-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NwDrgsvhNr6zJatPcleW+rBhRG1Jh86+lRVaWcb5F7te+h+kMVFDgWI85DCN1c1M R6JFTjvoNiFzGxmhFuu0MQ== 0001047469-04-028838.txt : 20040915 0001047469-04-028838.hdr.sgml : 20040915 20040915171615 ACCESSION NUMBER: 0001047469-04-028838 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 40 FILED AS OF DATE: 20040915 DATE AS OF CHANGE: 20040915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INLAND WESTERN RETAIL REAL ESTATE TRUST INC CENTRAL INDEX KEY: 0001222840 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 421579325 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 333-103799 FILM NUMBER: 041032280 MAIL ADDRESS: STREET 1: 2901 BUTTERFIELD RD CITY: OAK BROOK STATE: IL ZIP: 60523 POS AM 1 a2143310zposam.txt POS AM As filed with the Securities and Exchange Commission on September 15, 2004 Registration No. 333-103799 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- POST-EFFECTIVE AMENDMENT NO. 5 TO FORM S-11 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (Exact name of registrant as specified in governing instruments) ---------- 2901 BUTTERFIELD ROAD OAK BROOK, ILLINOIS 60523 (630) 218-8000 (Address, including zip code, and telephone number, including, area code of Principal executive offices) ---------- ROBERT H. BAUM, ESQ. VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL THE INLAND GROUP, INC. 2901 BUTTERFIELD ROAD OAK BROOK, ILLINOIS 60523 (630) 218-8000 (Name and address, including zip code, and telephone number, including area code of agent for service) ---------- WITH A COPY TO: DAVID J. KAUFMAN, ESQ. DUANE MORRIS LLP 227 WEST MONROE STREET SUITE 3400 CHICAGO, ILLINOIS 60606 (312) 499-6700 ================================================================================ This Post-Effective Amendment No. 5 consists of the following: 1. Supplement No. 33 dated September 15, 2004 to the Registrant's Prospectus dated September 15, 2003, included herewith, which will be delivered as an unattached document along with the Prospectus dated September 15, 2003. 2. The Registrant's final form of Prospectus dated September 15, 2003, previously filed pursuant to Rule 424(b)(1) on September 15, 2003 and refiled herewith. 3. Part II, included herewith. 4. Signatures, included herewith. SUPPLEMENT NO. 33 DATED SEPTEMBER 15, 2004 TO THE PROSPECTUS DATED SEPTEMBER 15, 2003 OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. We are providing this Supplement No. 33 to you in order to supplement our prospectus. This supplement updates information in the sections of our prospectus noted in the table of contents below. This Supplement No. 33 supplements, modifies or supersedes certain information contained in our prospectus, and prior Supplements No. 1 through 32 (dated October 23, 2003 through September 10, 2004) and must be read in conjunction with our prospectus. TABLE OF CONTENTS
Supplement No. Prospectus Page No. Page No. ----------------------------------- Prospectus Summary 1 6 Risk Factors 5 12 Conflicts of Interest 6 36 Compensation Table 6 40 Prior Performance of Our Affiliates 8 47 Management 27 68 Principal Stockholders 33 85 Investment Objectives and Policies 33 88 Real Property Investments 35 98 Management's Discussion and Analysis of Our Financial Condition and Results of Operations 130 105 Plan of Distribution 149 148 How to Subscribe 150 157 Experts 151 172
PROSPECTUS SUMMARY THE TYPES OF REAL ESTATE THAT WE MAY ACQUIRE AND MANAGE. THE FOURTH PARAGRAPH UNDER THIS SECTION ON "THE TYPES OF REAL ESTATE THAT WE MAY ACQUIRE AND MANAGE", WHICH STARTS ON PAGE 1 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: The geographic focus of our portfolio continues to be western U.S. markets; yet, at the present time, we believe that properties available for sale east of the Mississippi River are offering more favorable investment returns. Our objective continues to be to acquire properties primarily for income as distinguished from primarily for capital gain. As a result, many of our recently acquired properties are located in eastern U.S. markets. However, over the long-term, we expect the portfolio to consist of properties located primarily west of the Mississippi River. Where feasible, we will endeavor to acquire multiple properties within the same major metropolitan markets where the acquisitions result in efficient property management operations with the potential to achieve market dominance. 1 OUR SPONSOR, OUR ADVISOR AND THE INLAND GROUP. THE LAST PARAGRAPH UNDER THIS SECTION ON THE "OUR SPONSOR, OUR ADVISOR AND THE INLAND GROUP" WHICH STARTS ON PAGE 2 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: Our sponsor is Inland Real Estate Investment Corporation, which is owned by The Inland Group, Inc. The Inland Group, together with its subsidiaries and affiliates, is a fully-integrated group of legally and financially separate companies that have been engaged in diverse facets of real estate for over 35 years providing property management, leasing, marketing, acquisition, disposition, development, redevelopment, syndication, renovation, construction, finance and other related services. Inland Western Retail Real Estate Advisory Services, Inc., is a wholly owned subsidiary of our sponsor and is our advisor. Inland Securities Corporation, another affiliate of The Inland Group, is the managing dealer of this offering. Inland Western Management Corp., Inland Northwest Property Management Corp., Inland Southwest Property Management Corp. and Inland Pacific Property Management Corp., our property managers, are entities owned principally by individuals who are affiliates of The Inland Group. The principal executive offices of The Inland Group, our sponsor, and our advisor are located at 2901 Butterfield Road, Oak Brook, Illinois 60523 and their telephone number is (630) 218-8000. The principal executive offices of our property managers are located at 2907 Butterfield Road, Oak Brook, Illinois 60523 and their telephone number is (630) 218-8000. ORGANIZATIONAL CHART THE ORGANIZATIONAL CHART UNDER THIS SECTION; WHICH IS LISTED ON PAGE 3 OF OUR PROSPECTUS IS SUPERCEDED WITH THE FOLLOWING: 2 The following organizational chart depicts the services that affiliates or our sponsor will render to us and our organizational structure. ORGANIZATIONAL CHART ------------------ --------- --------- --------- Daniel L. Goodwin* Robert H. G. Joseph Robert D. Baum* Cosenza* Parks* ------------------ --------- --------- --------- || || || || ==================================================================== || ----------------------- THE INLAND GROUP, INC.* ----------------------- || || ======================================================================================================================= || || || || || || || || || || - --------------------- ------------------------------------------------- ------------------------------ ------------------ || The Inland Services The Inland Property Management Inland Real Inland Real || Group, Inc. Group, Inc. Estate Investment Corporation Estate Transaction || (our sponsor) Group, Inc. || - --------------------- ------------------------------------------------- ------------------------------ ------------------ || || || || || || || ============================================================== || || || || || || || || || || || || || || || || || || || - --------------- ------------------ ------------------ ------------------- ---------------------|| || || Inland Risk and Inland Western Inland Northwest Inland Southwest Inland Pacific || || || Insurance Management Management Property Management Property Management || || || Management Corp. Corp. Corp. Corp. || || || Services, Inc. (property manager) (property manager) (property manager) (property manager) || || || - --------------- ------------------ ------------------ ------------------- ---------------------|| || || | | | | | || || || | | | | | || || || | ============================================================== || || || | | || || || | | || || || | | ======================================================== || || | | || || || || || | | || || || || || | | ----------------- ------------------------------ ------------------ || ---------------------- | | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage | | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation | | (our advisor) Corporation || | | ----------------- ------------------------------ ------------------ || ---------------------- | | | | || || | | | | ======================================== ============ | | | | || || || || || | | | | ----------- ----------- ------------------ ----------- ---------- ------------ | | | Inland Real Inland Real Inland Real Inland Inland Insurance | | | Estate Estate Estate Mortgage Mortgage Services | | | Sales, Inc. Development Acquisitions, Inc. Corporation Servicing ------------ | | | ----------- ----------- ------------------ ----------- Corporation | | | | | | | | ----------- | | | | | | | | | | | | | | | | | | | | | | ----------- | | | | | | | | Real Estate | | | | | ----------------------- | | ----------- | | | | | Property Management and | | | | | | | | Related Services | | | | | | | | ----------------------- | | | | | | | | | | | | | | | | | | | | | | | | | | | ---------------- ----------------- | ---------------- ----------- --------- --------- | | Securities Sales Organization, | Construction and Property Mortgage Mortgage | | Advisory and Real | Development Acquisition Brokerage Loan | | Estate Services | Services Services Services Servicing | | ---------------- ----------------- | ---------------- ----------- --------- --------- | | | | | | | | | | | | | | | | | | | | | | | | | | | -------------------------------------------------------------------------------------------------------------------------------- Inland Western Retail Real Estate Trust, Inc. We will be principally owned by public investors. Ownership is represented by shares of our common stock --------------------------------------------------------------------------------------------------------------------------------
* The four indicated individuals control The Inland Group, Inc. and own substantially all of its stock. Solid lines indicate 100% ownership. Broken lines indicate service. 3 CONFLICTS OF INTEREST THE SECOND BULLET POINT UNDER THIS SECTION UNDER "CONFLICTS OF INTEREST" ON PAGE 5 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: - substantial compensation payable by us to Inland Securities Corporation, Inland Western Retail Real Estate Advisory Services, Inc., Inland Western Management Corp., Inland Northwest Property Management Corp., Inland Southwest Property Management Corp. and Inland Pacific Property Management Corp. for their various services which may not be on market terms and is payable, in most cases, whether or not our stockholders receive distributions; COMPENSATION TO BE PAID TO OUR ADVISOR AND AFFILIATES THE DISCUSSION UNDER THIS SECTION ON THE "ACQUISITION EXPENSES", WHICH STARTS ON PAGE 6 OF OUR PROSPECTUS, SHOULD READ: We will reimburse Inland Real Estate Acquisitions, Inc. for costs incurred, on our behalf, in connection with the acquisition of properties. We will pay an amount, estimated to be up to 0.5% of the total of (1) the gross offering proceeds from the sale of 250,000,000 shares, (2) the gross proceeds from the sale of up to 20,000,000 shares pursuant to the distribution reinvestment programs. The acquisition expenses for any particular property will not exceed 6% of the gross purchase price of the property. THE DISCUSSION UNDER THIS SECTION ON THE "INCENTIVE ADVISORY FEE", WHICH STARTS ON PAGE 7 OF OUR PROSPECTUS, SHOULD READ: After our stockholders have first received a 10% cumulative, non-compounded return and a return of their net investment, an incentive advisory fee equal to 15% on net proceeds from the sale of a property will be paid to our advisor. RISK FACTORS THE LAST SENTENCE OF THE FIRST PARAGRAPH ON PAGE 12, UNDER THIS HEADING, IS MODIFIED TO READ AS FOLLOWS: We will be acquiring properties that are located primarily west of the Mississippi River and single user net lease properties located anywhere in the United States and therefore our geographic diversity will be limited. THE SECOND PARAGRAPH ON PAGE 13, UNDER THIS HEADING, IS DELETED. THE SECOND TO LAST SENTENCE OF THE THIRD PARAGRAPH ON PAGE 19, UNDER THIS HEADING IS MODIFIED TO READ AS FOLLOWS: Our advisor receives fees based on the book value including acquired intangibles of the properties under management. THE FIFTH SENTENCE OF THE FIRST PARAGRAPH ON PAGE 20, UNDER THIS HEADING IS MODIFIED TO READ AS FOLLOWS: Our advisor received fees based on the book value including acquired intangibles of the properties under management. 5 CONFLICTS OF INTEREST THE LAST SENTENCE OF THE FOURTH PARAGRAPH ON PAGE 36, UNDER THIS HEADING, IS MODIFIED TO READ AS FOLLOWS: If Inland Retail Real Estate Trust, Inc., does not purchase the prospective property, it will then be offered to us. THE SIXTH SENTENCE OF THE FIFTH PARAGRAPH ON PAGE 37, UNDER THIS HEADING IS MODIFIED TO READ AS FOLLOWS: Our advisor received fees based on the book value including acquired intangibles of the properties under management. COMPENSATION TABLE THE DISCUSSION UNDER THIS SECTION "NONSUBORDINATED PAYMENTS - OFFERING STAGE" ON THE MARKETING CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE PAID TO THE MANAGING DEALER AND SOLICITING DEALERS, WHICH STARTS ON PAGE 40 OF OUR PROSPECTUS, SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- Marketing contribution and due diligence We will pay an amount equal to 2.5% of The actual amount depends on the expense allowance paid to the managing the gross offering proceeds to the number of shares. If there are no dealer and soliciting dealers. managing dealer, all or a portion of special sales, approximately the which may be passed on to soliciting following amounts will be paid for the dealers, in lieu of reimbursement of marketing contribution and the due specific expenses associated with diligence expense allowance: marketing. We may pay an additional 0.5% of the gross offering proceeds to - $60,000 if we sell the minimum the managing dealer, which may be number of shares; or passed on to the soliciting dealers, for due diligence expenses. We will - $75,000,000 if we sell the not pay the marketing contribution and maximum number of shares. due diligence expense allowance in connection with any special sales, except those receiving volume discounts and those described in "Plan of Distribution - Volume Discounts."
6 THE DISCUSSION UNDER THIS SECTION "SUBORDINATED PAYMENTS - OPERATIONS STAGE" ON THE ADVISOR ASSET MANAGEMENT FEE PAID TO OUR ADVISOR, WHICH STARTS ON PAGE 43 OF OUR PROSPECTUS, SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM DOLLAR RECIPIENT METHOD OF COMPENSATION AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- OPERATIONAL STAGE Advisor asset management fee We pay an annual advisor asset management fee The actual amounts to be payable to our advisor. of not more than 1% of our average assets. received depend upon the sale Our average assets means the average of the price of our properties and, total book value including acquired therefore, cannot be intangibles of our real estate assets plus the determined at the present total value of our loans receivables secured time. If we acquire the by real estate, before reserves for advisor, the advisor asset depreciation or bad debts or other similar management fee will cease. non-cash reserves. We will compute our average assets by taking the average of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our advisor must reimburse us for the following amounts if any: (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: - 2% of our average assets for that fiscal year, or - 25% of our net income for that fiscal year. (2) plus an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% annual return on the net investment of stockholders. Items such as organization and offering expenses, property expenses, interest payments, taxes, non-cash expenditures, the incentive advisory fee and acquisition expenses are excluded from the definition of total operating expenses. See "Management-Our Advisory Agreement" for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed.
7 THE DISCUSSION UNDER THIS SECTION "COMPENSATION TO OFFICERS AND DIRECTORS" ON THE DIRECTOR FEES, WHICH STARTS ON PAGE 45 OF OUR PROSPECTUS SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- Director fees Independent directors receive We will pay the five independent an annual fee of $5,000 directors $25,000 in the aggregate (increasing to $10,000 (increasing to $50,000 effective effective October 1, 2004) October 1, 2004), plus fees for and a fee of $500 for attending meetings. As of June 30, attending each meeting of the 2004 our five independent directors board or one of its were paid fees in the aggregate of committees in person and $350 $69,250. The actual amounts to be for attending a meeting via received for future meetings depends the telephone. Our officers upon the number of meetings and their who are also our directors do attendance and, therefore, cannot be not receive director fees. determined at the present time.
THE DISCUSSION UNDER THIS SECTION ON THE "NONSUBORDINATED PAYMENTS - OPERATIONAL STAGE", WHICH STARTS ON PAGE 41 OF OUR PROSPECTUS, IS MODIFIED AS FOLLOWS: The last entry "Advisor asset management fee" at the bottom of the page is deleted. THE LAST SENTENCE OF THE DISCUSSION ON "ESTIMATED MAXIMUM DOLLAR AMOUNT" UNDER THIS SECTION ON THE "SUBORDINATED PAYMENTS - OPERATIONAL STAGE", WHICH STARTS ON PAGE 43 OF OUR PROSPECTUS, IS MODIFIED AS FOLLOWS: If we acquire the advisor, the advisor asset management fee will cease. PRIOR PERFORMANCE OF OUR AFFILIATES PRIOR INVESTMENT PROGRAMS During the 10-year period ending June 30, 2004, The Inland Group and its affiliates have sponsored two other REITs and 25 real estate exchange private placements, which altogether have raised more than $3,093,000,000 from over 75,000 investors. During that period, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc., the other REITs, have raised over $2,959,000,000 from over 75,000 investors. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives and policies similar to ours and have invested principally in shopping centers that provide sales of convenience goods and personal services to neighboring communities in the Midwest and Southeast areas. However, Inland Real Estate Corporation is now a self-administered REIT and is no longer affiliated with The Inland Group. Our investment objectives and policies are similar to those of several of the other prior investment programs sponsored by our affiliates which have owned and operated retail properties. However, the vast majority of the other investment programs sponsored by our affiliates were dissimilar from our operation in that the prior programs owned apartment properties, pre-development land and whole or partial interests in mortgage loans. The information in this section and in the Prior Performance Tables included in this post-effective amendment as APPENDIX A shows relevant summary information concerning real estate programs sponsored by our affiliates. The purpose is to provide information on the prior performance of these programs so that you may evaluate the experience of the affiliated companies in sponsoring similar programs. The following 8 discussion is intended to briefly summarize the objectives and performance of the prior programs and to disclose any material adverse business developments sustained by them. Past performance is not necessarily indicative of future performance. SUMMARY INFORMATION The table below provides summarized information concerning prior programs sponsored by our affiliates for the 10-year period ending June 30, 2004, and is qualified in its entirety by reference to the introductory discussion above and the detailed information appearing in the Prior Performance Tables in APPENDIX A of this post-effective amendment. YOU SHOULD NOT CONSTRUE INCLUSION OF THE SUCCEEDING TABLES AS IMPLYING IN ANY MANNER THAT WE WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN THE TABLES BECAUSE THE YIELD AND CASH AVAILABLE AND OTHER FACTORS COULD BE SUBSTANTIALLY DIFFERENT FOR OUR PROPERTIES. YOU SHOULD NOTE THAT BY ACQUIRING OUR SHARES, YOU WILL NOT BE ACQUIRING ANY INTERESTS IN ANY PRIOR PROGRAMS. 9
INLAND RETAIL REAL INLAND REAL ESTATE INLAND REAL ESTATE ESTATE TRUST, INC. CORPORATION EXCHANGE PRIVATE REIT REIT PLACEMENT PROGRAM AS OF PROGRAM AS OF OFFERINGS AS OF JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004 -------------------------------------------------------------------- Number of programs sponsored 1 1 25 Aggregate amount raised from investors $ 2,262,634,000 696,827,000 133,628,000 Approximate aggregate number of investors 59,000 16,000 343 Number of properties purchased 271 146 25 Aggregate cost of properties $ 4,016,367,000 1,276,000,000 294,864,000 Number of mortgages/notes 0 0 0 Principal amount of mortgages/notes $ 0 0 0 Principal of properties (based on cost) that were: Commercial-- Retail 90.00% 86.00% 44.82% Single-user retail net-lease 10.00% 14.00% 9.10% Nursing homes 0.00% 0.00% 0.00% Offices 0.00% 0.00% 30.22% Industrial 0.00% 0.00% 15.86% Health clubs 0.00% 0.00% 0.00% Mini-storage 0.00% 0.00% 0.00% Total commercial 100.00% 100.00% 100.0% Multi-family residential 0.00% 0.00% 0.00% Land 0.00% 0.00% 0.00% Percentage of properties (based on cost) that were: Newly constructed (within a year of acquisition) 36.00% 40.00% 60.00% Existing construction 64.00% 60.00% 40.00% Number of properties sold in whole or in part 0 8 0 Number of properties exchanged 0 0 0
Of the programs included in the above table, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives similar to ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. represent approximately 97% of the aggregate amount raised from investors, approximately 99% of the aggregate number of investors, approximately 95% of the properties purchased, and approximately 95% of the aggregate cost of the properties. During the three years prior to June 30, 2004, Inland Real Estate Corporation purchased 24 commercial properties and Inland Retail Real Estate Trust, Inc. purchased 249 commercial properties. Upon written request, you may obtain, without charge, a copy of Table VI filed with the Securities and Exchange Commission in Part II of our post-effective amendment. The table provides more information about these acquisitions. 10 PUBLICLY REGISTERED REITS INLAND REAL ESTATE CORPORATION. Through a total of four public offerings, the last of which was completed in 1999, Inland Real Estate Corporation sold a total of 51,642,397 shares of common stock. In addition, as of June 30, 2004, Inland Real Estate Corporation issued 13,937,881 shares of common stock through its distribution reinvestment program. As of June 30, 2004, Inland Real Estate Corporation repurchased 5,256,435 shares of common stock through its share repurchase program for an aggregate amount of $49,159,202. As a result, Inland Real Estate Corporation has realized total gross offering proceeds of approximately $696,827,000 as of June 30, 2004. On June 9, 2004, Inland Real Estate Corporation listed its shares on the New York Stock Exchange and began trading under the ticker "IRC". Inland Real Estate Corporation's objective is to purchase shopping centers that provide convenience goods, personal services, wearing apparel and hardware and appliances located within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois, and to provide, at a minimum, cash distributions on a quarterly basis and a hedge against inflation through capital appreciation. It may also acquire single-user retail properties throughout the United States. As of June 30, 2004, the properties owned by Inland Real Estate Corporation were generating sufficient cash flow to cover operating expenses plus pay an annual cash distribution of $0.94 per share paid monthly. As of June 30, 2004, Inland Real Estate Corporation owned 138 properties for a total investment of approximately $1,276,000,000. These properties were purchased with proceeds received from the above described offerings of shares of its common stock and financings. As of June 30, 2004, Inland Real Estate Corporation financed approximately $642,783,000 on its properties and had $110,000,000 outstanding through an unsecured line of credit. On July 1, 2000, Inland Real Estate Corporation became a self-administered REIT by completing its acquisition of Inland Real Estate Advisory Service, Inc., its advisor, and Inland Commercial Property Management, Inc., its property manager. The acquisition was accomplished by merging its advisor and its property manager into two wholly owned subsidiaries of Inland Real Estate Corporation. As a result of the merger, Inland Real Estate Corporation issued to our sponsor, the sole shareholder of the advisor, and The Inland Property Management Group, Inc., the sole shareholder of its property manager, an aggregate of 6,181,818 shares of Inland Real Estate Corporation's common stock at $11 per share, or approximately 9.008% of its common stock. INLAND RETAIL REAL ESTATE TRUST, INC. Through a total of three public offerings, the last of which was completed in 2003, Inland Retail Real Estate Trust, Inc. sold a total of 213,699,534 shares of its common stock. In addition, as of June 30, 2004, Inland Retail Real Estate Trust, Inc. issud 16,028,707 shares through its distribution reinvestment program, and has repurchased a total of 2,246,611 shares through the share reinvestment program. As a result, Inland Retail Real Estate Trust Inc. has realized total gross offering proceeds of approximately $2,262,634,000 as of June 30, 2004. Inland Retail Real Estate Trust, Inc.'s objective is to purchase shopping centers east of the Mississippi River in addition to single-user retail properties in locations throughout the United States, and to provide regular cash distributions and a hedge against inflation through capital appreciation. As of June 30, 2004, the properties owned by Inland Retail Real Estate Trust, Inc. were generating sufficient cash flow to cover operating expenses plus pay an annual cash distribution of $.83 per share per annum paid monthly. As of June 30, 2004, Inland Retail Real Estate Trust, Inc. owned 271 properties for a total investment of approximately $4,016,368,000. These properties were purchased with proceeds received 11 from the above described offerings of shares of its common stock and financings. As of June 30, 2004, Inland Retail Real Estate Trust, Inc. financed approximately $2,246,899,000 on its properties. 12 The following table summarizes distributions for each of the publicly registered REITS through June 30,2004: REIT PERFORMANCE Distributions through June 30, 2004
INLAND REAL ESTATE CORPORATION OFFERING COMPLETED 1999 -------------------------------------------------------------------------------------------------- Average Average Annualized Annualized Distribution Distribution for Purchases for Purchases Total Ordinary Non-taxable Capital Gain at $10 per at $11 per Distribution Income Distribution Distribution Share Share ($) ($) * ($) ** ($) *** ($) ($) -------------------------------------------------------------------------------------------------- 1995 736,627 694,213 42,414 - 7.6 N/A 1996 3,704,943 3,093,525 611,418 - 8.1 N/A 1997 13,127,597 9,739,233 3,388,364 - 8.6 N/A 1998 35,443,213 27,015,143 8,428,070 - 8.8 7.9 1999 48,379,621 35,640,732 12,738,889 - 8.9 8.0 2000 52,964,010 40,445,730 12,518,280 - 9.0 8.1 2001 58,791,604 45,754,604 12,662,414 374,586 9.3 8.4 2002 60,090,685 41,579,944 18,315,640 195,101 9.4 8.5 2003 61,165,608 47,254,096 13,577,679 333,833 9.4 8.6 2004 30,897,781 30,897,781 * - 9.4 8.6 ----------------------------------------------------------------- 365,301,689 282,115,001 82,283,168 903,520 =================================================================
INLAND RETAIL REAL ESTATE TRUST, INC. OFFERING COMPLETED 2003 ---------------------------------------------------------------- Average Total Ordinary Non-taxable Annualized Distribution Income Distribution Distribution ($) ($) * ($) ** (%) ---------------------------------------------------------------- 1999 1,396,861 318,484 1,078,377 7.2 2000 6,615,454 3,612,577 3,002,877 7.7 2001 17,491,342 10,538,534 6,952,808 8.0 2002 58,061,491 36,387,136 21,674,355 8.2 2003 160,350,811 97,571,099 62,779,712 8.3 2004 93,266,206 93,266,206 * 8.3 ---------------------------------------------- 337,182,165 241,694,036 95,488,129 ==============================================
ON JUNE 9, 2004 INLAND REAL ESTATE CORPORATION LISTED ITS SHARES ON THE NEW YORK STOCK EXCHANGE AND BEGAN TRADING UNDER THE SYMBOL "IRC." * The breakout between ordinary income and return of capital is finalized on an annual basis after the calendar year end. ** Represents a return of capital for federal income tax purposes. *** Represents a capital gain distribution for federal income tax purposes. 13 PRIVATE PARTNERSHIPS Since our inception and through June 30, 2004, our affiliates have sponsored 514 private placement limited partnerships which have raised more than $524,201,000 from approximately 17,000 investors and invested in properties for an aggregate price of more than $1 billion in cash and notes. Of the 522 properties purchased, 93% have been in Illinois. Approximately 90% of the funds were invested in apartment buildings, 6% in shopping centers, 2% in office buildings and 2% in other properties. Including sales to affiliates, 475 partnerships have sold their original property investments. Officers and employees of our sponsor and its affiliates invested more than $17,000,000 in these private placement limited partnerships. From July 1, 1995 through June 30, 2004, investors in The Inland Group private partnerships have received total distributions in excess of $271,882,700, consisting of cash flow from partnership operations, interest earnings, sales and refinancing proceeds and cash received during the course of property exchanges. Following a proposal by the former corporate general partner, which was an affiliate of The Inland Group, investors in 301 private partnerships voted in 1990 to make our sponsor the corporate general partner for those partnerships. Beginning in December 1993 and continuing into the first quarter of 1994, investors in 101 private limited partnerships for which our sponsor is the general partner received letters from it informing them of the possible opportunity to sell the 66 apartment properties owned by those partnerships to a to-be-formed REIT in which affiliates of our sponsor would receive stock and cash and the limited partners would receive cash. The underwriters of this apartment REIT subsequently advised our sponsor to sell to a third party its management and general partner's interests in those remaining limited partnerships not selling their apartment properties to the apartment REIT. Those not selling their apartment properties constituted approximately 30% of the Inland-sponsored limited partnerships owning apartment buildings. The prospective third-party buyers of our sponsor's interests in the remaining partnerships, however, would make no assurance to support those partnerships financially. As a result, in a March 1994 letter, our sponsor informed investors of its decision not to go forward with the formation of the apartment REIT. Following this decision, two investors filed a complaint in April 1994 in the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on behalf of a class of other unnamed investors, alleging that our sponsor had breached its fiduciary responsibility to those investors whose partnerships would have sold apartment properties to the apartment REIT. The complaint sought an accounting of information regarding the apartment REIT matter, an unspecified amount of damages and the removal of our sponsor as general partner of the partnerships that would have participated in the sale of properties. In August 1994, the court granted our sponsor's motion to dismiss, finding that the plaintiffs lacked standing to bring the case individually. The plaintiffs were granted leave to file an amended complaint. Thereafter, in August 1994, six investors filed an amended complaint, purportedly on behalf of a class of other investors, and derivatively on behalf of six limited partnerships of which our sponsor is the general partner. The derivative counts sought damages from our sponsor for alleged breach of fiduciary duty and breach of contract, and asserted a right to an accounting. Our sponsor filed a motion to dismiss in response to the amended complaint. The suit was dismissed in March 1995 with prejudice. The plaintiffs filed an appeal in April 1996. After the parties briefed the issue, arguments were heard by the Appellate Court in February 1997. In September 1997, the Appellate Court affirmed the trial court decision in favor of our sponsor. 14 Inland Real Estate Investment Corporation is the general partner of twenty-seven private limited partnerships and one public limited partnership that own interests in fifteen buildings that are net leased to Kmart. The fourteen Kmarts owned by the private limited partnerships are all cross collateralized. Relating to the Kmart bankruptcy, the status of the fifteen is as follows: - CATEGORY 1 - The leases of nine of the Kmarts are current and have been accepted by Kmart under their Chapter 11 reorganization plan. - CATEGORY 2 - Kmart assigned its designation rights in one lease to Kohl's. The lease was amended and extended for Kohl's by IREIC, the general partner on behalf of the owners and lender; and Kohl's began paying rent February 12, 2003. - CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and upon emergence from bankruptcy on April 22, 2003, Kmart has rejected the remaining four property leases, one of which is subject to a ground lease to Kimco. Kmart ceased paying rent as of May 1, 2003. IREIC, the General Partner has agreed with the note holders who own the loan to conduct a liquidation of the 14 properties which comprise Categories 1, 2 and 3. The Category 2 property, which is leased by Kohl's, was sold on February 19, 2004. As of June 30, 2004, three of the Category 1 K-Mart properties have been sold. Offers have been received on the remaining six, five of which are under contract. One of the Category 3 properties has been sold, one is under contract and two have offers pending as of June 30, 2004. - CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart rejected the lease for the property owned by the public limited partnership and ceased paying rent as of June 29, 2002. The general partner plans to either re-tenant or sell this facility. 1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM In March of 2001, Inland Real Estate Exchange Corporation (IREX) was established as a subsidiary of Inland Real Estate Investment Corporation. The main objective of IREX is to provide replacement properties for people wishing to complete an IRS Section 1031 real estate exchange. Through June 30, 2004, IREX offered the sale of twenty-five properties with a total property value of $294,474,000. LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a Delaware corporation and an affiliate of IREX acquired The Landings, a multi-tenant shopping center located in Sarasota, Florida in December 1997 for $9,800,000. In August 2001, Inland Southern Acquisitions, Inc. contributed 100% of its interest in the property into Landings of Sarasota DBT, a Delaware business trust, refinanced the property with a loan of $8,000,000 from Parkway Bank & Trust Co., an Illinois banking corporation, and began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000 in equity investment. $200,000 of the offering proceeds were allocated to a property reserve account. The offering was completed in May 2002 when the maximum offering amount was raised. SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a newly constructed, single-tenant office building in Davenport, Iowa in December 2001 from Ryan Companies US Inc., a Minnesota corporation. The trust financed its acquisition of the property with a $7,500,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In January 2002, Sentry Office Building Corporation, a Delaware corporation and the initial beneficiary of the trust, began offering all of its 15 beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $11,000,000, which consisted of $7,500,000 in debt assumption and $3,500,000 in equity investment. $100,000 of the offering proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in April 2002 when the maximum offering amount was raised. PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART, Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its acquisition of the property with a temporary loan of $2,625,305 from Parkway Bank & Trust Co., an Illinois banking corporation, and then replaced this loan with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets Bowie Delaware Business Trust began offering all of its beneficial interests to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,900,000, which consisted of $1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of the offering proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in July 2002 when the maximum offering amount was raised. 1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail property currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The trust financed the property with a loan of $1,500,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C., the initial beneficiary of 1031 Chattanooga DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000 in equity investment. The offering was completed in May 2003 when the maximum offering amount was raised. LANSING SHOPPING CENTER, DBT a Delaware business trust, purchased a newly constructed, multi-tenant retail shopping center in Lansing, Illinois in June 2002 from LaSalle Bank National Association, as trustee under trust agreement dated May 22, 2001 and known as Trust No. 127294. The trust financed its acquisition of the property with a $5,900,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In August 2002, Lansing Shopping Center, L.L.C., a Delaware limited liability company and the initial beneficiary of Lansing Shopping Center, DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $10,900,000, which consisted of $5,900,000 in debt assumption and $5,000,000 in equity investment. $80,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in September 1001 when the maximum offering amount was raised. INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building currently leased to Walt Disney World Co., a Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co. in a sale/leaseback transaction. The trust financed its acquisition of the property with an $18,000,000 first mortgage loan from Bank of America, N.A., a national banking association. In September 2002, Inland 220 Celebration Place, L.L.C., a Delaware limited liability company and the initial beneficiary of Inland 220 Celebration Place Delaware Business Trust, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $33,800,000, which consisted of $18,000,000 in debt assumption and $15,800,000 in equity investment. $50,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in September 2003 when the maximum offering amount was raised. 16 TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property currently leased to Circuit City in Taunton, Massachusetts in July 2002. The Trust financed the property with a first mortgage of $2,800,000 from MB Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial beneficiary of Taunton Circuit Delaware Business Trust, offered all of its interest in the trust to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $6,550,000, which consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment. The offering was completed in September 2002. BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant retail center located in Rochester, Minnesota, in July 2002. The Trust financed the property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the initial beneficiary of Broadway Commons Delaware Business Trust, began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $17,250,000, which consisted of $8,850,000 in debt assumption and $8,400,000 in equity investment. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in December 2003 when the maximum offering amount was raised. BELL PLAZA 1031, LLC. REHAB ASSOCIATES XIII, INC., an Illinois corporation and an affiliate of IREX acquired Bell Plaza, a multi-tenant shopping center in Oak Lawn, IL on August 28, 1998 for $1,675,000. In October 2002, Rehab Associates XIII contributed 100% of its interest in the property into Bell Plaza 1031, LLC, a Delaware single member limited liability company, and then offered all of its membership interests in Bell Plaza, LLC to North Forsyth Associates, a North Carolina general partnership, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in equity investment. $25,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in November 2002. INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building, currently leased to Walt Disney World Co., a Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co .in a sale/leaseback transaction. The trust financed its acquisition of the property with a $5,700,000 first mortgage loan from Bear Stearns Commercial Mortgage, Inc. In January 2003, Inland 210 Celebration Place Delaware Business Trust sold its fee simple interest in 210 Celebration Place to Old Bridge Park Celebration, LLC, a Delaware limited liability company, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $5,700,000 in debt assumption and $6,300,000 in equity investment. COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited liability company, purchased a single-tenant retail building leased to CompUSA, Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County, Illinois for $3,910,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $7,950,000, which consisted of $4,000,000 in debt assumption and $3,950,000 in equity investment. As required by the lender, Lombard C-USA, L.L.C. shall retain at least a 1% tenant in common interest, which is included in the $3,950,000 equity investment. $75,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in February 2004 when the maximum offering amount was raised. 17 DEERE DISTRIBUTION FACILITY IN JANESVILLE, WISCONSIN. Janesville 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant, light industrial distribution center leased to Deere & Company, a Delaware corporation, in Janesville, Wisconsin in February 2003 from Ryan Janesville, L.L.C., a Minnesota corporation and an affiliate of Ryan Companies US, Inc. The L.L.C. financed its acquisition of the property with a $10,450,000 loan from Bear Stearns Commercial Mortgage, Inc. In May 2003, Janesville 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2900 Beloit Avenue, Janesville, Rock County, Wisconsin for $9,949,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $20,500,000, consisted of $10,450,000 in debt assumption and $10,050,000 in equity investment, 1% of which was required by the lender to be retained by Janesville 1031, L.L.C. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in January 2004 when the maximum offering was raised. FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant office building leased entirely to Fleet National Bank, a national banking association, in Providence, Rhode Island in April 2003 from Fleet National Bank in a sale/leaseback transaction. The L.L.C. financed its acquisition of the property with a $12,900,000 loan from Bear Stearns Commercial Mortgage, Inc. In June 2003, Westminster Office 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 111 Westminster Street, Providence, Providence County, Rhode Island for $9,900,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $22,900,000, consisted of $12,900,000 in debt assumption and $10,000,000 in equity investment, 1% of which was required by the lender to be retained by Westminster Office 1031, L.L.C. $150,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in January 2004 when the maximum offering was raised. DEERE DISTRIBUTION FACILITY IN DAVENPORT, IOWA. Davenport 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant, light industrial distribution center leased to Quad Cities Consolidation and Distribution, Inc., an Illinois corporation, in Davenport, Iowa in April 2003 from Ryan Companies US, Inc., a Minnesota corporation. The lease is fully guaranteed by Deere & Company, a Delaware corporation. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc. In August 2003, Davenport 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2900 Research Parkway, Davenport, Scott County, Iowa for $15,543,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $28,200,000, consisted of $12,500,000 in debt assumption and $15,700,000 in equity investment, 1% of which was required by the lender to be retained by Davenport 1031, L.L.C. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in April 2004 when the maximum offering was raised. GRAND CHUTE DST, a Delaware statutory trust, purchased a multi-tenant retail shopping center in Grand Chute, Wisconsin in October 2002 from Continental 56 Fund Limited Partnership. The trust funded the acquisition of the property with cash from the sale of 100% of the beneficial interests in the trust to Grand Chute, L.L.C., a Delaware limited liability company. Subsequent to the acquisition of the property, the trust obtained a $5,678,350 loan from Bank of America, N.A. and the proceeds of the loan were distributed to Grand Chute, L.L.C. as a partial return of its capital contribution. In January 2003, Grand Chute, L.L.C. began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,048,350 which consisted of $5,678,350 in debt assumption and $6,370,000 in equity investment. $478,350 of the offering proceeds was allocated to four separate property reserve accounts, three of which 18 were required by the lender. In September 2003, certain information in the offering was amended and supplemented through the release of the First Supplement to Private Placement Memorandum. The offering was completed in March 2004 when the maximum offering amount was raised. MACON OFFICE DST, a Delaware statutory trust, purchased a single-tenant office complex in Macon, Georgia in October 2002 from UTF Macon, L.L.C. The trust funded the acquisition of the property with cash from the sale of 100% of the beneficial interests in the trust to Macon Office, L.L.C., a Delaware limited liability company. Subsequent to the acquisition of the property, the trust obtained a $5,560,000 loan from Bank of America, N.A. and the proceeds of the loan were distributed to Macon Office, L.L.C. as a partial return of its capital contribution. In October 2003, Macon Office, L.L.C. began offering all of its beneficial interests in the trust to certain qualified persons seeking a cash investment, in addition to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,160,000 which consisted of $5,560,000 in debt assumption and $6,600,000 in equity investment. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in March 2004 when the maximum offering amount was raised. WHITE SETTLEMENT ROAD INVESTMENT, LLC, a Delaware limited liability company, acquired a retail property currently leased to Eckerd Corporation in Fort Worth, Texas in July 2003. The LLC funded the acquisition of the property with cash from an affiliate and with a short-term loan from Parkway Bank and Trust Co., an Illinois banking corporation, in the amount of $2,041,000. In November 2003, Fort Worth Exchange, LLC, a Delaware limited liability company and initial beneficiary of White Settlement Road Investment, LLC, offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $2,840,000, which consisted of $1,420,000 in debt assumption and $1,420,000 in equity investment. The offering was completed in December 2003. Simultaneous with the completion of the offering, the short-term loan with Parkway was converted to a permanent loan and the terms of the loan documents were modified in accordance with a loan commitment from Parkway. PLAINFIELD MARKETPLACE. Plainfield 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant shopping center located in Plainfield, IL on December 16, 2003 from Ryan Companies US, Inc., a Minnesota corporation. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In January 2004, Plainfield 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 11840 South Route 59, Plainfield, Will County, Illinois for $12,350,250 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $24,400,000, consisted of $11,925,000 in debt assumption and $12,475,000 in equity investment, 1% of which was required by the lender to be retained by Plainfield1031, L.L.C. The difference between the real estate acquisition price of $21,700,000 and the total price of $24,400,000 consists of $950,000 acquisition fee, $150,000 for a property reserve account, and $1,600,000 of estimated costs and expenses. PIER 1 RETAIL CENTER. Butterfield-Highland 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on December 30, 2003 from the beneficiary of Trust No. 2314, an unrelated third party, which trust was held by North Side Community Bank as Trustee under the Trust Agreement dated December 12, 2003. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In March 2004, Butterfield-Highland 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2830 S. Highland Avenue, Lombard, Illinois for $4,257,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $8,150,000, consisted of $3,850,000 in debt assumption and $4,300,000 in equity investment, a minimum of 1% of which is required by the 19 lender to be retained by Butterfield-Highland 1031, L.L.C. The difference between the real estate acquisition price of $7,025,000 and the total price of $8,150,000 consists of $350,000 acquisition fee, $100,000 for a property reserve account, and $675,000 of estimated costs and expenses. LONG RUN 1031, L.L.C. LR 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on January 27, 2003 from Ryan Lemont, L.L.C., the third party seller and developer of the property. The L.L.C. financed its acquisition of the property with cash and, on April 24, 2003, placed a loan on the Property in the amount of $4,700,000 from Principal Commercial Funding, LLC. In June 2004, LR 1031, L.L.C. a Delaware limited liability company and initial beneficiary of Long Run 1031, L.L.C offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $4,960,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $9,660,000 consisted of $4,700,000 in debt assumption and $4,960,000 in equity investment. The difference between the real estate acquisition price of $8,500,000 and the total price of $9,660,000 consists of $451,347 acquisition fee, $50,000 for a property reserve account, and $658,653 of estimated costs and expenses. FORESTVILLE 1031, L.L.C. Forestville Exchange, L.L.C., a Delaware limited liability company, purchased a single-tenant retail shopping center on November 13, 2003 from Silver Hill, L.L.C., a North Carolina limited liability company, the property's developer. The L.L.C. financed its acquisition of the property with cash. In May 2004, Forestville Exchange, L.L.C. a Delaware limited liability company and initial beneficiary of Forestville 1031, L.L.C offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $3,900,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $3,900,000000 consisted of $1,793,630 in debt assumption and $2,106,370 in equity investment. The difference between the real estate acquisition price of $3,450,000 and the total price of $3,900,000 consists of $172,500 acquisition fee and $277,500 of estimated costs and expenses. BED BATH & BEYOND RETAIL CENTER. BBY Schaumburg 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 20, 2004 from the American Real Estate Holdings, L.P. a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In June 2004, BBY Schaumburg 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 905-915 East Golf Road, Schaumburg, Illinois for $6,633,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. Total price, $12,605,000, consisted of $6,905,000 in debt assumption and $5,700,000 in equity investment, 1% of which was required by the lender to be retained by BBY Schaumburg 1031, L.L.C. The difference between the real estate acquisition price of $11,655,110 and the total price of $13,605,000 consists of $600,000 acquisition fee, $400,000 for property reserve accounts, and $949,890 of estimated costs and expenses. CROSS CREEK COMMONS SHOPPING CENTER. Cross Creek 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on February 17, 2004 from Buckley Shuler Real Estate, L.L.C., a Georgia limited liability company, an unrelated third party. The L.L.C. financed its acquisition of the property with cash and subsequently placed a loan from bear Stearns Commercial Mortgage on the property. In March 2004, Cross Creek 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 10920-10948 Cross Creek Boulevard, Tampa, Florida for $6,930,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax- 20 deferred exchange. As of June 30, 2004 the L.L.C. had raised $2,788,000. Total price, $12,078,762, consisted of $5,078,762 in debt assumption and $7,000,000 in equity investment, 1% of which was required by the lender to be retained by Cross Creek 1031, L.L.C. The difference between the real estate acquisition price of $10,319,583 and the total price of $12,078,762 consists of $520,000 acquisition fee, $150,000 for a property reserve account, and $1,089,179 of estimated costs and expenses. BJ'S SHOPPING CENTER EAST SYRACUSE, NEW YORK. BJS Syracuse 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 30, 2004 from the American Real Estate Holdings, L.P. a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan and cash. In June 2004, BJS Syracuse 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2-4 Chevy Drive, East Syracuse, New York for $8,365,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price of the purchase was $15,850,000. Total price, $15,850,000, consisted of $7,400,000 in debt assumption and $8,450,000 in equity investment, 1% of which was required by the lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the real estate acquisition price of $13,500,000 and the total price of $15,850,000 consists of $675,000 acquisition fee, $150,000 for a property reserve account, and $1,525,000 of estimated costs and expenses. BARNES & NOBLE RETAIL CENTER CLAY, NEW YORK. Clay 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 15, 2004 from the Clay First Associates, L.L.C., an unrelated third party. The L.L.C. financed its acquisition of the property with an assumed mortgage and note for $3,175,000 and cash. In June 2004, Clay 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 3954-3956 Route 31, Clay, New York for $3,930,300 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. Total price, $7,145,000, consisted of $3,175,000 in debt assumption and $3,970,000 in equity investment, 1% of which was required by the lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the real estate acquisition price of $6,100,000 and the total price of $7,145,000 consists of $305,000 acquisition fee, $100,000 for a property reserve account, and $640,000 of estimated costs and expenses. 21 The following summary table describes the fees and expenses incurred by each of our entities in our 1031 Exchange Private Placement Offering Project.
Sentry Lansing Inland 220 Landings Office 1031 Shopping Celebration of Sarasota Building Pets Bowie Chattanooga Center Place DBT DBT DBT DBT DBT DBT ----------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Marketing Expenses 1.00% 1.50% 1.50% 1.50% 1.50% 1.00% Offering & Organization 1.00% 0.50% 0.50% 0.50% 0.50% 1.00% Mortgage Broker Fee (IMC)(2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Acquisition Fee & Carrying Costs(3) Acquisition Fee N/A 0.71% 0.77% 0.90% 0.88% 1.18% Bridge Financing Fees N/A N/A 1.49% 0.50% 0.20% 0.10% 11.25%- Total Load(4) 12.75% 14.23% 13.68% 14.39% 13.68% 13.23% Asset Management Fees(5) N/A 0.75% 1.00% 0.56% 0.55% 0.52% Property Management Fees(6) Paid by 4.5% 5.0% Asset Mgr. 5.0% 5.0% 4.5% Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A Janesville Inland 210 CompUSA Deere Taunton Broadway Celebration Retail Distribution Circuit Commons Bell Plaza Place Building Facility DBT DBT 1031 LLC DBT LLC 1031 LLC ----------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 5.27% Up to 8.56% Up to 8.6% Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 3.81% 6.00% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.00% 0.50% 0.50% Marketing Expenses 1.00% 1.00% 1.00% 0.50% 1.00% 1.00% Offering & Organization 0.50% 1.27% 1.69% 0.96% 1.06% 1.10% Mortgage Broker Fee (IMC)(2) 0.61% 0.50% 0.50% 0.50% 0.50% 0.50% Acquisition Fee & Carrying Costs(3) Acquisition Fee 0.69% 0.75% N/A 0.89% 0.82% 0.87% Bridge Financing Fees 0.07% 0.23% N/A 0.23% 0.23% 0.23% Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93% 13.93% Asset Management Fees(5) 0.57% N/A 0.53% 0.53% 0.63% 0.49% Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5% 4.5% Backend Sales Commission N/A N/A 3.5% N/A N/A N/A
22
Davenport White Fleet Deere Settlement Office Distribution Grand Macon Road Plainfield Building Facility Chute Office Investment Marketplace 1031 LLC 1031 LLC DST DST LLC 1031 LLC ----------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.52% Up to 8.42% Up to 8.82% Up to 8.52% Up to 8.52% Up to 8.76% Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 6.00% 7.04% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.60% 0.50% Marketing Expenses 1.00% 1.00% 1.00% 1.00% 1.16% 1.00% Offering & Organization 1.02% 0.92% 1.32% 1.02% 1.66% 1.26% Mortgage Broker Fee (IMC)(2) 0.50% 0.71% 0.50% 0.50% 0.97% 0.57% Acquisition Fee & Carrying Costs(3) Acquisition Fee 0.85% 0.77% 0.84% 0.72% 8.99% 3.89% Bridge Financing Fees 0.35% 0.72% 0.13% 0.81% 0.12% 0.92% Total Load(4) 14.57% 13.18% 12.96% 14.24% 30.90% 6.56% Asset Management Fees(5) 0.49% 0.50% 0.66% 0.66% 0.00% 0.04% Property Management Fees(6) 4.5% 4.5% 5.0% 4.5% 5.0% 5.0% Backend Sales Commission N/A NA NA NA NA NA Pier 1 Cross Retail Bed, Bath & Creek Center Long Run Forestville Beyond Commons 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC --------------------------------------------------------------------- Commissions & Fees(1) Up to 8.73% Up to 8.37% Up to 8.40% Up to 8.70% Up to 8.64% Selling Commission To 3rd Party Reps 6.00% 5.84% 5.54% 6.00% 6.00% Due Diligence Fee 0.50% 0..49% 0.46% 0.50% 0.50% Marketing Expenses 1.00% 0.97% 0.93% 1.00% 1.00% Offering & Organization 1.23% 1.07% 1.46% 1.20% 1.14% Mortgage Broker Fee (IMC)(2) 0.50% 0.47% 0.43% 0.55% 0.40% Acquisition Fee & Carrying Costs(3) Acquisition Fee 4.29% 5.31% 5.00% 5.15% 5.04% Bridge Financing Fees 0.94% Total Load(4) 8.28% 22.38% 21.34% 23.13% 22.99% Asset Management Fees(5) 0.06% 0.20% 0.00% 0.15% 0.11% Property Management Fees(6) 5.0% 5.0% 5.0% 5.0% 5.0% Backend Sales Commission NA NA NA N/A NA
23
BJ's Barnes & Shopping Noble Retail Center Center 1031 LLC 1031 LLC ---------------------------- Commissions & Fees(1) Up to 8.59% Up to 8.69% Selling Commission To 3rd Party Reps 6.00% 6.00% Due Diligence Fee 0.50% 0.50% Marketing Expenses 1.00% 1.00% Offering & Organization 1.09% 1.19% Mortgage Broker Fee (IMC)(2) 0.50% 0.40% Acquisition Fee & Carrying Costs(3) Acquisition Fee 5.00% 5.00% Bridge Financing Fees Total Load(4) 26.04% 23.80% Asset Management Fees(5) 0.12% 0.13% Property Management Fees(6) 5.0% 5.0% Backend Sales Commission NA NA
(1) Commissions and fees are calculated as a percentage of the equity portion of each deal. (2) The Mortgage Broker Fee is calculated as a percentage of the debt portion of each deal. (3) Acquisition & Carrying Costs are calculated as a percentage of the real estate acquisition price. (4) The Total Load is calculated as a percentage of the equity portion of each deal. The Total Load includes the Commissions & Fees, Mortgage Broker Fee, Acquisition Fee & Carrying Costs, as well as any other non-affiliated third party expenses. (5) Asset Management Fees are calculated as a percentage of the value of the assets under management. However, for The Landings and Broadway Commons, which are both Master Lease deals, the Master Tenant Income is the residual cash flow from the Property after payment of the Master Lease Rent. As a result, it is not possible to accurately represent the Master Tenant Income as a percentage of the value of the assets under management. (6) Property Management Fees are calculated as a percentage of Gross Income from the property. The following additional fees are the same for each deal: Loan Servicing Fee - IMSC will be compensated with a monthly fee equal to the outstanding principal balance of the loan at the beginning of every month multiplied by 1/8% then divided by 12. This figure, however, shall never exceed $10,000, nor be less than $1,200 monthly. Termination Fees - (i) MASTER LEASE: 8.333% of the last 12 Months of NOI less Rent payments for the same 12 months multiplied by the number of months remaining on the then-current term of the Master Lease and (ii) ASSET & PROPERTY MANAGEMENT AGREEMENTS: The sum of the current monthly AM & PM fees times the number of months remaining on the term. 24 The following table summarizes cash distributions to investors for each of the 1031 Exchange Private Placement Offering Projects through June 30, 2004: 1031 EXCHANGE PERFORMANCE DISTRIBUTIONS THROUGH JUNE 30, 2004
2001 2002 2003 2004 Number Offering Offering Distributions Annual Annual Annual Annual of Equity Completed To Date Distribution Distribution Distribution Distribution Name of Entity Investors ($) ($) ($) (%) (%) (%) (%) - ------------------------------------------------------------------------------------------------------------------------------------ Landings of Sarasota DBT 9 05/ 2002 8.00 8.00 8.07 8.39 4,000,000 807,036 Sentry Office Building DBT 7 04/ 2002 8.20 8.73 9.25 3,500,000 676,396 Pets Bowie DBT 7 07/ 2002 8.89 8.89 9.12 2,600,000 463,278 1031 Chattanooga DBT 9 05/ 2002 8.19 8.26 8.26 1,900,000 317,728 Lansing Shopping Center DBT 5 09/ 2001 8.47 8.29 8.96 5,000,000 742,590 Inland 220 Celebration Place DBT 35 15,800,000 09/ 2003 1,821,875 8.08 8.10 8.10 Taunton Circuit DBT 1 3,750,000 09/ 2002 522,750 8.22 8.31 8.31 Broadway Commons DBT 32 8,400,000 12/ 2003 645,185 8.14 8.22 8.26 Bell Plaza 1031, LLC 1 890,000 11/ 2003 183,074 13.53 14.67 16.05 Inland 210 Celebration Place DBT 1 6,300,000 01/ 2003 762,125 8.23 8.23 CompUSA Retail Building, LLC 11 3,950,000 02/ 2004 226,939 8.05 8.17 Janesville Deere Distribution Facility 1031, LLC 35 10,050,000 01/ 2004 489,369 7.23 7.35 Fleet Office Building 1031, LLC 30 10,000,000 01/ 2004 440,971 7.19 7.19 Davenport Deere Distribution Facility 1031, LLC 35 15,700,000 04/ 2004 492,322 7.36 7.36 Grand Chute DST 29 5,370,000 03/ 2004 129,906 8.48 8.49 Macon Office DST 29 6,600,000 03/ 2004 245,266 8.20 8.20 White Settlement Road Investment, LLC 1 1,420,000 12/ 2003 55,849 8.34 Plainfield Marketplace 1031, LLC 31 12,475,000 06/ 2004 1,163 7.09 Pier 1 Retail Center 1031, LLC 22 4,300,000 06/ 2004 - - Long Run 1031, LLC 1 4,935,000 05/ 2004 - - Forestville 1031, LLC 1 3,900,000 05/ 2004 12,918 7.55 Bed, Bath & Beyond 1031, LLC 0 6,633,000 * - - Cross Creek Commons 1031, LLC 11 6,930,000 * - - BJ's Shopping Center 1031, LLC 0 8,365,000 * - - Barnes & Noble Retail Center 1031, LLC 0 3,930,000 * - - ----------- ------------- 156,698,000 9,036,740 =========== =============
-25- * Offering was not complete as of June 30, 2004 -26- MANAGEMENT INLAND AFFILIATED COMPANIES THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 64 OF OUR PROSPECTUS IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING: Inland Western Management Corporation, Inland Northwest Property Management Corp., Inland Southwest Property Management Corp. and Inland Pacific Property Management Corp., our management companies, were formed to segregate responsibility for management of our properties from Inland Property Management companies' growing management portfolio of retail properties. Our property management companies are responsible for collecting rent, leasing, and maintaining the retail properties they manage. These properties are primarily intended to be our properties in our primary geographical area of investment. Our property management companies are owned primarily by individuals who are affiliates of Inland. OUR DIRECTORS AND EXECUTIVE OFFICERS THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 68 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING: Effective April 1, 2004, Catherine L. Lynch resigned from her position as Treasurer of our advisor. Effective April 30, 2004, Kelly E. Tucek resigned from her position as our Treasurer, Principal Accounting Officer and Principal Financial Officer. Steven P. Grimes has been appointed as our Treasurer and Principal Financial Officer, and Lori Foust has been appointed as our Principal Accounting Officer. COMPENSATION OF DIRECTORS AND OFFICERS THE DISCUSSION UNDER THIS SECTION WHICH IS LOCATED ON PAGE 71 OF OUR PROSPECTUS IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING: We pay our independent directors an annual fee of $5,000 (increasing to $10,000 effective October 1, 2004) plus $500 for each in person meeting and $350 for each meeting of the board or a committee of the board attended by telephone, and reimbursement of their out-of-pocket expenses incurred. Our two other directors, Robert D. Parks and Brenda G. Gujral, do not receive any fees or other remuneration for serving as directors. OUR ADVISOR THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 73 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION: Our advisor, Inland Western Retail Real Estate Advisory Services, Inc., is an Illinois corporation and a wholly owned subsidiary of our sponsor. Our advisor/business manager reviews and updates our mission statement; determines our businesses, direction, selects the criteria for acquisitions and financing, adjusts the demographic and geographic parameters, analyzes strategic alternatives, adjusts our rate of growth to maximize shareholder value, and updates our business plan that is performed by Inland employees on our behalf involving the combined efforts of highly skilled technical people with many years of experience. Mr. Steven Grimes (age 37) joined our advisor as its Chief Financial Officer on February 18, 2004. He is responsible for our finances and borrowings. Prior to joining the advisor, Mr. Grimes was a director with Cohen Financial and was a senior manager with Deloitte and Touche. Mr. Grimes received his B.S. Degree in Accounting from Indiana University. Ms. Lori Foust (age 39) joined our advisor as Vice President on November 17, 2003. Ms. Foust is responsible for our financial and SEC reporting. Prior to joining the advisor, Ms. Foust was a senior manager in the real estate division with Ernst and Young, LLP. She received her B.S. Degree in Accounting and her M.B.A. Degree from University of Central Florida. Ms. Debra J. Randall (age 48) joined our advisor as assistant vice president on January 30, 2004. Ms. Randall is responsible for our financial and SEC reporting. Prior to joining the advisor, Ms. Randall was a corporate controller for a privately held real estate company and has over 10 years of real estate experience at several public accounting firms. She received her B.A. Degree in Liberal Arts and is in the process of completing her M.A. Degree from DePaul University. She is a certified public accountant and a member of the Illinois CPA Society. -27- The Property Manager and the Management Agreement. THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 77 OF OUR PROSPECTUS IS DELETED IN ITS ENTIRETY AND SUPPLEMENTED BY THE FOLLOWING: THE PROPERTY MANAGERS AND THE MANAGEMENT AGREEMENTS Our present property managers provide property management services to us under the terms of the management agreements. The property managers provide services in connection with the rental, leasing, operation and management of the properties. Our property managers are each Delaware corporations, owned principally by individuals who are affiliates of The Inland Group. We have agreed to pay the property managers a monthly management fee in an amount no greater than 90% of the fee which would be payable to an unrelated party providing such services, which fee will initially be 4.5% of gross income, as defined in the relevant management agreement, from the properties managed for the month for which the payment is made. In addition, we have agreed to compensate each property managers if it provides us with services other than those specified in the management agreement. There is a separate management agreement for each property for an initial term ending as of December 31 in the year in which the property is acquired, and each management agreement is subject to three successive three-year renewals, unless either party notifies the other in writing of its intent to terminate between 60 and 90 days prior to the expiration of the initial or renewal term. We may terminate with 30 days prior written notice in the event of gross negligence or malfeasance by the property manager. The property managers may subcontract the required property management services for less than the management fee provided in the management agreement. See "Compensation Table -- Nonsubordinated Payments -- Operational Stage." Our property managers may form additional property management companies as necessary to manage the properties we acquire, and may approve of the change of management of a property from one manager to another. Our property manager, Inland Western Management Corp., Inland Northwest Management Corp., Inland Southwest Property Management Corp, and Inland Pacific Property Management Corp, conduct their activities at their principal executive office at 2907 Butterfield Road in Oak Brook, Illinois. See "--The Advisory Agreement" above in this section and "Conflicts of Interest" for a discussion of our option to acquire or consolidate with the business conducted by the property managers. The following sets forth information with respect to the executive officers and directors of Inland Western Management Corp.
