,844, net of shares repurchased through the Share Repurchase Program. As
of September 30, 1997, the Company has repurchased 36,199 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 Offerings 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.
Cash and cash equivalents consists of cash and short-term investments.
Cash and cash equivalents at September 30, 1997 and December 31, 1996 were
$30,003,445 and $8,491,735 respectively. The increase in cash and cash
equivalents since December 31, 1996 is due to the additional sales proceeds
raised and $32,848,379 in additional loan proceeds from financing the
properties. Partially offsetting these increases in cash and cash equivalents
was the purchase of
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<PAGE> 124
additional properties since December 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.
As of September 30, 1997, the Company had acquired thirty-six
properties. The properties owned by the Company are currently generating
sufficient cash flow to cover operating expenses of the Company plus pay a
monthly distribution 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. Beginning August 1, 1997, the Company increased the monthly distribution
paid to 8.7% per annum on weighted average shares. Distributions declared for
the nine months ended September 30, 1997 were $8,285,244, 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
$7,419,821 for the nine months ended September 30, 1997 to $9,809,108 from
$2,389,287 for the same period in 1996. This increase is due primarily to an
increase in net income for the nine months ended September 30, 1997, as compared
to the net income for the nine months ended September 30, 1996. This increase in
net income is due to the purchase of additional properties. As of September 30,
1997, the Company had acquired thirty-six properties, as compared to thirteen
properties as of September 30, 1996.
CASH FLOWS FROM INVESTING ACTIVITIES
During the nine months ended September 30, 1997, the Company utilized
$99,031,269 in investing activities for the purchase of fifteen properties, as
compared to the $26,729,537 utilized in the nine months ended September 30, 1996
for the purchase of seven properties.
In addition, the Company made deposits totaling $3,018,530 for the
purchase of two centers to be completed in late 1997.
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<PAGE> 125
CASH FLOWS FROM FINANCING ACTIVITIES
For the nine months ended September 30, 1997, the Company generated
$115,598,014 of cash flows from financing activities as compared to $43,020,331
of cash flows generated from financing activities for the nine months ended
September 30, 1996. This increase is due primarily to the increase in proceeds
raised from the Offering of $110,092,663 for the nine months ended September 30,
1997, as compared to $40,246,259 of Offering proceeds raised for the nine months
ended September 30, 1996 and loan proceeds, net of principal payment of debt,
received in the nine months ended September 30, 1997. This increase is partially
offset by an increase in the cash used for the payment of Offering costs for the
nine months ended September 30, 1997. The increase is also partially offset by
an increase in the amount of distributions paid for the nine months ended
September 30, 1997 of $7,518,259 as compared to the distributions paid for the
nine months ended September 30, 1996 of $1,989,199.
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 September 30, 1997, organizational and offering
costs did not exceed this limitation.
RESULTS OF OPERATIONS
As of September 30, 1997, subscriptions for a total of 19,262,171
shares were received from the public resulting in $191,185,844 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 nine months ended
September 30, 1997 and 1996 are calculated as follows:
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<PAGE> 126
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net income .................................. $ 5,329,961 $ 1,332,939
Depreciation ................................ 3,007,678 561,983
----------- -----------
Funds from operations(1) ........... 8,337,639 1,894,922
Deferred rent receivable(2) ................. (441,104) (63,007)
Rental income received under Master lease
agreements(3)............................. 296,688 305,054
----------- -----------
Funds available for distribution ... $ 8,193,223 $ 2,136,969
</TABLE>
- ----------
(1) 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.
(2) 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 $441,104 and $63,007
for the nine months ended September 30, 1997 and 1996, of rental income for
the period of occupancy for which stepped rent increases apply and $572,742
and $131,638 in related accounts receivable as of September 30, 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.
(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. 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.
Total income for the nine months ended September 30, 1997 and 1996 was
$19,655,649 and $3,641,605, respectively. This increase was due to the purchase
of additional properties. As of September 30, 1997, the Company had acquired
thirty-six properties, as compared to thirteen properties as of September 30,
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
nine months ended September 30, 1997, as compared to the nine months ended
September 30, 1996, is due to financing placed on previously acquired centers as
well as mortgages assumed as part of the purchases of Regency Point, Aurora
Commons and Rivertree Court. The mortgages payable totaled $88,774,835 for the
nine months ended September 30, 1997 as compared to $18,003,626 for the nine
months
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<PAGE> 127
ended September 30, 1996. 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 nine months
ended September 30, 1997, as compared to the nine months ended September 30,
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 at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Walgreens
Decatur, Illinois 100% 100% 100% 100% 100% 100% 100%
Eagle Crest
Naperville, Illinois 100% 100% 100% 100% 97% 97% 97%
Montgomery-Goodyear
Montgomery, Illinois 100% 100% 100% 100% 77% 77% 77%
Hartford/Naperville Plaza
Naperville, Illinois 100% 100% 100% 100% 100% 100% 94%
Nantucket Square
Schaumburg, Illinois 81% 81% 94% 85% 94% 94% 96%
Antioch Plaza
Antioch, Illinois 49% 49% 49% 57% 59% 59% 68%*
Mundelein Plaza
Mundelein, IL 100% 100% 100% 100% 100% 96% 97%
Regency Point
Lockport, IL N/A 97% 97% 97% 100% 100% 97%
Prospect Heights
Prospect Heights, IL N/A 78% 100% 100% 83% 83% 83%*
Montgomery-Sears
Montgomery, IL N/A 85% 85% 85% 85% 85% 85%*
Zany Brainy
Wheaton, IL N/A N/A 100% 100% 100% 100% 100%
</TABLE>
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<PAGE> 128
<TABLE>
<CAPTION>
1996 1997
-------------------------------- ---------------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salem Square
Countryside, IL N/A N/A 97% 97% 97% 97% 97%*
Hawthorn Village
Vernon Hills, IL N/A N/A 99% 98% 97% 98% 99%
Six Corners
Chicago, IL N/A N/A N/A 92% 94% 94% 94%
Spring Hill Fashion Ctr.
West Dundee, IL N/A N/A N/A 95% 96% 96% 96%
Crestwood Plaza
Crestwood, IL N/A N/A N/A 100% 100% 100% 100%
Park St. Claire
Schaumburg, IL N/A N/A N/A 100% 100% 100% 100%
Lansing Square
Lansing, IL N/A N/A N/A 89% 90% 90% 90%
Summit of Park Ridge
Park Ridge, IL N/A N/A N/A 81% 82% 81% 84%*
Grand and Hunt Club
Gurnee, IL N/A N/A N/A 100% 100% 100% 100%
Quarry Outlot
Hodgkins, IL N/A N/A N/A 100% 100% 100% 100%
Maple Park Place
Bolingbrook, IL N/A N/A N/A N/A 99% 97% 98%
Aurora Commons
Aurora, IL N/A N/A N/A N/A 99% 100% 100%
Lincoln Park Place
Chicago, IL N/A N/A N/A N/A 100% 100% 100%
Ameritech
Joliet, IL N/A N/A N/A N/A N/A 100% 100%
Dominicks-Schaumburg
Schaumburg, IL N/A N/A N/A N/A N/A 100% 100%
Dominicks-Highland Park
Highland Park, IL N/A N/A N/A N/A N/A 100% 100%
Niles Shopping Center
Niles, IL N/A N/A N/A N/A N/A 100% 87%
Mallard Crossing
Elk Grove Village, IL N/A N/A N/A N/A N/A 95% 95%*
</TABLE>
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<TABLE>
<CAPTION>
1996 1997
-------------------------------- ---------------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cobblers Crossing
Elgin, IL N/A N/A N/A N/A N/A 91% 89%*
Calumet Square
Calumet City, IL N/A N/A N/A N/A N/A 100% 100%
Sequoia Shopping Center
Milwaukee, WI N/A N/A N/A N/A N/A 96% 97%*
River Square Shopping Center
Naperville, IL N/A N/A N/A N/A N/A 100% 100%
Rivertree Court
Vernon Hills, IL N/A N/A N/A N/A N/A N/A 97%*
Shorecrest Plaza
Racine, WI N/A N/A N/A N/A N/A N/A 96%*
Dominicks-Glendale Heights
Glendale Heights, IL N/A N/A N/A N/A N/A N/A 100%
</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
September 30, 1997 for Montgomery-Sears, Mallard Crossing, Sequoia
Shopping Center and Shorecrest Plaza, 98% economic occupancy for
Cobblers Crossing and 99% occupancy for Rivertree Court. The master
lease agreements resulted in 100% economic occupancy through June 30,
1997 for Antioch Plaza and through August 1, 1997 for Salem Square, at
which times the master leases expired.
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 90% economic occupancy at September 30,
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 Prospect Heights through September 30, 1997.
SUBSEQUENT EVENTS
In October 1997, the Company paid a distribution of $1,315,932 to the
Stockholders.
In October 1997, the Company committed to additional financing secured
by Niles Shopping Center, Ameritech, Calumet Square and Sequoia Shopping Center
properties totaling $4,677,795 from an unaffiliated lender. The funding of these
loans is to occur prior to December 31, 1997. The mortgage loans have a term of
seven years and, prior to maturity date, require payments of interest only,
fixed at 7.23%.
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On October 1997, the Company committed to additional financing secured
by Dominicks-Highland Park property for $6,400,000 from an unaffiliated lender.
The funding of this loan is to occur on or before December 15, 1997. The
mortgage loan has a term of seven years and, prior to maturity date, require
payments of interest only, fixed at 7.21%.
Subsequent to September 30, 1997, the Company has acquired additional
Neighborhood Retail Centers and single-user retail properties. See "Real
Property Investments."
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 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
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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 ________________,
1998, 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.
Additionally, under the Taxpayer Relief Act of 1997 ( the "1997 Act"),
various changes have been made to the treatment of REITs effective for taxable
years beginning after August 5, 1997. For the Company, these provisions are
effective for the tax year beginning January 1, 1998. See"-1997 Taxpayer Relief
Act of 1997-Significant REIT provisions."
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT and has a
valid election in place, it will claim deductions for the dividends it pays to
the Stockholders, and therefore will not be subject to federal income tax on
that portion of its "REIT taxable income" or capital gain which is, in effect,
distributed to the Stockholders. The Company will, however, be subject to tax at
normal corporate rates on any taxable income or capital gain not distributed.
Although the Company, if it maintains REIT status, can eliminate (or
substantially reduce) its federal income tax liability by maintaining its REIT
status and paying sufficient dividends, the Company could be subject to tax on
certain items of income. If the Company fails to satisfy either the 95% Test or
the 75% Test (as defined below), yet maintains its REIT status by meeting other
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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
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(vii) the Gross Income, Asset and Distribution Tests, described
in greater detail below, are met.
Conditions (i) through (iv) and (vii) must be met during each taxable
year for which REIT status is sought while conditions (v) and (vi) do not have
to be met until after the first taxable year for which a REIT election is made.
Although the Voting Test (as defined below) generally prevents a REIT
from owning more than 10% of the voting stock of an entity, the Code provides an
exception for ownership of voting stock in a qualified REIT subsidiary (a
"QRS"), a corporation that is wholly-owned by a REIT throughout the subsidiary's
existence. For purposes of the Asset and Gross Income Tests described below, all
assets, liabilities and tax attributes of a QRS are treated as belonging to the
REIT. A QRS is not subject to federal income tax, but may be subject to state or
local tax. The Company may in the future hold direct or indirect interests in
one or more partnerships or joint ventures. In general, a partnership is not
subject to federal income tax and instead, allocates its tax attributes to its
partners. The partners are subject to tax on their allocable share of the income
and gain, without regard to whether they receive distributions from the
partnership. Each partner's share of a partnership's tax attributes is
determined in accordance with the partnership agreement. In addition, for
purposes of the Asset and Income Tests, the Company will be deemed to own and
earn (based on its capital interest) an undivided interest in each asset and a
share of each item of gross income.
The Company, in satisfying the general tests described above, must
meet, among others, the following requirements:
A. Share Ownership Tests. The Shares and any other capital stock the
Company issues (with the Shares, "Capital Stock") must be held by 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
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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
(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.
If a REIT owns a corporate subsidiary that is a "qualified REIT
subsidiary," within the meaning of Section 856(i) of the Code, that subsidiary
is disregarded for federal income tax purposes, and all assets, liabilities, and
items of income, deduction and credit of the subsidiary are treated as assets,
liabilities and such items of the REIT itself. A "qualified REIT subsidiary" is
a
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corporation all of the capital stock of which has been owned by the REIT from
the commencement of such corporation's existence. Pursuant to the 1997 Tax Act,
an existing corporation, all of the capital stock of which is owned by the REIT,
could be a "qualified REIT subsidiary" so long as the acquired corporation is
considered to have liquidated for federal income tax purposes and any
pre-acquisition earnings and profits are distributed before the end of the
REIT's taxable year. Any corporation formed directly by the Company to act as a
general partner in any partnership will be a qualified REIT subsidiary and thus
all of its assets, liabilities, and items of income, deduction and credit will
be treated as assets, liabilities, and items of income, deduction and credit of
the Company.
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.
(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.
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(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,
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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.
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.
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
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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.
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,
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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 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).
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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 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
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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.
1997 TAXPAYER RELIEF ACT OF 1997 - SIGNIFICANT REIT PROVISIONS
The 1997 Tax Act including various changes to the tax treatment of
REITs effective for taxable years beginning after August 5, 1997. In the case of
the Company, these provisions will be effective beginning January 1, 1998. Set
forth below is a summary of these changes.
Alternative Penalties for Failure to Ascertain Ownership. Under the
1997 Tax Act, the rule that disqualifies a REIT for any year in which the REIT
failed to comply with regulations to ascertain its ownership has been replaced
with an intermediate penalty of $25,000 ($50,000 for intentional violations) for
any year in which the REIT did not comply with the ownership
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regulations. In addition, a REIT that complied with the regulations for
ascertaining its ownership, and which did not know, or have reason to know, that
it was so closely held as to be classified as a personal holding company would
not be treated as a personal holding company.
De Minimis Rule for Tenant Service Income. Under the 1997 Tax Act, a
REIT is allowed to render a de minimis amount of impermissible services to
tenants, including managing or operating the property, and still treat amounts
received with respect to that property as rent, as long as the amount received
with respect to the impermissible services or management does not exceed one
percent of the REIT's gross income from the property. These services must not be
valued at less than 150 percent of the REIT's direct cost of the services.
Attribution Rules. Under the 1997 Tax Act, for purposes of determining
(i) whether a tenant is a "Related Party Tenant" and (ii) whether a party is an
independent contractor, a partner's ownership only is attributed to a
partnership if the partner owns a 25% or greater interest in the capital or
profits of that partnership.
Election to Retain and Pay Tax on Retained Capital Gains. The 1997 Tax
Act permits a REIT to elect to retain and pay income tax on net long-term
capital gains it received during the tax year. If a REIT makes this election,
the REIT shareholders include in their income as long-term capital gains their
proportionate share of the long-term capital gains as designated by the REIT.
Also, the shareholder will be deemed to have paid a proportionate share of the
tax, which could be credited or refunded to the shareholder. The shareholder's
basis in its shares is increased by the amount of the undistributed long-term
capital gains (less the proportionate amount of capital gains tax paid by the
REIT) included in the shareholder's long-term capital gains.
Repeal of 30-Percent Gross Income Requirement. The 1997 Tax Act repeals
the 30 percent gross income test.
Non-REIT Earnings and Profits. The 1997 Tax Act changes the ordering
rule for purposes of the requirement that newly-electing REITs distribute
earnings and profits that were accumulated in non-REIT years such that
distributions of accumulated earnings and profits generally would be treated as
made from the entity's earliest accumulated earnings and profits.
Treatment of Foreclosure Property. The 1997 Tax Act lengthens the grace
period for foreclosure property to three taxable years following the election
and allows for the possibility of an additional three year extension by filing a
request with the Service. Additionally, a REIT may revoke an election to treat
property as foreclosure property for any taxable year.
Payments Received under Hedging Instruments. The 1997 Tax Act treats
income and gain from all hedges that reduce the interest rate risk associated
with REIT liabilities as qualifying income under the 95% gross income test.
Excess Non-Cash Income. The 1997 Tax Act (i) expands the class of
excess noncash items that are not subject to the 95% distribution requirement to
include income from the cancellation of
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indebtedness, and (ii) extends the treatment of original issue discount and
coupon interest as excess noncash items to REITs using the accrual method.
Prohibited Transaction Safe Harbor. The 1997 Tax Act excludes from the
prohibited sales rules any property that was involuntarily converted.
Shared Appreciation Mortgages. The 1997 Tax Act provides that interest
received on a shares appreciation mortgage is not subject to the tax on
prohibited transactions where the property subject to the mortgage is sold
within four years of the REIT's acquisition of the mortgage pursuant to a
bankruptcy plan of the mortgagor unless the REIT, when it acquired the mortgage,
knew or had reason to know that the property subject to the mortgage would be
sold in a bankruptcy proceeding.
Qualified REIT Subsidiaries. The 1997 Tax Act permits any corporation
wholly-owned by a REIT to be treated as a qualified REIT subsidiary, regardless
of whether the corporation has always been owned by the REIT. However, if the
REIT acquires an existing corporation, such corporation is treated as if it had
been liquidated at the time of acquisition by the REIT and then reincorporated,
so that any pre-REIT built-in gains will be taxed. In addition, any pre-REIT
earnings and profits of the subsidiary must be distributed before the end of the
REIT's taxable year.
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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-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).
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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.
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 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 625,000 shares of Common Stock for
issuance pursuant to the exercise of options or warrants granted or issued by
the Company and reserved an additional 2,000,000 shares of Common Stock for
issuance pursuant to the Company's Distribution Reinvestment Program.
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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 will be fully transferable upon payment of consideration set
forth herein, 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 or
her 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 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.
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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 625,000 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 $13.20 (1.20% of the public offering
price per Share) during the time period beginning from the date the Soliciting
Dealer Warrants are issued and ending on __________, 2003 (the "Exercise
Period"). A Soliciting Dealer Warrant may not be exercised unless the Shares to
be issued upon the exercise of the Soliciting Dealer Warrant have been
registered or are exempt from registration in the state of residence of the
holder of the Soliciting Dealer Warrant or if a prospectus required under the
laws of such state cannot be delivered to the buyer on behalf of the Company.
Notwithstanding the foregoing, no Soliciting Dealer Warrants will be exercisable
until one year from the date of issuance. In addition, holders of Soliciting
Dealer Warrants may not exercise the Soliciting Dealer Warrants to the extent
such exercise would jeopardize the Company's status as a REIT under the Code.
