INLAND REAL ESTATE CORP - 10-K405 - 20010330 - BUSINESS
ITEM 1. BUSINESS
GENERAL
Inland Real Estate Corporation (the "Company") was formed on May 12, 1994 under
Maryland law. The Company has elected to be taxed as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, which means that
subject to satisfying certain tests set forth in the Code and the rules and
regulations thereunder, the Company generally will not be subject to federal
corporate income tax on any of its net income which is distributed currently to
the shareholders.
The Company is in the business of acquiring "Neighborhood Retail Centers" (gross
leasable areas ranging from 5,000 to 150,000 square feet) and "Community
Centers" (gross leasable areas ranging from 150,000 to 300,000 square feet)
located within a 400-mile radius of the headquarters located in Oak Brook,
Illinois. In addition, the Company may, from time to time, acquire single user:
retail properties located throughout the United States. The Company may also
construct or develop properties and render services in connection with
developing and constructing projects. As of December 31, 2000, the Company had
ownership interests in 120 investment properties comprised of:
- Nineteen Community Centers totaling approximately 3,800,000 gross
leasable square feet;
- Twenty-four single user retail properties totaling approximately
1,000,000 gross leasable square feet.
During the year ended December 31, 2000, the Company completed the acquisition
of Inland Real Estate Advisory Services, Inc., the former advisor, and Inland
Commercial Property Management, Inc., the former property manager (the
"Merger"). Each of these entities was merged into subsidiaries that are wholly
owned by the Company. The Company issued an aggregate of 6,181,818 shares of its
common stock valued at $11.00 per share to Inland Real Estate Investment
Corporation and The Inland Property Management Group, Inc. As a result of the
merger, the Company is now "self-administered." The Company no longer pays
advisory or property management fees but instead has hired an internal staff to
perform these tasks. Therefore, the financial results for prior years are not
comparable to the results for the year ended December 31, 2000.
The Company generally limits its indebtedness to an amount not to exceed fifty
percent (50%) of the combined fair market value of its investment properties, as
determined by appraisal at the time of financing. Further, the Company is
limited by its organizational documents from incurring indebtedness exceeding
three hundred percent (300%) of "net assets" as defined in the organizational
documents. As of December 31, 2000, the Company had borrowed a total of
approximately $467,766,000, of which approximately $120,051,000 bears interest
at variable rates. Indebtedness at December 31, 2000 was approximately 47% of
the Company's book value of its investment properties.
The Company competes with numerous other properties in attracting tenants. Some
of the competing properties may be newer, better located or owned by parties
that are better capitalized. The Company believes that its investment properties
will continue to attract tenants on a competitive basis.
3
The Company's business is not seasonal. The Company competes on the basis of
rental rates and property operations with similar types of properties located in
the vicinity of its investment properties. The Company has no real property
investments located outside of the United States. The Company does not segregate
revenue or assets by geographic region, since, in management's view, such a
presentation would not be significant to an understanding of its business or
financial results taken as a whole. As of December 31, 2000, the Company
employed a total of fifty-three people, none of whom are represented by a union.
The Company reviews and monitors compliance with federal, state and local
provisions, which have been enacted or adopted regulating the discharge of
material into the environment, or otherwise relating to the protection of the
environment. For the year ended December 31, 2000, the Company did not incur any
material capital expenditures for environmental control facilities nor does it
anticipate making any such expenditures for the year ending December 31, 2001.
Currently, the tenant occupying the largest amount of square feet in the
aggregate is Dominick's Finer Food, Inc. (a division of Safeway Inc.), which
occupies approximately 685,473 square feet pursuant to ten separate leases, or
approximately 7.17% of the total gross leasable area owned by the Company.
Annualized base rental income of these ten leases is projected to be $8,133,026
for the year ended December 31, 2001, or approximately 8.06% of the total
annualized base rental income projected for the entire portfolio. The tenant
occupying the next largest amount of square feet in the aggregate is Jewel Food
Stores, Inc. (a division of Albertson's Inc.), which occupies approximately
395,996 square feet pursuant to six separate leases, or approximately 4.14% of
the total gross leasable area owned by the Company. Annualized base rental
income of these six leases is projected to be $3,945,119 for the year ended
December 31, 2000, or approximately 3.9% of the total annualized base rental
income projected for the entire portfolio.
During the year ended December 31, 2000, the Company acquired five additional
investment properties aggregating approximately 335,000 square feet for
approximately $43,223,000. The investment properties purchased ranged in size
from a 10,000 square foot single-user up to a 175,730 square foot community
center anchored by a Cub Foods Store, Inc. All but one of the investment
properties is located in the greater Chicago area. One property is located in
Minnesota.
The Company intends to continue to acquire new investment properties of the type
previously described in this Item 1, utilizing its cash resources as well as
acquisition indebtedness. The Company is also exploring additional growth
strategies including participating in joint ventures with institutional
investors such as pension funds where by the Company would acquire and manage a
pool of properties funded primarily with capital provided by the institutional
investor.
JOINT VENTURES
The accompanying consolidated financial statements include the accounts of the
Company, Inland Joliet Commons, LLC, Inland Ryan, LLC and Inland Ryan Cliff
Lake, LLC (collectively the "LLCs"). Due to the Company's ability as managing
member to directly control the LLCs, they are consolidated for financial
reporting purposes. The third parties' interests in the LLCs are reflected as
minority interest in the accompanying consolidated financial statements. The
accompanying consolidated financial statements also include the accounts of the
Company's wholly owned subsidiaries, the Advisor and Manager.
4
In October 1998, the Company formed the Inland Joliet Commons, LLC, an Illinois
limited liability company, with an unaffiliated third party. The Company
contributed approximately $52,000 for a 1% interest and the third party
contributed the Joliet Commons Shopping Center Phase I, with a fair market value
of approximately $19,733,000 and debt of approximately $14,569,000 for a 99%
interest. The Company is the managing member of the Inland Joliet Commons, LLC.
On October 31, 2000, the non-managing member tendered all of its 469,480 units
to the Company for a cash payment of approximately $5,164,000, an amount equal
to the non-managing member's equity in the property at the time the property was
contributed to the LLC.
In September 1999, the Company formed the Inland Ryan, LLC, a Delaware limited
liability company, with an unaffiliated third party, which then purchased nine
shopping centers. The Company contributed approximately $76,720,000 for an
approximate 77% interest in the Inland Ryan, LLC. The third party contributed
nine properties with a fair market value of approximately $99,427,000, debt of
approximately $65,500,000 and received a cash payment of approximately
$11,175,000 from the Company for an approximate 23% interest. The Company is the
managing member of the Inland Ryan, LLC. The non-managing members have a right
on or after January 1, 2001 to tender up to 50% of its interest in the Inland
Ryan, LLC to the Company for a cash payment of approximately $13,000,000. The
non-managing members' remaining interest may be tendered to the Company on or
after June 30, 2002. If the non-managing members have not tendered all of its
interest by August 31, 2004, then at any time after that date, the Company, at
its sole and exclusive option, may require the tender of all remaining interests
of the non-managing members. Generally, profit and loss allocations and
distributions from operations of the properties owned by the Inland Ryan, LLC
are made in accordance with the respective ownership interests of each member.
During the year ended December 31, 2000, the Company and the non-managing
members entered into three amendments to the LLC agreement to reflect various
transactions with individual members of Inland Ryan, LLC. In aggregate, these
amendments had no effect on the Company's and the non-managing members' interest
in Inland Ryan, LLC which remains at approximately 77% and 23%, respectively.
In September 1999, the Company formed the Inland Ryan Cliff Lake, LLC, a
Delaware limited liability company, with the Inland Ryan, LLC in order to comply
with covenants of an assumed mortgage. The Company contributed approximately
$6,000 in cash for a 1% interest in the Inland Ryan Cliff Lake, LLC. The Inland
Ryan, LLC contributed one property with a fair market value of approximately
$5,554,000 and debt of approximately $5,134,000 to the LLC for an approximate
99% interest. The Company is the managing member of the Inland Ryan Cliff Lake,
LLC. The non-managing member (third party seller) has a right on or after
January 1, 2001 to tender up to 50% of its interest in the Inland Ryan, LLC to
the managing member for a cash payment. The remaining interest may be tendered
to the managing member on or after June 30, 2002. If the non-managing member has
not tendered all of its interest by August 31, 2004, then at any time after that
date, the managing member, at its sole and exclusive option, may require the
tender of all remaining non-managing member interests. Generally, profit and
loss allocations and distributions are made in accordance with stated ownership
interests.
5
ITEM 2. PROPERTIES
As of December 31, 2000, the Company and its subsidiaries have acquired fee
ownership or an ownership interest in 120 investment properties, including 24
single-user retail properties, 77 Neighborhood Retail Centers and 19 Community
Centers. The Company owns investment properties in Illinois, Wisconsin, Indiana,
Minnesota, Michigan and Ohio. Tenants of the investment properties are
responsible for the payment of some or all of the real estate taxes, insurance
and common area maintenance.
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Single-User Retail Properties
-----------------------------
Walgreens 13,500 01/95 1988 $ 685,204 1 Walgreen Co. 2028
Decatur, IL
Zany Brainy Children's Concept,
Wheaton, IL 12,499 07/96 1995 1,245,000 1 Inc. d/b/a Zany 2005
Brainy
Ameritech
Joliet, IL 4,504 05/97 1995 522,375 1 Verizon Wireless 2005
Dominick's Byerly's Food of Illinois,
Schaumburg, IL 71,400 05/97 1996 5,345,500 1 Inc. 2021
d/b/a Dominick's
Finer Food, Inc.
Dominick's Dominick's Finer Food,
Highland Park, IL 71,442 06/97 1996 6,400,000 1 Inc. 2021
Dominick's
Glendale Heights, IL 68,879 09/97 1997 4,100,000 1 Dominick's Finer Food,
Inc. 2017
Party City
Oakbrook Terrace, IL 10,000 11/97 1985 987,500 1 Party City Corporation 2007
Eagle Country Market
Roselle, IL 42,283 11/97 1990 1,450,000 1 Eagle Food Centers, L.P. 2011
Dominick's Dominick's Finer Food,
West Chicago, IL 78,158 01/98 1990 3,150,000 1 Inc. 2010
Walgreens
Woodstock, IL 15,856 06/98 1973 569,610 1 Walgreen Co. 2030
Bakers Shoes
Chicago, IL 20,000 09/98 1891 N/A 1 Edison Brothers Apparel 2003
Staples Staples, The Office
Freeport, IL 24,049 12/98 1998 1,480,000 1 Superstore East, Inc. 2013
Carmax Circuit City Stores,
Schaumburg, IL 93,333 12/98 1998 7,260,000 1 Inc. 2021
Carmax Circuit City Stores,
Tinley Park, IL 94,518 12/98 1998 9,450,000 1 Inc. 2021
Hollywood
Hollywood Video Entertainment
Hammond, IN 7,488 12/98 1998 740,000 1 Corporation 2013
Circuit City Circuit City Stores,
Traverse City, MI 21,337 01/99 1998 1,603,000 1 Inc. 2021
Cub Foods Innsbruck Investments,
Plymouth, MN 67,510 03/99 1991 2,732,000 1 Inc. 2006
Cub Foods
Indianapolis, IN 67,541 03/99 1991 2,867,000 1 Goldmark, Inc. 2011
6
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Single-User Retail Properties, cont.
------------------------------------
Eagle Ridge Center 56,142 04/99 1998 $ 3,000,000 1 Eagle Food Centers #072 2021
Lindenhurst, IL
Dominick's
Hammond, IN 71,313 05/99 1999 4,100,000 1 None
Cub Foods
Buffalo Grove, IL 56,192 06/99 1999 3,650,000 1 Supervalue-Buffalo Grove 2021
Tweeter Home
United Audio Center Entertainment
Schaumburg, IL 9,988 09/99 1998 1,240,000 1 Group, Inc. 2013
Scandinavian U.S. Swim
Bally's Total Fitness & Fitness, Inc.
St. Paul, MN 43,000 09/99 1998 3,145,300 1 d/b/a Bally Total Fitness 2011
Riverdale Commons
Outlot
Coon Rapids, MN 6,566 03/00 1999 N/A 1 Tom & Ben's, Inc. 2010
Neighborhood Retail Centers
---------------------------
Eagle Crest
Naperville, IL 67,632 03/95 1991 2,350,000 12 Eagle Food Centers, Inc. 2014
Goodyear
Montgomery, IL 12,903 09/95 1991 630,000 2 Merlin Corporation 2007
Goodyear Tire & Rubber
Co. 2006
Hartford Plaza
Naperville, IL 43,762 09/95 1995 2,310,000 8 Blockbuster Videos, Inc. 2005
Nuttco, Inc. d/b/a
Nantucket Square Kathy's Hallmark 2001
Schaumburg, IL 56,981 09/95 1980 2,200,000 19 SuperTrak Corporation 2003
The Dental Store, Ltd. 2006
Antioch Plaza
Antioch, IL 19,810 12/95 1995 875,000 3 Blockbuster Videos, Inc. 2005
Tandy Corporation 2002
Mundelein Plaza
Mundelein, IL 68,056 03/96 1990 2,810,000 7 Sears, Roebuck & Co. 2005
Regency Point Bond Drug Co. of Illinois 2043
Lockport, IL 54,841 04/96 1993/ N/A 19 Kin-ko Ace Stores, Inc. 2008
1995
Prospect Heights
Prospect Heights, IL 28,080 06/96 1985 1,095,000 5 None
Sears
Montgomery, IL 34,300 06/96 1990 1,645,000 6 Sears, Roebuck & Co. 2005
Blockbuster Videos, Inc. 2003
Salem Square
Countryside, IL 112,310 08/96 1973/ 3,130,000 5 TJX Companies, Inc. 2004
1985 Marshalls of Countryside 2002
Hawthorn Village Dominick's Finer Food,
Vernon Hills, IL 98,806 08/96 1979 4,280,000 22 Inc. 2003
Walgreen Co. 2005
Six Corners Chicago Health Clubs, Inc. 2010
Chicago, IL 80,650 10/96 1966 3,100,000 8 Advocate Northside 2004
Spring Hill Fashion
Ctr
West Dundee, IL 125,198 11/96 1985 4,690,000 18 TJ Maxx of Illinois, LLC 2006
Michaels Stores, Inc. 2006
7
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Neighborhood Retail Centers, cont.
----------------------------------
Crestwood Plaza 20,044 12/96 1992 $ 904,380 2 Entenmann's, Inc. 2002
Crestwood, IL
Mattress Giant
Corporation 2004
Park St. Claire
Schaumburg, IL 11,859 12/96 1994 762,500 2 Verizon Wireless 2004
Evenson Card Shop, Inc. 2001
Summit of Park Ridge
Park Ridge, IL 33,252 12/96 1986 1,600,000 14 LePeep Restaurant, Inc. 2002
Park Ridge Pizza, Inc. 2007
Grand and Hunt Club Helzberg's Diamond
Gurnee, IL 21,222 12/96 1996 1,796,000 2 Shops, Inc. 2006
Super Crown Books Corp. 2007
Quarry Outlot
Hodgkins, IL 9,650 12/96 1996 900,000 3 The Casual Male, Inc. 2006
Helzberg's Diamond
Shops, Inc. 2006
Noorruddin Sadruddin &
Farida Sadruddin
d/b/a
Dunkin Donuts/Baskin
Robbins 2006
Aurora Commons
Aurora, IL 127,302 01/97 1988 8,776,181 24 Jewel Food Stores, Inc. 2009
Lincoln Park Place
Chicago, IL 10,678 01/97 1990 1,050,000 2 Lechters Illinois, Inc. 2006
Domicile Furniture 2006
Niles Shopping J.C. Niles d/b/a
Center Jennifer
Niles, IL 26,109 04/97 1982 1,617,500 7 Convertibles 2002
Areawide Cellular LLC 2006
Wolf Camera, inc. 2002
H.W.J. Corporation 2008
Quartersawn, Inc. 2001
Mallard Crossing
Elk Grove
Village, IL 82,929 05/97 1993 4,050,000 10 None
Cobblers Crossing
Elgin, IL 102,643 05/97 1993 5,476,500 16 Jewel Food Stores, Inc. 2013
Calumet Square
Calumet City, IL 39,936 06/97 1967/ 1,032,920 3 Aronson Furniture Co. 2005
1994 Trak Auto #245 2004
Sequoia Shopping
Center
Milwaukee, WI 35,407 06/97 1988 1,505,000 12 Kinko's, Inc. 2004
U.S. Postal Service 2006
O'D & E, Inc. d/b/a
Play It Again Sports 2001
River Square S/C
Naperville, IL 58,556 06/97 1988 3,050,000 21 Salon Suites Limited 2005
Shorecrest Plaza Schultz Sav-O Stores, Inc. 2011
Racine, WI 91,244 07/97 1977 2,978,000 12 Wisconsin Health &
Fitness 2006
Dominick's Dominick's Finer Food,
Countryside, IL 62,344 12/97 1975 1,150,000 1 Inc. 2005
Terramere Plaza
Arlington
Heights, IL 40,965 12/97 1980 2,202,500 18 None
8
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Neighborhood Retail Centers, cont.
----------------------------------
Wilson Plaza 11,160 12/97 1986 $ 650,000 7 White Hen Pantry, Inc. 2002
Batavia, IL Henry Chao and Khorn Chao
d/b/a Dimples Donuts 2001
Frank Hernandez d/b/a
Riverside Liquors 2003
Iroquois Center
Naperville, IL 140,981 12/97 1983 5,950,000 29 TB Naperville, Inc. 2008
Naperville Total Fitness 2015
Fashion Square
Skokie, IL 84,580 12/97 1984 6,200,000 15 Cost Plus, Inc. 2008
Wilkerson Shoe
Corporation 2005
Shops at Coopers
Grove
Country Club
Hills, IL 72,518 01/98 1991 2,900,000 7 None
Maple Plaza
Downers Grove, IL 31,298 01/98 1988 1,582,500 10 J.C. Licht Co. 2003
Goodyear Tire & Rubber Co. 2003
Copy Center, Inc. 2005
Orland Park Retail
Orland Park, IL 8,500 02/98 1997 625,000 3 All Cleaners 2003
Amsleep, Inc. 2003
Marc Anthony Enterprises 2003
Wisner/Milwaukee
Plaza
Chicago, IL 14,677 02/98 1994 974,725 4 Blockbuster Videos, Inc. 2003
Giordano's Enterprises, Inc. 2004
Spincycle, Inc. 2006
Homewood Plaza
Homewood, IL 19,000 02/98 1993 1,013,201 3 Blockbuster Videos, Inc. 2003
Super Trak Corporation 2004
Elmhurst City Center Bond Drug Co. of Illinois 2044
Elmhurst, IL 39,481 02/98 1994 2,513,765 9 First Chicago 2099
Brown Group Retail, Inc. 2001
Shoppes of Mill Creek Jewel Companies, Inc.
Palos Park, IL 102,406 03/98 1989 N/A 20 #3160 2009
Prairie Square
Sun Prairie, WI 35,755 03/98 1995 1,550,000 12 Brown Group Retail, Inc. 2001
Blockbuster Videos, Inc. 2005
Amie's, Inc. 2003
Oak Forest Commons Dominick's Finer Food,
Oak Forest, IL 108,330 03/98 1998 6,617,871 16 Inc. 2017
Downers Grove Market Dominick's Finer Food,
Downers Grove, IL 104,449 03/98 1998 10,600,000 14 Inc. 2017
St. James Crossing
Westmont, IL 49,994 03/98 1990 3,847,599 20 Nevada Bob's Pro Shops 2002
Cafe Roma Ltd.
Partnership 2010
High Point Center Pier 1 Imports (U.S.),
Madison, WI 85,944 04/98 1984 5,360,988 22 Inc. 2005
Western & Howard Pearle Vision Center, Inc. 2005
Chicago, IL 12,784 04/98 1985 992,681 3 Gap, Inc. #558 2002
Payless Shoe Source
#2684 2001
Wauconda Shopping
Ctr
Wauconda, IL 31,157 05/98 1988 1,333,834 2 Sears, Roebuck & Co. 2006
Spasso, Ltd. 2005
Berwyn Plaza
Berwyn, IL 18,138 05/98 1983 708,638 4 Tandy Corporation 2004
9
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Neighborhood Retail Centers, cont.
----------------------------------
Woodland Heights 120,436 06/98 1956 $ 3,940,009 12 Jewel Food Stores #3268 2012
Streamwood, IL
U.S. Postal Service 2004
Schaumburg Plaza
Schaumburg, IL 61,485 06/98 1994 3,908,082 6 Sears, Roebuck & Co. 2004
Super Trak Corporation,
Inc. 2004
Ulta 3 Cosmetics &
Salon, Inc. 2005
APSCO Products Co., Inc.
Winnetka Commons d/b/a Big Wheel Auto
New Hope, MN 42,415 07/98 1990 2,233,744 16 Stores 2002
Eastgate Shopping Ctr
Lombard, IL 132,145 07/98 1959 3,345,000 38 Schroeder Hardware, Inc. 2003
State of Illinois, Dept. of
Central Mgmt. Services 2002
Orland Greens
Orland Park, IL 45,031 09/98 1984 2,132,000 12 Walgreen Co. 2021
PNS Stores, Inc. 2006
Two Rivers Plaza Two Rivers Plaza Toy
Bolingbrook, IL 57,900 10/98 1994 3,658,000 11 Works, Inc. 2005
United Retail, Inc.
d/b/a Sizes Unlimited 2007
Marshalls of Bolingbrook 2010
Edinburgh Festival Knowlan's Super
Brooklyn Park, MN 91,536 10/98 1997 4,625,000 13 Markets, Inc.
2017
Riverplace Center
Noblesville, IN 74,414 11/98 1992 3,323,000 10 Fashion Bug, Inc. #2724 2005
Kroger Co. 2004
Rose Plaza Total Beverage
Elmwood Park, IL 24,204 11/98 1997 2,008,000 3 Corporation 2007
St. Louis Bread Co., Inc 2008
Sprint Com, Inc. 2003
Marketplace at 6
Corners
Chicago, IL 117,000 11/98 1997 11,200,000 6 Jewel Food Stores, Inc. 2012
Marshalls of Chicago 2013
Plymouth Collection
Plymouth, MN 40,815 01/99 1999 3,441,000 10 Golf Galaxy, Inc. 2013
James Slattery and
Walter Bauer
d/b/a Vintage Liquors 2008
Paper Warehouse, Inc. 2008
Loehmann's Plaza
Brookfield, WI 107,952 02/99 1985 6,643,000 26 Dickens Books, Ltd. 2005
V. Richards Market, Inc. 2007
Baytowne Square
Champaign, IL 118,842 02/99 1993 7,027,000 21 Staples, Inc. 2010
Berean Bookstore, Inc. 2003
Petsmart, Inc. 2012
Mil-Mar Shoe Co., Inc. 2006
Factory Card Outlet of
America, Ltd. 2006
R.J.S. Mgmt. Corp. d/b/a
Jenny Craig Weight
Loss Centre 2002
Dent Lease, Inc. 2002
Buffalo Wild Wings 2010
Gateway Square Malson Fabrics, Inc.
Hinsdale, IL 40,170 03/99 1985 3,470,000 19 d/b/a Calico Corners 2005
10
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Neighborhood Retail Centers, cont.
----------------------------------
Oak Lawn Town Center 12,506 06/99 1999 $ 1,200,000 4 Bed Mart, Inc. 2003
Oak Lawn, IL Starbucks Corporation 2008
Hollywood Video #013959 2008
Southwestern Bell
Mobile Leader
Communications 2003
Oak Forest Commons Ph III Star Consultants, Inc. 2004
Oak Forest, IL 7,424 06/99 1999 552,700 2 Dollar Store Plus, Inc. 2004
Stuart's Crossing
St. Charles, IL 85,633 07/99 1999 N/A 3 Jewel Food Stores, Inc. 2019
West River Crossing
Joliet, IL 32,452 08/99 1999 2,806,700 13 Hollywood Video 2009
Budget Golf 2004
Hickory Creek
Marketplace
Frankfort, IL 43,251 08/99 1999 3,108,300 16 Hallmark 2005
Burnsville Crossing
Burnsville, MN 91,015 09/99 1989 2,858,100 14 Petsmart, Inc. 2013
Schneiderman's
Furniture, Inc. 2009
Byerly's Burnsville
Burnsville, MN 72,365 09/99 1988 2,915,900 7 Byerly's, Inc. 2008
Zany Brainy, Inc. #516 2011
Cliff Lake Center
Eagan, MN 74,215 09/99 1988 5,069,384 31 None
Park Place Plaza
St. Louis Park, MN 84,999 09/99 1997 6,407,000 14 Petsmart, Inc. 2013
Office Max, Inc. 2012
SLB of Minnesota
Shingle Creek d/b/a
Brooklyn Center, MN 39,456 09/99 1986 1,735,000 18 Panera Bread Co. 2009
Maple Grove Retail
Maple Grove, MN 79,130 09/99 1998 3,958,000 3 Fleming Companies, Inc. 2018
Hollywood
Rose Plaza West Entertainment Corp. 2007
Naperville, IL 14,335 09/99 1997 1,382,000 5 P.J. Chicago LLC 2002
Caribou Coffee Co., Inc. 2007
Kay and Dale Smith
d/b/a
Elegante Salon 2003
Signature Group, Inc. 2007
Schaumburg Promenade
Schaumburg, IL 91,831 12/99 1999 9,650,000 5 Eastern Mountain Sports 2009
Pier 1 Imports Store #856 2009
DSW Shoe Warehouse 2009
Linens and Things
Store #418 2015
Rose Plaza East
Naperville, IL 11,658 01/00 1999 1,085,700 5 Starbucks Corporation 2008
Borics of Indiana, Ltd. 2003
Plus Signs & Banners, Inc. 2003
Alpha Communications, Inc. 2003
Kinko's, Inc. 2008
11
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Neighborhood Retail Centers, cont.
----------------------------------
Joliet Commons Ph II 40,395 02/00 1999 $ 2,400,000 3 Office Max, Inc. 2015
Joliet, IL Eddie Bauer, Inc. 2005
Furniture Distributors of
America, Inc. d/b/a
Peppers Bedroom City 2005
Bohl Farm Marketplace
Crystal Lake, IL 97,287 12/00 2000 7,833,000 14 Linens & Things, Inc. 2015
Dress Barn, Inc. 2010
Barnes & Noble
Booksellers, Inc. 2014
Community Centers
-----------------
Lansing Square
Lansing, IL 233,508 12/96 1991 8,150,000 18 Wal-Mart Stores, Inc. 2011
Baby Superstore, Inc. 2006
Office Max, Inc. #64 2008
Maple Park Place
Bolingbrook, IL 220,095 01/97 1992 7,650,000 22 K-Mart Corporation 2020
Supervalue-Bolingbrook 2017
Rivertree Court
Vernon Hills, IL 298,862 07/97 1988 17,547,999 43 Best Buy Stores, L.P. 2011
Naper West Douglas Audio Video
Naperville, IL 164,812 12/97 1985 7,695,199 30 Centers, Inc. 2002
Newton Buying Corp.
d/b/a TJ Maxx 2004
Woodfield Plaza Kohl's Dept. Stores, Onc. 2012
Schaumburg, IL 177,160 01/98 1992 9,600,000 9 B. Dalton Bookseller, Inc. 2012
Lake Park Plaza
Michigan City, IN 229,639 02/98 1990 6,489,618 15 Wal-Mart Stores, Inc. 2010
Chestnut Court
Darien, IL 170,027 03/98 1987 8,618,623 24 Just Ducky, Ltd. 2003
Stein Mart, Inc. 2008
Bergen Plaza
Oakdale, MN 270,283 04/98 1978 9,141,896 35 Fleming Companies, Inc. 2009
K-Mart Corporation 2003
Fairview Heights Richman Gordman d/b/a
Plaza 1/2 Price Store 2009
Fairview Heights, IL Leewards Creative
167,491 08/98 1991 5,637,000 9 Crafts, Inc. 2004
Sports Authority, Inc. 2011
Woodfield Commons E/W Children's Bargain Town
Schaumburg, IL 207,583 10/98 1973 13,500,000 20 USA, Inc. 2006
1975 MTS, Inc. d/b/a
Tower Records 2009
1997 Comp USA, Inc. 2012
Cost Plus, Inc 2008
Party City Corporation 2008
R & R Goldman Assoc.,
Inc. 2005
Barnes and Noble 2006
Joliet Commons Superstores, Inc. 2006
Joliet, IL 158,922 10/98 1995 14,318,117 16 Cinemark USA, Inc. 2016
Gap, Inc. 2005
Petsmart, Inc. 2010
12
Gross
Leasable Year Mortgages Current Lease
Area Date Built/ Payable at No. of Expiration
Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date
--------------------- -------- ------- ---------- ------------- --------- ------------------------ -------------
Community Centers, cont.