POSITION AND OFFICE WITH INLAND WESTERN NAME AGE* MANAGEMENT CORP. ---- --- ---------------- Thomas P. McGuinness 47 President and director Robert M. Barg 50 Senior vice president/treasurer, secretary and director James H. Neubauer 62 Senior vice president and director Linda Centanni 49 Vice president Elizabeth D. McNeely 49 Vice president Frank Natanek 36 Vice president Lawrence R. Sajdak, Jr. 24 Assistant vice president Matthew G. Fiascone 40 Director Alan F. Kremin 57 Director
- ---------- *As of January 1, 2004 THOMAS P. MCGUINNESS joined Inland Property Management in 1982 and became president of Mid-America Management Corporation in July 1990 and chairman in 2001. He is also president of Inland Property Management, Inc. as well as a director of Inland Commercial Property Management. He is chairman and a director of Inland Mid-Atlantic Management Corp. Mr. McGuinness is a licensed real estate broker; and is past president of the Chicagoland Apartment Association, and past regional vice president of the National Apartment Association. He is currently on the board of -28- directors of the Apartment Building Owners and Managers Association, and is a trustee with the Service Employees' Local No. 1 Health and Welfare Fund, as well as the Pension Fund and holds CLS and CSM accreditations from the International Council of Shopping Centers. ROBERT M. BARG joined the Inland organization in 1986 and is currently the treasurer of Inland Property Management Group, Inc. Since 2003 he has been a senior vice president, secretary and treasurer of Inland Western Management Corp. In July 2004 he became a director of Inland Western Management Corp. as well as a senior vice president , secretary, treasurer, and a director of Inland Northwest Management Corp., Inland Pacific Management Corp., and Inland Southwest Management Corp. He is also a director, senior vice president, and treasurer of Mid-America Management Corp., and secretary and treasurer of Inland Southern Management Corp. He was secretary and treasurer of Inland Southeast Property Management Corp. from 1998 to 2001. Prior to joining the Inland organization, Mr. Barg was an accounting manager of the Charles H. Shaw Co. He received his B.S. Degree in Business Administration from the University of Illinois at Chicago and a Masters Degree from Western Illinois University. Mr. Barg is a certified public accountant and is a member of the Illinois CRP Society. JAMES H. NEUBAUER joined Inland Property Management in 1978 as an on-site manager. In 1981, he was promoted to the position of director of purchasing. Subsequently, in 1983, he became an on-site property manager and, in 1984, he became the president of Inland Western Property Management. From 1985 to 1996, Mr. Neubauer was president and senior vice president of Mid-America Management where he was responsible for all rental property operations outside the Chicagoland metropolitan area, which included New Hampshire, Arizona, Indiana, Wisconsin and Peoria, Moline and Danville, Illinois. He left Inland in 1996 to pursue other opportunities and rejoined Inland Southeast Property Management Corp. in 1999 as senior vice president and in May 2002 was promoted to president. In June 2004, he became a senior vice president of Inland Northwest Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp. and Inland Western Management Corp. He is a licensed real estate broker in Florida and holds a B.A. degree from the University of Maryland, a M.A. degree from Ball State University and a M.B.A. degree from Benedictine College. LINDA CENTANNI joined Mid-America Management Corp. in 1978 in the business office and in 1979 she began working in the accounting department specializing in the area of property management accounts receivable. In 1997 she was promoted to assistant vice president. Her current responsibilities include supervision of 12 people as department head of both accounts receivable and records. In July 2004 she was promoted to a vice president of Inland Northwest Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland Western Management Corp. Ms. Centanni holds an Illinois real estate salesperson license. ELIZABETH D. MCNEELEY joined Inland Southeast Property Management as a property accountant in January of 2002. In January of 2003 she was promoted to senior property accountant for Inland Western Management Corp., and in July of 2003 was promoted to a vice president of Inland Northwest Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland Western Management Corp. Prior to joining Inland , Ms. McNeeley was an accountant for the Burlington Northern Railroad, Pinnacle Relocation and Trase Miller Teleservices. She also taught mathematics at both the Middle School and Jr. College level. Ms. McNeeley holds a BA from North Central College and an MA from DePaul University. She is a licensed Real Estate Sales Agent. FRANK NATANEK joined The Inland Group in July 2004 as a vice president of Inland Northwest Property Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland Western Management Corp. Prior to joining Inland, Mr. Natanek worked for the Hallmark Greeting Card Company from October 2002 to March 2004. Mr. Natanek has a degree from St. Xavier, and a law degree from Loyola University. In addition Mr. Natanek holds an MBA from the University of Chicago. LAWRENCE R. SAJDAK. Mr. Sajdak joined The Inland Group in September 1998 as a college intern, working every summer and holiday season. He started in the marketing department and soon became proficient in other departments in management. He has degrees in chemistry and business from North Central College. Prior to joining Inland he was employed Cintas Corporation. Mr. Sajdak returned to Inland in December 2002 as a department head in the business management department, and subsequently became a property manager. In July 2004 Mr. Sajdak was promoted to an assistant vice president of Inland Western Property Management Corp. and an assistant vice president of Inland Northwest Property Management Corp. He is a member of the International Council of Shopping Centers. -29- MATTHEW G. FIASCONE joined The Inland Group in January 1986 and is currently senior vice president and a director of Inland Real Estate Development Corporation. In that position, Mr. Fiascone is responsible for the purchase, entitlement, development and sale of land owned by investment programs sponsored by Inland Real Estate Investment Corporation and corporate owned land. He holds a B.S. degree in economics from Bradley University where as an alumnus he was named the 2002 Outstanding Young Graduate. Real Estate Chicago magazine named him to their inaugural "40 under 40" list of the most influential people in Chicago real estate under 40. He has testified as an expert in the field of land use and zoning and is a member of the Northern Illinois Commercial Association of Realtors, the Village of Hinsdale Zoning Board of Appeals, The Urban Land Institute and is a licensed real estate broker in the state of Illinois. ALAN F. KREMIN joined The Inland Group in 1982. Mr. Kremin was promoted to treasurer of The Inland Group, Inland Commercial Property Management, Inc., and various other Inland Group subsidiaries in March 1991. In his current capacity as the chief financial officer of The Inland Group, a position he has held since 1991, his responsibilities include financial management, cash budgeting and corporate taxes for the consolidated group and serving as a director for various Inland Group subsidiaries and outside affiliated entities, for which he also serves as treasurer. He is a director of Inland Southeast Property Management Corp., and in March 2002 he became a director, secretary and treasurer of Inland Southern Management LLC. In November 2002, he became a director of Mid-Atlantic Management, LLC. Prior to his current position, Mr. Kremin was treasurer of Inland Real Estate Investment Corporation from 1986 to 1990, where he supervised the daily operations of its accounting department. That department encompasses corporate accounting for the general partner of the Inland Real Estate Investment Corporation-sponsored limited partnership investment programs. Prior to joining The Inland Group, Mr. Kremin served for one year as a controller of CMC Realty and three years as assistant controller of JMB Realty Corporation. Prior to his real estate experience, Mr. Kremin worked eight years in public accounting, including four years at Arthur Young & Company. He received his B.S. degree in accounting from Loyola University. Mr. Kremin is a certified public accountant, holds securities and insurance licenses and is a licensed real estate broker. The following sets forth information with respect to the executive officers and directors of Inland Northwest Management Corp.
POSITION AND OFFICE WITH INLAND NORTHWEST NAME AGE* MANAGEMENT CORP. ---- --- ---------------- Thomas P. McGuinness 47 President and director Robert M. Barg 50 Senior vice president/treasurer, secretary and director James H. Neubauer 62 Senior vice president Linda Centanni 49 Vice President Elizabeth D. McNeely 49 Vice President Frank Natanek 30 Vice President Lawrence R. Sajdak, Jr. 24 Assistant vice president Steven Yee 37 Assistant vice president Anthony A. Casaccio 48 Director Alan F. Kremin 57 Director Pamela C. Stewart 47 Director
- ---------- *As of January 1, 2004 The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni, Ms. McNeely, Mr. Natanek, Mr. Sajdak and Mr. Kremin are set forth above. STEVEN YEE joined The Inland Group in February of 2004 as a senior property manager, and in July 2004, Mr. Yee was promoted to assistant vice president of Inland Northwest Property Management Corp. Prior to joining Inland he worked for Manulife Financial. His was also the director of operations for MB real estate and a retail property manager for Trammel Crow. His real estate experience includes managing and leasing retail shopping centers in the greater Chicagoland area. Mr. Yee attended DePaul University, receiving a degree in real estate finance. He is a licensed real estate broker, and a member of the International Council of Shopping Centers, and holds CPM and CCIM designations. -30- ANTHONY A. CASACCIO joined The Inland Group in 1984 working for Inland Condo Association Management. From 1987 to 1991 he was president of Partnership Asset Sales Corporation, and in 1991 when Inland Real Estate Development Corporation was formed, Mr. Casaccio became the president and a director. Mr. Casaccio holds a B.S. degree in accounting from DePaul University. He is a member of the DuPage Association of Realtors, the National Association of Realtors, Northern Illinois Commercial Association of Realtors, the National Home Builders Association, the Realtor Association of the Western Suburbs, The Urban Land Institute and the Oswego Economic Development Corporation. Mr. Casaccio is a licensed real estate broker in the state of Illinois. PAMELA C. STEWART joined Midwest Real Estate Equities, Inc., an affiliate of The Inland Group in 1995 as an acquisition specialist. Prior to joining Midwest Equities, Ms. Stewart worked for another affiliate company, New Directions Housing Corporation (NDHC), a not-for-profit organization that develops affordable housing. In 2002, Ms. Stewart became an assistant vice president and in 2004, she was promoted to vice president of Midwest Real Estate Equities, Inc. Ms. Stewart is responsible for acquiring commercial real estate properties for the company's portfolio and investing corporate funds into redevelopment projects, including rental properties, shopping centers, office buildings and industrial buildings. Ms. Stewart is also the corporate asset management director for The Inland Real Estate Group of Companies. Ms. Stewart has a B.A. degree in Marketing from Roosevelt University. She is a member of the National Association of Realtors, the Northern Illinois Commercial Association of Realtors and she is a Certified Commercial Investment Member (CCIM) and Candidate. She holds a real estate broker's license in the state of Illinois. The following sets forth information with respect to the executive officers and directors of Inland Pacific Management Corp.
POSITION AND OFFICE WITH INLAND PACIFIC NAME AGE* MANAGEMENT CORP. ---- --- ---------------- Thomas P. McGuinness 47 President and director Robert M. Barg 50 Senior vice president/treasurer, secretary and director James H. Neubauer 62 Senior vice president and director Linda Centanni 49 Vice President Elizabeth D. McNeely 49 Vice President Frank Natanek 30 Vice President David M. Benjamin 49 Director Alan F. Kremin 57 Director
- ---------- *As of January 1, 2004 The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni, Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above. DAVID M. BENJAMIN joined The Inland Group in 1983 in the accounting department and is controller of The Inland Real Estate Group. Mr. Benjamin has spent his entire accounting career in the real estate industry, working for American Invesco and Draper and Kramer before coming to Inland. Mr. Benjamin is responsible for the accounting and corporate income tax preparation of various Inland entities and he assists in the day to day oversight of The Inland Real Estate Group accounting department. Mr. Benjamin is a CPA. The following sets forth information with respect to the executive officers and directors of Inland Southwest Management Corp.
POSITION AND OFFICE WITH INLAND SOUTHWEST NAME AGE* MANAGEMENT CORP. ---- --- ---------------- Thomas P. McGuinness 47 President and director Robert M. Barg 50 Senior vice president/treasurer, secretary and director James H. Neubauer 62 Senior vice president
-31- Linda Centanni 49 Vice President Elizabeth D. McNeely 49 Vice President Frank Natanek 30 Vice President Alan F. Kremin 57 Director Ulana B. Horalewskyj 57 Director Frances C. Panico 54 Director
- ---------- *As of January 1, 2004 The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni, Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above. ULANA B. HORALEWSKYJ joined The Inland Group in 1990 and is currently treasurer of Inland Real Estate Exchange Corporation, vice president of Inland Real Estate Investment Corporation and president of Partnership Ownership Corporation. In her capacity as vice president of Inland Real Estate Investment Corporation, Ms. Horalewskyj oversees the cash management and accounting for over 250 Inland private limited partnerships. Prior to joining Inland, she spent four years working for an accounting firm and 10 years in the banking industry. Ms. Horalewskyj received her B.A. from Roosevelt University in Chicago. FRANCES C. PANICO joined The Inland Group in 1972 and is president of Inland Mortgage Servicing Corporation and senior vice president of Inland Mortgage Corporation and Inland Mortgage Investment Corporation. Ms. Panico oversees the operation of loan services, which has a loan portfolio in excess of $4,200,000,000. She previously supervised the origination, processing and underwriting of single-family mortgages, and she packaged and sold mortgages to secondary markets. Ms. Panico's other primary duties for The Inland Group have included coordinating collection procedures and overseeing the default analysis and resolution process. Ms. Panico received her BA Degree in Business and Communication from Northern Illinois University. Inland Securities Corporation THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 80 OF OUR PROSPECTUS IS SUPPLEMENTED BY THE FOLLOWING INFORMATION: ROBERT J. BABCOCK (age 28) joined Inland Securities Corporation as a vice president in March 2004. Prior to joining Inland, Mr. Babcock was an external wholesaler with AEI Fund Management, Inc. and was responsible for wholesaling public and private net lease real estate investments and 1031 property exchanges to financial planners. Mr. Babcock began his career as a financial advisor with American Express Financial Advisors in 1999. He received his bachelor's degree from Gustavus Adolphus College. Mr. Babcock holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. FRANK V. PINELLI (age 57) joined Inland Securities Corporation in 2004 as a vice president. He was previously employed with The Inland Group from 1973-1983 where he worked in property management, real estate sales, and real estate acquisitions. Prior to rejoining the Inland staff, from 1984-2003 Mr. Pinelli was a principal in his own real estate firm and developed an international marketing organization. Mr. Pinelli is a graduate of Southern Illinois University. He holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc and also is licensed as a real estate broker in Illinois and Oregon. MATTHEW PODOLSKY (age 32) joined Inland Securities Corporation as a vice president in April 2003. Mr. Podolsky started his career in real estate in 1994 on the commercial sales and leasing side with Cushman and Wakefield of California, Inc. Prior to joining Inland Securities Corporation he was a vice president at CB Richard Ellis, Inc. Mr. Podolsky graduated from the University of Arizona with a B.S. in Regional Development/Urban Planning. He holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. and a real estate license in the state of California. DARRELL RAU (age 48) joined Inland Securities Corporation in 2004 as a vice president of the midwest region where he develops sales and new broker/dealer relationships. Prior to joining Inland in 2004, Mr. Rau was vice president of developing markets at CTE Pension Advisors. Mr. Rau graduated magna cum laude from Northwood University in Midland, Michigan with a degree in Business Administration. He holds Series 6,7,62 and 63 licenses with the National Association of Securities Dealers, Inc. -32- PRINCIPAL STOCKHOLDERS THE FOLLOWING REPLACES THE INFORMATION CONTAINED ON PAGE 85 OF OUR PROSPECTUS UNDER THE HEADING "PRINCIPAL STOCKHOLDERS". The following table provides information as of September 8, 2004 regarding the number and percentage of shares beneficially owned by each director, each executive officer, all directors and executive officers as a group and any person known to us to be the beneficial owner of more than 5% of our outstanding shares. As of September 8, 2004, no stockholder beneficially owned more than 5% of our outstanding shares. As of September 8, 2004, we had approximately 32,000 stockholders of record and approximately 123,647,953 shares of common stock outstanding. Beneficial ownership includes outstanding shares and shares which are not outstanding that any person has the right to acquire within 60 days after the date of this table. However, any such shares which are not outstanding are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person. Except as indicated, the persons named in the table have sole voting and investing power with respect to all shares beneficially owned by them.
NUMBER OF SHARES PERCENTAGE OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS Robert D. Parks 96,415.2668 (1) * Roberta S. Matlin 173.8380 * Scott W. Wilton 0 0 Steven P. Grimes 0 0 Lori J. Foust 0 0 Brenda G. Gujral 0 0 Frank A. Catalano, Jr. 2,000 (2) * Kenneth H. Beard 2,000 (2) * Paul R. Gauvreau 113,731.8436 (2) * Gerald M. Gorski 3,968.4042 (2) * Barbara A. Murphy 2,000 (2) * All directors and executive officers as a group (12 persons) 220,289.3526 (1) *
*Less than 1% (1) Includes 20,000 shares owned by our advisor. Our advisor is a wholly-owned subsidiary of our sponsor, which is an affiliate of The Inland Group. Mr. Parks is a control person of The Inland Group and disclaims beneficial ownership of these shares owned by our advisor. (2) Includes 2,000 shares issuable upon exercise of options granted to each independent director under our independent director stock option plan, to the extent that such options are currently exercisable or will become exercisable within 60 days after the date of this table. INVESTMENT OBJECTIVES AND POLICIES DISTRIBUTIONS THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 88 OF OUR PROSPECTUS, IS SUPPLEMENTED BY THE FOLLOWING: At the March 19, 2004 regularly scheduled Board meeting, the Board of Directors unanimously approved a resolution to delegate to our management committee the authority to make monthly distributions to stockholders on our common stock in an amount between 6.0% and 7.25% on an annualized basis, for the remainder of the 2004 calendar year. Our Board of Directors approved the following distributions payable to holders of our common stock: -33- - $.30 per share per annum for the stockholders of record on October 31, 2003, payable on November 10, 2003 - $.50 per share per annum for the stockholders of record on November 30, 2003, payable on December 10, 2003 - $.70 per share per annum for the stockholders of record on December 31, 2003, payable on January 10, 2004 - $.70 per share per annum for the stockholders of record on January 31, 2004, payable on February 10, 2004 - $.70 per share per annum for the stockholders of record on February 29, 2004, payable on March 10, 2004 - $.70 per share per annum for the stockholders of record on March 31, 2004, payable on April 10, 2004 - $.67 per share per annum for the stockholders of record on April 30, 2004, payable on May 10, 2004 - $.675 per share per annum for the stockholders of record on May 31, 2004, payable on June 10, 2004 - $.675 per share per annum for the stockholders of record on June 30, 2004, payable on July 10, 2004 - $.65 per share per annum for the stockholders of record on July 31, 2004, payable on August 10, 2004; and - $.65 per share per annum for the stockholders of record on August 31, 2004, payable on September 10, 2004. BORROWING THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 91 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING OUR BORROWING POLICIES. Our board of directors unanimously approved that consistent with our borrowing policies, we may commit up to the aggregate of $25 million in cash for letters of credit in order to obtain financing for properties. Our board of directors adopted a policy to delegate to management the ability to obtain unsecured general financing facilities up to $150,000,000 requiring a deposit not to exceed 3% of the facility amount without prior approval by the board of directors. These facilities would then be matched with specific properties, which would secure the amounts due under the specific financings. OTHER INVESTMENTS THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 93 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING: Our advisor has informed our board of directors that it is increasingly concerned about the potential that mortgage interest rates we can borrow at will increase during 2004. Our board of directors, including all of the independent directors, unanimously approved a resolution for the following: We may invest in interest rate futures, an interest rate hedging strategy designed to offset the risks of potential interest rate increases on our long-term borrowings. Should conditions warrant, this interest rate hedging strategy will be implemented over a period of time. We intend to invest in up to $100 million in interest rate futures, both five and seven year treasuries, with maturities of 90 days. Our initial cash outlay in this interest rate hedging strategy is expected to be between 1 to 2% of the value of our investment in the interest rate futures. Risks associated with this interest rate hedging strategy are primarily associated with declines in interest rates. As rates decline, we risk having to increase our initial cash outlay, and may incur losses on our investments in interest rate futures. 1) An affiliate of our advisor, Inland Investment Advisors, Inc., the investment advisor, will be managing this interest rate hedging strategy. Fees paid to the investment advisor are expected to be similar to those incurred using a third party investment advisor. 2) We may also retain the investment advisor to invest up to $10 million of our cash in publicly traded investment securities. Fees paid to the investment advisor are expected to be similar to those incurred using a third party investment advisor. 3) We may enter into an initial $50 million (which could increase to $100 million) twelve month credit facility with an affiliate of our advisor, Inland Real Estate Exchange Corporation (IREX) for its 1031 exchange program. IREX will use the funds to purchase real estate investments that meet the criterion consistent with our real estate investment policies. -34- REAL PROPERTY INVESTMENTS THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 98 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING PROPERTIES WE HAVE ACQUIRED OR INTEND TO ACQUIRE. BOULEVARD AT THE CAPITAL CENTRE, LANDOVER, MARYLAND On September 8, 2004, we entered into a joint venture with the current owners of a newly constructed shopping center known as Boulevard at the Capital Centre, containing 482,377 gross leasable square feet. The center is located on the Washington D.C. Beltway (I-495 and I-95), in Landover, Maryland. The property is on a long term ground lease with the Revenue Authority of Prince George's County for approximately 70 years. We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $121,000,000 to this joint venture and received an equity interest representing a majority ownership and operating control of the joint venture. We made our capital contribution to the joint venture with our own funds. On September 8, 2004, we obtained financing in the amount of $71,500,000. The loan requires interest only payments at an annual rate of 5.12% and matures October 2009. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Lowe's Theaters Magic Johnson, will lease more than 10% of the total gross leasable area of the property. The lease term has been projected in accordance with the tenant's lease commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------------- Lowe's Theaters Magic Johnson* 52,500 11 22.00 10/04 09/24
For federal income tax purposes, the depreciable basis in this property will be approximately $90,750,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Boulevard at the Capital Centre was newly constructed in 2004. The property has been in a leasing up phase and nine tenants have executed leases for retail space within the shopping center whose leases have not yet commenced. As of September 1, 2004, this property was 73% occupied with a total of 352,804 square feet occupied by 57 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------- EB Game World 1,200 11/08 40,800 34.00 Claire's Boutique 1,166 11/08 34,980 30.00 Sprint Spectrum 1,965 11/08 49,161 25.02 Nextel 1,871 11/08 74,840 40.00 Kay Jewelers 1,552 12/08 60,000 38.66
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Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------- Cold Stone Creamery 1,157 02/09 42,809 37.00 Capital Nails 1,500 02/09 60,000 40.00 Sweet Tooth Cakes & Pastries 1,400 02/09 49,000 35.00 Casual Male Big & Tall 3,500 03/09 84,000 24.00 The Classic Woman 2,200 04/09 63,800 29.00 Next Day Blinds * 3,000 09/09 93,000 31.00 Head 2 Head 2,568 12/10 65,484 25.50 Oxford Street 3,400 12/10 85,000 25.00 T-Mobile 1,800 01/11 72,000 40.00 Jilliano Shoes 1,998 01/11 40,955 20.50 Gallery of African Wildlife 2,000 03/11 58,000 29.00 Qdoba Mexican Grill 3,000 11/13 97,500 32.50 LensCrafters 4,653 11/13 139,590 30.00 Pier 1 Imports 10,000 11/13 181,224 18.12 Foot Locker 3,433 11/13 99,557 29.00 Yankee Candle Company 2,000 11/13 48,000 24.00 Men's Wearhouse 6,400 11/13 147,200 23.00 Changes at Capital Centre 4,000 12/13 104,000 26.00 Lucaya 3,000 12/13 63,000 21.00 Quiznos 1,562 12/13 51,546 33.00 Panda Express 2,100 11/13 73,500 35.00 Footaction USA 3,500 11/13 98,000 28.00 Drake's Place 2,000 11/13 48,000 24.00 Penner Clothing 5,194 11/13 142,835 27.50 Shoe City 7,700 11/13 180,950 23.50 Teaming Up/Expressions 3,103 12/13 40,339 13.00 Total Sport 3,756 01/14 103,553 27.57 The Big Screen Store 4,500 01/14 103,500 23.00 Cambridge Beauty Supply 2,900 01/14 75,400 26.00 Payless Shoesource 2,800 01/14 78,400 28.00 The Children's Place 6,000 01/14 132,012 22.00 Lane Bryant 5,000 01/14 120,000 24.00 Starbucks 1,250 02/14 37,500 30.00 Mattress Warehouse 4,112 02/14 102,800 25.00 Honeycomb Hideout 2,500 02/14 68,750 27.50 Technicolor Salon & Spa 4,413 03/14 110,325 25.00 Five Guys Restaurant 1,500 03/14 48,000 32.00 African Stargina 1,500 03/14 47,250 31.50 Babalu/Carraba's Glory Days* 6,085 04/14 146,040 24.00 Kobe Japanese Steakhouse* 7,520 04/14 172,960 23.00 McHunu House of Style 2,900 04/14 76,850 26.50 Reggiano's * 2,000 05/14 50,000 25.00 DSW Shoe Warehouse 25,000 07/14 331,250 13.25 Stonefish Grill 6,085 08/14 212,975 35.00 Red Star Tavern 7,661 08/14 268,135 35.00 Soul Fixins'* 2,085 08/14 62,550 30.00 Infusions Cafe* 3,350 09/14 83,750 25.00 Anne Taylor Loft 5,471 01/15 75,000 13.71 Linens 'N Things 34,440 01/15 430,512 12.50 Sports Authority 40,500 01/15 506,250 12.50 Pizzeria Uno 5,719 10/18 110,000 19.23
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Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------- Bugaboo Creek Steakhouse 6,400 11/18 110,000 17.19 Provident Bank of Maryland 3,215 11/18 95,000 29.55 Borders Books & Music 22,915 11/18 441,801 19.28 Chuck E Cheese 11,300 02/19 95,000 8.41 Office Depot* 18,000 07/19 234,000 13.00 Blu Bambu* 4,050 09/19 113,250 27.96 Circuit City 33,828 01/20 490,506 14.50 Chick-Fil-A 4,250 11/23 85,000 20.00 Golden Corral 11,967 12/23 112,500 9.40 Lowe's Theaters Magic Johnson* 52,500 09/24 1,155,000 22.00
* As of September 1, 2004, the tenant's lease had not yet commenced. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HARRIS TEETER STORE #158, WILMINGTON, NORTH CAROLINA On September 8, 2004, we purchased a freestanding retail building leased to a Harris Teeter grocery store, containing 57,230 gross leasable square feet. The center is located at Wilshire Boulevard and Kerr Avenue in Wilmington, North Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $7,200,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $126 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of its lease. One tenant, Harris Teeter Store #158, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lessee (Sq. Ft.) GLA Annum ($) Lease Term - ------------------------------------------------------------------------------------------------------ Harris Teeter Store # 158 57,230 100 9.76 05/95 05/15
For federal income tax purposes, the depreciable basis in this property will be approximately $5,400,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. HARVEST TOWNE CENTER, KNOXVILLE, TENNESSEE On September 8, 2004, we purchased an existing shopping center known as Harvest Towne Center, containing 32,965 gross leasable square feet. The center is located at 4824 N. Broadway Street in Knoxville, Tennessee. -37- We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $8,950,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $272 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, CVS Drug Store, Pet Supplies Plus, Northside Properties and Ross the Boss, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------------- CVS Drug Store 10,125 31 24.50 09/99 01/20 Pet Supplies Plus 8,120 25 14.08 02/96 02/06 Northside Properties 3,480 11 7.64 08/01 Month-to- Month Ross the Boss 4,104 12 14.50 10/01 10/06
For federal income tax purposes, the depreciable basis in this property will be approximately $6,713,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Harvest Towne Center was built in 1996 to 1999. As of September 1, 2004, this property was 100% occupied, with a total 32,965 square feet leased to nine tenants and three ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------------- Northside Properties 3,480 Month-to-Month 26,587 7.64 Krispy Creme Donuts (Ground Lease) * 06/05 47,600 N/A Pet Supplies Plus 8,120 02/06 114,365 14.08 Vacuums Unlimited 986 05/06 11,832 12.00 Ross the Boss 4,104 10/06 59,508 14.50 Stuart R. Humberg D.C. 1,000 11/06 15,815 15.82 US Cleaners, Inc. 1,427 11/07 20,691 14.50 Beneficial Tennessee, Inc. 1,670 07/08 23,380 14.00 Briano's Pizza 2,053 01/08 29,769 14.50 Ruby Tuesday (Ground Lease) * 12/12 59,400 N/A Taco Bell (Ground Lease) * 11/14 39,996 N/A CVS Drug Store 10,125 01/20 248,063 24.50
* The ground lease square footage is not currently available. -38- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LINCOLN PARK, DALLAS, TEXAS On September 7, 2004, we purchased an existing shopping center known as Lincoln Park, containing 148,806 gross leasable square feet. The center is located at 7700 W. Northwest Highway in Dallas, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $47,550,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $320 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Tom Thumb, Barnes & Noble and The Container Store, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------- Tom Thumb 50,000 34 11.50 08/98 07/23 Barnes & Noble 29,485 20 21.00 05/98 01/09 The Container Store 25,000 17 29.00 02/00 01/15
For federal income tax purposes, the depreciable basis in this property will be approximately $35,663,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lincoln Park was built in 1998. As of September 1, 2004, this property was 100% occupied, with a total 148,806 square feet leased to 14 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------- Marvin Brown 4,408 05/05 141,000 31.99 T-Mobile 1,402 10/05 68,698 49.00 Maggie Moo's Ice Cream 1,375 12/07 48,125 35.00 Romies Nail Boutique 1,098 12/07 40,626 37.00 Mother's Work 4,012 03/08 144,432 36.00 Blue Mesa Grill 8,250 12/08 235,950 28.60 Elizabeth Arden 6,058 12/08 151,450 25.00 Eyemasters 3,000 12/08 134,400 44.80 Barnes & Noble 29,485 01/09 619,185 21.00 Up in Smoke 1,164 01/09 58,200 50.00
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Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------- Bag N Baggage 3,554 04/09 106,620 30.00 The Container Store 25,000 01/15 725,000 29.00 Cheesecake Factory 10,000 09/18 347,500 34.75 Tom Thumb 50,000 07/23 575,000 11.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. SAUCON VALLEY SQUARE, BETHLEHEM, PENNSYLVANIA On September 7, 2004, we purchased an existing shopping center known as Saucon Valley Square, containing 80,695 gross leasable square feet. The center is located on I-78 and Rouse 378 in Bethlehem, Pennsylvania. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $16,092,600. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $199 per square foot of leasable space. We purchased this property with our own funds. On September 7, 2004, we obtained financing in the amount of $8,850,900. The loan requires interest only payments at an annual rate of 5.115% and matures in October 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Super Fresh Food Market, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------ Super Fresh Food 47,827 59 13.75 01/99 12/18 Market
For federal income tax purposes, the depreciable basis in this property will be approximately $12,069,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Saucon Valley Square was built in 1999. As of September 1, 2004, this property was 99% occupied, with a total 79,495 square feet leased to 13 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------ Lafayette Ambassador 2,800 03/08 42,900 15.32 Adam's Outdoor Advertising (Ground Lease) N/A 07/08 3,750 N/A Kiki Rio's Restaurant 6,208 12/08 88,000 14.18
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Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------ Holiday Hair 1,200 01/09 20,790 17.33 Casa Mia Pizzeria 2,000 01/09 24,650 12.33 Subway 1,200 02/09 22,050 18.38 Foxes Hallmark 5,200 02/09 96,200 18.50 Blockbuster Video 5,140 03/09 103,468 20.13 No. 1 Chinese Restaurant 1,200 03/09 25,080 20.90 Radio Shack 2,320 03/09 36,800 15.86 Buena Bistro 1,600 05/09 29,840 18.65 Werkheiser Jewelers 1,200 12/13 20,790 17.33 Saucon Valley Cleaners 1,600 01/14 27,720 17.33 Super Fresh Food Market 47,827 12/18 657,621 13.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. QUAKERTOWN SHOPPING CENTER, QUAKERTOWN, PENNSYLVANIA We anticipate purchasing a newly constructed shopping center known as Quakertown Shopping Center, containing 61,832 gross leasable square feet (which includes 3,500 of ground leased space). The center is located at Route 309 and Tollgate Road in Quakertown, Pennsylvania. On August 25, 2004, we funded the initial installment of a $12,664,794 first mortgage in the amount of $11,398,314. The remaining $1,266,480 is expected to be funded in 2004. The interest rate of this first mortgage is 7.5573% and it matures in August 2005. We anticipate purchasing the center when the mortgage matures for approximately $12,665,000. We will use the funds from repayment of the first mortgage towards our purchase price. One tenant, Giant Food Stores, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------------- Giant Food Stores 54,332 88 15.86 05/04 02/24
For federal income tax purposes, the depreciable basis in this property will be approximately $9,499,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Quakertown Shopping Center was constructed in 2004. As of September 1, 2004, this property was 100% occupied, with a total 61,832 (including ground leased space) square feet leased to five tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------ Best Cuts 1,200 02/09 25,200 21.00 Electronics Boutique 1,200 02/14 25,200 21.00 Dry Cleaner Drop Off 1,600 02/14 33,600 21.00
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Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------ Giant Food Stores 54,332 02/24 861,706 15.86 Perkasie Bank (Ground Lease) 3,500 02/24 90,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE COLUMNS SHOPPING CENTER, JACKSON, TENNESSEE On August 24, 2004, we purchased 128,600 square feet of a 173,587 square foot newly constructed shopping center known as The Columns Shopping Center, consisting of three phases. The center is located at 1300 Vann Drive in Jackson, Tennessee. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $20,770,000. These amounts may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $162 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Best Buy, Ross Dress for Less, Marshalls and Bed, Bath & Beyond, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lessee * (Sq. Ft.) GLA Annum ($) - ------------------------------------------------------------------------------------ Best Buy 30,000 17 16.00 Ross Dress for Less 30,187 17 9.75 Marshalls 28,000 16 7.75 Bed, Bath & Beyond 20,000 12 9.75
* Lease term information is based on the date the tenant begins occupancy and is not currently available. For federal income tax purposes, the depreciable basis in this property will be approximately $15,578,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The Columns Shopping Center was constructed in 2003/2004. As of September 1, 2004, the property was 100% leased to 16 tenants. The following table sets forth certain information with respect to those leases: -42-
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee * (Sq. Ft.) Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------- Best Buy 30,000 480,000 16.00 Old Navy 14,800 186,480 12.60 Ross Dress for Less 30,187 294,323 9.75 Bed, Bath & Beyond 20,000 195,000 9.75 Books A Million 12,500 134,375 10.75 Dress Barn 7,700 102,795 13.35 Rack Room Shoes 6,000 85,500 14.25 Spoil Me Rotten 2,000 31,000 15.50 Rue 21 4,000 64,000 16.00 Don Panchos Restaurant 4,000 60,000 15.00 Grass Monkey 1,600 24,000 15.00 Wells Fargo 2,400 37,200 15.50 Oreck Vacuums 1,600 24,800 15.50 Quizno's 1,600 28,800 18.00 Shop Space 7,200 115,200 16.00 Marshalls 28,000 217,000 7.75
* Lease term information is based on the date the tenant begins occupancy and is not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MITCHELL RANCH PLAZA, NEW PORT RICHEY, FLORIDA On August 23, 2004, we purchased 200,404 square feet of a portion of a 324,108 square foot newly constructed shopping center known as Mitchell Ranch Plaza. The center is located at State Road 54 and Little Road in New Port Richey, Florida. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $34,003,300. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $170 per square foot of leasable space. We purchased this property with our own funds. On September 2, 2004, we obtained financing in the amount of $18,700,000. The loan requires interest only payments at an annual rate of 4.53% and matures October 2007. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Publix, Marshalls and Ross Dress for Less, each leases more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------------- Publix 44,840 22 9.85 07/03 07/23 Marshalls 30,000 15 7.95 07/03 07/13 Ross Dress for Less 30,176 15 9.75 07/03 01/14
-43- For federal income tax purposes, the depreciable basis in this property will be approximately $25,503,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Mitchell Ranch Plaza was constructed in 2003. As of September 1, 2004, this property was 93% occupied, with a total 185,873 square feet leased to 35 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Cottage Florist 1,200 08/06 22,212 18.51 Cruise Warehouse 900 08/06 18,228 20.25 Pocket Change 1,200 08/06 26,400 22.00 Vitamin Tree 1,200 09/06 22,800 19.00 Tampa Bay Insurance 900 09/06 16,656 18.51 Curves for Women 1,200 09/06 21,900 18.25 Brazilian Tan 1,800 10/06 32,856 18.25 Charles Pope Cellular 1,200 08/08 22,380 18.65 Magic Touch Cleaners 900 08/08 22,800 25.33 La Bebe's Salon 900 08/08 16,428 18.25 Working Cow 1,200 08/08 22,200 18.50 Cellular 1,200 08/08 22,116 18.43 Christos 2,400 09/08 43,200 18.00 Great Clips 1,000 09/08 19,248 19.25 Payless Shoesource 2,400 09/08 60,000 25.00 Aspasia Nails 1,200 09/08 22,200 18.50 Sally Beauty Supply 1,200 09/08 21,300 17.75 George Josef Salon 1,200 09/08 21,900 18.25 China Express 1,200 10/08 23,100 19.25 Trinity Spirits 3,950 10/08 53,280 13.49 American Family Dentist 1,200 10/08 21,780 18.15 VIP Martial Arts 4,050 12/08 67,836 16.75 Carlucci's 3,600 12/08 64,800 18.00 EB Games 1,200 01/09 26,400 22.00 Hallmark Gold Crown 3,950 01/09 65,172 16.50 Beefs O'Brady's 2,800 02/09 50,400 18.00 The Mattress Firm 3,000 02/09 72,300 24.10 The UPS Store 1,200 02/09 21,600 18.00 Cingular Wireless 900 04/09 27,000 30.00 Marshalls 30,000 07/13 238,500 7.95 Ross Dress for Less 30,176 01/14 294,216 9.75 Starbucks 1,500 01/14 42,000 28.00 Pier 1 Imports 10,000 02/14 161,796 16.18 PETsMART 19,107 01/19 211,128 11.05 Publix 44,840 07/23 441,672 9.85
* Lease renewal information not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -44- GOVERNOR'S MARKETPLACE SHOPPING CENTER, TALLAHASSEE, FLORIDA On August 17, 2004, we purchased an existing shopping center known as Governor's Marketplace Shopping Center, containing 265,541 gross leasable square feet. The center is located on Governor's Square Boulevard, in Tallahassee, Florida. We purchased this property from an unaffiliated third party with our own funds. Our total acquisition cost was approximately $32,654,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $123 per square foot of leasable space. On August 17, 2004, we obtained financing on the property in the amount of $20,625,000. The loan requires interest only payments at an annual rate of 5.185% and matures in September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Bed, Bath & Beyond, Sports Authority and Marshalls, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------- Bed, Bath & Beyond 35,000 13 10.50 07/00 01/12 11.00 02/12 01/17 Sports Authority 34,775 13 0 08/03 01/04 11.91 01/04 08/08 Marshalls 30,000 11 7.75 05/01 05/06 8.25 06/06 05/11
For federal income tax purposes, the depreciable basis in this property will be approximately $24,491,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Governor's Marketplace was built in 2001. As of September 1, 2004, this property was 84% occupied, with a total 223,902 square feet leased to 21 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------ Famous Footwear 10,070 07/06 2/5 yr. 156,085 15.50 Student Body 3,721 08/06 1/5 yr. 81,321 21.85 Old Navy 20,000 09/06 2/5 yr. 230,000 11.50 Clark's Maytag 3,466 05/07 2/5 yr. 67,587 19.50 Life's Uniforms 1,217 06/07 1/5 yr. 26,774 22.00 Cingular Wireless 1,200 06/07 2/5 yr. 30,600 25.50 Sprint PCS 4,206 12/07 1/5 yr. 75,708 18.00 Sports Authority 34,775 08/08 5/5 yr. 414,170 11.91
-45-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee * (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------ Nextel Communications 1,443 09/08 1/5 yr. 36,075 25.00 ALLTEL 2,000 04/09 1/5 yr. 48,000 24.00 Michaels 23,965 02/11 4/5 yr. 251,633 10.50 Marshalls 30,000 05/11 2/5 yr. 232,500 7.75 Lifeway Christian 6,324 09/11 2/5 yr. 132,804 21.00 Atlanta Bread Company 4,000 11/11 2/5 yr. 94,520 23.63 Boston Market 3,800 11/12 4/5 yr. 60,000 15.79 David's Bridal 9,000 05/13 2/5 yr. 133,200 14.80 Petco 13,750 05/13 3/5 yr. 212,025 15.42 Bombay Company 8,500 08/13 1/5 yr. 208,250 24.50 Qdoba 2,000 04/14 2/5 yr. 42,000 21.00 Cargo Kids 5,465 08/14 - 124,602 22.80 Bed, Bath & Beyond 35,000 01/17 3/5 yr. 367,500 10.50
* The tenant is currently in bankruptcy proceedings and the space has not been re-leased. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MANCHESTER MEADOWS, TOWN AND COUNTRY, MISSOURI On August 12, 2004, we purchased an existing shopping center known as Manchester Meadows, containing 454,172 gross leasable square feet (which includes 3,412 square feet of ground lease space). The center is located at 13901 Manchester Road in Town and Country, Missouri. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $56,481,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $124 per square foot of leasable space. We purchased this property with our own funds. On August 23, 2004, we obtained financing in the amount of $31,064,550. The loan requires interest only payments at an annual rate of 4.48% and matures September 2007. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Wal-Mart and Home Depot, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------- Wal-Mart 154,717 34 7.00 04/95 04/15 Home Depot 111,175 24 7.47 11/94 11/19
-46- For federal income tax purposes, the depreciable basis in this property will be approximately $42,361,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Manchester Meadows was built in 1994 and 1995. As of September 1, 2004, this property was 96% occupied, with a total 434,772 square feet leased to 22 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------ Sears Portrait Studio 2,123 03/05 - 39,063 18.40 Linens 'N Things 34,917 01/05 3/5 yr. 340,441 9.75 HobbyTown USA 2,450 07/05 - 44,100 18.00 Chic Nails 1,400 05/06 - 28,000 20.00 Town & Country Tobacco 1,400 01/07 - 26,600 19.00 Fast Track Fitness 3,000 02/07 - 54,000 18.00 St. Louis Playscapes 3,000 04/07 - 54,000 18.00 United States Postal Service 3,570 04/07 1/5 yr. 63,225 17.71 Cobblestone Shoe Repairs 1,400 04/07 - 27,300 19.50 3 Day Blinds 4,550 03/08 1/5 yr. 104,640 23.00 Art & Frame 1,400 11/08 - 28,000 20.00 St. Louis Playscapes 7,500 12/08 1/5 yr. 150,000 20.00 99 Cent Only Store 3,000 01/09 1/5 yr. 49,500 16.50 Great Clips 1,400 04/09 - 29,400 21.00 Memories Unlimited 2,500 04/09 - 43,750 17.50 OfficeMax 23,920 11/09 3/5 yr. 239,200 10.00 PETsMART 27,438 03/10 4/5 yr. 240,083 8.75 The Sports Authority 40,500 11/14 10/5 yr. 324,000 8.00 Wal-Mart 154,717 04/15 6/5 yr. 1,083,018 7.00 Home Depot 111,175 11/19 10/5 yr. 830,088 7.47 Boston Chicken (Ground Lease) 3,412 08/05 7/5 yr. 79,200 N/A
* Lease renewal option information not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE VILLAGE SHOPPES AT SIMONTON, LAWRENCEVILLE, GEORGIA On August 9, 2004, we purchased a newly constructed shopping center known as The Village Shoppes at Simonton, containing 66,415 gross leasable square feet. The center is located at New Hope Road and Simonton Road in Lawrenceville, Georgia. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,749,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $207 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. -47- One tenant, Publix, will lease more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------ Publix 44,271 67 10.95 05/04 05/24
For federal income tax purposes, the depreciable basis in this property will be approximately $10,312,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The Village Shoppes at Simonton was newly constructed in 2004. As of September 1, 2004, this property was 85% occupied with a total of 56,615 square feet leased to nine tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------------- Subway Real Estate Corp. 1,400 04/09 3/5 yr. 32,900 23.50 Dollar Store 2,644 06/09 1/5 yr. 60,812 23.00 South Eastern Dry Cleaners 1,500 07/09 1/5 yr. 42,000 28.00 Pak Mail Center 1,400 07/09 1/5 yr. 35,000 25.00 Nails and Tanning 1,200 07/09 1/5 yr. 30,000 25.00 Pizza Hut of America 1,400 07/10 * 32,900 23.50 Supercuts 1,400 08/09 1/5 yr. 33,600 24.00 New China 1,400 08/09 * 32,200 23.00 Publix 44,271 05/24 * 484,767 10.95
* Lease renewal option information not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. REISTERSTOWN ROAD PLAZA, BALTIMORE, MARYLAND On August 4, 2004, we entered into a joint venture agreement with the current owners of an existing shopping center known as Reisterstown Road Plaza, containing 779,397 gross leasable square feet. The center is located at 6500-6512 Reisterstown Road, Baltimore, Maryland. We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $88,500,000 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On August 11,2004, we obtained financing in the amount of $49,650,000. The loan requires interest only payments at an annual rate of 5.30% and matures September 2009. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. -48- We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Home Depot, Public Safety Service and National Wholesale Liquidators, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Home Depot 115,289 15 5.20 11/02 01/33 Public Safety Service 107,705 14 12.00 01/98 04/11 National Wholesale Liquidators 91,129 12 4.00 05/00 01/11
For federal income tax purposes, the depreciable basis in this property will be approximately $66,375,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Reisterstown Road Plaza was built in 1986 and renovated in 2004. As of September 1, 2004, this property was 86% occupied, with a total 668,369 square feet leased to 72 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- African Art and Craft 222 Month To Month 10,800 48.65 Shingar 2,250 09/04 41,333 18.37 Perfumery International, Inc. 200 01/05 16,000 80.00 Injury Treatment Center 3,501 03/05 50,660 14.47 Hip Hop One Stop 238 06/05 10,800 45.38 Baltimore City Community College (BCCC) 14,620 05/06 189,329 12.95 Royal Gems & Jewelry 330 09/06 13,530 41.00 Time and More 787 09/06 13,355 16.97 Changes 4,500 09/06 27,720 6.16 Burlington Coat Factory 60,000 10/06 342,000 5.70 Gifts and Balloons 238 12/06 12,000 50.42 Avenue 5,000 01/07 71,250 14.25 Popeyes 3,523 01/07 59,891 17.00 Bank of America 5,250 01/07 77,976 14.85 Payless Shoes 4,985 07/07 43,519 8.73 Sally Beauty Supply 1,500 11/07 27,000 18.00 Power Gamer 1,902 12/07 31,954 16.80 Nuvo 2,017 12/07 25,213 12.50 Furniture Palace 39,243 12/07 247,231 6.30 Accent Hair 1,690 01/08 35,152 20.80 Rent-A-Center 4,300 01/08 73,100 17.00 Juvenile Justice 7,291 01/08 98,428 13.50
-49-
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Revelations Shoe Shop 845 03/08 11,314 13.39 Jackson Hewitt Tax Service 1,217 04/08 30,425 25.00 Gallo 5,143 04/08 42,790 8.32 Vogue Hair Supply 1,050 05/08 20,066 19.11 Park West Medical 7,783 06/08 92,229 11.85 Thi Delight 588 08/08 17,640 30.00 Economy Shoes 3,293 09/08 32,930 10.00 Vital Records 11,500 11/08 154,675 13.45 Sepia Sand & Sable 1,267 12/08 20,272 16.00 Shoe Crazy 4,655 02/09 93,100 20.00 An Angel's Touch 1,598 02/09 19,751 12.36 Board of Nursing 15,232 02/09 195,731 12.85 Dollar City 5,181 04/09 51,810 10.00 Curves For Women 1,600 06/09 22,400 14.00 His and Hers 3,478 06/09 76,516 22.00 The Great Cookie 751 06/09 14,344 19.10 Chic Nails 839 08/09 17,770 21.18 New Direction Barber Shop 1,086 12/09 22,372 20.60 Gold Lagoon 839 03/10 13,827 16.48 Provident Bank 2,593 11/10 57,046 22.00 National Wholesale Liquidators 91,129 01/11 364,516 4.00 Public Safety Service 107,705 04/11 1,292,400 12.00 Subway 250 05/12 27,000 108.00 Vision Beauty Supply 2,832 07/12 43,896 15.50 All Eyes 1,857 07/12 28,691 15.45 Plaza Podiatry 1,964 08/12 39,280 20.00 DHMN State (BCCC) 23,250 10/12 290,625 12.50 Mattress Warehouse 4,000 11/12 76,000 19.00 Mall Spirits 2,236 01/13 27,637 12.36 Footlocker 3,000 03/13 54,000 18.00 Square Circle 651 03/13 10,416 16.00 KS Alterations 500 03/13 15,750 31.50 Cobblers And Cleaners 1,374 04/13 27,480 20.00 Social Security Administration 14,885 06/13 145,873 9.80 Evergreen Cafe 835 07/13 25,050 30.00 Sausage Plus 386 07/13 8,492 22.00 Steak Busters 855 07/13 34,200 40.00 Harbor City Bake Shop 1,061 05/13 25,464 24.00 Blackstone Men's Wear 3,540 07/13 46,020 13.00 Lot Stores 5,335 07/13 34,678 6.50 Pick-A-Pretzel 318 07/13 7,950 25.00 Burgundy Park Seafood 544 07/13 26,112 48.00 Total Health Center 1,050 09/13 15,750 15.00 Metro II 1,453 10/13 24,701 17.00 Shoe City 6,740 01/14 89,979 13.35 Marshalls 28,500 04/14 299,607 10.50 Original Mamma Lucia 1,695 05/14 59,325 35.00 Baltimore City Community College WBJC Radio Station 5,010 06/14 64,629 12.90 Applebee's Neighborhood Grill & Bar 6,000 02/18 88,020 14.67 Home Depot 115,289 01/33 600,000 5.20
-50- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WAL-MART SUPERCENTER, JONESBORO, ARKANSAS On August 4, 2004, we purchased an existing freestanding retail center known as Wal-Mart Supercenter, containing 149,704 gross leasable square feet. The center is located at 1911 West Parker Road in Jonesboro, Arkansas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $10,853,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $72 per square foot of leasable space. We purchased this property with our own funds. On August 6, 2004, we obtained financing in the amount of $6,088,500. The loan requires interest only payments at an annual rate of 5.085% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wal-Mart Supercenter, will lease 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Current Per Square GLA Leased % of Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - ---------------------------------------------------------------------------------------------------------------------------- Wal-Mart Supercenter 149,704 100 808,402 5.40 5/5 yr. 10/97 10/17