The terms of the Soliciting Dealer Warrants, including the exercise
price and the number and type of securities issuable upon exercise of a
Soliciting Dealer Warrant 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. A copy of the Warrant Purchase Agreement is included as an
exhibit to this Registration Statement.
Holders of Soliciting Dealer Warrants do not have the rights of
Stockholders and 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 into 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.
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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, 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.
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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 to
transact such other business as may come 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 must be called by
an officer of the Company upon written request of the Stockholders holding in
the aggregate not less than 10% of the outstanding shares of common stock. Upon
receipt of a written request, either in person or by mail, stating the
purpose(s) of the meeting, the Company must 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 constitutes a quorum, and the requisite vote
of the Stockholders on any particular issue submitted to Stockholders will be
binding on all Stockholders even if all Stockholders do not approve or
disapprove the proposal.
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.
Individuals nominated to serve as Directors must have at least three
years of relevant experience and demonstrate the knowledge required to
successfully acquire and manage the type
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of assets being acquired by the Company. At least one of the individuals
nominated to serve as an Independent Director must have at least 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.
Directors are elected by the nominees receiving the highest number of
total 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 holders 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. 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 in the denominator.
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
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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. The purpose for which a Stockholder may request a copy of the
Stockholder list include: matters relating to the Stockholder's voting rights
and the exercise of the Stockholders' rights under federal proxy laws. This list
will 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.
If the Advisor or the Directors of the Company neglect or refuse to
exhibit, produce or mail a copy of the Stockholder List as requested in
accordance with and as required by applicable law and these Articles, the
Advisor and the Directors shall be liable to any Stockholder requesting the
Stockholder List, for the costs, including reasonable attorneys' fees, incurred
by that Stockholder for compelling the production of the Stockholder List, and
for actual damages suffered by any Stockholder by reason of such refusal or
neglect. It shall be a defense to such liability that the actual purpose and
reason for the requests for inspection or for a copy of the Stockholder List is
to secure such list of Stockholders or other information for the purpose of
selling such Stockholder List or copies thereof, or of using the same for a
commercial purpose or other purpose not in the interest of the applicant as a
Stockholder relative to the affairs of the Company. The Company may require the
Stockholder requesting the Stockholder List to represent that the Stockholder
List is not requested for a commercial purpose unrelated to the Stockholder's
interest in the Company. The remedies provided hereunder to Stockholders
requesting copies of the Stockholder List are in addition to, and shall not in
any way limit, other remedies available to Stockholders under federal law, or
the laws of any state.
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 holders 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
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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 shares. However, the Company anticipates that, by 1999, the
Board of Directors will determine whether it is in the best interests of the
Company to: (i) apply to have the shares listed for trading on a national stock
exchange or included for quotation on a national market system, provided the
Company meets the then applicable listing requirements; and/or (ii) commence
subsequent offerings after completion of this Offering. If listing of the shares
is not feasible by 1999, the Board may decide to: (a) sell the Company's assets
individually; (b) 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 662/3 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
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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 must
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, must be included in a report to the
Stockholders in connection with a proposed Roll-Up. A Roll-Up is a transaction
involving the acquisition, merger, conversion or consolidation, either directly
or indirectly, of the Company and the issuance of securities of a Roll-Up
Entity, as defined below. A Roll- Up does not include: (i) a transaction
involving securities of the Company that have been listed on a national
securities exchange or traded through the Nasdaq 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
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(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:
(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
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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 the
terms and conditions are fair and reasonable and no less
favorable to the Company than those offered by 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. A majority of
the Directors have approved the acquisition of two
properties, the Eagle Crest Shopping Center and the
Walgreens/Decatur property, from IPS, an Affiliate. See
"Conflicts of Interest--Acquisitions from Affiliates" and
"--Non-Arm's-Length Agreements" and "Real Property
Investments"; or
(iv) sell property, 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 are reviewed by
the Board at
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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% of net assets may only be incurred with the consent of a majority of the
Stockholders. See "Investment Objectives and Policies-- Borrowing." As of the
date of this Prospectus, the Company's total indebtedness is $113,000,000. 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 on terms and
conditions 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 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;
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(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;
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(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 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 by others.
The Company's investment objectives and policies may only be changed by amending
the Articles, which requires the affirmative vote of the Stockholders holding a
majority of the outstanding shares.
PLAN OF DISTRIBUTION
GENERAL
Of the 27,625,000 Shares offered hereby, the Company is offering
25,000,000 Shares on a "best efforts" basis at a purchase price of $11.00 per
Share with a minimum initial investment of $3,300 ($1,100 in the case of
Tax-Exempt Entities, except for Iowa where the minimum investment for IRAs will
be $3,300 and for Minnesota where the minimum investment for IRAs and qualified
plan accounts will be $2,200); 2,000,000 Shares at a purchase price of $10.45
per Share are being offered for issuance through the Distribution Reinvestment
Program; 625,000 Soliciting Dealer Warrants to purchase 625,000 Shares and the
Shares underlying the Soliciting Dealer Warrants 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 __________, 2000. 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.
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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 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 or its Affiliates own
more than 9.8% 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 ($3,300) or Tax-Exempt Entities which purchase a minimum of 100
Shares ($1,100), except for investors in the State of Iowa where the minimum
investment for IRAs will be 300 Shares ($3,300) and investors in the State of
Minnesota where the minimum investment for IRAs and qualified plan accounts will
be 200 Shares ($2,200). Subscriptions will be accepted for fractional Shares
only in the discretion of the Company.
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DETERMINATION OF INVESTOR SUITABILITY
The Company, the Dealer Manager and each Soliciting Dealer 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
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
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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.
Soliciting Dealers will 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 625,000 warrants,
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. The holder of a
Soliciting Dealer Warrant will be entitled to purchase one Share from the
Company at a price of $13.20 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 would, in all
likelihood, be able to obtain needed capital by a new offering of its securities
on terms more favorable than those provided by the Soliciting Dealer Warrants.
See "Description of Securities--Soliciting Dealer Warrants."
The maximum compensation to be paid by the Company in connection with
the Offering 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.
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VOLUME DISCOUNTS
Investors purchasing at least $220,000 worth of Shares (20,000 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>
$ 220,000 499,999 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 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 for determining commissions payable to the Dealer
Manager and reallowable to Soliciting Dealers so long as all combined purchases
are made through the same Soliciting Dealer. Investors which are Tax-Exempt
Entities may combine their subscriptions for purposes of computing amounts
invested if investment decisions are made by the same person. The investor must
mark the "Additional Purchase" space on the Subscription Agreement Signature
Page in order for subscriptions to be combined. The Company is not responsible
for failing to combine subscriptions. Where the investor fails to mark the
"Additional Purchase" space.
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 ($9.95 per Share).
TRANSFER OF SHARES
A Stockholder may assign all or some of his or her 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
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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 Dealer Manager and 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 will 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:
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.
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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 three days. If for any reason the
subscription is rejected, the check and Subscription Agreement will be promptly
returned to the subscriber, without interest or deduction, within 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 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 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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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") authorize the Company to use Distributions payable to them to
purchase additional Shares; provided that Participants are not permitted to
acquire Shares under the DRP if the purchase would cause the Purchaser to exceed
the Ownership Limit.
Purchases under the DRP are made at a price equal to $10.45 per Share,
a reduction from the $11.00 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 Participants will acquire Shares from the Company at a fixed price
of $10.45 per Share. It is possible that a secondary market will develop for the
Shares, and that Shares may be bought and sold on the secondary market at prices
lower or higher than the price at which shares may be purchased through the DRP.
Neither the Company nor its Affiliates will receive a fee for selling Shares
under the DRP. The Company does not warrant or guarantee that Participants will
be acquiring Shares at the lowest possible price. A Participant may terminate
participation in the DRP at any time without penalty, by delivering written
notice to the Company. Prior to listing of the Shares on a national 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. 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.
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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 received the cash rather than
purchased shares through the DRP. These deemed dividends will be treated as
actual dividends from the Company to the participating Stockholders and will
retain the character and tax effects applicable to all dividends. Shares
received under the program will have a holding period, for tax purposes,
beginning with the day after purchase, and a tax basis equal to their cost,
which is the gross amount of the deemed Distribution. See "Federal Income Tax
Considerations--Taxation of Stockholders--Taxation of Taxable Domestic
Stockholders" for a full discussion of the tax effects of dividend
distributions.
If the Company's Shares are listed on a national stock exchange or
included for quotation on a national market system and the DRP is continued,
Shares purchased by the Company for the DRP may 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.
Repurchases under the SRP are made quarterly by the Company on a
first-come, first-served basis, and are limited in the following manner: (i) not
more than $500,000 worth of the outstanding shares may be repurchased in any
given year; and (ii) the funds available for repurchase are limited to available
proceeds received by the Company from the sale of shares under the DRP. The
determination of available funds from sales under the DRP 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 owned the shares for at least one year.
The Company cannot guarantee that funds will be available for
repurchase. If no funds are available for the SRP at the time when repurchase is
requested, the Stockholder could: (i) withdraw his or her request for
repurchase; or (ii) ask that the Company honor the request at such time, if any,
when funds are available. 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 if: (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.
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Shares purchased by the Company under the SRP will be canceled, and
will have the status of authorized but unissued shares. Shares acquired by the
Company through the SRP will not be reissued unless they are first registered
with the Commission under the Act and under appropriate state securities laws or
otherwise issued in compliance with such laws.
REPORTS TO STOCKHOLDERS
The Advisor will keep, or cause to be kept, full and true books of
account on an accrual basis of accounting, in accordance with generally accepted
accounting principles ("GAAP"). All of such books of account, together with a
copy of the Articles and any amendments thereto, will at all times be maintained
at the principal office of the Company, and will be open to inspection,
examination and duplication at reasonable times by the Stockholders or their
agents.
The Advisor will submit to each Stockholder audited annual reports of
the Company within 120 days following the close of each fiscal year. The annual
reports will contain the following: (i) audited financial statements; (ii) the
ratio of the costs of raising capital during the period to the capital raised;
(iii) the aggregate amount of advisory fees and the aggregate amount of fees
paid to the Advisor and any Affiliate of the Advisor by the Company and
including fees or charges paid to the Advisor and 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
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method of financing, if any, including estimated down payment, leverage ratio,
prepaid interest, balloon payment(s), prepayment penalties, "due-on-sale" or
encumbrance clauses and possible adverse effects thereof and similar details of
the proposed financing plan; and (v) a statement that title insurance has been
or will be obtained on the property acquired. In addition, a report will be sent
to each Stockholder and submitted to prospective investors at such time as the
Advisor believes a reasonable probability exists that a property will be
acquired: (i) on specified terms (i.e., upon completion of due diligence which
includes review of the title insurance commitment, appraisal and environmental
analysis); and (ii) involving the use of 10% or more, on a cumulative basis, of
the net proceeds of this Offering.
After the completion of the last acquisition, the Advisor shall, upon
request, send to the Commissioner of Corporations of the State of California a
schedule, verified under the penalty of perjury, reflecting: (i) each
acquisition made; (ii) the purchase price paid 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
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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 historical summary of gross income and direct operating expenses of
Rivertree Court Shopping Center for the year ended December 31, 1996, the
historical summary of gross income and direct operating expenses of Shorecrest
Plaza Shopping Center for the year ended May 31, 1997, the historical summary
of gross income and direct operating expenses of Terramere Plaza
for the year ended December 31, 1996, the historical summary of
gross income and direct operating expenses of Wilson Plaza for the year
ended December 31, 1996, the historical summary of gross income and direct
operating expenses of Iroquois Center for the year ended
December 31, 1996, the historical summary of gross income and direct operating
expenses of Fashion Square Shopping Center for the year ended December 31, 1996,
the historical summary of gross income and direct operating expenses of
Naper West Shopping Center for the year ended December 31, 1996, and the
historical summary of gross income and direct operating expenses of Woodfield
Plaza 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, 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.
The Commission also maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with 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 Second Articles of Amendment and Restatement, as
amended 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
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<PAGE> 173
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, as amended.
"CASH FLOW" means, with respect to any period: (i) all cash receipts derived
from investments made by the Company; plus (ii) cash receipts from operations
(including any interest from temporary investments of the Company) without
deduction for depreciation or amortization; less (iii) cash receipts used to pay
operating expenses (including the Advisor Asset Management Fee).
"CODE" means the Internal Revenue Code of 1986, as amended, or corresponding
provisions of subsequent revenue laws.
"COMMISSION" means the Securities and Exchange Commission.
"COMMUNITY CENTER" means any property leased primarily to one or more retail
tenants with gross leasable area ranging from 150,000 square feet to 300,000
square feet.
"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.
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<PAGE> 174
"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).
"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 _______, 2003.
"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.
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<PAGE> 175
"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 $11.00 per Share, except for Shares purchased under the
Distribution Reinvestment Program in which case the purchase price for such
Shares shall be $10.45 per Share.
"GROSS REVENUES FROM PROPERTIES" means all cash receipts derived from the
operation of Company Fixed Assets.
"INCENTIVE ADVISORY FEE" means an amount equal to 15% of the net proceeds from
the sale of a property after the Stockholders have first received: (i) their
Cumulative Return; and (ii) a return of their Invested Capital.
"INDEPENDENT DIRECTORS" means the Directors who: (i) are not affiliated,
directly or indirectly, with the Company or the Advisor, whether by ownership
of, ownership interest in, employment by, any material business or professional
relationship with, or as an officer or director of the Company, the Advisor or
its Affiliates; (ii) do not serve as a director for more than two other REITs
organized by the Company or the Advisor; and (iii) perform no other services for
the Company, except as Directors. For this purpose, an 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.
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<PAGE> 176
"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 2.32% 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 27,625,000 Shares (which includes 2,000,000 Shares
available for distribution under the Distribution Reinvestment Program and
625,000 Shares which may be issued upon the exercise of warrants granted to the
Dealer Manager).
"MGCL" means the Maryland General Corporation Law, as amended from time to time.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NEIGHBORHOOD RETAIL CENTER" shall mean any property located primarily within an
approximate 150-mile radius of the Oak Brook, Illinois headquarters of the
Advisor leased primarily to one or more retail tenants providing for the sale of
household goods (food, drugs, apparel, etc.) and personal services (laundry, dry
cleaning, etc.) for the day-to-day living needs of the immediate neighborhood
with GLA ranging from approximately 5,000 to 150,000 square feet.
"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.
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<PAGE> 177
"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 27,000,000 Shares of the Company (including
2,000,000 Shares available for distribution under the Distribution Reinvestment
Program) pursuant to this Prospectus plus the 625,000 Soliciting Dealer Warrants
and 625,000 Shares which are issuable on exercise of Soliciting Dealer Warrants.
"ORGANIZATION DOCUMENTS" means the Second Articles of Amendment and Restatement,
as amended, and the Amended and Restated Bylaws, as amended.
"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) at $10 per Share which
commenced October 14, 1994 and was completed July 22, 1996; (ii) the Company's
public offering of 11,375,000 Shares (including 1,000,000 Shares available for
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 10, 1997 also at $10 per Share; and (iii) the Company's public
offering of 21,875,000 Shares (including 1,000 Shares available under the DRP
and 875,000 Shares issuable on the exercise of warrants granted to soliciting
dealers) at $10 per Share which commenced on July 14, 1997 and was completed on
___________, 1998.
"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%
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<PAGE> 178
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 income 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 _______________,
1998 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 _________________, 1998 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:
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<PAGE> 179
(i) a transaction involving securities of the Company that have
been for at least 12 months listed on a national securities
exchange or traded through The Nasdaq Stock Market - Nasdaq
National Market; or
(ii) a transaction involving the conversion to corporate, trust or
association form of only the Company if, as a consequence of
the transaction, there will be no significant adverse change
in any of the following:
(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 27,625,000 shares of common stock, par value $.01 per share,
of the Company hereby offered.
"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;
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ii. receiving a material participation in the Company in connection
with the founding or organizing of the business of the Company,
in consideration of services or property, or both services and
property;
iii. having a substantial number of relationships and contacts with
the Company;
iv. possessing significant rights to control Company properties;
v. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
vi. providing goods or services to the Company on a basis which was
not negotiated at arm's-length with the Company.
"STOCKHOLDERS" means holders of shares of Common Stock.
"TAX-EXEMPT ENTITIES" means any investor that is exempt from federal income
taxation, including without limitation a Qualified Plan, an endowment fund or a
charitable, religious, scientific or education organization.
"TERMINATION DATE" means _____________________, 2000.
"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,
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<PAGE> 181
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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INLAND REAL ESTATE CORPORATION
Balance Sheets at September 30, 1997 (unaudited) and
December 31, 1996.................................................................... F-1
Statements of Operations for three and nine months ended September 30, 1997
and 1996 (unaudited)................................................................. F-3
Statements of Stockholders' Equity at September 30, 1997 (unaudited) and
December 31, 1996.................................................................... F-4
Statements of Cash Flows for the nine months ended September 30, 1997 and
1996 (unaudited)..................................................................... F-5
Notes to Financial Statements September 30, 1997 (unaudited)......................... F-7
Pro Forma Balance Sheet at September 30, 1997 (unaudited)............................ F-18
Notes to Pro Forma Balance Sheet at September 30, 1997 (unaudited)................... F-20
Pro Forma Statement of Operations for the nine months ended
September 30, 1997 (unaudited)....................................................... F-25
Notes to Pro Forma Statement of Operations for the nine months
ended September 30, 1997 (unaudited)................................................. F-27
Pro Forma Statement of Operations for the year ended
December 31, 1996 (unaudited)........................................................ F-32
Notes to Pro Forma Statement of Operations for the year
ended December 31, 1996 (unaudited).................................................. F-34
RIVERTREE COURT SHOPPING CENTER
Independent Auditors' Report......................................................... F-52
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 ................................................ F-53
</TABLE>
F-i
<PAGE> 183
<TABLE>
<S> <C>
Notes to the Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Rivertree Court.............................. F-54
SHORECREST PLAZA SHOPPING CENTER
Independent Auditors' Report......................................................... F-56
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended May 31, 1997...................................................... F-57
Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended May 31, 1997............................................. F-58
WILSON PLAZA
Independent Auditors' Report......................................................... F-60
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996................................................. F-61
Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996........................................ F-62
IROQUOIS CENTER
Independent Auditors' Report......................................................... F-64
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996................................................. F-65
Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996........................................ F-66
FASHION SQUARE SHOPPING CENTER
Independent Auditors' Report......................................................... F-68
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996................................................. F-69
Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996........................................ F-70
</TABLE>
F-ii
<PAGE> 184
<TABLE>
<S> <C>
NAPER WEST PLAZA SHOPPING CENTER
Independent Auditors' Report......................................................... F-72
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996................................................. F-73
Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996........................................ F-74
WOODFIELD PLAZA
Independent Auditors' Report......................................................... F-76
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996................................................. F-77
Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996........................................ F-78
TERRAMERE PLAZA
Independent Auditors' Report......................................................... F-80
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996................................................. F-81
Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996........................................ F-82
</TABLE>
F-iii
<PAGE> 185
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
September 30, 1997 and December 31, 1996
(unaudited)
Assets
------
1997 1996
---- ----
Investment properties (Notes 1, 4 and 5):
Land............................................ $ 55,549,498 24,705,743
Building and improvements....................... 171,812,967 69,927,238
------------ -----------
227,362,465 94,632,981
Less accumulated depreciation................... 4,116,716 1,109,038
------------ -----------
Net investment properties....................... 223,245,749 93,523,943
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 30,003,445 8,491,735
Restricted funds.................................. 1,236,638 122,043
Accounts and rents receivable (Note 5)............ 4,390,658 1,914,756
Deposits and other assets......................... 3,049,474 95,828
Deferred organization costs (net of accumulated
amortization of $9,612 and $5,492 at September
30, 1997 and December 31, 1996, respectively)
(Note 1)........................................ 17,850 21,970
Loan fees (net of accumulated amortization of
$100,158 and $11,875 at September 30, 1997 and
December 31, 1996, respectively) (Note 1)....... 781,665 338,411
------------ -----------
Total assets.................................. $262,725,479 104,508,686
============ ===========
See accompanying notes to financial statements.