------------------------
Springboro Plaza 154,034 11/98 1992 $ 5,161,000 5 K-Mart Corporation 2017
Springboro, OH
Kroger Co. 2017
Park Center Plaza Bally Total Fitness
Tinley Park, IL 193,179 12/98 1988 7,337,000 27 Corporation 2010
Supervalu Stores, Inc. 2008
Woodland Commons Dominick's Finer Food,
Buffalo Grove, IL 170,070 02/99 1991 10,734,710 34 Inc. 2011
Jewish Community Centers 2009
Randall Square TJ Maxx of Illinois,
Geneva, IL 216,201 05/99 1999 N/A 25 Inc, 2008
Petsmart, Inc. 2014
Bed, Bath & Beyond of
Geneva , Inc. 2014
Riverdale Commons
Coon Rapids, MN 168,277 09/99 1998 9,752,000 16 Fleming Companies, Inc. 2018
Office Max, Inc. 2013
Wickes Furniture Co.,
Inc. 2014
Quarry Retail
Minneapolis, MN 273,648 09/99 1997 15,670,000 15 Fleming Companies, Inc. 2017
Home Depot #2807 2018
Pine Tree Plaza
Janesville, WI 187,413 10/99 1998 N/A 18 Michaels Stores, Inc. 2010
Staples, The Office
Superstore East, Inc. 2013
TJX Companies, Inc. 2008
Gander Mountain LLC 2014
Chatham Ridge
Chicago, IL 175,774 02/00 1999 9,737,620 27 Cub Foods Stores, Inc. 2019
Marshalls of Chicago 2007
----------- --------------
Total 9,365,394 $467,766,173
=========== ==============
* Anchor tenants are defined as any tenant occupying more than 10% of the
gross leasable area of a property.
13
The following table lists the approximate physical occupancy levels for the
Company's investment properties as of December 31, 2000, 1999, 1998, and 1997.
N/A indicates the property was not owned by the Company at the end of the year.
As of December 31,
--------------------------------------------
2000 1999 1998 1997
% % % %
--------------------------------------------
Properties
Ameritech, Joliet, IL 100 100 100 100
Antioch Plaza, Antioch, IL 61 67 68 68
Aurora Commons, Aurora, IL 94 93 95 98
Bakers Shoes, Chicago, IL 100 100 100 N/A
Bally's Total Fitness, St. Paul, MN 100 100 N/A N/A
Baytowne Square, Champaign, IL 98 97 N/A N/A
Bergen Plaza, Oakdale, MN 98 97 98 N/A
Berwyn Plaza, Berwyn, IL 26(a) 26 100 N/A
Bohl Farm Marketplace, Crystal Lake, IL 100 N/A N/A N/A
Burnsville Crossing, Burnsville, MN 100 100 N/A N/A
Byerly's Burnsville, Burnsville, MN 100 84 N/A N/A
Calumet Square, Calumet City, IL 100 100 100 100
Carmax, Schaumburg, IL 100 100 100 N/A
Carmax, Tinley Park, IL 100 100 100 N/A
Chatham Ridge, Chicago, IL 99 N/A N/A N/A
Chestnut Court, Darien, IL 97 95 98 N/A
Circuit City, Traverse City, MI 100 100 N/A N/A
Cliff Lake Center, Eagan, MN 88 88 N/A N/A
Cobblers Crossing, Elgin, IL 98 100 91 89
Crestwood Plaza, Crestwood, IL 100 68 100 100
Cub Foods, Buffalo Grove, IL 100 100 N/A N/A
Cub Foods, Indianapolis, IN 100 100 N/A N/A
Cub Foods, Plymouth, MN 100 100 N/A N/A
Dominick's, Countryside, IL 100 100 100 100
Dominick's, Glendale Heights, IL 100 100 100 100
Dominick's, Hammond, IN 0(a) 0 N/A N/A
Dominick's, Highland Park, IL 100 100 100 100
Dominick's, Schaumburg, IL 100 100 100 100
Dominick's, West Chicago, IL 100 100 100 N/A
Downers Grove Market, Downers Grove, IL 99(a) 100 100 N/A
Eagle Country Market, Roselle, IL 100 100 100 100
Eagle Crest, Naperville, IL 98 94 100 97
Eagle Ridge Center, Lindenhurst, IL 100 100 N/A N/A
Eastgate Shopping Center, Lombard, IL 89(a) 92 91 N/A
Edinburgh Festival, Brooklyn Park, MN 100 100 97 N/A
Elmhurst City Center, Elmhurst, IL 66 62 100 N/A
Fairview Heights Plaza, Fairview Heights, IL 78(a) 78 78 N/A
Fashion Square, Skokie, IL 78(a) 81 100 88
Gateway Square, Hinsdale, IL 98 100 N/A N/A
Goodyear, Montgomery, IL 77 28 77 77
Grand and Hunt Club, Gurnee, IL 100 100 100 100
Hartford Plaza, Naperville, IL 100 100 100 100
Hawthorn Village, Vernon Hills, IL 100 100 100 99
Hickory Creek Market Place, Frankfort, IL 100 65 N/A N/A
14
As of December 31,
--------------------------------------------
2000 1999 1998 1997
% % % %
---------- ----------- ---------- ----------
Properties
High Point Center, Madison, WI 82(a) 92 90 N/A
Hollywood Video, Hammond, IN 100 100 100 N/A
Homewood Plaza, Homewood, IL 100 100 100 N/A
Iroquois Center, Naperville, IL 75(a) 69 73 81
Joliet Commons, Joliet, IL 100 96 97 N/A
Joliet Commons Ph II, Joliet, IL 100 N/A N/A N/A
Lake Park Plaza, Michigan City, IN 72(a) 71 74 N/A
Lansing Square, Lansing, IL 99(a) 98 98 90
Lincoln Park Place, Chicago, IL 100 60 60 60
Loehmann's Plaza, Brookfield, WI 82(a) 100 N/A N/A
Mallard Crossing, Elk Grove Village, IL 30 97 97 95
Maple Grove Retail, Maple Grove, MN 91 100 N/A N/A
Maple Park Place, Bolingbrook, IL 100 97 99 98
Maple Plaza, Downers Grove, IL 96 87 100 N/A
Marketplace at Six Corners, Chicago, IL 100 100 100 N/A
Mundelein Plaza, Mundelein, IL 97 96 100 100
Nantucket Square, Schaumburg, IL 98 100 100 96
Naper West, Naperville, IL 96 93 83 86
Niles Shopping Center, Niles, IL 100 87 100 60
Oak Forest Commons, Oak Forest, IL 100 97 100 N/A
Oak Forest Commons Ph III, Oak Forest, IL 50 82 N/A N/A
Oak Lawn Town Center, Oak Lawn, IL 100 100 N/A N/A
Orland Greens, Orland Park, IL 94 97 100 N/A
Orland Park Retail, Orland Park, IL 100 36 100 N/A
Park Center Plaza, Tinley Park, IL 99 72 71 N/A
Park Place Plaza, St. Louis Park, MN 100 100 N/A N/A
Park St. Claire, Schaumburg, IL 100 100 100 100
Party City, Oakbrook Terrace, IL 100 100 100 100
Pine Tree Plaza, Janesville, WI 96(b) 93 N/A N/A
Plymouth Collection, Plymouth, MN 100 100 N/A N/A
Prairie Square, Sun Prairie, WI 87 83 90 N/A
Prospect Heights, Prospect Heights, IL 69 25 92 83
Quarry Outlot, Hodgkins, IL 100 100 100 100
Quarry Retail, Minneapolis, MN 99 99 N/A N/A
Randall Square, Geneva, IL 99 94 N/A N/A
Regency Point, Lockport, IL 97(a) 98 97 97
Riverdale Commons, Coon Rapids, MN 100 99 N/A N/A
Riverdale Commons Outlot, Coon Rapids, MN 100 N/A N/A N/A
Riverplace Center, Noblesville, IN 94 94 100 N/A
River Square Shopping Center, Naperville, IL 74 76 97 95
Rivertree Court, Vernon Hills, IL 100 99 99 99
Rose Naper Plaza East, Naperville, IL 100 N/A N/A N/A
Rose Naper Plaza West, Naperville, IL 100 100 N/A N/A
Rose Plaza, Elmwood Park, IL 100 100 100 N/A
Salem Square, Countryside, IL 100 93 97 97
Schaumburg Plaza, Schaumburg, IL 93 93 93 N/A
Schaumburg Promenade, Schaumburg, IL 100 100 N/A N/A
15
As of December 31,
--------------------------------------------
2000 1999 1998 1997
% % % %
---------- ----------- ---------- ----------
Properties
Sears, Montgomery, IL 100 100 100 95
Sequoia Shopping Center, Milwaukee, WI 80(a) 93 100 93
Shingle Creek, Brooklyn Center, MN 83 73 N/A N/A
Shoppes of Mill Creek, Palos Park, IL 94 97 98 N/A
Shops at Coopers Grove, Country Club Hills, IL 20 100 100 N/A
Shorecrest Plaza, Racine, WI 95 89 87 96
Six Corners, Chicago, IL 86(a) 89 82 90
Spring Hill Fashion Center, W. Dundee, IL 96 97 95 100
Springboro Plaza, Springboro, OH 100 100 100 N/A
St. James Crossing, Westmont, IL 94 83 91 N/A
Staples, Freeport, IL 100 100 100 N/A
Stuart's Crossing, St. Charles, IL 86 100 N/A N/A
Summit of Park Ridge, Park Ridge, IL 94 84 87 83
Terramere Plaza, Arlington Heights, IL 87 79 95 80
Two Rivers Plaza, Bolingbrook, IL 100 100 100 N/A
United Audio Center, Schaumburg, IL 100 100 N/A N/A
Walgreens, Decatur, IL 100 100 100 100
Walgreens, Woodstock, IL 100 100 100 N/A
Wauconda Shopping Center, Wauconda, IL 92 92 100 N/A
West River Crossing, Joliet, IL 97 87 N/A N/A
Western & Howard, Chicago, IL 100 38 100 N/A
Wilson Plaza, Batavia, IL 100 100 100 100
Winnetka Commons, New Hope, MN 72(a) 100 100 N/A
Wisner/Milwaukee Plaza, Chicago, IL 100 100 100 N/A
Woodfield Commons-East/West, Schaumburg, IL 100 95 89 N/A
Woodfield Plaza, Schaumburg, IL 100 82 97 N/A
Woodland Commons, Buffalo Grove, IL 97 97 N/A N/A
Woodland Heights, Streamwood, IL 89 81 81 N/A
Zany Brainy, Wheaton, IL 100 100 100 100
(a) The Company receives rent from tenants who have vacated but are still
obligated under their lease terms which results in economic occupancy
ranging from 81% to 100% at December 31, 2000 for each of these centers.
(b) As part of the purchase of this property, the Company receives rent under
a master lease agreement relating to 13,600 square feet which was vacant
at the time of the purchase, which results in economic occupancy for this
center of 99% at December 31, 2000. The master lease agreements are
typically for periods ranging from one to two years from the purchase date
or until the spaces are leased. GAAP requires that the Company treat these
payments as a reduction to the purchase price of the properties upon
receipt, rather than as rental income. The Company can re-lease the space
that is subject to master lease.
16
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
As of March 28, 2001, there were 18,820 stockholders of the Company's common
stock. There is no established public trading market for the Company's common
stock.
DISTRIBUTIONS
The Company declared distributions to Stockholders totaling $.90 and $.89 on an
annual basis per weighted average share outstanding during the years ended
December 31, 2000 and 1999, respectively. Of this amount, $.69 and $.66 is
taxable as ordinary income for 2000 and 1999, respectively, and the remainder
constitutes a return of capital for tax purposes.
SALES OF UNREGISTERED SECURITIES
In connection with employment agreements entered into in December 2000 between
the Company and each of Norbert J. Treonis, Samuel A. Orticelli and Mark E.
Zalatoris, the Company issued a total of 90,910, 27,273, and 27,273 restricted
shares of its common stock to Messrs. Treonis, Orticelli and Zalatoris,
respectively. These shares were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. Each of these
individuals were officers of the Company at the time of issuance with access to
the type of information that would otherwise have been provided to them by a
registration statement and prospectus.
In connection with the merger of Inland Real Estate Advisory Services, Inc. and
Inland Commercial Property Management, Inc., the Company issued an aggregate of
6,181,818 shares of common stock to Inland Real Estate Investment Corporation
and The Inland Property Management Group, Inc.. The shares were issued pursuant
to an exemption from registration under Section 4(2) of the Securities Act of
1933. The Company believes that the purchasers are "sophisticated" and were
provided with access to the type of information that would otherwise have been
provided to them by a registration statement and prospectus.
17
ITEM 6. SELECTED FINANCIAL DATA
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
For the years ended December 31, 2000, 1999, 1998, 1997 and 1996
(not covered by the Independent Auditors' Report)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total assets $1,002,893,982 982,281,972 787,608,547 333,590,131 104,508,686
Mortgages payable 467,766,173 440,740,296 288,982,470 106,589,710 30,838,233
Total income 150,891,834 123,787,569 73,302,278 29,421,585 6,327,734
Net income (loss) (a) (32,003,807) 30,171,901 24,085,871 8,647,221 2,452,221
Net income (loss) per common share, basic and
diluted (b) (.54) .55 .60 .57 .55
Distributions declared 52,964,010 48,379,621 35,443,213 13,127,597 3,704,943
Distributions per common share (b) .90 .89 .88 .86 .82
Funds From Operations (b)(c) (7,196,547) 49,605,023 35,474,823 13,203,666 3,391,365
Adjusted Funds From Operations (b)(c) 61,578,902 49,605,023 35,474,823 13,203,666 3,391,365
Funds available for distribution (c) 59,534,329 49,271,464 35,698,975 13,141,242 3,680,824
Cash flows provided by (used in) operating activities 58,504,916 53,983,803 40,216,023 15,923,839 5,529,709
Cash flows provided by (used in) investing activities (54,297,104) (272,795,913) (341,668,453) (146,994,619) (68,976,841)
Cash flows provided by (used in) financing activities (15,234,423) 115,179,751 373,363,545 173,724,632 71,199,936
Weighted average common stock shares
outstanding, basic and diluted 59,138,837 54,603,088 40,359,796 15,225,983 4,494,620
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
18
(a) Net income (loss) for the year ended December 31, 2000 includes
$68,775,449 of merger consideration costs which were a one-time expense
for costs relating to the Merger.
(b) The net income and distributions per share are based upon the weighted
average number of common shares outstanding as of December 31, 2000. The
$.90 per share distributions for the year ended December 31, 2000,
represented 86% of the Company's "Adjusted Funds From Operations" and 89%
of funds available for distribution for that period. See footnote (c) below
for information regarding calculation of Funds From Operations.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes are taxable to the
recipient as ordinary income. Distributions in excess of these earnings and
profits generally are treated as a non-taxable reduction of the recipient's
basis in the shares to the extent thereof (return of capital), and
thereafter as taxable gain. Distributions in excess of earnings and profits
will have the effect of deferring taxation of the amount of the
distribution until the sale of the stockholder's shares. For the year ended
December 31, 2000, $12,518,280 (or 23.64% of the $52,964,010 distributions
declared and paid for 2000) represented a return of capital. The balance of
the distribution constituted ordinary income. In order to maintain its
qualification as a REIT, the Company must make annual distributions to
stockholders of at least 95% (90% beginning January 1, 2001) of its "REIT
taxable income," or approximately $38,184,238 for 2000. REIT taxable income
does not include net capital gains. Under certain circumstances, the
Company may be required to make distributions in excess of funds 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, 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.
(c) One of the Company's objectives is to provide cash distributions to its
stockholders from cash generated by the Company's operations. Cash
generated from operations is not equivalent to the Company's net operating
income as determined under GAAP. Due to certain unique operating
characteristics of real estate companies, the National Association of Real
Estate Investment Trusts ("NAREIT"), an industry trade group, has
promulgated a standard known as "Funds From Operations" or "FFO" for short,
which it believes more accurately reflects the operating performance of a
REIT such as the Company. As defined by NAREIT, FFO means net income
computed in accordance with GAAP, excluding gains (or losses) from sales of
property plus depreciation on real property and amortization and after
adjustments for unconsolidated partnership and joint ventures in which the
REIT holds an interest. The Company has adopted the NAREIT definition for
computing FFO because management believes that FFO provides a basis for
comparing the performance and operations of the Company to those of other
REITs. The calculation of FFO may vary from entity to entity since
capitalization and expense policies tend to vary from entity to entity.
Items which are capitalized do not impact FFO, whereas items that are
expensed reduce FFO. Consequently, the presentation of FFO by the Company
may not be comparable to other similarly titled measures presented by other
REITs. FFO is not intended to be an alternative to "Net Income" as an
indicator of the Company's performance nor to "Cash Flows from Operating
Activities" as determined by GAAP as a measure of the Company's capacity to
pay distributions. Reference is made to Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations for the Company's
calculation of FFO and funds available for distribution.
19
ITEM 7. 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 annual report on Form
10-K 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.
On July 1, 2000, the Company became a self-administered real estate investment
trust by completing its acquisition of Inland Real Estate Advisory Services,
Inc., the Company's advisor (the "Advisor") and Inland Commercial Property
Management, Inc., the Company's property manager (the "Manager"), through a
merger in which two wholly owned subsidiaries of the Company were merged with
and into the Advisor and the Manager, respectively, with the Advisor and the
Manager the surviving entities (the "Merger"). As a result of the Merger, the
Company issued to Inland Real Estate Investment Corporation, the sole
shareholder of the Advisor ("IREIC") and The Inland Property Management Group,
Inc., the sole shareholder of the Manager ("TIPMG"), an aggregate of 6,181,818
shares of the Company's common stock valued at $11 per share, or approximately
10% of the Company's common stock taking into account such issuance. The expense
of these shares and additional costs relating to the Merger are reported as an
operational expense on the Company's Consolidated Statements of Operations and
are included in the Company's calculation of Funds From Operations.
During November 2000, the Company restated its previously filed quarterly
reports on Form 10-Q for the three months ended March 31, 2000 and for the six
months ended June 30, 2000, as filed with the Securities and Exchange Commission
on May 12, 2000 and August 11, 2000, respectively. The restatement was done to
correct an error in the accrual calculation of reimbursements to the Company for
real estate tax and common area maintenance expenses. In particular, "additional
rental income" was revised for the three months ended March 31, 2000 and the
three and six months ended June 30, 2000. The revision, after adjusting for
minority interest, had the effect of lowering net income from $8,366,383 to
$5,522,734, and decreasing net income per share from $.15 to $.10, for the three
months ended March 31, 2000. The revision, after adjusting for minority
interest, had the effect of lowering net income from $10,576,271 to $10,044,445
and from $18,942,654 to $15,567,179, and decreasing net income per share from
$.19 to $.18 and from $.34 to $.28 for the three and six months ended June 30,
2000, respectively. The restatements had no effect on the results being reported
for the year ended December 31, 2000.
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. The Company also determines, on a
quarterly basis, that the gross income, asset and distribution tests imposed by
the REIT requirements are met. On an ongoing basis, as due diligence is
performed by the Company on potential real estate purchases or temporary
investment of uninvested capital, the Company determines that the income from
the new asset will qualify for REIT purposes. Beginning with the tax year ended
December 31, 1995, the Company has qualified as a REIT.
20
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consists of cash and short-term investments. Cash and
cash equivalents were $8,397,732 at December 31, 2000 and $19,424,343 at
December 31, 1999. The decrease in total cash and cash equivalents from the year
ended December 31, 1999 to the year ended December 31, 2000 results from
receiving approximately $58,500,000 from operations, while using approximately
$54,300,000 in investing activities and approximately $15,200,000 in financing
activities. This decrease resulted primarily from the use of cash resources to
purchase and upgrade investment properties, pay distributions, repurchase shares
through the "Share Repurchase Program" and pay off debt. Partially offsetting
the decrease in cash and cash equivalents was additional proceeds from the sale
of shares received through the Company's Distribution Reinvestment Program
("DRP") and loan proceeds received from financing of previously unencumbered
investment properties. The Company intends to use cash and cash equivalents to
purchase additional investment properties, to pay distributions and for working
capital requirements. The primary source of future cash for investing in
properties will be from financings secured by unencumbered investment properties
and amounts raised through the Company's DRP.
As of December 31, 2000, the Company owned interests in 120 investment
properties. These investment properties are currently generating sufficient cash
flow to cover operating expenses of the Company plus pay distributions equal to
$.92 per share on an annual basis. Distributions declared for the year ended
December 31, 2000 were $52,964,010 or $.90 per weighted average common stock
shares outstanding, of which $12,518,280 or $.21 per weighted average common
stock shares outstanding represented a return of capital for federal income tax
purposes.
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year ended December 31, 2000 includes $68,775,449 of merger
consideration costs which were a one-time expense for costs relating to the
Merger. The merger consideration costs consist of $775,451 in cash expenditures
related to legal and accounting services in connection with the Merger and
$67,999,998 in a non-cash issuance of 6,181,818 shares of the Company's common
stock with a value of $11.00 per share.
Net cash provided by operating activities increased from $53,983,803 for the
year ended December 31, 1999 to $58,504,916 for the year ended December 31,
2000. This increase is due primarily to the acquisition of additional investment
properties and cash flows from existing investment properties resulting in
increases in depreciation, accounts payable and other liabilities. This increase
was partially offset by decreases in other assets, accrued real estate taxes,
due to affiliates and prepaid rents and unearned income. As of December 31,
2000, the Company owned 120 investment properties as compared to 115 investment
properties as of December 31, 1999.
Net cash provided by operating activities increased from $40,216,023 for the
year ended December 31, 1998 to $53,983,803 for the year ended December 31,
1999. This increase is due primarily to the increase in the number of investment
properties owned by the Company. As of December 31, 1999, the Company owned 115
investment properties as compared to 85 investment properties as of December 31,
1998.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company used $54,297,104 of cash in investing activities during the year
ended December 31, 2000 as compared to $272,795,913 and $341,668,453 for the
years ended December 31, 1999 and 1998, respectively. The primary reason for the
decrease in cash used is due to a reduction in property acquisition activity.
During the year ended December 31, 2000, the Company purchased five investment
properties as compared to thirty and forty-one properties during the years ended
December 31, 1999 and 1998, respectively.
21
CASH FLOWS FROM FINANCING ACTIVITIES
For the year ended December 31, 2000, the Company used $15,234,423 of cash in
financing activities as compared to generating $115,179,751 of net cash by
financing activities for the year ended December 31, 1999. For the year ended
December 31, 2000, the Company had proceeds from the DRP, net of remaining
offering costs paid and shares repurchased, of $12,478,673 compared to
$30,432,466 for the year ended December 31, 1999. The decrease is also due to an
increase in distributions paid for the year ended December 31, 2000 of
$54,367,630 compared to $48,773,272 for the year ended December 31, 1999 and a
decrease in loan proceeds received for the year ended December 31, 2000 of
$31,687,320 compared to $145,814,000 for the year ended December 31, 1999. This
decrease was partially offset by a decrease in principal payments and payoffs
made on debt for the year ended December 31, 2000 of $4,661,443 compared to
$10,659,708 for the year ended December 31, 1999.
For the year ended December 31, 1999, the Company had $115,179,751 of net cash
provided by financing activities as compared to $373,363,545 of net cash
provided by financing activities for the year ended December 31, 1998. The
decrease is due primarily to a decrease in offering proceeds from year to year
since the Company terminated its Offering on December 31, 1998 and aside from
DRP proceeds, did not offer and sell securities during 1999. For the year ended
December 31, 1999, the Company had proceeds from the DRP, net of remaining
offering costs paid and shares repurchased, of $30,432,466 compared to
$261,217,625 for the year ended December 31, 1998. The decrease is also due to
an increase in distributions paid for the year ended December 31, 1999 of
$48,773,272 compared to $33,375,677 for the year ended December 31, 1998 and a
decrease in loan proceeds received for the year ended December 31, 1999 of
$145,814,000 compared to $166,352,000 for the year ended December 31, 1998. This
decrease was partially offset by a decrease in principal payments made on debt
for the year ended December 31, 1999 of $10,659,708 compared to $18,041,255 for
the year ended December 31, 1998.
At December 31, 2000, mortgages payable outstanding were $467,766,173 with a
weighted annual average interest rate of approximately 8.20% as compared to
mortgages payable outstanding of $440,740,296 at December 31, 1999 with a
weighted annual average interest rate of approximately 7.07%. See Note 8 of the
Notes to Consolidated Financial Statements (Item 8 of the Annual Report) for a
description of the terms of the mortgages payable.
RESULTS OF OPERATIONS
As a result of the Merger, the Company no longer pays advisory or property
management fees but instead has hired an internal staff to perform these tasks.
As a result, the Company has incurred additional corporate expenses relating to
such things as payroll, office rents and various other general and
administrative expenses. Therefore, the financial results for prior years are
not comparable to the results for the year ended December 31, 2000.
At December 31, 2000, the Company owned 24 single-user retail properties, 77
Neighborhood Retail Centers and 19 Community Centers. Rental and additional
rental income increased to approximately $146,600,000 for the year ended
December 31, 2000, as compared to approximately $118,900,000 and $67,800,000 for
the years ended December 31, 1999 and 1998, respectively, due to the Company
purchasing five, thirty and forty-one additional investment properties during
the years ended December 31, 2000, 1999 and 1998, respectively. The purchase of
additional investment properties also resulted in increases in net investment
properties, property operating expenses to non-affiliates and depreciation.
Leases on approximately 4% and 5% of the Company's rentable square feet expire
during 2001 and 2002, respectively.
22
Eagle Food Stores, Inc., a tenant at six of the Company's investment properties
at the beginning of 2000, filed for protection under Chapter 11 of the Federal
bankruptcy code in February 2000. Of these six stores leased by this tenant,
three remain open for business; one has a substitute tenant in place; and two
closed in April 2000. On July 7, 2000, the tenant rejected its lease on the two
closed stores. On February 12, 2001, the Company received a bankruptcy
court-approved settlement from the tenant in the amount of $4,120,000 for the
Company's claims for damages as a result of the two rejected leases. The Company
is in the process of marketing these two spaces for replacement tenants and as a
result of the settlement, does not expect this bankruptcy filing to have a
material effect on the operations of the Company as a whole.
Interest income is the result of cash and cash equivalents being invested in
short-term investments until a property is purchased. Interest income decreased
to $2,209,214 for the year ended December 31, 2000, as compared to $4,206,809
and $5,185,534 for the years ended December 31, 1999 and 1998, respectively, due
to the use of cash resources to purchase and upgrade investment properties, pay
distributions, repurchase shares through the Share Repurchase Program and pay
off debt.
Other income increased for the year ended December 31, 2000, as compared to the
years ended December 31, 1999 and 1998. This increase is due to the Company
receiving a full year of dividend income on its investment in securities for the
year ended December 31, 2000, as compared to receiving only six months of
dividend income for the year ended December 31, 1999. Since the Company began to
purchase its investment in securities in July 1999, it has purchased a total of
approximately $11,360,000, of which approximately $1,228,000 was sold as of
December 31, 2000. Also included in other income for the year ended December 31,
2000 is a one-time lease termination fee of $500,000 received upon termination
of a lease at one of the Company's investment properties. The Company has signed
a lease for this space and has begun receiving rent from the new tenant.
Professional services to Affiliates increased for the year ended December 31,
2000, as compared to the years ended December 31, 1999 and 1998, due to an
increase in the number of investment properties and for legal and accounting
services required in connection with the Merger. Professional services to
non-affiliates decreased for the year ended December 31, 2000, as compared to
the year ended December 31, 1999, due to a decrease in investment properties
acquired and a decrease of services required in connection with the additional
offerings. Professional services to non-affiliates increased for the year ended
December 31, 1999, as compared to the year ended December 31, 1998, due to an
increase in investment properties acquired and an increase in the number of
stockholders.
General and administrative expenses to Affiliates decreased for the year
December 31, 2000, as compared to the year ended December 31, 1999, due to a
reclassification of certain expenses from expenses to Affiliates to expense to
non-affiliates, beginning on July 1, 2000, the effective date of the Merger. The
increase in general and administrative expenses to Affiliates for the year ended
December 31, 1999, as compared to the year ended December 31, 1998, was due
primarily to the an increased number of investment properties under management.
General and administrative expenses to non-affiliates increased for the year
ended December 31, 2000, as compared to the year ended December 31, 1999, due to
a reclassification of certain expenses from expenses to Affiliates to expenses
to non-affiliates beginning on July 1, 2000. In addition, as a result of the
Merger, the Company is now incurring additional general and administrative
expenses because it is now self-administered. The increase in general and
administrative expenses to non-affiliates for the year December 31, 1999, as
compared to the year ended December 31, 1998, is due to an increase in
investment properties acquired and an increase in the number of stockholders.
Prior to the Merger, the Company paid an affiliate Advisor Asset Management Fees
of $2,413,500 for the six months ended June 30, 2000 and $4,193,068 and $965,108
for the years ended December 31, 1999 and 1998, respectively. As of July 1,
2000, the Advisor became a subsidiary of the Company and, accordingly, no
Advisor Asset Management Fees are accrued in the accompanying consolidated
financial statements.