For federal income tax purposes, the depreciable basis in this property will be approximately $8,140,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. ACADEMY SPORTS & OUTDOORS, HOUMA, LOUISIANA On July 30, 2004, we purchased a newly constructed freestanding retail center known as Academy Sports & Outdoors, containing 60,001 gross leasable square feet. The center is located at 1777 Martin Luther King Boulevard in Houma, Louisiana. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $5,250,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $88 per square foot of leasable space. We purchased this property with our own funds. On August 4, 2004, we obtained financing for this property in the amount of $2,920,000. The loan requires interest only payments at an annual rate of 5.12% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. -51- One tenant, Academy Sports & Outdoors, will lease 100% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Current Per Square GLA Leased % of Total Annual Foot Per Renewal Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Lease Term - ------------------------------------------------------------------------------------------------------------------------------ Academy Sports & Outdoors 60,001 100 420,000 7.00 4/5 yr. 07/04 07/14 462,000 7.70 08/14 07/24
For federal income tax purposes, the depreciable basis in this property will be approximately $3,937,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. FORKS TOWN CENTER, EASTON, PENNSYLVANIA On July 27, 2004, we purchased an existing shopping center known as Forks Town Center, containing 92,660 gross leasable square feet (which includes 5,100 square feet of ground lease space). The center is located at 301 Town Center Boulevard in Easton, Pennsylvania. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $18,198,700. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $196 per square foot of leasable space. We purchased this property with our own funds. On August 13, 2004, we obtained financing in the amount of $10,395,000. The loan requires interest only payments at an annual rate of 4.97% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Giant Food Stores, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------ Giant Food Stores 54,300 59 16.04 08/02 08/12 17.04 09/12 08/17 18.04 09/17 08/22
For federal income tax purposes, the depreciable basis in this property will be approximately $13,649,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Forks Town Center was built in 2002. As of September 1, 2004, this property was 96% occupied, with a total 88,660 square feet leased to 14 tenants and ground lease space leased to two tenants. The following table sets forth certain information with respect to those leases: -52-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------------------- Movie Gallery 3,200 08/07 3/5 yr. 44,800 14.00 Vista Bank United Trust 2,500 12/07 3/5 yr. 50,000 20.00 Subway 1,600 11/07 1/5 yr. 28,000 17.50 H & R Block 1,600 01/08 1/3 yr. 30,400 19.00 Hollywood Tans 2,400 02/08 1/5 yr. 49,416 20.59 PL Nails 1,200 04/08 1/5 yr. 21,600 18.00 China Moon 3,200 04/08 1/5 yr. 48,000 15.00 Catanzaretti's Pizza 2,400 05/08 - 43,200 18.00 Something Different 1,600 09/08 1/5 yr. 32,000 20.00 Holiday Hair 1,600 09/08 - 33,600 21.00 D & J Cleaners 1,200 11/08 1/5 yr. 19,200 16.00 Data Danz Wireless 1,360 03/09 - 20,400 15.00 Fox Hallmark 5,400 08/09 2/5 yr. 129,600 24.00 Giant Food Stores 54,300 08/22 8/5 yr. 870,972 16.04 Giant Gas Station (Ground Lease) 2,400 01/23 8/5 yr. 12,500 N/A Dunkin Donuts (Ground Lease) 2,700 08/13 3/5 yr. & 1/4 yr. 40,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PLAZA AT MARYSVILLE, MARYSVILLE, WASHINGTON On July 26, 2004, we purchased an existing shopping center known as Plaza at Marysville, containing 115,656 gross leasable square feet and one ground lease space. The center is located at State Avenue and Grove Street, in Marysville, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $21,266,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $184 per square foot of leasable space. We purchased this property with our own funds. On July 30, 2004, we obtained financing in the amount of $11,800,000. The loan requires interest only payments at an annual rate of 5.085% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Safeway, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Safeway 53,850 47 11.00 07/01 07/21
-53- For federal income tax purposes, the depreciable basis in this property will be approximately $15,950,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Plaza at Marysville was built in 1995. As of September 1, 2004, this property was 95% occupied, with a total 110,356 square feet leased to 24 tenants and one ground lease space. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Option Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Alderwood Auto Glass 1,500 07/05 - 20,112 13.41 Northwest Credit Union 1,300 11/05 1/2 yr. 24,050 18.50 Supercuts 1,300 11/05 2/5 yr. 24,696 19.00 GNC 1,422 01/06 - 25,344 17.82 Marysville Daycare 7,345 01/06 - 97,321 13.25 Alta's Pet Gallery 3,375 05/06 1/5 yr. 45,563 13.50 Papa Murphy's 1,300 07/06 1/5 yr. 26,004 20.00 Safeway District Office 901 07/06 2/5 yr. 12,468 13.84 Mail Box Junction 904 09/06 - 16,272 19.00 Alpha Denture Clinic 904 10/06 - 17,172 19.00 Hi-Tek Nails 863 11/06 1/5 yr. 18,120 21.00 Play It Again Sports 3,000 11/06 1/5 yr. 49,173 16.39 Fowlds Cleaners 1,500 12/06 1/5 yr. 24,000 16.00 Sally Beauty Supplies 1,300 01/07 1/5 yr. 24,696 19.00 The Everett Clinic 1,200 03/07 - 24,600 20.50 Cigar Land 1,050 03/07 1/5 yr. 22,281 21.22 Check into Cash 1,546 07/07 1/3 yr. 30,920 20.00 Edward Jones 1,500 07/08 1/5 yr. 27,750 18.50 Rent-A-Center 3,961 09/08 - 51,492 13.00 The Sun Factory 1,803 09/08 1/5 yr. 32,454 18.00 Hollywood Video 6,540 08/09 2/5 yr. 98,100 15.00 Party City 7,992 01/10 2/5 yr. 107,892 13.50 Safeway Fuel Site (Ground Lease) N/A 01/11 10/5 yr. 50,000 N/A Home Street Bank 4,000 12/20 - 80,004 20.00 Safeway 53,850 07/21 8/5 yr. 592,356 11.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WRANGLER COMPANY, WESTERN HEADQUARTERS AND DISTRIBUTION FACILITY, EL PASO, TEXAS On July 22, 2004, we purchased an existing freestanding office and distribution center leased to Wrangler Company, containing 316,800 gross leasable square feet. The center is located at 12173 Rojas Drive in El Paso, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $18,476,800. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $58 per square foot of leasable space. We purchased this property with our own funds. On July 26, 2004, we obtained financing in the amount of $11,300,000. The loan requires interest only payments at an annual rate of 5.09% and matures August 2011. -54- We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wrangler Company, will lease 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Current Per Square GLA Leased % of Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - ------------------------------------------------------------------------------------------------------------------------------- Wrangler Company 316,800 100 1,504,800 4.75 3/7 yr. 11/93 11/13
For federal income tax purposes, the depreciable basis in this property will be approximately $13,858,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. GATEWAY PLAZA SHOPPING CENTER, SOUTHLAKE, TEXAS On July 21, 2004, we purchased an existing shopping center known as Gateway Plaza Shopping Center, containing 358,501 gross leasable square feet. The center is located on State Highway 114 and Southlake Boulevard, in Southlake, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $33,025,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $92 per square foot of leasable space. We purchased this property with our own funds. On September 1, 2004, we obtained financing in the amount of $18,163,000. The loan requires interest only payments at an annual rate of 5.10% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kohl's, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Kohl's 87,423 24 5.74 08/00 01/21
For federal income tax purposes, the depreciable basis in this property will be approximately $24,769,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Gateway Plaza Shopping Center was built in 2000. As of September 1, 2004, this property was 90% occupied, with a total 324,240 square feet leased to 25 tenants. The following table sets forth certain information with respect to those leases: -55-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Cool Cuts for Kids 1,194 09/05 1/5 yr. 28,656 24.00 Old Navy 25,000 09/05 3/5 yr. 225,000 9.00 Mattress Firm 4,008 09/05 2/5 yr. 88,176 22.00 Rack Room 7,996 09/05 2/5 yr. 147,926 18.50 Carpet Mills of America 3,493 11/05 1/5 yr. 76,846 22.00 Dress Barn 8,127 12/05 3/5 yr. 121,905 15.00 Baker Brothers 3,000 12/05 - 75,000 25.00 Calico Corners 5,278 12/05 2/5 yr. 126,672 24.00 Chipotle Mexican Grill 2,432 12/05 3/5 yr. 59,025 24.27 Fitness Headquarters 2,500 01/06 2/5 yr. 62,500 25.00 Home Theater Store 6,000 02/08 1/6 mo. 156,000 26.00 Shogun Shushi 4,253 05/09 2/5 yr. 114,831 27.00 Michaels 23,838 02/10 4/5 yr. 262,218 11.00 T.J. Maxx 30,600 08/10 3/5 yr. 267,750 8.75 Ultra Cosmetics & Salon 11,250 10/10 3/5 yr. 202,500 18.00 Thomasville Home Furniture 18,615 12/10 2/5 yr. 252,792 13.58 Bed Bath & Beyond 30,000 01/11 4/5 yr. 330,000 11.00 Anamia's Retail 5,058 02/11 2/5 yr. 126,450 25.00 Aaron Brothers Art & Frame 6,500 02/11 2/5 yr. 143,000 22.00 Starbucks 1,830 03/11 2/5 yr. 54,900 30.00 Pearle Vision 3,027 10/12 2/5 yr. 71,437 23.60 Zales 3,587 11/13 3/5 yr. 60,979 17.00 OfficeMax 23,801 01/16 4/5 yr. 261,250 10.98 Bank of America 5,430 12/20 3/5 yr. 190,000 34.99 Kohl's 87,423 01/21 6/5 yr. 502,187 5.74
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WAL-MART SUPERCENTER, BLYTHEVILLE, ARKANSAS On July 21, 2004, we purchased an existing retail store known as Wal-Mart Supercenter, containing 183,211 gross leasable square feet. The store is located at 3700 Highway 18, in Blytheville, Arkansas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $12,935,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $71 per square foot of leasable space. We purchased this property with our own funds. On August 31, 2004, we obtained financing in the amount of $7,100,000. The loan requires interest only payments at an annual rate of 4.39% and matures September 2007. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wal-Mart Supercenter, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: -56-
Base Rent Approximate Current Per Square GLA Leased % of Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - --------------------------------------------------------------------------------------------------------------------------------- Wal-Mart Supercenter 183,211 100 902,422 4.93 6/5 yr. 04/99 04/19
For federal income tax purposes, the depreciable basis in this property will be approximately $9,701,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. GATEWAY VILLAGE, ANNAPOLIS, MARYLAND On July 21, 2004, we entered into a joint venture agreement with the current owners of an existing shopping center known as Gateway Village, containing 273,788 gross leasable square feet. The center is located at Housley Road and Defense Highway in Annapolis, Maryland. We entered into a joint venture agreement with the current owners of this property who are unaffiliated third parties. We made a capital contribution in the amount of $49,513,455 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On July 21, 2004, we obtained financing in the form of two loans totaling $31,458,000. The first loan requires interest only payments on $27,233,000 at an annual rate of the three month LIBOR Rate and 113 basis points and matures July 2009. The second loan requires interest only payments on $4,225,000 at an annual interest rate of the three month LIBOR Rate and 200 basis points and matures August 2005. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. Three tenants, Safeway, Burlington Coat Factory and Best Buy, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------------------------- Safeway 53,000 19 10.00 06/02 06/22 Burlington Coat Factory 68,400 25 6.00 03/99 02/04 6.29 03/04 02/09 Best Buy 58,000 21 16.00 04/96 04/01 17.00 05/01 04/06 18.00 05/06 04/11
For federal income tax purposes, the depreciable basis in this property will be approximately $37,135,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Gateway Village was built in 1996. As of September 1, 2004, this property was 100% occupied, with a total 273,788 square feet leased to 16 tenants. The following table sets forth certain information with respect to those leases: -57-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------------------------- Rugged Wearhouse 9,981 01/05 2/5 yr. 129,753 13.00 Big Screen Store 3,525 10/05 2/5 yr. 88,125 25.00 Regional Acceptance Corp 2,000 02/06 1/5 yr. 41,524 20.76 Career Partners 1,600 02/06 1/5 yr. 36,716 22.95 Chesapeake Open MRI 3,000 04/06 1/5 yr. 72,120 24.04 Annapolis Hair 6,400 03/07 - 92,383 14.43 US Army 2,877 04/07 1/5 yr. 63,294 22.00 Standard Carpet 3,975 08/07 1/5 yr. 113,279 28.50 Burlington Coat Factory 68,400 02/09 4/5 yr. 430,543 6.29 Jenny Craig 3,200 03/09 1/5 yr. 51,200 16.00 Best Buy 58,000 04/11 3/5 yr. 986,000 17.00 Staples 24,491 08/11 3/5 yr. 404,101 16.50 Sakura 4,600 12/11 2/5 yr. 82,800 18.00 PETsMART 25,416 01/12 5/5 yr. 419,364 16.50 Safeway 53,000 06/22 6/5 yr. 530,000 10.00 Beneficial Maryland 3,323 Month To Month - 63,137 19.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. TOWSON CIRCLE, TOWSON, MARYLAND On July 21, 2004, we entered into a joint venture agreement with the current owners of an existing shopping center known as Towson Circle, containing 116,366 gross leasable square feet of which 8,838 is a ground lease. The center is located at York, Dulaney Valley and Joppa Roads, in Towson, Maryland. We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $28,450,000 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On July 21, 2004, we obtained financing in the form of two loans totaling $19,197,500. The first loan requires interest only payments on $15,647,500 at an annual rate of 5.10% and matures July 2009. The second loan requires interest only payments on $3,550,000 at an annual rate of 3.60% for the first ninety days and thereafter at the three month LIBOR Rate and 200 basis points. The loan matures August 2005. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Barnes & Noble, Trader Joe's East, Bally Total Fitness and Pier 1 Imports, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: -58-
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------------------------- Barnes & Noble 31,222 27 20.42 11/98 01/14 Trader Joe's East 11,875 10 * 09/00 09/10 Bally Total Fitness 21,713 19 20.50 12/99 12/04 21.50 01/05 12/09 22.50 01/10 12/14 Pier 1 Imports 12,252 10 17.06 12/98 12/03 19.62 01/04 12/08
* This tenant's lease pays percentage rent only on a monthly basis. For federal income tax purposes, the depreciable basis in this property will be approximately $21,338,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Towson Circle was built in 1998. As of September 1, 2004, this property was 92% occupied, with a total 106,621 square feet leased to 13 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Mattress Discounters 2,518 05/05 1/5 yr. 62,950 25.00 T-Mobile 1,996 09/05 1/5 yr. 52,346 26.23 Hollywood Tanning System 2,087 09/07 1/5 yr. 53,740 25.75 Nextel 400 03/08 3/5 yr. 24,720 61.80 Sprint PCS 3,128 11/08 - 86,250 27.57 Pier 1 Imports 12,252 12/08 2/5 yr. 240,350 19.62 Storehouse, Inc. 6,345 09/09 - 155,453 24.50 Country Curtains 4,000 07/10 1/5 yr. 80,000 20.00 Trader Joe's East 11,875 09/10 2/5 yr. * N/A Barnes & Noble 31,222 01/14 3/5 yr. 637,553 20.42 Bally Total Fitness 21,713 12/14 2/5 yr. 445,116 20.50 ATM Machines 247 04/15 - 5,400 21.86 Bahama Breeze Restaurant (Ground Lease) 8,838 09/18 3/5 yr. 238,336 N/A
* This tenant's lease pays percentage rent only on a monthly basis. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. TOLLGATE MARKETPLACE, BEL AIR, MARYLAND On July 19, 2004, we entered into a joint venture agreement with the current owners of an existing shopping center known as Tollgate Marketplace, containing 392,587 gross leasable square feet. The center is located at Route 24 and Route 1, in Bel Air, Maryland. -59- We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $72,100,000 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On July 21, 2004, we obtained financing in the amount of $39,765,000. The loan requires interest only payments at an annual rate of 2.80% for the first ninety days and thereafter at the three month LIBOR Rate and 120 basis points. The loan matures July 2009. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Giant Food and Jo Ann Fabrics, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------ ---------------- --------------- --------------------- ------------------- ------------------ Giant Food 40,400 10 4.36 11/79 10/09 Jo Ann Fabrics 46,000 12 11.00 07/98 01/09
For federal income tax purposes, the depreciable basis in this property will be approximately $54,225,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Tollgate Marketplace was built in 1979 and renovated in 1994. As of September 1, 2004, this property was 100% occupied, with a total 392,587 square feet leased to 34 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Sylvan Learning Center 3,900 06/05 1/5 yr. 75,335 19.32 AT & T Wireless 2,000 09/05 1/5 yr. 63,999 32.00 Carvel Ice Cream 1,250 10/05 1/5 yr. 31,250 25.00 Foto Image 1 Hour 1,600 11/05 - 35,200 22.00 Outback Steakhouse 6,200 12/05 3/5 yr. 77,000 12.42 Factory Card Outlet 11,500 12/05 2/5 yr. 149,500 13.00 T.J. Maxx 27,769 01/06 - 242,978 8.75 Dubinclipped 1,230 06/06 2/5 yr. 33,495 27.23 Rockway Bedding 3,200 08/06 1/5 yr. 74,400 23.25 Starbucks Coffee 1,200 09/06 2/5 yr. 33,732 28.11 Hollywood Tanning System 3,000 03/07 1/5 yr. 89,115 29.71 Only Nails 1,230 06/07 1/5 yr. 39,147 31.83 Standard Carpet 3,500 07/07 1/5 yr. 92,829 26.52 Rack Room Shoes 6,980 11/07 1/5 yr. 127,385 18.25 JoAnn Fabrics 46,000 01/09 3/5 yr. 506,000 11.00 Red Lobster 8,355 01/09 3/5 yr. 88,563 10.60
-60-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Giant Food 40,400 10/09 3/5 yr. 176,341 4.36 Boston Markets 5,200 12/09 - 95,000 18.27 Staples 20,285 12/09 3/5 yr. 303,260 14.95 Pier 1 Imports 9,920 10/10 2/5 yr. 200,681 20.23 Toys "R" Us 30,000 11/10 10/5 yr. 137,499 4.58 TGI Fridays 7,041 12/10 4/5 yr. 151,381 21.50 Petco 12,000 01/11 2/5 yr. 222,000 18.50 The Men's Wearhouse 6,906 02/11 2/5 yr. 151,932 22.00 Joo Dry Cleaners 1,500 03/11 - 31,827 21.22 Sakura 5,380 06/11 2/5 yr. 114,648 21.31 Barnes & Noble Superstores 23,115 01/12 3/5 yr. 369,840 16.00 Michaels 35,000 01/12 3/5 yr. 349,999 10.00 Baja Fresh 3,000 04/12 2/5 yr. 84,000 28.00 First Union Bank 6,050 10/12 2/5 yr. 138,000 22.81 Bassett Furniture 14,144 12/13 2/5 yr. 169,728 12.00 Tollgate Liquors 4,282 04/14 2/5 yr. 51,384 12.00 Pizzeria Uno's 6,360 11/14 4/5 yr. 77,020 12.11 Circuit City 33,090 11/15 4/5 yr. 390,828 11.81
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. DORMAN CENTER, SPARTANBURG, SOUTH CAROLINA On July 16, 2004, we purchased the second phase of Dorman Center, containing 37,200 gross leasable square feet for approximately $7,082,000. We acquired the first phase of Dorman Center, containing 350,994 gross leaseable square feet on March 4, 2004 for approximately $43,118,000. The center is located at Blackstock Road and W.L. Ezell Road, in Spartanburg, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $50,200,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $123 per square foot of leasable space for Phase I and $190 for per square foot of leasable space for Phase II. We purchased this property with our own funds. On April 20, 2004, we obtained financing in the amount of $27,610,000. The loan requires interest only payments at an annual rate of 4.18% and matures May 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wal-Mart Supercenter, leases more than 10% of the combined total gross leasable area of the Phase I and Phase II properties. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------------------- Wal-Mart Supercenter 219,622 57 7.45 08/03 08/23
-61- For federal income tax purposes, the total depreciable basis in this property will be approximately $25,800,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Dorman Center Phase I was built in 2003 and Dorman Center Phase II was newly constructed in 2004. As of September 1, 2004, this property was 94% occupied, with a total 365,394 square feet leased to 23 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------------------------- DORMAN CENTER I Happy Nails 2,000 08/06 1/3 yr. 38,000 19.00 Pilgrim's Pathway 2,000 09/06 1/3 yr. 32,000 16.00 Alltel 2,500 09/06 2/3 yr. 45,000 18.00 Payless Shoe Source 2,800 08/08 3/5 yr. 47,600 17.00 Your Dollar Store 5,000 08/08 2/5 yr. 77,500 15.50 JD's Fashion 3,500 08/08 1/5 yr. 63,000 18.00 Lee Jewelers 1,700 09/08 2/5 yr. 33,150 19.50 Catherine's 4,000 09/08 3/5 yr. 69,000 17.25 Super Tans 2,500 10/08 2/3 yr. 42,500 17.00 Pier 1 Imports 10,800 07/13 3/5 yr. 199,800 18.50 Michaels 23,885 09/13 4/5 yr. 249,459 10.44 McAllister's Deli 4,000 10/13 2/5 yr. 66,000 16.50 Moe's Southwestern 3,000 01/14 2/5 yr. 45,000 15.00 Linens 'N Things 25,000 01/14 3/5 yr. 252,050 10.08 Ross Dress for Less 30,187 01/14 4/5 yr. 332,057 11.00 Wal-Mart Supercenter 219,622 08/23 15/5 yr. & 1/4 yr. 1,636,184 7.45 DORMAN CENTER II American Cash Advance 1,400 04/07 1/3 yr. 24,500 17.50 Cingular Wireless 1,600 05/07 2/2 yr. 28,000 17.50 Aim Mail Center 1,600 06/09 - 28,000 17.50 Sally Beauty Supply 1,400 04/09 2/5 yr. 25,200 18.00 Cost Cutters 1,400 05/09 1/5 yr. 25,900 18.50 American's Home Place 3,500 06/09 2/3 yr. 57,225 16.35 America's Best * 3,000 09/09 1/5 yr. 46,500 15.50 Italian Pie * 3,200 07/14 2/5 yr. 52,800 16.50 Shoe Carnival 12,000 03/14 2/5 yr. 156,000 13.00
* Lease had not commenced as of September 1, 2004 In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. CRANBERRY SQUARE, CRANBERRY TOWNSHIP, PENNSYLVANIA On July 14, 2004, we purchased an existing shopping center known as Cranberry Square, containing 195,566 gross leasable square feet. The center is located on U.S. Route 19 in Cranberry Township, Pennsylvania. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $20,220,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $103 per square foot of leasable space. -62- We purchased this property with our own funds. On July 16, 2004, we obtained financing for this property in the amount of $10,900,000. The loan requires interest only payments at an annual rate of 4.975% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. All five tenants, Barnes & Noble, Dick's Sporting Goods, Best Buy, OfficeMax and Toys "R" Us, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------------- Barnes & Noble 25,200 13 12.50 11/96 10/06 15.00 11/06 10/11 Dick's Sporting Goods 50,000 26 10.25 02/97 01/12 Best Buy 37,005 19 12.25 11/02 01/08 13.25 02/08 01/13 OfficeMax 23,380 12 10.10 10/96 09/01 10.60 10/01 09/06 10.80 10/06 09/11 Toys "R" Us 45,000 23 3.78 11/96 01/07 4.16 02/07 01/12
For federal income tax purposes, the depreciable basis in this property will be approximately $15,165,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Cranberry Square was built in 1996. As of September 1, 2004, this property was 92% occupied, with a total 180,585 square feet leased to five tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ OfficeMax 23,380 09/11 3/5 yr. 247,828 10.60 Barnes & Noble 25,200 10/11 2/5 yr. 315,000 12.50 Toys "R" Us 45,000 01/12 6/5 yr. 170,100 3.78 Dick's Sporting Goods 50,000 01/12 3/5 yr. 512,500 10.25 Best Buy 37,005 01/13 4/5 yr. 453,311 12.25
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -63- KOHL'S/WILSHIRE PLAZA III, KANSAS CITY, MISSOURI On July 13, 2004, we funded $5,750,000 which represents a portion of the purchase price of a free standing retail center under construction to be known as Kohl's/Wilshire Plaza III to contain 88,248 gross leasable square feet. The center is located at I-35 and Highway 152 in Kansas City, Missouri. We are purchasing this property from an unaffiliated third party. Our total acquisition cost will be approximately $9,850,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost will be approximately $112 per square foot of leasable space. In accordance with the terms of the lease agreement with Kohl's, we will reimburse them for the construction of their retail building in two installments. We will receive a 7% return on the original amount funded of $5,750,000 and construction advances to Kohl's until such time as Kohl's lease commences. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kohl's, will lease 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------------- Kohl's 88,248 100 8.37 11/04 01/24
For federal income tax purposes, the depreciable basis in this property will be approximately $7,387,500. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. SHOPPES OF DALLAS, DALLAS, GEORGIA On July 2, 2004, we purchased a newly constructed shopping center known as Shoppes of Dallas, containing 70,610 gross leasable square feet. The center is located at Highway 381 and East Paulding Drive, in Dallas, Georgia. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,052,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $185 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: -64-
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning End - ----------------------------------------------------------------------------------------------------------------- Publix 44,840 64 10.25 03/04 03/24
For federal income tax purposes, the depreciable basis in this property will be approximately $9,789,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shoppes of Dallas was newly constructed in 2004. The property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. As of September 1, 2004, this property was 81% occupied, with a total of 57,440 square feet leased to eleven tenants. In addition, the seller is funding the shortfall rent for certain tenants until the space is occupied. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Creative Tan 1,200 04/07 1/3 yr. 24,000 20.00 Ladies Fitness Express 1,200 04/07 1/3 yr. 19,800 16.50 Verizon 900 04/07 1/3 yr. 15,300 17.00 Evan Blake Salon 1,200 04/07 1/3 yr. 21,000 17.00 Dollar Train 2,100 06/07 1/3 yr. 36,750 17.50 USA Nails 1,200 03/09 2/5 yr. 28,800 24.00 Great Clips 1,200 04/09 2/5 yr. 26,400 22.00 China Fun 1,200 05/09 2/5 yr. 25,200 21.00 Dry Clean USA 1,200 06/09 2/5 yr. 28,800 24.00 Subway 1,200 07/09 2/5 yr. 22,800 19.00 Publix 44,840 03/24 6/5 yr. 459,600 10.25
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE SHOPS AT BOARDWALK, KANSAS CITY, MISSOURI On July 1, 2004, we purchased a newly constructed shopping center known as The Shops at Boardwalk, containing 122,413 gross leasable square feet. The center is located at North Boardwalk Avenue and Ambassador Drive in Kansas City, Missouri. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $36,642,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $299 per square foot of leasable space. We purchased this property with our own funds. On July 2, 2004, we obtained financing in the amount of $20,150,000. The loan requires interest only payments at an annual rate of 4.13% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. -65- One tenant, Borders Books, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------------- Borders Books 19,000 16 13.95 09/02 08/08 14.65 09/08 08/13 15.38 09/13 08/18 16.11 09/18 01/24
For federal income tax purposes, the depreciable basis in this property will be approximately $27,500,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The Shops at Boardwalk was newly constructed during 2003 and 2004. The property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. In addition, the seller is funding the shortfall rent for certain tenants until the space is occupied. As of September 1, 2004, this property was 70% occupied, with a total of 85,924 square feet leased to twenty tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------------- Coldwater Creek * 4,620 Month To Month 2/5 yr. 110,880 24.00 Nextel Communications 2,004 05/08 2/5 yr. 54,108 27.00 Electronic Boutique 2,195 06/08 1/5 yr. 60,582 27.60 Chicos 2,735 07/08 2/5 yr. 68,375 25.00 Planet Sub 3,147 07/08 1/3 yr. & 1/2 yr. 84,969 27.00 Jos. A. Banks 4,200 08/08 1/5 yr. 92,400 22.00 Claire's Boutique 1,200 08/08 1/1 yr. 36,000 30.00 Maurices 3,781 08/08 2/3 yr. 94,525 25.00 Noggin Noodle 2,390 10/08 1/5 yr. 62,140 26.00 Select Comfort 2,158 12/08 1/3 yr. & 1/2 yr. 64,740 30.00 Archivers 5,957 01/09 1/5 yr. 119,140 20.00 2nd Swing 3,580 04/09 - 93,080 26.00 J. Jill 4,040 07/13 - 121,200 30.00 Chipolte Mexican Grill 2,801 07/13 2/5 yr. 78,428 28.00 Yankee Candle 2,000 07/13 1/5 yr. 50,000 25.00 Red Star Tavern 7,200 08/13 2/5 yr. 209,061 29.00 Christopher & Banks 3,500 08/13 - 91,000 26.00 Kirklands 4,915 01/14 - 108,130 22.00 Talbots 4,501 01/16 2/4 yr. 117,026 26.00 Borders Books 19,000 01/24 4/5 yr. 265,050 13.95
* Renewal negotiations in progress In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -66- SHOPPES OF PROMINENCE POINT, CANTON, GEORGIA On June 30, 2004, we purchased a newly constructed shopping center known as Shoppes of Prominence Point, containing 78,058 gross leasable square feet. The center is located at Interstate 575 and State Route 5, in Canton, Georgia. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $18,099,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $232 per square foot of leasable space. We purchased this property with our own funds. On August 13, 2004, we obtained financing in the amount of $9,954,300. The loan requires interest only payments at an annual rate of 5.235% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------------- Publix 44,840 51 10.80 03/04 03/24
For federal income tax purposes, the depreciable basis in this property will be approximately $13,574,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shoppes of Prominence Point was newly constructed in 2004. As of September 1, 2004, this property was 89% occupied, with a total of 69,358 square feet leased to fourteen tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ World Wireless 1,050 03/07 1/3 yr. 21,000 20.00 World Dollar Store 1,610 04/07 1/3 yr. 30,590 19.00 Curves 1,400 04/07 1/3 yr. 27,300 19.50 Prominence Chiropractic 1,400 05/07 1/3 yr. 26,600 19.00 Oceanside Tanning 1,400 04/08 1/4 yr. 32,200 23.00 Bowen's TaeKwonDo Plus 2,450 04/08 1/4 yr. 47,775 19.50 Blockbuster Video 5,268 01/09 4/5 yr. 92,190 17.50 Holly Nails 1,050 04/09 1/4 yr. 25,200 24.00 Yoon Sushi Restaurant 1,400 05/09 1/5 yr. 25,900 18.50 Great Clips 1,400 05/09 2/5 yr. 30,800 22.00 The UPS Store 1,400 05/09 1/5 yr. 26,600 19.00 Mui Lan Restaurant 2,100 05/09 1/5 yr. 40,950 19.50 Beef O'Brady's 2,590 05/12 1/8 yr. 46,620 18.00 Publix 44,840 03/24 6/5 yr. 484,272 10.80
-67- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. DAVIS TOWNE CROSSING, NORTH RICHLAND HILLS, TEXAS On June 30, 2004, we purchased a newly constructed shopping center known as Davis Towne Crossing, containing 41,349 gross leasable square feet of which 4,000 is a ground lease. The center is located at Davis Boulevard and Precinct Line Road in North Richland Hills, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $9,755,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $236 per square foot of leasable space. We purchased this property with our own funds. On August 9, 2004, we obtained financing in the amount of $5,365,200. The loan requires interest only payments at an annual rate of 5.185% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Lady USA Fitness and Cotton Patch Cafe', each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------------- Lady USA Fitness 6,000 14 17.00 10/03 10/08 Cotton Patch Cafe 4,400 11 20.00 12/03 11/08
For federal income tax purposes, the depreciable basis in this property will be approximately $7,316,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Davis Towne Crossing was newly constructed during 2003 and 2004. The property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. In addition, the seller is funding the shortfall rent for certain tenants until the space is occupied. As of September 1, 2004, this property was 82% occupied with 34,091 square feet leased to thirteen tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ H & R Block 2,264 05/07 1/3 yr. 45,280 20.00 The Scrapbook Palace 3,000 10/07 1/2 yr. 57,000 19.00 RadioShack 2,400 08/08 3/5 yr. 48,000 20.00 Sport Clips 1,440 08/08 2/5 yr. 28,800 20.00 EB Games 1,500 09/08 2/5 yr. 31,500 21.00
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Luxury Nails 1,400 09/08 1/5 yr. 29,400 21.00 Friedman's Jewelers 1,727 10/08 3/3 yr. 32,813 19.00 Lady USA Fitness 6,000 10/08 2/5 yr. 102,000 17.00 Cotton Patch Cafe 4,400 11/08 1/5 yr. 88,000 20.00 The UPS Store 1,360 02/09 1/5 yr. 25,840 19.00 Payless Shoes 3,000 07/13 2/5 yr. 54,000 18.00 Quiznos Subs 1,600 11/13 1/5 yr. 30,400 19.00 Washington Mutual (Ground Lease) 4,000 08/28 4/5 yr. 85,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. FULLERTON METROCENTER, FULLERTON, CALIFORNIA On June 30, 2004, we purchased an existing shopping center known as Fullerton Metrocenter, containing 253,296 gross leasable square feet. The center is located at Harbor Boulevard and Orangethorpe Avenue, in Fullerton, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $51,275,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $202 per square foot of leasable space. We purchased this property with our own funds. On July 9, 2004, we obtained financing in the amount of $28,050,000. The loan requires interest only payments at an annual rate of 5.09% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Sportmart and Henry's Marketplace, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------------------------- Sportmart 43,660 18 8.25 10/88 10/93 9.10 11/93 10/03 9.95 11/03 02/06 Henry's Marketplace (Wild Oats) * 28,092 12 16.89 09/04 08/19
For federal income tax purposes, the depreciable basis in this property will be approximately $38,456,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. -69- Fullerton Metrocenter was built in 1988. As of September 1, 2004, this property was 82% occupied, with a total 208,174 square feet leased to forty tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ H & R Block 5,250 09/04 - 141,816 27.01 Sportmart 43,660 02/06 3/5 yr. 434,334 9.95 La Caffepia 1,245 03/06 - 36,708 29.48 Washington Mutual 1,560 05/06 - 35,604 22.82 Kentucky Fried Chicken 2,304 05/06 - 100,800 43.75 AT & T Wireless Services 2,775 10/06 1/5 yr. 75,980 27.38 Payless Shoes 2,525 10/06 1/5 yr. 49,768 19.71 Jenny Craig 1,900 02/07 - 53,656 28.24 RadioShack 2,050 04/07 1/3 yr. 47,970 23.40 Party America 9,610 05/07 - 128,064 13.33 Adelphia Communications 1,515 06/07 1/5 yr. 41,465 27.37 Quizno's Subs 1,400 08/07 1/5 yr. 40,460 28.90 Brite Dental 2,250 08/07 2/5 yr. 43,920 19.52 Lilacs Flowers and Gifts 1,200 11/07 1/5 yr. 36,408 30.34 GameStop 1,550 12/07 - 36,900 23.81 Ruby's Diner 3,592 02/08 - 106,320 29.60 Pop's Unfinished Furniture 6,650 04/08 2/5 yr. 101,745 15.30 Burger King (Ground Lease) 2,874 04/08 2/5 yr. 130,968 N/A Wherehouse Entertainment 6,350 06/08 2/5 yr. 99,920 15.74 GMP Vitamin 1,020 07/08 30,681 30.08 Beneficial Finance 1,775 10/08 - 49,956 28.14 Fantastic Sams 1,170 11/08 - 34,728 29.68 Beauty Avenue 5,400 11/08 - 110,808 20.52 Jewelry Mart 7,000 12/08 1/5 yr. 273,432 39.06 Tilly's 6,040 12/08 1/5 yr. 132,276 21.90 Sylvan Learning Center 3,648 05/09 - 71,646 19.64 Miry Collection 4,350 05/09 - 109,260 25.12 Vans 1,650 06/09 - 46,348 28.09 Super Mex Restaurants 5,500 10/09 - 155,556 28.28 Kim Sun Young Salon 1,280 10/09 - 36,732 28.70 Metro Dry Cleaning 1,950 11/09 1/5 yr. 52,332 26.84 Tip Top Nails 900 01/10 1/5 yr. 36,468 40.52 Matsunoya 2,900 06/10 - 75,132 25.91 Baskins-Robbins 1,275 10/10 1/5 yr. 38,052 29.84 China Buffet 10,828 06/11 - 184,617 17.05 First Bank and Trust 21,600 02/13 2/5 yr. 201,256 9.31 Orange County Credit Union 4,000 12/13 1/5 yr. 81,600 20.40 Big Island BBQ 1,090 03/14 1/5 yr. 31,392 28.80 Avenue 5,300 01/15 2/5 yr. 104,256 19.67 PETsMART 19,238 03/19 3/5 yr. 278,544 14.48 Henry's Marketplace (Wild Oats) * 28,092 08/19 474,474 16.89
* Lease had not commenced as of September 1, 2004. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -70- LOW COUNTRY VILLAGE SHOPPING CENTER, BLUFFTON, SOUTH CAROLINA On June 30, 2004, we purchased a newly constructed shopping center known as Low Country Village Shopping Center, containing 76,376 gross leasable square feet (Phase I). We signed an agreement, subject to conditions, to purchase an additional 63,460 gross leasable square feet (Phase II) of construction estimated to be completed in 2004 for approximately $10,542,800. The center is located at Highway 278 and Foreman Hill Road in Bluffton, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $9,758,840 for Phase I. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $127 per square foot of leasable space for Phase I and $166 per square foot of leasable space for Phase II. We purchased Phase I and intend to purchase Phase II with our own funds. However, we expect to place financing on both phases at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Ross Dress for Less, Michaels and PETsMART, lease more than 10% of the total gross leasable area of the Phase I property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Phase I Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------ Ross Dress for Less 30,131 39 9.75 05/04 04/09 10.25 05/09 04/14 Michaels 21,360 28 9.75 02/04 02/14 PETsMART 19,107 25 12.95 02/04 01/09 13.95 02/09 01/14 14.95 02/14 01/19
For federal income tax purposes, the depreciable basis in this property will be approximately $15,750,000 for Phase I. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Low Country Village Shopping Center is newly constructed in 2004. As of September 1, 2004, Phase I was 92% occupied, with a total of 70,598 square feet leased to three tenants. The property is currently in a leasing up phase for Phase II and certain tenants have executed lease for retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ PHASE I Michaels 21,360 02/14 4/5 yr. 208,260 9.75 Ross Dress for Less 30,131 04/14 4/5 yr. 293,777 9.75 PETsMART 19,107 01/19 3/5 yr. 247,436 12.95
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ PHASE II Linens 'N Things 25,080 07/14 244,530 9.75 Cost Plus World Market 18,300 01/15 215,025 11.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. NORTHGATE NORTH, SEATTLE, WASHINGTON On June 30, 2004, we purchased a newly constructed shopping center known as Northgate North, containing 302,095 gross leasable square feet. The center is located at 302 Northeast Northgate Way in Seattle, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $48,455,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $160 per square foot of leasable space. We purchased this property with our own funds. On July 14, 2004, we obtained financing in the amount of $26,650,000. The loan requires interest only payments at an annual rate of 4.60% and matures July 2008. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Target and Best Buy, each leases more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------ Target 147,582 49 4.34 01/01 12/26 Best Buy 51,202 17 25.00 10/00 01/06 27.00 02/06 01/11 29.00 02/11 01/16 31.00 02/16 01/21
For federal income tax purposes, the depreciable basis in this property will be approximately $36,341,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Northgate North was constructed between 2000 and 2003. As of September 1, 2004, this property was 93% occupied, with a total 281,595 square feet leased to seven tenants. The following table sets forth certain information with respect to those leases: -72-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Qwest Wireless 1,950 12/07 2/5 yr. 40,000 20.51 Quizno's 1,315 07/12 2/5 yr. 41,856 31.83 Olive Garden 7,930 10/12 4/5 yr. 205,000 25.85 Ross Dress for Less 25,278 01/14 4/5 yr. 391,809 15.50 G.I. Joe's (Storage) 1,968 05/18 4/5 yr. 11,808 6.00 G.I. Joe's 44,370 05/18 4/5 yr. 532,440 12.00 Best Buy 51,202 01/21 4/5 yr. 1,280,060 25.00 Target 147,582 12/26 5/5 yr. 640,000 4.34
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PACHECO PASS SHOPPING CENTER, GILROY, CALIFORNIA We anticipate purchasing a portion of a newly constructed shopping center known as Pacheco Pass Shopping Center, containing 99,356 gross leasable square feet (which includes 11,810 square feet of ground lease space). The center is located at Camino Arroyo and State Highway 152 in Gilroy, California. On June 30, 2004, we funded the initial installment of a $22,000,000 first mortgage in the amount of $15,332,906. The remainder of $6,667,094 is expected to be funded in the fourth quarter of 2004. The interest rate of this first mortgage is 6.9933% and it matures on July 15, 2005. We anticipate purchasing the center when the mortgage matures for approximately $24,400,000. We will use the principal towards our purchase price. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Best Buy and Linens 'N Things, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------ Best Buy 30,000 30 13.91 11/03 01/14 Linens 'N Things 27,984 28 13.50 03/04 01/15
For federal income tax purposes, the depreciable basis in this property will be approximately $18,300,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pacheco Pass Shopping Center was newly constructed in 2004. As of September 1, 2004, the property is currently in a leasing up phase and certain tenants have executed lease for retail space within the shopping center. The following table sets forth certain information with respect to those leases: -73-
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------ Nextel Communications 1,500 12/10 54,000 36.00 Electronics Boutique 1,500 11/13 52,500 35.00 The Sleep Train 4,550 11/13 111,475 24.50 Best Buy 30,000 01/14 417,240 13.91 Cold Stone Creamery 1,200 01/14 38,880 32.40 Jamba Juice 1,500 01/14 50,400 33.60 Subway 1,500 01/14 54,000 36.00 Sip n' Hot 1,650 01/14 56,925 34.50 Maui Taco 2,528 06/14 87,216 34.50 Monterey Spa & Stove 4,612 07/14 103,770 22.50 Linens 'N Things 27,984 01/15 377,784 13.50 Bank of America (Ground Lease) N/A 01/24 120,000 N/A Chili's (Ground Lease) N/A 04/14 100,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LAKEWOOD TOWNE CENTER, LAKEWOOD, WASHINGTON On June 25, 2004, we purchased an existing shopping center known as Lakewood Towne Center, containing 578,863 gross leasable square feet. The center is located at Gravelly Lake Drive and 100th Street, in Lakewood, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $81,100,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $140 per square foot of leasable space. We purchased this property with our own funds. On June 30,2004, we obtained financing in the form of two loans totaling $51,260,000. The first loan requires interest only payments on $44,000,000 at an annual rate of 2.68% for the first ninety days and thereafter at the three month LIBOR Rate. This loan matures June 2009. The second loan requires interest only payments on $7,260,000 at an annual rate of 3.83% for the first ninety days and thereafter at the LIBOR Rate. This loan matures July 2005. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Gottschalk's and Burlington Coat Factory, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------- Gottschalk's 119,256 21 3.35 03/92 02/12 Burlington Coat Factory 70,533 12 5.50 08/03 08/08 5.75 09/08 08/13
-74- For federal income tax purposes, the depreciable basis in this property will be approximately $60,825,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lakewood Towne Center was rebuilt in 2002 and 2003. As of September 1, 2004, this property was 94% occupied, with a total 546,713 square feet leased to twenty-four tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Rent-A-Center 4,275 05/05 2/5 yr. 47,025 11.00 Catherine P.S. Plus 4,507 07/05 - 63,098 14.00 Pierce Transit 4,200 07/06 - 42,000 10.00 Merino's Fine Custom 1,095 09/06 1/5 yr. 21,900 20.00 Old Country Buffet 9,500 12/06 2/5 yr. 118,750 12.50 Old Navy 16,172 01/08 2/5 yr. 177,892 11.00 Famous Footwear 8,355 10/08 2/5 yr. 125,325 15.00 Wells Fargo Financial 1,750 11/09 - 18,812 10.75 Lowes Cineplex 48,229 11/11 * 517,014 10.72 Barnes & Noble 23,104 01/12 2/5 yr. 317,680 13.75 Michaels 24,035 02/12 3/5 yr. 288,420 12.00 Gottschalk's 119,256 02/12 - 400,000 3.35 Bed Bath & Beyond 30,530 01/13 3/5 yr. 381,625 12.50 The Dollar Store 15,564 01/13 1/5 yr. 210,114 13.50 Ross Dress for Less 30,151 01/13 4/5 yr. 354,274 11.75 Lakewood Dialysis 9,450 03/13 2/5 yr. 135,418 14.33 Burlington Coat Factory 70,533 08/13 3/5 yr. 387,932 5.50 Office Depot 18,000 09/13 4/5 yr. 265,500 14.75 La Palma Restaurant 5,120 01/14 2/5 yr. 51,200 10.00 Pier 1 Imports 11,142 02/14 2/5 yr. 191,531 17.19 Matherhood Maternity 1,750 05/14 - 42,875 24.50 Avenue 5,682 01/16 3/5 yr. 88,469 15.57 24 Hour Fitness 20,219 12/16 2/5 yr. 279,022 13.80 G.I. Joes 45,005 11/17 4/5 yr. 540,060 12.00 PETsMART 19,089 01/19 4/5 yr. 209,979 11.00
* Renewal information not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. JOHN'S CREEK VILLAGE, DULUTH, GEORGIA On June 23, 2004, we purchased a newly constructed shopping center known as John's Creek Village, containing 191,752 gross leasable square feet (which includes 10,555 square feet of ground lease space). The center is located at 11720 Medlock Bridge Road, in Duluth, Georgia. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $42,503,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $222 per square foot of leasable space. -75- We purchased this property with our own funds. On July 2, 2004, we obtained financing in the amount of $23,300,000. The loan requires interest only payments at an annual rate of 5.10% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, LA Fitness, Ross Dress For Less and T.J. Maxx, will lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------- LA Fitness 41,000 21 17.00 12/03 12/14 CPI 01/15 04/19 Ross Dress for Less 30,187 16 10.75 05/04 01/15 T.J. Maxx 30,000 16 8.95 09/03 09/13
For federal income tax purposes, the depreciable basis in this property will be approximately $31,877,200. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. John's Creek Village was newly constructed in 2003 and 2004. The property is currently leasing up the remaining vacancies and certain tenants have executed leases for retail space within the shopping center. As of September 1, 2004, this property was 71% occupied with a total 136,782 square feet leased to sixteen tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Nextel Communications 1,640 11/08 2/5 yr. 46,740 28.50 American Mattress 6,500 11/08 1/5 yr. 100,750 15.50 Electronics Boutique 1,200 01/09 2/5 yr. 36,000 30.00 State Farm Insurance 1,700 01/09 1/5 yr. 45,050 26.50 T-Mobile 1,500 02/09 1/5 yr. 51,000 34.00 Cold Stone Creamery 1,360 02/09 2/5 yr. 39,440 29.00 Portrait Innovations 2,375 05/09 - 64,125 27.00 Hollywood Video * 5,020 06/09 124,245 24.75 Hibbett Sporting Goods * 5,000 10/09 72,750 14.55 T.J. Maxx 30,000 09/13 4/5 yr. 268,500 8.95 Dry Cleaners 1,700 12/13 2/5 yr. 47,600 28.00 Chipolte Mexican Grill 3,000 12/13 3/5 yr. 93,000 31.00 Starbucks 1,665 02/14 4/5 yr. 56,527 33.95 Ross Dress for Less 30,187 01/15 4/5 yr. 324,510 10.75 Doctor's Visionworks 2,400 03/14 2/5 yr. 64,800 27.00 LA Fitness 41,000 04/23 3/5 yr. 697,000 17.00 Chili's (Ground Lease) 5,555 05/14 4/5 yr. 100,000 N/A IHOP (Ground Lease) 5,000 12/23 4/5 yr. 85,000 N/A
* As of September 1, 2004, the tenants have not occupied their space. -76- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HUEBNER OAKS CENTER, SAN ANTONIO, TEXAS On June 8, 2004, we purchased an existing shopping center known as Huebner Oaks Center, containing 286,684 gross leasable square feet (which includes 8,036 square feet of ground lease space). The center is located at I-10 and Huebner Road, in San Antonio, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $79,721,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $278 per square foot of leasable space. We purchased this property with our own funds. On June 22, 2004, we obtained financing in the form of two loans totaling $48,000,000. The first loan requires interest only payments on $31,723,000 at an annual rate of 4.20% and matures July 2010. The second loan requires interest only payments on $16,277,000 at an annual rate of 3.96% and matures July 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------ Bed, Bath & Beyond 35,009 12 9.65 03/97 03/02 10.62 04/02 03/07 11.68 04/07 01/08
For federal income tax purposes, the depreciable basis in this property will be approximately $60,006,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Huebner Oaks Center was built between 1997 and 1998. As of September 1, 2004, this property was 97% occupied, with a total 279,461 square feet leased to fifty-five tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------------------- Yankee Candle 2,028 02/05 1/5 yr. 54,756 27.00 Mattress Firm 2,942 05/05 - 64,724 22.00 Compass ATM 60 07/05 1/2 yr. 20,000 N/A AAA Texas 3,682 11/05 1/5 yr. 77,322 21.00 Marble Slab 1,542 12/05 1/3 yr. & 1/5 yr. 37,008 24.00 Kinko's 4,760 02/06 3/5 yr. 92,249 19.38
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------------------- EB Game World 1,160 08/06 - 32,480 28.00 Pier 1 Imports 8,990 02/07 3/5 yr. 182,137 20.26 Old Navy 14,000 03/07 1/5 yr. 196,000 14.00 Shoes 4 Kids 1,000 02/07 1/3 yr. 26,500 26.50 La Madeleine 4,200 03/07 2/5 yr. 86,100 20.50 Moon Mippy 930 04/07 1/4 yr. 26,040 28.00 Club Humidor 2,254 06/07 - 54,096 24.00 Cingular Wireless 2,502 06/07 - 60,048 24.00 All Ashore Sportswear 1,264 07/07 - 27,808 22.00 Pearle Vision 2,721 07/07 2/5 yr. 68,025 25.00 Beauty First 3,681 09/07 1/5 yr. 77,301 21.00 Verizon Wireless 1,803 10/07 1/5 yr. 45,075 25.00 Oreck Homecare 1,103 10/07 1/5 yr. 24,266 22.00 Bed, Bath & Beyond 35,009 01/08 2/5 yr. 371,796 10.62 Frankly Fake Copy 854 01/08 1/5 yr. 23,912 28.00 Ross Dress for Less 28,200 01/08 5/5 yr. 267,900 9.50 Men's Wearhouse 4,500 02/08 2/5 yr. 88,020 19.56 Fire Wok 2,500 03/08 1/5 yr. 52,500 21.00 Ride Away Bicycles 3,917 04/08 - 58,755 15.00 Claire's Boutique 1,200 08/08 - 33,600 28.00 Sports Clips 1,057 09/08 - 26,425 25.00 Gap Kids 8,500 09/08 1/5 yr. 180,540 21.24 Victoria's Secret 4,500 09/08 - 94,500 21.00 Bath & Body Works 2,500 09/08 - 58,750 23.50 Lane Bryant 4,500 09/08 - 94,500 21.00 Banana Republic 5,964 09/08 1/5 yr. 114,807 19.25 California Pizza Kitchen 4,301 10/08 2/5 yr. 118,708 27.60 GNC 1,155 10/08 - 28,875 25.00 Hallmark Creations 6,416 10/08 2/5 yr. 130,566 20.35 Barbeques Galore 4,498 11/08 2/5 yr. 124,145 27.60 Abercrombie & Fitch 6,766 11/08 - 135,320 20.00 Casual Male Big & Tall 3,914 12/08 - 90,022 23.00 Eddie Bauer 6,384 01/09 - 193,691 30.34 Gymboree 1,925 01/09 - 46,200 24.00 Ann Taylor 4,500 01/09 - 131,175 29.15 Starbucks 1,690 02/09 2/5 yr. 38,870 23.00 Steak Escape 1,663 03/09 1/5 yr. 39,912 24.00 Cactus Low Carb Superstore 2,083 05/09 1/5 yr. 33,328 16.00 Brighton 1,498 06/09 - 41,285 27.56 Inksell.com 1,000 07/09 1/5 yr. 30,000 30.00 Ben Adams Jewelers 2,233 11/09 - 55,825 25.00 Bombay Company 4,500 12/09 - 121,500 27.00 Talbots 6,314 01/11 1/3 yr. 164,164 26.00 Chico's 3,060 07/11 2/5 yr. 107,100 35.00 Macaroni Grill 7,846 08/12 2/5 yr. 107,000 13.64 American Eagle 5,800 01/14 - 168,200 29.00 Chipotle Mexican Grill 2,556 03/14 2/5 yr. 69,012 27.00 Borders Books 27,500 01/18 5/5 yr. 411,670 14.97 Saltgrass Restaurant (Ground Lease) 8,036 06/07 4/5 yr. 105,000 N/A
-78- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PINE RIDGE PLAZA, LAWRENCE, KANSAS On June 7, 2004, we purchased an existing shopping center known as Pine Ridge Plaza, containing 230,510 gross leasable square feet (which includes 84,676 square feet of ground lease space). The center is located at 3106 - 3140 Iowa Street, in Lawrence, Kansas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $26,982,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $117 per square foot of leasable space. We purchased this property with our own funds. On July 27, 2004, we obtained financing in the amount of $14,700,000. The loan requires interest only payments at an annual rate of 5.085% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Kohl's, T.J. Maxx and Bed, Bath & Beyond, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------ Kohl's * 80,654 35 N/A 03/98 01/19 T.J. Maxx 25,420 11 8.50 04/04 03/09 9.00 04/09 03/14 Bed, Bath & Beyond 24,000 10 10.00 12/03 01/14
* Ground lease For federal income tax purposes, the depreciable basis in this property will be approximately $20,236,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pine Ridge Plaza was redeveloped from 1998 through 2004 and the inline strip center portion of the property was completed in 2001. As of September 1, 2004, this property was 100% occupied, with a total 230,510 square feet leased to fourteen tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Old Navy 22,000 07/06 2/5 yr. 220,000 10.00 Deals 9,862 08/07 2/5 yr. 128,206 13.00 Electronic Boutique 2,190 03/08 2/5 yr. 41,063 18.75
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------------ Sports Clips 2,190 05/08 1/5 yr. 31,317 14.30 Famous Footwear 12,000 05/11 3/5 yr. 180,000 15.00 Bath & Body Works 2,500 01/12 2/5 yr. 37,500 15.00 Hurst Diamonds 1,375 01/12 1/5 yr. 24,750 18.00 Jason's Deli 5,000 02/12 3/5 yr. 90,000 18.00 Bed, Bath & Beyond 24,000 01/14 3/5 yr. 240,000 10.00 Michaels 21,000 02/14 4/5 yr. 201,495 9.60 T.J. Maxx 25,420 03/14 4/5 yr. 216,070 8.50 Cost Plus World Market 18,297 01/15 3/5 yr. 247,010 13.50 Kohl's (Ground Lease) 80,654 01/19 6/5 yr. 360,000 N/A IHOP (Ground Lease) 4,022 11/19 3/5 yr. 55,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ECKERD DRUG STORES On June 3, 2004, we purchased the following four separate existing freestanding retail properties built between 2003 and 2004 known as Eckerd Drug Stores, containing a total of 54,912 gross leasable square feet.