F-1
<PAGE> 186
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
September 30, 1997 and December 31, 1996
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
1997 1996
Liabilities: ---- ----
Accounts payable................................ $ 112,204 289,912
Accrued offering costs to Affiliates............ 837,277 298,341
Accrued offering costs to non-affiliates........ 96,647 4,236
Accrued interest payable to Affiliates.......... 4,660 4,718
Accrued interest payable to non-affiliates...... 515,811 52,402
Accrued real estate taxes....................... 4,278,033 2,770,889
Distributions payable (Note 7).................. 1,315,932 548,947
Security deposits............................... 570,115 247,769
Mortgages payable (Note 6)...................... 88,774,835 30,838,233
Unearned income................................. 759,656 64,590
Other liabilities............................... 227,106 32,820
Due to Affiliates (Note 2)...................... 744,502 255,591
------------- ------------
Total liabilities............................. 98,236,778 35,408,448
------------- ------------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 106,000,000 Shares
authorized; 19,262,171 and 19,225,972 issued
and outstanding at September 30, 1997, and
8,144,116 and 8,137,766 Shares issued and
outstanding at December 31, 1996,
respectively.................................. 191,409 81,000
Additional paid-in capital (net of offering
costs of $22,249,025 and 10,500,108 at
September 30, 1997 and December 31, 1996,
respectively, of which $18,551,218 and
$8,096,213 was paid to Affiliates,
respectively)................................. 168,745,410 70,512,073
Accumulated distributions in excess of
net income.................................... (4,448,118) (1,492,835)
------------- ------------
Total stockholders' equity.................... 164,488,701 69,100,238
------------- ------------
Total liabilities and stockholders' equity........ $262,725,479 104,508,686
============= ============
See accompanying notes to financial statements.
F-2
<PAGE> 187
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the three and nine months ended September 30, 1997 and 1996
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
Income: ---- ---- ---- ----
Rental income (Notes 1 and 5).... $6,204,790 1,258,317 14,176,240 2,578,953
Additional rental income......... 1,159,442 396,095 4,569,303 785,719
Interest income.................. 358,797 87,474 833,600 212,063
Other income..................... 15,286 12,064 76,506 64,870
---------- ---------- ---------- ----------
7,738,315 1,753,950 19,655,649 3,641,605
---------- ---------- ---------- ----------
Expenses:
Professional services to
Affiliates..................... - 5,780 19,470 16,434
Professional services to
non-affiliates................. 8,228 4,723 72,153 40,951
General and administrative
expenses to Affiliates......... 26,284 (9,319) 64,339 42,116
General and administrative
expenses to non-affiliates..... 14,510 15,424 77,198 21,418
Advisor asset management fee..... 417,159 116,809 940,159 242,341
Property operating expenses
to Affiliates.................. 349,929 67,501 766,259 139,597
Property operating expenses
to non-affiliates.............. 1,341,468 560,438 5,384,314 1,007,064
Mortgage interest to Affiliates.. 14,000 20,670 72,513 49,993
Mortgage interest to
non-affiliates................. 1,666,344 82,335 3,724,060 160,139
Depreciation..................... 1,368,159 284,483 3,007,678 561,983
Amortization..................... 32,144 1,373 92,403 4,119
Acquisition costs expensed....... 52,293 5,361 105,142 22,511
---------- ---------- ---------- ----------
5,290,518 1,155,578 14,325,688 2,308,666
---------- ---------- ---------- ----------
Net income..................... $2,447,797 598,372 5,329,961 1,332,939
========== ========== ========== ==========
Net income per weighted average
common stock shares outstanding
(16,779,827 and 5,166,900 for the
three months ended September 30,
1997 and 1996, respectively and
12,854,708 and 3,688,310 for the
nine months ended September 30,
1997 and 1996, respectively)..... $ .15 .12 .41 .36
========== ========== ========== ==========
See accompanying notes to financial statements.
F-3
<PAGE> 188
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
September 30, 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
$7,378,933).............. 61,038 53,707,177 - 53,768,215
Repurchases of Shares....... (34) (30,287) - (30,321)
----------- ----------------------- ------------
Balance December 31, 1996... 81,000 70,512,073 (1,492,835) 69,100,238
Net income.................. - - 5,329,961 5,329,961
Distributions declared
($.64 for the nine months
ended September 30,1997 per
weighted average common
stock shares outstanding). - - (8,285,244) (8,285,244)
Proceeds from Offering (net
of Offering costs of
$11,748,917).............. 110,708 98,503,094 - 98,613,802
Repurchases of Shares....... (299) (269,757) - (270,056)
----------- ----------------------- ------------
Balance September 30, 1997.. $ 191,409 168,745,410 (4,448,118) 164,488,701
=========== =========== =========== ============
See accompanying notes to financial statements.
F-4
<PAGE> 189
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
For the nine months ended September 30, 1997 and 1996
(unaudited)
1997 1996
Cash flows from operating activities: ---- ----
Net income...................................... $ 5,329,961 1,332,939
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................. 3,007,678 561,983
Amortization.................................. 92,403 4,119
Rental income under master lease.............. 296,688 305,054
Changes in assets and liabilities:
Accounts and rents receivable............... (2,475,902) (753,987)
Other assets................................ 64,884 (78,731)
Accounts payable............................ (177,708) 98,187
Accrued interest payable.................... 463,351 (5,242)
Accrued real estate taxes................... 1,507,144 607,507
Security deposits........................... 322,346 57,891
Unearned income............................. 695,066 22,804
Other liabilities 194,286 -
Due to Affiliates........................... 488,911 236,763
------------- ------------
Net cash provided by operating activities......... 9,809,108 2,389,287
------------- ------------
Cash flows from investing activities:
Restricted cash................................. (1,114,595) -
Additions to investment properties.............. (731,018) (168,035)
Purchase of investment properties............... (99,031,269) (26,729,537)
Deposits on investment properties............... (3,018,530) -
------------- ------------
Net cash used in investing activities............. (103,895,412) (26,897,572)
------------- ------------
Cash flows from financing activities:
Proceeds from offering.......................... 110,332,398 40,255,407
Share repurchases............................... (239,735) (9,148)
Payments of offering costs...................... (11,117,570) (4,569,624)
Loan proceeds................................... 32,848,380 12,820,000
Loan fees....................................... (531,537) (186,828)
Distributions paid.............................. (7,518,259) (1,989,199)
Repayment of note from Affiliate................ - (360,000)
Principal payments of debt...................... (8,175,663) (2,940,277)
------------- ------------
Net cash provided by financing activities......... 115,598,014 43,020,331
------------- ------------
Net increase in cash and cash equivalents......... 21,511,710 18,512,046
Cash and cash equivalents at beginning of period.. 8,491,735 738,931
------------- ------------
Cash and cash equivalents at end of period........ $ 30,003,445 19,250,977
============= =============
See accompanying notes to financial statements.
F-5
<PAGE> 190
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the nine months ended September 30, 1997 and 1996
(unaudited)
Supplemental schedule of noncash investing and financing activities:
1997 1996
---- ----
Purchase of investment property................. $(132,295,154) (34,102,713)
Assumption of debt.............................. 25,263,885 4,473,176
Note payable.................................... 8,000,000 2,900,000
-------------- -------------
$ (99,031,269) (26,729,537)
============== =============
Distributions payable........................... $ 1,315,932 372,337
============== =============
Cash paid for interest.......................... $ 3,333,222 243,326
============== =============
See accompanying notes to financial statements.
F-6
<PAGE> 191
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
September 30, 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"). 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"). As of July 10, 1997, the Company had
received subscriptions for a total of 10,000,000 Shares, thereby completing the
Second Offering. On July 14, 1997, the Company commenced an offering of an
additional 20,000,000 Shares, on a best efforts basis, (the "Third Offering").
As of September 30, 1997, the Company had received subscriptions for a total of
3,732,611 Shares from the Third Offering. In addition, the Company has
distributed 529,560 Shares through the Company's Distribution Reinvestment
Program. As a result, Gross Offering Proceeds, total $191,185,844, net of
Shares repurchased through the Share Repurchase Program. As of September 30,
1997, the Company has repurchased 36,199 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.
F-7
<PAGE> 192
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents and are carried at cost, which
approximates fair value.
Restricted cash at September 30, 1997 includes $835,279 held in escrow for the
principal payments on the Aurora Commons mortgage payable and $44,677 held in
escrow by the mortgagee for the payment of real estate taxes at Aurora Commons.
Restricted cash at September 30, 1997 also includes amounts held as vacancy
escrows on Cobblers Crossing, Mallard Crossing and Shorecrest Shopping Center.
Such amounts will be added to the basis of the property as tenant improvements
are completed.
Statement of Financial Accounting Standards No. 121 requires the Company to
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. As of September 30, 1997, the
Company has not recognized any such impairments on its properties.
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> 193
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
(2) Transactions with Affiliates
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
$723,250 and $692,248 as of September 30, 1997 and December 31, 1996,
respectively, of which $3,611 and $120,269 were unpaid as of September 30, 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
$17,827,968 and $7,403,965 as of September 30, 1997 and December 31, 1996,
respectively, of which $833,666 and $270,365 was unpaid as of September 30,
1997 and December 31, 1996, respectively. As of September 30, 1997,
approximately $14,959,000 of these commissions had been passed through from the
Affiliate to unaffiliated soliciting broker/dealers.
As of September 30, 1997, the Company had incurred $22,276,487 of organization
and offering costs to Affiliates and non-affiliates. Pursuant to the terms of
the offering, the Advisor is required to pay organizational and offering
expenses (excluding sales commissions, the marketing contribution and the due
diligence expense allowance fee) in excess of 5.5% of the gross proceeds of the
Offering (the "Gross Offering Proceeds") or all organization and offering
expenses (including selling commissions) which together exceed 15% of gross
offering proceeds. As of the completion of the initial and second Offerings,
organizational and offering expenses did not exceed the 5.5% or 15%
limitations. As of September 30, 1997, organizational and offering costs of
the Third 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
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 $4,343 remained unpaid at September 30,
1997.
As of September 30, 1997, the Advisor has contributed $200,000 to the capital
of the Company for which it received 20,000 Shares.
F-9
<PAGE> 194
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 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
nine months ended September 30, 1997, the Company has incurred $940,159 of such
fees, of which $740,159 remains unpaid at September 30, 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 $766,259 and $139,597 for the nine months ended September
30, 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.
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> 195
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
<TABLE>
<CAPTION>
(4) Investment Properties 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
Single-user Retail ------- ------------ ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 1,626,033 664 838,000 1,626,697 2,464,697
Ameritech
Joliet, IL.............. 05/97 170,000 883,293 2,544 170,000 885,837 1,055,837
Dominicks-Schaumburg
Schaumburg, IL.......... 05/97 2,670,250 8,012,450 2,679 2,670,250 8,015,129 10,685,379
Dominicks-Highland Park
Highland Park, IL....... 06/97 3,200,000 9,593,565 2,200 3,200,000 9,595,765 12,795,765
Dominicks-Glendale Heights
Glendale Heights, IL.... 09/97 1,265,000 6,934,230 - 1,265,000 6,934,230 8,199,230
Neighborhood Retail Centers
- ---------------------------
Eagle Crest Shopping Center
Naperville, IL.......... 03/95 1,878,618 2,938,352 115,828 1,878,618 3,054,180 4,932,798
Montgomery-Goodyear
Montgomery, IL.......... 09/95 315,000 834,659 (11,158) 315,000 823,501 1,138,501
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,427,961 13,002 990,000 3,440,963 4,430,963
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,349,918 (69,881) 1,908,000 2,280,037 4,188,037
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,360,445 (120,629) 268,000 1,239,816 1,507,816
Mundelein Plaza
Mundelein, IL........... 03/96 1,695,000 3,965,560 (45,629) 1,695,000 3,919,931 5,614,931
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (19,377) 1,000,000 4,701,423 5,701,423
Prospect Heights
Prospect Heights, IL.... 06/96 494,300 1,683,755 (9,724) 494,300 1,674,031 2,168,331
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,714,173 (43,552) 768,000 2,670,621 3,438,621
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $17,538,498 52,175,917 (183,033) 17,538,498 51,992,884 69,531,382
</TABLE>
F-11
<PAGE> 196
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
<TABLE>
<CAPTION>
(4) Investment Properties (continued) 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 $17,538,498 52,175,917 (183,033) 17,538,498 51,992,884 69,531,382
Salem Square
Countryside, IL......... 08/96 1,735,000 4,449,217 (17,099) 1,735,000 4,432,118 6,167,118
Hawthorn Village
Vernon Hills, IL........ 08/96 2,619,500 5,887,640 37,541 2,619,500 5,925,181 8,544,681
Six Corners
Chicago, IL............. 10/96 1,440,000 4,538,152 3,359 1,440,000 4,541,511 5,981,511
Spring Hill Fashion Corner
West Dundee, IL......... 11/96 1,794,000 7,415,396 3,955 1,794,000 7,419,351 9,213,351
Crestwood Plaza
Crestwood, IL........... 12/96 325,577 1,483,183 4,750 325,577 1,487,933 1,813,510
Park St. Claire
Schaumburg, IL.......... 12/96 319,578 986,920 226,674 319,578 1,213,594 1,533,172
Lansing Square
Lansing, IL............. 12/96 4,075,000 12,179,383 18,087 4,075,000 12,197,470 16,272,470
Summit of Park Ridge
Park Ridge, IL.......... 12/96 672,000 2,497,950 8,881 672,000 2,506,831 3,178,831
Grand and Hunt Club
Gurnee, IL.............. 12/96 969,840 2,622,575 (52,950) 969,840 2,569,625 3,539,465
Quarry Outlot
Hodgkins, IL............ 12/96 522,000 1,278,431 8,733 522,000 1,287,164 1,809,164
Maple Park Place
Bolingbrook, IL......... 01/97 3,115,005 12,220,332 10,464 3,115,005 12,230,796 15,345,801
Aurora Commons
Aurora, IL.............. 01/97 3,220,000 8,318,661 3,901 3,220,000 8,322,562 11,542,562
Lincoln Park Place
Chicago, IL............. 01/97 819,000 1,299,902 4,707 819,000 1,304,609 2,123,609
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $39,164,998 117,353,659 77,970 39,164,998 117,431,629 156,596,627
</TABLE>
F-12
<PAGE> 197
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
<TABLE>
<CAPTION>
(4) Investment Properties (continued) 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 $39,164,998 117,353,659 77,970 39,164,998 117,431,629 156,596,627
Niles Shopping Center
Niles, IL............... 04/97 850,000 2,408,467 (13,243) 850,000 2,395,224 3,245,224
Mallard Crossing
Elk Grove Village, IL... 05/97 2,030,000 6,080,610 (11,700) 2,030,000 6,068,910 8,098,910
Cobblers Crossing
Elgin, IL............... 05/97 3,200,000 7,763,940 (37,112) 3,200,000 7,726,828 10,926,828
Calumet Square
Calumet City, IL........ 06/97 527,000 1,537,316 3,635 527,000 1,540,951 2,067,951
Sequoia Shopping Center
Milwaukee, WI........... 06/97 752,500 2,266,750 (4,335) 752,500 2,262,415 3,014,915
Riversquare Shopping Center
Naperville, IL.......... 06/97 1,525,000 4,452,958 83,872 1,525,000 4,536,830 6,061,830
Rivertree Court
Vernon Hills, IL........ 07/97 6,350,000 25,154,267 - 6,350,000 25,154,267 31,504,267
Shorecrest Plaza
Racine, WI.............. 07/97 1,150,000 4,743,410 (47,497) 1,150,000 4,695,913 5,845,913
------------ ------------- ------------ ------------- ------------- ------------
Total 55,549,498 171,761,377 51,590 55,549,498 171,812,967 227,362,465
=========== ============ =========== ============ ============ ============
</TABLE>
F-13
<PAGE> 198
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 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 $867,382 and $570,694
as of September 30, 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 $441,104 and $63,007 for the nine
months ended September 30, 1997 and 1996, of rental income for the period of
occupancy for which stepped rent increases apply and $572,742 and $131,638 in
related accounts receivable as of September 30, 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-14
<PAGE> 199
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
(6) Mortgages and Note Payable
Mortgages payable consist of the following at September 30, 1997 and December
31, 1996:
Current Current Balance at
Property as Interest Maturity Monthly Sept. 30, Dec. 31,
Collateral Rate Date Payment(a) 1997 1996
- ------------ ---------- --------- ---------- ----------- ------------
Mortgage payable to Affiliate:
Walgreens 7.655% 05/2004 $ 5,689 $ 730,576 739,543
Mortgages payable to non-affiliates:
Regency Point 7.4875% 08/2000 (b) 4,389,005 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 9,436,874 -
Maple Park Place 7.650% 06/2004 (d) 7,650,000 -
Dominicks-Schaumburg 6.80625% 06/2004 (d) 5,345,500 -
Summit Park Ridge 6.80625% 06/2004 (d) 1,600,000 -
Lincoln Park Place 6.80625% 06/2004 (d) 1,050,000 -
Crestwood Plaza 7.650% 06/2004 (d) 904,380 -
Park St. Claire 7.650% 06/2004 (d) 762,500 -
Quarry 7.650% 06/2004 (d) 900,000 -
Grand/Hunt Club 6.80625% 06/2004 (d) 1,796,000 -
Rivertree Court (e) 10.030% 11/1998 131,226 15,700,000 -
----------- ------------
Mortgages Payable.................................... $88,774,835 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.