23
Bad debt expense increased for the year ended December 31, 2000, as compared to
the year ended December 31, 1999 and 1998; due primarily to the increase in the
allowance for doubtful accounts for the year ended December 31, 2000. The
allowance was increased due to the additional number of investment properties
and tenants with outstanding balances due for a period greater than ninety days.
Management of the Company does not believe that amounts reserved against will be
uncollectible, but merely reflect timing issues in collection of account
receivable balances relating to real estate tax and common area maintenance
expenses of the larger national tenants.
For the year ended December 31, 2000, property operating expenses to Affiliates
were $3,044,834, as compared to $4,869,514 for the year ended December 31, 1999.
This decrease is due to the fact that no property management fees were incurred
or paid by the Company after July 1, 2000, the effective date of the Merger. As
of July 1, 2000, the Manager became a subsidiary of the Company and,
accordingly, the net effect of these fees on a consolidated basis is zero. For
the year ended December 31, 1999, property operating expenses to Affiliates were
$4,869,514, as compared to $2,779,053 for the year ended December 31, 1998. This
increase is due to the management of an increased number of investment
properties.
The increase in mortgage interest to non-affiliates for the year ended December
31, 2000, as compared to the years ended December 31, 1999 and 1998, is
partially due to an increase in mortgages payable to approximately $467,766,000
from approximately $440,740,000 and $289,000,000, respectively. This increase is
also due to an increase in the interest rates charged on the variable rate debt
from approximately 7.35% for the year ended December 31, 1999, as compared to
approximately 8.20% for the year ended December 31, 2000.
Acquisition cost expense to Affiliates and non-Affiliates decreased for the year
ended December 31, 2000, as compared to the year ended December 31, 1999, due to
the decrease in investment properties being considered for acquisition by the
Company. The increase in acquisition cost expenses paid to Affiliates and
non-affiliates for the year ended December 31, 1999, as compared to the year
ended December 31, 1998, is due to the increased number of investment properties
considered for acquisition by the Company and not purchased.
One of the Company's objectives is to provide cash distributions to its
stockholders from cash generated by the Company's operations. Cash generated
from operations is not equivalent to the Company's net operating income as
determined under GAAP. Due to certain unique operating characteristics of real
estate companies, the National Association of Real Estate Investment Trusts
("NAREIT"), an industry trade group, has promulgated a standard known as "Funds
From Operations" or "FFO" for short, which it believes more accurately reflects
the operating performance of a REIT such as the Company. As defined by NAREIT,
FFO means net income computed in accordance with GAAP, excluding gains (or
losses) from sales of property plus depreciation on real property and
amortization and after adjustments for unconsolidated partnership and joint
ventures in which the REIT holds an interest. The Company has adopted the NAREIT
definition for computing FFO because management believes that FFO provides a
basis for comparing the performance and operations of the Company to those of
other REITs. The calculation of FFO may vary from entity to entity since
capitalization and expense policies tend to vary from entity to entity. Items
which are capitalized do not impact FFO, whereas items that are expensed reduce
FFO. Consequently, the presentation of FFO by the Company may not be comparable
to other similarly titled measures presented by other REITs. FFO is not intended
to be an alternative to "Net Income" as an indicator of the Company's
performance nor to "Cash Flows from Operating Activities" as determined by GAAP
as a measure of the Company's capacity to pay distributions. FFO and funds
available for distribution are calculated as follows:
24
FUNDS FROM OPERATIONS
Year ended December 31,
----------------------------------------------
2000 1999 1998
------------- ------------ ------------
Net income (loss) (32,003,807) 30,171,901 24,085,871
Depreciation, net of minority interest 24,807,260 19,433,122 11,388,952
------------- ------------ ------------
Funds From Operations (1) (7,196,547) 49,605,023 35,474,823
Merger consideration costs 68,775,449 - -
------------- ------------ ------------
Adjusted Funds From Operations (2) 61,578,902 49,605,023 35,474,823
Principal amortization of debt, net of
minority interest (71,402) (87,752) (74,454)
Deferred rent receivable, net of
minority interest (3) (3,351,414) (2,327,251) (2,120,951)
Acquisition cost expenses (4) - - 437,783
Rental income received under master
lease agreements, net of minority
interest (5) 1,378,243 2,081,444 1,981,774
------------- ------------ ------------
Funds available for distribution $ 59,534,329 49,271,464 35,698,975
============ ============ ============
Funds From Operations per
common share, basic and diluted $ (.12) 0.91 0.88
============= ============ ============
Adjusted Funds From Operations
per common share, basic and diluted $ 1.04 0.91 0.88
============= ============ ============
Weighted average common stock shares
outstanding, basic and diluted 59,138,837 54,603,088 40,359,796
============= ============ ============
(1) Funds From Operations ("FFO") does not represent cash generated from
from operating activities calculated in accordance with GAAP 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) Adjusted Funds From Operations is FFO adjusted for merger
consideration costs. Management believes that this adjustment to FFO
will enhance the reader's comprehension of the impact of the Merger to
the Company. Net income (loss) for the year ended December 31, 2000
includes $68,775,449 of merger consideration costs, which were a
one-time expense for costs relating to the Merger. The merger
consideration costs consist of $775,451 in cash expenditures related
to legal and accounting services in connection with the Merger and
$67,999,998 in a non-cash issuance of 6,181,818 shares of the
Company's common stock with a value of $11.00 per share.
(3) 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.
(4) Acquisition cost expenses include costs and expenses relating to the
acquisition of investment properties. These costs were estimated to be
up to .5% of the Gross Offering Proceeds and were paid from the
Proceeds of the Offering. No acquisition costs have been included for
the years ended December 31, 2000 and 1999, due to the termination of
the Company's Offering on December 31, 1998.
(5) In connection with the purchase of several investment properties, the
Company received payments under master lease agreements covering
spaces vacant at the time of acquisition of those investment
properties. The payments were made to the Company for periods ranging
from one to two years from the date of acquisition of the property or
until the spaces wee leased. As of December 31, 2000, the Company had
one property subject to a master lease agreement. GAAP requires that
the Company treat these payments as a reduction to the purchase price
of the investment properties upon receipt, rather than as rental
income.
25
IMPACT OF ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued in 1998 and is effective for
fiscal years beginning after June 15, 2000. As of December 31, 2000, the Company
had no derivative instruments and did not engage in any hedging activities.
On December 2, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 "Revenue Recognition in Financial Statements." The staff
determined that a lessor should defer recognition of contingent rental income,
such as percentage/excess rent until the specified target that triggers the
contingent rental income is achieved. The Company has recorded percentage rental
revenue in accordance with the SAB for all years presented.
INFLATION
Inflation is likely to eventually increase rental income as existing leases
expire and new leases are negotiated. The Company's rental income and operating
expenses for its triple-net leases are not likely to be directly affected by
future inflation, since rents are, or will be, fixed under the leases and
property expenses are the responsibility of the tenants. The capital
appreciation of triple-net leased properties is likely to be influenced by
interest rate fluctuations. To the extent that inflation determines interest
rates, future inflation may have an effect on the capital appreciation of
triple-net leased properties.
SUBSEQUENT EVENTS
In January 2001, the Company paid a distribution of $5,063,089 to its
Stockholders.
On January 1, 2001, the Company converted approximately $56,000,000 of variable
rate debt to a fixed rate basis ranging from 6.8% to 7.4%. These fixed rates are
effective upon expiration of the current 30-day LIBOR contract maturing December
31, 2000.
On January 1, 2001, the Company issued to Norbert J. Treonis, Samuel A.
Orticelli and Mark E. Zalatoris a total of 90,910, 27,273 and 27,273 shares of
the Company's common stock, respectively, in connection with employment
agreements dated December 14, 2000.
On January 30, 2001, the Company obtained a mortgage loan secured by three of
its previously unencumbered investment properties, Stuart's Crossing, St.
Charles, Illinois, Pine Tree Plaza, Janesville, Wisconsin, and Shoppes of Mill
Creek, Palos Park, Illinois. The loan amounts were $6,050,000, $9,890,000 and
$5,660,000, respectively. These mortgage loans have a term of five years and
require monthly payments of interest only at the annual rate of 7.375%. The
Company paid loan fees of approximately $200,000 in connection with these
mortgage loans, which will be amortized over five years, the loan term.
On January 31, 2001, based on the third amendment to the LLC agreement of Inland
Ryan, LLC, the Company caused Inland Ryan, LLC to distribute $2,097,609 in cash
to Ryan CL, LLC to reimburse for certain pre-formation expenditures incurred by
Ryan CL. Upon payment of this distribution, the LLC units owned by Ryan CL, LLC
were reduced from approximately 4,164,000 to 2,066,000 and the LLC units owned
by the Company increased from approximately 88,232,000 to 90,330,000. The third
amendment to the LLC agreement decreases Ryan CL, LLC interest in Inland Ryan,
LLC to approximately 2% and increases the Company's interest in Inland Ryan, LLC
to approximately 77%. The remaining non-managing members' interests, aggregating
21%, were not affected by this amendment.
26
On February 1, 2001, the Company and the non-managing members of Inland Ryan,
LLC entered into a fourth amendment to the LLC agreement. This amendment
reflects the right of Ryan MPLS, LLC to receive an earnout amount of
approximately $1,075,000. This increase in capital contribution to Inland Ryan,
LLC by Ryan MPLS, LLC of approximately $1,075,000 increases their interest in
Inland Ryan, LLC to approximately 16% and decreases the Company's interest in
Inland Ryan, LLC to approximately 76.5%.
On February 1, 2001, the Company entered into a joint venture with Tri-Land
Properties, Inc. for the acquisition and redevelopment of the Century Consumer
Mall in Merrillville, Indiana. The property is located at the southeast corner
of the intersection of U.S. Route 30 and Broadway in Merrillville, west of
Interstate 65. The property has two anchor tenants, including a 148,420 square
foot Montgomery Wards store at the north end of the property and a 139,451
square foot Burlington Coat Factory store on the south. In between is 105,000
square feet of enclosed mall space. The phased redevelopment of the property
calls for the demolition of the existing enclosed mall space, construction of
26,000 square feet of new retail space along Route 30, construction of 30,000
square feet of new retail space on the western portion of the property, and
construction of 104,700 square feet of new open-air retail space between the
existing anchors. The Montgomery Wards store is scheduled to close; the future
use of that part of the property has not been determined. A wholly owned
subsidiary of the Company is a 50% venture partner with Tri-Land Properties,
Inc. in an LLC that was formed to acquire and redevelop the property. Each
partner's initial equity contribution was $500,000. In addition, the Company has
committed to lend the LLC joint venture, over the five year loan term, up to an
additional $17.8 million to fund the initial acquisition and subsequent
redevelopment. The loan terms include a 9% initial note rate paid monthly on
average outstanding balances and a term of five years. The Company will fund
such loan amounts with its available cash balances.
In February 2001, Plitt Theaters, Inc. and its parent corporation, Loews
Cineplex Entertainment Corporation, a tenant occupying 40,000 square feet at one
of the Company's investment properties, filed for Chapter 11 bankruptcy
protection under the Federal bankruptcy laws. On March 1, 2001, Plitt Theaters,
Inc. rejected its lease. Management is in the process of marketing this space
for a replacement tenant and does not expect this bankruptcy filing to have a
material adverse effect on the operations or financial condition of the Company
as a whole.
In February 2001, Crown Books Corporation, a tenant occupying a total of 25,013
square feet at two of the Company's investment properties, filed for Chapter 11
bankruptcy protection under the Federal bankruptcy laws. Management does not
expect this bankruptcy filing to have a material adverse effect on the
operations or financial condition of the Company as a whole.
On February 12, 2001, the Company received a bankruptcy court-approved
settlement from Eagle Food Stores, Inc. in the amount of $4,120,000 for the
Company's claims for damages as a result of the two rejected leases.
On March 9, 2001, the Company's president, Norbert J. Treonis, resigned citing
personal reasons. Robert D. Parks, the Company's chairman for the past six
years, reassumed the duties of president and chief executive officer. Mr. Parks
previously served in these positions from October 1994 through June 2000. Mr.
Parks, along with Mr. G. Joseph Cosenza, also a member of the Company's board of
directors for the past six years, was named to the Company's management
committee. Mr. Parks will not receive any additional compensation for serving as
president and chief executive officer. The board did not name a replacement to
fill the vacancy on the board created by Mr. Treonis' resignation.
27
In connection with Mr. Treonis' resignation, the Company and Mr. Treonis entered
into a "Separation Agreement." Under this agreement, the Company paid Mr.
Treonis $57,451.93 (which after withholding taxes, nets to $34,801.92). The
Company's board of directors had raised questions regarding an employment
agreement signed by Mr. Treonis in December 2000. This agreement purportedly
replaced a prior employment agreement signed by Mr. Treonis in July 2000. As
part of the Separation Agreement, Mr. Treonis canceled and assigned to the
Company any rights he may have had to shares of the Company's common stock,
which were issued under the December agreement. The Separation Agreement
contains mutual releases by Mr. Treonis and the Company of all claims arising
from or relating to the signing of the December agreement.
On March 21, 2001, the board of directors approved the purchase of Gurnee Town
Center, a 179,855 square foot, newly constructed shopping center on Grand Avenue
located in Gurnee, Illinois. The projected closing date is May 1, 2001 with an
estimated purchase price of $31,500,000. The Company anticipates the purchase
price to be funded from a combination of cash and acquisition indebtedness.
INVESTMENT CONSIDERATIONS
COMPETITION FOR TENANTS
The Company competes with a number of properties that are similar in size to its
properties. Some of these properties are newer or better located than the
Company's investment properties. Further, the Company's competitors may have
greater resources, which could allow them to reduce rents to a level that is not
profitable for the Company. The Company may be required to spend money upgrading
or renovating investment properties to make them attractive to both existing and
potential tenants thus increasing expenses and reducing cash resources.
The Company's investment properties are located within a 400-mile radius of Oak
Brook, Illinois, a suburb of Chicago. Hence, the Company's results are affected
by economic conditions in this region. This region has experienced economic
downturns in the past and will likely experience downturns in the future.
Layoffs or downsizing, industry slowdowns, changing demographics, increases in
the supply of property or reduced demand may decrease the Company's revenues or
increase operating expenses or both.
LEASES ON APPROXIMATELY 4% OF THE COMPANY'S RENTABLE SQUARE FEET EXPIRE DURING
2001 AND 7% OF RENTABLE SQUARE FOOTAGE WAS VACANT AS OF DECEMBER 31, 2000
As leases expire, the Company may not be able to renew or re-lease space at
rates comparable to or better than the rates contained in the expiring leases.
Leases on approximately 4% of rentable square feet will expire prior to December
31, 2001. If the Company fails to renew or re-lease space at rates that are at
least comparable to the rates on expiring leases, revenues may decline. Further,
the Company may have to spend significant sums of money to renew or re-lease
space covered by expiring leases.
TENANTS MAY NOT PAY THEIR RENT OR MAY DECLARE BANKRUPTCY
The Company derives substantially all of its revenue from leasing space at its
investment properties. Thus, the Company's results may be negatively affected by
the failure of tenants to pay rent when due. The Company may experience
substantial delays and incur significant expenses enforcing rights against
tenants who do not pay their rent. A tenant may also seek the protection of the
bankruptcy laws and delay making rental payments or actually reject or terminate
its lease under those laws. Even if a tenant did not seek the protection of the
bankruptcy laws, the tenant may from time to time experience a downturn in its
business which may weaken its financial condition and its ability to make rental
payments when due.
28
THE COMPANY MAY NOT BE ABLE TO QUICKLY VARY ITS PORTFOLIO
Investments in real estate are relatively illiquid. Except in certain
circumstances, in order to continue qualifying as a REIT, the Company is subject
to rules and regulations that limit the ability to sell investment properties
within a short period of time.
THE COMPANY IS REQUIRED TO COMPLY WITH VARIOUS LAWS AND REGULATIONS
As an owner of property, the Company is required to comply with a variety of
federal, state and local laws. Complying with these laws and regulations may
increase operating expenses and reduce profits. For example, the Company must
comply with laws and regulations that impose liability on a property owner for
the costs of removing or remediating certain hazardous materials released on a
property. The Company is subject to these laws even if it is not aware of, or
responsible for, releasing these materials. These law or regulations may also
restrict the way that the Company can use a property or the type of business
which may be operated on the property. Further, if the Company fails to comply
with these laws or regulations by, for example, failing to properly remediate a
release of hazardous material, it may not be able to sell the affected property
or borrow money using the property as collateral for a loan. The Company may
also be required to pay money to individuals who are injured due to the presence
of hazardous materials on its property. Although the Company is not aware of any
hazardous materials at its investment properties, these materials may exist and
the cost of removing or remediating them may be material and could adversely
impact the value of the property affected. The Company may also be required to
pay the cost of removing or remediating hazardous materials from disposal or
treatment facility to which we may have shipped hazardous or toxic substances
even if it never owned or operated the disposal or treatment facility.
The Company's investment properties must also comply with the Americans with
Disabilities Act. This act establishes certain standards related to access to
and use of properties by disabled persons. The Company may be required, for
example, to remove any barriers to access. If the Company fails to comply, the
U.S. government may fine it or require it to pay damages to a disabled person.
Complying with these requirements may increase expenses and changes in these
requirements may result in unexpected expenses.
THE COMPANY'S OBJECTIVES MAY CONFLICT WITH THOSE OF ITS JOINT VENTURE PARTNERS
The Company owns nine investment properties, representing approximately 949,000
rentable square feet, through Inland Ryan, LLC, a joint venture with a third
party. Investments in joint ventures which own properties may involve risks that
are not otherwise present for wholly owned properties. For example, a joint
venture partner may file for bankruptcy protection or may have economic or
business interests or goals which are inconsistent with the Company's goals or
interests. Further, although the Company owns a controlling interest in this
joint venture and have authority over major decisions such as the sale or
refinancing of investment properties, the Company may owe fiduciary duties to
the joint venture partner or the joint venture itself that may cause it to take
or refrain from taking actions that it otherwise would if it owned the
investment property outright.
THE COMPANY MAY NOT HAVE ENOUGH INSURANCE
The Company carries comprehensive liability, fire, flood, earthquake, extended
coverage and rental loss policies that insure it against losses with policy
specifications and insurance limits that the Company believes are reasonable.
There are certain types of losses that we may decide not to insure against since
the cost of insuring is not economical. The Company may suffer losses that
exceed its insurance coverage. Further, inflation, changes in building codes and
ordinances or other factors such as environmental laws may make it too expensive
to repair or replace a property that has been damaged or destroyed, even if
covered by insurance.
29
PROPERTY TAXES MAY INCREASE
The Company is required to pay taxes based on the assessed value of its
investment properties determined by various taxing authorities such as state or
local governments. These taxing authorities may increase the tax rate imposed on
a property or may reassess property value, either of which would increase
operating expenses.
THE COMPANY OFTEN NEEDS TO BORROW MONEY TO FINANCE ITS BUSINESS
The Company's ability to internally fund capital needs is limited since it must
distribute at least 95% (90% effective January 1, 2001) of its net taxable
income (excluding net capital gains) to stockholders to qualify as a REIT.
Consequently, the Company may borrow money to fund operating or capital needs or
to satisfy the distribution requirements. The governing documents limit the
amount of money that the Company may borrow to 300% of the value of its net
assets. Borrowing money to fund operating or capital needs exposes the Company
to various risks. For example, the investment properties may not generate enough
cash to pay the principal and interest obligations on loans or the Company may
violate a loan covenant that results in the lender accelerating the maturity
date of a loan. As of December 31, 2000, we owed a total of approximately
$467,700,000, secured by mortgages on certain investment properties. If the
Company fails to make timely payments on loans, including those cases where a
lender has accelerated the maturity date due to a violation of a loan covenant,
the lenders could foreclose on the investment properties securing their loans
and the Company could lose its entire investment in those properties. Once a
loan becomes due, the Company must either pay the remaining balance or borrow
additional money to pay off the maturing loan. The Company may not, however, be
able to obtain a new loan, or the terms of the new loan, such as the interest
rate or payment schedule, may not be as favorable as the terms of the maturing
loan. Thus, the Company may be forced to sell a property at an unfavorable price
to pay off the maturing loan or agree to less favorable loan terms. A total of
approximately $19,700,000 and $233,000 of the Company's indebtedness matures on
or before December 31, 2001 and 2002, respectively. As of December 31, 2000, the
Company owed approximately $120,000,000 on indebtedness that bore interest at
variable rates. The Company may borrow additional amounts that bear interest at
variable rates. If interest rates increase, the amount of interest that the
Company would be required to pay on these borrowings will also increase.
THIRD PARTIES MAY BE DISCOURAGED FROM MAKING ACQUISITION OR OTHER PROPOSALS THAT
MAY BE IN STOCKHOLDERS' BEST INTERESTS
Under the Company's governing documents, no single person or group of persons
(an entity is considered a person) may own more that 9.8% of our outstanding
shares of common stock (unless permitted by the board). These provisions may
prevent or discourage a third party from making a tender offer of other business
combination proposal such as a merger, even if such a proposal would be in the
best interest of the stockholders.
THE COMPANY MAY FAIL TO QUALIFY AS A REIT
If the Company fails to qualify as a REIT, it would not be allowed to deduct
amounts distributed to its stockholders in computing taxable income and would
incur substantially greater expenses for taxes and have less money available to
distribute. The Company would also be subject to federal income tax at regular
corporate rates as well as potentially the alternative minimum tax. Unless the
Company satisfied some exception, it could not elect to be taxed as a REIT for
the four taxable years following the year during which the Company was
disqualified.
The Company may fail to qualify as a REIT if, among other things:
- less than 75% of the value of its total assets consists of real
estate assets, cash and government securities at the close of each
fiscal quarter;
30
- more than 5% of the value of its assets consists of securities of any
one issuer or the Company holds more than 10% of the outstanding
voting securities (subsequent to January 1, 2001, 10% of the value of
the securities) of any one issuer at the close of each fiscal quarter;
- less than 75% of its gross income is generated from rents from real
property, interest on obligations secured by mortgages, gain from the
sale of property, and certain other property-related revenue sources;
or
- it fails to distribute at least 95% (90% effective January 1, 2001) of
"REIT taxable income" to stockholders.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes primarily as a result of the
fact that some of the Company's long-term debt consists of variable interest
rate loans. The Company seeks to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing costs by closely
monitoring its variable rate debt converting such debt to fixed rates when it
deems such conversion advantageous.
The Company's interest rate risk is monitored using a variety of techniques,
including periodically evaluating fixed interest rate quotes on all variable
rate debt and the costs associated with such conversion. Also, existing fixed
and variable rate loans which are scheduled to mature in the next year or two
are evaluated for possible early refinancing and or extension due to
consideration given to current interest rates. The table below presents the
principal amount of the debt maturing each year through December 31, 2005 and
thereafter, monthly annual amortization of principal and weighted average
interest rates for the average debt outstanding in each specified period.
The table above reflects indebtedness outstanding as of December 31, 2000, and
does not reflect indebtedness incurred after that date. The Company's ultimate
exposure to interest rate fluctuations depends on the amount of indebtedness
that bears interest at variable rates, the time at which the interest rate is
adjusted, the amount of the adjustment, the Company's ability to prepay or
refinance variable rate indebtedness and hedging strategies used to reduce the
impact of any increases in rates.
The fair value of mortgages payable is the amount at which the instrument could
be exchanged in a current transaction between willing parties. The fair value of
the Company's mortgages is estimated to be $116,578,000 of variable rate debt
and $323,964,000 of fixed rate debt. The Company estimates the fair value of its
mortgages payable by discounting the future cash flows of each instrument at
rates currently offered to the Company for similar debt instruments of
comparable maturities by the Company's lenders.
Approximately $120,051,000, or 26% of the Company's mortgages payable at
December 31, 2000, have variable interest rates averaging 8.20%. As of the
filing of this report, these variable interest rates are at approximately 6.5%.
On January 1, 2001, the Company converted approximately $56,000,000 of variable
rate debt to a fixed rate basis ranging from 6.8% to 7.4%. An increase in
variable interest rates charged on mortgages payable containing variable
interest rate terms, constitutes a market risk.
31
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Index
Page
Independent Auditors' Report 33
Financial Statements:
Consolidated Balance Sheets, December 31, 2000 and 1999 34
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 36
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998 37
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 38
Notes to Consolidated Financial Statements 40
Real Estate and Accumulated Depreciation (Schedule III) 55
Schedules not filed:
All schedules other than those indicated in the index have been omitted as the
required information is inapplicable or the information is presented in the
financial statements or related notes.
32
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Inland Real Estate Corporation:
We have audited the consolidated financial statements of Inland Real Estate
Corporation (the Company) as listed in the accompanying index. In connection
with the audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inland Real Estate
Corporation as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Chicago, Illinois
January 26, 2001, except as to Note 13,
which is as of March 21, 2001
33
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
-------------- ------------
Investment properties (Note 5):
Land $ 283,182,798 271,905,942
Construction in progress (Note 9) 1,300,592 1,699,356
Building and improvements 709,203,272 671,201,002
-------------- ------------
993,686,662 944,806,300
Less accumulated depreciation 63,414,018 37,424,871
-------------- ------------
Net investment properties 930,272,644 907,381,429
-------------- ------------
Cash and cash equivalents including amounts
held by property manager 8,397,732 19,424,343
Investment in securities (net of allowance for
Unrealized loss of $646,568 and $2,088,633 at
December 31, 2000 and 1999, respectively)
(Note 1) 9,484,741 8,570,656
Investment in marketable securities 260,000 260,000
Restricted cash (Notes 9 and 12) 7,685,266 15,340,902
Accounts and rents receivable (net of allowance
for doubtful accounts of approximately
$1,654,000 and $1,064,000 at December 31,
2000 and 1999, respectively) (Note 6) 28,183,934 19,794,687
Mortgage receivable (Note 7) 13,313,976 6,495,541
Deposits and other assets 736,271 358,986
Leasing fees (net of accumulated amortization
of $175,313 and $39,031 at December 31, 2000
and 1999, respectively) (Note 1) 649,548 360,486
Loan fees (net of accumulated amortization
of $1,785,902 and $1,029,487 at December 31,
2000 and 1999, respectively) (Note 1) 3,909,870 4,294,942
-------------- ------------
Total assets $1,002,893,982 982,281,972
============== ============
See accompanying notes to consolidated financial statements.
34
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
(continued)
December 31, 2000 and 1999
Liabilities and Stockholders' Equity
2000 1999
--------------- ------------
Liabilities:
Accounts payable $ 3,015,787 384,665
Accrued interest payable to Affiliate (Note 3) - 4,468
Accrued interest payable to non-affiliates 2,177,703 1,786,331
Accrued real estate taxes 19,951,154 18,829,084
Distributions payable (Note 13) 5,063,089 4,374,462
Security deposits 1,929,933 1,976,082
Mortgages payable (Note 8) 467,766,173 440,740,296
Prepaid rents and unearned income 1,102,831 1,536,008
Other liabilities (Notes 5) 2,174,279 8,525,986
Due to Affiliates (Note 3) - 1,517,775
--------------- ------------
Total liabilities 503,180,949 479,675,157
--------------- ------------
Minority interest 27,265,989 27,112,690
--------------- ------------
Stockholders' Equity (Note 3):
Preferred stock, $.01 par value, 6,000,000
Shares authorized; none issued and
Outstanding - -
Common stock, $.01 par value, 100,000,000
Shares authorized; 62,635,344 and 55,398,888
issued and outstanding at December 31, 2000
and 1999, respectively 626,353 553,988
Additional paid-in-capital (net of offering costs
of $58,816,092 at December 31, 2000 and
1999, respectively, of which $52,218,524 was
paid to Affiliates) 592,973,349 512,567,043
Accumulated distributions in excess of
net income (120,506,090) (35,538,273)
Accumulated other comprehensive loss (646,568) (2,088,633)
--------------- ------------
Total stockholders' equity 472,447,044 475,494,125
--------------- ------------
Commitments and contingencies
(Notes 6, 8, 9 and 12)
Total liabilities and stockholders' equity $ 1,002,893,982 982,281,972
=============== ============
See accompanying notes to consolidated financial statements.