Location Square Feet Lease Term Purchase Price ($) - -------- ----------- ---------- ------------------ 1100 W. Hampton Boulevard 13,824 06/03/04 - 06/02/24 3,069,000 Greer, South Carolina 2041 S. Croatan Highway 13,824 06/03/04 - 06/02/24 3,650,000 Kill Devil Hills, North Carolina Broad River and Kennerly 13,440 06/03/04 - 06/02/24 3,260,000 Columbia, South Carolina 1106 Main Street 13,824 06/03/04 - 06/02/24 2,625,000 Crossville, Tennessee
We purchased the four Eckerd Drug Stores from Eckerd, an unaffiliated third party. Our total acquisition cost, including expenses, was approximately $12,604,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $230 per square foot of leasable space. We purchased these properties with our own funds. On July 21, 2004, we obtained financing in the form of four loans totaling $6,800,000. The loans on each property are as follows: Eckerd Drug Store in Greer, South Carolina requires interest only payments on $1,650,000; Eckerd Drug Store in Kill Devil Hills, North Carolina requires interest only payments on $1,975,000; Eckerd Drug Store in Columbia, South Carolina requires interest only payments on $1,750,000; and Eckerd Drug Store in Crossville, Tennessee requires interest only payments on $1,425,000. The interest rate on all the proeprties' loans is 5.275% and all the properties' loans mature August 2009. In evaluating these properties as potential acquisitions and determining the appropriate amount of consideration to be paid for the properties, we considered a variety of factors including location, demographics, quality of tenant, length of lease, price per square foot, occupancy and the fact that overall rental rate at the property is comparable to market rates. We believe that each of these properties is well located, has acceptable roadway access and is well maintained. These -80- properties will be subject to competition from similar properties within their market area, and economic performance could be affected by changes in local economic conditions. We did not consider any other factors materially relevant to the decision to acquire these properties. One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area of each property. The leases with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
% of Total Base Rent Approximate GLA of Current Per Square Lessee/ GLA Leased each Annual Renewal Foot Per Location (Sq. Ft.) Property Rent ($) Options Annum ($) Lease Term - ---------------------------------------------------------------------------------------------------------------------------------- 1100 W. Hampton Blvd. 13,824 100 254,727 4/5 yr. 18.43 06/03/04 - 06/02/24 Greer, SC 2041 S. Croatan Hwy. 13,824 100 302,950 4/5 yr. 21.91 06/03/04 - 06/02/24 Kill Devil Hills, NC Broad River and Kennerly 13,440 100 270,580 4/5 yr. 20.13 06/03/04 - 06/02/24 Columbia, SC 1106 Main Street 13,824 100 217,875 4/5 yr. 15.76 06/03/04 - 06/02/24 Crossville, TN
For federal income tax purposes, the depreciable basis in these properties will be approximately $9,453,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. PLAZA SANTA FE, PHASE II, SANTA FE, NEW MEXICO On June 1, 2004, we purchased an existing shopping center known as Plaza Santa Fe, Phase II, containing 222,389 gross leasable square feet. The center is located at Cerrilos Road and Zafarano Boulevard in Santa Fe, New Mexico. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $31,020,600. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $139 per square foot of leasable space. We purchased this property with our own funds and by assuming the existing mortgage debt on the property. The outstanding balance on the mortgage debt at the date of acquisition was $17,551,721. This loan requires monthly principal and interest payments based on a fixed interest rate of 6.2% per annum and cannot be prepaid prior to January 2005. The loan matures on December 1, 2012. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Best Buy, Linens 'N Things and T.J. Maxx, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: -81-
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Best Buy 31,226 14 13.50 09/01 01/09 14.00 02/09 01/17 Linens 'N Things 31,500 14 13.50 11/00 01/06 14.85 02/06 01/11 16.34 02/11 01/16 T.J. Maxx 30,900 14 10.50 11/00 11/10
For federal income tax purposes, the depreciable basis in this property will be approximately $23,300,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Plaza Santa Fe Phase II was built between 2000 to 2002. As of September 1, 2004, this property was 98% occupied, with a total 217,329 square feet leased to 20 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- State Farm Insurance 1,250 02/05 2/3 yr. 27,500 22.00 Old Navy 20,115 11/06 2/5 yr. 251,438 12.50 H & R Block 1,900 10/07 1/5 yr. 37,050 19.50 Corral West 7,556 10/07 1/5 yr. 75,560 10.00 Cactus Salon 1,250 01/08 1/5 yr. 30,000 24.00 French & French 3,038 11/08 1/7 yr. 69,874 23.00 Alltel 3,932 12/08 2/5 yr. 112,612 28.64 T.J. Maxx 30,900 11/10 3/5 yr. 324,450 10.50 Michael's 20,280 03/11 3/5 yr. 253,500 12.50 D & A Mattress 4,710 05/11 2/5 yr. 89,490 19.00 Famous Footwear 8,000 01/12 2/5 yr. 136,000 17.00 Super Nails 1,000 05/12 1/5 yr. 30,000 30.00 Quizno's 1,900 08/12 1/5 yr. 37,715 19.85 Osaka Grill 6,000 09/12 2/5 yr. 150,000 25.00 Payless Shoe Source 2,850 09/13 2/5 yr. 57,000 20.00 Mens Wearhouse 4,505 02/15 1/5 yr. 83,343 18.50 Linens 'N Things 31,500 01/16 3/5 yr. 425,250 13.50 Best Buy 31,226 01/17 2/5 yr. 421,551 13.50 PETsMART 20,010 01/17 3/5 yr. 284,742 14.23 Borders 15,407 01/18 5/5 yr. 234,957 15.25
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -82- NORTHPOINTE PLAZA, SPOKANE, WASHINGTON On May 28, 2004, we purchased an existing shopping center known as Northpointe Plaza, containing 377,924 gross leasable square feet (which includes of 18,719 square feet of ground lease space). The center is located at 10100 N. Newport Highway in Spokane, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $48,500,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $128 per square foot of leasable space. We purchased this property with our own funds. On June 4, 2004, we obtained financing in the amount of $30,850,000. The loan requires interest only payments at an annual rate of 4.272% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Safeway, Best Buy and Gart Sports, each leases more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------ Safeway 47,000 12 7.09 11/90 10/95 7.43 11/95 11/95 7.44 12/95 10/00 7.80 11/00 11/00 Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------ Safeway (continued) 7.82 12/00 10/05 8.19 11/05 11/05 8.21 12/05 11/10 Best Buy 45,000 12 7.56 10/01 01/07 8.12 02/07 01/12 8.71 02/12 01/17 Gart Sports 45,658 12 9.95 10/97 08/98 10.56 09/98 10/02 11.56 11/02 10/07 12.66 11/07 01/13
For federal income tax purposes, the depreciable basis in this property will be approximately $36,375,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Northpointe Plaza was built between 1991 to 1993. As of September 1, 2004, this property was 99% occupied, with a total 374,807 square feet leased to thirty-one tenants. The following table sets forth certain information with respect to those leases: -83-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- RadioShack 2,764 08/05 - 34,550 12.50 Payless Shoes 2,992 11/05 1/5 yr. 52,659 17.60 T.J. Maxx 24,894 01/06 2/5 yr. 186,705 7.50 Sally Beauty Supplies 1,778 03/06 2/5 yr. 22,401 12.60 Corral West 7,560 03/06 1/5 yr. 64,260 8.50 Great Clips 1,600 05/06 - 27,920 17.45 Mother Cupboard 1,600 05/06 1/5 yr. 26,400 16.50 Washington Mutual 4,500 06/06 2/5 yr. 82,404 18.31 Fashion Bug 9,000 01/07 3/5 yr. 81,000 9.00 Pier 1 Imports 10,000 06/07 2/5 yr. 148,200 14.82 Foxy Nails 1,840 10/07 1/5 yr. 31,284 17.00 Payday Plus 1,250 06/08 1/5 yr. 26,400 21.12 Mark Webb 1,500 01/09 - 25,500 17.00 America's Best 4,500 03/09 - 72,000 16.00 Hollywood Video 7,500 08/09 - 141,450 18.86 Safeway 47,000 11/10 7/5 yr. 367,386 7.82 Safeway Gas Bar (Ground Lease) 4,000 01/11 7/5 yr. 98,000 N/A Bath & Body Works 2,363 01/11 2/5 yr. 42,888 18.15 Marks Hallmark 5,026 01/11 - 75,390 15.00 Mail Boxes, Etc. 1,600 07/11 - 27,200 17.00 Red Robin Restaurant (Ground Lease) 6,469 11/11 4/5 yr. 87,808 N/A Taco Bell (Ground Lease) 3,000 05/12 4/5 yr. 54,996 N/A Gart Sports 45,658 01/13 2/5 yr. 527,592 11.56 Old Country Buffet 10,172 01/13 2/5 yr. 140,373 13.80 Azteca Restaurant 5,275 04/13 2/5 yr. 87,860 16.66 Staples 25,356 07/13 3/5 yr. 305,793 12.06 PETsMART 26,175 08/13 4/5 yr. 376,396 14.38 Linens 'N Things 36,554 09/15 3/5 yr. 448,517 12.27 Best Buy 45,000 01/17 3/5 yr. 340,000 7.56 Borders 22,631 01/18 5/5 yr. 178,785 7.90 Applebees (Ground Lease) 5,250 12/27 4/5 yr. 66,999 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WATAUGA PAVILION, WATAUGA, TEXAS On May 21, 2004, we purchased a newly constructed shopping center known as Watauga Pavilion, containing 205,740 gross leasable square feet. The center is located at 7600-7620 Denton Highway in Watauga, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $35,669,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $173 per square foot of leasable space. We purchased this property with our own funds. On June 7, 2004, we obtained financing in the amount of $19,617,000. The loan requires interest only payments at an annual rate of 4.140% and matures June 2010. -84- We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Oshman's Sporting Goods, Ross Dress for Less and Bed, Bath & Beyond, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Oshman's Sporting Goods 32,630 16 10.60 03/04 01/10 11.00 02/10 01/15 Ross Dress for Less 30,187 15 9.25 05/04 05/09 9.50 06/09 01/15 Bed, Bath & Beyond 24,272 12 7.50 01/04 01/14
For federal income tax purposes, the depreciable basis in this property will be approximately $26,800,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Watauga Pavilion was built during 2003 to 2004. As of September 1, 2004, this property was 93% occupied, with a total 192,155 square feet leased to fourteen tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Cool Cuts 4 Kids 1,210 10/08 1/5 yr. 25,410 21.00 Sprint Spectrum 2,738 12/08 2/5 yr. 60,236 22.00 EB Games 1,500 12/08 2/5 yr. 34,500 23.00 Mattress Giant 5,000 01/09 2/5 yr. 110,000 22.00 Beauty Brands 6,260 02/09 1/5 yr. 138,600 22.14 Half Price Books 9,663 01/14 2/5 yr. 115,956 12.00 Bed, Bath & Beyond 24,272 01/14 3/5 yr. 182,040 7.50 Pier 1 Imports 9,373 02/14 2/5 yr. 161,491 17.23 Office Depot 20,000 04/14 3/5 yr. 260,832 13.00 Party City 12,000 01/15 3/5 yr. 159,000 13.25 Ross Dress for Less 30,130 01/15 5/5 yr. 278,703 9.25 Oshman's Sporting Goods 32,630 01/15 3/5 yr. 345,912 10.60 Cost Plus World Market 17,999 01/15 3/5 yr. 238,487 13.25 PETsMART 19,380 03/19 3/5 yr. 201,552 10.40
-85- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. EASTWOOD TOWNE CENTER, LANSING, MICHIGAN On May 13, 2004, we purchased an existing shopping center known as Eastwood Towne Center, containing 326,981 gross leasable square feet (which consists of 24,110 square feet of ground lease space). The center is located at 3003 Preyde Boulevard in Lansing, Michigan. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $85,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $260 per square foot of leasable space. We purchased this property with our own funds. On June 23, 2004, we obtained financing in the amount of $46,750,000. The loan requies interest only payments at an annual rate of 4.64% and matures July 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Dick's Sporting Goods, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Dick's Sporting Goods 45,000 13 0 09/02 06/04 8.00 07/04 01/08 8.50 02/08 01/13 9.00 02/13 01/18
For federal income tax purposes, the depreciable basis in this property will be approximately $63,750,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Eastwood Towne Center was built in 2002. As of September 1, 2004, this property was 99% occupied, with a total 324,020 square feet leased to sixty tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------------------------- State Employee Credit Union 2,120 09/07 2/5 yr. 74,200 35.00 Panchero's 2,409 09/07 2/5 yr. 52,998 22.00 Claire's 1,200 09/07 1/5 yr. 38,400 32.00 Sprint PCS 1,089 09/07 1/5 yr. 43,560 40.00 Fabiano's Candies 1,090 09/07 1/5 yr. 27,250 25.00 Electronics Boutique 1,148 09/07 2/3 yr. 45,920 40.00 Hallmark 4,500 02/08 2/5 yr. 94,500 21.00 Star Image Photography 825 07/08 3/5 yr. 28,875 35.00
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------------------------- LA Weight Loss 1,100 04/09 - 22,000 20.00 See Optics 1,200 09/09 1/5 yr. 42,000 35.00 Banana Republic 7,000 09/10 1/4 yr. & 1/3 yr. 105,000 15.00 The Gap 7,526 09/10 1/4 yr. & 1/3 yr. 120,416 16.00 Maggie Moo's 1,105 10/10 2/5 yr. 44,200 40.00 Beauty First 3,388 10/10 1/7 yr. 84,700 25.00 Pier 1 Imports 10,002 06/12 2/5 yr. 200,040 20.00 Limited Too 3,980 09/12 1/5 yr. 91,540 23.00 Old Thyme Herbs 1,000 09/12 2/5 yr. 38,000 38.00 Mall Office 1,000 09/12 - 20,000 20.00 Ritz Camera 1,500 09/12 2/5 yr. 37,500 25.00 Johnny Rockets 2,592 09/12 4/5 yr. 85,536 33.00 Oneida 4,000 09/12 1/5 yr. 90,000 22.50 Claddagh Pub 5,987 09/12 2/5 yr. 137,701 23.00 Forever 21 6,838 09/12 2/5 yr. 143,598 21.00 Casual Corner 6,019 09/12 1/5 yr. 150,475 25.00 Subway 1,729 10/12 2/5 yr. 56,192 32.50 Treehouse Toys 4,716 10/12 2/5 yr. 113,184 24.00 Mitchell's Fish Market 7,264 11/12 2/5 yr. 183,416 25.25 Coldwater Creek 6,000 11/12 2/5 yr. 150,000 25.00 J. Crew 6,000 01/13 1/5 yr. 144,000 24.00 Guess 5,000 01/13 - 125,000 25.00 White House Black Market 1,850 01/13 2/5 yr. 61,050 33.00 Express 8,000 01/13 2/5 yr. 192,000 24.00 Victoria's Secret 6,500 01/13 2/5 yr. 156,000 24.00 DSW Shoe Warehouse 25,000 01/13 4/5 yr. 300,000 12.00 Jos A. Banks 4,500 01/13 1/5 yr. 121,500 27.00 American Eagle 5,400 01/13 2/5 yr. 129,600 24.00 Ann Taylor Loft 5,280 01/13 2/5 yr. 132,000 25.00 Bath & Body Works 3,360 01/13 2/5 yr. 80,640 24.00 Yankee Candle 2,500 01/13 2/5 yr. 75,000 30.00 The Children's Place 4,526 01/13 2/5 yr. 117,676 26.00 Aeropostal 3,600 01/13 1/5 yr. 86,400 24.00 Starbuck's 1,440 02/13 4/5 yr. 50,400 35.00 Lane Bryant 5,390 02/13 2/5 yr. 140,140 26.00 McAlister's Deli 3,311 02/13 2/5 yr. 79,464 24.00 Christopher & Banks 3,000 03/13 2/5 yr. 105,000 35.00 Venetian Nails 1,376 04/13 2/5 yr. 48,160 35.00 April Cornell 2,250 05/13 2/5 yr. 76,500 34.00 Mother's Work 2,685 06/13 2/5 yr. 93,975 35.00 Capitol Fur 1,100 10/13 2/5 yr. 28,600 26.00 Hampton Jewelers 2,163 10/13 2/5 yr. 43,260 20.00 Talbots 4,800 01/14 2/5 yr. 112,800 23.50 Wlliams-Sonoma 5,500 01/15 - 121,000 22.00 Pottery Barn 10,500 01/15 - 231,000 22.00 Brio/Bravo 7,134 09/17 1/5 yr. 190,000 26.63 Borders (Schuler Books) 24,418 01/18 3/5 yr. 439,524 18.00 Dick's Sporting Goods 45,000 01/18 4/5 yr. 360,000 8.00 CoAmerica (Ground Lease) 3,310 10/18 4/5 yr. 125,000 N/A Max & Erma's (Ground Lease) 7,000 09/19 4/5 yr. 202,000 N/A
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------------------------- PF Changs (Ground lease) 6,800 11/12 3/5 yr. 60,000 N/A Smoky Bones (Ground Lease) 7,000 10/13 4/5 yr. 110,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ARVADA MARKETPLACE AND ARVADA CONNECTION, ARVADA, COLORADO On April 29, 2004, we purchased two existing shopping centers, situated directly across the street from each other, containing 358,757 total gross leasable square feet. Arvada Marketplace contains 297,678 square feet and Arvada Connection contains 61,079 square feet (which includes 2,040 square feet of ground lease space). The centers are located at 7320-7490 West 52nd Street in Arvada, Colorado. We purchased these two centers from one unaffiliated third party. Our total acquisition cost was approximately $51,550,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $144 per square foot of leasable space. We purchased this property with our own funds. On June 21, 2004, we obtained financing in the amount of $28,510,000. The loan requires interest only payments at an annual rate of 4.13% and matures July 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Sam's Club and Gart Sports, each lease more than 10% of the total gross leasable area of Arvada Marketplace and two tenants, Old Country Buffet and Pier 1 Imports, each lease more than 10% of the total gross leasable area at Arvada Connection. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- ARVADA MARKETPLACE Sam's Club 142,491 48 4.04 03/86 07/90 5.25 08/90 06/95 6.31 07/95 03/01 8.01 04/01 03/11 Gart Sports 54,903 18 6.24 10/93 01/99 7.15 02/99 12/03 5.75 01/04 01/04 6.50 02/04 01/09 7.25 02/09 01/14
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Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- ARVADA CONNECTION Old Country Buffet 10,000 16 8.00 09/92 12/97 10.00 01/98 12/02 11.00 01/03 12/07 Pier 1 Imports 8,068 13 14.00 04/88 04/93 15.00 05/93 04/98 15.00 05/98 04/99 15.50 05/99 04/00 16.00 05/00 04/01 16.50 05/01 04/02 17.00 05/02 04/03 17.00 05/03 04/06 18.00 05/06 04/08
For federal income tax purposes, the depreciable basis in this property will be approximately $38,700,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Arvada Marketplace and Arvada Connection were built between 1987 through 1990. As of September 1, 2004, Arvada Marketplace was 97% occupied, with a total 288,819 square feet leased to twenty-six tenants and Arvada Connection was 78% occupied, with a total 47,483 square feet leased to twelve tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------------------- ARVADA MARKETPLACE Carefree Spas & Pools 6,367 Month To Month - 60,000 9.42 Ted Johnson, DDS 1,564 10/04 1/5 yr. 20,301 12.98 Lady of America Fitness 4,200 02/05 1/5 yr. 88,200 21.00 Amanda's Bridal 5,155 05/05 1/5 yr. 54,128 10.50 Fast Signs 1,600 06/05 1/5 yr. 24,000 15.00 American General Finance 1,381 11/05 1/5 yr. 24,168 17.50 Namiko's Restaurant 3,015 02/06 - 53,577 17.77 Cruise Holidays 1,400 02/06 - 21,000 15.00 Citifinancial 2,251 12/06 1/5 yr. 35,821 15.91 Elegant Nails 1,000 01/07 - 18,002 18.00 Schlotzsky's Deli 1,900 07/07 - 26,600 14.00 The UPS Store 1,375 12/07 1/5 yr. 24,063 17.50 Supercuts 2,213 12/07 1/5 yr. 37,621 17.00 Fantastic Sam's 1,350 12/07 1/5 yr. 22,275 16.50 Fashion Bug 10,000 03/08 1/15 yr. 80,000 8.00 Subway 1,230 10/08 1/5 yr. 22,140 18.00 RadioShack 2,791 10/08 2/5 yr. 43,958 15.75 Lone Star Steakhouse 6,000 11/08 1/5 yr. 85,430 14.24 Tile for Less 3,016 03/09 - 48,256 16.00 Executive Tans 1,500 06/09 - 22,687 15.13
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------------------- 1st Cleaners 1,400 04/10 1/5 yr. 23,800 17.00 Red Robin Burger 7,300 12/10 1/5 yr. 201,795 27.64 Sam's Club 142,491 03/11 4/5 yr. 1,142,063 8.01 Bennett's Bar-B-Que 6,054 03/12 2/5 yr. 149,836 24.75 Gart Sports 54,903 01/14 2/5 yr. 356,870 6.50 Office Depot 17,363 05/14 3/5 yr. 138,904 8.00 ARVADA CONNECTION SAS Shoes 2,600 11/04 1/5 yr. 28,600 11.00 Liquor Paradise 2,600 04/06 1/5 yr. 34,450 13.25 Kwal-Howell Paint Center 3,965 05/06 - 58,484 14.75 State Farm Insurance 1,190 07/06 1/5 yr. 20,825 17.50 U-Frame-It 1,680 09/06 - 24,058 14.32 Verizon Wireless 1,400 10/06 - 26,600 19.00 Pier 1 Imports 8,068 04/08 - 137,156 17.00 Household Finance 1,680 11/07 1/5 yr. 25,200 15.00 Old Country Buffet 10,000 12/07 2/5 yr. 110,000 11.00 Taco Bell (Ground Lease) 2,240 12/07 2/5 yr. 74,347 N/A Waldenbooks & More 7,600 01/09 - 176,700 23.25 IHOP 4,460 01/10 1/3 yr. & 1/4 yr. 101,900 22.85
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ALISON'S CORNER SHOPPING CENTER, SAN ANTONIO, TEXAS On April 28, 2004, we purchased an existing shopping center known as Alison's Corner Shopping Center containing 55,066 gross leasable square feet. The center is located at 2720 SW Military Drive in San Antonio, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $7,042,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $128 per square foot of leasable space. We purchased this property with our own funds. On May 10, 2004, we obtained financing in the amount of $3,850,000. The loan requires interest only payments at an annual rate of 4.272% and matures June 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Ross Dress for Less, Mattress Firm and Shoe Carnival, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Ross Dress for Less 30,066 55 10.00 09/03 01/14
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Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Shoe Carnival 12,000 22 13.00 09/03 08/13 Mattress Firm 9,000 16 12.00 01/04 12/08
For federal income tax purposes, the depreciable basis in this property will be approximately $5,282,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Alison's Corner was built in 2003. As of September 1, 2004, this property was 100% occupied, with a total 55,066 square feet leased to three tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------- Mattress Firm 9,000 12/08 2/5 yr. 108,000 12.00 Dots 4,000 01/09 3/5 yr. 67,000 16.75 Shoe Carnival 12,000 08/13 2/5 yr. 156,000 13.00 Ross Dress for Less 30,066 01/14 5/5 yr. 300,660 10.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. NORTH RIVERS TOWN CENTER, CHARLESTON, SOUTH CAROLINA On April 27, 2004, we purchased a portion of a newly constructed shopping center known as North Rivers Town Center. The property we acquired contains 141,004 gross leasable square feet, (which includes 31,280 square feet of ground lease space). The center is located at Rivers Avenue and Ashley Phosphate Road in Charleston, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $20,100,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $142 per square foot of leasable space. We purchased this property with our own funds. On June 3, 2004, we obtained financing in the amount of $11,050,000. The loan requires interest only payments at an annual rate of 4.76% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Babies "R" Us, Bed, Bath & Beyond, Ross Dress for Less and Office Depot, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: -91-
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------ Bed, Bath & Beyond 28,000 20 10.85 11/03 01/14 Ross Dress For Less 30,024 21 11.00 02/04 01/15 Office Depot 16,000 11 11.50 02/04 01/14 Babies "R" Us * 31,280 22 N/A 11/03 01/14
* Ground Lease For federal income tax purposes, the depreciable basis in this property will be approximately $15,100,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. North Rivers Town Center was built during 2003 and 2004. As of September 1, 2004, this property was 100% occupied, with a total 141,004 square feet leased to fifteen tenants and a parcel of land lease to one tenant under a ground lease. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- All About Cellular 1,400 01/07 1/3 yr. 27,300 19.50 Mattress Gallery 2,400 10/08 2/5 yr. 52,800 22.00 Super Nails 1,400 11/08 1/3 yr. 28,000 20.00 GameStop 1,750 11/08 2/5 yr. 35,000 20.00 Great Clips 1,250 01/09 2/5 yr. 26,250 21.00 Cold Stone Creamery 1,500 01/09 3/5 yr. 30,000 20.00 Firehouse Subs 1,800 02/09 1/6 yr. 36,000 20.00 Towne Centre 1,600 03/09 2/3 yr. 26,400 16.50 Pro Golf of Charleston 4,800 03/10 2/3 yr. 76,800 16.00 David's Bridal 10,000 10/13 2/5 yr. 155,000 15.50 Bed, Bath & Beyond 28,000 01/14 3/5 yr. 303,800 10.85 Office Depot 16,000 01/14 4/5 yr. 184,000 11.50 Babies "R" Us (Ground Lease) 31,280 01/14 6/5 yr. 160,776 N/A Just Fresh Bakery & Cafe 4,800 02/14 2/5 yr. 100,800 21.00 Pearle Vision 3,000 02/14 2/5 yr. 60,000 20.00 Ross Dress For Less 30,024 01/15 4/5 yr. 330,264 11.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. BLUEBONNET PARC, BATON ROUGE, LOUISIANA On April 20, 2004, we purchased an existing shopping center known as Bluebonnet Parc containing 135,289 gross leasable square feet. The center is located at I-10 and Bluebonnet Road in Baton Rouge, Louisiana. -92- We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $22,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $163 per square foot of leasable space. We purchased this property with our own funds. On May 10, 2004, we obtained financing in the amount of $12,100,000. The loan requires interest only payments at an annual rate of 4.372% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Best Buy, Linens 'N Things and Cost Plus World Market, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------ Best Buy 45,439 34 13.00 08/02 01/08 13.50 02/08 01/13 14.25 02/13 01/18 Linens 'N Things 32,418 24 11.50 10/02 01/09 12.50 02/09 01/14 Cost Plus World Market 18,300 14 14.00 12/02 01/09 14.50 02/09 01/14
For federal income tax purposes, the depreciable basis in this property will be approximately $16,500,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Bluebonnet Parc was built in 2002. As of September 1, 2004, this property was 95% occupied, with a total 128,289 square feet leased to seven tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Brook May Music 8,000 06/09 2/5 yr. 128,000 16.00 David's Bridal 9,998 09/12 2/5 yr. 159,968 16.00 Lifeway Christian Bookstore 9,161 10/12 2/5 yr. 141,995 15.50 Cost Plus World Market 18,300 01/14 3/5 yr. 256,200 14.00 Linens' N Things 32,418 01/14 3/5 yr. 372,807 11.50 The Men's Wearhouse 4,973 02/14 2/5 yr. 99,460 20.00 Best Buy 45,439 01/18 3/5 yr. 590,707 13.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -93- BEST ON THE BOULEVARD, LAS VEGAS, NEVADA On April 14, 2004, we purchased an existing shopping center known as Best on the Boulevard, containing 204,427 gross leasable square feet. The center is located at 3820 Maryland Parkway in Las Vegas, Nevada. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $35,500,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $174 per square foot of leasable space. We purchased this property with our own funds. On May 7, 2004, we obtained financing in the amount of $19,525,000. The loan requires interest only payments at an annual rate of 3.99% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to reimburse a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Best Buy, Barnes & Noble Booksellers and Copeland's Sporting Goods, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------ Best Buy 57,726 28 15.00 11/94 01/05 CPI 02/05 01/10 CPI 02/10 01/15 Barnes & Noble Booksellers 26,092 13 13.41 09/99 09/04 14.35 10/04 01/10 Copeland's Sporting Goods 25,129 12 27.52 07/97 08/99 13.50 09/99 06/02 15.12 07/02 06/07 16.93 07/07 06/12
For federal income tax purposes, the depreciable basis in this property will be approximately $26,265,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Best on the Boulevard was built during the three year period from 1996 to 1999. As of September 1, 2004, this property was 77% occupied, with a total 156,756 square feet leased to eight tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------ Barnes & Noble Booksellers 26,092 01/10 3/5 yr. 350,000 13.41 Rochester Big & Tall 7,000 08/10 2/5 yr. 201,280 28.75 Deli Planet 4,800 11/10 2/5 yr. 115,200 24.00 Cost Plus World Market 18,508 02/11 3/5 yr. 303,531 16.40 Hallmark 7,500 02/12 3/5 yr. 205,500 27.40
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------------ Copeland's Sporting Goods 25,129 06/12 4/5 yr. 379,950 15.12 Pier 1 Imports 10,001 09/13 3/5 yr. 169,753 16.97 Best Buy 57,726 01/15 2/5 yr. 865,890 15.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PARADISE VALLEY MARKETPLACE, PHOENIX, ARIZONA On April 8, 2004, we purchased an existing shopping center known as Paradise Valley Marketplace containing 92,158 gross leasable square feet (which includes 10,908 square feet of ground lease space). The center is located at Tatum Boulevard and Shea Boulevard in Phoenix, Arizona. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $28,510,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $309 per square foot of leasable space. Included in the purchase price was 11,000 square feet is vacant land that has been approved for development. We purchased this property with our own funds. On June 3, 2004, we obtained financing in the amount of $15,680,500. The loan requires interest only payments at an annual rate of 4.55% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Whole Foods Grocery Store and Eckerd Drug Store, lease more than 10% of the total gross leasable area of the property. The lease with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------- Whole Foods 32,000 35 13.50 01/02 01/12 CPI 02/12 01/17 CPI 02/17 01/22 Eckerd Drug Store * 10,908 12 N/A 07/03 07/23
* Ground Lease For federal income tax purposes, the depreciable basis in this property will be approximately $21,383,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Paradise Valley Marketplace was built in 2002. As of September 1, 2004, this property was 89% occupied, with a total 82,212 square feet leased to seventeen tenants. The following table sets forth certain information with respect to those leases: -95-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- EB Gameworld 1,015 11/05 2/3 yr. 30,450 30.00 Beauty Brands 5,510 12/06 1/5 yr. 176,320 32.00 Verizon Wireless 2,047 12/06 2/3 yr. 65,504 32.00 Soma Restaurant 3,452 10/07 1/5 yr. 108,738 31.50 Ship Rite 1,340 11/07 1/5 yr. 36,575 27.30 So-Oh! Fashion Outlet 1,964 02/08 1/5 yr. 53,028 27.00 Hava Java 1,587 05/08 1/5 yr. 58,846 37.08 Mattress Authority 2,453 08/08 - 75,062 30.60 Kolache Factory 2,100 11/08 2/5 yr. 71,400 34.00 Washington Mutual 4,114 01/09 3/5 yr. 131,648 32.00 The Diamond Source 1,677 11/09 1/3 yr. 46,956 28.00 Baja Fresh 2,544 12/11 2/6 yr. 97,079 38.16 Pick Up Stix 1,820 01/12 2/5 yr. 67,363 37.01 Select Dry Cleaning 2,505 01/13 2/5 yr. 77,404 30.90 The Men's Wearhouse 5,176 03/13 2/5 yr. 165,632 32.00 Whole Foods 32,000 01/22 4/5 yr. 432,000 13.50 Eckerd Drug Store (Ground Lease) 10,908 07/23 4/5 yr. 205,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HERITAGE TOWNE CROSSING, EULESS, TEXAS On March 5, 2004, we purchased an existing shopping center known as Heritage Towne Crossing containing 80,639 gross leasable square feet (which includes 7,246 square feet of ground lease space). The center is located at Glade Road and State Highway 121 in Euless, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $14,567,991. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $181 per square foot of leasable space. A portion of the purchase price will be held in an escrow, to be paid to the seller when the remaining spaces are leased. We purchased this property with our own funds. On April 30, 2004, we obtained financing in the amount of $8,950,000. The loan requires interest only payments at an annual rate of 4.374% and matures June 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. No individual tenant leases more than 10% of the total gross leasable area of the property. For federal income tax purposes, the depreciable basis in this property will be approximately $12,200,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Heritage Towne Crossing was built in 2002. As of September 1, 2004, this property was 89% occupied, with a total 72,119 square feet leased to 29 tenants. The following table sets forth certain information with respect to those leases: -96-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- APB Mortgage 2,530 09/06 1/3 yr. 45,540 18.00 GameStop 1,400 03/07 1/3 yr. 29,400 21.00 Mattress Firm 4,000 04/07 2/5 yr. 96,000 24.00 All Battery Store 2,000 04/07 2/5 yr. 44,000 22.00 Cow Fireworks 1,200 05/07 2/5 yr. 20,400 17.00 Dapper Dan Cleaners 2,000 06/07 1/5 yr. 38,000 19.00 Lava Asian Grill 3,000 07/07 1/5 yr. 51,000 17.00 Salon G 2,800 08/07 1/5 yr. 50,400 18.00 Ultra Tan 1,600 08/07 2/5 yr. 24,000 15.00 Golf USA of Euless 3,473 12/07 1/5 yr. 69,460 20.00 Coppell Spine/Sports Rehab 2,000 03/08 1/3 yr. 38,000 19.00 Sara Donuts 1,400 04/08 1/5 yr. 23,800 17.00 Plato's Closet 3,000 04/08 1/5 yr. 54,000 18.00 Village Barber 1,100 04/08 1/5 yr. 23,100 21.00 Town & Country Tobacco 1,800 04/08 2/5 yr. 32,400 18.00 Parker Uniforms 3,000 05/08 1/5 yr. 42,000 14.00 The Cash Store 1,300 07/08 2/5 yr. 24,700 19.00 Art & Frame Warehouse 2,546 07/08 1/5 yr. 39,463 15.50 Wings to Go 2,000 09/08 1/5 yr. 32,000 16.00 Delicious Delights 1,500 10/08 1/5 yr. 27,000 18.00 Ultima Fitness 2,266 11/08 1/5 yr. 37,389 16.50 Nails Spa 3,410 01/09 1/5 yr. 61,380 18.00 Double Dave's 3,308 03/09 1/5 yr. 54,582 16.50 The Soccer Corner 4,000 05/10 2/5 yr. 62,600 15.65 Panda Express 2,250 04/12 2/5 yr. 47,250 21.00 Washington Mutual 4,000 10/12 4/5 yr. 84,000 21.00 Pearle Vision 1,990 12/12 2/5 yr. 35,820 18.00 Whataburger (Ground lease) 3,500 08/18 3/5 yr. 60,000 N/A Taco Bell (Ground lease) 3,746 09/23 4/5 yr. 51,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PEORIA CROSSINGS, PEORIA, ARIZONA On March 4, 2004, we purchased a newly constructed shopping center known as Peoria Crossings, containing 213,733 gross leasable square feet. The center is located at 9350 West Northern Avenue, in Peoria, Arizona. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $37,368,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $175 per square foot of leasable space. We originally purchased this property with our own funds. On March 5, 2004, we obtained financing in the amount of $20,497,000. The loan requires interest only payments at an annual rate of 4.09% and matures April 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. -97- Three tenants, Ross Dress for Less, Michaels and Petco, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------- Ross Dress for Less 30,171 14 10.00 05/03 01/14 Michaels 24,063 11 11.00 03/02 02/12 Kohl's 88,408 41 8.79 03/04 01/24
For federal income tax purposes, the depreciable basis in this property will be approximately $28,026,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Peoria Crossing was built in 2002 and 2003. As of September 1, 2004, this property was 97% occupied, with a total 207,711 square feet leased to 20 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Famous Footwear 10,030 01/08 2/5 yr. 162,988 16.25 EB Games 1,500 01/08 1/5 yr. 37,500 25.00 Sally Beauty Supply 1,200 02/08 1/5 yr. 26,400 22.00 Claire's Boutique 1,269 02/08 1/5 yr. 30,456 24.00 Voice Stream 1,200 02/08 5/1 yr. 32,400 27.00 Sleep America 4,500 03/08 1/5 yr. 112,500 25.00 Cold Stone Creamery 1,400 05/08 5/1 yr. 37,492 26.78 Sarpino's Pizzeria 1,200 07/08 1/5 yr. 32,136 26.78 Great Clips 1,405 08/08 5/1 yr. 36,179 25.75 Julie Nails & Spa 1,300 12/08 1/5 yr. 33,800 26.00 Supercuts 1,202 12/08 2/5 yr. 33,656 28.00 Michaels 24,063 02/12 4/5 yr. 264,693 11.00 Petco 15,216 10/12 2/5 yr. 216,067 14.20 Payless Shoes 4,042 01/13 2/5 yr. 80,840 20.00 Quizno's 1,400 05/13 2/5 yr. 38,500 27.50 Panda Express 2,205 06/13 2/5 yr. 59,535 27.00 Dress Barn 8,000 06/13 2/5 yr. 140,000 17.50 Anna's Linens 8,000 09/13 2/5 yr. 112,000 14.00 Ross Dress for Less 30,171 01/14 4/5 yr. 301,710 10.00 Kohl's 88,408 01/24 6/5 yr. 777,524 8.79
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -98- PROMENADE AT RED CLIFF, ST. GEORGE, UTAH On February 13, 2004, we acquired an existing shopping center known as Promenade at Red Cliff containing 94,364 gross leasable square feet. The center is located at 250 N. Red Cliffs Drive in St. George, Utah. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $19,533,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $207 per square foot of leasable space. We purchased this property with our own funds. On April 8, 2004, we obtained financing in the amount of $10,590,000. The loan requires interest only payments at an annual rate of 4.29% and matures May 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Old Navy, Staples, and Big 5 Sporting Goods, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------------------- Big 5 Sporting Goods 10,000 11 11.50 06/97 05/02 12.54 06/02 01/07 Old Navy 19,324 20 12.00 02/98 11/03 13.79 12/03 11/08 Staples 22,500 24 11.50 06/97 05/12
For federal income tax purposes, the depreciable basis in this property will be approximately $14,650,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Promenade at Red Cliff was built in 1998. As of September 1, 2004, this property was 95% occupied, with a total 89,480 square feet leased to 18 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Panda Express 1,513 11/04 3/5 yr. 36,312 24.00 Franklin Quest 1,206 12/06 - 30,150 25.00 Hollywood Entertainment 6,200 12/06 2/5 yr. 122,328 19.73 Big 5 Sporting Goods 10,000 01/07 4/5 yr. 125,352 12.54 Vitamin World 1,280 06/07 - 26,880 21.00 Sally Beauty Supply 1,200 06/07 - 22,876 19.06 Gen X Clothing 7,816 06/07 1/5 yr. 131,543 16.83 Prudential 1,017 06/07 1/5 yr. 25,628 25.20 Papa John's Pizza 1,347 12/07 1/5 yr. 35,022 26.00 Durango Grill 2,693 02/08 1/5 yr. 75,404 28.00 Supercuts 1,030 02/08 - 24,720 24.00 Cold Stone Creamery 1,173 08/08 2/5 yr. 33,501 28.56
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Country Clutter 1,464 09/08 1/5 yr. 36,600 25.00 Old Navy 19,324 11/08 1/5 yr. 266,575 13.79 Samuri 21 4,057 12/08 1/5 yr. 97,368 24.00 Quiznos 1,424 01/09 1/5 yr. 30,828 21.65 2 Fat Guys Pizza 4,236 02/09 1/5 yr. 91,074 21.50 Staples 22,500 05/12 3/5 yr. 258,750 11.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. NEWNAN CROSSING WEST AND PHASE II, NEWNAN, GEORGIA On February 13, 2004, we acquired an existing shopping center known as Newnan Crossing Phase II containing 160,219 gross leasable square feet (which includes 6,650 square feet of ground lease space), for approximately $22,362,000. This property is adjacent to Newnan Crossing West, which we acquired on December 24, 2003 for approximately $16,808,000. Newnan Crossing West contains 131,196 gross leasable square feet. The center is located at 591 Bullsboro Drive in Newnan, Georgia. We purchased the property from an unaffiliated third party. This amount may increase by additional costs which have not been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $139 per square foot, and $128 per square foot of leasable space for Newnan Crossing Phase II and Newnan Crossing West, respectively. We intend to purchase an additional 28,000 gross leasable square feet for approximately $4,042,000 in late 2004 when construction has been completed. We originally purchased this property with our own funds. On February 17, 2004, we obtained financing in the amount of $21,543,091. The loan requires interest only payments at an annual rate of 4.38% and matures March 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, BJ's Wholesale, T.J. Maxx and Office Depot, each lease more than 10% of the combined total gross leasable area of the West and Phase II properties The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Office Depot 30,000 10 10.75 06/99 06/14 T.J. Maxx 30,000 10 7.35 08/99 08/04 8.00 09/04 08/09 BJ's Wholesale 115,396 40 8.75 05/03 04/08 CPI 05/08 04/13 CPI 05/13 04/18 CPI 05/18 05/23
-100- For federal income tax purposes, the depreciable basis will be approximately $15,930,000 and $11,356,000 for Phase II and West, respectively. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Newnan Crossing West and Phase II were built in 1999. As of September 1, 2004, the property was 100% occupied, with a total 291,415 square feet leased to 21 tenants and one ground lease. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Old Navy 25,000 09/04 2/5 yr. 225,000 9.00 Hallmark 5,000 07/06 2/5 yr. 72,500 14.50 RadioShack 3,000 08/06 2/5 yr. 51,000 17.00 Stratus Communication 1,300 12/06 1/5 yr. 22,750 17.50 Hibbett's Sporting Goods 7,000 01/07 2/5 yr. 94,500 13.50 Crystal Nails & Tan 1,300 04/07 1/5 yr. 23,400 18.00 Ted's Montana Grill 4,000 04/08 4/5 yr. 64,000 16.00 Planet Smoothie 1,040 07/08 1/5 yr. 18,200 17.50 The Corner Tavern 5,000 08/08 2/5 yr. 85,000 17.00 Great Clips 1,200 10/08 1/5 yr. 21,600 18.00 Banana Beach 1,200 12/08 1/5 yr. 21,600 18.00 Cingular Wireless 1,760 12/08 1/5 yr. 31,680 18.00 My Friend's Place 1,600 03/09 2/5 yr. 28,800 18.00 Michaels 23,669 08/09 4/5 yr. 213,336 9.01 T.J. Maxx 30,000 08/09 3/5 yr. 240,000 8.00 Party City 12,000 10/09 2/5 yr. 156,000 13.00 Payless Shoe Source 3,000 11/09 2/5 yr. 48,000 16.00 Rack Room 7,300 01/10 3/5 yr. 124,100 17.00 Sizes Unlimited 5,000 01/12 2/4 yr. 77,500 15.50 O'Charley's (Ground Lease) 6,650 02/14 3/5 yr. 66,000 N/A Office Depot 30,000 06/14 3/5 yr. 322,500 10.75 BJ's Wholesale 115,396 05/23 4/5 yr. 1,009,715 8.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MACARTHUR CROSSING, LAS COLINAS (IRVING), TEXAS On February 5, 2004, we purchased an existing shopping center known as MacArthur Crossing containing 109,755 gross leasable square feet (which includes 6,500 square feet of ground lease space). The center is located at MacArthur Boulevard and LBJ Freeway in Las Colinas (Irving), Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $23,102,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $210 per square foot of leasable space. We purchased this property with our own funds. On April 2, 2004, we obtained financing in the amount of $12,700,000. The loan requires interest only payments at an annual rate of 4.29% and matures May 1, 2009. -101- We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Stein Mart, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Stein Mart 34,000 31 6.75 07/96 07/06 7.25 08/06 07/11
For federal income tax purposes, the depreciable basis in this property will be approximately $17,340,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. MacArthur Crossing was built in 1995 and 1996. As of September 1, 2004, this property was 98% occupied, with a total 107,759 square feet leased to 28 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Monarch Dental 3,920 12/04 1/5 yr. 66,640 17.00 Valley Ranch Vacations 1,381 06/05 - 24,858 18.00 Regis Haircutters 1,500 01/06 1/5 yr. 37,500 25.00 Custom Clearners 2,100 02/06 1/5 yr. 58,800 28.00 RadioShack 2,000 02/06 1/5 yr. 31,000 15.50 Wolf Camera 1,780 02/06 1/5 yr. 35,600 20.00 Merle Norman 1,457 02/06 1/5 yr. 23,880 16.39 GNC 1,400 02/06 1/5 yr. 25,200 18.00 Rice Boxx 2,101 02/06 - 52,525 25.00 Starbucks Coffee 1,604 03/06 2/5 yr. 32,080 20.00 The UPS Store 1,260 06/06 1/5 yr. 30,240 24.00 Sally Beauty Supply 1,500 06/06 1/5 yr. 29,100 19.40 I Fratelli Restaurant 5,000 08/06 - 107,500 21.50 Subway 1,400 09/06 1/5 yr. 21,000 15.00 Planet Tan 4,400 10/06 1/5 yr. 70,400 16.00 Blockbuster Video (Ground Lease) 6,500 12/06 4/5 yr. 127,335 N/A Flowers For You 2,100 02/07 - 42,000 20.00 Issin Sushi 4,000 03/07 - 80,000 20.00 State Farm Insurance 2,000 04/07 1/5 yr. 34,000 17.00 Eyecare 20/20 2,000 06/07 1/5 yr. 40,000 20.00 Marshall Message Therapy 640 03/08 2/5 yr. 11,520 18.00 TD Waterhouse 2,500 04/08 2/5 yr. 55,000 22.00 Quizno's 2,100 06/09 2/5 yr. 52, 500 25.00 Stein Mart 34,000 07/11 3/5 yr. 229,500 6.75 Mi Cocina 4,964 01/12 2/5 yr. 124,100 25.00 Pei Wei 3,160 02/12 2/5 yr. 96,380 30.50
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Mattress Firm 4,000 04/14 2/5 yr. 108,000 27.00 Firestone Tire 6,992 07/16 2/5 yr. 145,000 20.74
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LA PLAZA DEL NORTE, SAN ANTONIO, TEXAS On January 21, 2004, we purchased an existing shopping center known as La Plaza Del Norte, containing 320,345 gross leasable square feet. The center is located at 125 Northwest Loop 410, in San Antonio, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $58,143,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $182 per square foot of leasable space. We purchased this property with our own funds. On February 4, 2004, we obtained financing in the amount of 32,528,000. The loan requires interest only payments at an annual rate of 4.61% and matures March 1, 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Oshman's Sporting Goods and Best Buy, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Oshman's Sporting Goods 65,000 20 11.11 09/96 01/02 11.61 02/02 01/07 12.11 02/07 01/12 12.61 02/12 01/17 Best Buy 58,000 18 14.00 08/96 01/02 14.75 02/02 01/07 15.50 02/07 01/12
For federal income tax purposes, the depreciable basis in this property will be approximately $43,076,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. La Plaza Del Norte was built in 1996 and 1999. As of September 1, 2004, this property was 95% occupied, with a total 303,245 square feet leased to 16 tenants. The following table sets forth certain information with respect to those leases: -103-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------- Half Price Books 8,000 10/04 2/5 yr. 84,000 10.50 Lifeway Christian 6,000 11/06 2/5 yr. 132,000 22.00 Pearle Vision 3,500 12/06 2/5 yr. 120,750 34.50 Ross Dress for Less 28,438 01/07 4/5 yr. 288,640 10.15 Office Max 23,229 11/12 2/5 yr. 261,326 11.25 DSW Shoe Warehouse 22,000 04/07 4/5 yr. 374,000 17.00 All Battery Center 1,600 05/07 2/5 yr. 36,800 23.00 Successories 1,200 09/08 1/3 yr. & 1/2 yr. 26,400 22.00 GameStop 2,006 12/08 - 52,156 26.00 David's Bridal 12,000 11/09 2/5 yr. 186,240 15.52 Petco 13,650 11/11 3/5 yr. 278,187 20.38 Cost Plus World Market 18,900 01/12 3/5 yr. 302,400 16.00 Best Buy 58,000 01/12 3/5 yr. 855,500 14.75 Simpson-Williams 9,875 12/12 - 161,600 16.36 Bealls 29,847 01/14 2/5 yr. 194,005 6.50 Oshman's Sporting Goods 65,000 01/17 4/5 yr. 754,650 11.61
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. METRO SQUARE CENTER (SUPER VALU SHOPPING CENTER), SEVERN, MARYLAND On January 20, 2004, we purchased an existing shopping center formerly known as Super Valu Shopping Center, containing 61,817 gross leasable square feet. The center is located at 7858 Quarterfield in Severn (Annapolis), Maryland. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $11,031,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $178 per square foot of leasable space. We purchased this property with our own funds. On April 1, 2004, we obtained financing in the amount of $6,067,183. The loan requires interest only payments at an annual rate of 4.28% and matures April 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Shoppers Food Warehouse, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Shoppers Food Warehouse 58,217 94 14.00 09/99 08/04 14.50 09/04 08/09 15.24 09/09 08/14 16.00 09/14 01/20
-104- For federal income tax purposes, the depreciable basis in this property will be approximately $8,840,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Super Valu Shopping Center was built in 1999. As of September 1, 2004, this property was 100% occupied, with a total 61,817 square feet leased to three tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Great Clips 1,200 12/05 5/1 yr. 28,366 23.64 AZZ Cleaners 2,400 12/07 1/5 yr. 55,080 22.95 Shoppers Food Warehouse 58,217 01/20 4/5 yr. 844,146 14.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LARKSPUR LANDING, LARKSPUR, CALIFORNIA On January 14, 2004, we purchased an existing shopping center known as Larkspur Landing, containing 173,821 gross leasable square feet. The center is located at 2257 Larkspur Landing Circle, in Larkspur, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $61,145,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $352 per square foot of leasable space. We originally purchased this property with our own funds. On January 30, 2004, we obtained financing in the amount of $33,630,000. The loan requires interest only payments at an annual rate of 4.45% and matures February 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Bed, Bath & Beyond 42,318 24 20.50 11/02 11/06 21.83 12/06 11/11 23.21 12/11 11/17
For federal income tax purposes, the depreciable basis in this property will be approximately $45,859,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Larkspur Landing was built in 1978 and renovated in 2001. As of September 1, 2004, this property was 87% occupied, with a total 150,893 square feet leased to 34 tenants. The following table sets forth certain information with respect to those leases: -105-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Sushi Ko * 1,709 08/04 - 51,270 30.00 Golden Gate Printing* 3,287 08/04 - 30,010 9.13 Sportech 805 03/05 - 16,503 20.50 24 Hour Fitness 17,039 03/05 1/5 yr. 358,926 21.06 Asher Clinic 5,791 04/05 1/5 yr. 152,786 26.38 Roadrunner Burrito 800 06/05 - 30,624 38.28 Redhill 2,688 07/05 - 74,189 27.60 Jaeger 1,500 07/05 - 42,966 28.64 Oliver Allen Corp. 9,392 09/05 1/5 yr. 242,313 25.80 Robert Brugger 880 06/06 - 18,480 21.00 Maxwell Cleaners 2,748 09/06 - 103,874 37.80 Norman Mahan Jewelers 1,333 01/07 - 43,669 32.76 Determined Productions 11,185 03/07 1/4 yr. 608,663 54.42 Larkspur Shoes & Repair 807 03/07 - 23,564 29.20 Larkspur Landing Optomery 1,165 06/07 - 39,598 33.99 Larkspur Landing Pet Clinic 1,141 04/08 - 36,831 32.28 Bay Area Wireless 610 04/08 2/5 yr. 23,790 39.00 American Nails 745 06/08 - 23,691 31.80 AAA 5,245 07/08 2/5 yr. 169,938 32.40 Togo's Eatery 1,625 07/08 - 38,375 23.62 Timothy Bricca DD 1,064 07/08 - 36,133 33.96 All California 3,359 07/08 - 114,172 33.99 Weight Watchers 1,291 09/08 - 61,219 47.42 Cooper Alley 2,000 11/08 - 103,840 51.92 Ragged Sailor 1,207 12/08 - 33,888 28.08 Marin Brewing Co. 5,978 03/11 - 190,219 31.82 Fidelity Investments 7,232 07/11 2/5 yr. 459,955 63.60 Yogalive 6,150 09/12 - 184,500 30.00 Bed, Bath & Beyond 42,318 11/17 3/5 yr. 867,519 20.50 Noonan's Restaurant 6,679 12/18 2/5 yr. 222,878 33.37 Allstate Insurance 405 Month To Month - 13,365 33.00 Marin Visitor Bureau 720 Month To Month - 12,000 16.67 Avanti 1,115 Month To Month - 2,400 2.15 John Connelly 880 Month To Month - 6,924 7.87
* Renewal negotiations in progress. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. NORTH RANCH PAVILIONS, THOUSAND OAKS, CALIFORNIA On January 15, 2004, we purchased an existing shopping center known as North Ranch Pavilions, containing 62,812 gross leasable square feet. The center is located at 1125-85 Lindero Road, in Thousand Oaks, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $18,468,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $294 per square foot of leasable space. We purchased this property with our own funds. On March 3, 2004, we obtained financing in the amount of $10,157,000. The loan requires interest only payments at an annual rate of 4.12% and matures April 2009. -106- We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Savvy Salon, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Savvy Salon 6,500 10 11.71 10/03 01/04 25.20 02/04 01/06 26.76 02/06 01/08 28.32 02/08 01/10 30.00 02/10 01/12 31.80 02/12 02/14
For federal income tax purposes, the depreciable basis in this property will be approximately $13,851,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. North Ranch Pavilions was built in 1992. As of September 1, 2004, this property was 89% occupied, with a total 55,928 square feet leased to 24 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Kay's Nails 1,028 10/04 1/3 yr. 24,178 23.52 Prudential Realty 3,379 11/04 - 95,287 28.20 Ilene's Boutique 2,105 12/04 - 51,590 24.51 Seta's Shoes 1,086 04/05 - 19,548 18.00 Walton's Portraits 1,300 08/06 1/5 yr. 29,832 22.95 Postal Club 1,086 10/06 1/5 yr. 24,239 22.32 Dance Trends 2,338 11/06 1/5 yr. 41,523 17.76 Bank of America 4,500 12/06 - 172,980 38.44 Clubhous Cleaners 1,505 12/06 1/5 yr. 43,765 29.08 Cookies by Design 1,353 01/07 1/5 yr. 31,822 23.52 Malibu Gymnastics 3,740 02/07 3/3 yr. 67,320 18.00 State Farm Insurance 1,023 03/07 - 22,791 22.28 Malibu Gymnastics 3,040 11/08 5/1 yr. 54,720 18.00 Tae Kwon Do Academy 1,512 06/07 2/5 yr. 34,648 22.92 Treasured Memories 3,691 08/07 1/5 yr. 46,129 12.50 Total Body Fitness 1,998 12/07 1/5 yr. 37,042 18.54 Sudore Pilates 1,346 01/09 1/5 yr. 36,342 27.00 Exotic Thai 1,746 02/11 - 52,380 30.00 Rustico Ristorante 3,495 08/11 2/5 yr. 94,412 27.01 We Frame It 1,526 09/11 1/5 yr. 34,609 22.68 Lamp Post Pizza 3,600 11/11 - 90,145 25.04 Sushi Tei 1,725 07/12 2/5 yr. 52,705 30.55 North Ranch Dentistry 1,306 10/13 2/5 yr. 38,396 29.40 Savvy Salon 6,500 02/14 2/5 yr. 163,800 25.20
-107- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HICKORY RIDGE SHOPPING CENTER, HICKORY, NORTH CAROLINA On January 9, 2004, we purchased an existing shopping center known as Hickory Ridge Shopping Center containing 380,487 gross leasable square feet (which includes 70,127 square feet of ground lease space). The center is located at Catawba Valley Road in Hickory, North Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $41,900,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $110 per square foot of leasable space. We originally purchased this property with our own funds. On January 23, 2004, we obtained financing in the amount of $23,650,000. The loan requires interest only payments as an annual rate of 4.531% and matures February 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Best Buy, Kohl's and Dick's Sporting Goods, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Best Buy 45,000 12 10.75 07/99 01/15 Dick's Sporting Goods * 45,000 12 N/A 01/00 01/20 Kohl's 86,584 23 6.83 08/99 02/20
* Ground lease For federal income tax purposes, the depreciable basis in this property will be approximately $35,068,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Hickory Ridge Shopping Center was built in 1999. As of September 1, 2004, this property was 100% occupied, with a total 380,487 square feet leased to 21 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Sprint PCS 2,800 10/04 1/5 yr. 50,400 18.00 Great Clips 1,200 12/04 1/5 yr. 23,400 19.50 Osaka Japanese Cuisine 2,100 01/05 1/5 yr. 40,950 19.50 Thai Orchid 2,800 01/05 1/5 yr. 53,200 19.00 Tony's Pizza 2,100 01/05 1/5 yr. 45,150 21.50 Hallmark Cards 6,000 02/05 2/5 yr. 93,900 15.65
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Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- EB Games 1,600 10/05 1/5 yr. 32,000 20.00 Factory Mattress 3,600 11/06 1/5 yr. 66,600 18.50 Party City 12,000 06/09 2/5 yr. 162,000 13.50 Marshalls 30,000 08/09 3/5 yr. 234,000 7.80 Old Navy 25,000 01/10 1/5 yr. 212,500 8.50 Shoe Carnival 12,000 01/10 2/5 yr. 129,000 10.75 Family Christian Bookstore 5,000 03/10 2/5 yr. 90,000 18.00 Pier 1 Imports 9,976 03/12 2/5 yr. 174,580 17.50 The Avenue 6,600 01/13 2/5 yr. 78,012 11.82 Best Buy 45,000 01/15 3/5 yr. 483,750 10.75 A.C. Moore 21,000 12/15 3/5 yr. 248,730 11.84 Linens 'N Things 35,000 01/16 3/5 yr. 367,500 10.50 Kohl's 86,584 02/20 6/5 yr. 590,995 6.83 Dicks Sporting Goods (Ground Lease) 45,000 01/20 6/5 yr. 185,000 N/A Babies "R" Us (Ground Lease) 25,127 01/13 6/5 yr. 126,647 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. CORWEST PLAZA, NEW BRITAIN, CONNECTICUT On January 6, 2004, we purchased an existing shopping center known as CorWest Plaza containing 115,011 gross leasable square feet. The center is located at 665 and 687 West Main Street in New Britain, Connecticut. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $33,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $287 per square foot of leasable space. We originally purchased this property with our own funds. On January 7, 2004, we obtained financing in the amount of $18,150,000. The loan requires interest only payments at an annual rate of 4.56% and matures February 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Super Stop and Shop, Liquor Depot and CVS Pharmacy, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Super Stop & Shop 68,073 59 26.00 05/03 05/08 26.50 06/08 05/13 27.00 06/13 05/18 27.50 06/18 05/23 28.00 06/23 05/28
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Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- CVS Pharmacy 12,150 11 26.00 06/01 01/22 Liquor Depot 14,000 12 14.00 08/01 08/06 16.00 09/06 08/11
For federal income tax purposes, the depreciable basis in this property will be approximately $26,101,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. CorWest Plaza was built in phases between 1999 to 2003. As of September 1, 2004, this property was 99% occupied, with a total 114,023 square feet leased to 10 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Video One 3,500 09/05 2/3 yr. 49,213 13.52 Rent-A-Center 6,000 02/06 1/5 yr. 90,000 15.00 Cingular Wireless 1,553 06/06 1/5 yr. 27,954 18.00 Subway 1,500 08/06 3/2 yr. 18,702 12.47 Webster Bank 2,147 11/05 2/5 yr. 38,646 18.00 Papa Gino's 3,000 02/11 2/5 yr. 60,000 20.00 Liquor Depot 14,000 08/11 2/5 yr. 196,000 14.00 Frazier's Two Cleaners & Laundromat 2,100 10/11 2/5 yr. 37,800 18.00 CVS Pharmacy 12,150 01/22 4/5 yr. 315,900 26.00 Super Stop & Shop 68,073 05/28 6/5 yr. 1,769,898 26.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. SHAW'S SUPERMARKET, NEW BRITAIN, CONNECTICUT On December 31, 2003, we purchased a single user retail center known as Shaw's Supermarket, New Britain, containing 65,658 gross leasable square feet. The property is located in New Britain, Connecticut. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,656,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $208 per square foot of leasable space. We originally purchased this property with our own funds. On January 28, 2004, we obtained financing in the amount of $6,450,000. The loan requires interest only payments as an annual rate of 4.684% and matures November 1, 2008. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of its lease. -110- Shaw's Supermarket was built in 1995. One tenant, Shaw's Supermarket, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Base Rent Per Square GLA Leased Total Renewal Per Foot Per Lease Term Lessee (Sq. Ft.) GLA Options Annum ($) Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------------- Shaw's Supermarkets-New Britain 65,658 100 6/5 yr. 1,017,699 15.50 12/95 02/01 1,083,357 16.50 03/01 02/06 1,149,015 17.50 03/06 02/11 1,181,844 18.00 03/11 04/16
For federal income tax purposes, the depreciable basis in this property will be approximately $10,681,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. PAVILION AT KING'S GRANT, CONCORD, NORTH CAROLINA On December 31, 2003, we purchased a newly constructed shopping center known as Pavilion at King's Grant, containing 79,109 gross leasable square feet (which includes 65,000 square feet of ground lease space). The center is located at 8050 Concord Mills Boulevard in Concord, North Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $8,151,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. One tenant, Toys "R" Us, is currently paying half rent. When the tenant begins paying full rent, we will pay the balance of the purchase price of approximately $1,563,000. Our total acquisition cost is expected to be approximately $103 per square foot of leasable space. We originally purchased this property with our own funds. On April 6, 2004, we obtained financing in the amount of $5,342,000. The loan requires interest only payments at an annual rate of 4.39% and matures May 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Toys "R" Us and Olive Garden, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Toys "R" Us * 49,000 62 5.10 10/02 01/13 Olive Garden* 8,500 11 9.41 04/02 04/07 10.35 05/07 04/12
* Ground lease -111- For federal income tax purposes, the depreciable basis in this property will be approximately $2,741,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pavilion at King's Grant was built in 2002 and 2003. As of September 1, 2004, this property was 100% occupied, with a total 79,109 square feet leased to four tenants and three ground lessees. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- RadioShack 2,400 04/08 2/5 yr. 40,800 17.00 Bank of America 100 08/08 2/5 yr. 14,400 144.00 Panera Bread 5,609 12/14 2/5 yr. 109,376 19.50 Jared Jewelers 6,000 01/23 2/5 yr. 220,020 36.67 Olive Garden * 8,500 04/12 4/5 yr. 80,000 N/A Red Lobster * 7,500 05/12 4/5 yr. 80,000 N/A Toys "R" Us * 49,000 01/13 6/5 yr. 250,000 N/A
* ground lease In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ECKERD DRUG STORES On December 24, 2003, we purchased the following two separate existing freestanding retail properties known as Eckerd Drug Stores, containing a total of 27,648 gross leasable square feet.