F-15
<PAGE> 200
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
(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%.
(d) Payments on this mortgage are based on a floating interest rate of 115
basis points over the 30-day LIBOR rate, which adjusts monthly.
(e) The Company received a credit for interest expense on the debt at closing.
(7) Deposits on Investment Properties
On February 7, 1997, the Company made an initial deposit of $1,228,510 for the
purchase of Oak Forest Commons. On July 31, 1997, the Company made an
additional deposit of $524,390. The balance of the purchase price,
approximately $10,083,000 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
In October 1997, the Company paid a distribution of $1,315,932 to the
Stockholders.
On November 6, 1997, the Company purchased the Party City from an unaffiliated
third party for approximately $1,975,000. The property is located in Oakbrook
Terrace, Illinois and contains approximately 10,000 square feet of leasable
space.
F-16
<PAGE> 201
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
In October 1997, the Company committed to additional financing secured by Niles
Shopping Center, Ameritech, Calumet Square and Sequoia Shopping Center
properties totaling $4,677,795 from an unaffiliated lender. The funding of
these loans is to occur prior to December 31, 1997. The mortgage loans have a
term of seven years and, prior to maturity date, require payments of interest
only, fixed at 7.23%.
In October 1997, the Company committed to additional financing secured by
Dominicks-Highland Park property for $6,400,000 from an unaffiliated lender.
The funding of this loan is to occur on or before December 15, 1997. The
mortgage loan has a term of seven years and, prior to maturity date, require
payments of interest only, fixed at 7.21%.
F-17
<PAGE> 202
Inland Real Estate Corporation
Pro Forma Balance Sheet
September 30, 1997
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
give effect to the acquisitions of the properties indicated in Note B of the
Notes to the Pro Forma Balance Sheet as though these transactions occurred
September 30, 1997. This unaudited Pro Forma Balance Sheet should be read in
conjunction with the September 30, 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 September 30, 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-18
<PAGE> 203
Inland Real Estate Corporation
Pro Forma Balance Sheet
September 30, 1997
(unaudited)
September 30,
September 30, 1997
1997 Pro Forma Pro Forma
Historical(A) Adjustments(B) Balance Sheet
------------- ------------- --------------
Assets
- ------
Net investment in
properties.................. $223,245,749 80,185,000 303,430,749
Cash and cash equivalents..... 30,003,445 - 30,003,445
Restricted cash............... 1,236,638 - 1,236,638
Accounts and rents
receivable.................. 4,390,658 1,589,235 5,979,893
Other assets.................. 3,848,989 - 3,848,989
------------- ------------- -------------
Total assets.................. $262,725,479 81,774,235 344,499,714
============= ============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and accrued
expenses.................... $ 1,566,599 - 1,566,599
Accrued real estate taxes..... 4,278,033 1,737,392 6,015,425
Distributions payable (C)..... 1,315,932 - 1,315,932
Security deposits............. 570,115 102,909 673,024
Mortgages payable............. 88,774,835 6,200,000 94,974,835
Unearned income............... 759,656 - 759,656
Other liabilities............. 227,106 - 227,106
Due to Affiliates............. 744,502 - 744,502
------------- ------------- -------------
Total liabilities............. 98,236,778 8,040,301 106,277,079
------------- ------------- -------------
Common Stock (D).............. 191,409 85,737 277,146
Additional paid in capital
(net of Offering costs) (D). 168,745,410 73,648,197 242,393,607
Accumulated distributions in
excess of net income........ (4,448,118) - (4,448,118)
------------- ------------- -------------
Total Stockholders' equity.... 164,488,701 73,733,934 238,222,635
------------- ------------- -------------
Total liabilities and
Stockholders' equity........ $262,725,479 81,774,235 344,499,714
============= ============= =============
See accompanying notes to pro forma balance sheet.
F-19
<PAGE> 204
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1997
(unaudited)
(A) The September 30, 1997 Historical column represents the historical balance
sheet as presented in the unaudited September 30, 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 September 30, 1997. The
terms are described in the notes that follow.
Pro Forma Adjustments
---------------------------------------------------
Roselle
Party City Eagle Countryside Wilson Plaza
------------ ------------ ------------ ------------
Assets
- ------
Net investment in
properties........... $ 1,975,000 2,900,000 2,300,000 1,300,000
Accounts and rents
receivable........... 7,700 52,500 - 19,700
------------ ------------ ------------ ------------
Total assets........... $ 1,982,700 2,952,500 2,300,000 1,319,700
============ ============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ 7,700 52,500 - 19,700
Security deposits...... - - - 10,611
Mortgage payable....... - - - -
------------ ------------ ------------ ------------
Total liabilities...... 7,700 52,500 - 30,311
------------ ------------ ------------ ------------
Common Stock........... 2,297 3,372 2,674 1,499
Additional paid in capital
(net of Offering
Costs)............... 1,972,703 2,896,628 2,297,326 1,287,890
------------ ------------ ------------ ------------
Total Stockholders'
equity............... 1,975,000 2,900,000 2,300,000 1,289,389
------------ ------------ ------------ ------------
Total liabilities and
Stockholders' equity. $ 1,982,700 2,952,500 2,300,000 1,319,700
============ ============ ============ ============
F-20
<PAGE> 205
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1997
(unaudited)
Pro Forma Adjustments
--------------------------------------
Terramere Iroquois Fashion Naper West
Plaza Center Square Plaza
------------ ------------ ------------ ------------
Assets
- ------
Net investment in
properties........... $ 4,405,000 11,900,000 9,255,000 14,850,000
Accounts and rents
receivable........... 174,700 121,500 297,000 200,000
------------ ------------ ------------ ------------
Total assets........... $ 4,579,700 12,021,500 9,552,000 $15,050,000
============ ============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ 185,850 155,000 367,500 220,000
Security deposits...... 30,746 57,019 - -
Mortgage payable....... - - 6,200,000 -
------------ ------------ ------------ ------------
Total liabilities...... 216,596 212,019 6,567,500 220,000
------------ ------------ ------------ ------------
Common Stock........... 5,073 13,732 3,470 17,244
Additional paid in capital
(net of Offering
Costs)............... 4,358,031 11,795,749 2,981,030 14,812,756
------------ ------------ ------------ ------------
Total Stockholders'
equity............... 4,363,104 11,809,481 2,984,500 14,830,000
------------ ------------ ------------ ------------
Total liabilities and
Stockholders' equity. $ 4,579,700 12,021,500 9,522,000 15,050,000
============ ============ ============ ============
F-21
<PAGE> 206
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1997
(unaudited)
Pro Forma Adjustments
-------------------------
Shoppes at West Total
Woodfield Coopers Chicago Pro Forma
Plaza Grove Dominick's Adjustments
------------ ------------ ------------ ------------
Assets
- ------
Net investment in
properties........... $19,200,000 5,800,000 6,300,000 80,185,000
Accounts and rents
receivable........... 404,735 311,400 - 1,589,235
------------ ------------ ------------ ------------
Total assets........... $19,604,735 6,111,400 6,300,000 81,774,235
============ ============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ 404,735 324,407 - 1,737,392
Security deposits...... - 4,533 - 102,909
Mortgage payable....... - - - 6,200,000
------------ ------------ ------------ ------------
Total liabilities...... 404,735 328,940 - 8,040,301
------------ ------------ ------------ ------------
Common Stock........... 22,326 6,724 7,326 85,737
Additional paid in capital
(net of Offering
Costs)............... 19,177,674 5,775,736 6,292,674 73,648,197
------------ ------------ ------------ ------------
Total Stockholders'
equity............... 19,200,000 5,782,460 6,300,000 73,733,934
------------ ------------ ------------ ------------
Total liabilities and
Stockholders' equity. 19,604,735 6,111,400 6,300,000 81,774,235
============ ============ ============ ============
F-22
<PAGE> 207
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1997
(unaudited)
Acquisition of Properties:
On November 6, 1997, the Company acquired Party City, Oak Brook Terrace,
Illinois from an unaffiliated third party for the purchase price of
$1,975,000 on an all cash basis, funded from cash and cash equivalents.
On November 26, 1997, the Company acquired Roselle Eagle, Roselle, Illinois
from an unaffiliated third party for the purchase price of $2,900,000 on an
all cash basis, funded from cash and cash equivalents.
On December 15, 1997, the Company acquired Countryside Shopping Center from
an unaffiliated third party for the purchase price of $2,300,000 on an all
cash basis, funded from cash and cash equivalents.
On December 19, 1997, the Company acquired Terramere Plaza from an
unaffiliated third party for the purchase price of $4,405,000 on an all
cash basis, funded from cash and cash equivalents.
On December 22, 1997, the Company acquired Wilson Plaza from an
unaffiliated third party for the purchase price of $1,300,000 on an all
cash basis, funded from cash and cash equivalents.
On December 29, 1997, the Company acquired Iroquois Center from an
unaffiliated third party for the purchase price of $11,900,000 on an all
cash basis, funded from cash and cash equivalents.
On December 30, 1997, the Company acquired Fashion Square from an
unaffiliated third party for the purchase price of $9,255,000, using cash
and cash equivalents of $3,055,000 and assuming the existing bond
financing, in the remaining principal balance of $6,200,000, monthly
interest only payments are due on the financing through the December 1,
2014 maturity date. The interest rate changes weekly and is currently
4.1%. The bond financing is secured by a Letter of credit issued by
LaSalle National Bank, who receives an annual fee of 1.25% of the
outstanding principal balance.
On December 30, 1997, the Company acquired Naper West Center from an
unaffiliated third party for the purchase price of $14,850,000 on an all
cash basis, funded from cash and cash equivalents.
On January 2, 1998, the Company acquired Woodfield Plaza from an
unaffiliated third party for the purchase price of $19,200,000 on an all
cash basis, funded from cash and cash equivalents.
F-23
<PAGE> 208
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1997
(unaudited)
On January 9, 1998, the Company acquired the Shoppes at Coopers Grove from
an unaffiliated third party for the purchase price of approximately
$5,800,000 on an all cash basis, funded from cash and cash equivalents.
On January 22, 1998, the Company acquired West Chicago Dominick's from an
unaffiliated third party for the purchase price of approximately $6,300,000
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 $85,737,000, net of additional Offering
costs of $12,003,066 are reflected as received as of September 30, 1997,
prior to the purchase of the properties. Offering costs consist
principally of registration costs, printing and selling costs, including
commissions.
F-24
<PAGE> 209
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the nine months ended September 30, 1997
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of the properties indicated in Note B of
the Notes to the Pro Forma Statement of Operations as though they occurred on
January 1, 1997. This unaudited Pro Forma Statement of Operations should be
read in conjunction with the September 30, 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 nine months
ended September 30, 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-25
<PAGE> 210
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the nine months ended September 30, 1997
(unaudited)
Pro Forma
Adjustments
-----------
1997 1997
Historical Acquisitions 1997
(A) (B) Pro Forma
------------ ------------ -----------
Rental income..... $14,176,240 11,308,774 25,485,014
Additional rental
income.......... 4,569,303 3,818,244 8,387,547
Interest
income(C)....... 833,600 - 833,600
Other income...... 76,506 - 76,506
------------ ------------ ------------
Total income.... 19,655,649 15,127,018 34,782,667
------------ ------------ ------------
Professional services
and general and
administrative
fees............ 233,160 - 233,160
Advisor asset
management fee.(F) 940,159 1,304,837 2,244,996
Property operating
expenses........ 6,150,573 4,709,861 10,860,434
Interest expense.. 3,796,573 1,253,777 5,050,350
Depreciation (D).. 3,007,678 2,708,272 5,715,950
Amortization...... 92,403 - 92,403
Acquisition costs
expensed........ 105,142 - 105,142
------------ ------------ ------------
Total expenses.... 14,325,688 9,976,747 24,302,435
------------ ------------ ------------
Net income...... $ 5,329,961 5,150,271 10,480,232
============ ============ ============
Weighted average
common stock shares
outstanding (E). 12,854,708 21,428,408
============ ============
Net income per weighted
average common stock
outstanding (E). $ .41 .49
============ ============
See accompanying notes to pro forma statement of operations.
F-26
<PAGE> 211
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
For the nine months ended September 30, 1997
(unaudited)
(A) The 1997 Historical column represents the historical statement of
operations of the Company for the nine months ended September 30, 1997
(unaudited), as filed with the SEC on Form 10-Q.
(B) Total pro forma adjustments for the nine months ended September 30, 1997
are as though the 1997 acquisitions of the following properties occurred
the earlier of January 1, 1997 or the date operations commenced (May 13,
1997 for the Glendale Heights Dominicks). All properties were purchased on
an all cash basis except for Maple Park, Aurora Commons, Lincoln Park Place
and Rivertree Court. Pro forma 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-27
<PAGE> 212
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
For the nine months ended September 30, 1997
(unaudited)
Rivertree Court
As part of the acquisition of Rivertree Court, the Company assumed the
existing first mortgage loan, maturing January 1, 1999, with a balance of
$15,700,000. The loan requires interest only monthly payments at a rate of
10.03% per annum.
Fashion Square
As part of the acquisition of Fashion Square, the Company assumed the
existing bond financing, in the remaining principal balance of $6,200,000.
Monthly interest only payments are due on the financing through December 1,
2014 maturity date. The interest rate changes weekly and is currently
4.1%. The bond financing is secured by a Letter of Credit issued by
LaSalle National Bank, who receives an annual fee of 1.25% of the
outstanding principal balance.
F-28
<PAGE> 213
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the nine months ended September 30, 1997
(unaudited)
(B) Total pro forma adjustments for 1997 acquisitions are as though they were
acquired the earlier of January 1, 1997 or the date operations commenced.
<TABLE>
<CAPTION>
Niles
Maple Park Aurora Lincoln Shopping Cobblers Mallard Calumet Ameritech
Place Commons Park Place Center Mall Mall Square Outlot
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 39,736 82,740 14,159 98,780 341,053 356,037 130,663 36,768
Additional rental
income.......... 8,168 26,594 5,714 39,507 189,843 138,412 146,565 8,091
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Total income...... 47,904 109,334 19,873 138,287 530,896 494,449 277,228 44,859
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Advisor asset
management fee.. - - - - - - - -
Property operating
expenses........ 10,039 30,055 6,352 43,952 205,189 161,720 152,445 9,746
Interest expense.. - - - - - - - -
Depreciation...... - - - - - - - -
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Total expenses.... 10,039 30,055 6,352 43,952 205,189 161,720 152,445 9,746
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Net income (loss). 37,865 79,279 13,521 94,335 325,707 332,729 124,783 35,113
=========== =========== =========== =========== =========== ============ =========== ===========
<CAPTION>
Highland Glendale
Schaumburg Sequoia Park River Rivertree Shorecrest Heights
Dominicks Plaza Dominicks Square Court Plaza Dominicks Party City
----------- ----------- ----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 269,510 182,563 405,156 358,182 1,923,392 311,714 303,692 150,000
Additional rental
income.......... - 67,441 - 157,773 588,600 128,728 - 30,000
----------- ----------- ----------- ----------- ----------- ------------ ------------ -----------
Total income...... 269,510 250,004 405,156 515,955 2,511,992 440,442 303,692 180,000
----------- ----------- ----------- ----------- ----------- ------------ ------------ -----------
Advisor asset
management fee.. - - - - - - - -
Property operating
expenses........ 5,390 78,364 8,103 166,076 732,510 154,027 7,592 35,400
Interest expense.. - - - - - - - -
Depreciation...... - - - - - - - -
----------- ----------- ----------- ----------- ----------- ------------ ------------ -----------
Total expenses.... 5,390 78,364 8,103 166,076 732,510 154,027 7,592 35,400
----------- ----------- ----------- ----------- ----------- ------------ ------------ -----------
Net income (loss). 264,120 171,640 397,053 349,879 1,779,482 286,415 296,099 144,600
=========== =========== =========== =========== =========== ============ ============ ===========
</TABLE>
F-29
<PAGE> 214
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the nine months ended September 30, 1997
(unaudited)
(B) Total pro forma adjustments for 1997 acquisitions are as though they were
acquired the earlier of January 1, 1997 or the date operations commenced.
<TABLE>
<CAPTION>
Roselle Wilson Terremere Iroquios Fashion Naper West Woodfield
Eagle Countryside Plaza Plaza Center Square Plaza Plaza
----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 251,984 200,284 104,293 328,354 1,032,040 606,701 1,183,881 1,676,486
Additional rental
income.......... 63,400 - 38,723 294,844 335,000 407,972 441,580 393,140
----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
Total income...... 315,384 200,284 143,016 623,198 1,367,040 1,014,673 1,625,461 2,069,626
----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
Advisor asset
management fee.. - - - - - - - -
Property operating
expenses........ 81,900 6,760 46,810 318,065 413,500 556,260 539,022 617,328
Interest expense.. - - - - - - - -
Depreciation...... - - - - - - - -
----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
Total expenses.... 81,900 6,760 46,810 318,065 413,500 556,260 539,022 617,328
----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
Net income (loss). 233,484 193,524 96,206 305,133 953,540 458,413 1,086,439 1,452,298
=========== =========== =========== =========== =========== ============ ============ ============
<CAPTION>
Total
Shoppes at West 1997
Coopers Chicago Pro Forma Acquisitions
Grove Dominick's Adjustments Pro Forma
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Rental income..... 449,365 471,240 - 11,308,774
Additional rental
income.......... 308,150 - - 3,818,244
----------- ----------- ----------- ------------
Total income...... 757,515 471,240 - 15,127,018
----------- ----------- ----------- ------------
Advisor asset
management fee.. - - 1,304,837 1,304,837
Property operating
expenses........ 323,256 - - 4,709,861
Interest expense.. - - 1,253,777 1,253,777
Depreciation...... - - 2,708,272 2,708,272
----------- ----------- ----------- ------------
Total expenses.... 323,256 - 5,266,886 9,976,747
----------- ----------- ----------- ------------
Net income (loss). 434,259 471,240 (5,266,886) 5,150,270
=========== =========== =========== ============
</TABLE>
F-30
<PAGE> 215
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the nine months ended September 30, 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 nine months
ended September 30, 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-31
<PAGE> 216
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 the properties indicated in Note B and
Note C of the Notes to the Pro Forma Statement of Operations 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. The Glendale Heights Dominicks was
constructed in 1997 and therefore, no operations relating to this property are
presented on the unaudited Pro Forma Statement of Operations for December 31,
1996. The Party City property was vacant prior to June 1997 and therefore, no
operations relating to this property 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-32
<PAGE> 217
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 20,746,156 31,341,385
Additional rental
income.......... 1,336,809 3,198,250 7,040,189 11,575,248
Interest
income(E)....... 438,188 - - 438,188
Other income...... 84,834 - - 84,834
----------- ----------- ----------- ------------
Total income.... 6,327,734 9,325,576 27,786,345 43,439,655
----------- ----------- ----------- ------------
Professional services
and general and
administrative
fees............ 183,559 - - 183,559
Advisor asset
management fee.(I) 238,108 708,222 2,028,200 2,974,530
Property operating
expenses........ 1,873,174 3,656,698 8,089,435 13,619,307
Interest expense.. 597,485 949,958 3,690,843 5,238,286
Depreciation (F).. 939,144 1,448,017 5,110,961 7,498,122
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 18,925,896 29,575,732
----------- ----------- ----------- ------------
Net income...... $2,452,221 2,551,253 8,860,449 13,863,923
=========== =========== =========== ============
Weighted average
common stock shares
outstanding (G). 4,494,620 22,999,620
=========== ============
Net income per weighted
average common stock
outstanding (G). $ .55 .60
=========== ============
See accompanying notes to pro forma statement of operations.