35
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Operations
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
--------------- ------------- ------------
Income:
Rental income (Notes 1 and 6) $ 105,159,473 85,951,584 51,133,774
Additional rental income 41,454,690 32,952,348 16,679,388
Interest income 2,209,214 4,206,809 5,185,534
Other income 2,068,457 676,828 303,582
--------------- ------------- ------------
150,891,834 123,787,569 73,302,278
--------------- ------------- ------------
Expenses:
Professional services to Affiliates 130,974 126,302 83,203
Professional services to non-affiliates 359,710 644,643 357,142
Merger consideration costs (Note 1) 68,775,449 - -
General and administrative expenses to
Affiliates 230,894 625,937 330,651
General and administrative expenses to
non-affiliates 2,362,522 1,027,660 611,952
Bad debt expense 1,458,604 1,300,550 200,000
Advisor asset management fee 2,413,500 4,193,068 965,108
Property operating expenses to Affiliates 3,044,834 4,869,514 2,779,053
Property operating expenses to
non-affiliates 43,223,189 34,132,511 18,238,307
Mortgage interest to Affiliates 26,642 54,114 55,154
Mortgage interest to non-affiliates 33,655,464 25,599,610 13,366,445
Depreciation 25,989,147 20,262,873 11,496,515
Amortization 229,816 98,396 166,635
Acquisition cost expenses to Affiliates 137,729 380,606 236,380
Acquisition cost expenses to non-affiliates (9,578) 185,217 201,403
--------------- ------------- ------------
182,028,896 93,501,001 49,087,948
--------------- ------------- ------------
Income (loss) before minority interest (31,137,062) 30,286,568 24,214,330
Minority interest (866,745) (114,667) (128,459)
--------------- ------------- ------------
Net income (loss) (32,003,807) 30,171,901 24,085,871
Other comprehensive income (loss):
Unrealized holding income (loss) on
investment securities 1,442,065 (2,088,633) -
--------------- ------------- ------------
Comprehensive income (loss) $ (30,561,742) 28,083,268 24,085,871
=============== ============= ============
Net income (loss) per common share, basic
and diluted $ (.54) .55 .60
=============== ============= ============
Weighted average common stock shares
outstanding, basic and diluted 59,138,837 54,603,088 40,359,796
=============== ============= ============
See accompanying notes to consolidated financial statements
36
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2000, 1999 and 1998
Accumulated Accumulated
Additional Distributions Other
Common Paid-in in excess of Comprehensive
Stock Capital Net Income Income (loss) Total
---------- ------------ -------------- ------------ -------------
Balance January 1, 1998 $ 249,733 220,640,345 (5,973,211) - 214,916,867
Net income - - 24,085,871 - 24,085,871
Distributions declared ($.88 per
weighted average common
shares outstanding) - - (35,443,213) - (35,443,213)
Proceeds from Offering including
DRP (net of Offering costs of
$29,194,655 and subscriptions
receivable) 275,668 261,946,748 - - 262,222,416
Treasury Stock (1,456) (1,315,999) - - (1,317,455)
---------- ------------ --------------- ------------- --------------
Balance December 31, 1998 523,945 481,271,094 (17,330,553) - 464,464,486
Net income - - 30,171,901 - 30,171,901
Other comprehensive loss - - - (2,088,633) (2,088,633)
Distributions declared ($.89 per
weighted average common
shares outstanding) - - (48,379,621) - (48,379,621)
Proceeds from Offering including
DRP (net of Offering costs of
$1,279,718) 34,135 34,995,429 - - 35,029,564
Treasury Stock (4,092) (3,699,480) - - (3,703,572)
---------- ------------ --------------- ------------- --------------
Balance December 31, 1999 553,988 512,567,043 (35,538,273) (2,088,633) 475,494,125
Net loss - - (32,003,807) - (32,003,807)
Other comprehensive income - - - 1,442,065 1,442,065
Distributions declared ($.90 per
weighted average common
shares outstanding) (52,964,010) (52,964,010)
Proceeds from DRP 21,142 22,072,818 22,093,960
Shares issued as a result of Merger 61,818 67,938,180 67,999,998
Treasury Stock (10,595) (9,604,692) (9,615,287)
---------- ------------ --------------- ------------- --------------
Balance December 31, 2000 $ 626,353 592,973,349 (120,506,090) (646,568) 472,447,044
========== ============ =============== ============= ==============
See accompanying notes to consolidated financial statements.
37
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
--------------- -------------- -------------
Cash flows from operating activities:
Net income (loss) $ (32,003,807) 30,171,901 24,085,871
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Merger consideration costs 67,999,998 - -
Depreciation 25,989,147 20,262,873 11,496,515
Amortization 229,816 98,396 166,635
Minority interest 866,745 114,667 128,459
Rental income under master lease
agreements 1,378,872 2,185,830 1,981,774
Straight line rental income (3,557,848) (2,490,459) (2,120,951)
Allowance for doubtful accounts 589,816 864,256 200,000
Interest on unamortized loan fees 686,057 593,961 103,855
Changes in assets and liabilities:
Accounts and rents receivable (5,421,215) (5,447,522) (5,873,368)
Other assets (400,461) 2,495,850 (848,935)
Accounts payable 2,631,122 (532,818) 98,201
Accrued interest payable 386,904 134,907 1,090,430
Accrued real estate taxes 1,122,070 4,444,850 7,352,502
Security deposits (46,149) 415,062 806,661
Other liabilities 4,801 (1,900,000) 1,900,000
Due to Affiliates (1,517,775) 1,484,850 (304,900)
Prepaid rents and unearned income (433,177) 1,087,199 (46,726)
--------------- -------------- -------------
Net cash provided by operating activities 58,504,916 53,983,803 40,216,023
--------------- -------------- -------------
Cash flows from investing activities:
Restricted cash 7,655,636 272,295 (13,539,398)
Escrows held for others (6,356,508) 5,217,231 2,815,639
Purchase of investment in securities (699,968) (10,659,289) -
Sale of investment in securities 1,227,948 - -
Purchase of marketable securities - (260,000) -
Additions to investment properties (5,488,050) (5,893,566) (2,514,122)
Purchase of investment properties (38,626,870) (255,226,283) (329,118,654)
Purchase of minority interest units (5,164,277) - -
Mortgage receivable (6,818,435) (6,495,541) -
Construction in progress 398,764 (468,908) (1,230,448)
Leasing fees (425,344) (399,517) -
Proceeds from sale of land - 1,117,665 -
Deposits on investment properties - - 1,918,530
--------------- -------------- -------------
Net cash used in investing activities (54,297,104) (272,795,913) (341,668,453)
--------------- -------------- -------------
See accompanying notes to consolidated financial statements.
38
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
(continued)
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
-------------- ------------- -------------
Cash flows from financing activities:
Proceeds from offering, including DRP $ 22,093,960 36,309,282 291,417,071
Repurchase of Shares (9,615,287) (3,703,572) (1,317,455)
Payments of offering costs - (2,173,244) (28,881,991)
Loan proceeds 31,687,320 145,814,000 166,352,000
Loan fees (371,343) (1,633,735) (2,701,644)
Distributions paid (54,367,630) (48,773,272) (33,454,118)
Payoff of debt (4,196,898) - -
Principal payments of debt (464,545) (10,659,708) (18,041,255)
Payment of deferred organization costs - - (9,063)
-------------- ------------- -------------
Net cash provided by (used in) financing
activities (15,234,423) 115,179,751 373,363,545
-------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents (11,026,611) (103,632,359) 71,911,115
-------------- ------------- -------------
Cash and cash equivalents at beginning of
year 19,424,343 123,056,702 51,145,587
-------------- ------------- -------------
Cash and cash equivalents at end
of year $ 8,397,732 19,424,343 123,056,702
============== ============= =============
Supplemental schedule of noncash investing and financing activities:
See accompanying notes to consolidated financial statements.
39
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
For the years ended December 31, 2000, 1999 and 1998
(1) ORGANIZATION AND BASIS OF ACCOUNTING
Inland Real Estate Corporation (the "Company") was formed on May 12, 1994. The
Company may acquire existing Neighborhood Retail Centers and Community Centers
located primarily within an approximate 400-mile radius of its headquarters in
Oak Brook, Illinois. The Company may also acquire single-user retail properties
in locations throughout the United States, some of which may be sale and
leaseback transactions, net leased to creditworthy tenants. The Company is also
permitted to construct or develop properties, or render services in connection
with such development or construction, subject to the Company's compliance with
the rules governing real estate investment trusts under the Internal Revenue
Code of 1986, as amended (the "Code").
On October 14, 1994, the Company commenced an initial public offering of common
stock ("Shares"), on a best efforts basis at $10 per Share followed by three
additional offerings in which a total of 51,642,397 Shares were sold. As of
December 31, 2000, the Company has issued 6,489,793 Shares through the Company's
Distribution Reinvestment Program ("DRP"). As of December 31, 2000, the Company
has repurchased a total of 1,678,664 Shares through the Company's Share
Repurchase Program, for an aggregate cost of $15,194,657. As a result, total
offering proceeds were $652,415,794 as of December 31, 2000.
On July 1, 2000, the Company became a self-administered real estate investment
trust by completing its acquisition of Inland Real Estate Advisory Services,
Inc., the Company's advisor (the "Advisor") and Inland Commercial Property
Management, Inc., the Company's property manager (the "Manager"), through a
merger in which two wholly owned subsidiaries of the Company were merged with
and into the Advisor and the Manager, respectively, with the Advisor and the
Manager the surviving entities (the "Merger"). As a result of the Merger, the
Company issued to Inland Real Estate Investment Corporation, the sole
shareholder of the Advisor ("IREIC") and The Inland Property Management Group,
Inc., the sole shareholder of the Manager ("TIPMG"), an aggregate of 6,181,818
shares of the Company's common stock valued at $11 per share, or approximately
10% of the Company's common stock taking into account such issuance. The expense
of these shares and additional costs relating to the Merger are reported as an
operational expense on the Company's Consolidated Statements of Operations and
are included in the Company's calculation of Funds From Operations.
The Company qualified as a real estate investment trust ("REIT") under the Code
for federal income tax purposes commencing with the tax year ending December 31,
1995. Since the Company qualified for taxation as a REIT, the Company generally
will not be subject to federal income tax to the extent it distributes its REIT
taxable income to its Stockholders. If the Company fails to qualify as a REIT in
any taxable year, the Company will be subject to federal income tax on its
taxable income at regular corporate tax rates. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property and federal income and excise taxes on its
undistributed income.
The preparation of consolidated financial statements in conformity with
Generally Accepted Accounting Principles ("GAAP") 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
40
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
Certain reclassifications were made to the 1999 and 1998 financial statements to
conform with the 2000 presentation.
The Company classifies its investment in securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. All securities not
included in trading or held-to-maturity are classified as available for sale.
Investment in securities at December 31, 2000 and 1999 consist of preferred and
common stock investments in various real estate investment trusts and are
classified as available-for-sale securities. Available-for-sale securities are
recorded at fair value. Unrealized holding gains and losses on
available-for-sale securities are excluded from earnings and reported as a
separate component of other comprehensive income until realized. Realized gains
and losses from the sale of available-for-sale securities are determined on a
specific identification basis. A decline in the market value of any
available-for-sale security below cost than is deemed to be other that temporary
results in a reduction in the carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is established.
Dividend income is recognized when earned and is included in other income in the
accompanying consolidated financial statements. Sales of investment securities
available-for-sale during the year ended December 31, 2000 resulted in a gain on
sale of $46,650, which is included in other income.
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 operations and sale of investment properties. 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 December 31, 2000,
the Company does not believe any of its investment properties are impaired.
The accompanying consolidated financial statements include the accounts of the
Company, Inland Joliet Commons, LLC, Inland Ryan, LLC and Inland Ryan Cliff
Lake, LLC (collectively the "LLCs"). Due to the Company's ability as managing
member to directly control the LLCs, they are consolidated for financial
reporting purposes. The third parties' interests in the LLCs are reflected as
minority interest in the accompanying consolidated financial statements. The
accompanying consolidated financial statements also include the accounts of the
Company's wholly owned subsidiaries, the Advisor and Manager.
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. The Company also determines, on a
quarterly basis, that the gross income, asset and distribution tests imposed by
the REIT requirements are met. On an ongoing basis, as due diligence is
performed by the Company on potential real estate purchases or temporary
investment of uninvested capital, the Company determines that the income from
the new asset will qualify for REIT purposes. Beginning with the tax year ended
December 31, 1995, the Company has qualified as a REIT.
41
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
Depreciation expense is computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 30 years for
buildings and improvements and 15 years for site improvements.
Leasing fees are amortized on a straight-line basis over the life of the related
lease.
Loan fees are amortized on a straight-line basis over the life of the related
loan.
The carrying amount of cash and cash equivalents, restricted cash, accounts and
rents receivable, accounts payable and other liabilities, accrued offering costs
to Affiliates and non-Affiliates, accrued interest payable to Affiliates and
non-affiliates, accrued real estate taxes, distributions payable and Due to
Affiliates approximate fair value because of the relatively short maturity of
these instruments. The fair value of mortgages payable is the amount at which
the instrument could be exchanged in a current transaction between willing
parties. The fair value of the Company's mortgages is estimated to be
$440,542,000. The Company estimates the fair value of its mortgages payable by
discounting the future cash flows of each instrument at rates currently offered
to the Company for similar debt instruments of comparable maturities by the
Company's lenders.
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 provisions of the lease agreements is recorded as
deferred rent receivable and is included as a component of accounts and rents
receivable in the accompanying consolidated balance sheets.
On December 2, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 "Revenue Recognition in Financial Statements." The staff
determined that a lessor should defer recognition of contingent rental income,
such as percentage/excess rent until the specified target that triggers the
contingent rental income is achieved. The Company has recorded percentage rental
revenue in accordance with the SAB for all years presented.
The Company may enter into derivative financial instrument transactions in order
to mitigate its interest rate risk on a related financial instrument. The
Company has designated these derivative financial instruments as hedges and
applies deferral accounting, as the instrument to be hedged exposes the Company
to interest rate risk, and the derivative financial instrument reduces that
exposure. Gains and losses related to the derivative financial instrument are
deferred and amortized over the terms of the hedged instrument. If a derivative
terminates or is sold, the gain or loss is deferred and amortized over the
remaining life of the derivative. The Company has only entered into derivative
transactions that satisfy the aforementioned criteria. As of December 31, 2000,
the Company had no derivative instruments.
42
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
In October 1998, the Company formed the Inland Joliet Commons, LLC, an Illinois
limited liability company, with an unaffiliated third party. The Company
contributed approximately $52,000 for a 1% interest in the Inland Joliet
Commons, LLC and the third party contributed the Joliet Commons Shopping Center
Phase I, with a fair market value of approximately $19,733,000 and debt of
approximately $14,569,000 for a 99% interest. The Company is the managing member
of the Inland Joliet Commons, LLC. On October 31, 2000, the non-managing member
tendered all of its 469,480 units to the managing member for a cash payment of
approximately $5,164,000, an amount equal to the non-managing member's equity in
the property at the time the property was contributed to the LLC.
(2) INLAND RYAN, LLC AND INLAND RYAN CLIFF LAKE, LLC
In September 1999, the Company formed the Inland Ryan, LLC, a Delaware limited
liability company, with an unaffiliated third party, which then purchased nine
shopping centers. The Company contributed approximately $76,720,000 for an
approximate 77% interest in the Inland Ryan, LLC. The third party contributed
nine properties with a fair market value of approximately $99,427,000, debt of
approximately $65,500,000 and received a cash payment of approximately
$11,175,000 from the Company for an approximate 23% interest. The Company is the
managing member of the Inland Ryan, LLC. The non-managing members have a right
on or after January 1, 2001 to tender up to 50% of its interest in the Inland
Ryan, LLC to the Company for a cash payment of approximately $13,000,000. The
non-managing members' remaining interest may be tendered to the Company on or
after June 30, 2002. If the non-managing members have not tendered all of its
interest by August 31, 2004, then at any time after that date, the Company, at
its sole and exclusive option, may require the tender of all remaining interests
of the non-managing members. Generally, profit and loss allocations and
distributions from operations of the properties owned by the Inland Ryan, LLC
are made in accordance with the respective ownership interests of each member.
During the year ended December 31, 2000, the Company and the non-managing
members entered into three amendments to the limited liability company ("LLC")
agreement to reflect various transactions with individual members of Inland
Ryan, LLC. In aggregate, these amendments had no effect on the Company's and the
non-managing members' interest in Inland Ryan, LLC which remains at
approximately 77% and 23%, respectively.
In September 1999, the Company formed the Inland Ryan Cliff Lake, LLC, a
Delaware limited liability company, with the Inland Ryan, LLC in order to comply
with covenants of an assumed mortgage. The Company contributed approximately
$6,000 in cash for a 1% interest in the Inland Ryan Cliff Lake, LLC. The Inland
Ryan, LLC contributed one property with a fair market value of approximately
$5,554,000 and debt of approximately $5,134,000 to the LLC for an approximate
99% interest. The Company is the managing member of the Inland Ryan Cliff Lake,
LLC. The non-managing member (third party seller) has a right on or after
January 1, 2001 to tender up to 50% of its interest in the Inland Ryan, LLC to
the managing member for a cash payment. The remaining interest may be tendered
to the managing member on or after June 30, 2002. If the non-managing member has
not tendered all of its interest by August 31, 2004, then at any time after that
date, the managing member, at its sole and exclusive option, may require the
tender of all remaining non-managing member interests. Generally, profit and
loss allocations and distributions are made in accordance with stated ownership
interests.
43
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(3) TRANSACTIONS WITH AFFILIATES
Subsequent to the Merger, previously related parties may provide to the Company
the following services: general and administrative services, payroll preparation
and management services, employee benefits management services, human resource
management services, data processing, computer equipment and support services,
insurance consultation and insurance coverage placement services, marketing
communications services, property tax and processing services, office management
services, and investor relation services. These services will be performed on
the Company's behalf at cost, with no mark-up to the Company.
Prior to the Merger, the Advisor and its Affiliates were entitled to
reimbursement for salaries and expenses of employees relating to the
administration of the Company. Such costs of $130,974, $230,894 and $137,729 are
allocated among professional services to Affiliates, general and administrative
expenses to Affiliates and acquisition costs expenses to Affiliates,
respectively, for the year ended December 31, 2000. Such costs of $126,302,
$625,937 and $380,606 are allocated among professional services to Affiliates,
general and administrative expenses to Affiliates and acquisition costs expenses
to Affiliates, respectively, for the year ended December 31, 1999.
A previously related party holds the mortgage on the Walgreens, Decatur,
Illinois property. As of December 31, 2000, the remaining balance of the
mortgage is $685,204. For the year ended December 31, 2000 and 1999, the Company
paid principal and interest payments totaling $68,266 annually on this mortgage.
Prior to the Merger, the Advisor and its Affiliates were entitled to
reimbursement for salaries and expenses of employees relating to selecting,
evaluating and acquiring of investment properties. Such amounts are included in
building and improvements for those costs relating to investment properties
purchased. Such amounts are included in acquisition cost expenses to Affiliates
for costs relating to investment properties not acquired. No such costs were
incurred subsequent to the Merger as discussed above.
Prior to the Merger, the Advisor was entitled to 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 qualified as a REIT, the Advisor
would have reimbursed the Company: (i) to the extent that the Advisor Asset
Management Fee plus other operating expenses paid during the previous calendar
year exceeded 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 an 8% current return. The Advisor Asset Management Fee plus other
operating expenses paid during the previous calendar year did not 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 stockholders received an annual
distribution greater than an 8% return. The Company incurred $2,413,500 and
$4,193,068 of Advisor Asset Management Fees for the years ended December 31,
2000 and 1999, respectively, of which $0 and $1,517,775 was unpaid at December
31, 2000 and 1999, respectively. No fee was incurred subsequent to the Merger as
discussed above. The Company paid an Advisor Asset Management Fee which
represented .50, .58 and .20 of the 1% of the Average Invested Assets for the
six months ended June 30, 2000 and the years ended December 31, 1999 and 1998,
respectively. As of July 1, 2000, the Advisor became a subsidiary of the Company
and, accordingly, no Advisor Asset Management Fees are accrued in the
accompanying consolidated financial statements.
44
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
Prior to the Merger, the Manager was entitled to receive Property Management
Fees for management and leasing services. Such fees could not exceed 4.5% of the
gross income earned by the Company on properties managed. The Company incurred
and paid Property Management Fees of $3,044,834, $4,869,514 and $2,779,053 for
the years ended December 31, 2000, 1999 and 1998, respectively, all of which
have been paid. As of July 1, 2000, the date of the Merger, the net effect of
these fees on a consolidated basis is zero.
(4) STOCK OPTION PLAN AND SOLICITING DEALER WARRANT PLAN
The Company adopted an amended and restated Independent Director Stock Option
Plan which granted each Independent Director an option to acquire 3,000 shares
of common stock as of the date they become a director 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 are exercisable as
follows: 1,000 Shares on the date of grant and 1,000 Shares on each of the first
and second anniversaries of the date of grant. The succeeding options are
exercisable on the second anniversary of the date of grant. As of December 31,
2000, options for 1,000 Shares have been exercised for $9.05 per Share. For the
years ended December 31, 2000, 1999 and 1998, options to purchase 19,500, 15,000
and 13,500 shares of common stock exercise at prices ranging from $9.05 to
$10.45 per share were outstanding during each of the respective periods.
In connection with the issuance of shares of common stock by the Company in
public offerings conducted between October 1994 and December 1998, the Company
issued warrants to purchase a total of 1,156,520 shares at a price stated in the
Offering during the period commencing with the first date upon which the
Soliciting Dealer Warrants were issued and ending upon the exercise period.
These warrants were issued to broker dealers who sold shares in the offerings as
additional selling commissions. As of December 31, 2000, none of these warrants
have been exercised and the Company ascribes no value to them for financial
reporting purposes.
(5) INVESTMENT PROPERTIES
In connection with the purchase of several investment properties, the Company
received payments under master lease agreements covering spaces vacant at the
time of acquisition of those investment properties. The payments were made to
the Company for periods ranging from one to two years from the date of
acquisition of the property or until the spaces were leased. As of December 31,
2000, the Company had one property subject to a master lease agreement. GAAP
requires that the Company treat these payments as a reduction to the purchase
price of the investment properties upon receipt, rather than as rental income.
The cumulative amount of such payments was $6,527,531 and $5,148,659 as of
December 31, 2000 and 1999, respectively.
45
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
PRO FORMA INFORMATION (UNAUDITED)
The Company acquired its investment properties at various times. The following
table sets forth certain summary unaudited pro forma operating data as if the
acquisitions had been consummated as of the beginning of the previous period.
For the years ended December 31,
--------------------------------
2000 1999
-------------- -------------
Rental income $106,681,447 95,624,113
Additional rental income 41,819,409 35,974,834
Total revenues 152,778,527 136,482,584
Property operating expenses 46,677,546 43,276,089
Total depreciation 26,373,574 23,225,306
Total expenses 183,538,941 101,406,993
Net income (31,627,159) 35,075,591
The unaudited pro forma operating data are presented for comparative purposes
only and are not necessarily indicative of what the actual results of operations
would have been for each of the periods presented, nor does such data purport to
represent the results to be achieved in future periods.
46
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(6) OPERATING LEASES
Minimum lease payments under operating leases to be received in the future,
excluding rental income under master lease agreements and assuming no expiring
leases are renewed are as follows:
Remaining lease terms range from one year to forty-five years. Pursuant to the
lease agreements, tenants of the property are required to reimburse the Company
for some or all of their pro rata share of the real estate taxes and operating
expenses of the property. Such amounts are included in additional rental income.
Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income for the period of occupancy
using the effective monthly rent, which is the average monthly rent for the
entire period of occupancy during the term of the lease. The accompanying
consolidated financial statements include increases of $3,557,848, $2,490,459
and $2,120,951 in 2000, 1999 and 1998, respectively, of rental income for the
period of occupancy for which stepped rent increases apply and $8,955,874 and
$5,398,026 in related accounts and rents receivable as of December 31, 2000 and
1999, respectively. The Company anticipates collecting these amounts over the
terms of the related leases as scheduled rent payments are made.
(7) MORTGAGE RECEIVABLE
On May 28, 1999, the Company entered into a construction loan agreement with an
unaffiliated third party, the borrower, for an aggregate loan amount of
$15,500,000 secured by Thatcher Woods Shopping Center in River Grove, Illinois.
The construction loan matures on June 29, 2001 and requires the borrower to make
monthly interest only payments on amounts disbursed at a rate of 9%. The
Company, at its option, may elect to purchase this property, upon completion,
subject to certain fair-value-based criteria stated in the contract. As of
December 31, 2000, the principal balance of this mortgage receivable is
$13,313,976.
47
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(8) MORTGAGES PAYABLE
The Company's mortgages payable are secured by various of its investment
properties and consist of the following at December 31, 2000 and 1999:
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
Interest Rate Current Balance at Balance at
at Dec. 31, Maturity Monthly Dec. 31, Dec. 31,
2000 Date Payment 2000 1999
------------- -------- ------- ------------ -----------
LaSalle Bank N.A. 8.12% 10/2004 (i) $ 34,017,000 34,017,000
Allstate 8.32% 10/2004 (i) 35,787,000 35,787,000
Midland Loan Serv (a) 7.86% 01/2008 $ 37,649 5,069,384 5,121,280
LaSalle Bank N.A. 8.12% 12/2004 (i) 8,910,000 8,910,000
LaSalle Bank N.A. 8.22% 12/2004 (i) 9,650,000 9,650,000
LaSalle Bank N.A. 8.12% 01/2005 (i) 9,737,620 -
LaSalle Bank N.A. 8.22% 03/2005 (i) 2,400,000 -
LaSalle Bank N.A. 8.22% 04/2005 (i) 2,467,700 -
LaSalle Bank N.A. 8.22% 06/2005 (i) 5,599,000 -
LaSalle Bank N.A. 8.12% 11/2005 (i) 3,650,000 -
LaSalle Bank N.A. 8.22% 12/2005 (i) 7,833,000 -
------------ -----------
Mortgages Payable $467,766,173 440,740,296
============ ===========
(a) These loans require payments of principal and interest monthly; all
other loans listed are interest only.
(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) As part of the purchase of this property, the Company assumed the
existing mortgage-backed Economic Development Revenue Bonds, Series
1994 offered by the Village of Skokie, Illinois. The interest rate
floats and is reset weekly by a re-marketing agent. The rate at
December 31, 2000 is 5.33%. The bonds are further secured by an
Irrevocable Letter of Credit, issued by LaSalle Bank at a fee of 1.25%
of the bond outstanding. In addition, there is a .125% re-marketing
fee paid annually and a trustee fee of $250 paid quarterly.
(e) The Company received a subsidy at closing from the seller for a period
of five years, which together with interest earnings on the initial
deposit, will provide a sum that will be drawn down on a monthly basis
by the Company to reduce the effective interest rate paid on the loan
to 7% per annum.
(f) The Company paid $636,000 of loan fees and $503,295 of other costs
associated with this financing with Lehman Brothers Holdings, Inc.
This allowed the Company to secure a rate lock agreement to set the
interest rate at the time of execution of this financing, thus
protecting the Company from future interest rate increases.
(g) The Company paid $37,125 of loan fees and $267,884 of other costs
associated with this financing with Column Financial, Inc. This
allowed the Company to secure a rate lock agreement to set the
interest rate at the time of execution of this financing, thus
protecting the Company from future interest rate increases.
(h) The Company paid $415,766 of loan fees and $134,429 of other costs
associated with this financing with Bear, Stearns Funding, Inc. This
allowed the Company to secure a rate lock agreement to set the
interest rate at the time of execution of this financing, thus
protecting the Company from future interest rate increases.
(i) Payments on these mortgages are calculated using a floating rate of
interest based on LIBOR.
49
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
As of December 31, 2000, the required future principal payments on the Company's
mortgages payable over the next five years are as follows:
On August 4, 1999, in addition to the Company purchasing the first phase of
Hickory Creek Market in Frankfort, Illinois, the Company acquired title to an
additional approximately 3.5 acres of adjacent land to be developed into a
20,800 square foot building to be known as "Hickory Creek Market Phase II" from
an unaffiliated third party. Included in the purchase price was $1,600,149,
which had been placed in a construction escrow for Phase II. As of December 31,
2000, the balance of the construction escrow was $364,502 and is included in
restricted cash and $1,300,592 is recorded as construction in progress.
(10) EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed by reflecting the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. For the years ended
December 31, 2000, 1999 and 1998, options to purchase 19,500, 15,000 and 13,500
shares of common stock at prices ranging from $9.05 to $10.45 per share were
outstanding during each of the respective periods.
As of December 31, 2000, warrants to purchase 1,156,520 shares of common stock
at a price of $12.00 per share were outstanding, but were not included in the
computation of diluted EPS because the warrants exercise price was greater than
the average market prices of common shares.
The weighted average number of common shares outstanding were 59,138,837,
54,603,088 and 40,359,796 for the years ended December 31, 2000, 1999 and 1998,
respectively.
50
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(11) SEGMENT REPORTING
The Company owns and seeks to acquire single-user, neighborhood and community
retail shopping centers in the Midwest, generally within the states of Illinois,
Indiana, Michigan, Minnesota, Ohio and Wisconsin. All of the Company's shopping
centers are located within these states and are typically anchored by grocery
and drug stores complemented with additional stores providing a wide range of
other goods and services to shoppers.
The Company assesses and measures operating results on an individual property
basis for each of its investment properties based on net property operations.