Location Square Feet Completion Date Purchase Price ($) - -------- ----------- --------------- ------------------ 33rd Street and Santa Fe 13,824 2003 3,364,000 Edmond, Oklahoma 36th and Robinson 13,824 2003 5,288,000 Norman, Oklahoma
We purchased these Eckerd Drug Stores from an unaffiliated third party. Our total acquisition cost was approximately $8,652,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $313 per square foot of leasable space. We purchased these properties with our own funds. On April 30, 2004, we obtained financing in the amounts of $1,850,000 and $2,900,000 for Eckerd Drug Store - Edmond and Eckerd Drug Store - Norman, respectively. Both loans require interest only payments at an annual rate of 4.374% and mature June 2009. One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area of each property. The leases with this tenant require the tenant to pay base annual rent on a monthly basis as follows: -112-
% of Total Base Rent Approximate GLA of Current Per Square Lessee/ GLA Leased each Annual Renewal Foot Per Lease Term Location (Sq. Ft.) Property Rent ($) Options Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------------------- 33rd Street & Santa Fe 13,824 100 289,292 4/5 yr. 20.93 10/03 10/23 Edmond, OK 36th & Robinson 13,824 100 454,806 4/5 yr. 32.90 11/03 11/23 Norman, OK
A twenty year lease commenced as of the date of acquisition with no increases during the term of the lease. Each lease includes four options, each for a term of five years. These properties are on triple net leases and the tenant will be responsible for all repairs. For federal income tax purposes, the depreciable basis in these properties will be approximately $6,770,000 When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. DARIEN TOWNE CENTRE, DARIEN, ILLINOIS On December 19, 2003, we purchased an existing shopping center known as Darien Towne Centre containing 223,844 gross leasable square feet (which includes 6,371 square feet of ground lease space). The center is located at 2189 75th Street, in Darien, Illinois. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $30,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $134 per square foot of leasable space. Simultaneously with the purchase this property, we obtained a new loan in the amount of $16,500,000. The loan requires interest only payments based on a rate of 4.65% per annum and matures June 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Home Depot, Circuit City and PETsMART, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Home Depot 109,200 49 7.98 05/94 04/99 8.35 05/99 04/04 8.60 05/04 04/09 9.10 05/09 04/14 Circuit City 32,984 15 10.50 05/94 01/05 CPI 02/05 01/10 CPI 02/10 01/15
-113-
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- PETsMART 25,487 11 11.20 10/94 09/04 11.70 10/04 09/09
For federal income tax purposes, the depreciable basis in this property will be approximately $22,468,400. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Darien Towne Centre was built in 1994. As of September 1, 2004, this property was 94% occupied, with a total 210,010 square feet was leased to 12 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Murray's Discount Auto 10,000 10/04 2/5 yr. 110,000 11.00 Signature Cleaners 1,500 11/04 - 37,260 24.84 Gingiss Formalwear 2,000 12/04 - 35,010 17.50 Coldwell Banker 2,468 03/05 - 45,831 18.57 Jenny Craig 2,000 05/07 1/3 yr. 44,000 22.00 Deals 12,000 07/07 1/5 yr. 120,000 10.00 TGI Fridays (Ground Lease) 6,371 05/09 3/5 yr. 79,860 N/A Great Clips 1,500 08/09 - 33,000 22.00 PETsMART 25,487 09/09 5/5 yr. 285,454 11.20 Panera Bread 4,500 12/12 3/5 yr. 94,500 21.00 Home Depot 109,200 04/14 4/5 yr. 939,120 8.60 Circuit City 32,984 01/15 4/5 yr. 346,332 10.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. STONY CREEK MARKETPLACE, NOBLESVILLE, INDIANA On December 8, 2003, we purchased a newly constructed shopping center known as Stony Creek Marketplace containing 153,816 gross leasable square feet (which consists of 8,000 square feet of ground lease space). The center is located at 1713C Mercantile Boulevard in Noblesville, Indiana. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $25,750,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $167 per square foot of leasable space. We originally purchased this property with our own funds. On January 20, 2004, we obtained financing in the amount of $14,162,000. The loan requires interest only payments at an annual rate of 4.77% and matures January 1, 2011. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. -114- Three tenants, T.J. Maxx, Linens 'N Things and Barnes & Noble, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- T.J. Maxx 30,000 20 9.50 09/03 09/13 Linens 'N Things 28,444 18 11.50 07/03 01/09 12.00 02/09 01/14 Barnes & Noble 22,000 14 13.49 09/03 01/16
For federal income tax purposes, the depreciable basis in this property will be approximately $17,564,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Stony Creek Marketplace was built in 2003. As of September 1, 2004, this property was 100% occupied, with a total 153,816 square feet leased to 20 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Cingular Wireless 1,487 06/08 2/5 yr. 31,227 21.00 RJ Fastframe 1,618 06/08 1/5 yr. 33,915 20.96 The UPS Store 1,618 08/08 1/5 yr. 33,978 21.00 Scrapbook Corner 4,095 12/08 - 75,758 18.50 Papa Johns Pizza 1,615 01/09 - 33,915 21.00 Giovanni Jewelers 1,615 02/09 1/5 yr. 33,915 21.00 Quizno's Classic Subs 1,600 12/09 2/4 yr. 29,600 18.50 Blockbuster Video 4,892 05/11 2/5 yr. 102,732 21.00 Today's Bedroom One 4,890 06/11 1/5 yr. 90,465 18.50 Panera Bread 4,200 12/12 2/5 yr. 88,200 21.00 Maggie Moo's Ice Cream 1,615 03/13 2/5 yr. 33,915 21.00 Qdoba Mexican Restaurant 2,272 04/13 2/5 yr. 45,440 20.00 Ossip Optomotry, P.C. 3,230 04/13 2/5 yr. 60,563 18.75 Pier 1 Imports 9,375 07/13 2/5 yr. 160,696 17.14 Shoe Carnival 10,000 07/13 2/5 yr. 130,000 13.00 T.J. Maxx 30,000 09/13 3/5 yr. 285,000 9.50 Linens 'N Things 28,444 01/14 3/5 yr. 327,118 11.50 Factory Card Outlet 11,250 01/14 2/5 yr. 160,313 14.25 Barnes & Noble 22,000 01/16 2/5 yr. 296,730 13.49 Logan's Roadhouse (Ground Lease) 8,000 03/18 3/5 yr. 75,500 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. -115- THE SHOPS AT PARK PLACE, PLANO, TEXAS On October 31, 2003, we acquired an existing shopping center known as The Shops at Park Place through the purchase of all of the membership interests of the general partner and the membership interest of limited partner of the limited partnership holding title to this center. The center contains 116,300 gross leasable square feet (which includes 3,822 square feet of ground lease space) and is located at 6401 W. Plano Parkway in Plano, Texas. An affiliate of our advisor, Inland Park Place Limited Partnership, acquired this property on September 30, 2003 from CDG Park Place LLC, an unaffiliated third party for $23,868,000. Inland Park Place Limited Partnership agreed to sell this property to us when we had raised sufficient funds from the sale of shares to acquire this property from them. The affiliate agreed to sell us this property for the price it paid to the unaffiliated third party, plus any actual costs incurred. Our board of directors unanimously approved acquiring this property, including a unanimous vote of the independent directors. Our total acquisition cost was $24,000,000, which included $132,000 of costs incurred by Inland Park Place Limited Partnership. We expect any additional costs to be insignificant. Our acquisition cost is approximately $206 per square foot of leasable space. As part of the purchase, title to the property was subject to a loan placed on the property by Inland Park Place Limited Partnership for our benefit. The loan is in the amount of $13,127,000, requires interest only payments at a rate of 4.71% per annum and matures November 2008. We believe this loan is at least as equal to what we could have obtained from an unaffiliated third party lender. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Walgreens, OfficeMax, Michaels and Bed, Bath & Beyond, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Walgreens 15,120 13 20.83 05/00 04/60 OfficeMax 23,429 20 13.50 11/01 11/11 14.00 12/11 11/16 Michaels 24,133 21 13.50 08/01 10/11 Bed, Bath & 25,000 21 11.00 10/01 01/12 Beyond
For federal income tax purposes, the depreciable basis in this property will be approximately $13,175,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The Shops at Park Place was built in 2001. As of September 1, 2004, this property was 99% leased, with a total 115,460 square feet leased to 11 tenants. The following table sets forth certain information with respect to those leases: -116-
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Ebby Halliday Realty 5,314 10/06 2/5 yr. 154,100 29.00 North Dallas Eye Associates 3,000 10/06 1/5 yr. 90,000 30.00 The Nail Club 1,100 10/06 1/5 yr. 33,000 30.00 Oxford Cleaners 1,042 10/06 1/5 yr. 29,176 28.00 Carpet Mills of America 3,500 11/06 2/5 yr. 91,000 26.00 Michaels 24,133 10/11 3/5 yr. 325,800 13.50 Bed, Bath & Beyond 25,000 01/12 3/5 yr. 275,000 11.00 Salon Boutique 10,000 02/12 2/5 yr. 180,000 18.00 OfficeMax 23,429 11/16 4/5 yr. 316,300 13.50 Walgreens 15,120 04/60 - 315,000 20.83 Chick-Fil-A (Ground Lease) 3,822 10/15 3/5 yr. 78,500 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. POTENTIAL PROPERTY ACQUISITIONS We are currently considering acquiring the properties listed below. Our decision to acquire these properties will generally depend upon: - no material adverse change occurring relating to the properties, the tenants or in the local economic conditions; - our receipt of sufficient net proceeds from this offering and financing proceeds to make these acquisition; and - our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information. Other properties may be identified in the future that we may acquire before or instead of these properties. We cannot guarantee that we will complete these acquisitions. In evaluating these properties as potential acquisitions and determining the appropriate amount of consideration to be paid for each property, we have considered a variety of factors including, overall valuation of net rental income, location, demographics, quality of tenant, length of lease, price per square foot, occupancy and the fact that overall rental rate at the shopping center is comparable to market rates. We believe that these properties are well located, have acceptable roadway access, are well maintained and have been professionally managed. These properties will be subject to competition from similar shopping centers within their market area, and their economic performance could be affected by changes in local economic conditions. We did not consider any other factors materially relevant to our decision to acquire these properties. BED, BATH & BEYOND PLAZA, MIAMI, FLORIDA We anticipate purchasing a newly constructed shopping center known as Bed, Bath & Beyond Plaza, containing 97,447 gross leasable square feet. This property is located on a 65-year ground lease. We are not acquiring the underlying real property. The center is located at Northwest 107th Avenue and Northwest 19th Street in Miami, Florida. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $20,350,000. These amounts may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $209 per square foot of leasable space. -117- We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Bed, Bath & Beyond, Office Depot, Pier 1 Imports and Party City, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Bed, Bath & Beyond 28,053 29 14.80 03/04 01/20 Office Depot* 16,175 17 23.32 08/04 08/09 Pier 1 Imports 10,582 11 27.65 11/03 02/14 Party City 10,930 11 18.12 12/03 08/14
* Lease term information is based on the date the tenant begins occupancy and is not currently available. For federal income tax purposes, the depreciable basis in this property will be approximately $15,263,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Bed, Bath & Beyond Plaza is newly constructed during 2004. As of September 1, 2004, the property was 100% leased to 16 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Sally Beauty Supplies 1,368 05/09 40,632 29.70 A+ Nails 1,301 05/09 41,333 31.77 Bo Concept 5,100 06/09 69,193 13.57 Office Depot 16,175 08/09 377,201 23.32 Young Eye Associates 1,299 08/09 36,372 28.00 Cold Stone Creamery 1,592 09/09 48,556 30.50 Pier 1 Imports 10,582 02/14 292,621 27.65 Starbucks 1,402 03/14 55,382 39.50 Sprint PCS 3,622 12/10 118,657 32.76 Moe's Southwestern Grill 2,400 05/14 72,072 30.03 Doral Dentist Partners 1,707 07/14 25,523 14.95 Party City 10,930 08/14 198,052 18.12 Bed, Bath & Beyond 28,053 01/20 415,184 14.80 Fuddruckers 6,000 * 192,444 32.07 Quiznos 1,360 * 38,082 28.00 Cargo Kids! 4,556 * 129,406 28.40
* Lease term information is based on the date the tenant begins occupancy and is not currently available. -118- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. AZALEA SQUARE SHOPPING CENTER, SUMMERVILLE, SOUTH CAROLINA We anticipate purchasing a portion of a newly constructed shopping center known as Azalea Square Shopping Center, containing 395,156 gross leasable square feet (which includes one ground lease space). We intend to purchase 181,360 square feet of that shopping center including the ground lease space. The center is located at U.S. 17-A and Interstate 26 in Summerville, South Carolina. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $30,012,500. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $165 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Five tenants, T.J. Maxx, Linens 'N Things, Ross Dress for Less, Cost Plus World Market and PETsMART, each leases more than 10% of the total gross leasable area of the property we are purchasing. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ----------------------------------------------------------------------------------------------- T.J. Maxx 30,000 17 7.75 06/04 05/14 Linens 'N Things 25,000 14 10.75 06/04 05/14 Ross Dress for Less 30,000 17 9.50 06/04 05/14 Cost Plus World Market 18,300 10 12.50 06/04 05/14 PETsMART 19,107 11 11.00 06/04 05/19
For federal income tax purposes, the depreciable basis in this property will be approximately $22,509,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Azalea Square is newly constructed in 2004. The property is currently leasing up the remaining vacancies and certain tenants have executed lease for retail space within the shopping center. As of September 1, 2004, the property was 95% leased to 18 tenants. The following table sets forth certain information with respect to those leases: -119-
Base Rent Per Approximate GLA Current Annual Square Foot Per Lessee Leased (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ------------------------------------------------------------------------------------------------- Lee Spa Nails 1,500 05/09 36,000 24.00 S&K Menswear 3,603 05/09 64,854 18.00 Marble Slab Creamery 1,200 05/09 26,400 22.00 EB Games 1,600 05/09 36,800 23.00 Sport Clips 1,200 05/09 25,200 21.00 Dress Barn 8,050 05/09 120,750 15.00 Phone Smart 1,800 05/09 37,800 21.00 Artisan Jewelers 2,400 05/09 57,600 24.00 T.J. Maxx 30,000 05/14 232,500 7.75 Cost Plus World Market 18,300 05/14 228,750 12.50 Pier 1 Imports 10,800 05/14 167,400 15.50 Shoe Carnival 9,000 05/14 112,500 12.50 Ross Dress for Less 30,000 05/14 285,000 9.50 Linens 'N Things 25,000 05/14 268,750 10.75 PETsMART 19,107 05/19 210,177 11.00 Hibbett Sporting Goods 5,000 05/14 70,000 14.00 McAllisters Deli 3,600 05/14 75,600 21.00 Logans (Ground Lease) * 05/24 65,000 N/A
* To be determined In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ACADEMY SPORTS & OUTDOORS, PORT ARTHUR, TEXAS We anticipate purchasing a newly constructed freestanding retail center known as Academy Sports & Outdoors, containing 61,001 gross leasable square feet. The center is located at Memorial Boulevard at Highway 365 in Port Arthur, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $5,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $82 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Academy Sports & Outdoors, will lease 100% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: -120-
Approximate GLA Base Rent Per Square Lessee Leased (Sq. Ft.) % of Total GLA Foot Per Annum ($) Lease Term* - ---------------------------------------------------------------------------------------------------------- Academy Sports & Outdoors 61,001 100 6.56 20 Years
* Lease term has not been determined at the time of this report For federal income tax purposes, the depreciable basis in this property will be approximately $3,750,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. WOODBURY VILLAGE SHOPPING CENTER, WOODBURY, MINNESOTA We anticipate purchasing an existing community shopping center known as Woodbury Village Shopping Center, containing 442,208 gross leasable square feet. The shopping center consists of the following parcels: Woodbury Village, Woodbury Village Green, The Shoppes of Woodbury and Woodale Shopping Center. The center is located at 7000-7250 Valley Creek Plaza in Woodbury, Minnesota. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $68,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $154 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Kohl's and Rainbow Foods (Roundy's), each lease more than 10% of the total gross leasable area of the shopping center. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased Square Foot Per Lease Term Lessee (Sq. Ft.) % of Total GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------- Kohl's 92,781 21 8.31 03/92 01/13 Rainbow Foods (Roundy's) 65,808 15 8.50 02/92 02/12
For federal income tax purposes, the depreciable basis in this property will be approximately $51,000,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Woodbury Village was built in 1992 and 1993. As of September 1, 2004, this property was 100% occupied, with a total 422,208 square feet leased to 58 tenants. The following table sets forth certain information with respect to those leases: -121-
Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ------------------------------------------------------------------------------------------- WOODBURY VILLAGE AT & T Wireless 2,800 02/06 51,800 18.50 Creative Kidstuff 2,895 07/06 47,768 16.50 Creative Kidstuff (Storage) 903 07/06 9,030 10.00 Starbucks Coffee 3,120 11/06 64,802 20.77 Great Clips 1,200 02/07 22,800 19.00 Applebee's 5,000 03/07 121,000 24.20 RadioShack 2,200 03/07 35,200 16.00 Casual Corner 5,832 04/07 104,976 18.00 Premier Cleaners 800 04/07 14,400 18.00 Famous Footwear 5,500 04/07 71,500 13.00 Pets Advantage 4,083 04/07 53,079 13.00 Gander Mountain 20,638 04/07 199,982 9.69 Music-Go-Round 3,132 07/07 58,099 18.55 Pearle Vision 2,750 09/07 57,750 21.00 Dress Barn 7,235 12/07 115,760 16.00 Hallmark Cards 6,085 01/08 79,105 13.00 Barnes & Noble 15,300 01/08 229,500 15.00 Pack-N-Mail 1,600 04/08 32,000 20.00 Fioceilo's Hairstyling 2,475 05/08 44,550 18.00 Mattress Giant 13,885 05/08 135,379 9.75 Select Comfort 2,222 07/08 42,218 19.00 Foot Solutions 1,488 09/08 26,784 18.00 Marshalls 29,107 10/08 261,963 9.00 Fast Frame 1,338 02/09 26,760 20.00 Bartlett Chiropractic Health 2,525 04/10 32,825 13.00 Walgreens 12,544 01/12 163,072 13.00 Rainbow Foods (Roundy's) 65,808 01/12 559,368 8.50 Movie Gallery 9,000 03/12 180,000 20.00 The Oriental Restaurant 4,227 06/12 81,370 19.25 Kohl's 92,781 01/13 771,000 8.31 WOODBURY VILLAGE GREEN Jenny Craig Weight Loss Center 2,059 11/04 33,974 16.50 Carlson Travel 1,032 12/04 19,608 19.00 Gingis Formal Wear 2,000 03/05 32,000 16.00 2nd Wind 4,000 07/05 64,000 16.00 GameStop 1,800 10/05 27,000 15.00 General Nutrition Center 1,530 10/06 26,010 17.00 Austad's Golf 5,080 01/07 71,120 14.00 Broadway Pizza 2,682 01/09 53,238 19.85 ProEx Photo (Ritz Camera) 2,400 01/09 64,800 27.00 Best Buy 35,520 01/09 348,096 9.80 Paper Warehouse 8,035 02/09 104,455 13.00 Frank's Nursery & Crafts 18,761 01/14 231,511 12.34 THE SHOPPES AT WOODBURY VILLAGE Charly Cosmetics 691 08/06 13,410 19.41 Cutie Patootie 693 09/06 13,446 19.40 Advanced Wireless 1,219 10/06 28,930 23.73 Wedgewood Jewelers 1,862 11/06 40,160 21.57 The Bread Gallery 1,143 06/07 27,126 23.73
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Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ------------------------------------------------------------------------------------------- Inizio (Gift Store) 1,146 08/07 25,956 22.65 Sports Barbers 1,018 08/07 23,058 22.65 Top Shelf Athletics 1,098 08/07 20,128 18.33 Cold Stone Creamery 1,372 12/07 29,340 21.38 Rocky Mountain Chocolate 1,157 08/08 26,208 22.65 Factory Papa Murphy's Pizza 1,347 09/08 30,513 22.65 Noodles & Company 2,720 08/11 72,725 26.74 Chipolte Mexican Grill 2,526 09/11 67,550 26.74 Joey's Only Seafood Restaurant 2,442 09/13 50,934 20.86 Running Room 1,402 11/13 34,753 24.79 WOODALE Ciatti's Italian Restaurant 7,000 04/07 130,000 18.57
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LAKE MARY POINTE, ORLANDO, FLORIDA We anticipate purchasing an existing shopping center known as Lake Mary Pointe, containing 51,052 gross leasable square feet. The center is located at U.S. 17/92 and Weldon Boulevard, in Orlando, Florida. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $6,650,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $130 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased Square Foot Per Lease Term Lessee (Sq. Ft.) % of Total GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------- Publix 37,866 74 8.60 12/99 12/19
For federal income tax purposes, the depreciable basis in this property will be approximately $4,987,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lake Mary Pointe was built in 1999. As of September 1, 2004, this property was 96% occupied, with a total 48,952 square feet leased to nine tenants. The following table sets forth certain information with respect to those leases: -123-
Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ------------------------------------------------------------------------------------------- GNC 1,050 12/04 23,930 22.79 Hair Cuttery 1,050 02/05 23,237 22.13 Avenue Nails 1,043 08/05 24,969 23.94 Pak Mail Center 1,050 09/05 23,006 21.91 Vivonia's Italian Pizzeria 3,750 09/06 81,938 21.85 White Swan Cleaners 1,050 01/09 16,800 16.00 Subway 1,050 02/09 17,063 16.25 China Cook 1,043 07/11 20,161 19.33 Publix 37,866 12/19 325,648 8.60
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WINCHESTER COMMONS, MEMPHIS, TENNESSEE We anticipate purchasing an existing shopping center known as Winchester Commons, containing 93,024 gross leasable square feet. The center is located on 7956 Winchester Road, in Memphis, Tennessee. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $13,073,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $141 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kroger, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased Square Foot Per Lease Term Lessee (Sq. Ft.) % of Total GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------- Kroger 59,670 64 8.24 05/99 04/19
For federal income tax purposes, the depreciable basis in this property will be approximately $9,805,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Winchester Commons was built in 1999. As of September 1, 2004, this property was 100% occupied, with a total 93,024 square feet leased to 16 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ------------------------------------------------------------------------------------------- For Your Eyes Only 2,220 05/04 45,443 20.47 Fantastic Sam's 1,600 06/04 28,000 17.50 Giant TV 1,600 09/04 27,200 17.00
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Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ------------------------------------------------------------------------------------------- The Steak Escape 1,600 01/05 26,400 16.50 Shirley's Hallmark 4,400 02/05 52.800 12.00 The Wine Cellar 4,000 03/06 66,000 16.50 Opportunity Mortgage (A+ Wireless) 1,534 07/06 26,078 17.00 China Dragon Restaurant 2,400 10/06 39,600 16.50 Dental Partners of Tennessee 2,000 01/07 35,500 17.75 Sunsations 1,600 07/07 27.200 17.00 Greg Pickett Golf 1,600 01/09 27,712 17.32 The UPS Store 2,000 01/09 34,000 17.00 Southwinds Cleaners 1,600 01/09 27,200 17.00 Nextel Communications 1,600 06/09 33,600 21.00 East End Grill 3,600 07/09 59,400 16.50 Kroger 59,670 04/19 491,681 8.24
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LAKEPOINTE TOWNE CROSSING, LEWISVILLE, TEXAS We anticipate purchasing a newly constructed shopping center known as Lakepointe Towne Crossing, containing 193,502 gross leasable square feet. The center is located at 715 Hebron Parkway, in Lewisville, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $39,482,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $204 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Sportsman's Warehouse, Circuit City and Ross Dress for Less, will lease more than 10% of the total gross leasable area of the property. The lease term has been determined in accordance with the tenant's projected lease commencement date. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------- Sportsman's Warehouse 45,250 23 12.00 08/04 08/19 Circuit City 33,862 18 14.00 06/04 01/19 Ross Dress for Less 30,187 16 9.75 04/03 04/23
-125- For federal income tax purposes, the depreciable basis in this property will be approximately $29,611,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lakepointe Towne Crossing was newly constructed in 2004. As of September 1, 2004, the property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Mattress Firm 6,500 08/08 162,500 25.00 Hawk Electronics 5,000 10/08 125,000 25.00 EB Games 1,500 10/08 34,500 23.00 Carter Floors and Countertops 2,240 12/08 51,520 23.00 Great Clips 1,200 10/09 28,800 24.00 Dr. John Launius 2,880 11/10 63,360 22.00 Pei Wei Asian Diner 3,300 10/13 85,800 26.00 Moe's Southwest Grill 3,121 11/13 78,025 25.00 Circuit City 33,862 01/19 474,068 14.00 Sportsman's Warehouse 45,250 08/19 543,000 12.00 Ross Dress for Less 30,187 04/23 294,323 9.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MANSFIELD TOWNE CROSSING, MANSFIELD, TEXAS We anticipate purchasing a newly constructed shopping center known as Mansfield Towne Crossing, containing 111,898 gross leasable square feet of which 4,500 is on a ground lease. The center is located at Highway 287 and Debbie Lane, in Mansfield, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $19,967,700. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $178 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Ross Dress for Less and Staples, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's projected lease commencement date. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: -126-
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------- Ross Dress for Less 30,187 27 9.25 10/04 01/15 Staples 20,388 18 10.50 08/03 08/18
For federal income tax purposes, the depreciable basis in this property will be approximately $14,975,800. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Mansfield Towne Crossing was newly constructed in 2004. As of September 1, 2004, the property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- AT & T Wireless 2,500 07/08 55,000 22.00 EB Games 1,500 09/08 31,500 21.00 Sport Clips 1,440 10/08 30,240 21.00 Luxury Nails 1,013 02/09 20,259 20.00 Dr. Michael Poison 1,060 05/09 20,140 19.00 Robertson Pools 1,440 06/09 27,360 19.00 Bath Junkie 1,200 06/09 22,800 19.00 Subway 1,600 07/09 30,400 19.00 GNC 1,200 09/09 22,800 19.00 The Cash Store 1,600 09/09 30,400 19.00 Creekside Collections 3,811 09/09 62,882 16.50 Zales Jewelers 3,000 12/13 64,500 21.50 Famous Footwear 8,000 01/14 120,000 15.00 Payless Shoes 3,000 01/14 54,000 18.00 Ross Dress for Less 30,187 01/15 279,229 9.25 Pier 1 Imports 10,800 02/15 162,000 15.00 Staples 20,388 08/18 214,074 10.50 Regions Bank (Ground Lease) 4,500 01/23 75,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PLEASANT RUN TOWNE CROSSING, CEDAR HILL, TEXAS We anticipate purchasing a newly constructed shopping center known as Pleasant Run Towne Crossing, containing 225,431 gross leasable square feet of which 20,200 is on ground leases. The center is located at Pleasant Run and Highway 67, in Cedar Hill, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $41,417,800. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $176 per square foot of leasable space. -127- We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Oshman's Sporting Goods and Circuit City, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's lease commencement date. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------- Oshman's Sporting Goods 40,954 17 10.00 05/04 04/14 Circuit City 32,570 14 14.00 11/03 01/18
For federal income tax purposes, the depreciable basis in this property will be approximately $31,063,400. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pleasant Run Towne Crossing was newly constructed in 2004. As of September 1, 2004, the property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------- The Maytag Store 5,225 04/09 94,050 18.00 Justice Just for Girls 4,500 04/09 81,000 18.00 Sleep Experts 4,500 06/09 99,000 22.00 Mattress Firm 6,000 08/09 132,000 22.00 ASAP Mail 2,000 08/09 40,000 20.00 Luxury Nails 1,200 08/09 25,200 21.00 Brook Mays Music 6,250 09/09 112,500 18.00 Michaels 21,390 11/13 224,595 10.50 Bombay Company 4,500 11/13 81,000 18.00 Bed, Bath & Beyond 22,000 01/14 220,000 10.00 Half Price Books 10,108 02/14 121,296 12.00 Mothers Work 1,805 03/14 36,100 20.00 Zales Jewelry 3,000 05/14 66,000 22.00 Vitamin Shop 5,000 08/14 135,000 27.00 Panera Bread 4,999 10/14 119,976 24.00 Oshman's Sporting Goods 40,954 01/15 409,540 10.00 Circuit City 32,570 01/18 455,980 14.00 JP Morgan Chase Bank (Ground Lease) 4,700 02/24 84,999 N/A Saltgrass Steakhouse (Ground Lease) 8,500 05/24 84,999 N/A Joe's Crab Shack (Ground Lease) 7,000 05/24 75,000 N/A
-128- In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. We will obtain an appraisal on this property prior to acquisition. As with any other property we acquire, our property manager will receive a property management fee for managing this property and our advisor will receive an advisor asset management fee. As of September 8, 2004, we have over of $141,000,000 in pending acquisitions and we believe, based in part on projected sales of our common stock, that cash on hand and future financings will provide us with sufficient cash to close these properties at the time of their projected closings. TERMINATED CONTRACTS Our Board of Directors previously approved the acquisition of Albertson's Grocery Store in Loveland, Colorado, Mall 205 and Plaza 205, Portland, Oregon, Eckerd Drug Store at Danforth and Santa Fe in Edmond, Oklahoma and Shaw's Supermarket at Bristol, Connecticut (and disclosed as probable) and Peoria Station (disclosed as probable). Based on information received during our due diligence process, we have decided not to acquire the properties and our affiliate has terminated the contracts on these acquisitions. -129- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (SEC). The public may read and copy any of the reports that are filed with the SEC at the SEC's Public Reference Room at 405 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference room by calling the SEC at (800)-SEC-0330. The SEC maintains an Internet site at (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically. CERTAIN STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS POST-EFFECTIVE AMENDMENT 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 OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. The following discussion and analysis relates to the three and six months ended June 30, 2004. The period from March 5, 2003 (inception) to June 30, 2003 is not comparable because no properties were owned by us during that 2003 period. You should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this report. Overview We were formed to acquire and manage a diversified portfolio of real estate, principally multi-tenant shopping centers. We operate as a real estate investment trust or REIT for Federal and state income tax purposes. We have initially focused on acquiring properties in the Western states. We have begun to acquire and plan to continue acquiring properties in the Western states. We may also acquire retail properties in locations throughout the United States. Inland Western Retail Real Estate Advisory Services, Inc. or our advisor has been retained to manage, for a fee, our day-to-day affairs, subject to the supervision of our board of directors. Our goal is to purchase properties principally west of the Mississippi River and evaluate potential acquisition opportunities of properties east of the Mississippi River on a property by property basis, taking into consideration investment objectives and available funds. As of July 31, 2004 we have purchased 14 additional properties located in the states of Arkansas, Georgia, Louisiana, Maryland, Missouri, Pennsylvania, South Carolina, Texas and Washington. During the six months ended June 30, 2004, we purchased 34 properties, of which 13 were not located in our primary geographical area of interest. We purchased these 13 properties because we had the unique opportunity of taking advantage of our advisor's acquisition pipeline of properties located east of the Mississippi River which generally, continue to have rates of return above those located in the Western United States. Our strategy in purchasing these properties was to deploy stockholder funds promptly and generate income for us as early as possible, while investing in properties which met our acquisition criteria. During the second quarter of 2004, the retail sector has remained relatively stable as a result of sustained consumer spending, which has helped maintain retail sales growth despite subsequent terrorist threats and the Iraqi war. A modest pace of new retail construction, and the expansion strategy of some retailers, who are renting more space to maintain market share and revenue growth and offset declining same store sales have also contributed to the stability. While sustained consumer spending, spurred by low interest rates, has helped to maintain retail sales growth, changing demographics and consumer preferences have resulted in a fundamental shift in consumer spending patterns and the emergence of discount retail as a dominant category. Today almost 75% of general merchandise sales occur at a discount department store or a warehouse club/supercenter. As a result of this trend, some conventional department stores are struggling and a number of local, regional and national retailers have been forced to voluntarily close their stores or file for bankruptcy protection. Some bankrupt retailers have reorganized their operations and/or sold stores to stronger operators. In some instances, bankruptcies and store closings may create opportunities to lease space at higher rents to tenants with -130- better sales performance. Therefore, we do not expect store closings or bankruptcy reorganizations to have a material impact on our consolidated financial position or the results of our operations in the near term. We believe our risk exposure to potential future downturns in the economy is mitigated because the tenants at our current and targeted properties, to a large extent, consist or will consist of: retailers who serve primary non-discretionary shopping needs, such as grocers and pharmacies; discount chains that can compete effectively during an economic downturn; and national tenants with strong credit ratings who can withstand a downturn. We believe that the diversification of our current and targeted tenant base and our focus on creditworthy tenants further reduces our risk exposure. We are subject to risks existing due to a concentration of any single tenant within the portfolio. Currently, the largest tenant by leased area is Best Buy, which has nine leases representing approximately 428,643 square feet, or approximately 4.5% of the total gross leasable area owned by us as of July 31, 2004. The annualized base rental income from these leases is approximately $6,276,746, or approximately 5.2% of the total annualized base rental income, based on our portfolio of properties as of July 31, 2004. The two largest tenants in annualized base rental income are Best Buy and Ross Dress for Less which together total approximately $9,764,088 or 8.1% of the total annualized base rental income, based on our portfolio of properties as of July 31, 2004. We are in the process of offering our common stock and have raised $850,239,770 as of June 30, 2004. We raised on average approximately $120 million per month during the second quarter of 2004. As of June 30, 2004, we owned a portfolio of forty-two properties located in Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Texas, Utah, and Washington containing an aggregate of approximately 7,143,674 square feet of gross leasable area. As of June 30, 2004, approximately 92% of gross leasable area in the properties was physically leased. The following is a summary of the properties we own as of June 30, 2004:
Gross Amount of Leasable Mortgages Area Date Year Built/ Payable at Property (Sq Ft) Acquired Renovated 06/30/04 - ----------- ------- -------- ----------- ---------- Alison's Corner 55,066 04/04 2003 $ 3,850,000 San Antonio, TX Arvada Connection and Arvada Marketplace 358,094 04/04 1987/1990 28,510,000 Arvada, CO Best on the Boulevard 204,627 04/04 1996/1999 19,525,000 Las Vegas, NV Bluebonnet Parc 135,289 04/04 2002 12,100,000 Baton Rouge, LA CorWest Plaza 115,011 01/04 1999/2003 18,150,000 New Britain, CT Darien Towne Centre 223,876 12/03 1994 16,500,000 Darien, IL Davis Towne Crossing 41,391 06/04 2004 - North Richland Hills, TX
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Gross Amount of Leasable Mortgages Area Date Year Built/ Payable at Property (Sq Ft) Acquired Renovated 06/30/04 - ----------- ------- -------- ----------- ---------- Dorman Center - Phase I 350,994 03/04 2003 27,610,000 Spartanburg, SC Eastwood Towne Center 334,454 05/04 2002 46,750,000 Lansing, MI Eckerd Drug Store 13,440 06/04 2004 - Columbia, SC Eckerd Drug Store 13,824 06/04 2004 - Crossville, TN Eckerd Drug Store 13,824 12/03 2003 1,850,000 Edmund, OK Eckerd Drug Store 13,824 06/04 2004 - Greer, SC Eckerd Drug Store 13,824 06/04 2004 - Kill Devil Hills, NC Eckerd Drug Store 13,824 12/03 2003 2,900,000 Norman, OK Fullerton Metrocenter 242,080 06/04 1988 - Fullerton, CA Heritage Towne Crossing 80,574 03/04 2002 8,950,000 Euless, TX Hickory Ridge 380,487 01/04 1999 23,650,000 Hickory, NC Huebner Oaks Center 286,738 06/04 1998 48,000,000 San Antonio, TX John's Creek Village 191,475 06/04 2004 - Duluth, GA La Plaza Del Norte 320,362 01/04 1996/1999 32,528,000 San Antonio, TX Lakewood Towne Center 577,863 06/04 1988/2003 51,260,000 Lakewood, WA Larkspur Landing 173,814 01/04 1978/2001 33,630,000 Larkspur, CA
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Gross Amount of Leasable Mortgages Area Date Year Built/ Payable at Property (Sq Ft) Acquired Renovated 06/30/04 - ----------- ------- -------- ----------- ---------- Low Country Village 76,376 06/04 2004 - Bluffton, SC MacArthur Crossing 110,975 02/04 1996 12,700,000 Los Colinas, TX Metro Square Center 61,817 01/04 1999 6,067,183 Severn, MD Newnan Crossing I & II 291,833 12/03 & 1999/2003 21,543,091 Newnan, GA 03/04 Northgate North 302,744 06/04 2004 - Seattle, WA Northpointe Plaza 378,890 05/04 1991/1993 30,850,000 Spokane, WA North Ranch Pavilions 62,812 01/04 1992 10,157,400 Thousand Oaks, CA North Rivers Town Center 141,167 04/04 2004 11,050,000 Charleston, SC Paradise Valley Marketplace 92,164 04/04 2002 15,680,500 Phoenix, AZ Pavilion at King's Grant 79,009 12/03 2003 5,342,000 Concord, NC Peoria Crossings 213,733 03/04 2003 20,497,400 Peoria, AZ Pine Ridge Plaza 230,493 06/04 1998/2004 - Lawrence, KS Plaza Santa Fe II 222,411 06/04 2000/2002 17,551,721 Santa Fe, NM Promenade at Red Cliff 94,936 02/04 1997 10,590,000 St. George, UT Shaw's Supermarket 65,658 12/03 1995 6,450,000 New Britain, CT
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Gross Amount of Leasable Mortgages Area Date Year Built/ Payable at Property (Sq Ft) Acquired Renovated 06/30/04 - ----------- ------- -------- ----------- ---------- Shops at Park Place 116,300 10/03 2001 13,127,000 Plano, TX Shoppes of Prominence Point 88,058 06/04 2004 - Canton, GA Stony Creek Market Place 153,803 12/03 2003 14,162,000 Noblesville, IN Watauga Pavilion 205,740 05/04 2004 17,100,000 ----------- -------------- Watauga, TX Total 7,143,674 $ 588,631,295 =========== ==============
The square footage for Arvada Connection, Darien Towne Centre, Davis Towne Crossing, Eastwood Towne Center, Heritage Towne Crossing, Hickory Ridge, Huebner Oaks Center, John's Creek Village, MacArthur Crossing, Newnan Crossing I & II, Northpointe Plaza, North Rivers Town Center, Paradise Valley Marketplace, Pavilion at King's Grant, Pine Ridge Plaza, Shops at Park Place and Stony Creek Market Place includes 2,240, 6,371, 4,000, 24,110, 7,246, 70,127, 8,036, 10,555, 6,500, 6,650, 18,719, 31,280, 10,908, 65,000, 84,676, 3,822 and 8,000 respectively, square feet of space leased to tenants under ground lease agreements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES GENERAL. The following disclosure pertains to critical accounting policies and estimates we believe are most "critical" to the portrayal of our financial condition and results of operations which require our most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America or GAAP. GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. This discussion addresses our judgment pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions. ACQUISITION OF INVESTMENT PROPERTY We allocate the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, and any assumed financing that is determined to be above or below market terms. In addition, we allocate a portion of the purchase price to the value of customer relationships and as of June 30, 2004, no cost has been allocated to such relationships. The allocation of the purchase price is an area that requires judgment and significant estimates. We use the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. The aggregate value of intangibles is measured based on the difference between the stated price and the property value calculation as if vacant. We determine whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. We also allocate a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease up period when calculating as if vacant fair values. We consider various factors including geographic location and size of leased space. We -134- also evaluate each acquired lease based upon current market rates at the acquisition date and we consider various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs. After an acquired lease is determined to be above or below market lease costs, we allocate a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires our judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. IMPAIRMENT OF LONG-LIVED ASSETS. We conduct an impairment analysis on a quarterly basis in accordance with Statement of Financial Accounting Standards No. 144 or SFAS 144 to ensure that the property's carrying value does not exceed its fair value. If this were to occur, we are required to record an impairment loss. The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on our continuous process of analyzing each property and reviewing assumptions about uncertain inherent factors, as well as the economic condition of the property at a particular point in time. COST CAPITALIZATION AND DEPRECIATION POLICIES. Our policy is to review all expenses paid and capitalize any items exceeding $5,000 which are deemed to be an upgrade or a tenant improvement. These costs are capitalized and are included in the investment properties classification as an addition to buildings and improvements. Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of 30 years for buildings and improvements, and 15 years for site improvements. The portion of the purchase price allocated to acquired above market costs and acquired below market costs are amortized on a straight-line basis over the life of the related lease as an adjustment to net rental income. Acquired in-place lease costs, other leasing costs, and tenant improvements are amortized on a straight-line basis over the life of the related lease as a component of amortization expense. The application of SFAS 141 and SFAS 142 resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to our real estate acquisitions during the quarter ended June 30, 2004. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight-line basis over the life of the related lease as an adjustment to rental income. Amortization pertaining to the above market lease costs of $475,574 was applied as a reduction to rental income for the three months ended June 30, 2004 and $813,177 for the six months ended June 30, 2004. Amortization pertaining to the below market lease costs of $545,784 was applied as an increase to rental income for the three months ended June 30, 2004 and $902,613 for the six months ended June 30, 2004. The table below presents the amortization during the next five years related to the acquired above market lease costs and the below market lease costs for properties owned at June 30, 2004:
July 1, 2004 through December 31, Amortization of: 2004 2005 2006 2007 2008 Thereafter ---- ---- ---- ---- ---- ---------- Acquired above market lease costs $ (1,469,181) (2,938,359) (2,885,842) (2,119,421) (1,980,185) (12,903,389) Acquired below market lease costs 2,823,964 5,471,188 5,065,985 4,646,973 4,096,500 27,155,016 ---------------------------------------------------------------------------------- Net rental income increase $ 1,354,783 2,532,829 2,180,143 2,527,552 2,116,315 14,251,627 ================================================================================== Acquired in-place lease intangibles $ (4,842,059) (9,684,122) (9,684,122) (9,684,122) (9,684,122) (50,916,901)
The portion of the purchase price allocated to acquired in-place lease costs are amortized on a straight line basis over the life of the related lease. We incurred amortization expense pertaining to acquired in-place lease costs of $1,495,955 for the -135- three months ended June 30, 2004 and $2,293,994 for the six months ended June 30, 2004. The table above presents the amortization during the next five years related to acquired in-place lease costs for properties owned at June 30, 2004. Cost capitalization and the estimate of useful lives requires our judgment and includes significant estimates that can and do change based on our process which periodically analyzes each property and on our assumptions about uncertain inherent factors. REVENUE RECOGNITION. We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets. We anticipate collecting these amounts over the terms of the leases as scheduled rent payments are made. Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenditures are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. Should the actual results differ from our judgment, the estimated reimbursement could be negatively affected and would be adjusted appropriately. In conjunction with certain acquisitions, we receive payments under master lease agreements pertaining to certain, non-revenue producing spaces either at the time of, or subsequent to, the purchase of some of our properties. Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income. These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements. Master lease payments are received through a draw of funds escrowed at the time of purchase and may cover a period from one to three years. These funds may be released to either us or the seller when certain leasing conditions are met. Restricted cash includes funds received by third party escrow agents, from sellers, pertaining to master lease agreements. We record such escrows as both an asset and a corresponding liability, until certain leasing conditions are met. We accrue lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. INTEREST RATE FUTURES CONTRACTS. We enter into interest rate futures contracts or treasury contracts as a means of reducing our exposure to rising interest rates. At inception, contracts are evaluated in order to determine if they will qualify for hedge accounting treatment and will be accounted for either on a deferral, accrual or market value basis depending on the nature of our hedge strategy and the method used to account for the hedged item. Hedge criteria include demonstrating the manner in which the hedge will reduce risk, identifying the specific asset, liability or firm commitment being hedged, and citing the time horizon being hedged. During the second quarter of 2004, we entered into treasury contracts with a futures commission merchant with a total notional amount of $95.0 million with yields ranging from 3.85% for 5 year treasury contracts to 4.63% for 10 year treasury contracts and maturities at various dates in 2004. The amount required to be on deposit at June 30, 2004 for these treasury contracts had a cost basis and liquidation value of $2,137,000 and $789,000, respectively. As these treasury contracts are not offsetting future commitments and therefore do not qualify as hedges, the net loss of approximately $1,348,000 at June 30, 2004 is recognized currently in earnings and is included in interest expense in the Consolidated Statement of Operations. LIQUIDITY AND CAPITAL RESOURCES GENERAL. Our principal demands for funds have been for property acquisitions, for the payment of operating expenses and dividends, and for the payment of interest on outstanding indebtedness. Generally, cash needs for items other than property acquisitions have been met from operations, and property acquisitions have been funded by a public offering of our shares of common stock. However, there may be a passage of time between the sale of the shares and our purchase of properties, which may result in a delay in the benefits to stockholders of returns generated from property operations. Our advisor -136- evaluates potential additional property acquisitions and Inland Real Estate Acquisitions, Inc., one of the affiliates of our sponsor, engages in negotiations with sellers on our behalf. After a purchase contract is executed which contains specific terms, the property will not be purchased until due diligence, which includes review of the title insurance commitment, an appraisal and an environmental analysis, is successfully completed. In some instances, the proposed acquisition still requires the negotiation of final binding agreements, which may include financing documents. During this period, we may decide to temporarily invest any unused proceeds from the offering in certain investments that could yield lower returns than other investments, such as the properties. These lower returns may affect our ability to make distributions. Potential future sources of capital include proceeds from the public or private offering of our equity or debt securities, secured or unsecured financings from banks or other lenders, proceeds from the sale of properties, as well as undistributed funds from operations. We anticipate that during the current year we will (i) acquire additional existing shopping centers, (ii) develop additional shopping center sites and (iii) continue to pay distributions to stockholders, and each is expected to be funded mainly from proceeds of our public offerings of shares, cash flows from operating activities, financings and other external capital resources available to us. Our leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. In addition, in some instances our leases provide that the tenant is responsible for roof and structural repairs. Certain of our properties are subject to leases under which we retain responsibility for certain costs and expenses associated with the property. We anticipate that capital demands to meet obligations related to capital improvements with respect to properties will be minimal for the foreseeable future and can be met with funds from operations and working capital. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. We believe that our current capital resources (including cash on hand) and anticipated financings are sufficient to meet our liquidity needs for the foreseeable future. LIQUIDITY OFFERING. As of June 30, 2004, subscriptions for a total of 85,098,440 shares had been received from the public, which include the 20,000 shares issued to the advisor and 748,245 shares distributed pursuant to the DRP as of June 30, 2004. As a result of such sales, we received a total of $850,239,770 of gross offering proceeds as of June 30, 2004. MORTGAGE DEBT. As of June 30, 2004 we have obtained mortgage debt on thirty-one properties totaling $588,631,295. With the exception of Plaza Santa Fe II, these loans require monthly payments of interest only and bear interest at a range between 2.68% and 4.77% per annum. The mortgage loan on Plaza Santa Fe II requires monthly payments of principal and interest at 6.20% per annum, and payments into taxes, insurance and replacement reserve escrows. During the period from July 1, 2004 through July 31, 2004 we obtained mortgage financing on properties that we purchased during 2004 totaling approximately $204,300,000 that require monthly payments of interest only and bear interest at a range of 4.13% to 5.10% per annum or LIBOR plus 113 to 200 basis points. From January 1, 2004 through July 31, 2004, we entered into numerous interest rate lock agreements, as described below, to secure the interest rate on mortgage debt on properties we currently own or will purchase in the future. The funds under the rate agreements and the deposits are applied to the mortgage fundings as they occur. On February 9, 2004, we entered into an agreement with Bear Stearns Commercial Mortgage, Inc. We paid a rate lock deposit of $1,200,000 to lock the interest rate at 4.372% for a period of 90 days on $60,000,000 in principal, all of which has been applied to closed mortgage fundings. On March 5, 2004 and March 11, 2004, we entered into two separate rate lock agreements with Principal Life Insurance Company. We paid a rate lock deposit of $500,000 for each agreement to lock the interest rate at 4.13% and 4.09%, respectively, for a period of 120 days. Each rate lock is on $50,000,000 in principal, all of which has been applied to closed mortgage fundings. -137- On May 18, 2004, we entered into a rate lock agreement with Allstate Investments, LLC. We paid a rate lock deposit of $750,000 to lock the interest rate at 5.05% for a period of 120 days on $75,000,000 in principal. Of this amount, $16,362,500 has been applied to closed mortgage fundings, with the remainder allocated to new or pending acquisitions. On June 2, 2004, we entered into a rate lock agreement with Bear Stearns Commercial Mortgage, Inc. We paid a rate lock deposit of $4,000,000 to lock the interest rate at 5.12% for a period of 90 days on $200,000,000 in principal, $196,000,000 of which has been allocated to new or pending acquisitions. On June 3, 2004, we entered into a rate lock agreement with KeyBank National Association. We paid a rate lock deposit of $1,000,000 to lock the interest rate at 4.995% for a period of 90 days on $100,000,000 in principal, all of which has been allocated to new or pending acquisitions. On June 3, 2004, we entered into a rate lock agreement with Allstate Investments, LLC. We paid a rate lock deposit of $500,000 to lock the interest rate at 4.91% for a period of 120 days on $50,000,000 in principal, all of which has been allocated to new or pending acquisitions. On June 25, 2004, we entered into a rate lock agreement with Principal Real Estate Investors, LLC. We paid a rate lock deposit of $600,000 to lock the interest rate at 4.48% for a period of 120 days on $60,000,000 in principal, all of which has been allocated to new or pending acquisitions. On July 2, 2004, we entered into two separate rate lock agreements with Bear Stearns Commercial Mortgage, Inc. We paid one rate lock deposit of $400,000 to lock the interest rate at 5.06% for a period of 90 days on $20,000,000 in principal. We paid a second rate lock deposit of $600,000 to lock the interest rate at 5.01% for a period of 90 days on $30,000,000 in principal. Collectively, $35,000,000 has been allocated to new or pending acquisitions. On July 9, 2004, we entered into a rate lock agreement with LaSalle Bank National Association. We paid a rate lock deposit of $500,000 to lock the interest rate at 5.04% for a period of 90 days on $50,000,000 in principal, all of which has been allocated to new or pending acquisitions. On July 16, 2004, we entered into a rate lock agreement with Nomura Credit & Capital, Inc. We paid a rate lock deposit of $500,000 to lock the interest rate at 4.815% for a period of 90 days on $50,000,000 in principal. LINE OF CREDIT. On February 6, 2004, we increased our unsecured line of credit arrangement with KeyBank N.A. to $225,000,000 from $150,000,000. The funds from this line of credit may be used to provide funds from the time a property is purchased until permanent debt is placed on that property. The line requires interest only payments monthly at the rate equal to the London InterBank Offered Rate or LIBOR plus 175 basis points which ranged from 2.875% to 3.125% during the quarter ended June 30, 2004. We are also required to pay, on a quarterly basis, an amount ranging from .15% to .30%, per annum, on the average daily undrawn funds under this line. The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions. In addition to, and in conjunction with these financial covenants, we maintain a cash collateral account. Amounts deposited in the cash collateral account provide that loan to value covenants required under the line are not exceeded. Funds may be deposited into and with drawn from the cash collateral account as our properties are purchased without debt. As of June 30, 2004, we were in compliance with such covenants and $20,448,822 was deposited in the cash collateral account. The outstanding balance on the line of credit was $110,000,000 as of June 30, 2004 at a weighted average interest rate of 3.01% per annum. STOCKHOLDER LIQUIDITY. We provide the following programs to facilitate investment in the shares and to provide limited, interim liquidity for stockholders until such time as a market for the shares develops: The DRP allows stockholders who purchase shares pursuant to the offerings to automatically reinvest distributions by purchasing additional shares from us. Such purchases will not be subject to selling commissions or the marketing contribution and due diligence expense allowance and will be sold at a price of $9.50 per share. As of June 30, 2004, we issued 748,245 shares pursuant to the DRP for an aggregate amount of $7,108,326. -138- Subject to certain restrictions, the share repurchase program provides existing stockholders with limited, interim liquidity by enabling them to sell shares back to us at the following prices: One year from the purchase date, at $9.25 per share; Two years from the purchase date, at $9.50 per share; Three years from the purchase date, at $9.75 per share; and Four years from the purchase date, at the greater of $10.00 per share, or a price equal to 10 times our "funds available for distribution" per weighted average shares outstanding for the prior calendar year. Shares purchased by us will not be available for resale. As of June 30, 2004, no shares have been repurchased. CAPITAL RESOURCES We expect to meet our short-term operating liquidity requirements generally through our net cash provided by property operations. We also expect that our properties will generate sufficient cash flow to cover our operating expenses plus pay a monthly distribution on our weighted average shares. Operating cash flows are expected to increase as additional properties are added to our portfolio. We believe that we should put mortgage debt on or leverage our properties at approximately 50% of their value. We also believe that we can borrow at the lowest overall cost of funds or interest rate by placing individual financing on each of our properties. Accordingly, mortgage loans will generally have been placed on each property at the time that the property is purchased, or shortly thereafter, with the property solely securing the financing. During the six months ended June 30, 2004, we closed on mortgage debt with a principal amount of $559,004,295. At June 30, 2004, the weighted average cost of mortgage funds was approximately 4.30%. $507,744,295 of these mortgage loans are fixed-rate loans that bear interest at a rate between 3.96% and 6.20% per annum. The remaining $51,260,000 represents variable-rate loans with a weighted average interest rate of 2.84% per annum at June 30, 2004. With the exception of the mortgage loan on Plaza Santa Fe II, all of the loans closed during the six months ended June 30, 2004 require monthly payments of interest only and may be prepaid with a penalty after specific lockout periods. The mortgage loan on Plaza Santa Fe II requires monthly payments of principal and interest, as well as payments into tax, insurance, and replacement reserve escrows and has no prepayment privileges. Although the loans we closed are generally non-recourse, occasionally, when it is deemed to be advantageous, we may guarantee all or a portion of the debt on a full-recourse basis. Individual decisions regarding interest rates, loan-to-value, fixed versus variable-rate financing, maturity dates and related matters are often based on the condition of the financial markets at the time the debt is incurred, which conditions may vary from time to time. Distributions are determined by our board of directors with the advice of the advisor and are dependent on a number of factors, including the amount of funds available for distribution, flow of funds, our financial condition, any decision by our board of directors to reinvest funds rather than to distribute the funds, our capital expenditures, the annual distribution required to maintain REIT status under the Internal Revenue Code and other factors the board of directors may deem relevant. CASH FLOWS FROM OPERATING ACTIVITIES Cash flows provided by operating activities were approximately $15,697,000 for the six month period ended June 30, 2004, which is due primarily to net income from property operations. CASH FLOWS FROM INVESTING ACTIVITIES Cash flows used in investing activities were approximately $1,148,663,000 for the six month period ended June 30, 2004 which were primarily used for the acquisition of 34 properties for approximately $1,090,426,000. -139- As of July 31, 2004, we had approximately $200,000,000 available for investment in additional properties. As of July 31, 2004 we are considering the acquisition of approximately $501,000,000 in properties. We are currently in the process of obtaining financings on properties which have been purchased, as well as certain of the properties which we anticipate purchasing. It is our intention to finance each of our acquisitions either at closing or subsequent to closing. As a result of the intended financings and based on our current experience in raising funds in our offering, we believe that we will have sufficient resources to acquire these properties. CASH FLOWS FROM FINANCING ACTIVITIES Cash flows provided by financing activities was approximately $1,195,482,000 for the six month period ended June 30, 2004. We generated proceeds from the sale of shares, net of offering costs paid, of approximately $593,471,000. We generated approximately $541,453,000 from the issuance of new mortgages secured by 29 of our properties and $105,000,000 from funding on the line of credit. We paid approximately $10,154,000 for loan fees and approximately $13,255,000 in distributions to our stockholders for the six months ended June 30, 2004. The sponsor has agreed to advance us amounts to pay a portion of these distributions until funds from operations are adequate to cover distributions. Given the current size of our offering, as of July 31, 2004, we could raise approximately $1.5 billion of additional capital. However, there can be no assurance that we will raise this amount of money or that we will be able to acquire additional attractive properties. We are exposed to interest rate changes primarily as a result of our long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives we borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to current market fixed rates at the time of conversion. EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES SERVICES PROVIDED BY AFFILIATES OF THE ADVISOR As of June 30, 2004, we had incurred $93,674,110 of offering costs, of which $70,096,693 was paid or accrued to affiliates. In accordance with the terms of our offering, the advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or gross offering proceeds or all organization and offering expenses (including selling commissions) which together exceed 15% of gross offering proceeds. As of June 30, 2004, offering costs did not exceed the 5.5% and 15% limitations. We anticipate that these costs will not exceed these limitations upon completion of the offering. Any excess amounts at the completion of the offering will be reimbursed by the advisor. The advisor and its affiliates are entitled to reimbursement for salaries and expenses of employees of the advisor and its affiliates relating to the offering. In addition, an affiliate of the advisor is entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from us in connection with the offering. Such costs are offset against the stockholders' equity accounts. Such costs totaled $70,096,693 as of June 30, 2004, of which $468,907 was unpaid at June 30, 2004. The advisor and its affiliates are entitled to reimbursement for general and administrative expenses of the advisor and its affiliates relating to our administration. Such costs are included in general and administrative expenses to affiliates, professional services to affiliates, and acquisition cost expenses to affiliates, in addition to costs that were capitalized pertaining to property acquisitions. During the six months ended June 30, 2004, we incurred $637,359 of these costs, of which $218,000 remained unpaid as of June 30, 2004. An affiliate of the advisor provides loan servicing to us for an annual fee. Such costs are included in property operating expenses to affiliates. The agreement allows for annual fees totaling .03% of the first $1 billion in mortgage balance outstanding and .01% of the remaining mortgage balance, payable monthly. Such fees totaled $21,276 for the six months ended June 30, 2004. -140- The advisor contributed $200,000 to our capital for which it received 20,000 shares. We use the services of an affiliate of the advisor to facilitate the mortgage financing that we obtained on some of the properties purchased. We pay the affiliate .02% of the principal balance of mortgage loans obtained. Such costs are capitalized as loan fees and amortized over the respective loan term. During the six months ended June 30, 2004, we paid loan fees totaling $1,122,042 to this affiliate. We pay an advisor asset management fee of not more than 1% of our average assets. Our average asset value is defined as the average of the total book value of our real estate assets invested in equity interests plus our loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves. We compute our average assets by taking the average of these values at the end of each month for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our advisor must reimburse us for the following amounts if any: (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: (i) 2% of our average assets for that fiscal year, or (ii) 25% of our net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% minimum annual return on the net investment of stockholders. For the six months ended June 30, 2004, we neither paid nor accrued such fees because the advisor agreed to forego such fees for the first and second quarters of 2004. The property managers, entities owned principally by individuals who are affiliates of the advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services. We incurred property management fees of $1,154,272 for the six months ended June 30, 2004. None remained unpaid as of June 30, 2004. We established a discount stock purchase policy for our affiliates and affiliates of the advisor that enables the affiliates to purchase shares of common stock at either $8.95 or $9.50 a share depending on when the shares are purchased. We sold 510,839 shares to affiliates and recognized an expense related to these discounts of $336,129 for the six months ended June 30, 2004. As of June 30, 2004 we were due funds from our affiliate in the amount of $1,553,689, $1,551,739 of which is due from our sponsor for reimbursement of a portion of the distributions paid by us during 2004. The remaining $1,950 is due from an affiliate for costs paid on their behalf by the Company. The sponsor has agreed to advance to us amounts to pay a portion of distributions to our stockholders until funds from operations are adequate to cover the distributions. The sponsor forgave $2,369,139 of these amounts during the second quarter of 2004 and these funds are no longer due. As of June 30, 2004 we owe funds to the sponsor in the amount of $1,253,477 for repayment of the funds advanced for payment of distributions. -141- OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, LIABILITIES AND CONTRACTS AND COMMITMENTS The table below presents our obligations and commitments to make future payments under debt obligations and lease agreements as of June 30, 2004.