F-33
<PAGE> 218
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. Pro forma 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-34
<PAGE> 219
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-35
<PAGE> 220
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-36
<PAGE> 221
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
=========== =========== =========== =========== =========== =========== ===========
Highland
Ameritech Schaumburg Sequoia Park River Rivertree Shorecrest
Outlot Dominicks Plaza Dominicks Square Court Plaza
----------- ----------- ----------- ----------- ----------- ----------- -----------
Rental income..... 106,283 646,825 361,986 883,976 619,034 3,233,884 534,428
Additional rental
income.......... 18,265 - 135,404 - 253,031 1,149,307 120,745
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total income...... 124,548 646,825 497,390 883,976 872,065 4,383,191 655,173
----------- ----------- ----------- ----------- ----------- ----------- -----------
Advisor asset
management fee.. 10,500 106,910 30,100 128,000 60,500 317,500 59,560
Property operating
expenses........ 18,500 12,937 164,126 17,680 362,348 1,304,258 201,993
Interest expense.. - - - - - 1,574,710 -
Depreciation...... 26,250 267,000 75,250 320,000 151,250 793,750 148,900
Amortization...... - - - - - - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses.... 55,250 386,847 269,476 465,680 574,098 3,990,218 410,453
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss). 69,298 259,978 227,914 418,296 297,967 392,973 244,720
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-37
<PAGE> 222
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>
Eagle Wilson Terramere Iroquois Fashion Naper West Woodfield
Roselle Countryside Plaza Plaza Center Square Plaza Plaza
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 335,979 266,601 132,484 509,076 1,336,054 865,075 1,450,034 2,235,315
Additional rental
income.......... - - 50,017 340,678 522,103 634,453 553,470 736,226
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
Total income...... 335,979 266,601 182,501 849,754 1,858,157 1,499,528 2,003,504 2,971,541
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
Advisor asset
management fee.. 29,000 23,000 13,000 44,050 119,000 92,550 148,500 192,000
Property operating
expenses........ - - 50,520 367,086 525,109 705,908 664,159 730,679
Interest expense.. - - - - - 331,700 - -
Depreciation...... 70,000 53,333 33,367 110,000 272,000 233,000 360,000 483,000
Amortization...... - - - - - - - -
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
Total expenses.... 99,000 76,333 96,887 521,136 916,109 1,363,158 1,172,659 1,405,679
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
Net income (loss). 236,979 190,268 85,614 328,618 942,048 136,370 830,845 1,565,862
=========== =========== =========== =========== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Total
Shoppes at West 1997
Coopers Chicago Acquisitions
Grove Dominick's Pro Forma
----------- ----------- ------------
<S> <C> <C> <C>
Rental income..... $ 582,087 628,320 20,746,156
Additional rental
income.......... 401,325 - 7,040,189
----------- ----------- ------------
Total income...... 983,412 628,320 27,786,345
=========== =========== ------------
Advisor asset
management fee.. 58,000 63,000 2,028,200
Property operating
expenses........ 432,600 - 8,089,435
Interest expense.. - - 3,690,843
Depreciation...... 164,000 157,500 5,110,961
Amortization...... - - 6,457
----------- ----------- ------------
Total expenses.... 654,600 220,500 18,925,896
----------- ----------- ------------
Net income (loss). 328,812 407,820 8,860,449
=========== =========== ============
</TABLE>
F-38
<PAGE> 223
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)................ $1,805,788 (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.................... $1,341,448 - 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 1,305,482 1,964,687
----------- ----------- -----------
Net income (loss)................ $1,216,490 (1,305,482) (88,992)
=========== =========== ===========
F-39
<PAGE> 224
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-40
<PAGE> 225
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-41
<PAGE> 226
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-42
<PAGE> 227
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-43
<PAGE> 228
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 River Square 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-44
<PAGE> 229
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Rivertree Court, Vernon Hills, 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:
Rivertree Court
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $3,233,884 - 3,233,884
Additional rental income.. 1,149,307 - 1,149,307
----------- ----------- -----------
Total income.............. 4,383,191 - 4,383,191
----------- ----------- -----------
Advisor asset
management fee.......... - 317,500 317,500
Property operating
expenses................ 1,207,912 96,346 1,304,258
Interest expense.......... - 1,574,710 1,574,710
Depreciation.............. - 793,750 793,750
----------- ----------- -----------
Total expenses............ 1,207,912 2,782,306 3,990,218
----------- ----------- -----------
Net income (loss)......... $3,175,279 (2,782,306) 392,973
=========== =========== ===========
Acquisition of Shorecrest Plaza, Racine, Wisconsin
This pro forma adjustment reflects the purchase of Shorecrest Plaza as if
the Company had acquired the property as of January 1, 1996, and is based
on information provided by the Seller.
Shorecrest Plaza
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 534,428 - 534,428
Additional rental income.. 120,745 - 120,745
----------- ----------- -----------
Total income.............. 655,173 - 655,173
----------- ----------- -----------
Advisor asset
management fee.......... - 59,560 59,560
Property operating
expenses................ 201,993 - 201,993
Depreciation.............. - 148,900 148,900
----------- ----------- -----------
Total expenses............ 201,993 208,460 410,453
----------- ----------- -----------
Net income (loss)......... $ 453,180 (208,460) 244,720
=========== =========== ===========
F-45
<PAGE> 230
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Roselle Eagle, Roselle, Illinois
This pro forma adjustment reflects the purchase of Roselle Eagle as if the
Company had acquired the property as of January 1, 1996, and is based on
information provided by the Seller.
Eagle Roselle
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 335,979 - 335,979
Additional rental income.. - - -
----------- ----------- -----------
Total income.............. 335,979 - 335,979
----------- ----------- -----------
Advisor asset
management fee.......... - 29,000 29,000
Property operating
expenses................ - - -
Depreciation.............. - 70,000 70,000
----------- ----------- -----------
Total expenses............ - 99,000 99,000
----------- ----------- -----------
Net income (loss)......... $ 335,979 (99,000) 236,979
=========== =========== ===========
Acquisition of Countryside Shopping Center, Countryside, Illinois
This pro forma adjustment reflects the purchase of Countryside Shopping
Center as if the Company had acquired the property as of January 1, 1996,
and is based on information provided by the Seller.
Countryside Shopping Center
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 266,601 - 266,601
Additional rental income.. - - -
----------- ----------- -----------
Total income.............. 266,601 - 266,601
----------- ----------- -----------
Advisor asset
management fee.......... - 23,000 23,000
Property operating
expenses................ - - -
Depreciation.............. - 53,333 53,333
----------- ----------- -----------
Total expenses............ - 76,333 76,333
----------- ----------- -----------
Net income (loss)......... $ 266,601 (76,333) 190,268
=========== =========== ===========
F-46
<PAGE> 231
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Wilson Plaza, Batavia, 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:
Wilson Plaza
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $ 132,484 - 132,484
Additional rental income.. 50,017 - 50,017
----------- ----------- -----------
Total income.............. 182,501 - 182,501
----------- ----------- -----------
Advisor asset
management fee.......... - 13,000 13,000
Property operating
expenses................ 50,520 - 50,520
Interest expense.......... - - -
Depreciation.............. - 33,367 33,367
----------- ----------- -----------
Total expenses............ 50,520 46,367 96,887
----------- ----------- -----------
Net income (loss)......... $ 131,981 (46,367) 85,614
=========== =========== ===========
Acquisition of Terramere Plaza, Arlington Heights, 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:
Terramere Plaza
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $ 509,076 - 509,076
Additional rental income.. 340,678 - 340,678
----------- ----------- -----------
Total income.............. 849,754 - 849,754
----------- ----------- -----------
Advisor asset
management fee.......... - 44,050 44,050
Property operating
expenses................ 367,086 - 367,086
Interest expense.......... - - -
Depreciation.............. - 110,000 110,000
----------- ----------- -----------
Total expenses............ 367,086 154,050 521,136
----------- ----------- -----------
Net income (loss)......... $ 482,668 (154,050) 328,618
=========== =========== ===========
F-47
<PAGE> 232
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Iroquois Center, Naperville, 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:
Iroquois Center
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $1,336,054 - 1,336,054
Additional rental income.. 522,103 - 522,103
----------- ----------- -----------
Total income.............. 1,858,157 - 1,858,157
----------- ----------- -----------
Advisor asset
management fee.......... - 119,000 119,000
Property operating
expenses................ 525,109 - 525,109
Interest expense.......... - - -
Depreciation.............. - 272,000 272,000
----------- ----------- -----------
Total expenses............ 525,109 391,000 916,109
----------- ----------- -----------
Net income (loss)......... $1,333,048 (391,000) 942,048
=========== =========== ===========
Acquisition of Fashion Square, Skokie, 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:
Fashion Square
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $ 865,075 - 865,075
Additional rental income.. 634,453 - 634,453
----------- ----------- -----------
Total income.............. 1,499,528 - 1,499,528
----------- ----------- -----------
Advisor asset
management fee.......... - 92,550 92,550
Property operating
expenses................ 705,908 - 705,908
Interest expense.......... - 331,700 331,700
Depreciation.............. - 233,000 233,000
----------- ----------- -----------
Total expenses............ 705,908 657,250 1,363,158
----------- ----------- -----------
Net income (loss)......... $ 793,620 (657,250) 136,370
=========== =========== ===========
F-48
<PAGE> 233
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Naper West Plaza, Naperville, 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:
Naper West Plaza
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $1,450,034 - 1,450,034
Additional rental income.. 553,470 - 553,470
----------- ----------- -----------
Total income.............. 2,003,504 - 2,003,504
----------- ----------- -----------
Advisor asset
management fee.......... - 148,500 148,500
Property operating
expenses................ 664,159 - 664,159
Interest expense.......... - - -
Depreciation.............. - 360,000 360,000
----------- ----------- -----------
Total expenses............ 664,159 508,500 1,172,659
----------- ----------- -----------
Net income (loss)......... $1,339,345 (508,500) 830,845
=========== =========== ===========
Acquisition of Woodfield Plaza, Schaumburg, 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:
Woodfield Plaza
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income............. $2,235,315 - 2,235,315
Additional rental income.. 736,226 - 736,226
----------- ----------- -----------
Total income.............. 2,971,541 - 2,971,541
----------- ----------- -----------
Advisor asset
management fee.......... - 192,000 192,000
Property operating
expenses................ 730,679 - 730,679
Interest expense.......... - - -
Depreciation.............. - 483,000 483,000
----------- ----------- -----------
Total expenses............ 730,679 675,000 1,405,679
----------- ----------- -----------
Net income (loss)......... $2,240,862 (675,000) 1,565,862
=========== =========== ===========
F-49
<PAGE> 234
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Shoppes at Coopers Grove, Countryside, Illinois
This pro forma adjustment reflects the purchase of Shoppes at Coopers Grove
as if the Company had acquired the property as of January 1, 1996, and is
based on information provided by the Seller.
Shoppes at Coopers Grove
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 582,087 - 582,087
Additional rental income.. 401,325 - 401,325
----------- ----------- -----------
Total income.............. 983,412 - 983,412
----------- ----------- -----------
Advisor asset
management fee.......... - 58,000 58,000
Property operating
expenses................ 432,600 - 432,600
Depreciation.............. - 164,000 164,000
----------- ----------- -----------
Total expenses............ 432,600 222,000 654,600
----------- ----------- -----------
Net income (loss)......... $ 550,812 (222,000) 328,812
=========== =========== ===========
Acquisition of West Chicago Dominick's, West Chicago, Illinois
This pro forma adjustment reflects the purchase of West Chicago Dominick's
as if the Company had acquired the property as of January 1, 1996, and is
based on information provided by the Seller.
West Chicago Dominick's
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
Rental income............. $ 628,320 - 628,320
Additional rental income.. - - -
----------- ----------- -----------
Total income.............. 628,320 - 628,320
----------- ----------- -----------
Advisor asset
management fee.......... - 63,000 63,000
Property operating
expenses................ - - -
Depreciation.............. - 157,500 157,500
----------- ----------- -----------
Total expenses............ - 220,500 220,500
----------- ----------- -----------
Net income (loss)......... $ 628,320 (220,500) 407,820
=========== =========== ===========
F-50
<PAGE> 235
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-51
<PAGE> 236
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 Rivertree Court Shopping Center 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 Rivertree Court Shopping Center's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 14, 1997
F-52
<PAGE> 237
Rivertree Court Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $3,233,884
Operating expense and real estate
tax recoveries................................ 1,121,942
Other income.................................... 27,365
-----------
Total Gross Income.............................. $4,383,191
-----------
Direct operating expenses:
Real estate taxes............................... 749,542
Operating expenses.............................. 221,715
Management fees................................. 100,897
Utilities....................................... 83,668
Insurance....................................... 52,090
-----------
Total direct operating expenses................. $1,207,912
-----------
Excess of gross income over direct
operating expenses.............................. $3,175,279
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-53
<PAGE> 238
Rivertree Court Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Rivertree Court Shopping Center (Rivertree Court) is located in Vernon
Hills, Illinois. It consists of approximately 297,000 square feet of gross
leasable area and was 90% leased and occupied at December 31, 1996. Inland
Real Estate Corporation has signed a sale and purchase agreement for the
purchase of Rivertree Court 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 Rivertree
Court's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Rivertree Court
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
Rivertree Court leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Rivertree Court is reimbursed for common
area, real estate, and insurance costs. Real estate tax recoveries
reflected in the Historical Summary include amounts for 1996 real estate
tax expense 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 decreased base rental income by $78,267 for the
year ended December 31, 1996.
F-54
<PAGE> 239
Rivertree Court 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 $ 3,240,935
1998 2,819,999
1999 2,444,952
2000 2,252,172
2001 2,063,932
Thereafter 11,865,994
------------
$24,687,894
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Rivertree Court. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Historical Summary.
Rivertree Court 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 the estimate and the final tax bill is not expected to
have a material impact on the Historical Summary.
Rivertree Court is managed by an affiliate of the Seller pursuant to the
terms of a management agreement for an annual fee of 3% of rental income
(as defined). Subsequent to the sale of Rivertree Court (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-55
<PAGE> 240
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 Shorecrest Plaza Shopping Center for
the year ended May 31, 1997. 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. The presentation is not intended to be a
complete presentation of Shorecrest Plaza 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 Shorecrest Plaza Shopping Center for the year ended May 31, 1997,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
June 19, 1997
F-56
<PAGE> 241
Shorecrest Plaza Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended May 31, 1997
Gross income:
Base rental income.............................. $ 601,514
Operating expense and real estate
tax recoveries................................ 167,936
-----------
Total Gross Income.............................. 769,450
-----------
Direct operating expenses:
Real estate taxes............................... 111,445
Operating expenses.............................. 46,457
Management fees................................. 33,834
Utilities....................................... 10,362
Insurance....................................... 4,229
-----------
Total direct operating expenses................. 206,327
-----------
Excess of gross income over direct
operating expenses.............................. $ 563,123
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-57
<PAGE> 242
Shorecrest Plaza Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended May 31, 1997
1. Business
Shorecrest Plaza Shopping Center (Shorecrest Plaza) is located in Racine,
Wisconsin. It consists of approximately 91,000 square feet of gross
leasable area and was approximately 93% leased and occupied at May 31,
1997. Inland Real Estate Corporation has signed a sale and purchase
agreement for the purchase of Shorecrest Plaza 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 Shorecrest
Plaza's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Shorecrest Plaza
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
Shorecrest Plaza leases retail space under various lease agreements with
its tenants. All leases are accounted for as operating leases. The leases
include provisions under which Shorecrest Plaza 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
and 1997 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 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 $70,690
the year ended May 31, 1997.
F-58
<PAGE> 243
Shorecrest Plaza Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended May 31, 1997
Minimum rents to be received from tenants under operating leases in effect
at May 31, 1997 are as follows:
Year Amount
1998 $ 643,824
1999 648,105
2000 594,760
2001 538,520
2002 535,430
Thereafter 2,409,914
------------
$ 5,370,553
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Shorecrest Plaza. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Historical Summary.
Shorecrest Plaza has not received its final real estate tax bill for 1997.
Real estate tax expense is estimated based upon bills for 1996. The
difference between the estimate and the final tax bill is not expected to
have a material impact on the Historical Summary.
Shorecrest Plaza is managed pursuant to the terms of a management agreement
for an annual fee of 5% of gross revenues (as defined). Subsequent to the
sale of Shorecrest Plaza (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-59
<PAGE> 244
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 Wilson Plaza 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. It is not intended to be a complete
presentation of Wilson Plaza'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 Wilson Plaza for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 13, 1997
F-60
<PAGE> 245
Wilson Plaza Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $ 132,484
Operating expense and real estate
tax recoveries................................ 50,017
-----------
Total Gross Income.............................. 182,501
-----------
Direct operating expenses:
Real estate taxes............................... 25,090
Operating expenses.............................. 20,012
Utilities....................................... 329
Management Fees................................. 4,140
Insurance....................................... 949
-----------
Total direct operating expenses................. 50,520
-----------
Excess of gross income over
direct operating expenses....................... $ 131,981
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-61
<PAGE> 246
Wilson Plaza Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Wilson Plaza is located in Batavia, Illinois. It consists of approximately
11,000 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 Wilson Plaza from an unaffiliated
third party.