Since all of the Company's investment properties exhibit highly similar economic
characteristics, cater to the day-to-day living needs of their respective
surrounding communities, and offer similar degrees of risk and opportunities for
growth, the shopping centers have been aggregated and reported as one operating
segment.
The property revenues, property net operations, and property assets of the
reportable segments are summarized in the following tables as of December 31,
2000, 1999 and 1998, and for each of the years in the three-year period then
ended, along with a reconciliation to net income:
2000 1999 1998
---------------- ------------- -------------
Total property revenues $ 148,682,620 119,580,760 68,116,744
Total property operating expenses (46,268,023) (39,002,025) (21,017,360)
Mortgage interest (33,682,106) (25,653,724) (13,421,599)
---------------- ------------- -------------
Net property operations 68,732,491 54,925,011 33,677,785
---------------- ------------- -------------
Interest income 2,209,214 4,206,809 5,185,534
Non property expenses:
Merger consideration costs (68,775,449) - -
Professional services (490,684) (770,945) (440,345)
General and administrative (2,593,416) (1,653,597) (942,603)
Bad debt expense (1,458,604) (1,300,550) (200,000)
Advisor asset management fee (2,413,500) (4,193,068) (965,108)
Depreciation and amortization (26,218,963) (20,361,269) (11,663,150)
Acquisition cost expense (128,151) (565,823) (437,783)
---------------- ------------- -------------
Income (loss) before minority interest $ (31,137,062) 30,286,568 24,214,330
================ ============= =============
Net investment properties $ 930,272,644 907,381,429 630,048,317
================ ============= =============
Total assets $ 1,002,893,982 982,281,972 787,608,547
================ ============= =============
51
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(12) COMMITMENTS AND CONTINGENCIES
The Company is not subject to any material pending legal proceedings.
In connection with a tax increment financing district for three of the Company's
investment properties, the Company is contingently liable for any shortfalls in
the Tax Increment as defined. At December 31, 2000, the Company does not believe
any shortfall under the Tax Increment will be due.
On August 4, 1999, the Company acquired title to a 32,000 square foot shopping
center known as "Hickory Creek Marketplace" and an additional six acres of
vacant land in Frankfort, Illinois. Upon the remaining acreage, a 20,800 square
foot store is to be developed by an unaffiliated third party. The initial
purchase price of $6,216,535 was funded with cash and cash equivalents. In
addition to the purchase price paid, the Company deposited $2,707,303 in a
development escrow to fund the construction and the final purchase price of the
20,800 square foot structure. As of December 31, 2000, the balance of the
development escrow including interest was $1,540,130 and is included in
restricted cash.
(13) SUBSEQUENT EVENTS
In January 2001, the Company paid a distribution of $5,063,089 to its
Stockholders.
On January 1, 2001, the Company converted approximately $56,000,000 of variable
rate debt to a fixed rate basis ranging from 6.8% to 7.4%. These fixed rates are
effective upon expiration of the current 30-day LIBOR contract maturing December
31, 2000.
On January 1, 2001, the Company issued to Norbert J. Treonis, Samuel A.
Orticelli and Mark E. Zalatoris a total of 90,910, 27,273 and 27,273 shares of
the Company's common stock, respectively, in connection with employment
agreements dated December 14, 2000.
On January 30, 2001, the Company obtained a mortgage loan secured by three of
its previously unencumbered investment properties, Stuart's Crossing, St.
Charles, Illinois, Pine Tree Plaza, Janesville, Wisconsin, and Shoppes of Mill
Creek, Palos Park, Illinois. The loan amounts were $6,050,000, $9,890,000 and
$5,660,000, respectively. These mortgage loans have a term of five years and
require monthly payments of interest only at the annual rate of 7.375%. The
Company paid loan fees of approximately $200,000 in connection with these
mortgage loans, which will be amortized over five years, the loan term.
On January 31, 2001, based on the third amendment to the LLC agreement of Inland
Ryan, LLC, the Company caused Inland Ryan, LLC to distribute $2,097,609 in cash
to Ryan CL, LLC to reimburse for certain pre-formation expenditures incurred by
Ryan CL. Upon payment of this distribution, the LLC units owned by Ryan CL, LLC
were reduced from approximately 4,164,000 to 2,066,000 and the LLC units owned
by the Company increased from approximately 88,232,000 to 90,330,000. The third
amendment to the LLC agreement decreases Ryan CL, LLC interest in Inland Ryan,
LLC to approximately 2% and increases the Company's interest in Inland Ryan, LLC
to approximately 77%. The remaining non-managing members' interests, aggregating
21%, were not affected by this amendment.
52
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
On February 1, 2001, the Company and the non-managing members of Inland Ryan,
LLC entered into a fourth amendment to the LLC agreement. This amendment
reflects the right of Ryan MPLS, LLC to receive an earnout amount of
approximately $1,075,000. This increase in capital contribution to Inland Ryan,
LLC by Ryan MPLS, LLC of approximately $1,075,000 increases their interest in
Inland Ryan, LLC to approximately 16% and decreases the Company's interest in
Inland Ryan, LLC to approximately 76.5%.
On February 1, 2001, the Company entered into a joint venture with Tri-Land
Properties, Inc. for the acquisition and redevelopment of the Century Consumer
Mall in Merrillville, Indiana. The property is located at the southeast corner
of the intersection of U.S. Route 30 and Broadway in Merrillville, west of
Interstate 65. The property has two anchor tenants, including a 148,420 square
foot Montgomery Wards store at the north end of the property and a 139,451
square foot Burlington Coat Factory store on the south. In between is 105,000
square feet of enclosed mall space. The phased redevelopment of the property
calls for the demolition of the existing enclosed mall space, construction of
26,000 square feet of new retail space along Route 30, construction of 30,000
square feet of new retail space on the western portion of the property, and
construction of 104,700 square feet of new open-air retail space between the
existing anchors. The Montgomery Wards store is scheduled to close; the future
use of that part of the property has not been determined. A wholly owned
subsidiary of the Company is a 50% venture partner with Tri-Land Properties,
Inc. in an LLC that was formed to acquire and redevelop the property. Each
partner's initial equity contribution was $500,000. In addition, the Company has
committed to lend the LLC joint venture, over the five year loan term, up to an
additional $17.8 million to fund the initial acquisition and subsequent
redevelopment. The loan terms include a 9% initial note rate paid monthly on
average outstanding balances and a term of five years. The Company will fund
such loan amounts with its available cash balances.
In February 2001, Plitt Theaters, Inc. and its parent corporation, Loews
Cineplex Entertainment Corporation, a tenant occupying 40,000 square feet at one
of the Company's investment properties, filed for Chapter 11 bankruptcy
protection under the Federal bankruptcy laws. On March 1, 2001, Plitt Theaters,
Inc. rejected its lease. Management is in the process of marketing this space
for a replacement tenant and does not expect this bankruptcy filing to have a
material adverse effect on the operations or financial condition of the Company
as a whole.
In February 2001, Crown Books Corporation, a tenant occupying a total of 25,013
square feet at two of the Company's investment properties, filed for Chapter 11
bankruptcy protection under the Federal bankruptcy laws. Management does not
expect this bankruptcy filing to have a material adverse effect on the
operations or financial condition of the Company as a whole.
On February 12, 2001, the Company received a bankruptcy court-approved
settlement from Eagle Food Stores, Inc. in the amount of $4,120,000 for the
Company's claims for damages as a result of the two rejected leases.
On March 9, 2001, the Company's president, Norbert J. Treonis, resigned citing
personal reasons. Robert D. Parks, the Company's chairman for the past six
years, reassumed the duties of president and chief executive officer. Mr. Parks
previously served in these positions from October 1994 through June 2000. Mr.
Parks, along with Mr. G. Joseph Cosenza, also a member of the Company's board of
directors for the past six years, was named to the Company's management
committee. Mr. Parks will not receive any additional compensation for serving as
president and chief executive officer. The board did not name a replacement to
fill the vacancy on the board created by Mr. Treonis' resignation.
53
INLAND REAL ESTATE CORPORATION (a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
In connection with Mr. Treonis' resignation, the Company and Mr. Treonis entered
into a "Separation Agreement." Under this agreement, the Company paid Mr.
Treonis $57,451.93 (which after withholding taxes, nets to $34,801.92). The
Company's board of directors had raised questions regarding an employment
agreement signed by Mr. Treonis in December 2000. This agreement purportedly
replaced a prior employment agreement signed by Mr. Treonis in July 2000. As
part of the Separation Agreement, Mr. Treonis canceled and assigned to the
Company any rights he may have had to shares of the Company's common stock,
which were issued under the December agreement. The Separation Agreement
contains mutual releases by Mr. Treonis and the Company of all claims arising
from or relating to the signing of the December agreement.
On March 21, 2001, the board of directors approved the purchase of Gurnee Town
Center, a 179,855 square foot, newly-constructed shopping center on Grand Avenue
located in Gurnee, Illinois. The projected closing date is May 1, 2001 with an
estimated purchase price of $31,500,000. The Company anticipates the purchase
price to be funded from a combination of cash and acquisition indebtedness.
(14) QUARTERLY OPERATING RESULTS (UNAUDITED)
The following represents results of operations for the quarters during the years
2000 and 1999:
2000
--------------------------------------------------------
December 31 September 30 June 30 March 31
------------- ------------ ---------- ----------
Total income $ 39,251,846 36,690,148 38,475,529 36,474,311
Net income (loss) 10,046,416 (57,617,402) 10,044,445 5,522,734
Net income (loss) per common
share, basic and diluted .11 (.93) .18 .10
1999
--------------------------------------------------------
December 31 September 30 June 30 March 31
------------ ------------ ---------- ----------
Total income $ 35,368,179 32,453,367 28,775,662 27,190,361
Net income 6,565,101 8,269,930 8,233,982 7,102,888
Net income per common
share, basic and diluted .12 .15 .15 .13
54
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost
(A)
----------------------------
Buildings
And Adjustments
Encumbrance Land improvements To Basis (C)
------------- ------------ -------------- ------------
Single-user Retail
------------------
Walgreens $ 685,204 78,330 1,130,723 -
Decatur, IL
Zany Brainy
Wheaton, IL 1,245,000 838,000 1,626,033 664
Ameritech
Joliet, IL 522,375 170,000 883,293 2,544
Dominick's
Schaumburg, IL 5,345,500 2,294,437 8,392,661 2,679
Dominick's
Highland Park, IL 6,400,000 3,200,000 9,597,963 2,200
Dominick's
Glendale Heights, IL 4,100,000 1,265,000 6,942,997 9,194
Party City
Oakbrook Terrace, IL 987,500 750,000 1,231,271 -
Eagle Country Market
Roselle, IL 1,450,000 966,667 1,940,898 -
Dominick's
West Chicago, IL 3,150,000 1,980,130 4,325,331 28,272
Walgreens
Woodstock, IL 569,610 395,080 774,906 -
Bakers Shoes
Chicago, IL - 645,284 342,993 15,120
Staples
Freeport, IL 1,480,000 725,288 1,969,690 -
Carmax
Schaumburg, IL 7,260,000 7,142,020 13,461,169 -
Carmax
Tinley Park, IL 9,450,000 6,788,880 12,116,751 -
Hollywood Video
Hammond, IN 740,000 405,213 948,925 -
Circuit City
Traverse City, MI 1,603,000 1,123,170 1,778,861 -
Cub Foods
Plymouth, MN 2,732,000 1,551,104 3,916,470 -
Cub Foods
Indianapolis, IN 2,867,000 2,182,557 3,560,502 -
Eagle Ridge Center
Lindenhurst, IL 3,000,000 866,702 5,144,821 -
Gross amount at which carried
at end of period(B)
---------------------------------------------------------------
Date
Land Buildings Accumulated Con-
and and Total Depreciation struct- Date
Improvements improvements (D) (E) ed Acq
---------------- --------------- ------------- ------------ ------- ------
Single-user Retail
------------------
Walgreens 78,330 1,130,723 1,209,053 223,004 1988 01/95
Decatur, IL
Zany Brainy
Wheaton, IL 838,000 1,626,697 2,464,697 243,985 1995 07/96
Ameritech
Joliet, IL 170,000 885,837 1,055,837 109,073 1995 05/97
Dominick's
Schaumburg, IL 2,294,437 8,395,340 10,689,777 1,002,769 1996 05/97
Dominick's
Highland Park, IL 3,200,000 9,600,163 12,800,163 1,382,160 1996 06/97
Dominick's
Glendale Heights, IL 1,265,000 6,952,191 8,217,191 806,191 1997 09/97
Party City
Oakbrook Terrace, IL 750,000 1,231,271 1,981,271 129,952 1985 11/97
Eagle Country Market
Roselle, IL 966,667 1,940,898 2,907,565 248,303 1990 11/97
Dominick's
West Chicago, IL 1,980,130 4,353,603 6,333,733 468,589 1990 01/98
Walgreens
Woodstock, IL 395,080 774,906 1,169,986 72,939 1973 06/98
Bakers Shoes
Chicago, IL 645,284 358,113 1,003,397 26,530 1891 09/98
Staples
Freeport, IL 725,288 1,969,690 2,694,978 196,836 1998 04/98
Carmax
Schaumburg, IL 7,142,020 13,461,169 20,603,189 934,789 1998 12/98
Carmax
Tinley Park, IL 6,788,880 12,116,751 18,905,631 841,427 1998 12/98
Hollywood Video
Hammond, IN 405,213 948,925 1,354,138 65,866 1998 12/98
Circuit City
Traverse City, MI 1,123,170 1,778,861 2,902,031 117,446 1998 01/99
Cub Foods
Plymouth, MN 1,551,104 3,916,470 5,467,574 264,701 1991 03/99
Cub Foods
Indianapolis, IN 2,182,557 3,560,502 5,743,059 283,527 1991 03/99
Eagle Ridge Center
Lindenhurst, IL 866,702 5,144,821 6,011,523 330,273 1998 04/99
55
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost
(A)
----------------------------
Buildings
And Adjustments
Encumbrance Land improvements To Basis (C)
------------- ------------ -------------- ------------
Dominick's
Hammond, IN $ 4,100,000 825,225 8,025,601 -
Cub Foods
Buffalo Grove, IL 3,650,000 1,425,840 5,928,515 -
United Audio Center
Schaumburg, IL 1,240,000 1,215,143 1,272,717 -
Bally's Total Fitness
St. Paul, MN 3,145,300 1,298,052 4,612,336 -
Riverdale Commons Outlot
Coon Rapids, MN - 544,676 605,205 -
Neighborhood Retail Centers
---------------------------
Eagle Crest
Naperville, IL 2,350,000 1,878,618 2,938,352 337,860
Goodyear
Montgomery, IL 630,000 315,000 834,659 (11,158)
Hartford Plaza
Naperville, IL 2,310,000 990,000 3,427,961 20,912
Nantucket Square
Schaumburg, IL 2,200,000 1,908,000 2,349,918 (55,972)
Antioch Plaza
Antioch, IL 875,000 268,000 1,360,445 (104,977)
Mundelein Plaza
Mundelein, IL 2,810,000 1,695,000 3,965,561 (28,547)
Regency Point
Lockport, IL - 1,000,000 4,720,800 (19,377)
Prospect Heights
Prospect Heights, IL 1,095,000 494,300 1,683,005 63,714
Sears
Montgomery, IL 1,645,000 768,000 2,654,681 9,606
Salem Square
Countryside, IL 3,130,000 1,735,000 4,449,217 93,344
Hawthorn Village
Vernon Hills, IL 4,280,000 2,619,500 5,887,640 278,697
Six Corners
Chicago, IL 3,100,000 1,440,000 4,532,977 351,256
Spring Hill Fashion Center
West Dundee, IL 4,690,000 1,794,000 7,415,396 250,852
Gross amount at which carried
at end of period(B)
---------------------------------------------------------------
Date
Land Buildings Accumulated Con-
and and Total Depreciation struct- Date
Improvements improvements (D) (E) ed Acq
---------------- --------------- ------------- ------------ ------- ------
Dominick's
Hammond, IN 825,225 8,025,601 8,850,826 481,720 1999 05/99
Cub Foods
Buffalo Grove, IL 1,425,840 5,928,515 7,354,355 349,017 1999 06/99
United Audio Center
Schaumburg, IL 1,215,143 1,272,717 2,487,860 65,454 1998 09/99
Bally's Total Fitness
St. Paul, MN 1,298,052 4,612,336 5,910,388 242,691 1988 09/99
Riverdale Commons Outlot
Coon Rapids, MN 544,676 605,205 1,149,881 23,325 1999 03/00
Neighborhood Retail Centers
---------------------------
Eagle Crest
Naperville, IL 1,878,618 3,276,212 5,154,830 615,943 1991 03/95
Goodyear
Montgomery, IL 315,000 823,501 1,138,501 146,495 1991 09/95
Hartford Plaza
Naperville, IL 990,000 3,448,873 4,438,873 662,692 1995 09/95
Nantucket Square
Schaumburg, IL 1,908,000 2,293,946 4,201,946 400,329 1980 09/95
Antioch Plaza
Antioch, IL 268,000 1,255,468 1,523,468 219,949 1995 12/95
Mundelein Plaza
Mundelein, IL 1,695,000 3,937,014 5,632,014 622,334 1990 03/96
Regency Point
Lockport, IL 1,000,000 4,701,423 5,701,423 744,403 1993 04/96
Prospect Heights
Prospect Heights, IL 494,300 1,746,719 2,241,019 262,039 1985 06/96
Sears
Montgomery, IL 768,000 2,664,287 3,432,287 394,905 1990 06/96
Salem Square
Countryside, IL 1,735,000 4,542,561 6,277,561 657,733 1973 08/96
Hawthorn Village
Vernon Hills, IL 2,619,500 6,166,337 8,785,837 901,719 1979 08/96
Six Corners
Chicago, IL 1,440,000 4,884,233 6,324,233 654,949 1966 10/96
Spring Hill Fashion Center
West Dundee, IL 1,794,000 7,666,248 9,460,248 1,044,352 1985 11/96
56
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost
(A)
----------------------------
Buildings
And Adjustments
Encumbrance Land improvements To Basis (C)
------------- ------------ -------------- ------------
Crestwood Plaza
Crestwood, IL $ 904,380 325,577 1,483,183 81,603
Park St. Claire
Schaumburg, IL 762,500 319,578 986,920 226,674
Summit of Park Ridge
Park Ridge, IL 1,600,000 672,000 2,498,050 64,483
Grand and Hunt Club
Gurnee, IL 1,796,000 969,840 2,622,575 (52,811)
Quarry Outlot
Hodgkins, IL 900,000 522,000 1,278,431 8,872
Aurora Commons
Aurora, IL 8,776,181 3,220,000 8,318,861 421,701
Lincoln Park Place
Chicago, IL 1,050,000 819,000 1,299,902 (86,237)
Niles Shopping Center
Niles, IL 1,617,500 850,000 2,466,389 26,658
Mallard Crossing
Elk Grove Village, IL 4,050,000 1,778,667 6,331,943 123,843
Cobblers Crossing
Elgin, IL 5,476,500 3,200,000 7,763,940 193,452
Calumet Square
Calumet City, IL 1,032,920 527,000 1,540,046 124,186
Sequoia Shopping Center
Milwaukee, WI 1,505,000 1,216,914 1,805,784 (11,425)
River Square Shopping Center
Naperville, IL 3,050,000 2,853,226 3,129,477 280,718
Shorecrest Plaza
Racine, WI 2,978,000 1,150,000 4,775,119 37,402
Dominick's
Countryside, IL 1,150,000 1,375,000 925,106 -
Terramere Plaza
Arlington Heights, IL 2,202,500 1,435,000 2,981,314 251,600
Wilson Plaza
Batavia, IL 650,000 310,000 999,366 23,960
Iroquois Center
Naperville, IL 5,950,000 3,668,347 8,276,041 726,789
Fashion Square
Skokie, IL 6,200,000 2,393,534 6,901,769 151,719
Gross amount at which carried
at end of period(B)
---------------------------------------------------------------
Date
Land Buildings Accumulated Con-
and and Total Depreciation struct- Date
Improvements improvements (D) (E) ed Acq
---------------- --------------- ------------- ------------ ------- ------
Crestwood Plaza
Crestwood, IL 325,577 1,564,786 1,890,363 212,451 1992 12/96
Park St. Claire
Schaumburg, IL 319,578 1,213,594 1,533,172 329,503 1994 12/96
Summit of Park Ridge
Park Ridge, IL 672,000 2,562,533 3,234,533 339,647 1986 12/96
Grand and Hunt Club
Gurnee, IL 969,840 2,569,764 3,539,604 342,702 1996 12/96
Quarry Outlot
Hodgkins, IL 522,000 1,287,303 1,809,303 171,594 1996 12/96
Aurora Commons
Aurora, IL 3,220,000 8,740,562 11,960,562 1,223,897 1988 01/97
Lincoln Park Place
Chicago, IL 819,000 1,213,665 2,032,665 161,444 1990 01/97
Niles Shopping Center
Niles, IL 850,000 2,493,047 3,343,047 307,886 1982 04/97
Mallard Crossing
Elk Grove Village, IL 1,778,667 6,455,786 8,234,453 821,533 1993 05/97
Cobblers Crossing
Elgin, IL 3,200,000 7,957,392 11,157,392 1,014,589 1993 05/97
Calumet Square
Calumet City, IL 527,000 1,664,232 2,191,232 193,775 67/94 06/97
Sequoia Shopping Center
Milwaukee, WI 1,216,914 1,794,359 3,011,273 211,622 1988 06/97
River Square Shopping Center
Naperville, IL 2,853,226 3,410,195 6,263,421 437,298 1988 06/97
Shorecrest Plaza
Racine, WI 1,150,000 4,812,521 5,962,521 544,850 1977 07/97
Dominick's
Countryside, IL 1,375,000 925,106 2,300,106 112,204 1975 12/97
Terramere Plaza
Arlington Heights, IL 1,435,000 3,232,914 4,667,914 318,183 1980 12/97
Wilson Plaza
Batavia, IL 310,000 1,023,326 1,333,326 116,364 1986 12/97
Iroquois Center
Naperville, IL 3,668,347 9,002,830 12,671,177 913,542 1983 12/97
Fashion Square
Skokie, IL 2,393,534 7,053,488 9,447,022 720,106 1984 12/97
57
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost
(A)
----------------------------
Buildings
And Adjustments
Encumbrance Land improvements To Basis (C)
------------- ------------ -------------- ------------
Shops at Coopers Grove
Country Club Hills, IL $ 2,900,000 1,400,897 4,417,565 (15,241)
Maple Plaza
Downers Grove, IL 1,582,500 1,364,202 1,822,493 179,100
Orland Park Retail
Orland Park, IL 625,000 460,867 795,939 (22,566)
Wisner/Milwaukee Plaza
Chicago, IL 974,725 528,576 1,383,292 -
Homewood Plaza
Homewood, IL 1,013,201 534,599 1,398,042 8,360
Elmhurst City Center
Elmhurst, IL 2,513,765 2,050,217 3,011,298 (522,814)
Shoppes of Mill Creek
Palos Park, IL - 3,305,949 8,005,850 30,267
Prairie Square
Sun Prairie, WI 1,550,000 739,575 2,381,050 66,231
Oak Forest Commons
Oak Forest, IL 6,617,871 2,795,519 9,033,988 607,327
Downers Grove Market
Downers Grove, IL 10,600,000 6,224,467 11,616,661 (29,297)
St. James Crossing
Westmont, IL 3,847,599 2,610,600 4,938,351 128,410
High Point Center
Madison, WI 5,360,988 1,449,560 8,817,508 83,025
Western & Howard
Chicago, IL 992,681 439,990 1,523,460 -
Wauconda Shopping Center
Wauconda, IL 1,333,834 454,500 2,067,622 -
Berwyn Plaza
Berwyn, IL 708,638 769,073 1,078,379 10,105
Woodland Heights
Streamwood, IL 3,940,009 2,976,000 6,898,100 (108,624)
Schaumburg Plaza
Schaumburg, IL 3,908,082 2,445,555 4,565,548 38,413
Winnetka Commons
New Hope, MN 2,233,744 1,596,600 2,858,630 13,873
Eastgate Shopping Center
Lombard, IL 3,345,000 4,252,440 2,577,933 1,753,215
Gross amount at which carried
at end of period(B)
---------------------------------------------------------------
Date
Land Buildings Accumulated Con-
and and Total Depreciation struct- Date
Improvements improvements (D) (E) ed Acq
---------------- --------------- ------------- ------------ ------- ------
Shops at Coopers Grove
Country Club Hills, IL 1,400,897 4,402,324 5,803,221 459,509 1991 01/98
Maple Plaza
Downers Grove, IL 1,364,202 2,001,593 3,365,795 216,786 1988 01/98
Orland Park Retail
Orland Park, IL 460,867 773,373 1,234,240 85,127 1997 02/98
Wisner/Milwaukee Plaza
Chicago, IL 528,576 1,383,292 1,911,868 140,124 1994 02/98
Homewood Plaza
Homewood, IL 534,599 1,406,402 1,941,001 149,910 1993 02/98
Elmhurst City Center
Elmhurst, IL 2,050,217 2,488,484 4,538,701 253,285 1994 02/98
Shoppes of Mill Creek
Palos Park, IL 3,305,949 8,036,117 11,342,066 834,326 1989 03/98
Prairie Square
Sun Prairie, WI 739,575 2,447,281 3,186,856 251,508 1995 03/98
Oak Forest Commons
Oak Forest, IL 2,795,519 9,641,315 12,436,834 945,840 1998 03/98
Downers Grove Market
Downers Grove, IL 6,224,467 11,587,364 17,811,831 1,212,228 1998 03/98
St. James Crossing
Westmont, IL 2,610,600 5,066,761 7,677,361 518,684 1990 03/98
High Point Center
Madison, WI 1,449,560 8,900,533 10,350,093 846,601 1984 04/98
Western & Howard
Chicago, IL 439,990 1,523,460 1,963,450 143,317 1985 04/98
Wauconda Shopping Center
Wauconda, IL 454,500 2,067,622 2,522,122 196,233 1988 05/98
Berwyn Plaza
Berwyn, IL 769,073 1,088,484 1,857,557 97,169 1983 05/98
Woodland Heights
Streamwood, IL 2,976,000 6,789,476 9,765,476 610,989 1956 06/98
Schaumburg Plaza
Schaumburg, IL 2,445,555 4,603,961 7,049,516 420,988 1994 06/98
Winnetka Commons
New Hope, MN 1,596,600 2,872,503 4,469,103 286,216 1990 07/98
Eastgate Shopping Center
Lombard, IL 4,252,440 4,331,148 8,583,588 342,621 1959 07/98
58
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost
(A)
----------------------------
Buildings
And Adjustments
Encumbrance Land improvements To Basis (C)
------------- ------------ -------------- ------------
Orland Greens
Orland Park, IL $ 2,132,000 1,246,440 3,877,755 190,785
Two Rivers Plaza
Bolingbrook, IL 3,658,000 1,820,453 4,993,133 6,050
Edinburgh Festival
Brooklyn Park, MN 4,625,000 2,472,746 6,372,809 5,270
Riverplace Center
Noblesville, IN 3,323,000 1,591,682 4,497,515 -
Rose Plaza
Elmwood Park, IL 2,008,000 1,530,149 2,665,910 -
Marketplace at Six Corners
Chicago, IL 11,200,000 9,007,150 10,014,533 -
Plymouth Collection
Plymouth, MN 3,441,000 1,459,045 5,174,725 (6,488)
Loehmann's Plaza
Brookfield, WI 6,643,000 4,797,940 8,758,688 220,475
Baytowne Square
Champaign, IL 7,027,000 3,820,545 8,853,078 (85,251)
Gateway Square
Hinsdale, IL 3,470,000 3,045,966 3,899,226 58,490
Oak Lawn Town Center
Oak Lawn, IL 1,200,000 1,384,049 1,034,346 -
Oak Forest Commons Ph III
Oak Forest, IL 552,700 204,881 906,609 (14,803)
Stuart's Crossing
St. Charles, IL - 4,234,079 9,421,791 -
West River Crossing
Joliet, IL 2,806,700 2,316,806 3,320,482 (147,559)
Hickory Creek Marketplace
Frankfort, IL 3,108,300 1,796,717 4,435,125 (145,876)
Burnsville Crossing
Burnsville, MN 2,858,100 2,061,340 4,667,414 109,271
Byerly's Burnsville
Burnsville, MN 2,915,900 1,706,797 4,144,841 1,847,683
Cliff Lake Center
Eagan, MN 5,069,384 2,517,253 3,056,771 339,308
Park Place Plaza
St. Louis Park, MN 6,407,000 4,255,856 8,575,148 -
Gross amount at which carried
at end of period(B)
---------------------------------------------------------------
Date
Land Buildings Accumulated Con-
and and Total Depreciation struct- Date
Improvements improvements (D) (E) ed Acq
---------------- --------------- ------------- ------------ ------- ------
Orland Greens
Orland Park, IL 1,246,440 4,068,540 5,314,980 316,134 1984 09/98
Two Rivers Plaza
Bolingbrook, IL 1,820,453 4,999,183 6,819,636 459,983 1994 10/98
Edinburgh Festival
Brooklyn Park, MN 2,472,746 6,378,079 8,850,825 516,327 1997 10/98
Riverplace Center
Noblesville, IN 1,591,682 4,497,515 6,089,197 339,133 1992 11/98
Rose Plaza
Elmwood Park, IL 1,530,149 2,665,910 4,196,059 227,357 1997 11/98
Marketplace at Six Corners
Chicago, IL 9,007,150 10,014,533 19,021,683 702,398 1997 11/98
Plymouth Collection
Plymouth, MN 1,459,045 5,168,237 6,627,282 387,212 1999 01/99
Loehmann's Plaza
Brookfield, WI 4,797,940 8,979,163 13,777,103 598,984 1985 02/99
Baytowne Square
Champaign, IL 3,820,545 8,767,827 12,588,372 641,918 1993 02/99
Gateway Square
Hinsdale, IL 3,045,966 3,957,716 7,003,682 276,334 1985 03/99
Oak Lawn Town Center
Oak Lawn, IL 1,384,049 1,034,346 2,418,395 54,967 1999 06/99
Oak Forest Commons Ph III
Oak Forest, IL 204,881 891,806 1,096,687 56,902 1999 06/99
Stuart's Crossing
St. Charles, IL 4,234,079 9,421,791 13,655,870 444,060 1999 08/98
West River Crossing
Joliet, IL 2,316,806 3,172,923 5,489,729 174,381 1999 08/99
Hickory Creek Marketplace
Frankfort, IL 1,796,717 4,289,249 6,085,966 241,824 1999 08/99
Burnsville Crossing
Burnsville, MN 2,061,340 4,776,685 6,838,025 269,170 1989 09/99
Byerly's Burnsville
Burnsville, MN 1,706,797 5,992,524 7,699,321 237,497 1988 09/99
Cliff Lake Center
Eagan, MN 2,517,253 3,396,079 5,913,332 226,968 1988 09/99
Park Place Plaza
St. Louis Park, MN 4,255,856 8,575,148 12,831,004 446,525 1997 09/99
59
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost
(A)
----------------------------
Buildings
And Adjustments
Encumbrance Land improvements To Basis (C)
------------- ------------ -------------- ------------
Maple Grove Retail
Maple Grove, MN $ 3,958,000 2,172,777 5,758,017 -
Shingle Creek
Brooklyn Center, MN 1,735,000 1,228,197 2,261,560 91,797
Rose Plaza West
Naperville, IL 1,382,000 989,499 1,790,417 -
Schaumburg Promenade
Schaumburg, IL 9,650,000 6,562,000 12,763,506 (45,121)
Rose Plaza East
Naperville, IL 1,085,700 825,132 1,380,144 -
Joliet Commons Ph II
Joliet, IL 2,400,000 810,798 3,998,532 -
Bohl Farm Marketplace
Crystal Lake, IL 7,833,000 5,800,157 9,888,134 -
Community Centers
-----------------
Lansing Square
Lansing, IL 8,150,000 4,075,000 12,179,383 878,357
Maple Park Place
Bolingbrook, IL 7,650,000 3,665,909 11,669,428 526,874
Rivertree Court
Vernon Hills, IL 17,547,999 8,651,875 22,963,475 262,113
Naper West
Naperville, IL 7,695,199 5,335,000 9,611,971 (158,606)
Woodfield Plaza
Schaumburg, IL 9,600,000 4,612,277 15,160,000 (682,587)
Lake Park Plaza
Michigan City, IN 6,489,618 3,252,861 9,208,072 859,963
Chestnut Court
Darien, IL 8,618,623 5,719,982 10,350,084 161,429
Bergen Plaza
Oakdale, MN 9,141,896 5,346,781 11,700,498 378,940
Fairview Heights Plaza
Fairview Heights, IL 5,637,000 2,350,493 8,914,458 5,500
Woodfield Commons E/W
Schaumburg, IL 13,500,000 8,352,858 18,336,997 651,961
Gross amount at which carried
at end of period(B)
---------------------------------------------------------------
Date
Land Buildings Accumulated Con-
and and Total Depreciation struct- Date
Improvements improvements (D) (E) ed Acq
---------------- --------------- ------------- ------------ ------- ------
Maple Grove Retail
Maple Grove, MN 2,172,777 5,758,017 7,930,794 311,246 1998 09/99
Shingle Creek
Brooklyn Center, MN 1,228,197 2,353,357 3,581,554 138,978 1986 09/99