Payments due by period ---------------------- Less than More than Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years - ----------------------- --------------- ------------- ----------- ------------- ------------- Long-Term Debt $ 588,631,295 - 7,260,000 298,839,074 282,532,221 Line of Credit 110,000,000 110,000,000 - - -
CONTRACTS AND COMMITMENTS The purchase and sale contract for Pavilion at King's Grant, provides that if anytime during the period January 1, 2004 through December 31, 2007 the tenant, Toys R' Us, should increase its base rent up to a maximum amount of $250,000 and no decrease has occurred in their requirement to pay for a certain percentage of expenses at the property, then we would be obligated to pay the seller additional funds related to the purchase based on an agreed income capitalization formula. We have not reserved any funds for this contingency. In connection with the purchase of Stony Creek Market Place, we are obligated to purchase the seller's interest in the leases if the seller exercises the right to develop and lease a vacant 50,000 pad site within 48 months after the closing date of December 8, 2003, which was included in the purchase of the property. In connection with the purchase of Newnan Crossing, we are obligated to purchase the remaining portion of the shopping center that is currently under construction, once construction has been completed and a major tenant has moved in and commenced payment of rent, with the additional purchase price based on an agreed upon income capitalization formula. In connection with the purchase of Arvada Connection and Arvada Marketplace, we are obligated to purchase a parcel of the shopping center that may be redeveloped by the seller within the next three years. If the seller does not redevelop the parcel by the end of the redevelopment period, then we are obligated to purchase the parcel for $750,000. In connection with the purchase of Eastwood Town Center, we are obligated to pay the remaining purchase price of $3,836,317 once a major tenant's base rent increases upon two shadow anchor's commencement of operations. In connection with the purchase of Watauga Pavilion, we are obligated to pay the remaining purchase price of $2,146,000 once a major has moved in and commenced payment of rent. In connection with the purchase of John's Creek Village, we are obligated to pay the remaining purchase price of $13,385,390 once the remaining vacancies have been leased and the respective tenants have moved in and commenced payment of rent. We have not reserved any funds for these contingencies. In connection with the purchase of Dorman Center, we were obligated to purchase a portion of the shopping center that was under construction, once construction has been completed and the respective tenants have moved in and commenced payment of rent, with the additional purchase price of the center based on an agreed upon income capitalization formula. As part of the commitment to purchase this remaining portion of the shopping center, we had deposited one million dollars of earnest money with the seller. In addition, in conjunction with the financing of Dorman Center on April 20, 2004, we were required to obtain a $3.65 million irrevocable letter of credit for a one year period. Once we purchased the remaining portion of Dorman Center, and met certain occupancy requirements the letter of credit will be released. On July 16, 2004, we purchased the remaining portion of Dorman Center and the irrevocable letter of credit is still outstanding as the occupancy requirements had not been met as of July 31, 2004. In connection with the purchase of Low Country Village, we were obligated to purchase a portion of the shopping center that is currently under construction, once construction has been completed and the respective tenants have moved in and commenced payment of rent, with the additional purchase price of the center based on an agreed upon income capitalization formula. As part of the commitment to purchase this remaining portion of the shopping center, we had deposited $300,000 of earnest money with an escrow agent. In addition we are obligated to pay the remaining purchase price on the first phase based on an income capitalization formula not to exceed $1,355,096 once the remaining vacancies have been leased and the -142- respective tenants have moved in and commenced payment of rent. In connection with the note receivable related to Pacheco Pass, when the note is repaid, we are obligated to purchase the property for $24,000,000. In connection with the purchase of Larkspur Landing, the Company assumed a liability in the amount of $1,982,504 for tenant improvements and leasing commission obligations. As of June 30, 2004, the remaining liability after disbursements was $1,375,521. Subsequent to June 30, 2004, we purchased 14 properties for a purchase price of approximately $342,000,000. In addition, we are currently considering acquiring 13 properties for an estimated purchase price of $501,000,000. Our decision to acquire each property generally depends upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. RESULTS OF OPERATIONS GENERAL The following discussion is based primarily on our consolidated financial statements as of June 30, 2004 and for the three and six months ended June 30, 2004.
Properties Square Purchased Feet Quarter Ended per Quarter Acquired Purchase Price ------------- ----------- -------- -------------- March 31, 2003 None N/A N/A June 30, 2003 None N/A N/A September 30, 2003 None N/A N/A December 31, 2003 8 797,490 $ 127,195,469 March 31, 2004 11 2,126,152 $ 384,052,586 June 30, 2004 23 4,220,032 $ 713,925,077 ------------------------------------------------ Total 42 7,143,674 $ 1,225,173,132 ================================================
RENTAL INCOME, REAL ESTATE TAX RECOVERY, COMMON AREA COST RECOVERY AND ADDITIONAL RENTAL INCOME. Rental income consists of basic monthly rent and percentage rental income due pursuant to tenant leases. Real estate tax recovery, common area cost recovery and additional rental income consist of property operating expenses recovered from the tenants including real estate taxes, property management fees and insurance. Rental income was $22,885,718 and all additional rental income was $6,094,809 for the six months ended June 30, 2004. INTEREST INCOME. Interest income consists primarily of interest earned from short term investments that are held by us. Interest income was $456,462 for the six month period ended June 30, 2004. This results primarily from interest earned on cash for the six months ended June 30, 2004. PROFESSIONAL SERVICES. Professional services consist of fees to accountants and lawyers. Professional services expense was $156,130 for the six months ended June 30, 2004. This results from professional services required as the business and investor base grows. Accounting fees comprise the majority of the professional services expense. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist of salaries and computerized information services costs reimbursed to affiliates for maintaining our accounting and investor records, affiliates common share purchase discounts, insurance, postage, and printer costs. These expenses were $1,158,137 for the six months ended June 30, 2004 and resulted from increased services required as we acquire properties and grow our portfolio of investment properties and our investor base. PROPERTY OPERATING EXPENSES. Property operating expenses consist of property management fees and property operating -143- expenses, including real estate taxes, costs of owning and maintaining shopping centers, insurance, and maintenance to the exterior of the buildings and the parking lots. These expenses were $6,664,346 for the six months ended June 30, 2004. INTEREST. Interest was $8,357,449 for the six months ended June 30, 2004 and is due to the financing on 31 properties as of June 30, 2004 and funds drawn during the first quarter of 2004 on the line of credit. DEPRECIATION. Depreciation expense was $7,493,738 and is due to depreciation on the properties owned during the six months ended June 30, 2004. AMORTIZATION. Amortization expense was $2,934,613 and is due to the application of SFAS 141 and SFAS 142 resulting in the amortization of intangible assets of approximately $97 million and loan fees of $4 million during the six months ended June 30, 2004. FUNDS FROM OPERATIONS One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Cash generated from operations is not equivalent to our net income from continuing operations as determined under Generally Accepted Accounting Principles in the United States of America or GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts or 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 us. 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 partnerships and joint ventures in which the REIT holds an interest. We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance and operations 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, our presentation of FFO 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 our performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of our capacity to pay distributions. We believe that FFO is a better measure of our operating performance because FFO excludes non-cash items from GAAP net income. This allows us to compare our relative property performance to determine our return on capital. Management uses the calculation of FFO for several reasons. We use FFO to compare our performance to that of other REITs in our peer group. Additionally, we use FFO in conjunction with our acquisition policy to determine investment capitalization strategy. FFO is calculated as follows:
Six months ended June 30, 2004 ------------------- Net income $ 2,147,141 Depreciation and amortization related to investment properties 9,788,099 ------------------- Funds from operations (1) $ 11,935,240 ===================
(1) FFO does not represent cash generated 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 our operating performance or as an alternative to cash flow as a measure of liquidity. The following table lists the approximate physical occupancy levels and gross leasable area for our investment properties as of June 30, 2004 and December 31, 2003. The weighted average gross leasable area occupied at June 30, 2004 and December 31, 2003 was 92% and 98%, respectively. N/A indicates the property was not owned by us at the end of the period. -144-
June 30, 2004 December 31, 2003 ------------- ----------------- GLA GLA Properties: Occupied (%) Occupied (%) - ----------- -------- --- -------- --- Alison's Corner, San Antonio, TX 55,066 100 N/A N/A Arvada Connection and Marketplace, Arvada, CO 340,859 95 N/A N/A Best on the Boulevard, Las Vegas, NV 156,756 77 N/A N/A Bluebonnet Parc, Baton Rouge, LA 120,289 89 N/A N/A CorWest Plaza, New Britain, CT 114,023 99 N/A N/A Darien Towne Centre, Darien, IL 210,010 94 212,682 95 Davis Towne Crossing, North Richland Hills, TX 34,131 83 N/A N/A Dorman Center - Phase I, Spartanburg, SC 342,494 98 N/A N/A Eastwood Towne Center, Lansing, MI 324,020 97 N/A N/A Eckerd Drug Store, Columbia, SC 13,440 100 N/A N/A Eckerd Drug Store, Crossville, TN 13,824 100 N/A N/A Eckerd Drug Store, Edmund, OK 13,824 100 13,824 100 Eckerd Drug Store, Greer, SC 13,824 100 N/A N/A Eckerd Drug Store, Kill Devil Hills, NC 13,824 100 N/A N/A Eckerd Drug Store, Norman, OK 13,824 100 13,824 100 Fullerton Metrocenter, Fullerton, CA 225,040 93 N/A N/A Heritage Towne Crossing, Euless, TX 68,811 85 N/A N/A Hickory Ridge, Hickory, NC 380,487 100 N/A N/A Huebner Oaks Center, San Antonio, TX 277,461 97 N/A N/A John's Creek Village, Duluth, GA 140,930 71 N/A N/A La Plaza Del Norte, San Antonio, TX 304,540 95 N/A N/A Lakewood Towne Center, Lakewood, WA 544,926 94 N/A N/A Larkspur Landing, Larkspur, CA 154,067 88 N/A N/A Low Country Village, Bluffton, SC 70,598 92 N/A N/A MacArthur Crossing, Los Colinas, TX 104,935 95 N/A N/A Metro Square Center, Severn, MD 61,817 100 N/A N/A Newnan Crossing, Newnan, GA 288,055 99 127,260 97 Northpointe Plaza, Seattle, WA 375,324 99 N/A N/A North Ranch Pavilions, Thousand Oaks, CA 55,928 89 N/A N/A North Rivers Town Center, Charleston, SC 141,167 100 N/A N/A Northgate North, Seattle, WA 282,595 93 N/A N/A Paradise Valley Marketplace, Phoenix, AZ 80,535 87 N/A N/A Pavilion at King's Grant, Concord, NC 79,009 100 79,009 100 Peoria Crossings, Peoria, AZ 209,123 98 N/A N/A Pine Ridge Plaza, Lawrence, KS 230,493 100 N/A N/A Plaza Santa Fe II, Santa Fe, NM 217,329 98 N/A N/A Promenade at Red Cliff, St. George, UT 87,109 92 N/A N/A Shaw's Supermarket, New Britain, CT 65,658 100 65,658 100 Shops at Park Place, Plano, TX 116,300 100 116,300 100 Shoppes of Prominence Point, Canton, GA 74,208 84 N/A N/A Stony Creek Market Place, Noblesville, IN 153,803 100 150,727 98 Watauga Pavilion, Watauga, TX 180,941 88 N/A N/A ----------- --------- 6,751,397 779,284 =========== =========
As part of the purchase of Darien Towne Centre, CorWest Plaza, La Plaza Del Norte, Dorman Center - Phase I, Peoria Crossings, Paradise Valley Marketplace, Best on the Boulevard and Bluebonnet Parc, we are entitled to receive payments in accordance with a master lease agreement for space, which was not producing revenue either at the time of or subsequent to the purchase. The master lease agreement covers rental payments due for periods ranging between three months and three years from the purchase date or until the space is leased. The percentage in the table above does not include non-revenue producing space covered by the master lease agreement. The master lease agreements combined with the physical occupancy results in an economic occupancy ranging between 71% and 100% at June 30, 2004. -145- SUBSEQUENT EVENTS We paid distributions of $4,317,876 to our stockholders in July 2004. We issued 15,834,545 shares of common stock from July 1, 2004 through July 31, 2004, resulting in a total of 100,932,985 shares of common stock outstanding. As of July 31, 2004, subscriptions for a total of 99,943,622 shares were received resulting in total gross offering proceeds of $999,357,068 and an additional 992,862 shares were issued pursuant to the DRP for $9,432,194 of additional gross proceeds. On July 12, 2004, the sponsor repaid a portion of its payable to us in the amount of $298,262. We have acquired the following properties during the period July 1 to July 31, 2004. The respective acquisitions are summarized in the table below.
APPROXIMATE GROSS LEASABLE DATE YEAR PURCHASE PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- --- --------- ------------- 07/01/04 Shoppes at Boardwalk 2003/ 36,642,049 122,413 Borders Books 2004 07/02/04 Shoppes of Dallas 2004 13,052,126 70,610 Publix 07/13/04 Wilshire Plaza III 2004 5,750,000 88,248 Kohl's 07/14/04 Cranberry Square 1996- 20,219,563 195,566 Dick's Sporting Goods 1997 Toys R Us Best Buy Barnes & Noble Office Max 07/16/04 Dorman Center Phase II 2004 7,081,662 37,200 Shoe Carnival 07/19/04 Tollgate Marketplace 1977/ 72,300,000 393,395 Giant Food 1994 JoAnn Fabrics Circuit City Toys R Us 07/21/04 Gateway Plaza 2000 33,025,276 358,193 Kohl's 07/21/04 Gateway Village 1996 49,513,455 273,904 Safeway Burlington Coat Factory Best Buy 07/21/04 Towson Circle 1988 28,450,000 116,954 Barnes & Noble Bally Fitness 07/21/04 Wal-Mart Supercenter 2004 12,935,000 183,211 Walmart SuperCenter 07/22/04 Wrangler Company Western 1993 18,476,792 316,800 Wrangler Headquarters 07/26/04 Plaza at Marysville 1995 21,266,000 115,656 Safeway 07/27/04 Forks Town Center 2002 18,198,701 87,560 Giant Foods 07/30/04 Academy Sports 2004 5,250,000 60,001 Academy Sports
-146- The mortgage debt and financings obtained during the period July 1, 2004 to July 31, 2004, are detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($) ----------------------------------------------------------------------------------------------------- 07/02/04 John's Creek Village 5.100% 08/01/09 23,300,000 07/02/04 Shoppes at Boardwalk 4.130% 07/01/09 20,150,000 07/09/04 Fullerton Metrocenter 5.09% 08/01/09 28,050,000 07/14/04 Northgate North 4.60% 07/01/08 26,650,000 07/16/04 Cranberry Square 4.975% 08/01/09 10,900,000 07/21/04 Gateway Village LIBOR + 1.13% 07/01/09 27,233,000 LIBOR + 2.00% 08/01/05 4,225,000 07/21/04 Tollgate Marketplace LIBOR + 1.20% 06/01/09 39,765,000 07/21/04 Towson Circle 5.10% 07/01/09 15,647,500 LIBOR + 2.00% 08/01/05 3,550,000 07/21/04 Eckerds Drug Stores (4) 5.275% 08/01/09 6,800,000 07/26/04 Wrangler Company Western Headquarters 5.090% 08/01/09 11,300,000 07/27/04 Pine Ridge Plaza 5.085% 08/01/09 14,700,000 07/30/04 Plaza at Marysville 5.085% 08/01/09 11,800,000
We are currently considering acquiring 13 properties for an estimated purchase price of $501,000,000. Our decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. For further information on these potential property acquisitions and financings see "Real Property Investments" included elsewhere in this post-effective amendment. INFLATION For our multi-tenant shopping centers, inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to market conditions. Our rental income and operating expenses for those properties owned, or to be owned and operated under 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. As of June 30, 2004, we owned seven single-user triple-net leased properties. Quantitative and Qualitative Disclosures About Market Risk We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve our objectives we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. It is our policy to enter into these transactions with the same -147- party providing the financing, with the right of offset. In the alternative, we will minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. During the second quarter 2004, the Company entered into derivative financial instruments ("treasury contracts") to offset exposures to increases in interest rates with a notional amount of $95.0 million with yields ranging from 3.85% for 5 year treasury contracts to 4.63% for 10 year treasury contracts and maturities at various dates in 2004. Amounts required to be on deposit at June 30, 2004 for these treasury contracts had a cost basis and liquidation value of $2,137,000 and $789,000, respectively. Therefore, the Company recognized a net loss on these treasury contracts of about $1,348,000 at June 30, 2004. To offset the net loss recognized on these treasury contracts, we took advantage of the lower treasury yields which caused the loss on the treasury contracts and secured permanent financing in the amount of $410,000,000 for pending acquisitions. With regard to variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows. While this hedging strategy will have the effect of smoothing out interest rate fluctuations, the result may be to reduce the overall returns on your investment. The fair value of our debt approximates its carrying amount as of June 30, 2004. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year and expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
2004 2005 2006 2007 2008 Thereafter -------- -------- -------- -------- -------- ----------- Maturing debt Fixed rate debt (mortgage loans) - - - - $ 19,577,000 $ 517,794,295 Variable rate debt (including line of credit) $ 110,000,000 7,260,000 - - - 44,000,000 Average interest rate on debt: Fixed rate debt (mortgage loans) - - - - 4.70% 4.43% Variable rate debt (including line of credit) 3.01% 3.83% - - - 2.68%
We have $161,260,000 of variable rate interest averaging 2.96% as of June 30, 2004. An increase in the variable interest rate on this debt constitutes a market risk. If interest rates increase by 1%, based on debt outstanding as of June 30, 2004, interest expense increases by $1,612,600 on an annual basis. -148- PLAN OF DISTRIBUTION THE FOLLOWING NEW SUBSECTION IS INSERTED AT THE END OF THIS SECTION ON PAGE 148 OUR PROSPECTUS. UPDATE The following table updates shares sold in our offering as of September 10, 2004:
Commission Gross and fees Net Shares proceeds ($) ($) (1) proceeds ($) -------------------------------------------------------------------- From our advisor 20,000 200,000 - 200,000 Our offering dated September 15, 2003: 129,554,811 1,295,468,121 135,336,564 1,160,131,557 Shares sold pursuant to our distribution reinvestment program 1,636,007 15,542,066 - 15,542,066 -------------------------------------------------------------------- 131,210,818 1,311,210,187 135,336,564 1,175,873,623 ====================================================================
(1) Inland Securities Corporation serves as dealer manager of this offering and is entitled to receive selling commissions and certain other fees, as discussed further in our prospectus. On September 8, 2004, we filed a registration statement on Form S-11 to register an additional 250,000,000 shares of Common Stock and up to 20,000,000 shares of our common stock for participants in our distribution reinvestment and share repurchase program. The registration statement has not been declared effective by the Securities and Exchange Commission, and there are no assurance when and if it will be declared effective. VOLUME DISCOUNTS THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 152 OF OUR PROSPECTUS, IS CHANGED IN FULL AND SUPPLEMENTED BY THE FOLLOWING: Investors making an initial purchase of at least $250,010 of common stock (25,001 shares) through the same soliciting dealer will receive a reduction of the reallowable 7.0% selling commission payable in connection with the purchase of those shares in accordance with the following schedule:
Amount of Selling Amount of Purchaser's Investment Maximum -------------------------------- Commission Volume Discount From To Per Share - --------------------------------------------------------------------------------------- 1% $ 250,010 $ 500,000 6% 2% $ 500,010 $ 1,000,000 5% 3% $ 1,000,010 $ 2,500,000 4% 4% $ 2,500,010 $ 5,000,000 3% 5% $ 5,000,010 $ 10,000,000 2% 6% $ 10,000,010 more than 1% $ 10,000,000
Any reduction in the amount of the selling commissions in respect of volume discounts received will be credited to the investor in the form of additional whole shares or fractional shares. Selling commissions will not be paid on any such whole shares or fractional shares issued for a volume discount. -149- Some purchases may be combined for the purpose of qualifying for a volume discount, and for determining commissions payable to the managing dealer or the soliciting dealers, so long as all the combined purchases are made through the same soliciting dealer. Subscriptions made in this offer will be combined with other subscriptions in this offering for the purposes of computing amounts invested. Purchases by spouses will also be combined with other purchases by you and will be combined with other purchases of common stock to be held as a joint tenant or as tenants-in-common by you with others for purposes of computing amounts invested. Purchases by entities not required to pay federal income tax may only be combined with purchases by other entities not required to pay federal income tax for purposes of computing amounts invested if investment decision are made by the same person. If the investment decisions are made by in independent investment advisor, that investment adviser may not have any direct or indirect beneficial interest in any of the entities not required to pay federal income tax whose purchases are sought to be combined. You must mark the "Additional Investment" space on the subscription agreement signature page in order for purchases to be combined. We are not responsible for failing to combine purchases if you fail to mark the "Additional Investment" space. If the subscription agreements for the purchases to be combined are submitted at the same time, then the additional common stock to be credited to you as a result of such combined purchases will be credited on a pro rata basis. If the subscription agreements for the purchases to be combined are not submitted at the same time, then any additional common stock to be credited as a result of the combined purchases will be credited to the last component purchase, unless we are otherwise directed in writing at the time of the submission. However, the additional common stock to be credited to any entities not required to pay federal income tax whose purchases are combined for purposes of the volume discount will be credited only on a pro rata basis based on the amount of the investment of each entity not required to pay federal income tax and their combined purchases. Notwithstanding the preceding paragraphs, you may not receive a discount greater than 5% on any purchase of shares if you already own, or may be deemed to already own, any shares. This restriction may limit the amount of the volume discount available to you after your initial purchase and the amount of additional shares that you may be credited as a result of the combination of purchases. In the case of subsequent investments or combined investments, a volume discount will be given only on the portion of the subsequent or combined investment that caused the investment to exceed the breakpoint. For example, if you are investing $50,000 with us today, but had previously invested $240,000, these amounts can be combined to reach the $250,010 breakpoint, which will entitle you to a lower sales commission on your current $50,000 investment. HOW TO SUBSCRIBE THE FIRST SENTENCE OF THE THIRD BULLET POINT ON PAGE 157, UNDER THIS HEADING, IS MODIFIED TO READ AS FOLLOWS: Deliver a check for the full purchase price of the shares being subscribed for, payable to "LBNA/Escrow Agent for IWRRETI", along with the completed subscription agreement to the soliciting dealer. RELATIONSHIPS AND RELATED TRANSACTIONS SUBORDINATED PAYMENTS THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 170 OF OUR PROSPECTUS IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------- ------------------------------------------------ ---------------------------------- OPERATIONAL STAGE Advisor asset management fee We pay an annual advisor asset management fee The actual amounts to be received payable to our advisor. of not more than 1% of our average assets. depend upon the sale price of our Our average assets means the average of the properties and, therefore, cannot total book value including acquired be determined at the present time. intangibles of our real estate assets plus the If we acquire the advisor, the total value of our loans receivables secured advisor asset management fee will by real estate, before reserves for cease. depreciation or bad debts or other similar non-cash reserves. We will
-150- compute our average assets by taking the average of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our advisor must reimburse us for the following amounts if any: (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: - 2% of our average assets for that fiscal year, or - 25% of our net income for that fiscal year. (2) plus an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% annual return on the net investment of stockholders. Items such as organization and offering expenses, property expenses, interest payments, taxes, non-cash expenditures, the incentive advisory fee and acquisition expenses are excluded from the definition of total operating expenses. See "Management--Our Advisory Agreement" for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed.
EXPERTS The following financial statements have been incorporated by reference herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing: - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Shops at Park direct operating expenses of Peoria Crossing Place for the year ended December 31, 2002, for the year ended December 31, 2003, - the consolidated balance sheet of Inland - the historical summary of gross income and Western Retail Real Estate Trust, Inc. as of direct operating expenses of Dorman Centre December 31, 2003 and the related for the year ended December 31, 2003, consolidated statements of operations, stockholders' equity and cash flows for the period from March 5, 2003 (inception) through December 31, 2003 and related financial statement schedule, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Darien Towne direct operating expenses of Heritage Towne Center for the year ended December 31, 2002, Crossing for the year ended December 31, 2003, - the combined historical summary of gross - the historical summary of gross income and income and direct operating expenses of direct operating expenses of Paradise Valley Properties Acquired from Thomas Enterprises Marketplace for the year ended December 31, for the year ended December 31, 2003, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Hickory Ridge direct operating expenses of Best on the for the year ended December 31, 2003, Boulevard for the year ended December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of CorWest Plaza direct operating expenses of Bluebonnet Parc for the period from May 29, 2003 through for the year ended December 31, 2003, December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Metro Square direct operating expenses of North Rivers Center (SuperValue) for the year ended Town Center for the period of October 1, December 31, 2003, 2003 (commencement of operations) to December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Larkspur direct operating expenses of Arvada Landing for the year ended December 31, Marketplace and Connection for the year 2003, ended December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of North Ranch direct operating expenses of Eastwood Town Pavilion for the year ended December 31, 2003, Center for the year ended December 31, 2003,
-151- - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of La Plaza Del direct operating expenses of Watauga Norte for the year ended December 31, 2003, Pavilion for the period of August 15, 2003 (commencement of operations) to December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of MacArthur direct operating expenses of Northpointe Crossing for the year ended December 31, Plaza for the year ended December 31, 2003, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Promenade at direct operating expenses of Plaza Red Cliff for the year ended December 31, Santa Fe II for the year ended December 31, 2003, 2003, - the historical summary of gross income and - and the historical summary of gross income direct operating expenses of Huebner Oaks and direct operating expenses of Pine Ridge Center for the year ended December 31, 2003, Plaza for the year ended December 31, 2003. The following financial statements have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing: - the balance sheet of Inland Western Retail - the historical summary of gross income and Real Estate Trust, Inc. as of June 30, 2003 direct operating expenses of Peoria Station for the year ended December 31, 2002, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of John's Creek direct operating expenses of Lakewood Town Village for the period from September 21, Center for the year ended December 31, 2003, 2003 (commencement of operations) to December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Fullerton direct operating expenses of Davis Towne Metrocenter for the year ended December 31, Crossing for the period from July 18, 2003 2003, (commencement of operations) to December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Northgate North direct operating expenses of Cranberry for the year ended December 31, 2003, Square for the year ended December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Gateway Plaza direct operating expenses of Safeway Plaza Shopping Center for the year ended at Marysville for the year ended December 31, December 31, 2003, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Forks Town direct operating expenses of The Shops at Center for the year ended December 31, 2003, Boardwalk for the period from May 30, 2003 (commencement of operations) to December 31, 2003, - the historical summary of gross income and - the combined historical summary of gross direct operating expenses of Manchester income and direct operating expenses of the Meadows for the year ended December 31, 2003, Properties owned by Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and
-152- Reisterstown Plaza Holdings, LLC for the year ended December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Governor's direct operating expenses of Mitchell Ranch Marketplace for the year ended December 31, Plaza for the period from June 30, 2003 2003, (commencement of operations) to December 31, 2003, - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of The Columns for direct operating expenses of Saucon Valley the period from October 8, 2003 (commencement Square for the year ended December 31, 2003, of operations) to December 31, 2003, - and the historical summary of gross income and direct operating expenses of Lincoln Park for the year ended December 31, 2003.
-153- APPENDIX A PRIOR PERFORMANCE TABLES The following prior performance tables contain information concerning real estate programs sponsored by affiliates of our advisor which have investment objectives similar to ours. This information has been summarized in narrative form under "Prior Performance of Our Affiliates" in the prospectus. The tables provide information on the performance of a number of programs. You can use the information to evaluate the experience of our advisor's affiliates as sponsors of the programs. The inclusion of these tables does not imply that we will make investments comparable to those reflected in the tables or that investors in our shares will experience returns comparable to those experienced in the programs referred to in these tables. If you purchase our shares, you will not acquire any ownership in any of the programs to which these tables relate. The tables consist of: Table I Experience in Raising and Investing Funds Table II Compensation to IREIC and Affiliates Table III Operating Results of Prior Programs Table IV Results of Completed Programs Table V Sales or Disposals of Properties Table VI Acquisition of Properties by Programs*
* Our prospective investors may obtain copies of Table VI by contacting Inland Western Retail Real Estate Advisory Services, Inc., our advisor. Table VI is included in Part II of the Post Effective Amendment No. 5 to Form S-11 Registration Statement filed with the Securities and Exchange Commission on September 15, 2004. Upon written request to us or our advisor, any prospective investor may obtain, without charge, a copy of Table VI. See also "Where You Can Find More Information" for information on examining at, or obtaining copies from, offices of the SEC. Upon written request, any potential investor may obtain, without charge, the most recent annual report on Form 10-K filed with the SEC by any public program sponsored by any of the Inland's affiliated companies which has reported to the SEC within the last 24 months. For a reasonable fee, the affiliated companies will provide copies of any exhibits to such annual reports upon request. Our investment objectives are to: (i) provide regular distributions to stockholders in amounts which may exceed our taxable income due to the non-cash nature of depreciation expense and, to such extent, will constitute a tax- deferred return of capital, but in no event less than 90% of our taxable income, pursuant to the REIT requirements; (ii) provide a hedge against inflation by entering into leases which contain clauses for scheduled rent escalations or participation in the growth of tenant sales, permitting us to increase distributions and provide capital appreciation; and (iii) preserve stockholders' capital. The following programs have investment objectives similar to ours and are included in the tables. Inland Retail Real Estate Trust, Inc. or IRRETI and Inland Real Estate Corporation or IREC are two REITs formed primarily to invest in multi-tenant shopping centers, Inland's Monthly Income Fund, L.P. and Inland Monthly Income Fund II, L.P. are public real estate limited partnerships formed primarily to acquire, operate and sell existing residential and commercial real properties. Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors Fund-II, L.P. and Inland Mortgage Investors Fund III, L.P. were public real estate limited partnerships formed primarily to make or acquire loans secured by mortgages on improved, income producing multifamily residential properties. A-1 TABLE I EXPERIENCE IN RAISING AND INVESTING FUNDS (000's omitted) Table I is intended to present information on a dollar and percentage basis showing the experience of Inland Real Estate Investment Corporation ("IREIC"), of which the Advisor is a wholly owned subsidiary, in raising and investing funds in prior programs where the offering closed in the three years prior to December 31, 2003. The table is intended to focus on the dollar amount available for investment in properties expressed as a percentage of total dollars raised. Inland Retail Real Estate Trust, Inc. is the only program that closed in the three years ended December 31, 2003.
Inland Retail Real Estate Trust, Inc. --------------- 1 Program --------------- Dollar amount offered (A) $ 2,500,000 Dollar amount raised (B) 2,223,010 100.00% Less offering expenses: Syndication fees (C) 194,194 8.74 Other fees (D) 20,861 .94 Organizational fees - - Reserves (E) 22,230 1.00 -------------------------- Available for investment $ 1,985,725 89.32% ========================== Acquisition costs: Cash down payments $ 1,340,382 Repayment of indebtedness 543,206 Investment in securities 8,052 --------------- Total acquisition costs $ 1,891,640 =============== Percent leverage 53% Date offerings commenced (F) Length of offering (F) Months to invest 90% of amount available for investment (measured from beginning of offering) (F)
A-2 TABLE I-(Continued) EXPERIENCE IN RAISING AND INVESTING FUNDS (A) NOTES TO TABLE I (A) This amount does not reflect shares offered for distribution to stockholders participating in Inland Retail Real Estate Trust Inc.'s distribution reinvestment program. (B) These figures are cumulative and are as of December 31, 2003. The dollar amount raised represents the cash proceeds collected by the program, including shares sold pursuant to our distribution reinvestment program and net of shares repurchased pursuant to our share repurchase program. (C) Syndication fees are paid by the program to an affiliate, Inland Securities Corporation, or unaffiliated third parties commissions for the sale of shares. All of these syndication fees were used to pay commissions and expenses of the offerings. (D) Other fees are paid by the program to unaffiliated parties and consist principally of printing, selling and registration costs related to the offering. (E) Generally, a working capital reserve is established to fund property upgrades and future cash flow deficits, if any, among other things. (F) On February 11, 1999, the program commenced an initial public offering, on a best effort basis, of 50,000,000 shares of common stock at $10.00 per share. On February 1, 2001, the program commenced an offering of an additional 50,000,000 shares at $10.00 per share, on a best efforts basis. On June 7, 2002, the program commenced an offering of an additional 150,000,000 shares at $10.00 per share, on a best efforts basis. As of December 31, 2003, substantially all proceeds available for investment from the offerings were invested in real properties. A-3 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) (000's OMITTED) Table II summarizes the amount and type of compensation paid to Inland Real Estate Investment Corporation and its affiliates during the three years ended December 31, 2003 in connection with the prior programs. Some partnerships acquired their properties from affiliates of our advisor which had purchased such properties from unaffiliated third parties.
Inland's Inland Inland Retail Inland Real Monthly Monthly Real Estate Estate Income Income Trust, Inc. Corporation Fund, L.P. Fund II, L. P. ----------------------------------------------------------------------- Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88 Dollar amount raised $ 2,223,010 686,602 30,000 25,324 ----------------------------------------------------------------------- Total amounts paid to general partner or affiliates from proceeds of offerings: Selling commissions and underwriting fees 194,194(C) 49,869(C) 273(B) 423(B) Other offering expenses (D) 2,762 2,350 116 230 Acquisition cost and expense 1,725 925 2,550(E) 1,706(E) ----------------------------------------------------------------------- Dollar amount of cash available from operations before deducting payments to general partner or affiliates (F) 264,442 217,142 4,522 3,505 ----------------------------------------------------------------------- Amounts paid to general partner or affiliates related to operations: (J) Property management fees (G) 19,526 0 52 49 Advisor asset management fee 20,824 0 0 0 Accounting services 0 0 52 49 Data processing service 0 0 25 24 Legal services 0 0 15 10 Professional services 162 0 0 0 Mortgage servicing fees 495 0 0 0 Acquisition costs expensed 309 0 0 0 Other administrative services 3,303 0 69 51 Dollar amount of property sales and refinancings before payments to general partner and affiliates (H): Cash 0 22,978 34 0 Notes 0 0 0 0 Dollar amounts paid or payable to general partner or affiliates from sales and refinancings (I): Sales commissions 0 0 0 0 Participation in cash distributions 0 0 0 0
A-4 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) NOTES TO TABLE II (A) The figures in this Table II relating to proceeds of the offerings are cumulative and are as of December 31, 2003 and the figures relating to cash available from operations are for the three years ending December 31, 2003. The dollar amount raised represents the cash proceeds collected by the partnerships or program. Amounts paid or payable to IREIC or affiliates from proceeds of the offerings represent payments made or to be made to IREIC and affiliates from investor capital contributions. (B) The selling commissions paid to an affiliate is net of amounts which were in turn paid to third party soliciting dealers. (C) The selling commissions paid to an affiliate includes amounts which were in turn paid to third party soliciting dealers. (D) Consists of legal, accounting, printing and other offering expenses, including amounts to be paid to Inland Securities Corporation to be used as incentive compensation to its regional marketing representatives and amounts for reimbursement of the general partner for marketing, salaries and direct expenses of its employees while directly engaged in registering and marketing the Units and other marketing and organization expenses. (E) Represents acquisition fees paid to IREIC and its affiliates in connection with the acquisition of properties. (F) See Note (B) to Table III. (G) An affiliate provides property management services for all properties acquired by the partnerships or program. Management fees have not exceeded 4.5% of the gross receipts from the properties managed. (H) See Table V and Notes thereto regarding sales and disposals of properties. (I) Real estate sales commissions and participations in cash distributions are paid or payable to IREIC and/or its affiliates in connection with the sales of properties in the public partnership programs. Payments of all amounts shown are subordinated to the receipt by the limited partners of their original capital investment. See Table V and Notes thereto. (J) On July 1, 2000, IREC 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 IREC. As a result of the merger, IREC is now "self-administered." IREC no longer pays advisory or property management fees or other expenses to affiliates but instead has hired an internal staff to perform these tasks. A-5 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS Table III presents operating results for programs, the offerings of which closed during each of the five years ended December 31, 2003. The operating results consist of: - The components of taxable income (loss); - Taxable income or loss from operations and property sales; - Cash available and source, before and after cash distributions to investors; and - Tax and distribution data per $1,000 invested. Based on the following termination dates of the offerings, only IRRETI is included in Table III. - Inland's Monthly Income Fund, L.P. - offering terminated in 1988 - Inland Monthly Income Fund II, L.P. - offering terminated in 1990 - Inland Mortgage Investors Fund, L.P. - offering terminated in 1987 - Inland Mortgage Investors Fund - II, L.P. - offering terminated in 1988 - Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991 - Inland Real Estate Corporation - offering terminated in 1998 A-6 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS (000's OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) INLAND RETAIL REAL ESTATE TRUST INC.
2003 2002 2001 2000 1999 ----------------------------------------------------------------------- Gross revenues $ 317,828 116,011 37,755 22,124 6,030 Profit on sale of properties 0 0 0 0 0 Less: Operating expenses 78,568 27,614 10,178 6,279 1,872 Interest expense 62,349 23,508 9,712 8,127 2,368 Program expenses 22,069 7,998 1,219 905 369 Depreciation & amortization 85,006 29,395 8,653 4,752 1,253 ----------------------------------------------------------------------- Net income (loss)-GAAP basis $ 69,836 27,496 7,993 2,061 168 ======================================================================= Taxable income (loss) (A): 0 0 0 0 0 ======================================================================= Cash available (deficiency) from operations (B) 147,403 55,250 17,170 5,366 2,538 Cash available from sales (C) 828 0 0 0 0 ----------------------------------------------------------------------- Total cash available before distributions and special items 148,231 55,250 17,170 5,366 2,538 Less distributions to investors: From operations 152,888 52,156 15,963 6,099 1,065 From sales and refinancings 0 0 0 0 0 ----------------------------------------------------------------------- Cash available after distributions before special items (4,657) 3,094 1,207 (733) 1,473 Special items: 0 0 0 0 0 ----------------------------------------------------------------------- Cash available after distributions and special items $ (4,657) 3,094 1,207 (733) 1,473 ======================================================================= Tax data per $1,000 invested (A): 0 0 0 0 0 Distribution data per $1,000 invested: Cash distributions to investors: Source (on GAAP basis): Investment income .83 .83 .81 .77 .72 Source (on cash basis): Sales 0 0 0 0 0 Operations (D) .83 .83 .81 .77 .72 Percent of properties remaining unsold 100% ===============
A-7 TABLE III--(CONTINUED) OPERATING RESULTS OF PRIOR PROGRAMS NOTES TO TABLE III (A) IRRETI qualified as real estate investment trusts ("REITs") under the Internal Revenue Code for federal income tax purposes. Since it qualified for taxation as a REIT, it generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its stockholders. If IRRETI fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate tax rates. However, even if the program qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. (B) "Cash Available (Deficiency) from Operations," represents all cash revenues and funds received by the programs, including but not limited to operating income less operating expenses, and interest income. These amounts do not include payments made by the programs from offering proceeds nor do they include proceeds from sales or refinancings. These amounts also exclude advances from or repayments to IREIC and affiliates which are disclosed elsewhere in the table and include principal payments on long-term debt. For example:
Inland Retail Real Estate Trust Inc. (000's omitted) 2003 2002 2001 2000 1999 ------------------------------------------------------------- Net cash provided by operating activities per the Form 10-K annual report $ 149,081 55,594 17,427 5,604 2,648 Principal payments on long-term debt (1,678) (344) (257) (238) (110) ------------------------------------------------------------- $ 147,403 55,250 17,170 5,366 2,538 =============================================================
(C) See Table V and Notes thereto regarding sales and disposals of properties. A-8 TABLE III--(CONTINUED) OPERATING RESULTS OF PRIOR PROGRAMS NOTES TO TABLE III (D) Distributions by a REIT to the extent of its current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholder's basis in the shares to the extent thereof, and thereafter as taxable gain (a return of capital). These distributions 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.
Inland Retail Real Estate Trust, Inc. 2003 2002 2001 2000 1999 --------------------------------------------------------- % of Distribution representing: Ordinary income 60.85 62.65 60.49 54.55 22.23 Return of Capital 39.15 37.35 39.51 45.45 77.77 --------------------------------------------------------- 100.00 100.00 100.00 100.00 100.00 =========================================================
A-9 TABLE IV RESULTS OF COMPLETED PROGRAMS (000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) Table IV is a summary of operating and disposition results of prior programs sponsored by affiliates of our advisor, which during the five years ended prior to December 31, 2003 have sold their properties and either hold notes with respect to such sales or have liquidated. One program with investment objectives similar to ours disposed of all of its properties during the five years ended prior to December 31, 2003.