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 Wilson
Plaza's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Wilson Plaza 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
Wilson Plaza leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Wilson Plaza is reimbursed for common area,
real estate, and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $6,243 for the
year ended December 31, 1996.
F-62
<PAGE> 247
Wilson Plaza 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 $ 140,180
1998 115,653
1999 101,578
2000 95,469
2001 86,287
Thereafter 44,861
----------
$ 584,028
==========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Wilson Plaza. Costs such
as mortgage interest, depreciation, amortization and professional fees are
excluded from the Historical Summary.
Wilson Plaza is managed pursuant to the terms of a management agreement for
an annual fee of 3% of base rents. Subsequent to the sale of Wilson Plaza
(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-63
<PAGE> 248
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 Iroquois 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. It is not intended to be a complete
presentation of Iroquois Plaza'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 Iroquois Plaza for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 4, 1997
F-64
<PAGE> 249
Iroquois Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $1,336,054
Operating expense and real estate
tax recoveries................................ 469,685
Other income.................................... 52,418
-----------
Total Gross Income.............................. 1,858,157
-----------
Direct operating expenses:
Operating expenses.............................. 284,117
Real estate taxes............................... 205,423
Utilities....................................... 20,327
Insurance....................................... 15,242
-----------
Total direct operating expenses................. 525,109
-----------
Excess of gross income over
direct operating expenses..................... $1,333,048
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-65
<PAGE> 250
Iroquois Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Iroquois Center is located in Naperville, Illinois. It consists of
approximately 141,500 square feet of gross leasable area and was 98% leased
and occupied at December 31, 1996. Inland Real Estate Corporation has
signed a sale and purchase agreement for the purchase of Iroquois Center
from an unaffiliated third party.
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 Iroquois
Center's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Iroquois
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
Iroquois 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 Iroquois Center is reimbursed for common
area, real estate, and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $44,760 for the
year ended December 31, 1996.
F-66
<PAGE> 251
Iroquois 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 $ 1,413,081
1998 1,285,944
1999 1,057,493
2000 929,941
2001 899,651
Thereafter 1,920,263
------------
$ 7,506,373
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Iroquois Center. Costs
such as mortgage interest, depreciation, amortization and professional fees
are excluded from the Historical Summary.
Real estate tax expense is estimated upon bills for 1995. The difference
between the estimate and the final tax bill is not expected to have a
material impact on the Historical Summary.
Iroquois Center is managed pursuant to the terms of a management agreement
for an annual fee of 4% of gross revenues (as defined). Subsequent to the
sale of Iroquois Center (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-67
<PAGE> 252
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 Fashion 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. It is not intended to be a complete
presentation of Fashion 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 for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 19, 1997
F-68
<PAGE> 253
Fashion Square Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $ 865,075
Operating expense and real estate
tax recoveries................................ 543,986
Other income.................................... 90,467
-----------
Total Gross Income.............................. 1,499,528
-----------
Direct operating expenses:
Real estate taxes............................... 478,356
Operating expenses.............................. 171,650
Management Fees................................. 37,726
Utilities....................................... 18,176
Insurance....................................... 13,590
-----------
Total direct operating expenses................. 719,498
-----------
Excess of gross income over
direct operating expenses..................... $ 780,030
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-69
<PAGE> 254
Fashion Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Fashion Square Shopping Center (Fashion Square) is located in Skokie,
Illinois. It consists of approximately 84,600 square feet of gross
leasable area and was 77% leased and occupied at December 31, 1996. Inland
Real Estate Corporation has signed a sale and purchase agreement for the
purchase of Fashion 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 Fashion
Square's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Fashion
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
Fashion 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 Fashion Square is reimbursed for common
area, real estate, and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments decreased base rental income by $8,291 for the
year ended December 31, 1996.
F-70
<PAGE> 255
Fashion 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 $ 893,710
1998 796,377
1999 578,533
2000 384,158
2001 57,285
Thereafter 374,078
----------
$3,084,141
==========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Fashion Square. Costs such
as mortgage interest, depreciation, amortization and professional fees are
excluded from the Historical Summary.
Fashion Square is managed pursuant to the terms of a management agreement
for an annual fee of 4% of rental income (as defined). Subsequent to the
sale of Fashion 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-71
<PAGE> 256
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 Naper West 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. It is not intended to be a complete
presentation of Naper West'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 Naper West for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 6, 1998
F-72
<PAGE> 257
Naper West Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $1,450,034
Operating expense and real estate
tax recoveries................................ 553,470
-----------
Total Gross Income.............................. 2,003,504
-----------
Direct operating expenses:
Operating expenses.............................. 340,346
Real estate taxes............................... 281,483
Utilities....................................... 26,600
Insurance....................................... 15,730
-----------
Total direct operating expenses................. 664,159
-----------
Excess of gross income over
direct operating expenses..................... $1,339,345
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-73
<PAGE> 258
Naper West Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Naper West is located in Naperville, Illinois. It consists of
approximately 166,000 square feet of gross leasable area and was 95% leased
and occupied at December 31, 1996. Inland Real Estate Corporation has
signed a sale and purchase agreement for the purchase of Naper West from an
unaffiliated third party.
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 Naper
West's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Naper West 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
Naper West leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Naper West is reimbursed for common area,
real estate, and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments decreased base rental income by $74,690 for the
year ended December 31, 1996.
F-74
<PAGE> 259
Naper West 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 $ 1,364,577
1998 1,040,008
1999 699,957
2000 278,643
2001 237,783
Thereafter 195,443
------------
$ 3,816,411
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Naper West. Costs such as
mortgage interest, depreciation, amortization, management fees and
professional fees are excluded from the Historical Summary.
F-75
<PAGE> 260
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 Woodfield Plaza 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. It is not intended to be a complete
presentation of Woodfield Plaza'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 Woodfield Plaza for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 5, 1997
F-76
<PAGE> 261
Woodfield Plaza
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $2,235,315
Operating expense and real estate
tax recoveries................................ 733,949
Other income.................................... 2,277
-----------
Total Gross Income.............................. 2,971,541
-----------
Direct operating expenses:
Real estate taxes............................... 513,949
Operating expenses.............................. 103,877
Management Fees................................. 62,400
Insurance....................................... 23,678
Utilities....................................... 11,521
-----------
Total direct operating expenses................. 715,425
-----------
Excess of gross income over
direct operating expenses..................... $2,256,116
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-77
<PAGE> 262
Woodfield Plaza
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Woodfield Plaza is located in Schaumburg, Illinois. It consists of
approximately 177,418 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 Woodfield
Plaza from an unaffiliated third party.
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 Woodfield
Plaza's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Woodfield Plaza
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
Woodfield Plaza leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Woodfield Plaza is reimbursed for common
area, real estate, and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $267,755 for
the year ended December 31, 1996.
F-78
<PAGE> 263
Woodfield Plaza
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 $ 1,991,572
1998 2,046,996
1999 1,985,440
2000 1,910,654
2001 1,875,192
Thereafter 17,604,277
------------
$27,414,131
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Woodfield Plaza. Costs
such as mortgage interest, depreciation, amortization and professional fees
are excluded from the Historical Summary.
Woodfield Plaza is managed pursuant to the terms of a management agreement
for a fixed annual fee of $62,400. Subsequent to the sale of Woodfield
Plaza (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-79
<PAGE> 264
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 Terramere Plaza 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. It is not intended to be a complete
presentation of Terramere Plaza'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 Terramere Plaza for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 17, 1997
F-80
<PAGE> 265
Terramere Plaza
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $ 509,076
Operating expense and real estate
tax recoveries................................ 334,503
Other income.................................... 6,175
-----------
Total Gross Income.............................. 849,754
-----------
Direct operating expenses:
Real estate taxes............................... 247,803
Operating expenses.............................. 60,964
Management Fees................................. 32,258
Utilities....................................... 18,550
Insurance....................................... 7,511
-----------
Total direct operating expenses................. 367,086
-----------
Excess of gross income over
direct operating expenses..................... $ 482,668
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-81
<PAGE> 266
Terramere Plaza
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Terramere Plaza Shopping Center (Terramere Plaza) is located in Arlington
Heights, Illinois. It consists of approximately 41,000 square feet of
gross leasable area and was 94% leased and occupied at December 31, 1996.
Inland Real Estate Corporation has signed a sale and purchase agreement for
the purchase of Terramere Plaza from an unaffiliated third party.
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 Terramere
Plaza's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Terramere Plaza
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
Terramere Plaza leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Terramere Plaza is reimbursed for common
area, real estate, and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments decreased base rental income by $335 for the
year ended December 31, 1996.
F-82
<PAGE> 267
Terramere Plaza
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 $ 462,628
1998 423,722
1999 225,562
2000 141,407
2001 96,008
Thereafter 131,872
-----------
$1,481,199
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Terramere Plaza. Costs
such as mortgage interest, depreciation, amortization and professional fees
are excluded from the Historical Summary.
Terramere Plaza is managed pursuant to the terms of a management agreement
for an annual fee of 4% of cash receipts. Subsequent to the sale of
Terramere Plaza (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-83
<PAGE> 268
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 I Experience in Raising and Investing Funds
Table II Compensation to IREIC and Affiliates
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs*
* Prospective investors in the Company may obtain copies of Table VI by
contacting the Advisor.
Except with respect to Inland Land Appreciation Fund, L.P., Inland
Land Appreciation Fund II, L.P., and Inland Capital Fund, L.P. the partnerships
presented in the tables are public real estate limited 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
A-1
<PAGE> 269
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-2
<PAGE> 270
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-3
<PAGE> 271
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-4
<PAGE> 272
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Public
Programs
---------------
<S> <C>
7 Programs
---------
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-5
<PAGE> 273
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.
(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.
A-6
<PAGE> 274
TABLE II--(CONTINUED)
COMPENSATION TO IREIC AND AFFILIATES
(000'S OMITTED)
NOTES TO TABLE II
(I) Real estate sales commissions and participations in cash distributions
are paid or payable to IREIC and/or its affiliates in connection with the
sales of properties. Payments of all amounts shown are subordinated to
the receipt by the limited partners of their original capital investment.
See Table V and Notes thereto.
A-7
<PAGE> 275
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:
-- The components of taxable income (loss);
-- Taxable income or loss from operations and property sales;
-- Cash available and source, before and after cash distributions to
investors; and
-- Tax and distribution data per $1,000 invested.
A-8
<PAGE> 276
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
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
</TABLE>
A-9
<PAGE> 277
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>
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-10
<PAGE> 278
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:
A-11
<PAGE> 279
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>
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-12
<PAGE> 280
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-13
<PAGE> 281
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-14
<PAGE> 282
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-15
<PAGE> 283
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Selling Price, net of closing costs
-------------------------------------------------------------
Cash Selling
Received, Commissions Secured
net of paid or Mortgage Notes Net
Date Date of Closing payable to at Time Received Selling
Acquired Sale Costs (B) Inland of Sale at Sale(C) Price
-------- ---------- --------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Land II 10 Acres of Parcel #22 . . . . . . 10/30/92 01/06/94 166 0 0 0 166
Land II .258 Acres of Parcel #6 . . . . . . 04/16/91 10/01/94 10 0 0 0 10
Land II 11 Acres of Parcel #15 . . . . . . 09/04/91 12/01/94 274 0 0 0 274
Growth Fund I-Country Club, 31 Units . . . 12/30/85 Var 94 2,432 0 0 0 2,432
Land I 35.88 Acres of Parcel #23 . . . . . 05/08/90 Var 94 1,149 0 0 156 1,305
Monthly Income Fund I-
Schaumburg Terrace, 22 Buildings . . . 06/24/88 Var 94 701 0 0 4,912(F) 5,613
Land I 3.44 Acres of Parcel #23 . . . . . . 05/08/90 Var 95 139 0 0 0 139
Monthly Income Fund I-
Schaumburg Terrace, 16 Buildings . . . 06/24/88 Var 95 409 0 0 3,790(F) 4,199
Land II 60 Acres of Parcel #23 . . . . . . 10/30/92 Var 95 4,196 0 0 0 4,196
Land II Parcel #25 . . . . . . . . . . . . 01/28/93 10/31/95 3,292 0 0 0 3,292
Capital Fund Parcel #10A . . . . . . . . . 09/16/94 04/21/95 286 0 0 0 286
Capital Fund 17.742 Acres of Parcel #2 . . 11/09/93 08/02/95 361 0 0 0 361
Land I 27.575 Acres of Parcel #4 . . . . . 04/18/89 08/25/95 542 0 9 0 542
Land II 5.538 Acres of Parcel #22 . . . . . 10/30/92 01/05/96 154 0 0 0 154
Land I 4.629 Acres of Parcel #24 . . . . . 05/23/90 04/01/96 53 0 0 0 53
Land II .87 Acres of Parcel #8 . . . . . . 06/14/91 04/03/96 10 0 0 0 10
Land I 3.52 Acres of Parcel #1 . . . . . . 01/19/89 12/24/96 501 0 0 0 501
Land I 10.53 Acres of Parcel #15 . . . . . 01/03/90 Var 96 533 0 0 0 533
Land II 8.25 Acres of Parcel #23 . . . . . 10/30/92 Var 96 1,527 0 0 0 1,527
<CAPTION>
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-16
<PAGE> 284
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-17
<PAGE> 285
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-18
<PAGE> 286
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 and the third of
which commenced on July 14, 1997 and was completed on ________
______, 1998 (the "Prior Offerings") and the current offering of
Shares by the Company pursuant to the prospectus dated _______,
1998 (the "Offering") and elect to participate in the DRP (the
"Participants"), the Company will apply all distributions, paid
with respect to the Shares held by each Participant (the
"Distributions"), including Distributions paid with respect to
any full or fractional Shares acquired under the DRP, to the
purchase of the Shares for said Participants directly, if
permitted under state securities laws and, if not, through the
Dealer-Manager or 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 $10.45 per Share until the
termination of the Offering. Participants in the DRP may also
purchase fractional Shares so that 100% of the Distributions will
be used to acquire Shares. However, a Participant will not be
able to acquire Shares under the DRP to the extent such purchase
would cause it to exceed the Ownership Limit.
It is possible that a secondary market will develop for the Shares,
and that the Shares may be bought and sold on the secondary market at prices
lower or higher than the $10.45 per Share price which will be paid under the
DRP.
B-1
<PAGE> 287
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.
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
B-2
<PAGE> 288
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> 289
EXHIBIT I
INLAND REAL ESTATE CORPORATION
SUBSCRIPTION AGREEMENT
<PAGE> 290
[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> <C>
A
- -----------------------------------------------------------------------------------------------------------------------------------
(1) INVESTMENT MAKE CHECK PAYABLE TO LNB/ESCROW AGENT FOR IREC
This subscription is in the amount of $_______________ for the purchase of ______________ Shares of Inland Real Estate
Corporation at $11 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
- -----------------------------------------------------------------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------------
(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.
- -----------------------------------------------------------------------------------------------------------------------------------
C
- -----------------------------------------------------------------------------------------------------------------------------------
(3) REGISTERED OWNER
[ ] Mr. [ ] Mrs. [ ] Ms.
--------------------------------------------------------------------------------------------
CO-OWNER
[ ] Mr. [ ] Mrs. [ ] Ms.
--------------------------------------------------------------------------------------------
- - - -
----------------------------- ------------------------------
(AREA CODE) HOME TELEPHONE (AREA CODE) BUSINESS TELEPHONE
(4) MAILING ADDRESS
--------------------------------------------------------------------------------------------
CITY, STATE & ZIP CODE
--------------------------------------------------------------------------------------------
STATE OF RESIDENCE (5) BIRTH DATE
----------- ------------------------ -------------------------
Month Day Year Month Day Year
(6) PLEASE INDICATE CITIZENSHIP STATUS
[ ] U.S. CITIZEN
[ ] RESIDENT ALIEN
[ ] NON-RESIDENT ALIEN
(7) [ ] EMPLOYEE OR AFFILIATE
(8) SOCIAL SECURITY #
-------------------------------------
CO-OWNER SOCIAL SECURITY #
-------------------------------------
CORPORATE OR CUSTODIAL
TAX IDENTIFICATION NUMBER
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
D
- -----------------------------------------------------------------------------------------------------------------------------------
(9) RESIDENCE ADDRESS IF DIFFERENT FROM ABOVE OR FOR INVESTOR OF QUALIFIED PLAN
------------------------------------------------- ----------------------------------- ------------------- ------------
Street City State Zip Code
- -----------------------------------------------------------------------------------------------------------------------------------
E
- -----------------------------------------------------------------------------------------------------------------------------------
(10) CHECK ONE -- IMPORTANT -- REFER TO REGISTRATION REQUIREMENTS ON BACK
A [ ] INDIVIDUAL OWNERSHIP
B [ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
C [ ] COMMUNITY PROPERTY
D [ ] TENANTS IN COMMON
E [ ] TENANTS BY THE ENTIRETY
F [ ] CORPORATE OWNERSHIP
G [ ] PARTNERSHIP OWNERSHIP
H [ ] IRA
I [ ] QUALIFIED PLAN (KEOGH)
J [ ] SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.)
K [ ] UNIFORM GIFTS TO MINORS ACT
STATE OF _________________ A CUSTODIAN FOR ______________________________
L [ ] PENSION OR PROFIT SHARING PLAN
M [ ] TRUST/DATE TRUST ESTABLISHED ____________________________________________
NAME OF TRUSTEE OR OTHER ADMINISTRATOR __________________________________
[ ] TAXABLE [ ] GRANTOR A OR B
N [ ] ESTATE
O [ ] OTHER (SPECIFY) _________________________________________________________
[ ] TAXABLE [ ] NON-TAXABLE
- -----------------------------------------------------------------------------------------------------------------------------------
F
- -----------------------------------------------------------------------------------------------------------------------------------
(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 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 ease 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 lease $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-8 herein; In the case of sales to
fiduciary accounts, the suitability standards must be met by the beneficiary, the fiduciary account or by the donor or
grantor who directly or indirectly supplies the funds for the purchase of the Shares.
(c) represents that the investors purchasing the Shares for his or her own account and if I am (we are) purchasing Shares on
behalf of a trust or other entity of which I am (we are) trustee(s) or authorized agent(s) I (we) have due authority to
execute the Subscription Agreement/Signature Page and do hereby legally bind the trust or other entity of which I am (we
are) trustee(s) or authorized agent(s).