Rose Plaza West
Naperville, IL 989,499 1,790,417 2,779,916 88,820 1997 09/99
Schaumburg Promenade
Schaumburg, IL 6,562,000 12,718,385 19,280,385 478,558 1999 12/99
Rose Plaza East
Naperville, IL 825,132 1,380,144 2,205,276 54,831 1999 01/00
Joliet Commons Ph II
Joliet, IL 810,798 3,998,532 4,809,330 132,007 1999 02/00
Bohl Farm Marketplace
Crystal Lake, IL 5,800,157 9,888,134 15,688,291 29,168 2000 12/00
Community Centers
-----------------
Lansing Square
Lansing, IL 4,075,000 13,057,740 17,132,740 1,694,767 1991 12/96
Maple Park Place
Bolingbrook, IL 3,665,909 12,196,302 15,862,211 1,790,507 1992 01/97
Rivertree Court
Vernon Hills, IL 8,651,875 23,225,588 31,877,463 2,846,771 1988 07/97
Naper West
Naperville, IL 5,335,000 9,453,365 14,788,365 1,070,467 1985 12/97
Woodfield Plaza
Schaumburg, IL 4,612,277 14,477,413 19,089,690 1,580,329 1992 01/98
Lake Park Plaza
Michigan City, IN 3,252,861 10,068,035 13,320,896 1,000,129 1990 02/98
Chestnut Court
Darien, IL 5,719,982 10,511,513 16,231,495 1,058,044 1987 03/98
Bergen Plaza
Oakdale, MN 5,346,781 12,079,438 17,426,219 1,168,306 1978 04/98
Fairview Heights Plaza
Fairview Heights, IL 2,350,493 8,919,958 11,270,451 728,160 1991 08/98
Woodfield Commons E/W
Schaumburg, IL 8,352,858 18,988,958 27,341,816 1,553,203 1997 10/98
60
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost
(A)
----------------------------
Buildings
And Adjustments
Encumbrance Land improvements To Basis (C)
------------- ------------ -------------- ------------
Joliet Commons
Joliet, IL $ 14,318,117 4,088,806 15,684,488 (92,292)
Springboro Plaza
Springboro, OH 5,161,000 1,079,108 8,240,455 -
Park Center Plaza
Tinley Park, IL 7,337,000 5,363,000 9,633,491 (750,323)
Woodland Commons
Buffalo Grove, IL 10,734,710 5,337,727 15,410,472 336,344
Randall Square
Geneva, IL - 7,640,665 19,745,173 (16,512)
Riverdale Commons
Coon Rapids, MN 9,752,000 4,324,439 15,131,353 11,687
Quarry Retail
Minneapolis, MN 15,670,000 7,761,542 23,603,421 898
Pine Tree Plaza
Janesville, WI - 2,889,136 15,644,108 (228,273)
Chatham Ridge
Chicago, IL 9,737,620 4,089,800 15,455,577 356,149
--------------- ------------- --------------- -------------
Total $ 467,766,173 283,182,798 697,480,282 10,985,507
=============== ============= =============== =============
Gross amount at which carried
at end of period(B)
---------------------------------------------------------------
Date
Land Buildings Accumulated Con-
and and Total Depreciation struct- Date
Improvements improvements (D) (E) ed Acq
---------------- --------------- ------------- ------------ ------- ------
Joliet Commons
Joliet, IL 4,088,806 15,592,196 19,681,002 1,394,650 1995 10/98
Springboro Plaza
Springboro, OH 1,079,108 8,240,455 9,319,563 613,055 1992 11/98
Park Center Plaza
Tinley Park, IL 5,363,000 8,883,168 14,246,168 758,239 1988 12/98
Woodland Commons
Buffalo Grove, IL 5,337,727 15,746,816 21,084,543 1,072,931 1991 02/99
Randall Square
Geneva, IL 7,640,665 19,728,661 27,369,326 1,212,015 1999 05/99
Riverdale Commons
Coon Rapids, MN 4,324,439 15,143,040 19,467,479 782,671 1998 09/99
Quarry Retail
Minneapolis, MN 7,761,542 23,604,319 31,365,861 1,215,079 1997 09/99
Pine Tree Plaza
Janesville, WI 2,889,136 15,415,835 18,304,971 745,523 1998 10/99
Chatham Ridge
Chicago, IL 4,089,800 15,811,726 19,901,526 513,818 1999 02/00
----------------- --------------- -------------- -------------
Total 283,182,798 708,465,789 991,648,587 63,393,406
================= =============== ============== =============
61
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2000, 1999 and 1998
Notes:
(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) The aggregate cost of real estate owned at December 31, 2000 and 1999 for
federal income tax purposes was approximately $880,350,000 and
$824,300,000, unaudited, respectively.
(C) Adjustments to basis includes additions to investment properties net of
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. GAAP requires that as these payments are
received, they be recorded as a reduction in the purchase price of the
investment properties rather than as rental income.
(D) Reconciliation of real estate owned:
2000 1999 1998
--------------- ------------- -------------
Balance at beginning of year $ 943,106,944 645,979,867 276,310,838
Purchases of property 45,169,948 294,537,006 368,364,949
Additions 5,488,050 5,893,566 3,285,854
Sales - (1,117,665) -
Payments received under
master leases (1,378,872) (2,185,830) (1,981,774)
--------------- ------------- -------------
Balance at end of year $ 992,386,070 943,106,944 645,979,867
=============== ============= =============
(E) Reconciliation of accumulated depreciation:
Balance at beginning of year $ 37,424,871 17,161,998 5,665,483
Depreciation expense 25,989,147 20,262,873 11,496,515
--------------- ------------- -------------
Balance at end of year $ 63,414,018 37,424,871 17,161,998
=============== ============= =============
62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting or financial disclosure during 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information which appears under the captions "Proposal No. 1 - Election of
Directors" and Executive Officers" in the Company's definitive proxy statement
for its 2001 Annual Meeting of Stockholders is incorporated by reference into
this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information which appears under the caption "Executive Compensation: in the
Company's definitive proxy statement for its 2001 Annual Meeting of Stockholders
is incorporated by reference into this Item 11: provided, however, that the
Report of the Compensation Committee of the Board of Directors on Executive
Compensation set forth therein shall not be incorporated by reference herein, in
any of the Company's previous filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, or in any of the
Company's future filings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information which appears under the captions "Certain Relationships and
Related Transactions" and "Common Stock Ownership of Management" in the
Company's definitive proxy statement for its 2001 Annual Meeting of Stockholders
is incorporated by reference into this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information which appears under the caption "Certain Relationships and
Related Transactions" in the Company's definitive proxy statement for its 2001
Annual Meeting of Stockholders is incorporated by reference into this Item 13.
63
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed:
(1) The consolidated financial statements of the Company are set forth
in the report in Item 8.
(2) Financial Statement Schedules:
Financial statement schedule for the year ended December 31, 2000 is
submitted herewith.
Page
Real Estate and Accumulated Depreciation (Schedule III)....... 55
Schedules not filed:
All schedules other than those indicated in the index have been
omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements
or related notes.
(3) Exhibits: Required by the Securities and Exchange Commission
Regulation S-K, Item 601.
(b) Reports on Form 8-K:
None
(c) Exhibits: Required by the Securities and Exchange Commission Regulation
S-K, Item 601.
The following exhibits are filed as part of this document or incorporated
herein by reference:
Item No. Description
2.1 Agreement and Plan of Merger by and among the Registrant, Inland
Advisors, Inc., Inland Management Corporation, Inland Real Estate
Investment Corporation, Inland Real Estate Advisory Services,
Inc., The Inland Property Management Group, Inc., Inland
Commercial Property Management, Inc. and The Inland Group, Inc.
dated March 7, 2000 (7)
3.1 Third Articles of Amendment and Restatement of the Registrant
dated July 1, 2000 (8)
3.2 Amended and Restated Bylaws of the Registrant (1)
4.1 Specimen Stock Certificate (2)
10.1 Advisory Agreement between the Registrant and Inland Real Estate
Advisory Services, Inc. dated October 14, 1994 (3)
10.1 (a) Amendment No. 1 to the Advisory Agreement dated October 13,
1995 (5)
10.1 (b) Amendment No. 2 to the Advisory Agreement dated October 13,
1996 (5)
10.1 (c) Amendment No. 3 to the Advisory Agreement effective as of
October 13, 1997 (2)
10.1 (d) Amendment No. 4 to the Advisory Agreement dated March 27, 1998
(6)
64
10.1 (e) Amendment No. 5 to the Advisory Agreement dated June 30, 1998
(6)
10.2 Form of Management Agreement between the Registrant and Inland
Commercial Property Management, Inc. (4)
10.3 Amended and Restated Independent Director Stock Option Plan (3)
10.4 Consulting Agreement between the Registrant and Robert D. Parks
dated July 1, 2000 (8)
10.5 Employment Agreement between the Registrant and Norbert J.
Treonis dated December 14, 2000 (9)
10.6 Separation Agreement between the Registrant and Norbert J.
Treonis dated March 9, 2001 (9)
10.7 [Reserved]
10.8 Employment Agreement between the Registrant and Samuel A.
Orticelli dated December 14, 2000 (9)
10.9 Employment Agreement between the Registrant and Mark E.
Zalatoris dated December 14, 2000 (9)
10.10 Sublease between the Registrant and Inland Real Estate
Investment Corporation dated July 1, 2000 (8)
10.11 Services Agreement between the Registrant and Inland Real Estate
Investment Corporation, Inland Payroll Services, Inc., Inland
Computer Services, Inc., Inland Risk and Insurance Management
Services, Inc., Inland Communications, Inc., Investors Property
Tax Services, Inc. and Inland Office Management, Inc. dated
July 1, 2000 (1)
10.12 Software License Agreement between the Registrant and Inland
Computer Services, Inc. dated July 1, 2000 (1)
10.13 Service Mark and Tradename License Agreement between the
Registrant and The Inland Group, Inc. dated July 1, 2000 (1)
10.14 First Amendment to Sublease between the Registrant and Inland
Real Estate Investment Corporation dated February 27, 2001 (1)
21 Subsidiaries of the Registrant (1)
23 Consent of KPMG LLP dated March 28, 2001 (1)
(1) Filed as part of this document.
(2) Included in the Registrant's Registration Statement on Form S-11
as filed by the Registrant on January 30, 1998.
(3) Included in the Registrant's Registration Statement on Form S-11
(file number 333-6459) as filed by the Registrant on June 20,
1996.
(4) 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.
65
(5) 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 November 1, 1996.
(6) Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-45233) as
filed by the Registrant on April 6, 1998.
(7) Included in the Registrant's Current Report on Form 8-K (File
number 000-28382) as filed by the Registrant on March 21, 2000.
(8) Included in the Registrant's Current Report on Form 8-K (File
number 000-28382) as filed by the Registrant on July 14, 2000.
(9) Included in the Registrant's Current Report on Form 8-K (File
number 000-28382) as filed by the Registrant on March 16, 2001.
(d) Financial Statement Schedules:
None
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INLAND REAL ESTATE CORPORATION
/s/ ROBERT D. PARKS
By: Robert D. Parks
President, Chief Executive Officer
and Chairman of the Board
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ ROBERT D. PARKS /s/ HEIDI N. LAWTON
By: Robert D. Parks By: By: Heidi N. Lawton
President, Chief Executive Officer Director
and Chairman of the Board
Date: March 28, 2001 Date: March 28, 2001
/s/ JOEL D. SIMMONS /s/ ROLAND W. BURRIS
By: Joel D. Simmons By: Roland W. Burris
Director Director
Date: March 28, 2001 Date: March 28, 2001
/s/ G. JOSEPH COSENZA /s/ JOEL G. HERTER
By: G. Joseph Cosenza By: Joel G. Herter
Director Director
Date: March 28, 2001 Date: March 28, 2001
/s/ MARK E. ZALATORIS
By: Mark E. Zalatoris
Senior Vice President, Chief
Financial Officer and Treasurer
Date: March 28, 2001
67
EXHIBIT 3.2
EFFECTIVE JULY, 2000
AMENDED AND RESTATED BYLAWS
OF
INLAND REAL ESTATE CORPORATION
ARTICLE I
OFFICES AND FISCAL YEAR
SECTION 1. REGISTERED OFFICE/AGENT. Inland Real Estate Corporation (the
"Company") shall continuously maintain in the State of Maryland, the Company's
state of incorporation, a registered office and a registered agent whose office
is identical with such registered office and may have other offices within or
without the state. The address of the Company's registered office in the State
of Maryland is 300 East Lombard Street, Baltimore, Maryland 21202. The name of
the Company's registered agent at such address is The Corporation Trust
Incorporated. The Company reserves the power to change its registered agent and
registered office at any time.
SECTION 2. OTHER OFFICES. The Company may also have offices other than its
registered office in the state of Maryland, including its principal executive
offices which may be outside the state of Maryland as the Board of Directors of
the Company (the "Board") may from time to time determine or as the business of
the Company may require.
SECTION 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of the
Company shall begin on January 1 and end on December 31.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders of the
Company ("Stockholders") shall be held not less than 30 days after delivery of
the annual report, but within six months after the end of each fiscal year as
determined by the directors of the Company (the "Directors"), for the purpose of
electing Directors and for the transaction of such other business as may
properly come before the meeting. If the day fixed for the annual meeting shall
be a legal holiday, such meeting shall be held on the next succeeding business
day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the Stockholders may be
called by the chairman of the Board, the president, a majority of the Directors
or a majority of the Independent Directors (as defined in Section 2 of Article
III of these Bylaws) and shall be called by the secretary or
1
another officer of the Company upon written request (which request shall state
the purpose of the meeting and the matters to be acted upon) of Stockholders
holding in the aggregate not less than 10% of the outstanding shares of the
capital stock of the Company ("Shares") entitled to vote at such meeting. Upon
receipt of such a written request, the secretary of the Company shall inform the
Stockholders making the request of the reasonably estimated cost of preparing
and mailing a notice of such meeting; and upon payment of these costs to the
Company, the secretary shall notify each Stockholder entitled to notice of the
meeting not less than fifteen (15) nor more than sixty (60) days prior to the
date of such meeting. Unless requested by the Stockholders entitled to cast a
majority of all the votes entitled to be cast at such meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any special meeting of the Stockholders held during the
preceding 12 months.
SECTION 3. PLACE OF MEETINGS. Each meeting of the Stockholders for the
election of Directors shall be held at the principal executive offices of the
Company unless the Board shall by resolution designate another place for such
meeting. Meetings of Stockholders for any other purpose may be held at such
place, within or without the State of Maryland, and at such time as shall be
determined pursuant to Section 2 of this Article II, and stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
SECTION 4. NOTICE OF MEETINGS. Except as provided in the second sentence of
Section 2 of this Article II, not less than ten (10) nor more than ninety (90)
days before an annual or special meeting of Stockholders, the secretary shall
give to each Stockholder entitled to vote at such meeting and each other
Stockholder entitled to notice of the meeting, a written or printed notice
stating the place, date and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Such notice
may be given by mail by presenting it to a Stockholder personally or by leaving
it at such Stockholder's residence or usual place of business. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the Stockholder at his address as it appears on the
records of the Company. No notice need be given to any person with whom
communication is unlawful, nor shall there be any duty to apply for any permit
or license to give notice to any such person.
SECTION 5. WAIVER OF NOTICE. Anything herein to the contrary
notwithstanding, with respect to any meeting of Stockholders, any Stockholder
who in person or by proxy shall have waived in writing notice of the meeting,
either before or after such meeting, or who shall attend the meeting in person
or by proxy, shall be deemed to have waived notice of such meeting unless such
Stockholder attends for the express purpose of objecting, at the beginning of
the meeting, and does so object to the transaction of any business because the
meeting is not lawfully called or convened.
2
SECTION 6. QUORUM; MANNER OF ACTING AND ORDER OF BUSINESS. Subject to any
other provision of these Bylaws, the Articles of Incorporation of the Company,
as amended (the "Amended Articles") and the Maryland General Corporation Law
("Maryland Law") as to the vote that is required for a specified action, the
presence in person or by proxy of the holders of a majority of the outstanding
Shares entitled to vote at any meeting of Stockholders shall constitute a quorum
for the transaction of business and may, without the necessity for concurrence
by the Directors, vote to elect the Directors. The vote of the holders of a
majority of the Shares entitled to vote, present in person or represented by
proxy at a meeting at which a quorum is present, shall be binding on all
Stockholders, unless the vote of a greater number or voting by classes is
required by Maryland Law or the Amended Articles or these Bylaws. The
Stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of Stockholders such that less than a quorum is present.
In the absence of a quorum, Stockholders holding a majority of the Shares
present in person or by proxy and entitled to vote, or if no Stockholders are
present, any officer entitled to preside at or act as secretary of the meeting,
may adjourn the meeting to another time and place. Any business which might have
been transacted at the original meeting may be transacted at any adjourned
meeting at which a quorum is present. No notice of an adjourned meeting need be
given if the time and place are announced at the meeting at which the
adjournment is taken except that, if adjournment is for more than 120 days or
if, after the adjournment, a new record date is fixed for the meeting, notice of
the adjourned meeting shall be given pursuant to Section 4 of this Article II.
Meetings of the Stockholders shall be presided over by the chairman of the
Board, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the Board, or in the absence of such designation, by a chairman chosen at the
meeting. The secretary of the Company shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. The order of business at all meetings of the
Stockholders shall be determined by the chairman. The order of business so
determined, however, may be changed by vote of the holders of a majority of the
Shares present in person or represented by proxy at a meeting at which a quorum
is present.
SECTION 7. VOTING; PROXIES. (a) Except as provided in paragraph (b) of this
Section 7 or the Amended Articles, each Stockholder of record on the record
date, as determined pursuant to Section 8 of this Article II of these Bylaws,
shall be entitled to one vote for every Share registered in his name. All
elections of Directors shall be by written ballot or electronic or telephonic
proxies. Each Stockholder entitled to vote at any meeting of Stockholders or to
express consent to or dissent from corporate action in writing without a meeting
(pursuant to Section 13 of this Article II) may authorize another person to act
for him by
3
proxy. No proxy shall be valid after 11 months from its date of execution,
unless the proxy provides for a longer period.
(b) Notwithstanding any other provision in these Bylaws, Subtitle 7 of
Title 3 of Maryland Law (or any successor statute) shall not apply to any
acquisition by any Existing Holder (as defined in the Amended Articles).
SECTION 8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Company may determine the Stockholders entitled to notice of or
to vote at any meeting of Stockholders or any adjournment thereof or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of Shares or for the purpose of any other lawful action, the Board
may fix, in advance, a record date, which shall not be (i) more than ninety (90)
nor less than ten (10) days before the date of such meeting nor (ii) more than
ninety (90) days prior to any other action. If no record date is fixed: (a) the
record date for determining Stockholders entitled to notice of or to vote at a
meeting of Stockholders shall be at the close of business on the day before the
day on which notice is given or, if notice is waived, at the close of business
on the day before the day on which the meeting is held; and (b) the record date
for determining Stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto. A
determination of Stockholders of record entitled to notice of or to vote at a
meeting of Stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
SECTION 9. VOTING OF SHARES OF CERTAIN HOLDERS. Any Shares registered in
the name of a corporation, partnership, limited liability company, trust or
other entity, if entitled to be voted, may be voted by the president, a vice
president, a general partner, manager or trustee thereof, as the case may be, or
by a proxy appointed by any of the foregoing individuals, unless some other
person, who has been appointed to vote such Shares pursuant to a bylaw or a
resolution of the governing board of such corporation or other entity or an
agreement of the partners of the partnership or by the manager of the limited
liability company, presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such Shares. Any trustee or other
fiduciary may vote Shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Company directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding Shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding Shares at any given time.
4
The Directors may adopt by resolution a procedure by which a Stockholder
may certify in writing to the Company that any Shares registered in the name of
the Stockholder are held for the account of a specified person other than the
Stockholder. The resolution shall set forth the class of Stockholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; and any other
provisions with respect to the procedure which the Directors consider necessary
or desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the Stockholder of record of the specified Shares in place of the
Stockholder who makes the certification.
SECTION 10. INSPECTORS OF ELECTION. (a) In advance of any meeting of
Stockholders, the Board may appoint inspectors of election to act at each
meeting of Stockholders and any adjournment thereof. If inspectors of election
are not so appointed, the chairman of the meeting may, and upon the request of
any Stockholder or his proxy shall, appoint inspectors of election at the
meeting. The number of inspectors shall be either one or three. If appointed at
the meeting upon the request of one or more Stockholders or proxies, the vote of
the holders of a majority of Shares present in person or by proxy shall
determine whether one or three inspectors are appointed. In any case, if any
person appointed as an inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the Directors in advance of the
meeting or at the meeting by the person acting as chairman.
(b) The inspector(s) of election shall determine the number of outstanding
Shares, the Shares represented at the meeting and the existence of a quorum,
shall receive votes, ballots, or consents, shall count and tabulate all votes
and shall determine the result; and in connection therewith, the inspector(s)
shall determine the authority, validity and effect of proxies, hear and
determine all challenges and questions, and do such other ministerial acts as
may be proper to conduct the election or vote with fairness to all Stockholders.
If there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. If no inspectors of election are appointed, the secretary shall pass upon
all questions and shall have all other duties specified in this Section 10.
(c) Upon request of the chairman of the meeting or any Stockholder or his
proxy, the inspector(s) of election shall make a report in writing of any
challenge or question or other matter determined by him and shall execute a
certificate of any fact found in connection therewith. Any such report or
certificate shall be filed with the record of the meeting.
5
SECTION 11. REPORTS TO STOCKHOLDERS.
(a) The Directors through the chairman of the Board shall submit to the
Stockholders at or before the annual meeting of Stockholders a report of the
business and operations of the Company during such fiscal year, containing a
balance sheet and a statement of operations of the Company, accompanied by the
certification of an independent certified public accountant, and such further
information as the Directors may determine is required pursuant to any law or
regulation to which the Company is subject or is deemed desirable. Within the
earlier of twenty (20) days after the annual meeting of Stockholders or one
hundred and twenty (120) days after the end of the fiscal year of the Company,
the Directors shall place the annual report on file at the principal office of
the Company and with any governmental agencies as may be required by law and as
the Directors may deem appropriate.
(b) Not later than forty-five (45) days after the end of each of the first
three (3) quarterly periods of each fiscal year, the Directors through the
chairman of the Board shall deliver or cause to be delivered an interim report
to the Stockholders containing unaudited financial statements for such quarter
and for the period from the beginning of the fiscal year to the end of such
quarter, and such further information as the Directors may determine is required
pursuant to any law or regulation to which the Company is subject or is deemed
desirable.
SECTION 12. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The secretary shall
make, at least ten (10) days before every meeting of Stockholders, a complete
list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of Shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, for any purpose germane to the meeting,
during ordinary business hours, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any Stockholder who is
present.
SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at a meeting of Stockholders may be taken without a meeting if a
unanimous consent in writing, setting forth such action, is signed by each
Stockholder entitled to vote on the matter and any other Stockholder entitled to
notice of a meeting of Stockholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the Stockholders.
6
SECTION 14. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board and the proposal of business to be considered by the
Stockholders may be made at an annual meeting of Stockholders: (A) pursuant to
the Company's notice of meeting; (B) by or at the direction of the Board; or (C)
by any Stockholder of the Company who was a Stockholder of record at the time of
giving of notice provided for in this Section 14(a), who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 14(a).
(2) For nominations or other business to be properly brought before an
annual meeting by a Stockholder pursuant to clause (C) of paragraph (a)(1) of
this Section 14, the Stockholder must have given timely notice thereof in
writing to the secretary of the Company. To be timely, a Stockholder's notice
shall be delivered to the secretary at the principal executive offices of the
Company not less than 45 days before the anniversary of the date on which the
Company first mailed its notice of meeting and accompanying proxy materials for
the prior years' annual meeting of Stockholders. Such Stockholder's notice shall
set forth: (i) as to each person whom the Stockholder proposes to nominate for
election or reelection as a Director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected); (ii) as to any other business that the
Stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
Stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the Stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such Stockholder, as they appear on the Company's books, and that
of such beneficial owner, and (y) the class and number of Shares which are owned
beneficially and of record by such beneficial owner and such Stockholder.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 14 to the contrary, in the event that the number of
Directors to be elected to the Board is increased and there is no public
announcement naming all of the nominees for Director or specifying the size of
the increased Board made by the Company at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a Stockholder's notice
required by this Section 14(a) shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the secretary at the principal executive offices of the Company
not later than the close of business on the tenth day following the day on which
such public announcement is first made by the Company.