Inland Mortgage Program Name Investors Fund, L.P. - ----------------------------------------------------------------------------------- Dollar amount raised 10,065 Number of properties/loans purchased 15 Date of closing of offering 02/87 Date of first sale of property 12/88 Date of final sale of property 03/99 Tax and distribution data per $1,000 invested (A): Federal income tax results: Ordinary income (loss): Operations 547 Recapture 0 Capital Gain 30 Deferred Gain: Capital 0 Ordinary 0 Cash distributions to investors (cash basis): Source (on GAAP basis) Investment income 624 Return of capital 745 Source (on cash basis) Sales 745 Operations 624
(A) Data per $1,000 invested is presented as of December 31, 2003. See Table V and Notes thereto regarding sales and disposals of properties. A-10 TABLE V SALES OR DISPOSALS OF PROPERTIES Table V presents information on the results of the sale or disposals of properties in programs with investment objectives similar to ours during the three years ended December 31, 2003. Since January 1, 2001, programs sponsored by affiliates of our advisor had seven sales transactions. The table provides certain information to evaluate property performance over the holding period such as: - Sales proceeds received by the partnerships in the form of cash down payments at the time of sale after expenses of sale and secured notes received at sale; - Cash invested in properties; - Cash flow (deficiency) generated by the property; - Taxable gain (ordinary and total); and - Terms of notes received at sale. A-11 TABLE V (CONTINUED) SALES OR DISPOSALS OF PROPERTIES (A) (000'S OMITTED)
Cash Selling Received, Commissions Secured Net of Paid or Mortgage Notes Date Date of Closing Payable to at Time of Received Acquired Sale Costs(B) Inland Sale at Sale - ------------------------------------------------------------------------------------------------------ IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050 0 IREC - Antioch Plaza 12/95 03/28/02 943 0 875 0 IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,978 0 IREC - Popeye's 06/97 04/08/03 343 0 0 0 IREC - Summit of Park Ridge 12/96 12/24/03 3,578 0 1,600 0 IREC - Eagle Country Market 11/97 12/24/03 5,182 0 1,450 0 IREC - Eagle Ridge Center 04/99 12/30/03 3,185 0 3,000 0 Adjust. Resulting from Net Original Partnership Application Selling Mortgage Capital of GAAP Price Financing Invested (C) Total - ------------------------------------------------------------------------------------------ IREC - Lincoln Park Place 0 2,364 0 1,897 1,897 IREC - Antioch Plaza 0 1,818 875 753 1,628 IREC - Shorecrest Plaza 0 6,085 2,978 2,947 5,925 IREC - Popeye's 0 343 0 346 346 IREC - Summit of Park Ridge 0 5,178 0 5,181 5,181 IREC - Eagle Country Market 0 6,632 0 6,635 6,635 IREC - Eagle Ridge Center 0 6,185 0 6,187 6,187 Excess (deficiency) of Amount of property operating subsidies included Total Taxable cash receipts over cash in operating cash Gain (loss) Ordinary Income Capital expenditures (D) receipts from Sale from Sale Gain (loss) - --------------------------------------------------------------------------------------------------------------------------------- IREC - Lincoln Park Place 218 0 467 0 467 IREC - Antioch Plaza 130 0 0(E) 0 0 IREC - Shorecrest Plaza 1,556 0 0(E) 0 0 IREC - Popeye's 241 0 3 0 3 IREC - Summit of Park Ridge 1,399 0 0(E) 0 0 IREC - Eagle Country Market 1,290 0 0(E) 0 0 IREC - Eagle Ridge Center 1,441 0 0(E) 0 0
A-12 TABLE V - (CONTINUED) SALES OR DISPOSALS OF PROPERTIES NOTES TO TABLE V (A) The table includes all sales of properties by the programs with investment objectives similar to ours during the three years ended December 31, 2003. All sales have been made to parties unaffiliated with the partnerships. (B) Consists of cash payments received from the buyers and the assumption of certain liabilities by the buyers at the date of sale, less expenses of sale. (C) Amounts represent the dollar amount raised from the offerings, less sales commissions and other offering expenses plus additional costs incurred on the development of the land parcels. (D) Represents "Cash Available (Deficiency) from Operations (including subsidies)" as adjusted for applicable "Fixed Asset Additions" through the year of sale. (E) For tax purposes, this sale qualified as part of a tax-deferred exchange. As a result, no taxable gain will be recognized until the replacement property is disposed of in a subsequent taxable transaction. A-13 INDEX TO FINANCIAL STATEMENTS
PAGE INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: Consolidated Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003 (audited) F-1 Consolidated Statements of Operations for the three and six months ended June F-3 30, 2004, three months ended June 30, 2003, and the period from March 5, 2003 (inception) through June 30, 2003 (unaudited) Consolidated Statement of Stockholders' Equity for the six month period ended F-4 June 30, 2004 (unaudited) Consolidated Statements of Cash Flows for six months ended June 30, 2004, and F-5 the period from March 5, 2003 (inception) to June 30, 2003 (unaudited) Notes to Consolidated Financial Statements (unaudited) F-7 Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004 F-21 Notes to Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004 F-23 Pro Forma Consolidated Statement of Operations (unaudited) for the six months F-25 ended June 30, 2004 Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the six F-27 months ended June 30, 2004 Pro Forma Consolidated Statements of Operations (unaudited) for the year ended F-30 December 31, 2003 Notes to Pro Forma Consolidated Statements of Operations (unaudited) for F-32 December 31, 2003 JOHN'S CREEK VILLAGE: (a) Report of Independent Registered Public Accounting Firm F-36 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-37 period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-38 for the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) LAKEWOOD TOWN CENTER (a) Report of Independent Registered Public Accounting Firm F-40 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-41 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-42 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
F-i
PAGE FULLERTON METROCENTER: (a) Report of Independent Registered Public Accounting Firm F-44 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-45 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-46 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) DAVIS TOWNE CROSSING: (a) Report of Independent Registered Public Accounting Firm F-48 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-49 period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-50 for the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) NORTHGATE NORTH: (a) Report of Independent Registered Public Accounting Firm F-52 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-53 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-54 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) CRANBERRY SQUARE: (a) Report of Independent Registered Public Accounting Firm F-56 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-57 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-58 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) GATEWAY PLAZA SHOPPING CENTER: (a) Report of Independent Registered Public Accounting Firm F-60 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-61 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-62 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
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PAGE SAFEWAY PLAZA AT MARYSVILLE: (a) Report of Independent Registered Public Accounting Firm F-64 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-65 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-66 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) FORKS TOWN CENTER: (a) Report of Independent Registered Public Accounting Firm F-68 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-69 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses F-70 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC: (a) Report of Independent Registered Public Accounting Firm F-72 (b) Combined Historical Summary of Gross Income and Direct Operating Expenses F-73 for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct F-74 Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) THE SHOPS AT BOARDWALK: (a) Report of Independent Registered Public Accounting Firm F-77 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-78 period from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating F-79 Expenses for the period from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) MANCHESTER MEADOWS: (a) Report of Independent Registered Public Accounting Firm F-81 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-82 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating F-83 Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
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PAGE GOVERNOR'S MARKETPLACE: (a) Report of Independent Registered Public Accounting Firm F-85 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-86 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating F-87 Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) MITCHELL RANCH PLAZA: (a) Report of Independent Registered Public Accounting Firm F-89 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-90 period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating F-91 Expenses for the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) THE COLUMNS: (a) Report of Independent Registered Public Accounting Firm F-93 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-94 period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating F-95 Expenses for the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) SAUCON VALLEY SQUARE: (a) Report of Independent Registered Public Accounting Firm F-97 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-98 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating F-99 Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) LINCOLN PARK: (a) Report of Independent Registered Public Accounting Firm F-101 (b) Historical Summary of Gross Income and Direct Operating Expenses for the F-102 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating F-103 Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
F-iv
PAGE SHOPPES AT PROMINENCE POINT: (a) Historical Summary of Gross Income and Direct Operating Expenses for the F-105 period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating F-106 Expenses for the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) LOW COUNTRY VILLAGE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the F-107 period from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating F-108 Expenses for the period from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) SHOPPES AT DALLAS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the F-109 period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating F-110 Expenses for the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) DORMAN CENTRE - PHASE II: (a) Historical Summary of Gross Income and Direct Operating Expenses for the F-111 period from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating F-112 Expenses for the period from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited) VILLAGE SHOPPES AT SIMONTON: (a) Historical Summary of Gross Income and Direct Operating Expenses for the F-113 period from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating F-114 Expenses for the period from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) HARVEST TOWN CENTER: (a) Historical Summary of Gross Income and Direct Operating Expenses for the F-115 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating F-116 Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
F-v INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Balance Sheets June 30, 2004 and December 31, 2003 ASSETS
June 30, 2004 (unaudited) December 31, 2003 ----------------- ----------------- Investment properties: Land $ 271,843,244 $ 36,280,244 Building and other improvements 901,659,236 86,439,670 ----------------- ----------------- 1,173,502,480 122,719,914 Less accumulated depreciation (7,634,235) (140,497) ----------------- ----------------- Net investment properties 1,165,868,245 122,579,417 Cash and cash equivalents (including cash held by management company of $3,748,091 and $238,878 as of June 30, 2004 and December 31, 2003, respectively) 126,897,006 64,381,134 Restricted cash (Note 2) 40,445,609 - Investment in marketable securities 1,047,708 - Investment in treasury contracts 788,873 Restricted escrows 643,085 - Accounts and rents receivable (net of allowance of $33,047 and $0 as of June 30, 2004 and December 31, 2003, respectively) 6,292,894 1,147,551 Due from affiliates 1,553,689 918,750 Note receivable 15,600,975 7,552,155 Acquired in-place lease intangibles (net of accumulated amortization of $2,345,767 and $51,773 as of June 30, 2004 and December 31, 2003, respectively) 94,495,448 8,753,908 Acquired above market lease intangibles (net of accumulated amortization of $818,404 and $5,227 as of June 30, 2004 and December 31, 2003, respectively) 24,296,377 1,590,446 Loan fees (net of accumulated amortization of $665,087 and $24,835 as of June 30, 2004 and December 31, 2003, respectively) 3,474,737 1,434,160 Other assets 51,021,601 3,744,642 ----------------- ----------------- Total assets $ 1,532,426,247 $ 212,102,163 ================= =================
See accompanying notes to consolidated financial statements. F-1 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Balance Sheets (continued) June 30, 2004 and December 31, 2003 LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 2004 (unaudited) December 31, 2003 ----------------- ----------------- Liabilities: Accounts payable $ 2,079,367 $ 150,332 Accrued offering costs due to affiliates 468,907 1,369,366 Accrued interest payable 1,088,198 - Tenant improvements payable 2,042,004 4,845 Accrued real estate taxes 5,833,125 1,392,069 Distributions payable 4,317,876 927,539 Security deposits 1,271,174 108,189 Mortgages 588,631,295 29,627,000 Line of credit 110,000,000 5,000,000 Prepaid rental income and other liabilities 2,435,385 178,676 Advances from sponsor 1,253,477 1,202,519 Acquired below market lease intangibles (net of accumulated amortization of $917,999 and $15,386 as of June 30, 2004 and December 31, 2003, respectively) 49,259,626 5,910,413 Restricted cash liability (Note 2) 19,996,787 - Due to affiliates 318,000 2,502,436 ----------------- ----------------- Total liabilities 788,995,221 48,373,384 ----------------- ----------------- Stockholders' equity: Preferred stock, $.001 par value, 10,000,000 shares authorized, none outstanding - - Common stock, $.001 par value, 250,000,000 shares authorized, 85,098,440 and 18,737,141 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively 85,098 18,737 Additional paid-in capital (net of offering costs of $93,674,110 and $22,144,814 as of June 30, 2004 and December 31, 2003, respectively, of which $70,096,693 and $16,859,779 was paid or accrued to affiliates as of June 30, 2004 and December 31, 2003, respectively) 759,254,752 165,168,650 Accumulated distributions in excess of net income/(loss) (15,956,532) (1,458,608) Accumulated other comprehensive income 47,708 - ----------------- ----------------- Total stockholders' equity 743,431,026 163,728,779 ----------------- ----------------- Commitments and contingencies (Note 11) Total liabilities and stockholders' equity $ 1,532,426,247 $ 212,102,163 ================= =================
See accompanying notes to consolidated financial statements. F-2 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Statements of Operations For the three and six months ended June 30, 2004, three months ended June 30, 2003 and the period from March 5, 2003 (inception) through June 30, 2003 (unaudited)
Period from March 5, 2003 Three months Three months Six months (inception) ended ended ended through June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 ------------- ------------- ------------- ------------- Income: Rental income, including above and below market lease costs $ 15,332,713 - $ 22,885,718 - Real estate tax recovery income 1,710,281 - 2,617,011 - Common area costs recovery income 2,341,231 - 3,182,289 - Additional rental income 290,189 - 295,509 - Other income 14,709 - 15,939 - Interest income 246,855 - 456,462 - -------------------------------------------------------------- Total income 19,935,978 - 29,452,928 - -------------------------------------------------------------- Expenses: Professional services 99,714 - 156,130 - General and administrative expenses to affiliates 348,133 450 784,142 2,250 General and administrative expenses to non-affiliates 73,053 - 373,995 7,500 Property operating expenses to affiliates 740,857 - 1,154,272 - Property operating expenses to non-affiliates 1,876,074 - 2,496,063 - Real estate taxes 2,026,543 - 3,014,011 - Interest 5,798,856 - 8,357,449 - Depreciation 4,894,432 - 7,493,738 - Amortization 1,841,033 - 2,934,613 - Acquisition cost expenses to affiliates 16,720 - 70,089 - Acquisition cost expenses to non-affiliates 109,190 - 471,285 - -------------------------------------------------------------- Total expenses 17,824,605 450 27,305,787 9,750 -------------------------------------------------------------- Net income (loss) $ 2,111,373 $ (450) $ 2,147,141 $ (9,750) ============================================================== Other comprehensive income: Unrealized gain on investment securities 47,708 - 47,708 - -------------------------------------------------------------- Comprehensive income (loss) $ 2,159,081 $ (450) $ 2,194,849 $ (9,750) ============================================================== Net income(loss) per common share, basic and diluted $ .04 $ (.02) $ .04 $ (.49) ============================================================== Weighted average number of common shares outstanding, basic and diluted 59,688,094 20,000 48,805,229 20,000 ==============================================================
See accompanying notes to consolidated financial statements F-3 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Statement of Stockholders' Equity For the six month period ended June 30, 2004 (unaudited)
ACCUMULATED DISTRIBUTIONS ACCUMULATED ADDITIONAL IN EXCESS OF OTHER NUMBER OF COMMON PAID-IN NET INCOME COMPREHENSIVE SHARES STOCK CAPITAL (LOSS) INCOME TOTAL ---------- --------- -------------- -------------- ------------- ------------- Balance at December 31, 2003 18,737,141 $ 18,737 $ 165,168,650 $ (1,458,608) $ - $ 163,728,779 Net income - - - 2,147,141 - 2,147,141 Unrealized gain on investment securities - - - - 47,708 47,708 Distributions declared - - - (16,645,065) - (16,645,065) Proceeds from offering 65,632,103 65,632 655,981,999 - - 656,047,631 Offering costs - - (71,529,296) - - (71,529,296) Proceeds from dividend reinvestment program 729,196 729 6,926,631 - - 6,927,360 Forgiveness of affiliate debt 2,369,139 2,369,139 Issuance of stock options and discounts on shares issued to affiliates - - 337,629 - - 337,629 ---------- --------- -------------- -------------- ------------- ------------- Balance at June 30, 2004 85,098,440 $ 85,098 $ 759,254,752 (15,956,532) $ 47,708 $ 743,431,026 ========== ========= ============== ============== ============= =============
See accompanying notes to consolidated financial statements. F-4 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 2004, and the period from March 5, 2003 (inception) through June 30, 2003. (unaudited)
Period from March 5, 2003 Six months (inception) ended through June 30, 2004 June 30, 2003 ---------------- ------------- Cash flows from operations: Net income (loss) $ 2,147,141 $ (9,750) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 7,493,738 - Amortization 2,934,613 - Amortization of acquired above market leases 813,177 - Amortization of acquired below market leases (902,613) - Rental income under master leases 363,940 - Straight line rental income (752,757) - Issuance of stock options and discount on shares issued to affiliates 337,629 2,250 Realized loss on sale of treasury contracts 1,346,502 Changes in assets and liabilities: Accounts and rents receivable net of change in allowance of $33,047 and $0 for June 30, 2004 and June 30, 2003, respectively. (4,392,586) - Other assets (1,614,964) - Accounts payable 1,372,477 - Accrued interest payable 1,088,198 - Accrued real estate taxes 2,042,475 - Security deposits 1,162,985 - Prepaid rental and recovery income and other liabilities 2,256,709 7,500 ---------------- ------------- Net cash flows provided by operating activities 15,696,664 - ---------------- ------------- Cash flows used in investing activities: Purchase of investment securities and treasury contracts (3,135,375) - Restricted escrows (643,085) - Purchase of investment properties (1,023,122,692) - Payment of leasing fees (22,200) Tenant improvements payable 1,515,802 - Acquired above market leases (23,519,108) - Acquired in-place lease intangibles (88,035,534) - Acquired below market leases 44,251,826 - Other assets (38,167,012) - Funding of note receivable (15,600,975) - Due to affiliate (2,184,436) - ---------------- ------------- Net cash flows used in investing activities (1,148,662,789) - ---------------- -------------
See accompanying notes to financial statements F-5 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the six months ended June 30, 2004, and the period from March 5, 2003 (inception) through June 30, 2003. (unaudited)
Period from March 5, 2003 (inception) Six months ended through June 30, 2004 June 30, 2003 ----------------- ------------- Cash flows from financing activities: Proceeds from offering 658,416,770 200,000 Proceeds from the dividend reinvestment program 6,927,360 - Payment of offering costs (71,873,197) - Proceeds from mortgage debt 541,452,574 - Proceeds from unsecured line of credit 105,000,000 - Restricted cash collateral (20,448,822) - Loan fees and deposits (10,153,979) - Distributions paid (13,254,728) - Due from affiliates 1,785,158 - Forgiveness of affiliate debt (2,369,139) - ----------------- ------------- Net cash flows provided by financing activities 1,195,481,997 200,000 ----------------- ------------- Net increase in cash and cash equivalents 62,515,872 200,000 Cash and cash equivalents, at beginning of period 64,381,134 - ----------------- ------------- Cash and cash equivalents, at end of period $ 126,897,006 $ 200,000 ================= ============= Supplemental disclosure of cash flow information: Cash paid for interest $ 5,922,749 $ - ================= ============= Restricted cash $ (19,996,787) $ - Restricted cash liability 19,996,787 - ================= ============= Supplemental schedule of non-cash investing and financing activities: Purchase of investment properties $ (1,051,146,506) $ - Assumption of mortgage debt 17,551,721 - Write-off of acquisition reserve 521,357 - Purchase price adjustments 2,398,581 - Conversion of mortgage receivable to investment property 7,552,155 - ----------------- ------------- $ (1,023,122,692) $ - ================= ============= Distributions payable $ 4,317,876 $ - ================= ============= Accrued offering costs payable $ 1,025,465 $ 691,911 ================= =============
See accompanying notes to financial statements F-6 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on March 5, 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers. The Advisory Agreement provides for Inland Western Retail Real Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, to be the Advisor to the Company. On September 15, 2003, the Company commenced an initial public offering of up to 250,000,000 shares of common stock at $10 each and the issuance of 20,000,000 shares at $9.50 each which may be distributed pursuant to the Company's distribution reinvestment program. The Company is qualified and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2003. Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it distributes at least 90% of 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 Company provides the following programs to facilitate investment in the Company's shares and to provide limited liquidity for stockholders. The Company allows stockholders who purchase shares in the offering to purchase additional shares from the Company by automatically reinvesting distributions through the distribution reinvestment program ("DRP"), subject to certain share ownership restrictions. Such purchases under the DRP are not subject to selling commissions or the marketing contribution and due diligence expense allowance, and are made at a price of $9.50 per share. The Company will repurchase shares under the share repurchase program ("SRP"), if requested, at least once quarterly on a first-come, first-served basis, subject to certain restrictions. Subject to funds being available, the Company will limit the number of shares repurchased during any calendar year to 5% of the weighted average number of shares outstanding during the prior calendar year. Funding for the SRP will come exclusively from proceeds that the Company receives from the sale of shares under the DRP and such other operating funds, if any, as the Company's board of directors, at its sole discretion, may reserve for this purpose. The board, at its sole discretion, may choose to terminate the share repurchase program after the end of the offering period, or reduce the number of shares purchased under the program, if it determines that the funds allocated to the SRP are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by the board to eliminate or reduce the share repurchase program will require the unanimous affirmative vote of the independent directors. As of June 30, 2004, no shares have been repurchased by the Company. The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries. Wholly owned subsidiaries generally consist of limited liability companies ("LLC's"). The effects of all significant intercompany transactions have been eliminated. F-7 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (2) Summary of Significant Accounting Policies The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Readers of this Quarterly Report should refer to the audited financial statements of Inland Western Retail Real Estate Trust, Inc. for the fiscal year ended December 31, 2003, which are included in the Company's 2003 Annual Report, as certain footnote disclosures contained in such audited financial statements have been omitted from this Report. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentations. 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 June 30, 2004 consists of common stock investments and is classified as available-for-sale securities and is recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earning 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 that is deemed to be other than temporary, results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new costs basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end and forecasted performance of the investee. Of the investment securities held on June 30, 2004, the Company has accumulated other comprehensive income of $47,708. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and are carried at cost, which approximates market. The Company enters into interest rate futures contracts or treasury contracts as a means of reducing our exposure to rising interest rates. At inception, contracts are evaluated in order to determine if they will qualify for hedge accounting treatment and will be accounted for either on a deferral, accrual or market value basis depending on the nature of our hedge strategy and the method used to account for the hedged item. Hedge criteria include demonstrating the manner in which the hedge will reduce risk, identifying the specific asset, liability or firm commitment being hedged, and citing the time horizon being hedged. During the second quarter of 2004, the Company entered into treasury contracts with a futures commission merchant with a total notional amount of $95.0 million with yields ranging from 3.85% for 5 year treasury contracts to 4.63% for 10 year treasury contracts and maturities at various dates in 2004. The amount required to be on deposit at June 30, 2004 for these treasury contracts had a cost basis and liquidation value of $2,137,000 and $789,000, respectively. As these treasury contracts are not offsetting future commitments and therefore do not qualify as hedges, the net loss of approximately $1,348,000 at June 30, 2004 is recognized currently in earnings and is included in interest expense in the Consolidated Statement of Operations. F-8 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company allocates the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, and any assumed financing that is determined to be above or below market terms. In addition, we allocate a portion of the purchase price to the value of the customer relationships and as of June 30, 2004, no cost has been allocated to such relationships. The allocation of the purchase price is an area that requires judgment and significant estimates. The Company uses the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. The aggregate value of intangibles is measured based on the difference between the stated price and the property value calculated as if vacant. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. The Company also allocates a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease-up period when calculating as if vacant fair values. The Company considers various factors including geographic location and size of leased space. The Company also evaluates each acquired lease based upon current market rates at the acquisition date and considers various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs. After an acquired lease is determined to be above or below market lease costs, the Company allocates a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires the Company's judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. The application of SFAS 141 and SFAS 142 resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to real estate acquisitions during the quarter ended June 30, 2004. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight line basis over the life of the related lease as an adjustment to rental income. Amortization pertaining to the above market lease costs of $475,574 was applied as a reduction to rental income for the three months ended June 30, 2004 and $813,177 for the six months ended June 30, 2004. Amortization pertaining to the below market lease costs of $545,784 was applied as an increase to rental income for the three months ended June 30, 2004 and $902,613 for the six months ended June 30, 2004. The portion of the purchase price allocated to acquired in-place lease intangibles is amortized on a straight line basis over the life of the related lease. The Company incurred amortization expense pertaining to acquired in-place lease intangibles of $1,495,955 for the three month period ended June 30, 2004 and $2,293,994 for the six month period ended June 30, 2004. The table below presents the amortization during the next five years related to the acquired above market lease costs and the below market lease costs for properties owned at June 30, 2004. F-9 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 1, 2004 through December 31, Amortization of: 2004 2005 2006 2007 2008 Thereafter ------------- ---------- ---------- ---------- ---------- ----------- Acquired above market lease costs $ (1,469,181) (2,938,359) (2,885,842) (2,119,421) (1,980,185) (12,903,389) Acquired below market lease costs 2,823,964 5,471,188 5,065,985 4,646,973 4,096,500 27,155,016 ------------------------------------------------------------------------------------ Net rental income increase $ 1,354,783 2,532,829 2,180,143 2,527,552 2,116,315 14,251,627 ==================================================================================== Acquired in-place lease intangibles $ (4,842,059) (9,684,122) (9,684,122) (9,684,122) (9,684,122) (50,916,901)
In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain, non-revenue producing spaces either at the time of, or subsequent to, the purchase of some of the Company's properties. Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income. These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements. Master lease payments are received through a draw of funds escrowed at the time of purchase and may cover a period from one to three years. These funds may be released to either the Company or the seller when certain leasing conditions are met. Restricted cash includes funds received by third party escrow agents, from sellers, pertaining to master lease agreements and the line of credit cash collateral account (see Note 8). The Company records the third party escrow funds as both an asset and a corresponding liability, until certain leasing conditions are met. The Company accrues lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Restricted escrows primarily consist of lenders' restricted escrows and earnout escrows. Earnout escrows are established upon the acquisition of certain investment properties for which the funds may be released to the seller when certain leasing conditions have been met. Notes receivable relate to real estate financing arrangements and bear interest at a market rate based on the borrower's credit quality and are recorded at face value. Interest is recognized over the life of the note. The Company requires collateral for the notes. F-10 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A note is considered impaired pursuant to Financial Accounting Standards Board's Statement of Financial Accounting Standards or SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Pursuant to SFAS No. 114, a note is impaired if it is probable that the Company will not collect all principal and interest contractually due. The impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate. The Company does not accrue interest when a note is considered impaired. When ultimate collectibility of the principal balance of the impaired not is in doubt, all cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and are recognized as interest income, thereafter. The carrying amount of the Company's debt approximates fair value. The carrying amount of the Company's other financial instruments approximate fair value because of the relatively short maturity of these instruments. (3) Transactions with Affiliates The Advisor contributed $200,000 to the capital of the Company for which it received 20,000 shares of common stock. As of June 30, 2004 and December 31, 2003, the Company had incurred $93,674,110 and $22,144,814 of offering costs, of which $70,096,693 and $16,859,779, respectively, were paid or accrued to affiliates. Pursuant to the terms of the offering, the Advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or all organization and offering expenses (including selling commissions) which together exceed 15% of gross proceeds. As of June 30, 2004 and December 31, 2003, offering costs did not exceed the 5.5% and 15% limitations. The Company anticipates that these costs will not exceed these limitations upon completion of the offering. The Company pays an advisor asset management fee of not more than 1% of the average assets. Average asset value is defined as the average of the total book value of the Company's real estate assets plus the Company's loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves. The Company computes the average assets by taking the average of these values at the end of each month for which the fee is being calculated. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which the Company qualifies as a REIT, the advisor must reimburse the Company for the following amounts if any: (1) the amounts by which total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: (i) 2% of average assets for that fiscal year, or (ii) 25% of net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% minimum annual return on the net investment of stockholders. The Company neither paid nor accrued such fees because the Advisor agreed to forego such fees for the six months ended June 30, 2004. F-11 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Advisor and its affiliates are entitled to reimbursement for salaries and expenses of employees of the Advisor and its affiliates relating to the offering. In addition, an affiliate of the Advisor is entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from the Company in connection with the offering. Such costs are offset against the Stockholders' equity accounts. Such costs totaled $70,096,693 as of June 30, 2004, of which $468,907 was unpaid at June 30, 2004. The Advisor and its affiliates are entitled to reimbursement for general and administrative costs of the Advisor and its affiliates relating to the Company's administration. Such costs are included in general and administrative expenses to affiliates, professional services to affiliates, and acquisition cost expenses to affiliates, in addition to costs that were capitalized pertaining to property acquisitions. For the three month period ended June 30, 2004 and the six month period ended June 30, 2004, the Company incurred $371,336 and $637,359 of these costs, respectively, of which $218,000 remained unpaid as of June 30, 2004. An affiliate of the Advisor provides loan servicing to the Company for an annual fee. The agreement allows for annual fees totaling .03% of the first $1 billion in mortgage balance outstanding and .01% of the remaining mortgage balances, payable monthly. Such fees totaled $17,065 for the three months ended June 30, 2004 and $21,276 for the six months ended June 30, 2004, respectively. The Company used the services of an affiliate of the Advisor to facilitate the mortgage financing that the Company obtained on some of the properties purchased. The Company pays the affiliate .02% of the principal amount of each loan obtained on the Company's behalf. Such costs are capitalized as loan fees and amortized over the respective loan term. For the three months ended June 30, 2004 and for the six months ended June 30, 2004, the Company paid loan fees totaling $754,229 and $1,122,042 to this affiliate, respectively. The property managers, entities owned principally by individuals who are affiliates of the Advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services. The Company incurred property management fees of $740,857 and $1,154,272 for the three and six months ended June 30, 2004, respectively. None remained unpaid as of June 30, 2004. The Company established a discount stock purchase policy for affiliates of the Company and the Advisor that enables the affiliates to purchase shares of common stock at a discount at either $8.95 or $9.50 per share depending on when the shares are purchased. The Company sold 70,933 and 510,839 shares to affiliates and recognized an expense related to these discounts of $36,129 and $336,129 for the three and six months ended June 30, 2004, respectively. As of June 30, 2004 and December 31, 2003 the Company was due funds from affiliates in the amount of $1,553,689 and $918,750, respectively which is comprised of $1,551,739 and $845,000, respectively, which is due from the sponsor for reimbursement of a portion of distributions paid in 2004. The remaining $1,950 and $73,750 as of June 30, 2004 and December 31, 2003, respectively is due from an affiliate for costs paid on their behalf by the Company. The sponsor has agreed to advance funds to the Company for a portion of distributions paid to the Company's shareholders until funds from operations are adequate to cover the distributions. The Sponsor forgave $2,369,139 of these amounts during the second quarter of 2004 and these funds are no longer due and are recorded as a contribution to capital in the accompanying consolidated financial statements. As of June 30, 2004 the Company owed funds to the sponsor in the amount of $1,253,477 for repayment of these advances. F-12 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) As of June 30, 2004 and December 31, 2003 the Company owed funds to an affiliate in the amount of $100,000 and $2,154,158, respectively, for the reimbursement of costs paid by the affiliate on behalf of the Company. Both amounts were repaid during 2004. (4) Stock Option Plan The Company has adopted an Independent Director Stock Option Plan which, subject to certain conditions, provides for the grant to each independent director of an option to acquire 3,000 shares following their becoming a director and for the grant of additional options to acquire 500 shares on the date of each annual stockholders' meeting. The options for the initial 3,000 shares are exercisable as follows: 1,000 shares on the date of grant and 1,000 shares on each of the first and second anniversaries of the date of grant. The subsequent options will be exercisable on the second anniversary of the date of grant. The initial options will be exercisable at $8.95 per share. The subsequent options will be exercisable at the fair market value of a share on the last business day preceding the annual meeting of stockholders. As of June 30, 2004 and December 31, 2003 we have issued 3,500 and 3,000 options, respectively, to acquire shares to each of our independent directors, for a total of 17,500 and 15,000 options, of which none have been exercised or expired. (5) Leases Master Lease Agreements In conjunction with certain acquisitions, the Company received payments under master lease agreements pertaining to some non-revenue producing spaces at the time of purchase, for periods ranging from three months to three years after the date of purchase or until the spaces are leased. As these payments are received, they are recorded as a reduction in the purchase price of the respective property rather than as rental income. The cumulative amount of such payments was $363,940 as of June 30, 2004. F-13 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Operating leases Minimum lease payments to be received in the future under operating leases, excluding rental income under master lease agreements and assuming no expiring leases are renewed, are as follows:
Minimum Lease Payments ----------------- 2004 $ 62,521,155 2005 75,836,691 2006 72,899,152 2007 67,164,946 2008 61,756,105 Thereafter 365,242,447 ----------------- Total $ 705,420,496 =================
The remaining lease terms range from one year to 55 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, operating expenses and management fees of the properties. Such amounts are included in additional rental income. (6) Note Receivable The note receivable balance of $15,600,975 as of June 30, 2004 consisted of an installment note from Newman Development Group of Gilroy, L.L.C. that matures on July 15, 2005. This note is secured by a first mortgage on Pacheco Pass Shopping Center. Interest only is due in advance on the first of each month at a rate of 6.993% per annum. Upon closing, an interest reserve escrow totaling three months of interest payments was established. The note receivable balance of $7,552,155 as of December 31 2003 consists of an installment note from Fourth Quarter Properties XIV, LLC (Fourth) that matured on January 15, 2004. This installment note was secured by a 49% interest in Fourth, which owned the remaining portion of the Newnan Crossing shopping center and was also guaranteed personally by the owner of Fourth. Interest only at a rate of 7.6192% per annum was due on the note. The installment note was advanced to Fourth in contemplation of the Company purchasing the remaining portions of Newnan Crossing. The Company did not call the note on January 15, 2004 and subsequently purchased the property on February 13, 2004 at which time the note was paid in full by Fourth as a credit to the purchase price of the property. (7) Mortgages Payable Mortgage loans outstanding as of June 30, 2004 were $588,631,295, of which $537,371,295 had fixed rates ranging from 3.96% to 6.20%. The remaining $51,260,000 represented a variable rate loan with a weighted average interest rate of 2.84% at June 30, 2004. Retail properties with a net carrying value of $956,666,641 at June 30, 2004 and related tenant leases are pledged as collateral. As of June 30, 2004, scheduled maturities for the Company's outstanding mortgage indebtedness have various due dates through December 2012. At June 30, 2004, the weighted average interest rate on the Company's mortgage debt was 4.3%. With the exception of the mortgage loan on Plaza Santa Fe II, all of the Company's F-14 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) mortgage loans as of June 30, 2004 require monthly payments of interest only and may be prepaid with a penalty after specific lockout periods. The mortgage loan on Plaza Santa Fe II requires monthly payments of principal and interest, as well as payments into tax, insurance, and replacement reserve escrows. The loan has no prepayment privileges. The Company guarantees repayment of $1,083,333 of principal on the Pavilion at King's Grant mortgage debt. The debt is cross-collateralized among the properties in connection with the financing of Heritage Towne Crossing and Eckerd Drug Stores in Norman and Edmond, OK. (8) Line of Credit On February 6, 2004, the Company increased its unsecured line of credit arrangement with KeyBank N.A. to $225,000,000 from $150,000,000. The funds from this line of credit may be used to provide liquidity from the time a property is purchased until permanent debt is placed on that property. The line requires interest only payments monthly at the rate equal to the London InterBank Offered Rate or LIBOR plus 175 basis points which ranged from 2.875% to 3.125% during the quarter ended June 30, 2004. The Company is also required to pay, on a quarterly basis, an amount ranging from .15% to .30%, per annum, on the average daily undrawn funds under this line. The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions. As of June 30, 2004, the Company was in compliance with such covenants. In addition to, and in conjunction with these financial covenants, the Company maintains a cash collateral account. Amounts deposited in the cash collateral account provide that loan to value covenants required under the line are not exceeded. Funds may be deposited into and withdrawn from the cash collateral account as the Company's properties are purchased without debt. Amounts deposited in the cash collateral account are included in Restricted Cash on the Consolidated Balance Sheet. There was $20,448,822 deposited in the cash collateral account which was required by the lender as of June 30, 2004. The outstanding balance on the line of credit was $110,000,000 as of June 30, 2004 at a weighted average interest rate of 3.01% per annum. (9) Segment Reporting The Company owns and seeks to acquire multi-tenant shopping centers primarily in the western United States. The Company's shopping centers are typically anchored by discount retailers, home improvement retailers, grocery and drugstores 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 properties based on net property operations. Since all of the Company's 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 properties have been aggregated and reported as one operating segment. F-15 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Net property operations are summarized in the following table for the three and six months ended June 30, 2004, along with a reconciliation to net income.
Six months Three months ended ended June 30, 2004 June 30, 2004 ------------- ------------- Property rental income and additional rental income $ 28,980,527 $ 19,674,414 Total property operating expenses (6,664,346) (4,643,474) Interest expense (8,357,449) (5,798,856) ------------- ------------- Net property operations 13,958,732 9,232,084 ------------- ------------- Interest income 456,462 14,709 Less non-property expenses: Professional services (156,130) (99,714) General and administrative expenses (1,158,137) (421,186) Acquisition cost expenses to affiliates (541,374) (125,910) Depreciation and amortization (10,428,351) (6,735,465) Other income (expense) 15,939 246,855 ------------- ------------- Net income $ 2,147,141 $ 2,111,373 ============= =============
The following table summarizes property asset information as of June 30, 2004 and December 31, 2003.
June 30, 2004 December 31, 2003 ---------------- ----------------- Total assets: Shopping centers $ 1,367,535,186 $ 142,804,128 Non-segment assets 164,891,061 69,298,035 ---------------- ----------------- $ 1,532,426,247 $ 212,102,163 ================ =================
The Company does not derive any of its consolidated revenue from foreign countries and does not have any major customers that individually account for 10% or more of the Company's consolidated revenues. (10) Earnings (loss) per Share Basic earnings (loss) per share ("EPS") is computed by dividing income by the weighted average number of common shares outstanding for the period (the "common shares"). Diluted EPS is computed by dividing net income (loss) by the common shares plus shares issuable upon exercising options or other contracts. As a result of the net loss incurred in 2003, diluted weighted average shares outstanding do not give effect to common stock equivalents as to do so would be anti-dilutive. As of June 30, 2004, options to purchase 15,000 shares of common stock at an exercise price of $8.95 per share were outstanding. These options were not included in the computation of basic or diluted EPS as the effect would be immaterial. F-16 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The basic and diluted weighted average number of common shares outstanding were 59,688,094 for the three months ended June 30, 2004 and 48,805,229 for the six months ended June 30, 2004. (11) Commitments and Contingencies The purchase and sale contract for Pavilion at King's Grant, provides that if anytime during the period January 1, 2004 through December 31, 2007 the tenant Toys R' Us should increase its base rent up to a maximum amount of $250,000 and no decrease has occurred in their requirement to pay for a certain percentage of expenses at the property, then the Company would be obligated to pay the seller additional funds related to the purchase based on an agreed income capitalization formula. The Company has not reserved any funds for this contingency. In connection with the purchase of Stony Creek Market Place, the Company is obligated to purchase the Seller's interest in the leases if the Seller exercises the right to develop and lease a vacant 50,000 pad site within 48 months after the closing date of December 8, 2003, which was included in the purchase of the property. In connection with the purchase of Newnan Crossing, the Company is obligated to purchase the remaining portion of the shopping center that is currently under construction, once construction has been completed and a major tenant has moved in and commenced payment of rent, with the additional purchase price based on an agreed upon income capitalization formula. In connection with the purchase of Arvada Connection and Arvada Marketplace, the Company is obligated to purchase a parcel of the shopping center that may be redeveloped by the Seller within the next three years. If the Seller does not redevelop the parcel by the end of the redevelopment period, then the Company is obligated to purchase the parcel for $750,000. In connection with the purchase of Eastwood Towne Center, the Company is obligated to pay the remaining purchase price of $3,836,317 once a major tenant's base rent increases upon two shadow anchor's commencement of operations. In connection with the purchase of Watauga Pavilion, the Company is obligated to pay the remaining purchase price of $2,146,000 once a major tenant has moved in and commenced payment of rent. In connection with the purchase of John's Creek Village, the Company is obligated to pay the remaining purchase price of $13,385,390 once the remaining vacancies have been leased and the respective tenants have moved in and commenced payment of rent. The Company has not reserved any funds for these contingencies. In connection with the purchase of Dorman Center, the Company was obligated to purchase a portion of the shopping center that was under construction, once construction was completed and the respective tenants had moved in and commenced payment of rent, with the additional purchase price of the center based on an agreed upon income capitalization formula. As part of the commitment to purchase this remaining portion of the shopping center, the Company had deposited one million dollars of earnest money with the Seller. In addition, in conjunction with the financing of Dorman Center on April 20, 2004, the Company was required to obtain a $3.65 million irrevocable letter of credit for a one year period. Once the Company purchased the remaining portion of Dorman Center, and met certain occupancy requirements, the letter of credit will be released. On July 16, 2004, the Company purchased the remaining portion of Dorman Center and the irrevocable letter of credit is still outstanding as the occupancy requirements had not been met as of July 31, 2004. In connection with the purchase of Low Country Village, the Company is obligated to purchase a portion of the shopping center that is currently under construction, once construction has been completed and the respective tenants have moved in and commenced payment of rent, with the additional purchase price of the center based on an agreed upon income capitalization formula. As part of the commitment to purchase this remaining portion of the shopping center, the Company had deposited $300,000 of earnest money with an escrow agent. In addition the Company is obligated to pay the remaining purchase price on the first phase based on an income capitalization formula not to exceed $1,355,096 once the remaining vacancies have been leased and the respective tenants have moved in and commenced payment of rent. F-17 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Notes to Consolidated Financial Statements (continued) In connection with the note receivable related to Pacheco Pass, when the note receivable is repaid, the Company is obligated to purchase the property for approximately $24,000,000. In connection with the purchase of Larkspur Landing, the Company assumed a liability in the amount of $1,982,504 for tenant improvements and leasing commission obligations. As of June 30, 2004, the remaining liability after disbursements is $1,375,521. The Company is currently considering acquiring 13 properties for an estimated purchase price of $501,000,000. The Company's decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions and the Company's receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. (12) Subsequent Events The Company issued 15,834,545 shares of common stock from July 1, 2004 through July 31, 2004 in connection with the offering, resulting in gross proceeds of $158,220,959. On July 12, 2004, the sponsor repaid a portion of its payable to the Company in the amount of $298,262. The Company paid distributions of $4,317,876 to its stockholders in July 2004. F-18 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Notes to Consolidated Financial Statements (continued) The Company has acquired the following properties or joint venture interests in properties during the period July 1 to July 31, 2004. The respective acquisitions are summarized in the table below.
APPROXIMATE GROSS LEASABLE DATE YEAR PURCHASE PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- --- --------- ------------- 07/01/04 Shoppes at Boardwalk 2003/ 36,642,049 122,413 Borders Books 2004 07/02/04 Shoppes of Dallas 2004 13,052,126 70,610 Publix 07/13/04 Wilshire Plaza III 2004 5,750,000 88,248 Kohl's 07/14/04 Cranberry Square 1996 - 20,219,563 195,566 Dick's Sporting Goods 1997 Toys R Us Best Buy Barnes & Noble Office Max 07/16/04 Dorman Center Phase II 2004 7,081,662 37,200 Shoe Carnival 07/19/04 Tollgate Marketplace 1977/ 72,300,000 393,395 Giant Food 1994 JoAnn Fabrics 07/21/04 Gateway Plaza 2000 33,025,276 358,193 Kohl's 07/21/04 Gateway Village 1996 49,513,455 273,904 Safeway Burlington Coat Factory Best Buy 07/21/04 Towson Circle 1988 28,450,000 116,954 Barnes & Noble Bally Fitness 07/21/04 Wal-Mart Supercenter 2004 12,935,000 183,211 Wal-Mart SuperCenter 07/22/04 Wrangler Company Western 1993 18,476,792 316,800 Wrangler Headquarters 07/26/04 Plaza at Marysville 1995 21,266,000 115,656 Safeway 07/27/04 Forks Town Center 2002 18,198,701 87,560 Giant Foods 07/30/04 Academy Sports 2004 5,250,000 60,001 Academy Sports
The Company funded $5,750,000 which represents a portion of the purchase price of a shopping center under construction to be known as Wilshire Plaza III to contain 88,248 gross leasable square feet leased to Kohl's. The Company's total acquisition cost will be approximately $9,850,000. In accordance with the terms of the purchase agreement with the seller, the Company will advance funds for the construction of the retail building in two installments. The Company will receive a 7% return on the original amount funded of $5,750,000 and on additional construction advances to the seller until such time as Kohl's lease commences. F-19 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Notes to Consolidated Financial Statements (continued) The Company entered into joint venture agreements with the current owners of three shopping centers known as Tollgate Marketplace, Gateway Village, and Towson Circle. The Company made capital contributions to these joint ventures and received equity interests representing majority ownership and operating control of these joint ventures. The mortgage debt and financings obtained during the period July 1, 2004 to July 31, 2004, are detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($) ------------------------------------------------------------------------------------------------- 07/02/04 John's Creek Village 5.100% 08/01/09 23,300,000 07/02/04 Shoppes at Boardwalk 4.130% 07/01/09 20,150,000 07/09/04 Fullerton Metrocenter 5.09% 08/01/09 28,050,000 07/14/04 Northgate North 4.60% 07/01/08 26,650,000 07/16/04 Cranberry Square 4.975% 08/01/09 10,900,000 07/21/04 Gateway Village LIBOR + 1.13% 07/01/09 27,233,000 LIBOR + 2.00% 08/01/05 4,225,000 07/21/04 Tollgate Marketplace LIBOR + 1.20% 06/01/09 39,765,000 07/21/04 Towson Circle 5.10% 07/01/09 15,647,500 LIBOR + 2.00% 08/01/05 3,550,000 07/21/04 Eckerds Drug Stores (4) 5.275% 08/01/09 6,800,000 07/26/04 Wrangler Company Western 5.090% 08/01/09 11,300,000 Headquarters 07/27/04 Pine Ridge Plaza 5.085% 08/01/09 14,700,000 07/30/04 Plaza at Marysville 5.085% 08/01/09 11,800,000
F-20 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Balance Sheet June 30, 2004 (unaudited) The following unaudited Pro Forma Consolidated Balance Sheet is presented as if the acquisitions of the properties and the issuance of the notes receivable had occurred on June 30, 2004. This unaudited Pro Forma Consolidated Balance Sheet is not necessarily indicative of what the actual financial position would have been at June 30, 2004, nor does it purport to represent our future financial position. No pro forma adjustments have been made for any potential property acquisitions identified as of September 14, 2004. The Company does not consider these properties as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of September 14, 2004. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. F-21 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Balance Sheet June 30, 2004 (unaudited)
Historical Pro Forma (A) Adjustments Pro Forma ------------------------------------------------ ASSETS Net investment properties (B) $ 1,165,868,245 781,135,000 1,947,003,245 Cash and cash equivalents 126,897,006 143,795,000 270,692,006 Restricted cash 40,445,609 - 40,445,609 Investment in treasury securities 1,047,708 - 1,047,708 Investment in treasury contracts 788,873 - 788,873 Restricted escrows 643,085 - 643,085 Accounts and rents receivable 6,292,894 - 6,292,894 Due from affiliates 1,553,689 - 1,553,689 Note receivable 15,600,975 12,818,000 28,418,975 Acquired in-place lease intangibles (B) (D) 94,495,448 26,900,000 121,395,448 Acquired above market lease intangibles (B) (D) 24,296,377 9,484,000 33,780,377 Other assets (G) 51,021,601 (45,448,000) 5,573,601 Loan fees 3,474,737 - 3,474,737 ------------------------------------------------ Total assets $ 1,532,426,247 928,684,000 2,461,110,247 ================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable 2,079,367 - 2,079,367 Accrued offering costs to affiliates 468,907 - 468,907 Tenant improvement payable 2,042,004 - 2,042,004 Accrued interest payable 1,088,198 - 1,088,198 Accrued real estate taxes 5,833,125 - 5,833,125 Distributions payable 4,317,876 - 4,317,876 Mortgage payable (B) (E) 588,631,295 504,447,500 1,093,078,795 Line of credit 110,000,000 - 110,000,000 Acquired below market lease intangibles (B) (D) 49,259,626 9,174,000 58,433,626 Advances from sponsor 1,253,477 - 1,253,477 Security deposits 1,271,174 - 1,271,174 Due to affiliates 318,000 - 318,000 Prepaid rent and other liabilities 2,435,385 - 2,435,385 Restricted cash liability 19,996,787 - 19,996,787 ------------------------------------------------ Total liabilities 788,995,221 513,621,500 1,302,616,721 ================================================ Common stock (C) 85,098 47,166 132,264 Additional paid-in capital (net of offering costs) (C) 759,254,752 415,015,334 1,174,270,086 Accumulated distributions in excess of net income (loss) (F) (15,956,532) - (15,956,532) Accumulated other comprehensive income 47,708 - 47,708 ------------------------------------------------ Total stockholders' equity 743,431,026 415,062,500 1,158,493,526 ------------------------------------------------ Total liabilities and stockholders' equity $ 1,532,426,247 928,684,000 2,461,110,247 ================================================
See accompanying notes to pro forma consolidated balance sheet. F-22 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Balance Sheet June 30, 2004 (unaudited) (A) The historical column represents our Consolidated Balance Sheet as of June 30, 2004 as filed with the Securities Exchange Commission on Form 10-Q. As of June 30, 2004, the Company had sold 85,078,440 shares to the public and 748,245 shares were issued pursuant to the Company's distribution reinvestment program. As a result, the Company received $850,039,770 of gross offering proceeds. In addition, the Company received the Advisor's capital contribution of $200,000 for which the Advisor was issued 20,000 shares. (B) The pro forma adjustments reflect the acquisition of the following properties. The mortgages payable represent mortgages obtained from a third party, either assumed as part of the acquisition or subsequent to acquisition. No pro forma adjustment has been made for prorations or other closing costs as the amounts are not significant:
Acquisition Mortgage Price Payable -------------- ----------- The Shops at Boardwalk $ 36,642,000 20,150,000 Shoppes of Dallas 13,052,000 - Kohl's - Wilshire Plaza III 5,750,000 - Cranberry Square 20,220,000 10,900,000 Dorman Centre - Phase II 7,082,000 - Tollgate Marketplace 72,300,000 39,765,000 Gateway Village (Loan Note A) 49,513,000 27,233,000 Gateway Village (Loan Note B) - 4,225,000 Towson Circle (Loan Note A) 28,450,000 15,647,500 Towson Circle (Loan Note B) - 3,550,000 Gateway Plaza 33,025,000 18,163,000 Wal-Mart Supercenter - Blytheville 12,935,000 7,100,000 Wrangler Company Western Headquarters 18,477,000 11,300,000 Plaza at Marysville 21,266,000 11,800,000 Forks Town Center 18,199,000 10,395,000 Academy Sports - Houma 5,250,000 2,920,000 Wal-Mart Supercenter - Jonesboro 10,853,000 6,088,500 Reisterstown Road Plaza 88,453,000 49,650,000 Village Shoppes at Simonton 13,750,000 - Manchester Meadows 56,200,000 31,065,000 Governor's Marketplace 32,654,000 20,625,000 Mitchell Ranch Plaza 34,000,000 18,700,000 The Columns 20,770,000 - Saucon Valley Square 16,093,000 8,851,000 Lincoln Park 47,211,000 - Harris Teeter - Wilmington 7,200,000 - Harvest Town Center 8,950,000 - Boulevard at the Capital Centre 130,050,000 71,500,000 ---------------------------- Total $ 808,345,000 389,628,000 ============================
F-23 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Balance Sheet June 30, 2004 (unaudited) Allocation of net investments in properties: Land $ 98,582,000 Building and improvements 682,553,000 Acquired in-place lease intangibles 26,900,000 Acquired above market lease intangibles 9,484,000 Acquired below market lease intangibles (9,174,000) -------------- Total $ 808,345,000 ==============
(C) Additional offering proceeds of $471,660,000, net of additional offering costs of $56,597,500 are reflected as received as of June 30, 2004, prior to the purchase of the properties and are limited to offering proceeds necessary to acquire the properties and offering proceeds actually received as of September 14, 2004. Offering costs consist principally of registration costs, printing and selling costs, including commissions. (D) Acquired intangibles represent above and below market leases and the difference between the property valued with the existing in-place leases and the property valued as if vacant. The value of the acquired leases will be amortized over the lease term. (E) Additional mortgages payable of $504,447,500, reflected as funded as of June 30, 2004, includes $389,628,000 of mortgages payable obtained subsequent to the acquisition of the properties described in (B) and $114,819,500 of new financing placed on previously acquired properties. (F) No pro forma assumptions have been made for the additional payment of distributions resulting from the additional proceeds raised. (G) Change in other assets of $45,448,000 includes $7,773,000 of prepaid loan fees applied to mortgage payables obtained subsequent to the acquisition of the properties described in (B) and $37,675,000 of advance purchase deposits on properties purchased as described in (B). F-24 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2004 (unaudited) The following unaudited Pro Forma Consolidated Statement of Operations is presented to give effect the acquisition of the properties indicated in Note B of the Notes to the Pro Forma Consolidated Statement of Operations as though they occurred on January 1, 2003 or the date significant operations commenced. No pro forma adjustments have been made for any potential property acquisitions identified as of September 14, 2004. The Company does not consider these properties as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of September 14, 2004. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. No pro forma adjustments were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd - Crossville, Kohl's - Wilshire Plaza III or Academy Sports - Houma, as the properties were completed in 2004 and there were no significant operations prior to our acquisition. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable. This unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the actual results of operations would have been for the six months ended June 30, 2004, nor does it purport to represent our future results of operations. F-25 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2004 (unaudited)
Pro Forma Historical Adjustments (A) (B) Pro Forma ----------------------------------------- Rental income $ 22,885,718 48,522,581 71,408,299 Additional rent 6,110,748 11,465,018 17,575,766 Interest income 456,462 - 456,462 ----------------------------------------- Total income 29,452,928 59,987,599 89,440,527 ----------------------------------------- General and administrative expenses 1,314,267 - 1,314,267 Advisor asset management fee (C) - - - Property operating expenses 5,510,074 17,127,416 22,637,490 Management fee (F) 1,154,272 2,682,359 3,836,631 Interest expense (H) 8,357,449 17,128,015 25,485,464 Depreciation (D) 7,493,738 18,520,948 26,014,686 Amortization (G) 2,934,613 3,853,176 6,787,789 Acquisition costs 541,374 - 541,374 ----------------------------------------- Total expenses 27,305,787 59,311,914 86,617,701 ----------------------------------------- Net income (loss) $ 2,147,141 675,685 2,822,826 ========================================= Unrealized gain/loss on investment securities 47,708 - 47,708 ----------------------------------------- Comprehensive income $ 2,194,849 675,685 2,870,534 ========================================= Weighted average number of shares of common stock outstanding, basic and diluted (E) 48,805,229 132,264,000 ============= =========== Net income (loss) per share, basic and diluted (E) .04 .02 ============= ===========
See accompanying notes to pro forma consolidated statement of operations. F-26 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2004 (unaudited) (A) The historical information represents the historical statement of operations of the Company for the period from January 1, 2004 to June 30, 2004 as filed with the Securities Exchange Commission on Form 10-Q. (B) Total pro forma adjustments for acquisitions consummated as of September 14, 2004 are as though the properties were acquired January 1, 2003. No adjustment was made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd - Crossville, Kohl's - Wilshire Plaza III or Academy Sports - Houma as the properties were completed in 2004 and there were no significant operations prior to our acquisition. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments ------------- ----------- ----------- Rental income $ 49,512,862 (990,281) 48,522,581 Additional rental income 11,465,018 - 11,465,018 ------------------------------------------ Total income 60,977,880 (990,281) 59,987,599 ------------------------------------------ Advisor asset management fee - - - Property operating expenses 17,127,416 - 17,127,416 Management fees - 2,682,359 2,682,359 Interest expense - 17,128,015 17,128,015 Depreciation - 18,520,948 18,520,948 Amortization - 3,853,176 3,853,176 ------------------------------------------ Total expenses 17,127,416 42,184,498 59,311,914 ------------------------------------------ Net income (loss) $ 43,850,464 (43,174,779) 675,685 ==========================================
(1) Unaudited combined gross income and direct operating expenses based on information provided by the Seller for the following properties: Newnan Crossing II, Hickory Ridge, CorWest Plaza, Metro Square (Super Value) Center, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte, MacArthur Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center - Phase I, Heritage Towne Crossing, Paradise Valley Marketplace, Best on the Boulevard, Bluebonnet Parc, North Rivers Town Center, Alison's Corner, Arvada Connection and Arvada Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe Plaza, Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's Creek Village, Lakewood Towne Center, Shoppes at Prominence Point, Northgate North, Davis Towne Crossing, Fullerton Metrocenter, Low Country Village, The Shops at Boardwalk, Shoppes of Dallas, Cranberry Square, Dorman Center - Phase II, Tollgate Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at Marysville, Forks Town Center, Reisterstown Road Plaza, Village Shoppes at Simonton, Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Saucon Valley Square, Lincoln Park, Harvest Towne Center and Boulevard at the Capital Centre. F-27 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2004 (unaudited) Gross rental income based on information provided by tenant net leases for the following properties: Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters, Wal-Mart Supercenter - Jonesboro and Harris Teeeter - Wilmington. (C) The advisor asset management fee is expected to be subordinated to the shareholders' receipt of a stated return thus no amount is reflected. (D) Buildings and improvements will be depreciated on a straight line basis based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. That portion of the purchase price that is allocated to above or below lease intangibles will be amortized on a straight line basis over the life of the related leases as an adjustment to rental income. Other leasing costs, tenant improvements and in-place lease intangibles will be amortized on a straight line basis over the life of the related leases as a component of amortization expense. (E) The pro forma weighted average shares of common stock outstanding for the six months ended June 30, 2004 was calculated using the additional shares sold to purchase each of the properties on a weighted average basis plus the 20,000 shares purchased by the Advisor in connection with our organization. (F) Management fees are calculated as 4.5% of gross revenues pursuant to the management agreement. (G) The value of the acquired leases will be amortized over the lease term. (H) The pro forma adjustments relating to interest expense were based on the following debt terms:
Principal Interest Maturity Property Balance Rate (%) Date - --------------------------------------------------------------------------------- The Shops at Boardwalk $ 20,150,000 4.130 08/09 Cranberry Square 10,900,000 4.975 08/09 Tollgate Marketplace 39,765,000 LIBOR + 120 07/09 Gateway Village (Loan Note A) 27,233,000 LIBOR + 113 07/09 Gateway Village (Loan Note B) 4,225,000 LIBOR + 200 08/05 Towson Circle (Loan Note A) 15,647,500 5.100 07/09 Towson Circle (Loan Note B) 3,550,000 LIBOR + 200 08/05 Wrangler Company Western Headquarters 11,300,000 5.090 08/27 Plaza at Marysville 11,800,000 5.085 08/09 Forks Town Center 10,395,000 4.970 09/09 Academy Sports - Houma 2,920,000 5.120 09/09 Wal-Mart Supercenter - Jonesboro 6,088,500 5.085 09/09 Reisterstown Road Plaza 49,650,000 5.300 09/09 Governor's Marketplace 20,625,000 5.185 09/09 John's Creek Village 23,300,000 5.100 08/09 Fullerton Metrocenter 28,050,000 5.090 08/09 Northgate North 26,650,000 4.600 07/08 Eckerd Drug Stores (4) 6,800,000 5.275 08/09 Pine Ridge Plaza 14,700,000 5.085 08/09 Davis Towne Crossing 5,365,200 5.185 09/09
F-28 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2004 (unaudited)
Principal Interest Maturity Property Balance Rate (%) Date - --------------------------------------------------------------------------------- Shoppes at Prominence Point 9,954,300 5.235 09/09 Newnan Crossing 21,543,000 4.380 03/09 Shaw's Supermarket - New Britain 6,450,000 4.680 11/08 Stony Creek Marketplace 14,162,000 4.770 01/11 CorWest Plaza 18,150,000 4.560 02/09 Hickory Ridge 23,650,000 4.531 02/09 Larkspur Landing 33,630,000 4.450 02/09 North Ranch Pavilion 10,157,000 4.120 04/09 La Plaza Del Norte 32,528,000 4.610 03/10 Peoria Crossings 20,497,000 4.090 04/09 Eckerd - Edmund 1,850,000 4.374 06/09 Eckerd - Norman 2,900,000 4.374 06/09 Pavilion at King's Grant 5,342,000 4.390 05/09 Metro Square Center 6,067,000 4.280 04/09 MacArthur Crossing 12,700,000 4.290 05/09 Promenade at Red Cliff 10,590,000 4.290 05/09 Dorman Center Phase I 27,610,000 4.180 05/09 Heritage Towne Crossing 8,950,000 4.374 06/09 Paradise Valley Marketplace 15,681,000 4.550 05/09 Best on the Boulevard 19,525,000 3.990 05/09 Bluebonnet Parc 12,100,000 4.372 05/09 North River Town Center 11,050,000 4.760 05/09 Alison's Corner 3,850,000 4.272 06/10 Watauga Pavilion 17,100,000 4.140 06/10 Northpointe Plaza 30,850,000 4.272 05/09 Plaza Santa Fe II 17,552,000 6.200 12/12 Arvada Marketplace and Arvada Connection 28,510,000 4.130 07/09 Huebner Oaks Center (Loan Note A) 31,723,000 4.200 07/10 Huebner Oaks Center (Loan Note B) 16,277,000 3.960 07/10 Eastwood Towne Center 46,750,000 4.640 07/09 Lakewood Towne Center (Loan Note A) 44,000,000 2.680 06/09 Lakewood Towne Center (Loan Note B) 7,260,000 3.830 07/05 Wal-Mart Supercenter - Blytheville 7,100,000 4.390 09/09 Manchester Meadows 31,065,000 4.480 09/07 Gateway Plaza 18,163,000 5.100 09/09 Mitchell Ranch Plaza 18,700,000 4.480 10/09 Saucon Valley Square 8,851,000 5.115 10/09 Boulevard at the Capital Centre 71,500,000 5.120 10/09