(d) acknowledges that the Shares are not liquid; (not required for Minnesota residents)
(e) if an Affiliate of the Company, represents that the Shares are being purchased for investment purposes only and not with
a view toward immediate resale.
AGREEMENT DATED 19
- -----------------------------------------------------------------
X
----------------------------------------------------------------
SIGNATURE--REGISTERED OWNER
- -----------------------------------------------------------------
(PRINT NAME OF CUSTODIAN OR TRUSTEE)
X
---------------------------------------------------------------
SIGNATURE--CO-OWNER
- -----------------------------------------------------------------
AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE)
A sale of the Shares may not be completed by the Soliciting Dealers until at least five business days after receipt of the
Prospectus.
- -----------------------------------------------------------------------------------------------------------------------------------
G
- -----------------------------------------------------------------------------------------------------------------------------------
(12) (OPTIONAL) DIRECTLY DEPOSIT CASH DISTRIBUTIONS TO:
-----------------------------------------------------------------------------
ACCOUNT NUMBER--MUST BE FILLED IN
NAME OF BANK
BROKERAGE FIRM
OR INDIVIDUAL
-----------------------------------------------------------------------------------------------------------------------
MAILING
ADDRESS
-----------------------------------------------------------------------------------------------------------------------
CITY, STATE &
ZIP CODE
-----------------------------------------------------------------------------------------------------------------------
X
---------------------------------------------------------------
SIGNATURE--REGISTERED OWNER
X
---------------------------------------------------------------
SIGNATURE--CO-OWNER
- -----------------------------------------------------------------------------------------------------------------------------------
H
- -----------------------------------------------------------------------------------------------------------------------------------
(13) BROKER/DEALER DATA--COMPLETED BY CALLING REGISTERED REPRESENTATIVE (PLEASE USE REP'S ADDRESS--NOT HOME OFFICE)
NAME OF
SALESPERSON
[ ] Mr.
[ ] Mrs.
[ ] Ms.
-----------------------------------------------------------------------------------------------------------------------
MAILING
ADDRESS
-----------------------------------------------------------------------------------------------------------------------
CITY, STATE
& ZIP CODE
-----------------------------------------------------------------------------------------------------------------------
BROKER/DEALER
NAME
-----------------------------------------------------------------------------------------------------------------------
HOME OFFICE
MAILING
ADDRESS
-----------------------------------------------------------------------------------------------------------------------
CITY, STATE
& ZIP CODE
-----------------------------------------------------------------------------------------------------------------------
-- --
- --- --- ----
SALESPERSON'S TELEPHONE
HAVE YOU CHANGED BROKER/DEALERS?
[ ] Yes [ ] No
X
---------------------------------------------------------------
SIGNATURE--REGISTERED REPRESENTATIVE
- -----------------------------------------------------------------------------------------------------------------------------------
[INLAND REAL ESTATE CORPORATION LOGO]
</TABLE>
<PAGE> 291
[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 60623, 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
A
Item 1 - Enter the number of Shares to be purchased and the dollars and cents
amount of the purchase. Minimum purchase 300 Shares ($3,300). Qualified Plans
100 Shares ($1,100), (Iowa requires 300 Shares ($3,300) for IRA accounts;
Minnesota requires 200 Shares ($2,200) for IRA and qualified accounts).
- --------------------------------------------------------------------------------
B
ITEM 2 - Check if you desire to participate in Distribution Reinvestment
Program.
- --------------------------------------------------------------------------------
REGISTRATION INFORMATION
C
Item 3 - Enter the exact name in which the Shares are to be held. For co-owners
enter the names of all owners. For investments by qualified plans, include the
exact name of the plan. For investments by qualified plans, enter the name of
the custodian or trustee on the first line and FBO the name of the investor on
the second line. If this is an additional purchase by a qualified plan, please
use the same exact plan name as previously used.
Item 4 - Enter mailing address, state of residence and telephone number of
owner. For qualified investments please enter mailing address of custodian or
trustee.
Item 5 - Enter birth date(s) or date of incorporation.
Item 6 - Check the appropriate box. If the owner is a non-resident alien, he
must apply to the United States Internal Revenue Service for an identification
number via Form SS-1 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 purpose).
- --------------------------------------------------------------------------------
D
Item 9 - The residence address if different. For qualified investments, please
enter the residence address of the investor.
- --------------------------------------------------------------------------------
E
Item 10 - Check the appropriate box to indicate the type of entity which is
subscribing. If additional purchase, this should be exactly the same as
previous investment.
- --------------------------------------------------------------------------------
SIGNATURE
F
Item 11 - The Subscription Agreement/Signature Page must be executed by the
owner(s), and if applicable, the trustee or custodian.
- --------------------------------------------------------------------------------
ALTERNATE ADDRESS FOR DISTRIBUTIONS (Optional)
G
Item 12 - If owners desire direct deposit of his/her/their cash distributions to
an account or address other than as set forth in the Subscription
Agreement/Signature Page, please complete. Please make sure account has been
opened and account number is provided as well as informing recipient that
distribution will be forthcoming and is an asset transfer.
- --------------------------------------------------------------------------------
BROKER/DEALER REGISTERED REPRESENTATIVE
H
Item 13 - Enter the name of the Broker/Dealer and the name of the Registered
Representative, along with the street address, city, state, zip code and
telephone number of the 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 SUBSCRIPTION
The properly completed and executed Yellow and White 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 60523.
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
COMMISSIONERS'S RULES.
<PAGE> 292
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
______ ___________
Co-Owner
Broker/Dealer _____________________________ Account Number___________
Number _____________________________
<PAGE> 293
================================================================================
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ESTIMATED USE OF PROCEEDS OF OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
WHO MAY INVEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND THE
ADVISOR; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
REAL PROPERTY INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
HOW TO SUBSCRIBE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
SALES LITERATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE
PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
REPORTS TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
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
27,625,000 Shares
------------------
PROSPECTUS
___________, 1998
------------------
Inland Securities
Corporation
================================================================================
<PAGE> 294
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 . . . . . . . . . . . . $92,166.00
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,500.00
Printing and Mailing Expenses . . . . . . . . . . . . . . . . . . . . . . . 650,000.00*
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 78,210.85
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,095,876.85
=============
*estimated
</TABLE>
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
$11.00 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.
Options to purchase up to 12,000 Shares have been granted as of the
date of this Prospectus to the Independent Directors pursuant to the
Independent Director Stock Option Plan. On October 24, 1996, 1,000 shares of
common stock were sold to Roland Burris, a Director of the Company, for an
aggregate of $9,050, pursuant to the exercise of options by Mr. Burris. Since
the transaction did not involve any public offering or general solicitation and
Mr. Burris had access to the Company's registration statement and the
requisite knowledge and experience in financial and business matters to
evaluate the transaction, the Company relied on the exemption from registration
provided in Section 4(2) of the Securities Act in order to issue the shares to
Mr. Burris.
I-1
<PAGE> 295
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 the Indemnified Party 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.
I-2
<PAGE> 296
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 September 30, 1997 (unaudited) and December
31, 1996.
Statements of Operations for the three and nine months ended
September 30, 1997 and 1996 (unaudited).
Statements of Stockholders' Equity at September 30, 1997
(unaudited) and December 31, 1996.
Statements of Cash Flows for the nine months ended September
30, 1997 and 1996 (unaudited).
Notes to Financial Statements at September 30, 1997
(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.
Pro Forma Balance Sheet at September 30, 1997 (unaudited).
Notes to Pro Forma Balance Sheet at September 30, 1997
(unaudited).
I-3
<PAGE> 297
Pro Forma Income Statement at September 30, 1997 (unaudited).
Notes to Pro Forma Income Statement at September 30, 1997
(unaudited).
Pro Forma Statement of Operations for the nine months ended
September 30, 1997 (unaudited).
Notes to Pro Forma Statement of Operations for the year ended
December 31, 1996 (unaudited).
I-4
<PAGE> 298
Independent Auditors' Report.
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of Rivertree
Court Shopping Center.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996 of
Rivertree Court Shopping Center.
Independent Auditors' Report.
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended May 31, 1997 of Shorecrest Plaza
Shopping Center.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended May 31, 1997 of
Shorecrest Plaza Shopping Center.
Independent Auditors' Report
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of Wilson Plaza.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996 of
Wilson Plaza.
Independent Auditors' Report.
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of Iroquois
Center.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996 of
Iroquois Center.
Independent Auditors' Report.
I-5
<PAGE> 299
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of Fashion
Square Shopping Center.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996 of
Fashion Square Shopping Center.
Independent Auditors' Report.
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of Naper West
Shopping Center.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996 of
Naper West Shopping Center.
Independent Auditors' Report.
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of Woodfield
Plaza.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996 of
Woodfield Plaza.
Independent Auditors' Report.
Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 1996 of Terramere
Plaza.
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1996 of
Terramere Plaza.
(b) EXHIBITS
(i) The following documents are filed as part of this
Registration Statement:
Exhibit
No. Description
--------- -----------
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.
I-6
<PAGE> 300
3.4 Inland Real Estate Corporation Articles of Amendment
of Second Articles of Amendment and Restatement
4 Specimen Stock Certificate.
5 Opinion of Shapiro and Olander dated January 29, 1998
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.
10.2(c) Amendment No. 3 to the Advisory Agreement effective
as of October 13, 1997
23.1 Consent of KPMG Peat Marwick LLP dated January 29,
1998.
23.2 Consent of Shefsky & Froelich Ltd. dated January 29,
1998.
24 Power of Attorney (included on signature page)
27 Financial Data Schedule.
* to be filed by amendment
(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 Inland Monthly Income Fund III, Inc. Articles of
Amendment.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
I-7
<PAGE> 301
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
_____________
1. Included in the Registrant's Registration Statement on Form S-11 (file
number 333-6459) as filed by Registrant on June 20, 1996.
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.
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.
I-8
<PAGE> 302
C. The Registrant undertakes to send to each Stockholder at least
on an annual basis a detailed statement of any transactions with the Advisor or
its Affiliates, and of fees, commissions, compensation and other benefits paid
or accrued to the Advisor or its Affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed.
D. The Registrant undertakes to provide to the Stockholders the
financial statements required by Form 10-K for the first full fiscal year of
operations of the Company.
E. The Registrant hereby undertakes to send to the Stockholders,
within 60 days after the close of each quarterly fiscal period, the information
specified by Form 10-Q, if such report is required to be filed with the
Securities and Exchange Commission.
F. The Registrant undertakes to file a sticker supplement
pursuant to Rule 424(c) under the Act during the distribution period describing
each property not identified in the prospectus at such time as there arises a
reasonable probability that such property will be acquired and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months, with the information contained in such amendment provided
simultaneously to the existing Stockholders. Each sticker supplement should
also disclose all compensation and fees received by the Advisor and its
Affiliates in connection with any such acquisition. The post-effective
amendment shall include audited financial statements meeting the requirements
of Rule 3-14 of Regulation S-X only for properties acquired during the
distribution period.
The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3.14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of
10 % or more (on a cumulative basis) of the net proceeds of the offering and to
provide the information contained in such report to the Stockholders at least
once each quarter after the distribution period of the offering has ended.
G. Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question 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.
I-9
<PAGE> 303
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-11 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook, State of
Illinois, on the 29th day of January, 1998.
INLAND REAL ESTATE CORPORATION
By: /s/ Robert D. Parks
--------------------------------------------
Title: President, Chief Executive Officer,
Chief Operating Officer and
Chairman of the Board of Directors
<PAGE> 304
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:
Inland Real Estate Corporation
By: /s/ Robert D. Parks
-------------------
Title: President, Chief Executive Officer,
Chief Operating Officer and Chairman
of the Board of Directors
<TABLE>
<S> <C> <C>
/s/ G. Joseph Cosenza Director January 29, 1998
- ---------------------
G. Joseph Cosenza
/s/ Kelly Tucek Secretary, Treasurer and
- --------------- Chief Financial Officer January 29, 1998
Kelly Tucek (Principal Accounting Officer)
/s/ Joel G. Herter Director January 29, 1998
- ------------------
Joel G. Herter
/s/ Heidi N. Lawton Director January 29, 1998
- -------------------
Heidi N. Lawton
/s/ Roland W. Burris Director January 29, 1998
- --------------------
Roland W. Burris
</TABLE>
<PAGE> 1
Exhibit 1.1
Form of Dealer Management Agreement
<PAGE> 2
INLAND REAL ESTATE CORPORATION
27,625,000
SHARES OF COMMON STOCK
$.01 PAR VALUE
[FORM OF]
DEALER MANAGER AGREEMENT
January __, 1998
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 25,000,000
shares of common stock, $.01 par value per share (the "Shares") for a purchase
price of $11.00 per Share with a minimum initial investment of $3,300 ($1,100
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 $3,300,
and for residents of the State of Minnesota where Individual Retirement
Accounts and qualified plan accounts must have a minimum investment of $2,200),
625,000 Soliciting Dealer Warrants and the Shares issuable on exercise of the
Soliciting Dealer Warrants and up to 2,000,000 Shares for a purchase price of
$10.45 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. Representation and Warranties of the Company. The Company
hereby represents, warrants and agrees with you that:
1
<PAGE> 3
(a) Registration Statement and Prospectus. A registration
statement (File No. 333-_____) on Form S-11 with respect to 27,625,000
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
(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.
2
<PAGE> 4
(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 Company has been organized in conformity with
the requirements for qualification as a REIT beginning with its
taxable year ending December
3
<PAGE> 5
31, 1995 and that its 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 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
4
<PAGE> 6
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
Dealer, together with a check payable to the order of "LNB, Escrow
Agent for IREC" in the amount of $11 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
5
<PAGE> 7
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 $.77) for
each Share sold, as set forth in the Prospectus under the
caption "Plan of Distribution," subject to the limitation
described below, as well as one Soliciting Dealer Warrant for
every 40 Shares sold, of which such compensation may 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 and you will not transfer these warrants to Soliciting
Dealers 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
625,000 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.
6
<PAGE> 8
Investors purchasing at least $220,000 worth of
Shares (20,000 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>
$ 220,000 $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.
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
7
<PAGE> 9
objected or which is not, to the best of the Company's knowledge, in
compliance with the Act and the Rules and Regulations; the Company
will prepare and file with the Commission and will use its best
efforts to cause to become effective as promptly as possible:
(i) any amendments to the Registration Statement
or supplements to the Prospectus which may be required
pursuant to the undertakings in the Registration Statement;
and
(ii) upon your reasonable request, any amendments
to the Registration Statement or supplements to the Prospectus
which, in the opinion of you or your counsel, may be necessary
or advisable in view of the requirements of the Act and the
Rules and Regulations in connection with the offer and sale of
the Shares during the Offering Period.
(b) SEC Orders. As soon as the Company is advised or
obtains knowledge thereof, it will advise you of any request made by
the Commission for amending the Registration Statement, supplementing
the Prospectus or for additional information, or of the issuance by
the Commission of any stop statement or of any order preventing or
suspending the use of the Prospectus or the institution of any
proceedings for that purpose, and will use its best efforts to prevent
the issuance of any such order and, if any such order is issued, to
obtain the removal thereof as promptly as possible.
(c) Blue Sky Qualifications. The Company will use its
best efforts to qualify the Shares for offering and sale under the
securities or blue sky laws of such jurisdictions as you may
reasonably request and to make such applications, file such documents
and furnish such information as may be reasonably required for that
purpose. The Company will, at your request, furnish you copies of all
material documents and correspondence sent to or received from such
jurisdictions (including, but not limited to, summaries of telephone
calls and copies of telegrams) and will promptly advise you as soon as
the Company obtains knowledge thereof when the Shares are qualified
for offering and sale in each such jurisdiction. The Company will
promptly advise you of any request made by the securities
administrators of each such jurisdiction for revising the Registration
Statement or the Prospectus or for additional information or of the
issuance by such securities administrators of any stop order
preventing or suspending the use of the Prospectus or of the
institution of any proceedings for that purpose, and will use its best
efforts to prevent the issuance of any such order and if any such
order is issued, to obtain the removal thereof as promptly as
possible. The Company will furnish you with a Blue 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
8
<PAGE> 10
it is necessary at any time to amend the Registration Statement or
supplement the Prospectus relating to the Shares to comply with the
Act, the Company will promptly notify you thereof and will prepare and
file with the Commission an amendment or supplement which will correct
such statement or effect such compliance.
(e) Copies of Registration Statement. The Company will
furnish you copies of the Registration Statement (only one of which
need be signed and need include all exhibits), the Prospectus and all
amendments and supplements thereto, including any amendment or
supplement prepared after the Effective Date, and such other
information with respect to the Company as you may from time to time
reasonably request, in each case as soon as available and in such
quantities as you may reasonably request.
(f) Qualification to Transact Business. The Company will
take all steps necessary to ensure that at all times the Company will
be validly existing as a corporation and will be qualified to do
business in all jurisdictions in which the conduct of its business
requires such qualification and where such qualification is required
under local law.
(g) Authority to Perform Agreements. The Company
undertakes to obtain all consents, approvals, authorizations or orders
of any court or governmental agency or body which are required for the
performance of this Agreement and under the Organizational Documents
or the consummation of the transactions contemplated hereby and
thereby, respectively, or the conducting by the Company of the
business described in the Prospectus.
(h) Copies of Reports. The Company will use its best
efforts to furnish to you as promptly as shall be practicable the
following:
(i) a copy of each report or general
communication (whether financial or otherwise) sent to the
Stockholders;
(ii) a copy of each report (whether financial or
otherwise) filed with the Commission; and
(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.
9
<PAGE> 11
(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.
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
10
<PAGE> 12
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 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;
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<PAGE> 13
(ii) the results of the inquiry were provided to you with
the consent of the Soliciting Dealer conducting or directing
the inquiry; and
(iii) no Soliciting Dealer that participated in the inquiry
is an affiliate of the Company or the Advisor.
Prior to the sale of the Shares, you and each Soliciting Dealer shall inform
the prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment.
5. Expenses. The Company agrees with you that, whether or not
the transactions contemplated in this Agreement are consummated, the Company
will pay all fees and expenses incident to the performance of its obligations
under this Agreement, including, but not limited to:
(a) the Commission's registration fee;
(b) expenses of printing the Registration Statement, the
Prospectus and any amendment or supplement thereto and the expense of
furnishing to you copies of the Registration Statement, the Prospectus
and any amendment or supplement thereto as herein provided;
(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,
12
<PAGE> 14
to the performance by the Company of its covenants, agreements and obligations
contained in Sections 3 and 5 hereof, and to the following additional
conditions:
(a) Effectiveness of Registration Statement. The
Registration Statement shall have become effective not later than 5:00
p.m., Chicago, Illinois time, on the day following the date of this
Agreement, or such later time and date as you and the Company shall
have agreed; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and, to the best
knowledge of the Company or you, no proceedings for that purpose shall
have been instituted, threatened or contemplated by the Commission;
and any request by the Commission for additional information (to be
included in the Registration Statement or Prospectus or otherwise)
shall have been complied with to the reasonable satisfaction of you or
your counsel.