7
(b) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of Stockholders as shall have been brought before the
meeting pursuant to the Company's notice of meeting. Nominations of persons for
election to the Board may be made at a special meeting of Stockholders at which
Directors are to be elected: (i) pursuant to the Company's notice of meeting;
(ii) by or at the direction of the Board; or (iii) provided that the Board has
determined that Directors shall be elected at such special meeting, by any
Stockholder of the Company who is a Stockholder of record at the time of giving
of notice provided for in this Section 14(b), who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this Section
14(b). In the event the Company calls for a special meeting of Stockholders for
the purpose of electing one or more Directors to the Board, any such Stockholder
may nominate a person or persons (as the case may be) for election to such
position as specified in the Company's notice of meeting, if the Stockholder's
notice required by paragraph (a)(2) of this Section 14 shall be delivered to the
secretary at the principal executive offices of the Company not earlier than the
90th day prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board to be elected at such
meeting.
(c) Access to Records. Any Stockholder and any designated representative
thereof shall be permitted access to all records of the Company at all
reasonable times, and may inspect and copy any of them for purposes specified
below. Inspection of the Company's books and records by a state securities
administrator shall be provided upon reasonable notice and during normal
business hours at the business office of the Company. In addition, an
alphabetical list of names, addresses and business telephone numbers of the
Stockholders of the Company along with the number of Shares held by each of them
(the "Stockholder List") shall be maintained and updated quarterly as part of
the books and records of the Company and shall be available for inspection by
any Stockholder or the Stockholder's designated agent at the business office of
the Company upon the request of the Stockholder. A copy of the Stockholder List
shall be mailed to any Stockholder requesting the Stockholder List within ten
days of the request. The copy of the Stockholder List shall be printed in
alphabetical order, on white paper, and in a readily readable type size (in no
event smaller than 10-point type). The Company may impose a reasonable charge
for expenses incurred in reproducing such list. The permitted purposes for which
a Stockholder may request a copy of the Stockholder List include, without
limitation, matters relating to Stockholders' voting rights under these Amended
Articles and the exercise of Stockholders' rights under federal proxy laws and
regulations. If the Directors neglect or refuse to exhibit, produce or mail a
copy of the Stockholder List as requested in accordance with and as required by
applicable law and these Amended Articles, the Directors shall be liable to any
Stockholder requesting the Stockholder List, for the costs, including reasonable
8
attorneys' fees, incurred by that Stockholder for compelling the production of
the Stockholder List, and for actual damages suffered by any Stockholder by
reason of such refusal or neglect. It shall be a defense to such liability that
the actual purpose and reason for the requests for inspection or for a copy of
the Stockholder List is to secure such list of Stockholders or other information
for the purpose of selling such Stockholder List or copies thereof, or of using
the same for a commercial purpose or other purpose not in the interest of the
applicant as a Stockholder relative to the affairs of the Company. The Company
may require the Stockholder requesting the Stockholder List to represent that
the Stockholder List is not requested for a commercial purpose unrelated to the
Stockholder's interest in the Company. The remedies provided hereunder to
Stockholders requesting copies of the Stockholder List are in addition to, and
shall not in any way limit, other remedies available to Stockholders under
federal law, or the laws of any state.
(d) General. (1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 14 shall be eligible to serve as Directors.
Any business of the Company may be conducted at a meeting of Stockholders
without being specifically designated in the notice required in Section 4 of
Article II. The presiding officer of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in this Section
14 and, if any proposed nomination or business is not in compliance with this
Section 14, to declare that such defective nomination or proposal be
disregarded.
(2) For purposes of this Section 14, "public announcement" shall mean
disclosure in a press release prepared by or on behalf of the Company and
reported by the Dow Jones News Service, Associated Press or comparable news
service or in a document publicly filed by the Company with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 14, a
Stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 14. Nothing in this Section 14 shall be deemed
to affect any rights of Stockholders to request inclusion of proposals in any of
the Company's proxy statements pursuant to Rule 14a-8 under the Exchange Act.
9
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Company shall be
managed by the officers of the Company under the direction of the Board.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of
the Company shall never be less than three, nor more than nine (9), a majority
of which shall at all times be Independent Directors. For purposes of these
Bylaws, a majority of the Directors shall be deemed to be half of the Directors
plus one if there is an even number of Directors, and half of the Directors plus
.5 if there is an odd number of Directors. A majority of Independent Directors
shall be deemed to be half of the Independent Directors plus one if there is an
even number of Independent Directors, and half of the Independent Directors plus
.5 if there is an odd number of Independent Directors. Also, for purposes of
these Bylaws, a Director shall be deemed to be an Independent Director only if
he or she: (i) is not affiliated directly or indirectly, with The Inland Group,
Inc. ("TIGI") or any of its affiliates whether by ownership of, ownership
interest in, employment by, any material business or professional relationship
with, or as an officer or director of TIGI or any of its affiliates; (ii) does
not serve as a director for more than two other REITS organized by TIGI or any
of its affiliates; (iii) performs no other services for the Company, except as a
Director; and (iv) owns not more than 10% of the issued and outstanding Shares
of the Company, whether directly or indirectly, unless this restriction is
waived by a majority of the other Independent Directors. An indirect
relationship shall include circumstances in which a member of the immediate
family of a Director has one of the foregoing relationships with TIGI or the
Company as the case may be. For purposes of determining whether or not a
business or professional relationship is material, the gross revenue derived by
the prospective Independent Director from TIGI or its affiliates shall be deemed
material per se if its exceeds five percent (5%) of the prospective Independent
Director's: (i) annual gross revenue, derived from all sources, during either of
the last two years; or (ii) net worth, on a fair market value basis. At any
regular meeting or at any special meeting called for that purpose, a majority of
the entire Board may increase or decrease the number of Directors. The tenure of
office of a Director shall not be affected by any decrease in the number of
Directors. Each Director will be elected for a one year term and will hold
office for the term for which he or she is elected and until his or her
successor is duly elected and qualified.
SECTION 3. RESIGNATIONS AND REMOVAL. Any Director may resign at any time by
giving written notice to the Board or to the president. The Stockholders may
remove any Director with or without cause in the manner provided in the Amended
Articles.
SECTION 4. MEETINGS. Meetings of the Board may be called by or at the
request of the chairman of the Board, the president, a majority of the
10
Directors or a majority of the Independent Directors. The person or persons
authorized to call meetings of the Board may fix any place as the place for
holding any meeting of the Board called by them. Meetings of the Board may be
held within or outside the State of Maryland.
SECTION 5. BUSINESS OF MEETINGS. Except as otherwise expressly provided in
these Bylaws, any and all business may be transacted at any meeting of the
Board.
SECTION 6. NOTICE OF MEETINGS. Notice of any meeting shall be given to each
Director at his principal place of business: (i) at least two days previous
thereto if delivered by messenger, overnight courier or facsimile; or (ii) at
least five days previous thereto if mailed. Notice of meetings shall be in
writing unless the requirement of a writing is waived in writing, prior to or at
the time of the meeting, by the Director entitled to notice of the meeting.
SECTION 7. ATTENDANCE BY TELEPHONE. Directors may participate in meetings
of the Board by means of conference telephone or similar communications
equipment by means of which all Directors participating in the meeting can hear
and speak to one another, and such participation shall constitute presence in
person at the meeting.
SECTION 8. QUORUM AND MANNER OF ACTING; ADJOURNMENT. Subject to the
following sentence, a majority of the Directors, including a majority of the
Independent Directors, shall constitute a quorum for the transaction of business
at any meeting of the Board and the act of a majority of the Directors present
at any meeting at which a quorum is present shall be the act of the Board. If
less than a majority of such Directors are present at said meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice, and provided further that if, pursuant to the Amended Articles
or these Bylaws, the vote of a majority of Independent Directors is required for
action, a quorum must also include a majority of such group.
SECTION 9. ACTION WITHOUT A MEETING. Any action which could be taken at a
meeting of the Board may be taken without a meeting if all of the Directors
consent to the action in writing and the writing or writings are filed with the
minutes of proceedings of the Board.
SECTION 10. FILLING OF VACANCIES. If for any reason any or all the
Directors cease to be Directors, such event shall not terminate the Company or
affect these Bylaws or the powers of the remaining Directors hereunder (even if
fewer than three Directors remain). If a vacancy in the Board of Directors shall
occur (whether arising because of death, resignation or incapacity of a
Director) the vacancy shall be filled by a majority of the remaining Directors,
at any regular meeting or special meeting called for that purpose, even though
less than a quorum of the Board may exist. Any vacancy in the number of
Directors created
11
as a result of an increase in the number of Directors shall be filled by a
majority of the Directors. Any vacancy in the number of Directors resulting from
the removal of a Director by the Stockholders shall be filled by a majority vote
of the Stockholders. Any Director may resign at any time and may be removed by
the Stockholders owning at least a majority of the outstanding Shares (with or
without cause). Any individual so elected as Director shall hold office for the
unexpired term of the Director he is replacing. With respect to a vacancy
created by the death, resignation, or incapacity of an Independent Director, the
remaining Independent Directors shall appoint a replacement.
SECTION 11. COMPENSATION OF DIRECTORS. The Board shall have the authority
to fix the compensation of Directors, unless otherwise provided in the Amended
Articles or unless such authority has been delegated to an Executive
Compensation Committee of the Board.
SECTION 12. PRESIDING OFFICER. The presiding officer at any meeting of the
Board shall be the chairman of the Board, or in his absence, any other Director
elected chairman by vote of a majority of the Directors present at the meeting.
SECTION 13. COMMITTEES. The Board will designate an Audit Committee
consisting of at least two Independent Directors. The Audit Committee shall
govern itself in accordance with the terms of a charter which it shall adopt.
The Board may establish an Executive Committee consisting of one or more
Directors, and such Executive Committee may also include one or more officers of
the Company. The Executive Committee, to the extent provided by the Board and
otherwise permitted by law, shall have and exercise all of the authority of the
Board in the management of the Company, including making decisions regarding
property acquisitions, leasing, property dispositions, litigation management,
personnel policies and any other aspects of the day-to- day business of the
Company. Such Executive Committee shall keep minutes of its proceedings and
report the same to the Board when required. The Board may discharge or change
the composition of the Executive Committee at any time in its sole discretion.
The Board may establish an Executive Compensation Committee consisting of
one or more Independent Directors, to establish compensation policies and
programs for the Directors and 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, for the Directors and the Company's executive
officers.
12
The Board may establish such other committees as the Directors deem
appropriate and appoint the members thereof. Service on such committees shall be
at the pleasure of the Board, which may by a majority vote taken in accordance
with these Bylaws, increase or decrease committee membership, remove a committee
member and appoint members to fill vacancies in a committee. Any committee of
the Board shall make such reports as required by the Board available to the
entire Board for review and any necessary action by the Board.
Nothing in this Section 13 shall be construed as precluding the Board or
officers from appointing such other committees as they deem necessary and
proper, to aid in the management and operation of the Company's business.
SECTION 14. RELIANCE. Each Director, officer, employee and agent of the
Company shall, in the performance of his duties with respect to the Company, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the
Company, upon an opinion of counsel or upon reports made to the Company by any
of its officers or employees, accountants, appraisers or other experts or
consultants selected by the Board or officers of the Company, regardless of
whether such counsel or expert may also be a Director.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Company may consist of the
president, one or more vice presidents (the number thereof to be determined by
the Board), the secretary, the treasurer and such assistant secretaries and
assistant treasurers or any other officers thereunto authorized or elected by
the Board. Any two or more offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Company shall
be elected by the Board at their first meeting and thereafter at any subsequent
meeting and shall hold their offices for such term as determined by the Board.
Each officer shall hold office until his successor is duly elected and
qualified, or until his death or disability, or until he resigns or is removed
from his duties in the manner hereinafter provided.
SECTION 3. REMOVAL AND RESIGNATION. Any officer may be removed, either with
or without cause, by a majority of the Directors then in office, at any meeting
of the Board. Any officer may resign at any time by giving written notice to the
Company. Any such resignation shall take effect at the date of the receipt of
such notice or at any later time specified therein.
13
SECTION 4. VACANCIES. A vacancy in any office because of death, resignation
or removal or any other cause may be filled for the unexpired portion of the
term by the Board.
SECTION 5. CHAIRMAN OF THE BOARD. The chairman of the Board shall preside
at all meetings of the Board, and at all stockholders' meetings, whether annual
or special, at which he is present and shall exercise such other powers and
perform such other duties as the Board may from time to time assign to him or as
may be prescribed by these Bylaws. The chairman may execute for the Company
certificates for its shares and he may accomplish such execution either under or
without the seal of the Company, either individually or with the secretary, any
assistant secretary or any officer thereunto authorized by the Board, according
to the requirements of applicable law. The chairman shall also communicate with
Stockholders regarding the operations of the Company as provided in Section 11
of Article II of these Bylaws or as otherwise deemed necessary by the Board.
SECTION 6. PRESIDENT. The president shall be the chief executive officer of
the Company. Subject to the direction and control of the Board, the president
shall be in charge of the business of the Company; he shall see that the
resolutions and directions of the Board or its committees are carried into
effect, except in those instances in which that responsibility is specifically
assigned to some other person by the Board; and in general, he shall discharge
all duties incident to the office of president and such other duties as may be
prescribed by the Board from time to time. The president may execute for the
Company, certificates for its shares, and any contracts, deeds, mortgages, bonds
or other instruments which the Board has authorized to be executed, and he may
accomplish such execution either under or without the seal of the Company, or
either individually or with the secretary, any assistant secretary or any other
officer thereunto authorized by the Board, according to the requirements of the
form of the instrument. He may vote all securities which the Company is entitled
to vote, except as and to the extent such authority shall be vested in a
different officer or agent of the Company by the Board. The president shall fix
the compensation of all employees of the Company other than the Company's
executive officers (which shall be set as provided in Section 13 of Article III
of these Bylaws).
SECTION 7. VICE PRESIDENT. The vice president (or in the event there be
more than one vice president, each of the vice presidents), if one shall be
elected, shall assist the president in the discharge of his duties, as the
president may direct, and shall perform such other duties as from time to time
may be assigned to him by the president or by the Board. In the absence of the
president or in the event of his inability or refusal to act, the vice president
(or in the event there be more than one vice president, the vice presidents in
the order designated by the Board, or in the absence of any designation, then in
the order of seniority of tenure as vice president) shall perform the duties of
the president,
14
and when so acting, shall have the powers of and be subject to all the
restrictions upon the president. The vice president (or each of them if there
are more than one) may execute for the Company, certificates for its shares and
any contracts, deeds, mortgages, bonds or other instruments which the Board has
authorized to be executed, and he may accomplish such execution either under or
without the seal of the Company, and either individually or with the secretary,
any assistant secretary or any other officer thereunto authorized by the Board,
according to the requirements of the form of the instrument or applicable law.
If there is more than one vice president, the president may identify the
seniority of the vice presidents with designations as follows, the first having
the highest seniority and seniority declining in order as named: executive vice
president, vice president and assistant vice president.
SECTION 8. TREASURER. The treasurer, if any, shall be the chief accounting
and financial officer of the Company. The treasurer shall: (i) have charge of
and be responsible for the maintenance of the adequate books and records for the
Company; (ii) have charge and custody of all funds and securities of the
Company, and be responsible therefor and for the receipt and disbursement
thereof; and (iii) perform all the duties incident to the office of treasurer
and such other duties as from time to time may be assigned to him by the
president or by the Board. If required by the Board, the treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board may determine.
SECTION 9. SECRETARY. The secretary shall: (i) record the minutes of the
Stockholders and of the Board of Directors' meetings in one or more books
provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (iii) be
custodian of the corporate books and records and of the seal of the Company;
(iv) keep a register of the post-office address of each Stockholder which shall
be furnished to the secretary by such Stockholder; (v) sign with the chairman of
the Board or the president or a vice president or any other officer thereunto
authorized by the Board, certificates for the Shares, the issue of which shall
have been authorized by the Board, and any contracts, deeds, mortgages, bonds or
other instruments which the Board has authorized to be executed, according to
the requirements of the form of the instrument or applicable law, except when a
different mode of execution is expressly prescribed by the Board or these
Bylaws; (vi) have general charge of the stock transfer books of the Company; and
(vii) perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to him by the president or by the
Board.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the Board. When the secretary is unavailable, any assistant
secretary may sign with the president, or a vice president, or any other officer
thereunto authorized by the Board, any
15
contracts, deeds, mortgages, bonds or other instruments according to the
requirements of the form of the instrument or applicable law, except when a
different mode of execution is expressly prescribed by the Board or these
Bylaws. The assistant treasurers shall if required by the Board, give bonds for
the faithful discharge of their duties in such sums and with such sureties as
the Board shall determine.
SECTION 11. SALARIES. The salaries and other compensation of the executive
officers shall be fixed from time to time by the Board (or an appropriately
designated committee of the Board) and no officer shall be prevented from
receiving such salary or other compensation by reason of the fact that he is
also a Director of the Company.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. Subject to Article III, Section 8, the Board may
authorize any officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on behalf of the
Company and such authority may be general or confined to specific instances. The
foregoing sentence shall in no way be deemed to limit the authority of the
president or the Executive Committee in the same.
SECTION 2. LOANS. No loans in excess of ten million dollars shall be
contracted on behalf of the Company and no evidences of indebtedness in excess
of ten million dollars shall be issued in its name, unless authorized by a
resolution of the Board (which may be general or confined to specific
instances.) Loans for less than ten million dollars may be contracted for on
behalf of the Company by a resolution of the Board or by the president or the
Executive Committee.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Company shall be signed by such officer or officers or agent or agents of
the Company and in such manner as shall from time to time be determined by
resolution of the Board or by the president or the Executive Committee.
SECTION 4. DEPOSITS. All funds of the Company not otherwise employed shall
be deposited from time to time to the credit of the Company in such banks, trust
companies or other depositaries as the Board or the president or the Executive
Committee may select.
16
ARTICLE VI
CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 1. STOCK RECORD AND CERTIFICATES. Records shall be kept by or on
behalf of the Company, which shall contain the names and addresses of
Stockholders, the number of Shares held by them, respectively, and the number of
certificates, if any, representing the Shares, and in which there shall be
recorded all transfers of Shares. Every Stockholder shall be entitled to a
certificate signed by the chairman of the Board, or the president or a vice
president, and by the secretary or an assistant secretary of the Company,
certifying the class and number of Shares owned by him in the Company, provided
that any and all signatures on a certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Company with the same effect as if he or it were such officer, transfer
agent or registrar at the date of issue. Each certificate representing Shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets of the Company upon liquidation or which are redeemable at the option
of the Company, shall have a statement of such restriction, limitation,
preference or redemption provision, or a summary thereof, plainly stated on the
certificate. In lieu of such statement or summary, the Company may set forth
upon the face or back of the certificate a statement that the Company will
furnish to any Stockholder, upon request and without charge, a full statement of
such information.
SECTION 2. TRANSFER AGENTS AND REGISTRARS. The Company may serve as the
transfer agent and registrar of the Shares, or the Board may, in its discretion,
appoint one or more responsible banks or trust companies as the Board may deem
advisable, from time to time, to act as transfer agents and registrars of
Shares; and, when such appointments shall have been made, no certificate for
Shares shall be valid until countersigned by one of such transfer agents and
registered by one of such registrars.
SECTION 3. STOCKHOLDERS' ADDRESSES. Every Stockholder or transferee shall
furnish the secretary or a transfer agent with the address to which notice of
meetings and all other notices may be served upon or mailed to such Stockholder
or transferee, and in default thereof, such Stockholder or transferee shall not
be entitled to service or mailing of any such notice.
SECTION 4. LOST CERTIFICATES. In the event a certificate for Shares is
lost, stolen or destroyed, the Board, in its discretion, or any transfer agent
duly authorized by the Board in its discretion, may authorize the issue of a
substitute certificate in place of the certificate so lost, stolen or destroyed.
The Company
17
may require the owner of the lost, stolen or destroyed certificate or his legal
representative to give the Company a bond sufficient to indemnify the Company
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertified Shares.
SECTION 5. DISTRIBUTIONS TO STOCKHOLDERS. (a) To the extent permitted by
Maryland Law and subject to any restrictions contained in the Amended Articles,
the Directors may declare and pay dividends upon the Shares in the manner and
upon the terms and conditions provided by Maryland Law and the Amended Articles.
(b) Before payment of any dividends, there may be set aside out of any
funds of the Company available for dividends such sum or sums as the Board may
from time to time, in its absolute discretion, a reserve fund for contingencies,
for equalizing dividends, for repairing or maintaining any property of the
Company or for such other purpose as the Board shall determine to be in the best
interest of the Company, and the Board may modify or abolish any such reserve in
the manner in which it was created.
SECTION 6. TRANSFERS OF SHARES. Shares of the Company may be transferred by
delivery of the certificates therefor, accompanied either by an assignment in
writing on the back of the certificates, or by written power of attorney to
sell, assign and transfer the same, signed by the record holder thereof; but no
transfer shall affect the right of the Company to pay any distribution upon the
Shares to the holder of record thereof, or to treat the holder of record as the
holder in fact thereof for all purposes, and no transfer shall be valid, except
between the parties thereto, until such transfer shall have been made upon the
books of the Company.
SECTION 7. REPURCHASE OF SHARES ON OPEN MARKET. The Company may purchase
its Shares on the open market and invest its assets in its own Shares, provided
that in each case the Board shall have consented to such action.
18
ARTICLE VII
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION. The Company shall, to the fullest extent
permitted by Maryland statutory or decisional law, as amended or interpreted
and, without limiting the generality of the foregoing, in accordance with
Section 2-418 of the Maryland Law, indemnify and pay or reimburse reasonable
expenses to any Director, officer, employee or agent of the Company (each an
"Indemnified Party") provided, that: (i) the Indemnified Party determined in
good faith, that the course of conduct which caused the loss or liability was in
the best interest of the Company; (ii) the Indemnified Party was acting on
behalf of or performing services on the part of the Company; (iii) such
liability or loss was not the result of negligence or misconduct on the part of
the Indemnified Party, except that in the event the Indemnified Party is or was
an Independent Director, such liability or loss shall not have been the result
of gross negligence or wilful 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 any Director, officer, employee or, agent
of the Company for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnified Party; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular Indemnified Party; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering their
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of any state securities
regulatory authority in which securities of the Company were offered 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 in writing to repay the advanced funds to the Company, together with
the applicable legal rate of interest thereon, in cases in which such party is
found not to be entitled to indemnification.
19
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or the Amended Articles
inconsistent with this Article VII, shall apply to or affect in any respect the
applicability of the preceding paragraphs with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
SECTION 2. INDEMNIFICATION INSURANCE. The Company shall have the power to
purchase and maintain insurance on behalf of an Indemnified Party against any
liability asserted which was incurred in any such capacity with the Company, or
arising out of such status; provided, however, that the Company shall not incur
the costs of any liability insurance which insures any person against liability
for which he, she or it could not be indemnified under the provisions of this
Article VII. Nothing contained herein shall constitute a waiver by any
Indemnified Party of any right which he, she or it may have against any party
under federal or state securities laws.
ARTICLE VIII
SEAL
SECTION 1. SEAL. The Board may authorize the adoption of a seal by the
Company. The seal shall have inscribed thereon the name of the Company and the
year of its organization. The Board may authorize one or more duplicate seals
and provide for the custody thereof.
SECTION 2. AFFIXING SEAL. Whenever the Company is required to place its
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Company.
ARTICLE IX
AMENDMENTS
Unless otherwise provided in the Amended Articles, these Bylaws may be
altered, amended or repealed and new Bylaws, not inconsistent with the Amended
Articles or the laws of the State of Maryland or other applicable law, may be
adopted at any properly constituted meeting of the Board by a majority vote of
the Directors present at the meeting, except that in the case of a matter which
requires greater than a majority vote of the Directors, any amendment with
respect to such matter must be approved by a vote of Directors equal to or
greater than the number of votes required under these Bylaws to effectuate the
matter in question; provided, further, that no Bylaw adopted by the Stockholders
may be altered, amended or repealed by the Board if these Bylaws so restrict
alteration, amendment or repeal of these Bylaws adopted by action of the
Stockholders.
20
ARTICLE X
DISSOLUTION
The affirmative vote of a majority of the holders of all of the votes
entitled to be cast on the matter must approve the dissolution of the Company
and the discontinuance of the operations of the Company.
21
EXHIBIT 10.11
SERVICES AGREEMENT
This Services Agreement is made as of the 1st day of July, 2000 by and
among INLAND REAL ESTATE CORPORATION, a Maryland corporation (the "REIT") and
INLAND REAL ESTATE INVESTMENT CORPORATION ("IREIC"), INLAND PAYROLL SERVICES,
INC. ("IPS"), INLAND COMPUTER SERVICES, INC. ("ICS"), INLAND RISK AND INSURANCE
MANAGEMENT SERVICES, INC. ("IRIM"), INLAND COMMUNICATIONS, INC. ("ICOM"),
INVESTORS PROPERTY TAX SERVICES, INC. ("IPTS") and INLAND OFFICE MANAGEMENT,
INC. ("IOM"). (IREIC, IPS, ICS, IRIM, ICOM, IPTS and IOM are referred to herein
collectively as "Service Providers").
RECITALS
A. The REIT is in the business of the ownership, operation and development
of commercial real estate. Concurrently herewith, the REIT has acquired, through
its subsidiaries and pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), all of the stock of Inland Real Estate Advisory Services, Inc. (the
"Advisor") and Inland Commercial Property Management, Inc. ("ICPM"), which were
affiliates of the Service Providers. Pursuant to the Merger Agreement, the
parents of the Advisor and ICPM agreed to make available to the REIT the
services of the Service Providers on the general terms as described herein.
B. IREIC has in the past provided investor relations services to the REIT,
and certain of IREIC's personnel have also provided general administrative and
advisory services to the REIT, and IREIC is willing to continue to provide such
services to the REIT on the terms as contained herein.
C. IPS has in the past provided to the REIT payroll preparation and
management services, employee benefits management services, and human resources
management services; and IPS is willing to continue to provide such services to
the REIT on the terms as contained herein.
D. ICS has in the past provided to the REIT data processing, computer
equipment and support services; and ICS is willing to continue to provide such
services to the REIT on the terms contained herein.
E. IRIM has in the past provided to the REIT insurance consultation and
insurance coverage placement services; and IRIM is willing to continue to
provide such services to the REIT on the terms contained herein.
F. ICOM has in the past provided to the REIT marketing communications
services; and ICOM is willing to continue to provide such services to the REIT
on the terms contained herein.
G. IPTS has in the past provided to the REIT property tax payment and
processing services; and IPTS is willing to continue to provide such services to
the REIT on the terms contained herein.
H. IOM has in the past provided to the REIT office management, including
mail processing services; and IOM is willing to continue to provide such
services to the REIT on the terms contained herein.
THEREFORE, in consideration of the mutual promises and agreements contained
herein, and pursuant to the Merger Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, it
is agreed as follows:
1. IREIC Services
A. IREIC agrees to provide to the REIT all of the services which it
provided to the REIT prior to the closing under the Merger Agreement, including
but not limited to maintenance of investor books and records, issuance of stock
certificates, processing ownership transfers, handling investor communications,
preparation of tax information and property status reports. Such services shall
be provided by IREIC to the REIT only when requested by the REIT, and IREIC
shall have no responsibility for such matters unless and to the extent
specifically requested by the REIT.
B. IREIC shall bill the REIT for the services it provides to the REIT on
the basis of its cost for such services, such cost to be determined as follows:
Each employee of IREIC shall be assigned a "CPH" number, which shall
represent the cost to IREIC on an hourly basis for having such person as an
employee of IREIC. Included in the calculation of the CPH of any employee shall
be such employee's salary, plus a pro-rata allocation of IREIC's overhead
including but not limited to employee benefits, rent, materials, fees, taxes and
any other operating expenses incurred by IREIC in the operation of its business.
Each employee of IREIC shall keep records of the amount of time he or she spends
on matters for the REIT. The amount of time spent by each employee of IREIC on
matters for the REIT shall be multiplied by such employee's CPH, and the
resulting amount shall be billed to the REIT by IREIC not less than quarterly.
Notwithstanding the foregoing, the amount of time spent by senior and middle
level management personnel on REIT matters shall not be billed by IREIC to the
REIT for the first twelve months of the term of this Agreement.
2. IPS Services; ICS Services; IRIM Services; ICOM Services; IPTS Services;
and IOM Services
A. IPS, ICS, IRIM, ICOM, IPTS and IOM agree to provide to the REIT all
of the services which they provided to the REIT prior to the closing under the
Merger Agreement, including but not limited to those services described in the
Recitals to this Agreement. Such services shall be provided by the Service
Providers to the REIT only when requested by the REIT, and the Service Providers
shall have no responsibility for such matters unless and to the extent
specifically requested by the REIT.