(b) Accuracy of Registration Statement. You shall not
have advised the Company that the Registration Statement or the
Prospectus, or any amendment or any supplement thereto, in the
reasonable opinion of you or your counsel, contains any untrue
statement of fact which is material, or omits to state a fact which is
material and is required to be stated therein or is necessary to make
the statements therein not misleading.
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
13
<PAGE> 15
a reasonable time after the assertion thereof, but failure to so
notify the Company shall not relieve the Company from any liability
which the Company may have incurred otherwise than on account of this
indemnity agreement. The Company shall be entitled to participate, at
its own expense, in the defense of, or if it so elects within a
reasonable time after receipt of such notice, to assume the defense of
any claim or suit for which the Indemnified Parties seek
indemnification hereunder. If the Company elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
reasonably satisfactory to the Indemnified Parties. In the event that
the Company elects to assume the defense of any such suit and retain
such counsel, the Company shall not be liable to the Indemnified
Parties in the suit under this Section 7 for any legal or other
expenses subsequently incurred by the Indemnified Parties, and the
Indemnified Parties shall bear the fees and expenses of any additional
counsel thereafter retained by the Indemnified Parties unless: (A) the
employment of counsel by the Indemnified Party has been authorized by
the Company; or (B) the Company shall not in fact have employed
counsel to assume the defense of such action, in any of which events
such fees and expenses shall be borne by the Company.
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.
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<PAGE> 16
(b) The Company agrees to indemnify and hold harmless you
and the Soliciting Dealers in the manner and to the extent provided in
subparagraph (a) of this Section 7; provided, however, that no such
indemnification by the Company of you or a Soliciting Dealer shall be
permitted under this Agreement from or out of an alleged violation of
federal or state securities laws unless one or more of the following
conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations
by you or any Soliciting Dealer and a court of competent jurisdiction
has approved indemnification of the litigation costs; (ii) such claims
against you or any Soliciting Dealer have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court has approved indemnification of
the litigation costs; or (iii) a court of competent jurisdiction
approves a settlement of the claims against you or any Soliciting
Dealer and finds that indemnification of the settlement and related
costs should be made and the court 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,
15
<PAGE> 17
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.
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. Brenda Gujral)
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.
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<PAGE> 18
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.
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:
--------------------------
17
<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 25,000,000 Shares at a price of $11 per Share on a
"best efforts" basis, up to 2,000,000 Shares issued pursuant to the
Distribution Reinvestment Program at a price of $10.45 per Share and 625,000
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 25,000,000 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 25,000,000 Shares and the
Offering are more particularly described in the enclosed prospectus (the
"Prospectus") which is part of the Registration Statement. Additional copies
of the Prospectus will be supplied to you in reasonable quantities upon
request. We will also provide you with reasonable quantities of any
supplemental literature prepared by the Company in connection with the offering
of the Shares.
2. Solicitation and other activities by the Soliciting Dealers
hereunder shall be undertaken only in accordance with the Dealer Manager
Agreement, this Agreement, the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the applicable rules and regulations of the
Commission, the Blue Sky Survey hereinafter referred to and the Conduct Rules
of the National Association of Securities Dealers, Inc. (the "NASD"),
specifically including, but not in any way limited to, Rules 2440, 2730, 2740,
and 2750. In offering the sale of Shares to any person, each Soliciting Dealer
shall have reasonable grounds to believe (based on such information as the
investment objectives, other investments, financial situation and needs of the
person or any other information known by you after due inquiry) that: (i) such
person is or will be in a financial position appropriate to enable such person
to realize to a significant extent the benefits described in the Prospectus and
has a net worth sufficient to sustain the risks inherent in the program,
including loss of investment and lack of liquidity; (ii) the purchase of the
Shares is otherwise suitable for such person, and each Soliciting Dealer shall
maintain records disclosing the basis upon which each Soliciting Dealer
determined the suitability of any persons offered Shares; and (iii) such person
has
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<PAGE> 3
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; 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 625,000 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 Shares 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
2
<PAGE> 4
the sale of Shares to residents of Minnesota, Nebraska, South Carolina or
Texas, respectively. All Shares sold by the Company, other than 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 $13.20 (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 ____________, 2003 (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 $220,000 worth of Shares (20,000 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>
$ 220,000 $ 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 material without our prior written
approval. You are not
4
<PAGE> 6
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. Brenda Gujral. 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.
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<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:
--------------------------
______________, 1998
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
--------------------------------------
Address of Soliciting Dealer
--------------------------------------
Federal Identification Number
By:
----------------------------------
Authorized Signature
Kindly have checks representing commissions forwarded as follows (if different
than above):
(Please type or print)
Name of Firm:
--------------------------------------
Address:
--------------------------------------
Street
--------------------------------------
City
--------------------------------------
State and Zip Code
--------------------------------------
(Area Code) Telephone No.
Attention:
--------------------------------------
7
<PAGE> 1
Exhibit 1.3
Form of Warrant Purchase Agreement
<PAGE> 2
INLAND REAL ESTATE CORPORATION
27,625,000 Shares of Common Stock
$.01 Par Value
[FORM OF]
WARRANT PURCHASE AGREEMENT
_______________, 1998
This Warrant Purchase Agreement (the "Agreement") is made by and
between Inland 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
625,000 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 25,000,000 Shares (the "Offering"), pursuant to
that certain Dealer Manager Agreement (the "Dealer Manager Agreement"), dated
___________, 1998 between the Company and the Warrantholder as the Dealer
Manager and 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
1
<PAGE> 3
Warrants are subject to adjustment upon the occurrence of certain events, all
as hereinafter provided. The Soliciting Dealer Warrants shall be dated as of
the date of signature thereof by the Company either upon initial issuance or
upon division, exchange, substitution or transfer.
(c) TRANSFER. The Soliciting Dealer Warrants shall be
transferable only on the books of the Company maintained at its principal
office or that of its designated transfer agent, if designated, upon delivery
thereof duly endorsed by the Warrantholder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Soliciting Dealer Warrant to the person entitled
thereto. Assignments or transfers shall be made pursuant to the form of
Assignment attached as Exhibit "C" hereto.
(d) LIMITATIONS ON TRANSFER OF SOLICITING DEALER WARRANT.
The Soliciting Dealer Warrants shall not be sold, transferred, assigned,
exchanged or hypothecated (collectively 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 Warrant certificate shall make a
request
2
<PAGE> 4
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
Soliciting Dealer Warrants to Soliciting Dealers registered in Minnesota,
Nebraska, South Carolina or Texas selling Shares to residents 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 $13.20 (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 ___________, 2003 (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
3
<PAGE> 5
them to exceed the ownership limits set forth in the Company's Second 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.
5. LEGEND ON SOLICITING DEALER WARRANT SHARES.
Each certificate for Shares initially issued upon exercise of
the Soliciting Dealer Warrant, unless at the time of exercise such Shares are
registered with the Securities and
4
<PAGE> 6
Exchange Commission (the "Commission"), under the Securities Act of 1933, as
amended (the "Act"), shall bear the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES SHALL
BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT REGISTRATION IS NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of such counsel as shall be reasonably approved by the
Company, the securities represented thereby need no longer be subject to such
restrictions.
6. PAYMENT OF TAXES.
The Company shall pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Shares; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable with
respect to any secondary transfer of the Soliciting Dealer Warrant or the
Shares.
7. WARRANT PRICE.
The price per Share at which Shares shall be purchasable on the
exercise of the Soliciting Dealer Warrant shall be $13.20 (the "Warrant
Price").
8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Soliciting Dealer Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) In case the Company shall: (i) pay a dividend in Common
Stock or make a distribution in Common Stock; (ii) subdivide its outstanding
Common Stock; (iii) combine its outstanding Common Stock into a smaller number
of shares of Common Stock, or (iv) issue by reclassification of its Common
Stock other securities of the Company, the number and kind of securities
purchasable upon the exercise of the Soliciting Dealer Warrant immediately
prior thereto shall be adjusted so that the Warrantholder shall be entitled to
receive the number and kind of securities of the Company which it would have
owned or would have been entitled to receive after the happening of any of the
events described above had the Soliciting Dealer Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto. Any adjustment made pursuant to this Subsection (a) shall
become effective on the effective date of such event retroactive to the record
date, if any, for such event.
5
<PAGE> 7
(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 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
6
<PAGE> 8
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
reported closing bid and asked prices on the
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<PAGE> 9
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 $11 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 _____________, 2003.
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.
8
<PAGE> 10
14. NOTICES.
Any notice given pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given
if delivered or mailed by certified mail, return receipt requested:
(a) If to the Warrantholder, addressed to:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
(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.
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).
9
<PAGE> 11
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.
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.
10
<PAGE> 12
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
Inland Securities Corporation,
an Illinois corporation
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 ___________ , 1998 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 _____________,
2003 (the "Exercise Closing Date").
THIS CERTIFIES that, for value received, _________________________
(the "Warrantholder"), or registered assigns, is entitled, subject to the terms
and conditions set forth in this Warrant (the "Warrant"), to purchase from
Inland 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 __________, 2003 at $13.20
per Share, and is subject to all the terms thereof, including the limitations
on transferability as set forth in that certain Warrant Purchase Agreement
between Inland Securities Corporation and the Company dated ___________, 1998.
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 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.
<PAGE> 14
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 $_________ ($13.20 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 3.4
Inland Real Estate Corporation
Articles of Amendment of Second
Articles of Amendment and Restatement
<PAGE> 2
INLAND REAL ESTATE CORPORATION
ARTICLES OF AMENDMENT
OF
SECOND ARTICLES OF AMENDMENT AND RESTATEMENT
Inland Real Estate Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Maryland, DOES HEREBY CERTIFY:
FIRST: That on May 5th, 1997, the Board of Directors of the
Corporation duly adopted the following resolutions setting forth a proposed
amendment to the Corporation's Second Articles of Amendment and Restatement, as
amended, increasing the number of authorized shares of common stock, par value
$0.01 per share, from 24,000,000 shares to 100,000,000 shares and maintaining
the amount of authorized preferred stock at its current level of 6,000,000
shares, declaring the amendment to be advisable and directing that it be
submitted for action thereon by the stockholders of the Company. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that Article VI, Section 1 of the Second Articles of
Amendment and Restatement, as amended, of this Corporation is hereby
amended to delete the first and second sentence and substitute in its
entirety the following:
The total number of shares of stock which the Company has
authority to issue is 106,000,000 shares of which 100,000,000 shares
are shares of common stock, $0.01 par value per share ("Common Stock")
and 6,000,000 shares are shares of preferred stock, $0.01 par value
per share ("Preferred Stock"). The aggregate par value of the shares
of authorized Common Stock and Preferred Stock is $1,000,000 and
$60,000, respectively.
SECOND: The description, as amended, of each class, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption are not changed by this amendment.
THIRD: This amendment of the Second Articles of Amendment and
Restatement, as amended, as hereinabove set forth has been duly adopted by the
Board of Directors and approved by the Stockholders of the Company.
INLAND REAL ESTATE CORPORATION
By: /s/ Robert D. Parks
-------------------------------
Robert D. Parks
Its: President
-------------------------------
Witness:
By: /s/ Kelly Tucek
-------------------------
Kelly Tucek
Title: Secretary
----------------------
THE UNDERSIGNED, Robert D. Parks of Inland Real Estate Corporation,
who executed on behalf of said corporation the foregoing Articles of Amendment,
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of
his knowledge, information and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
/s/ Robert D. Parks
---------------------------
Robert D. Parks
<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
January 29, 1998
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
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
27,000,000 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
Exhibit 10.1
Escrow Agreement
<PAGE> 2
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day of
___________, 1998, 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
25,000,000 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 Account" (the "Escrow Account").
2. All deposits from each subscriber shall be accompanied by a
subscription agreement, stating among other things, subscriber name, current
address and investment amount.
3. Checks deposited in the Escrow Account from the various
subscribers shall be made payable to "LNB, Escrow Agent for IREC."
4. All parties understand and are aware that all funds received
during the course of the escrow and deposited in the Escrow Account must clear
the normal banking channels prior to the release of any funds.
5. The Company understands that it is not entitled to any funds
received into escrow in the event of cancellation of the Offering and in such
event, deposits shall be returned to the subscribers.
6. Subscribers named in any subscription for Shares clearly
understand that this is an impound escrow between the Company, the Dealer
Manager, and the Escrow Agent and that they are not a party to this escrow.
7. All documents, including any instrument necessary for the
negotiation or other transfer of escrow assets, deposited simultaneously with
the execution of this Agreement are approved by the Company, and the Escrow
Agent shall not be obligated to inquire as to the form, manner of execution or
validity of these documents or any document hereafter deposited pursuant to the
provisions hereof, nor shall the Escrow Agent be obligated to inquire as to the
identity, authority or rights of the persons executing the same. The Escrow
Agent shall be liable under this Agreement only for its failure to exercise due
care in the performance of its duties expressly set forth in this Agreement.
The Escrow Agent shall have a lien on all securities, monies and 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
<PAGE> 3
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 ___________, 1998 between the Company and the Dealer Manager
(the "Dealer Manager Agreement"), up to 7% of the sales price ($.77 based on
the $11.00 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 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
2
<PAGE> 4
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
provisions, of the State of Illinois.
14. The Escrow Agent shall be entitled to reasonable fees in
connection with this Escrow, which fees shall be payable by the Company.
15. The Escrow Agent may resign by giving five days written notice
by registered or first class mail sent to the undersigned at its address herein
set forth; and, thereafter, shall deliver all remaining deposits in said escrow
upon the written and signed order of the undersigned. If no such notice is
received by the Escrow Agent within 30 days after mailing such notice it is
unconditionally and irrevocably authorized and empowered to send any and all
items deposited hereunder by registered mail to the respective depositors
thereof or, at its sole option, to deliver such deposited items to the
respective depositors.
16. Any notice required to be given hereunder by any of the
parties hereto shall be addressed as follows:
If to the Company:
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
3
<PAGE> 5
If to Escrow Agent:
LaSalle National Bank, N.A.
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Corporate Trust Department
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INLAND REAL ESTATE CORPORATION
By:
-------------------------------
Title:
----------------------------
INLAND SECURITIES CORPORATION
By:
-------------------------------
Title:
----------------------------
LASALLE NATIONAL BANK, N.A.
CHICAGO, IL
By:
-------------------------------
Title:
----------------------------
4
<PAGE> 1
Exhibit 10.2(c)
Amendment No. 3 to the Advisory Agreement,
effective as of October 13, 1997
<PAGE> 2
AMENDMENT NO. 3 TO THE ADVISORY AGREEMENT
THIS AMENDMENT NO. 3 TO THE ADVISORY AGREEMENT, effective as of
October 13, 1997, is by and between INLAND REAL ESTATE CORPORATION f/k/a INLAND
MONTHLY INCOME FUND III, INC., a Maryland corporation (the "Company"), and
INLAND REAL ESTATE ADVISORY SERVICES, INC., a Maryland corporation (the
"Advisor"). All capitalized terms used herein shall have the same meaning as
set forth in the Company's prospectus dated July 14, 1997 or the Advisory
Agreement dated as of October 14, 1994, as amended (the "Advisory Agreement")
unless the context otherwise requires.
W I T N E S S E T H
WHEREAS, the Company and the Advisor are currently party to
the Advisory Agreement;
WHEREAS, the Advisory Agreement expires on October 13, 1997;
WHEREAS, the Company and the Advisor are desirous of extending
the term of the Advisory Agreement through October 13, 1998; and
WHEREAS, the Board of Directors of the Company has unanimously
approved an extension of the Advisory Agreement.
NOW, THEREFORE, the parties agree as follows for the benefit
of each other party:
1. AMENDMENT. Section 16, as amended as of October 13, 1995 and
October 13, 1996 shall be further amended by deleting the first sentence of the
first paragraph of Section 16 and substituting the following:
THEREFORE, this Agreement will continue in force until October
13, 1997 subject to successive one-year renewals with the mutual consent of the
parties including an affirmative vote of a majority of the Independent
Directors.
2. APPLICABLE LAW. This Amendment No. 3 shall be construed in
accordance with and governed by the substantive laws of the State of Maryland.
3. COUNTERPARTS. This Amendment No. 3 may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be considered one in the same instrument.
4. PRIOR AGREEMENT. Except as modified by this Amendment No. 3,
the Advisory Agreement is reaffirmed in all respects, and shall remain in full
force and effect.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
3 to the Advisory Agreement to be duly executed as of the date first written
above.
INLAND REAL ESTATE CORPORATION f/k/a
INLAND MONTHLY INCOME FUND III, INC.
By: /s/ Roberta S. Matlin
-------------------------------
Title: Vice President
----------------------------
INLAND REAL ESTATE ADVISORY SERVICES, INC.
By: /s/ Robert D. Parks
-------------------------------
Title: President
----------------------------
2
<PAGE> 1
Exhibit 23.1
Consent of KPMG Peat Marwick LLP
<PAGE> 2
The Board of Directors
Inland Real Estate Corporation
We consent to the use of our reports relating to the historical summary of
gross income and direct operating expenses of Rivertree Court Shopping Center
for the year ended December 31, 1996, the historical summary of gross income
and direct operating expenses of Shorecrest Plaza Shopping Center for the year
ended May 31, 1997, the historical summary of gross income and direct operating
expenses of Terramere Plaza for the year ended December 31, 1996, the
historical summary of gross income and direct operating expenses of Wilson
Plaza for the year ended December 31, 1996, the historical
summary of gross income and direct operating expenses of Iroquois Center for
the year ended December 31, 1996, the historical summary of gross income and
direct operating expenses of Fashion Square Shopping Center for the year ended
December 31, 1996, the historical summary of gross income and direct operating
expenses of Naper West Shopping Center for the year ended December 31, 1996,
and the historical summary of gross income and direct operating expenses of
Woodfield Plaza for the year ended December 31, 1996, included herein and to
the reference of our firm under the heading "Experts" in this Registration
Statement on Form S-11.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
January 29, 1998
<PAGE> 1
Exhibit 23.2
Consent of Shefsky & Froelich Ltd.
<PAGE> 2
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
January 29, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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