B. The Service Providers identified in this Section 2 shall bill the
REIT for the services they provide to the REIT according to the same formula
that IREIC bills the REIT for IREIC's services as described in Section 1A
hereof, except (i) all time spent by all personnel of the Service Providers
identified in this Section 2 shall be billed to the REIT and there shall be no
exclusion for senior or middle level management; and (ii) the services provided
by ICS shall be billed at the rate of $30.00 per hour.
Page -2-
3. Services provided by REIT personnel to the Service Providers or their
affiliates
The parties acknowledge that after the closing under the Merger
Agreement, certain personnel of the REIT may (but shall have no obligation to)
provide services to some or all of the Service Providers or their respective
affiliates. In such event, the Service Providers and their affiliates agree to
reimburse the REIT for the cost to the REIT of such services, to be determined
in the same manner as described in Paragraph 1B hereof for determining the cost
to IREIC of the services performed by its employees for the REIT.
4. All billings made by any of the Service Providers to the REIT or by the
REIT to any of the Service Providers shall be paid within 30 days of receipt.
5. This Agreement shall be for an initial term of twelve months.
Thereafter, this Agreement shall continue in force for as long as the REIT is
leasing space in the same building occupied by the Service Providers and shall
terminate automatically without further action of any of the parties upon
termination of the lease between the REIT and IREIC; provided that in the event
that a party (or group of parties acting in concert), unrelated to the REIT or
any of the Service Providers or their affiliates , acquires twenty five percent
(25%) or more of the outstanding voting securities of the REIT or purchases
substantially all of the assets of the REIT, then any of the Service Providers
shall have the right to terminate this Agreement as it pertains to such party
upon 30 days written notice to the REIT, and also in such event the REIT shall
have the right to terminate this Agreement as it pertains to any of the Service
Providers upon 30 days written notice to such Service Provider.
6. This Agreement may not be assigned by any of the parties hereto without
the prior written consent of the other parties.
7. This Agreement is made at Oak Brook, Illinois and shall be enforced
according to the laws of the State of Illinois.
Page -3-
WITNESS, this Agreement is executed by the parties hereto as of the date
first written above.
INLAND REAL ESTATE CORPORATION
By: /s/ Norbert J. Treonis
-----------------------------------
INLAND REAL ESTATE INVESTMENT
CORPORATION
By: /s/ Brenda G. Gujral
-----------------------------------
INLAND PAYROLL SERVICES, INC.
By: /s/ B. Niemiec White
-----------------------------------
INLAND COMPUTER SERVICES, INC.
By: /s/ R. Kurt Huddleston
-----------------------------------
INLAND RISK AND INSURANCE
MANAGEMENT SERVICES, INC.
By: /s/ Delores H. Friedman
-----------------------------------
INLAND COMMUNICATIONS, INC.
By: /s/ Bella P. Zielinski
-----------------------------------
INVESTORS PROPERTY TAX SERVICES, INC.
By: /s/ Alan F. Kremin
-----------------------------------
INLAND OFFICE MANAGEMENT, INC.
By: /s/ Kathleen L. Mindo
-----------------------------------
Page -4-
EXHIBIT 10.12
SOFTWARE LICENSE AGREEMENT
This Software License Agreement (the "Agreement") is made and entered
into as of the 1st day of July, 2000 ("Effective Date") by and between Inland
Computer Services, Inc. ("Licensor") and Inland Real Estate Corporation
("Licensee").
WHEREAS, Licensor is the owner of the Software described in Attachment
A (the "Software"); and,
WHEREAS, Licensor has used the Software at the request and for the
benefit of Licensee in connection with Licensee's business of acquiring, owning,
operating and disposing of commercial real estate, primarily in the Midwestern
United States and administering investor records and tax reporting for investors
in such business; and,
WHEREAS, Licensee is desirous of using the Software in operating its
business, and Licensor is willing to license such use of the Software, subject
to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and obligations
set forth below, the parties agree as follows:
1. Grant. Subject to the terms and conditions set forth in this
Agreement, Licensor hereby grants and Licensee hereby accepts a royalty-free,
non-transferable (except as provided in Section 3 below), non-exclusive right
and license to use the Software, in object code format only, to provide property
management, accounting and administrative services (the "Services") in
connection with the acquisition ownership, operation and disposition of
commercial real estate (the "Business") located within the continental United
States (the "Territory") and the administering of investor records and tax
reporting for investors in the Business. Licensee shall only be authorized
hereunder to use the Software in connection with the Business in the Territory,
and for no other use or purpose. The license granted hereunder shall not include
any license of or right to use modifications, improvements or upgrades to the
Software developed, acquired or used by Licensor subsequent to the Effective
Date.
2. Term. The license granted hereby shall begin on the Effective Date
and shall continue indefinitely, subject to termination as provided in Section
10 hereof.
3. Sublicenses. Licensee shall have no right to grant sublicenses of
the Software except to an affiliated entity of Licensee engaged in the Business
in the Territory. An "affiliated entity" of Licensee shall be an entity in which
Licensee holds both a voting and equity interest in excess of 50%, and any
sublicense to such an entity ("Sublicensee") must contain provisions (a) no less
protective of Licensor's rights in and to the Software than this Agreement, (b)
prohibiting any Sublicensee from further licensing or sublicensing the use of
the Software, and (c) terminating the sublicense in the event that Licensee's
voting or equity interest in the Sublicensee ceases to be in excess of 50%.
Licensor shall be a necessary party to as well as a third-party beneficiary of
any such sublicense agreement, and any sublicense not executed by Licensor shall
be void and of no effect.
4. Ownership. Subject to the licensed uses granted to Licensee
hereunder, all right, title and interest in and to the Software is and at all
times shall remain the sole and exclusive property of Licensor. All rights not
specifically granted to Licensee hereunder shall remain with Licensor.
5. Software Media and Technical Information. Licensor shall provide
Licensee, at no charge, with (a) the object code version of the Software in CD
or other mutually agreed media form and (b) appropriate technical information,
including manuals, user guides, technical documentation, and other written
materials related to or associated with the Software.
6. Support, Maintenance and Licensee Improvements. Licensee
acknowledges that Licensor will not be obligated to provide any support or
maintenance of any kind with respect to the Software pursuant to this Agreement,
and that Licensee is solely responsible for the ongoing performance of the
Software. Upon request, and solely for purposes of enabling Licensee to maintain
the Software, Licensor may, but is not obligated to, make the source code of the
Software available to Licensee or a third party or parties designated by
Licensee, subject to such limitations and restrictions as Licensor shall, in its
sole discretion, deem necessary or appropriate. Any improvements, modifications
redesigns or changes to the Software made by or on behalf of Licensee, or any
new software developed by or on behalf of Licensee that is based on the Software
(collectively the "Improvements") shall be and remain the property of Licensor,
provided that Licensee (and its permitted sublicensees) shall have the
royalty-free right to use such Improvements during the term of this Agreement.
Licensee shall provide Licensor with appropriate source code, object code and
documentation for any and all such Improvements. Upon request, Licensor may, but
shall not be obligated to, maintain and make Improvements to the Software for
compensation to be agreed upon by License and Licensee.
7. Representations and Warranties of the Licensor. Licensor represents
and warrants that it has all necessary authority to enter into this Agreement
and to grant the rights and license provided herein, and that the execution,
delivery or performance of this Agreement will not violate or cause a default
under any agreement by which the Licensor is bound. Licensor has no knowledge
that the Software or the use thereof infringes the intellectual property rights
of any third party.
8. Representations and Warranties of Licensee. Licensee represents and
warrants that it has all the necessary authority to enter into and perform its
obligations under this Agreement. Licensee represents and warrants that the
execution, delivery or performance of this Agreement will not violate or cause a
default under any agreement by which Licensee is bound.
9. Protection of the Software. In the event that Licensee learns or has
reason to believe that a third party is infringing or threatens to infringe
Licensor's intellectual property rights in the Software, it shall promptly
notify the Licensor, and Licensor shall take such steps to enforce its rights in
the Software against such infringement as Licensee shall determine appropriate,
in its sole and exclusive discretion. Licensee agrees to cooperate with Licensor
and to provide reasonable support to Licensor in such effort.
-2-
10. Termination
10.1 Licensor shall have the right to terminate this Agreement and
revoke the license granted herein upon the occurrence of the following events:
(a) Licensee fails to perform or observe any material
covenant, condition or agreement to be performed or
observed by Licensee hereunder or breaches any
representation or provision contained herein, and
such failure or breach shall continue unremedied for
a period of 30 days after written notice from
Licensor;
(b) the filing of any claim, lien, attachment of or
execution upon a substantial portion of the assets of
Licensee which is not released, expunged or dismissed
prior to 60 days from such filing and which would
have a material adverse effect on the Business;
(c) a general assignment by Licensee of its assets for
the benefit of any creditor; or
(d) the admission in writing by Licensee of its inability
to pay its debts or perform its obligations when due.
10.2 Obligations on Termination. Any termination of this Agreement
shall not impair any other accrued rights or remedies of either Licensor,
Licensee or any Sublicensee. Upon termination of this Agreement, Licensee shall
immediately cease and desist from using the Software and all right, title and
interest that Licensee may have in the Software shall vest in Licensor
immediately and automatically, without the need of further action. The right to
terminate this Agreement shall be exercised by either Licensor or Licensee by
giving the defaulting party prior written notice of its intention to terminate.
11. Indemnification. Licensee shall defend, indemnify, and hold
Licensor harmless from any and all claims, demands, losses, damages or
liabilities incurred by Licensor as a result of any action, suit, proceeding,
demand, assessment or judgment arising out of or in connection with Licensee's
use of the Software.
12. Miscellaneous
12.1 Modification. No modifications or amendments to this Agreement
shall be binding upon the parties unless made in writing and duly executed by
Licensor and Licensee.
12.2 Headings. Section headings contained in this Agreement are
included for convenience only and form no party of this agreement between the
parties.
12.3 Assignment. Licensee shall have no right to assign or
transfer, in any manner, any right or obligation hereunder, without the prior
written consent of Licensor. This Agreement
-3-
shall be binding upon any assignee and, subject to the restrictions on
assignment herein, shall inure to the benefit of the successors and assigns of
each party hereto.
12.4 Waiver. Either party's failure to exercise any right under
this Agreement shall not constitute a waiver of any other terms or conditions of
this Agreement with respect to any other or subsequent breach, nor a waiver by
such party of its right at any time thereafter to require exact and strict
compliance with the terms of this Agreement.
12.5 Costs and Attorney's Fees. In the event of any dispute between
the parties hereto with respect to this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and other costs and expenses incurred in
resolving such dispute in addition to such other relief as such party may be
entitled to in law or equity.
12.6 Notice. Any notice required or permitted to be made or given
to either party hereto pursuant to this Agreement shall be sufficiently made or
given on the date received or three days after mailing if in writing and sent to
such party by telecopy, overnight certified mail, postage prepaid, addressed to
it at its address set forth below, or to such other address as it shall
designate by written notice given to the other party:
Licensor: Inland Computer Services, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Kurt Huddleston
With copy to: Robert H. Baum
Inland Real Estate Group, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Licensee: Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Samuel A. Orticelli
12.7 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Illinois.
12.8 Severability. If any provision of this Agreement is declared
void, illegal or unenforceable, the remainder of the Agreement shall continue in
full force and effect as if the offending provision were not contained herein.
12.9 Further Assurance. Each party to this Agreement agrees to
execute and deliver all documents and to perform all further acts and to take
any and all further steps that may be reasonably necessary to carry out the
provisions of this Agreement and the transactions contemplated hereby.
-4-
12.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as the date first written above.
INLAND COMPUTER SERVICES, INC. INLAND REAL ESTATE CORPORATION
By: /s/ R. Kurt Huddleston By: /s/ Norbert Treonis
-------------------------- --------------------------
Title: President Title: President and CEO
----------------------- -----------------------
-5-
EXHIBIT 10.13
SERVICE MARK AND TRADENAME LICENSE AGREEMENT
This Service Mark and Tradename License Agreement (the "Agreement") is
made and entered into as of the 1st day of July, 2000 ("Effective Date") by and
between The Inland Group, Inc. ("Licensor") and Inland Real Estate Corporation
("Licensee").
WHEREAS, Licensor is the owner of the logo shown in Attachment A and
the tradename "Inland" with respect to real estate activities (collectively the
"Marks"); and,
WHEREAS, Licensor is the owner of the registered service mark shown in
Attachment B ("Inland and Design") for real estate services; and,
WHEREAS, Licensor, through its affiliate, Inland Real Estate Advisory
Services, Inc., has licensed the Marks to Licensee for use as a service mark and
tradename, respectively, in connection with the business of acquiring, owning,
operating and disposing of neighborhood retail centers and community centers,
primarily in the Midwestern United States ("Existing License"); and,
WHEREAS, Licensor and Licensee are contemporaneously entering into a
transaction, part of which includes (a) Licensee acquiring Inland Real Estate
Advisory Services, Inc. and Inland Commercial Property Management, Inc. from
affiliates of Licensor, and (b) replacing the Existing License with this
Agreement; and,
WHEREAS, Licensee is desirous of using the Marks in operating its
current business and the acquired businesses, and Licensor is willing to license
such use of the Marks, along with limited use of Inland and Design, all subject
to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and obligations
set forth below, the parties agree as follows:
1. Grant. Subject to the terms and conditions set forth in this
Agreement, Licensor hereby grants and Licensee hereby accepts a royalty-free,
non-transferable license to use (and to sublicense as permitted herein) the
Marks and the Inland and Design service mark as permitted herein in connection
with the business of acquiring, owning, operating, managing and disposing of
neighborhood retail centers and community centers (the "Business") in the
continental United States (the "Territory"). The license to use the logo shall
be exclusive. The license to use the tradename "Inland" shall be non-exclusive.
However, during the term of this Agreement, neither Licensor nor any of its
affiliates shall use the tradename "Inland" or any name which includes or
incorporates the name "Inland" primarily in a business that is substantially
similar to the Business, and Licensor shall not license any such names to any
party that is engaged primarily in a business that is substantially similar to
the Business and conducted within the Territory, but the foregoing restriction
is subject to the following exceptions:
1
A. Inland Retail Real Estate Trust, Inc. ("IRRETI"), a real estate
investment trust sponsored by an affiliate of Licensor, shall have the right to
engage in a business substantially similar to the Business within the geographic
area currently permitted under its charter using its current name and logo.
B. On or at any time after July 1, 2002, Licensor and/or any of its
affiliates may use the tradename "Inland" or any name which includes or
incorporates the name "Inland", and Licensor and/or any of its affiliates may
license any such names to any party that is engaged primarily in a business that
is substantially similar to the Business, which business is being conducted in a
separate and distinct market within the Territory, provided that Licensee is not
doing business in such market at the time of such use or licensing by Licensor
or its affiliate. For purposes of this exception, the term "market" shall mean a
distinct geographical area within the Territory in which Licensee would not
directly compete for tenants with owners or managers of commercial real estate
located in any other geographical area within the Territory.
2. Term. The license granted hereby shall begin on the Effective Date and
shall continue thereafter indefinitely, subject to termination as provided in
Sections 11 and 12 hereof.
3. Sublicenses. Licensee shall have no right to grant sublicenses of the
Marks, except to an affiliated entity of Licensee engaged in the Business in the
Territory. An "affiliated entity" of Licensee shall be an entity in which
Licensee holds both a voting and equity interest in excess of 50%, and any
sublicense to such an entity ("Sublicensee") must contain provisions (a) no less
protective of Licensor's rights in and to the Marks than this Agreement, (b)
prohibiting any Sublicensee from further licensing or sublicensing the use of
the Marks, and (c) terminating the sublicense in the event that Licensee's
voting or equity interest in the Sublicensee ceases to be in excess of 50%.
Licensor shall be a necessary party to, as well as a third-party beneficiary of,
any such sublicense agreement.
4. Ownership. Subject to the licensed uses granted to Licensee and
Sublicensees (if any) hereunder, all right, title and interest in and to the
Marks and each of them are and at all times shall remain the sole and exclusive
property of Licensor. All rights not specifically granted to Licensee hereunder
shall remain with Licensor.
5. Quality Standard. Licensee shall operate and maintain its Business and
perform its services under the Marks in a manner consistent with its current
business standards and procedures, and all of its services shall be performed in
an ethical and workmanlike manner.
6. Business Practices. Licensee shall not engage in, or allow others under
its supervision or control, including but not limited to any Sublicensees, to
engage in, any deceptive, fraudulent or unethical practices of any kind, or
suffer or allow any premises used in the Business, or any commercial real estate
acquired or managed by the Business, to be used for any immoral or illegal
purpose. In order to assure Licensor the ability to protect the goodwill
associated with the Marks and the validity and integrity of the Marks, and in
order to prevent any deception to the public, Licensee
2
agrees to operate the Business in a manner consistent with its current business
standards and practices. In order to assure compliance with these standards and
practices, Licensee shall make available to representatives of Licensor any
information requested by them relating to such use of the Marks, and permit such
representatives to inspect all uses in connection with the Business to which the
Marks are put, as Licensor reasonably considers necessary.
7. Marks Usage. Licensee shall display and use the Marks only in such form
as currently used by Licensee or as Licensor shall reasonably approve in
writing. With respect to the Inland and Design service mark, Licensee's use
shall be limited as follows: (a) the signage currently utilized at shopping
center locations on the Effective Date hereof may remain at each specific
location only, and any replacement, repainting or repair of such signage must
adopt the Marks, and shall not use the Inland and Design service mark, and (b)
Licensee may continue to use its existing supply of brochures and other
marketing materials bearing the Inland and Design service mark, but no reprints
or replenishments may bear the Inland and Design service mark.
8. Representations and Warranties of the Licensor. Licensor represents and
warrants that it has all necessary authority to enter into this Agreement and to
grant the rights and license provided herein, and that the execution, delivery
or performance of this Agreement will not violate or cause a default under any
agreement by which the Licensor is bound. Licensor has no knowledge that the
Marks or the use thereof infringes any trademark, service mark, tradename or
copyright of any third party. Licensor shall use reasonable commercial efforts
to obtain and keep in force a Federal Registration for the Marks.
9. Representations and Warranties of Licensee. Licensee represents and
warrants that it has all the necessary authority to enter into and perform its
obligations under this Agreement. Licensee represents and warrants that the
execution, delivery or performance of this Agreement will not violate or cause a
default under any agreement by which Licensee is bound.
10. Protection of the Marks. Licensee shall ensure that trademark, service
mark, trade name, and proprietary rights notices that are appropriate to
adequately protect the Marks and the Inland and Design service mark are
conspicuously placed on all items used by Licensee bearing the Marks or the
Inland and Design service mark. In the event that Licensee learns of or has
reason to believe that a third party is infringing or threatens to infringe the
Marks and the Inland and Design service mark or any of them, it shall promptly
notify the Licensor, and Licensor shall use reasonable efforts to enforce its
rights in the Marks and/or the Inland and Design service mark, as the case may
be, against such infringement. Licensee agrees to cooperate with Licensor and to
provide reasonable support to Licensor in such effort.
11. Change of Control. In the event that any entity or group acting in
concert (other than an entity or group affiliated with Licensor) acquires a 25%
or greater voting or equity interest in Licensee, directly or indirectly
("Change of Control"), the license granted hereunder shall be terminable by
Licensor upon 90 days written notice to Licensee, provided that Licensor agrees
not to terminate the license upon Licensee's compliance with the following:
(a) The controlling party(ies) of Licensee shall submit a written request
to Licensor for
3
continuation of the License, it being understood and agreed that such
license continuation shall be conditional upon Licensee's continued
conduct of the Business and use of the Marks subsequent to the Change
of Control consistent with the requirements set forth in Section 5, 6
and 7 of this Agreement. If Licensee fails to so meet those
requirements, this License shall terminate in accordance with the
provisions of Section 12 below. In addition, after any Change of
Control, Licensee shall discontinue use of the Inland and Design
service mark.
(b) Any usage of the Marks following the Change of Control shall be
accompanied by a tag line notice (not less than 20% as prominent as
the Mark) stating that "Licensee is not an Affiliate of The Inland
Group , Inc." or other suitable notice prescribed by Licensor.
12. Termination
12.1 Licensor shall have the right to terminate this Agreement and revoke
the license granted herein upon the occurrence of any of the following:
(a) Licensee fails to perform or observe any material covenant, condition
or agreement to be performed or observed by Licensee hereunder or
breaches any representation or provision contained herein, and such
failure or breach shall continue unremedied for a period of thirty
(30) days after written notice from Licensor;
(b) the filing of any claim, lien, attachment of or execution upon a
substantial portion of the assets of Licensee which is not released,
expunged or dismissed prior to the earlier of sixty (60) days from
such filing and which would have a material adverse effect on the
Business;
(c) a general assignment by Licensee of its assets for the benefit of any
creditor;
(d) the admission in writing by Licensee of its inability to pay its debts
or perform its obligations when due;
(e) Licensee discontinues use of one of the Marks for a continuous period
of 12 months or longer, in which case the license granted by this
Agreement shall terminate as to that Mark; but the license granted by
this Agreement shall remain in effect for the other Mark, subject to
this Section 12.1, for so long as Licensee's use of such other Mark is
not discontinued for a continuous period of 12 months or longer;
(f) Following a Change of Control, as defined in Section 11, Licensee
fails to comply with the request, use and display provisions of
Section 11;
(g) Licensee breaches the Quality Standard, Business Practices and Marks
Usage
4
requirements of Sections 5, 6, and 7 of this Agreement provided
Licensee shall have a 30-day period to cure such breach in a manner
reasonably acceptable to Licensor.
12.2 Obligations on Termination. Any termination of this Agreement shall
not impair any other accrued rights or remedies of either Licensor, Licensee or
any Sublicensee. Upon termination of this Agreement, Licensee shall immediately
cease and desist from using the Marks and the Inland and Design and any of them
and all right, title and interest that Licensee may have in the Marks and the
Inland and Design shall vest in Licensor immediately and automatically, without
the need of further action. The right to terminate this Agreement shall be
exercised by any party by giving the defaulting party prior written notice of
its intention to terminate.
13. Indemnification. Licensee shall defend, indemnify, and hold Licensor
harmless from any and all claims, demands, losses, damages or liabilities
incurred by Licensor as a result of any action, suit, proceeding, demand,
assessment or judgment arising out of or in connection with Licensee's use of
the Marks or the Inland and Design or any of them.
14. Miscellaneous.
14.1 Modification. No modifications or amendments to this Agreement shall
be binding upon the parties unless made in writing and duly executed by Licensor
and Licensee.
14.2 Headings. Section headings contained in this Agreement are included
for convenience only and form no party of this agreement between the parties.
14.3 Assignment. Licensee shall have no right to assign or transfer, in any
manner, any right or obligation hereunder, without the prior written consent of
Licensor. This Agreement shall be binding upon any assignee and, subject to the
restrictions on assignment herein, shall inure to the benefit of the successors
and assigns of each party hereto.
14.4 Waiver. Either party's failure to exercise any right under this
Agreement shall not constitute a waiver of any other terms or conditions of this
Agreement with respect to any other or subsequent breach, nor a waiver by such
party of its right at any time thereafter to require exact and strict compliance
with the terms of this Agreement.
14.5 Costs and Attorney's Fees. In the event of any dispute between the
parties hereto with respect to this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and other costs and expenses incurred in
resolving such dispute in addition to such other relief as such party may be
entitled to in law or equity.
14.6 Notice. Any notice required or permitted to be made or given to either
party hereto pursuant to this Agreement shall be sufficiently made or given if
it has been served personally or has been sent by overnight delivery service
addressed to the other party at the address listed below, or to such other
address as shall have been designated by written notice given to the other
party:
5
Licensor: The Inland Group, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Robert H. Baum, Esq.
Licensee: Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Samuel A. Orticelli
The effective date of notice if served personally shall be the date of receipt.
The effective date of notice if served by overnight delivery service shall be
the date following the date of deposit of such notice with the overnight
delivery service.
14.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Illinois.
14.8 Severability. If any provision of this Agreement is declared void,
illegal or unenforceable, the remainder of the Agreement shall continue in full
force and effect as if the offending provision were not contained herein.
14.9 Further Assurance. Each party to this Agreement agrees to execute and
deliver all documents and to perform all further acts and to take any and all
further steps that may be reasonably necessary to carry out the provisions of
this Agreement and the transactions contemplated hereby.
14.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as the date first written above.
THE INLAND GROUP, INC. INLAND REAL ESTATE
CORPORATION
By: /s/Daniel Goodwin By: /s/Mark E. Zalatoris
------------------------ -------------------------
Title: President Title: Senior Vice President
-------------------- ---------------------
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EXHIBIT 10.14
FIRST AMENDMENT TO SUBLEASE
THIS FIRST AMENDMENT TO SUBLEASE ("First Amendment") is made and executed
as of February 27, 2001 between INLAND REAL ESTATE INVESTMENT CORPORATION, a
Delaware corporation ("Sublessor") and INLAND REAL ESTATE CORPORATION, a
Maryland corporation, ("Sublessee").
RECITALS
WHEREAS, Sublessor and Sublessee entered into a Sublease (the "Sublease")
dated June 27, 2000, of approximately 7,438 square feet ("Original Sublet
Premises") contained in the office building located at 2901 Butterfield Road,
Oak Brook, Illinois (the "Premises"); and
WHEREAS, Sublessee desires to amend the Sublease to change the Sublet
Premises to that area identified on Exhibit A attached hereto and made a part
hereof ("New Sublet Premises").
NOW, THEREFORE, for good and valuable consideration the parties hereto
agree as follows:
1. Effective as of the date of execution of this First Amendment,
Sublessee hereby leases from Sublessor the New Sublet Premises.
Following execution of this First Amendment, the Sublet Premises shall
consist of the New Sublet Premises aggregating approximately 9,684
square feet and all Sublessee obligations and covenants contained in
the Sublease shall apply to and include the New Sublet Premises.
Following execution of this First Amendment, all references in the
Sublease to Exhibit A shall now refer to Exhibit A attached hereto and
all references to the Sublet Premises shall mean the New Sublet
Premises.
2. By execution hereof, Sublessee confirms that it has elected to
exercise its option to extend the term of the Sublease commencing on
July 1, 2001 and ending on June 30, 2002.
3. Section 2.01 of the Sublease is modified to provide that commencing on
July 1, 2001 and continuing on the first day of each successive month
to and including June 1, 2002, the Rent as defined in the Sublease
shall be paid in the following amounts:
Prior to July 1, 2001, Sublessee shall continue to be obligated to pay the
monthly Rent of $10,933.86 per month.
1
All references in Section 2.01 to adjustments to the Rent payable by
Sublessee during the Second Renewal Term, Third Renewal Term, Fourth Renewal
Term and Fifth Renewal Term shall include all pass-throughs including, but not
limited to, real estate taxes, insurance and common area expense paid by
Sublessor on a per square foot basis to the lessor under the Prime Lease on the
New Sublet Premises.
4. Section 10.02 of the Sublease is amended to permit Sublessee to
complete alterations to the New Sublet Premises similar in nature and
value to the improvements which were made to the Original Sublet
Premises. All such alterations shall be performed lien-free by
Sublessee, at its sole cost and expense, in a good and workmanlike
manner and shall be expeditiously completed in compliance with all
legal requirements.
5. Except as modified hereby, the Sublease shall remain in full force and
effect in accordance with its terms. All future references to the
Sublease shall mean and include both the Sublease and this First
Amendment.
IN WITNESS WHEREOF, INLAND REAL ESTATE INVESTMENT CORPORATION and INLAND
REAL ESTATE CORPORATION have each caused this First Amendment to Sublease to be
executed all as of the day and year first above written.
INLAND REAL ESTATE INVESTMENT CORPORATION
By: /s/ Brenda Gail Gujral
Its: President
INLAND REAL ESTATE CORPORATION
By: /s/ Norbert J. Treonis
Its: President
2
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Inland Real Estate LB I, LLC, a Delaware limited liability corporation
Inland Real Estate Column I, LLC, an Illinois limited liability corporation
Inland Real Estate BSC, I, LLC, a Delaware limited liability corporation
Inland Ryan, LLC, a Delaware limited liability corporation
Inland Ryan Cliff Lake, LLC, a Delaware limited liability corporation
Inland Real Estate Advisory Services, Inc., an Illinois corporation
Inland Commercial Property Management, Inc., an Illinois corporation
Inland-Merrillville, LLC, a Delaware limited liability corporation
EXHIBIT 23
The Board of Directors
Inland Real Estate Corporation:
We consent to incorporation by reference in the registration statement
(No.333-51318) on Form S-3 of Inland Real Estate Corporation of our report dated
January 26, 2001, except as to note 13, which is as of March 21, 2001, relating
to the consolidated balance sheets of Inland Real Estate Corporation as of
December 31, 2000, and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 2000, and the related financial statement
schedule, which report appears in the December 31, 2000 annual report of Form
10-K of Inland Real Estate Corporation.
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