F-29 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) The following unaudited Pro Forma Consolidated Statement of Operations is presented to give effect the acquisition of the properties indicated in Note B of the Notes to the Pro Forma Consolidated Statement of Operations as though they occurred on January 1, 2003 or the date significant operations commenced. No pro forma adjustments have been made for any potential property acquisitions identified as of September 14, 2004. The Company does not consider these properties as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of September 14, 2004. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. No pro forma adjustments were made for Eckerd-Edmond or Eckerd-Norman as the properties were completed in 2003 and there were no significant operations prior to our acquisition. No pro forma adjustments were made for Eckerd-Greer, Eckerd-Kill Devil Hills, Eckerd-Columbia, Eckerd-Crossville, Shoppes at Prominence Point, Low Country Village, Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center - Phase II, Academy Sports - Houma or Village Shoppes at Simonton, as the properties were completed in 2004 and there were no significant operations in 2003. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable. This unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the actual results of operations would have been for the year ended December 31, 2003, nor does it purport to represent our future results of operations. F-30 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited)
Pro Forma Pro Forma Historical Adjustments Adjustments (A) (B) (C) Pro Forma ------------------------------------------------------- Rental income $ 606,645 108,948,375 5,791,842 115,346,862 Additional rent 137,988 26,674,826 693,274 27,506,088 Interest income 37,648 - - 37,648 ------------------------------------------------------- Total income 782,281 135,623,201 6,485,116 142,890,598 ------------------------------------------------------- General and administrative expenses 315,263 - - 315,263 Advisor asset management fee (D) - - - - Property operating expenses 126,617 38,477,976 665,308 39,269,901 Management fee (G) 16,627 6,008,308 297,387 6,322,322 Interest expense (I) 135,735 37,634,243 2,079,488 39,849,466 Depreciation (E) 140,497 39,260,585 2,435,885 41,836,967 Amortization (H) 81,558 10,224,922 539,779 10,846,259 Acquisition costs 139,263 - - 139,263 ------------------------------------------------------- Total expenses 955,560 131,606,034 6,017,847 138,579,441 ------------------------------------------------------- Net income (loss) $ (173,279) 4,017,167 467,269 4,311,157 ======================================================= Weighted average number of shares of common stock outstanding, basic and diluted (F) 2,520,986 132,264,000 ============ =========== Net income (loss) per share, basic and diluted (F) (.07) .03 ============ ===========
See accompanying notes to pro forma consolidated statement of operations. F-31 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) (A) The historical information represents the historical statement of operations of the Company for the period from March 5, 2003 (inception) to December 31, 2003 as filed with the Securities Exchange Commission on Form 10-K. (B) Total pro forma adjustments for acquisitions consummated as of September 14, 2004 are as though the properties were acquired January 1, 2003.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments ------------------------------------------ Rental income $ 111,056,594 (2,108,219) 108,948,375 Additional rental income 26,674,826 - 26,674,826 ------------------------------------------ Total income 137,731,420 (2,108,219) 135,623,201 ------------------------------------------ Advisor asset management fee - - - Property operating expenses 38,477,976 - 38,477,976 Management fees - 6,008,308 6,008,308 Interest expense - 37,634,243 37,634,243 Depreciation - 39,260,585 39,260,585 Amortization - 10,224,922 10,224,922 ------------------------------------------ Total expenses 38,477,976 93,128,058 131,606,034 ------------------------------------------ Net income (loss) $ 99,253,444 (95,236,277) 4,017,167 ==========================================
(1) Audited combined gross income and direct operating expenses as prepared in accordance with Rule 3-14 of Regulation S-X for the following properties: Shops at Park Place, Darien Towne Center, Newnan Crossing Phase I and II, Pavilion at Kings Grant, Hickory Ridge, CorWest Plaza, Metro Square (Super Value) Center, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte, MacArthur Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center - Phase I, Heritage Towne Crossing, Paradise Valley Marketplace, Best on the Boulevard, Bluebonnet Parc, North Rivers Town Center, Arvada Connection and Arvada Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe Plaza, Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's Creek Village, Lakewood Towne Center, Northgate North, Davis Towne Crossing, Fullerton Metrocenter, The Shops at Boardwalk, Cranberry Square, Tollgate Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at Marysville, Forks Town Center, Reisterstown Road Plaza, Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Saucon Valley Square, Lincoln Park and Boulevard at the Capital Centre. F-32 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) (C) Total pro forma adjustments for acquisitions consummated as of September 14, 2004 are as though the properties were acquired January 1, 2003. No pro forma adjustments were made for the Eckerds - Edmond and the Eckerds - Norman as the properties were completed in 2003 and there were no significant operations prior to our acquisition. No pro forma adjustments were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd - Crossville, Shoppes at Prominence Point, Low Country Village, Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center - Phase II, Academy Sports - Houma or Village Shoppes at Simonton, as the properties were completed in 2004 and there were no significant operations in 2003. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments ------------------------------------------ Rental income $ 5,925,020 (133,178) 5,791,842 Additional rental income 693,274 - 693,274 ------------------------------------------ Total income 6,618,294 (133,178) 6,485,116 ------------------------------------------ Advisor asset management fee - - - Property operating expenses 665,308 - 665,308 Management fees - 297,387 297,387 Interest expense - 2,079,488 2,079,488 Depreciation - 2,435,885 2,435,885 Amortization - 539,779 539,779 ------------------------------------------ Total expenses 665,308 5,352,539 6,017,847 ------------------------------------------ Net income (loss) $ 5,952,986 (5,485,717) 467,269 ==========================================
(1) Unaudited combined gross income and direct operating expenses based on information provided by the Seller for the following properties: Stony Creek Marketplace, Shaw's Supermarket (New Britain), Alison's Corner, and Harvest Towne Center. Gross rental income based on information provided by tenant net leases for the following properties: Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters, Wal-Mart Supercenter - Jonesboro and Harris Teeter - Wilmington. F-33 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) (D) The advisor asset management fee is expected to be subordinated to the shareholders' receipt of a stated return thus no amount is reflected. (E) Buildings and improvements will be depreciated on a straight line basis based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. That portion of the purchase price that is allocated to above or below lease intangibles will be amortized on a straight line basis over the life of the related leases as an adjustment to rental income. Other leasing costs, tenant improvements and in-place lease intangibles will be amortized on a straight line basis over the life of the related leases as a component of amortization expense. (F) The pro forma weighted average shares of common stock outstanding for the year ended December 31, 2003 was calculated using the additional shares sold to purchase each of the properties on a weighted average basis plus the 20,000 shares purchased by the Advisor in connection with our organization. (G) Management fees are calculated as 4.5% of gross revenues pursuant to the management agreement. (H) The value of the acquired leases will be amortized over the lease term. (I) The pro forma adjustments relating to interest expense were based on the following debt terms:
Principal Interest Maturity Property Balance Rate (%) Date - ------------------------------------------------------------------------------------ The Shops at Boardwalk $ 20,150,000 4.130 08/09 Cranberry Square 10,900,000 4.975 08/09 Tollgate Marketplace 39,765,000 LIBOR + 120 07/09 Gateway Village (Loan Note A) 27,233,000 LIBOR + 113 07/09 Gateway Village (Loan Note B) 4,225,000 LIBOR + 200 08/05 Towson Circle (Loan Note A) 15,647,500 5.100 07/09 Towson Circle (Loan Note B) 3,550,000 LIBOR + 200 08/05 Wrangler Company Western Headquarters 11,300,000 5.090 08/27 Plaza at Marysville 11,800,000 5.085 08/09 Forks Town Center 10,395,000 4.970 09/09 Academy Sports - Houma 2,920,000 5.120 09/09 Wal-Mart Supercenter - Jonesboro 6,088,500 5.085 09/09 Reisterstown Road Plaza 49,650,000 5.300 09/09 Governor's Marketplace 20,625,000 5.185 09/09 John's Creek Village 23,300,000 5.100 08/09 Fullerton Metrocenter 28,050,000 5.090 08/09 Northgate North 26,650,000 4.600 07/08 Eckerd Drug Stores (4) 6,800,000 5.275 08/09 Pine Ridge Plaza 14,700,000 5.085 08/09 Davis Towne Crossing 5,365,200 5.185 09/09 Shoppes at Prominence Point 9,954,300 5.235 09/09 Shops at Park Place 13,127,000 4.710 11/08 Darien Towne Center 16,500,000 4.650 06/10 Newnan Crossing 21,543,000 4.380 03/09 Shaw's Supermarket - New Britain 6,450,000 4.680 11/33
F-34 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited)
Principal Interest Maturity Property Balance Rate (%) Date - ------------------------------------------------------------------------------------ Stony Creek Marketplace 14,162,000 4.770 01/11 CorWest Plaza 18,150,000 4.560 02/09 Hickory Ridge 23,650,000 4.531 02/09 Larkspur Landing 33,630,000 4.450 02/09 North Ranch Pavilion 10,157,000 4.120 04/09 La Plaza Del Norte 32,528,000 4.610 03/10 Peoria Crossings 20,497,000 4.090 04/09 Eckerd - Edmund 1,850,000 4.374 06/09 Eckerd - Norman 2,900,000 4.374 06/09 Pavilion at King's Grant 5,342,000 4.390 05/09 Metro Square Center 6,067,000 4.280 04/09 MacArthur Crossing 12,700,000 4.290 05/09 Promenade at Red Cliff 10,590,000 4.290 05/09 Dorman Center Phase I 27,610,000 4.180 05/09 Heritage Towne Crossing 8,950,000 4.374 06/09 Paradise Valley Marketplace 15,681,000 4.550 05/09 Best on the Boulevard 19,525,000 3.990 05/09 Bluebonnet Parc 12,100,000 4.372 05/09 North River Town Center 11,050,000 4.760 05/09 Alison's Corner 3,850,000 4.272 06/10 Watauga Pavilion 17,100,000 4.140 06/10 Northpointe Plaza 30,850,000 4.272 05/09 Plaza Santa Fe II 17,552,000 6.200 12/12 Arvada Marketplace and Arvada Connection 28,510,000 4.130 07/09 Huebner Oaks Center (Loan Note A) 31,723,000 4.200 07/10 Huebner Oaks Center (Loan Note B) 16,277,000 3.960 07/10 Eastwood Towne Center 46,750,000 4.640 07/09 Lakewood Towne Center (Loan Note A) 44,000,000 2.680 06/09 Lakewood Towne Center (Loan Note B) 7,260,000 3.830 07/05 Wal-Mart Supercenter - Blytheville 7,100,000 4.390 09/09 Manchester Meadows 31,065,000 4.480 09/07 Gateway Plaza 18,163,000 5.100 09/09 Mitchell Ranch Plaza 18,700,000 4.480 10/09 Saucon Valley Square 8,851,000 5.115 10/09 Boulevard at the Capital Centre 71,500,000 5.120 10/09
F-35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of John's Creek Village ("the Property") for the period from September 21, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of John's Creek Village for the year ended December 31, 2003, in conformity with U.S. generally accepted principles. KPMG LLP Chicago, Illinois August 13, 2004 F-36 JOHN'S CREEK VILLAGE Historical Summary of Gross Income and Direct Operating Expenses For the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from September 21, 2003 For the (commencement of six months ended operations)to June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 834,163 143,640 Operating expense and real estate tax recoveries 327,885 11,701 -------------------------------------- Total gross income 1,162,048 155,341 -------------------------------------- Direct operating expenses: Operating expenses 46,272 22,596 Real estate taxes 340,373 3,764 Insurance 13,215 478 -------------------------------------- Total direct operating expenses 399,860 26,838 -------------------------------------- Excess of gross income over direct operating expenses $ 762,188 128,503 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-37 JOHN'S CREEK VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business John's Creek Village (the Property) is located in Duluth, Georgia. The Property consists of approximately 190,444 square feet of gross leasable area and was 47% leased and occupied at December 31, 2003. The Property is leased to eight tenants of which one tenant accounts for approximately 55% of base rental revenue for the period from September 21, 2003 (commencement of operations) to December 31, 2003. On June 23, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. John's Creek Village was under construction during 2003 and commenced operations on September 21, 2003 with a portion of the Property's gross leasable area (representing approximately 90,005 square feet) complete as of December 31, 2003. The remaining portion of the Property's gross leasable area (representing the remaining approximately 100,439 square feet) is under construction and scheduled to be completed during 2004. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from September 21, 2003 (commencement of operations) to December 31, 2003. The Property has two ground leases that are classified as operating leases with terms extending through December 31, 2023 and May 31, 2014. Total ground lease income was $2,054 and is included in base rental income in the accompanying Historical Summary for the period from September 21, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $1,473 for the period from September 21, 2003 (commencement of operations) to December 31, 2003. F-38 JOHN'S CREEK VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------- 2004 $ 1,668,326 2005 1,743,692 2006 1,754,959 2007 1,763,747 2008 1,759,391 Thereafter 12,090,223 --------------- $ 20,780,338 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-39 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Lakewood Towne Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Lakewood Towne Center for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois July 15, 2004 F-40 LAKEWOOD TOWNE CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------ (unaudited) Gross income: Base rental income $ 2,688,280 4,540,210 Contingent Rent - 67,758 Operating expense and real estate tax recoveries 643,743 1,270,667 ------------------------------------ Total gross income 3,332,023 5,878,635 ------------------------------------ Direct operating expenses: Operating expenses 370,699 741,397 Real estate taxes 313,628 597,386 Insurance 87,680 180,379 ------------------------------------ Total direct operating expenses 772,007 1,519,162 ------------------------------------ Excess of gross income over direct operating expenses $ 2,560,016 4,359,473 ====================================
See accompanying notes to historical summary of gross income and direct operating expense. F-41 LAKEWOOD TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Lakewood Towne Center (the Property) is located in Lakewood, Washington. The Property consists of approximately 579,000 square feet of gross leasable area and was approximately 93% occupied at December 31, 2003. The Property is leased to twenty-four tenants of which five tenants account for approximately 51% of base rental revenue for the year ended December 31, 2003. On June 25, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $67,758 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $300,309 for the year ended December 31, 2003. F-42 LAKEWOOD TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases which terms range from two to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------- 2004 $ 5,177,316 2005 5,141,493 2006 5,082,303 2007 5,100,379 2008 5,061,449 Thereafter 25,865,016 --------------- $ 51,427,956 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Fullerton Metrocenter ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Fullerton Metrocenter for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 3, 2004 F-44 FULLERTON METROCENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,639,005 3,523,208 Operating expense and real estate tax recoveries 531,978 971,604 -------------------------------------- Total gross income 2,170,983 4,494,812 -------------------------------------- Direct operating expenses: Operating expenses 376,538 658,405 Ground lease expense 207,500 415,000 Real estate taxes 178,938 357,876 Insurance 19,569 39,138 -------------------------------------- Total direct operating expenses 782,545 1,470,419 -------------------------------------- Excess of gross income over direct operating expenses $ 1,388,438 3,024,393 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-45 FULLERTON METROCENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Fullerton Metrocenter (the Property) is located in Fullerton, California. The Property consists of approximately 254,880 square feet of gross leasable area and was approximately 78% occupied at December 31, 2003. The Property is leased to forty-one tenants of which two tenants account for approximately 19% of base rental revenue for the year ended December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $268,823 was earned during the year ended December 31, 2003 and recorded as base rental income in the accompanying Historical Summary. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments decreased base rental income by $143,851 for the year ended December 31, 2003. F-46 FULLERTON METROCENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases which terms range from one to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------- 2004 $ 3,518,723 2005 3,284,218 2006 2,801,342 2007 2,405,044 2008 1,754,107 Thereafter 2,995,333 --------------- $ 16,758,767 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. The property is subject to a ground lease with annual payments, payable to an unaffiliated third party, of $415,000 until maturity. The ground lease matures in 2050. F-47 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Davis Towne Crossing ("the Property") for the period from July 18, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Davis Towne Crossing for the period of July 18, 2003 (commencement of operations) to December 31, 2003, in conformity with U.S. generally accepted principles. KPMG LLP Chicago, Illinois July 30, 2004 F-48 DAVIS TOWNE CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from July 18, 2003 For the (commencement of six months ended operations)to June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 317,309 141,436 Operating expense and real estate tax recoveries 78,451 57,649 Other income 918 - -------------------------------------- Total gross income 396,678 199,085 -------------------------------------- Direct operating expenses: Operating expenses 45,368 75,557 Real estate taxes 45,426 22,713 Insurance 20,484 10,242 -------------------------------------- Total direct operating expenses 122,278 108,512 -------------------------------------- Excess of gross income over direct operating expenses $ 274,400 90,573 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-49 DAVIS TOWNE CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Davis Towne Crossing (the Property) is located in North Richland Hills, Texas. The Property consists of approximately 41,000 square feet of gross leasable area and was approximately 83% occupied at December 31, 2003. The Property is leased to thirteen tenants of which two tenants account for approximately 43% of base rental revenue for the period of July 18, 2003 (commencement of operations) to December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. Davis Towne Crossing was under construction during 2003 and commenced operations July 18, 2003, with construction complete as of December 31, 2003. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period of July 18, 2003 (commencement of operations) to December 31, 2003. In addition, rental income includes $5,963 of rent from one tenant that pays monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease. The minimum rents schedule below excludes such tenant. The Property has one ground lease that is classified as an operating lease with terms extending through August 2028. Total ground lease income was $34,509 and is included in base rental income in the accompanying Historical Summary for the period of July 18, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $5,344 for the period of July 18 2003 (commencement of operations) to December 31, 2003. F-50 DAVIS TOWNE CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from three to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------- 2004 $ 653,726 2005 658,033 2006 658,033 2007 631,620 2008 541,343 Thereafter 2,270,444 --------------- $ 5,413,199 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-51 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Northgate North ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Northgate North for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 13, 2004 F-52 NORTHGATE NORTH Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------ (unaudited) Gross income: Base rental income $ 1,674,674 3,092,086 Operating expense and real estate tax recoveries 684,620 1,242,613 ------------------------------------ Total gross income 2,359,294 4,334,699 ------------------------------------ Direct operating expenses: Operating expenses 433,953 867,906 Real estate taxes 197,392 375,985 Insurance 103,050 206,100 ------------------------------------ Total direct operating expenses 734,395 1,449,991 ------------------------------------ Excess of gross income over direct operating expenses $ 1,624,899 2,884,708 ====================================
See accompanying notes to historical summary of gross income and direct operating expense. F-53 NORTHGATE NORTH Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Northgate North (the Property) is located in Seattle, Washington. The Property consists of 302,461 square feet of gross leasable area and was approximately 93% occupied at December 31, 2003. The Property is leased to nine tenants of which four tenants account for approximately 86% of base rental revenue for the year ended December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $353,216 for the year ended December 31, 2003. F-54 NORTHGATE NORTH Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases which terms range from five to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------- 2004 $ 3,161,072 2005 3,162,848 2006 3,258,533 2007 3,271,528 2008 3,292,733 Thereafter 38,248,658 --------------- $ 54,395,372 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Cranberry Square ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Cranberry Square for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 1, 2004 F-56 CRANBERRY SQUARE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 870,100 1,740,201 Operating expense and real estate tax recoveries 186,206 353,892 ------------------------------------------------ Total gross income 1,056,306 2,094,093 ------------------------------------------------ Direct operating expenses: Operating expenses 60,482 115,963 Real estate taxes 148,030 273,704 Insurance 6,765 13,640 ------------------------------------------------ Total direct operating expenses 215,277 403,307 ------------------------------------------------ Excess of gross income over direct operating expenses $ 841,029 1,690,786 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-57 CRANBERRY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Cranberry Square (the Property) is located in Cranberry Township, Pennsylvania. The Property consists of approximately 195,566 square feet of gross leasable area and was approximately 92% occupied at December 31, 2003. The Property is leased to five tenants of which three tenants account for approximately 76% of base rental revenue for the year ended December 31, 2003. On July 14, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $54,138 for the year ended December 31, 2003. F-58 CRANBERRY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases which terms range from ten to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 1,723,839 2005 1,723,839 2006 1,728,158 2007 1,815,820 2008 1,820,320 Thereafter 5,872,510 --------------------- $ 14,684,486 =====================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-59 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Gateway Plaza Shopping Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Gateway Plaza Shopping Center for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Dallas, Texas August 18, 2004 F-60 GATEWAY PLAZA SHOPPING CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 2,080,063 4,118,141 Operating expense and real estate tax recoveries 706,337 1,360,980 ------------------------------------------------ Total gross income 2,786,400 5,479,121 ------------------------------------------------ Direct operating expenses: Operating expenses 198,640 466,631 Ground rent expense 1,496,542 2,993,084 Real estate taxes 542,676 1,033,669 Insurance 48,686 101,711 ------------------------------------------------ Total direct operating expenses 2,286,544 4,595,095 ------------------------------------------------ Excess of gross income over direct operating expenses $ 499,856 884,026 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-61 GATEWAY PLAZA SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Gateway Plaza Shopping Center (the Property) is located in Southlake, Texas. The Property consists of approximately 358,193 square feet of gross leasable area and was approximately 89% occupied at December 31, 2003. The Property is leased to twenty-five tenants of which one tenant accounts for approximately 13% of base rental revenue for the year ended December 31, 2003. On July 21, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $83,000 for the year ended December 31, 2003. F-62 GATEWAY PLAZA SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, excluding tenant reimbursements of operating expenses, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 3,961,000 2005 3,870,000 2006 3,126,000 2007 3,127,000 2008 2,990,000 Thereafter 14,635,000 --------------------- $ 31,709,000 =====================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. The property is subject to a ground lease with annual payments, payable to an unaffiliated third party. The ground lease matures in 2073. Although the ground lease provides for increases in minimum rent payments over the term of the lease, ground lease expense accrues on a straight-line basis. The straight-line adjustment increased ground rent expense by approximately $1,785,000 for the year ended December 31, 2003. Minimum rents to be paid to the unafffiliated third party under the ground lease in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 1,339,368 2005 1,339,368 2006 1,339,368 2007 1,339,368 2008 1,339,368 Thereafter 210,231,145 --------------------- $ 216,927,985 =====================
F-63 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Safeway Plaza at Marysville ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Safeway Plaza at Marysville for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 3, 2004 F-64 SAFEWAY PLAZA AT MARYSVILLE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 763,686 1,513,469 Operating expense and real estate tax recoveries 179,865 358,545 ------------------------------------------------ Total gross income 943,551 1,872,014 ------------------------------------------------ Direct operating expenses: Operating expenses 82,014 164,027 Real estate taxes 79,251 150,954 Insurance 17,081 34,162 ------------------------------------------------ Total direct operating expenses 178,346 349,143 ------------------------------------------------ Excess of gross income over direct operating expenses $ 765,205 1,522,871 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-65 SAFEWAY PLAZA AT MARYSVILLE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Safeway Plaza at Marysville (the Property) is located in Marysville, Washington. The Property consists of approximately 116,000 square feet of gross leasable area and was approximately 97% occupied at December 31, 2003. The Property is leased to one tenant that accounts for approximately 39% of base rental revenue for the year ended December 31, 2003. On July 26, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. The Property has one ground lease that is classified as an operating lease with terms extending through July 31, 2011. Total ground lease income was $50,000 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $23,176 for the year ended December 31, 2003. F-66 SAFEWAY PLAZA AT MARYSVILLE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases which terms range from three to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 1,510,279 2005 1,492,217 2006 1,277,628 2007 1,072,386 2008 1,027,416 Thereafter 8,958,070 --------------------- $ 15,337,996 =====================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Forks Town Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Forks Town Center for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 11, 2004 F-68 FORKS TOWN CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 771,917 1,376,494 Operating expense and real estate tax recoveries 189,220 350,400 ------------------------------------------------ Total gross income 961,137 1,726,894 ------------------------------------------------ Direct operating expenses: Operating expenses 81,011 162,022 Real estate taxes 110,551 189,136 Insurance 7,880 15,759 ------------------------------------------------ Total direct operating expenses 199,442 366,917 ------------------------------------------------ Excess of gross income over direct operating expenses $ 761,695 1,359,977 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-69 FORKS TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Forks Town Center (the Property) is located in Easton, Pennsylvania. The Property consists of approximately 93,000 square feet of gross leasable area and was approximately 97% occupied at December 31, 2003. The Property is leased to sixteen tenants of which one tenant accounts for approximately 66% of base rental revenue for the year ended December 31, 2003. On July 27, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. A portion of Forks Town Center (representing approximately 75,000 square feet of the Property's gross leasable area) was completed as of December 31, 2002. The remaining portion f the Property (representing the remaining approximately 18, 000 square feet of the Property's gross leasable area) was under construction and completed during 2003. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $53,375 for the year ended December 31, 2003. F-70 FORKS TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases which terms range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 1,488,512 2005 1,493,112 2006 1,480,646 2007 1,438,846 2008 1,158,106 Thereafter 13,467,776 --------------------- $ 20,526,998 =====================
Base rental income includes $36,000 of rent from one tenant that subsequently terminated its rental agreement in June 2004. The minimum rents schedule above includes $177,000 related to such tenant, as the lease was still valid as of December 31, 2003. (4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-71 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of the Properties owned by Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC (collectively the "Properties") for the year ended December 31, 2003. This Combined Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Combined Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Properties owned by Capital Centre, LLC, Gateway Village limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 6, 2004 F-72 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP, AND REISTERSTOWN PLAZA HOLDINGS, LLC Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 11,388,110 17,102,545 Operating expense and real estate tax recoveries 1,935,133 3,537,216 Other Income 104,905 88,513 ------------------------------------------------ Total gross income 13,428,148 20,728,274 ------------------------------------------------ Direct operating expenses: Operating expenses 2,479,864 4,282,398 Real estate taxes 997,206 1,352,455 Insurance 293,718 599,009 Ground Rent 73,147 24,382 ------------------------------------------------ Total direct operating expenses 3,843,935 6,258,244 ------------------------------------------------ Excess of gross income over direct operating expenses $ 9,584,213 14,470,030 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-73 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business The Properties owned by Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC (collectively the "Properties") consists of the following:
Gross Occupancy at Leasable December 31, Area 2003 Entity Name (unaudited) Location (unaudited) - ------------------------------------------------------------------------------------------------------------------------- Capital Centre, LLC Boulevard at Capital Centre 515,000 Landover, MD 59% Gateway Village Limited Gateway Village 274,000 Annapolis, MD 98% Partnership Bel Air Square Joint Venture Tollgate Marketplace 393,000 Bel Air, MD 99% Towson Circle Joint Venture, LLP Towson Circle 178,000 Towson, MD 91% Reisterstown Plaza Holdings, LLC Reisterstown Road Plaza 782,000 Baltimore, MD 89%
Thirteen tenants account for 40% or the Properties' base rental income. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") through established limited liability companies ("LLC's") entered into contracts to become joint venture partners in the ownership and operation of the Properties with unaffiliated third parties. IWRRETI has contributed into all but Capital Centre LLC. In each instance IWRRETI owns or will own a 95% profits interest in the LLC's and will control the LLC's management and operation of the Properties. The Historical Summary represents the combination of the Propertes described above prior to IWRRETI's contribution into the LLCs. There were no transactions between the Properties which required elimination in combination. A portion of Boulevard at Capital Centre and Reisterstown Road Plaza (representing approximately 321,000 and 694,000 square feet, respectively) of the Properties gross leasable area was under construction and completed during 2003. The remaining portion f the Properties' gross leasable area (representing approximately 194,000 and 88,000 square feet, respectively) was under construction as of December 31, 2003. Real estate taxes and ground rent are excluded in the Combined Historical Summary related to the portions of the Properties under construction. F-74 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) ( 2 ) Basis of Presentation The Combined Historical Summary of Gross Income and Direct Operating Expenses ("Combined Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Combined Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. ( 3 ) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $384,157 was earned during the year ended December 31, 2003 and included in base rental income in the Combined Historical Summary. In addition, rental income included $51,381 of rent from three tenants that pay monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease. The minimum rents schedule below excludes such tenants. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $385,193 for the year ended December 31, 2003. F-75 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases which terms range from one year to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 23,146,780 2005 25,731,908 2006 25,160,727 2007 24,317,293 2008 23,244,717 Thereafter 160,625,600 --------------------- $ 282,227,025 =====================
( 4 ) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Combined Historical Summary. Boulevard at Capital Centre is subject to a ground lease with annual payments, payable to an unaffiliated third party. The ground lease matures in 2070. Although the ground lease provides for increases in minimum rent payments over the term of the lease, ground lease expense accrues on a straight-line basis. The related adjustment increased ground rent expense by approximately $9,078 for the year ended December 31, 2003. Minimum rents to be paid to the unaffiliated third party under the ground lease in effect at December 31, 2003 are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 92,824 2005 94,057 2006 97,433 2007 98,579 2008 99,791 Thereafter 9,477,524 --------------------- $ 9,960,208 =====================
F-76 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of The Shops at Boardwalk ("the Property") for the period from May 30, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of The Shops at Boardwalk for the period from May 30, 2003 (commencement of operations) to December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 25, 2004 F-77 THE SHOPS AT BOARDWALK Historical Summary of Gross Income and Direct Operating Expenses For the period from May 30, 2003 (commencement of operations) to December 31, 2003, and the six months ended June 30, 2004 (unaudited)
For the period from May 30, 2003 For the (commencement of six months ended operations) to June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 976,541 707,251 Operating expense and real estate tax recoveries 357,069 94,219 ------------------------------------------------ Total gross income 1,333,610 801,470 ------------------------------------------------ Direct operating expenses: Operating expenses 288,162 234,198 Real estate taxes 207,700 9,280 Insurance 18,684 24,417 ------------------------------------------------ Total direct operating expenses 514,546 267,895 ------------------------------------------------ Excess of gross income over direct operating expenses $ 819,064 533,575 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-78 THE SHOPS AT BOARDWALK Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 30, 2003 (commencement of operations) to December 31, 2003, and the six months ended June 30, 2004 (unaudited) (1) BUSINESS The Shops at Boardwalk ("the Property") is located in Kansas City, Missouri. The Property consists of approximately 123,265 square feet of gross leasable area and was approximately 61.97% occupied at December 31, 2003. The Property is leased to 18 tenants of which one tenant that accounts for approximately 16% of base rental revenue for the period from May 30, 2003 (commencement of operations) to December 31, 2003. On July 1, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from May 30, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $184,160 for the period from May 30, 2003 (commencement of operations) to December 31, 2003. F-79 THE SHOPS AT BOARDWALK Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 30, 2003 (commencement of operations) to December 31, 2003, and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 1,716,081 2005 1,978,726 2006 1,988,182 2007 1,998,578 2008 1,748,381 Thereafter 9,118,444 --------------------- $ 18,548,392 =====================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-80 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Manchester Meadows ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Manchester Meadows for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois September 1, 2004 F-81 MANCHESTER MEADOWS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 2,041,721 4,035,915 Contingent Rent - 17,086 Operating expense and real estate tax recoveries 644,313 1,223,383 ------------------------------------------------ Total gross income 2,686,034 5,276,384 ------------------------------------------------ Direct operating expenses: Operating expenses 200,959 360,741 Real estate taxes 397,296 785,067 Insurance 48,066 95,178 ------------------------------------------------ Total direct operating expenses 646,321 1,240,986 ------------------------------------------------ Excess of gross income over direct operating expenses $ 2,039,713 4,035,398 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-82 MANCHESTER MEADOWS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) BUSINESS Manchester Meadows ("the Property") is located in Town and Country, Missouri. The Property consists of 454,172 square feet of gross leasable area and was approximately 99% occupied at December 31, 2003. The Property is leased to a total of 22 tenants, of which two tenants account for approximately 47% of base rental revenue for the year ended December 31, 2003. On August 12, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $17,086 was earned during the year ended December 31, 2003. The Property has one ground lease that is classified as an operating lease with a term extending until August 31, 2005. Total ground lease income was $75,600 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments decreased base rental income by $10,221 for the year ended December 31, 2003. F-83 MANCHESTER MEADOWS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five to 25 years, in effect at December 31, 2003, are as follows:
TOTAL -------------------- $ 3,790,741 2,996,909 2,880,005 2,766,580 2,702,438 18,154,477 -------------------- $ 33,291,150 ====================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-84 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Governor's Marketplace ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Governor's Marketplace for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois September 3, 2004 F-85 GOVERNOR'S MARKETPLACE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 1,445,892 2,391,430 Operating expense and real estate tax recoveries 171,315 312,733 ------------------------------------------------ Total gross income 1,617,207 2,704,163 ------------------------------------------------ Direct operating expenses: Operating expenses 102,701 179,023 Real estate taxes 91,472 147,863 Insurance 173,835 273,576 ------------------------------------------------ Total direct operating expenses 368,008 600,462 ------------------------------------------------ Excess of gross income over direct operating expenses $ 1,249,199 2,103,701 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-86 GOVERNOR'S MARKETPLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Governor's Marketplace ("the Property") is located in Tallahassee, Florida. The Property consists of approximately 265,541 square feet of gross leasable area and was approximately 83% occupied at December 31, 2003. The Property is leased to 18 tenants of which five tenants account for approximately 53% of base rental revenue for the year ended December 31, 2003. On August 17, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. A portion of Governor's Marketplace was under construction during 2003. Operations commenced on July 28, 2000 with a portion of the Property's gross leasable area (representing 220,850 square feet) completed as of December 31, 2003. Of the remaining portion of the Property's gross leasable area, 16,690 square feet is under construction and scheduled to be completed during 2004. 28,001 square feet is undeveloped land. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. The Property has one ground lease that is classified as an operating lease with terms extending through November 30, 2012. Total ground lease income was $63,600 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $223,324 for the year ended December 31, 2003. F-87 GOVERNOR'S MARKETPLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five to 16 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 2,870,026 2005 3,028,732 2006 2,901,670 2007 2,529,017 2008 2,260,420 Thereafter 8,985,450 --------------------- $ 22,575,315 =====================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, insurance, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. The property is subject to ground leases with fixed annual payments, payable to an unaffiliated third party, of $270,000 until September 30, 2085, and $60,000 until December 31, 2087. In addition, the property incurred overage rent of $12,876 for the twelve months ended December 31, 2003. The ground leases mature in 2085 and 2087, respectively. A portion of the ground lease expense has been capitalized in 2003 as the Property was under construction. Fixed minimum rents to be paid to the unaffiliated third party under the ground lease in effect at December 31, 2003 are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 330,000 2005 330,000 2006 330,000 2007 330,000 2008 330,000 Thereafter 25,530,000 --------------------- $ 27,180,000 =====================
F-88 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Mitchell Ranch Plaza ("the Property") for the period from June 30, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Mitchell Ranch Plaza for the period from June 30, 2003 (commencement of operations) to December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois September 1, 2004 F-89 MITCHELL RANCH PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from June 30, 2003 For the six months (commencement of ended operations) to June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 1,122,351 580,219 Operating expense and real estate tax recoveries 187,757 126,065 ------------------------------------------------ Total gross income 1,310,108 706,284 ------------------------------------------------ Direct operating expenses: Operating expenses 90,848 84,005 Real estate taxes 90,030 48,985 Insurance 21,402 6,147 ------------------------------------------------ Total direct operating expenses 202,280 139,137 ------------------------------------------------ Excess of gross income over direct operating expenses $ 1,107,828 567,147 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-90 MITCHELL RANCH PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Mitchell Ranch Plaza ("the Property") is located in New Port Richey, Florida. The Property consists of approximately 200,304 square feet of gross leasable area and was approximately 85% occupied at December 31, 2003. The Property is leased to 33 tenants of which three tenants account for approximately 72% of base rental revenue for the period from June 30, 2003 (commencement of operations) to December 31, 2003. On August 25, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from June 30, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $77,602 for the period from June 30, 2003 (commencement of operations) to December 31, 2003. F-91 MITCHELL RANCH PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 2,237,421 2005 2,279,929 2006 2,253,825 2007 2,127,567 2008 2,058,164 Thereafter 12,355,030 --------------------- $ 23,311,936 =====================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-92 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of The Columns ("the Property") for the period from October 8, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of The Columns for the period from October 8, 2003 (commencement of operations) to December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois September 10, 2004 F-93 THE COLUMNS Historical Summary of Gross Income and Direct Operating Expenses For the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from October 8, 2003 For the six months (commencement of ended operations) to June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 615,902 239,197 Operating expense and real estate tax recoveries 105,488 25,794 ------------------------------------------------ Total gross income 721,390 264,991 ------------------------------------------------ Direct operating expenses: Operating expenses 51,836 29,157 Real estate taxes 66,571 2,180 Insurance 12,662 6,503 ------------------------------------------------ Total direct operating expenses 131,069 37,840 ------------------------------------------------ Excess of gross income over direct operating expenses $ 590,321 227,151 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-94 THE COLUMNS Historical Summary of Gross Income and Direct Operating Expenses For the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business The Columns ("the Property") is located in Jackson, Tennessee. The Property consists of approximately 128,600 square feet of gross leasable area and was approximately 78% occupied at December 31, 2003. The Property is leased to five tenants of which two tenants account for approximately 71% of base rental revenue for the period from October 8, 2003 (commencement of operations) to December 31, 2003. On August 25, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. The Columns was under construction during 2003 and commenced operations October 8, 2003, with construction complete as of December 31, 2003. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent of was earned during the period from October 8, 2003 (commencement of operations) to December 31, 2003. In addition, rental income includes $9,732 of rent from one tenant that pays monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease as the cotenancy requirement was not met for the period from October 8, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $2,774 for the period from October 8, 2003 (commencement of operations) to December 31, 2003. F-95 THE COLUMNS Historical Summary of Gross Income and Direct Operating Expenses For the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five to ten years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 1,346,993 2005 1,480,470 2006 1,482,468 2007 1,485,966 2008 1,489,103 Thereafter 4,900,972 --------------------- $ 12,185,972 =====================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-96 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Saucon Valley Square ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Saucon Valley Square for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois September 7, 2004 F-97 SAUCON VALLEY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the six months ended For the year ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 606,848 1,213,696 Operating expense and real estate tax recoveries 116,965 285,028 ------------------------------------------------ Total gross income 723,813 1,498,724 ------------------------------------------------ Direct operating expenses: Operating expenses 46,772 149,770 Real estate taxes 67,547 128,661 ------------------------------------------------ Total direct operating expenses 114,319 278,431 ------------------------------------------------ Excess of gross income over direct operating expenses $ 609,494 1,220,293 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-98 SAUCON VALLEY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Saucon Valley Square ("the Property") is located in Bethlehem, PA. The Property consists of approximately 80,695 square feet of gross leasable area and was approximately 100% occupied at December 31, 2003. The Property is leased to 15 tenants of which one tenant accounts for approximately 73% of base rental revenue for the year ended December 31, 2003. On September 7, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. The Property has one ground lease that is classified as an operating lease with terms extending through July 12, 2008 . Total ground lease income was $3,750 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $52,248 for the year ended December 31, 2003. F-99 SAUCON VALLEY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from three to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL -------------------------------------------- 2004 $ 910,599 2005 845,071 2006 845,071 2007 845,071 2008 821,160 Thereafter 7,271,335 --------------------- $ 11,538,307 =====================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-100 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Inland Western Retail Real Estate Trust, Inc.: We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses (Historical Summary) of Lincoln Park Shopping Center (the Property) for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Lincoln Park Shopping Center for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. Dallas, Texas September 13, 2004 F-101 LINCOLN PARK SHOPPING CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the six months ended For the year ended June 30, 2004 December 31, 2003 ------------------------------------------------ (unaudited) Gross income: Base rental income $ 1,713,722 3,386,458 Operating expense and real estate tax recoveries 607,814 1,179,700 ------------------------------------------------ Total gross income 2,321,536 4,566,158 ------------------------------------------------ Direct operating expenses: Operating expenses 266,185 442,073 Real estate taxes 445,322 871,151 Insurance 12,566 33,190 ------------------------------------------------ Total direct operating expenses 724,073 1,346,414 ------------------------------------------------ Excess of gross income over direct operating expenses $ 1,597,463 3,219,744 ================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-102 LINCOLN PARK SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Lincoln Park Shopping Center (the Property) is located in Dallas, Texas. The Property consists of approximately 148,806 square feet of gross leasable area and was 97% occupied at December 31, 2003. The Property is leased to 13 tenants of which 4 tenants account for approximately 68% of base rental revenue for the year ended December 31, 2003. On September 7, 2004, Inland Western Retail Real Estate Trust, Inc. (IWRRETI) acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses (Historical Summary) has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and become billable to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of approximately $19,000 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by approximately $141,000 for the year ended December 31, 2003. F-103 LINCOLN PARK SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, excluding tenant reimbursements of operating expenses, which terms range from 5 to 25 years, in effect at December 31, 2003, are as follows:
Year Total -------------------------------------------- 2004 $ 3,342,000 2005 3,299,000 2006 3,203,000 2007 3,207,000 2008 3,005,000 Thereafter 19,704,000 --------------------- $ 35,760,000 =====================
Tenant reimbursements of operating expenses are included in operating expense and real estate tax recoveries in the accompanying Historical Summary. (4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-104 SHOPPES AT PROMINENCE POINT Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from March 1, 2004 (commencement of oeprations) to June 30, 2004 --------------------------- Gross income: Base rental income $ 264,247 Operating expense and real estate tax recoveries 35,817 --------------------------- Total gross income 300,064 --------------------------- Direct operating expenses: Operating expenses 9,259 Real estate taxes 32,055 Insurance 4,590 --------------------------- Total direct operating expenses 45,904 --------------------------- Excess of gross income over direct operating expenses $ 254,160 ===========================
See accompanying notes to historical summary of gross income and direct operating expense. F-105 SHOPPES AT PROMINENCE POINT Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Shoppes at Prominence Point to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 1, 2004 (commencement of operations) to June 30, 2004. F-106 LOW COUNTRY VILLAGE Historical Summary of Gross Income and Direct Operating Expenses For the period from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from February 1, 2004 (commencement of operations) to June 30, 2004 --------------------------- Gross income: Base rental income $ 301,293 Operating expense and real estate tax recoveries 49,137 --------------------------- Total gross income 350,430 --------------------------- Direct operating expenses: Operating expenses 4,715 Real estate taxes 38,184 Insurance 21,110 --------------------------- Total direct operating expenses 64,009 --------------------------- Excess of gross income over direct operating expenses $ 286,421 ===========================
See accompanying notes to historical summary of gross income and direct operating expense. F-107 LOW COUNTRY VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from February 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Low Country Village to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from February 1, 2004 (commencement of operations) to June 30, 2004. F-108 SHOPPES OF DALLAS Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from March 1, 2004 (commencement of operations) to June 30, 2004 ------------------------- Gross income: Base rental income $ 195,042 Operating expense and real estate tax recoveries 23,198 ------------------------- Total gross income 218,240 ------------------------- Direct operating expenses: Operating expenses 11,199 Real estate taxes 3,781 Insurance 4,014 ------------------------- Total direct operating expenses 18,994 ------------------------- Excess of gross income over direct operating expenses $ 199,246 =========================
See accompanying notes to historical summary of gross income and direct operating expense. F-109 SHOPPES OF DALLAS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Shoppes of Dallas to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 1, 2004 (commencement of operations) to June 30, 2004. F-110 DORMAN CENTRE - PHASE II Historical Summary of Gross Income and Direct Operating Expenses For the period from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from March 15, 2004 (commencement of operations) to June 30, 2004 --------------------------- Gross income: Base rental income $ 78,177 Operating expense and real estate tax recoveries 13,140 --------------------------- Total gross income 91,317 --------------------------- Direct operating expenses: Operating expenses 4,518 Real estate taxes 29,016 Insurance 1,403 --------------------------- Total direct operating expenses 34,937 --------------------------- Excess of gross income over direct operating expenses $ 56,380 ===========================
See accompanying notes to historical summary of gross income and direct operating expense. F-111 DORMAN CENTER - PHASE II Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 15, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Dorman Center - Phase II to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 15, 2004 (commencement of operations) to June 30, 2004. F-112 VILLAGE SHOPPES AT SIMONTON Historical Summary of Gross Income and Direct Operating Expenses For the period from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from May 1, 2004 (commencement of operations) to June 30, 2004 --------------------------- Gross income: Base rental income $ 65,553 Operating expense and real estate tax recoveries 18,393 --------------------------- Total gross income 83,946 --------------------------- Direct operating expenses: Operating expenses 4,240 Real estate taxes 17,348 Insurance 3,875 --------------------------- Total direct operating expenses 25,463 --------------------------- Excess of gross income over direct operating expenses $ 58,483 ===========================
See accompanying notes to historical summary of gross income and direct operating expense. F-113 VILLAGE SHOPPES AT SIMONTON Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from May 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Village Shoppes at Simonton to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from May 1, 2004 (commencement of operations) to June 30, 2004. F-114 HARVEST TOWNE CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the six months ended For the year ended June 30, 2004 December 31, 2003 ------------------------------------------------------ Gross income: Base rental income $ 348,503 655,423 Operating expense and real estate tax recoveries 49,445 90,044 ------------------------------------------------------ Total gross income 397,948 745,467 ------------------------------------------------------ Direct operating expenses: Operating expenses 22,463 43,617 Real estate taxes 25,957 45,585 Insurance 5,311 10,312 ------------------------------------------------------ Total direct operating expenses 53,731 99,514 ------------------------------------------------------ Excess of gross income over direct operating expenses $ 344,217 645,953 ======================================================
See accompanying notes to historical summary of gross income and direct operating expense. F-115 HARVEST TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004, respectively, has been prepared from the operating statements provided by the owners of the property during that period and requires management of Harvest Towne Center to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2003 and the six months ended June 30, 2004, respectively. F-116 PROSPECTUS 270,000,000 shares of common stock - maximum offering 200,000 shares of common stock - minimum offering Inland Western Retail Real Estate Trust, Inc. a Real Estate Investment Trust $10.00 per share: Minimum Initial Purchase - 300 shares (100 shares for Tax-Exempt Entities) We intend to operate as a real estate investment trust or a REIT beginning with the tax year ending December 31, 2003. We are not currently qualified as a REIT for federal income tax purposes. We will not be requesting a ruling from the Internal Revenue Service to qualify as a REIT. We were formed in 2003 to acquire and manage properties which are located mainly in states west of the Mississippi River. No public market currently exists for our shares of common stock and our shares cannot be readily sold. We are offering 250,000,000 shares to investors who meet our suitability standards; and up to 20,000,000 shares to participants in our reinvestment plan (at $9.50 per share). A minimum of 200,000 shares of common stock must be sold within one year from the date of this prospectus, unless extended, or we will terminate this offering and we will return your subscription payments, with interest within five business days after termination of this offering. Prior to the sale of the minimum offering, your subscription payments will be placed in an escrow account held by the escrow agent, LaSalle Bank National Association. The managing dealer of the offering, Inland Securities Corporation, is our affiliate. The managing dealer is not required to sell any specific number or dollar amount of shares but will use its best efforts to sell the 250,000,000 of our shares. This offering will end no later than September 15, 2004, unless we elect to extend it to a date no later than September 15, 2005 in states that permit us to make this extension. INVESTING IN OUR COMPANY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF THE MATERIAL RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH YOUR INVESTMENT IN OUR COMMON STOCK. THESE RISKS INCLUDE: - - our common stock is not currently listed or traded on an exchange and cannot be readily sold (and sales by stockholders may be made at a loss); - - we have no operating history nor established financing sources; - - we have identified only one property to be purchased with the proceeds of this offering; - - if we raise the minimum amount, we will not have sufficient resources to acquire the identified property. We need to raise in excess of $26 million to acquire this property; - - we have no ownership in our advisor and the advisor is owned by our sponsor or their affiliates; - - our advisor and its affiliates will receive substantial fees, including participation in proceeds from the sales, refinancing or liquidation of our assets; - - our advisor, property manager and two of our directors are subject to conflicts of interest as a result of their affiliation with The Inland Group; - - there are limits on ownership, transferability and redemption of shares; - - risks that incentive structure of fees payable to our advisor and its affiliates may encourage our advisor to make investments that have greater risks to generate higher fees; and - - although we anticipate that aggregate borrowings will not exceed 55% of the combined fair market value of our properties, our charter imposes a limitation on our borrowings of less than 300% of net assets and there are risks associated with a high amount of leverage. We are unable to specifically quantify the above risk factors. The use of forecasts in this offering is prohibited. Any representations to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in this program is not permitted. Any stockholder loss of capital will be limited to the amount of their investment. You should purchase these securities only if you can afford a complete loss of your investment. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share Min. Offering Max. Offering Public offering price, primary shares (1)....... $ 10.00 $ 2,000,000 $ 2,500,000,000 Public offering price, distribution reinvestment program.................... $ 9.50 $ 0 $ 190,000,000 Selling commissions (1)................ $ 1.05 $ 210,000 $ 262,500,000 Proceeds, before expenses, to us.... $ 8.95 $ 1,790,000 $ 2,452,500,000
(1) The selling commission only applies to sales of primary shares and is composed of a 7.5% selling commission (7.0% of which is reallowable), 2.5% marketing allowance and .5% due diligence expense allowance. The date of this Prospectus is September 15, 2003. FOR RESIDENTS OF MICHIGAN ONLY: A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE DEPARTMENT OF CONSUMER & INDUSTRY SERVICES, MICHIGAN OFFICE OF FINANCIAL AND INSURANCE SERVICES. THE DEPARTMENT HAS NOT UNDERTAKEN TO PASS UPON THE VALUE OF THESE SECURITIES NOR TO MAKE ANY RECOMMENDATIONS AS TO THEIR PURCHASE. THE USE OF THIS PROSPECTUS IS CONDITIONED UPON ITS CONTAINING ALL MATERIAL FACTS AND THAT ALL STATEMENTS CONTAINED THEREIN ARE TRUE AND CAN BE SUBSTANTIATED. THE DEPARTMENT HAS NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. NO BROKER-DEALER, SALESMAN, AGENT OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING HEREBY MADE OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR EFFECTIVE LITERATURE. THIS IS A BEST EFFORTS OFFERING, AND WE RESERVE THE RIGHT TO ACCEPT OR REJECT ANY SUBSCRIPTION AND WILL PROMPTLY NOTIFY THE SUBSCRIBER OF ACCEPTANCE OR REJECTION. THERE IS NO ASSURANCE THAT THIS OFFERING WILL ALL BE SOLD. THERE ARE NO ASSURANCES AS TO WHAT SIZE WE MAY REACH. THERE IS NO ASSURANCE THAT OUR OPERATIONS WILL BE PROFITABLE OR THAT LOSSES WILL NOT OCCUR. IT IS NOT OUR POLICY TO REDEEM OUR STOCK (EXCEPT AS PROVIDED IN THIS OFFERING). ANY REPRESENTATIONS CONTRARY TO ANY OF THE FOREGOING SHOULD BE REPORTED FORTHWITH TO THE OFFICE OF FINANCIAL AND INSURANCE SERVICE AT 611 West Ottawa Street, 2nd Floor Ottawa Building, P.O. Box 30701, Lansing, MI 48909-8201, or Telephone (877) 999-6442. WHO MAY INVEST In order to purchase shares, you must: - Meet the financial suitability standards, and - Purchase a minimum number of shares. SUITABILITY STANDARDS Because an investment in our common stock is risky and is a long-term investment, it is suitable for you only if you have adequate financial means, you have no immediate need for liquidity in your investment and you can bear the complete loss of your investment. We have established financial suitability standards for investors who purchase shares of our common stock. In addition, residents of some states must meet higher suitability standards under state law. These standards require you to meet the applicable criteria below. In determining your net worth, do not include your home, home furnishings or your automobile. INVESTORS WITH INVESTMENT DISCRETION OVER ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED BY ERISA SHOULD CAREFULLY REVIEW THE INFORMATION IN THE SECTION ENTITLED, "ERISA CONSIDERATIONS." GENERAL STANDARDS FOR ALL INVESTORS - Minimum net worth of at least $150,000; or - Minimum annual gross income of at least $45,000 and net worth of at least $45,000. Standards for Maine Residents - Minimum net worth of $200,000, or - Minimum annual gross income of $50,000 and a minimum net worth of $50,000. Standards for Arizona, California, Iowa, Massachusetts, Michigan, Missouri, Oregon or Tennessee Residents - Minimum net worth of $225,000, or - Minimum annual gross income of $60,000 and a minimum net worth of $60,000. Standards for Kansas, Missouri, Ohio and Pennsylvania Residents - In addition to meeting the actual standard for all investors, your investment may not exceed 10% of your liquid net worth. In the case of sales to fiduciary accounts, these minimum standards must be met by the beneficiary, the fiduciary account, or by the donor or grantor who directly or indirectly supplies the funds to purchase the common stock if the donor or the grantor is the fiduciary. INVESTORS WITH INVESTMENT DISCRETION OVER ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED UNDER ERISA SHOULD CAREFULLY REVIEW THE INFORMATION ENTITLED "ERISA CONSIDERATIONS." In the case of gifts to minors, the suitability standards must be met by the custodian account or by the donor. MINIMUM PURCHASE Subject to the restrictions imposed by state law, we will sell shares of our common stock only to investors who initially purchase a minimum of 300 shares of common stock for a total purchase price of $3,000, or tax-exempt entities which purchase a minimum of 100 shares of common stock for a total purchase price of $1,000. For investors living in Iowa, the minimum investment for IRAs will be 300 shares of common stock for a total purchase price of $3,000, and for investors living in Minnesota, the minimum investment for IRAs and qualified plan accounts will be 200 shares of common stock for a total purchase price of $2,000. Tax-exempt entities are generally any investor that is exempt from federal income taxation, including: - a pension, profit-sharing, retirement, IRA or other employee benefit plan which satisfies the requirements for qualification under Section 401(a), 414(d) or 414(e) of the Internal Revenue Code; - a pension, profit-sharing, retirement, IRA or other employee benefit plan which meets the requirements of Section 457 of the Internal Revenue Code; - trusts that are otherwise exempt under Section 501(a) of the Internal Revenue Code; - a voluntary employees' beneficiary association under Section 501(c)(9) of the Internal Revenue Code; or - an IRA which meets the requirements of Section 408 of the Internal Revenue Code. The term "plan" includes plans subject to Title I of ERISA, other employee benefit plans and IRAs subject to the prohibited transaction provisions of Section 4975 of the Internal Revenue Code, governmental or church plans that are exempt from ERISA and Section 4975 of the Internal Revenue Code, but that may be subject to state law requirements, or other employee benefit plans. Subject to any restrictions imposed by state law, subsequent additional investments by current investors require a minimum investment of $25. This limitation does not apply to the purchase of shares through the dividend reinvestment provision. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS
PAGE PROSPECTUS SUMMARY ............................................................................................. 1 Inland Western Retail Real Estate Trust, Inc. ........................................................ 1 The types of real estate that we may acquire and manage .............................................. 1 Our sponsor, our advisor and The Inland Group ........................................................ 2 Conflicts of interest ................................................................................ 5 Compensation to be paid to our advisor and affiliates ................................................ 6 Primary business objective and strategies ............................................................ 7 Shares sold before the offering ...................................................................... 8 Terms of the offering ................................................................................ 8 Is an investment in us appropriate for you? .......................................................... 8 Distributions ........................................................................................ 9 Real property investments ............................................................................ 9 Share repurchase program ............................................................................. 9 Estimated Use of Proceeds ............................................................................ 10 RISK FACTORS ................................................................................................... 11 The price of our common stock is subjective and may not bear any relationship to what a stockholder could receive if it was sold ........................................................ 11 Our common stock is not currently listed on an exchange or trading market and cannot be readily sold .................................................................................... 11 You do not know what real properties and other assets we may acquire in the future, and must rely on our advisor, our board and officers to select them and stockholders will not participate in these decisions .................................................................. 11 Competition with third parties in acquiring properties will reduce our profitability and the return on your investment ....................................................................... 11 We will compete with real estate investment programs sponsored by companies affiliated with us for the acquisition of properties and for the time and services of personnel ................. 12 We plan to incur mortgage indebtedness and other borrowings, which may reduce the funds available for distribution, may increase the risk of loss since defaults may result in foreclosure and mortgages may include cross-collateralization or cross-default provisions that increase the risk that more than one property may be affected by a default ................. 12 If we have insufficient working capital reserves, we will have to obtain financing from other sources ................................................................................... 12 The types of properties which we intend to acquire and the area in which we may acquire retail centers is limited ....................................................................... 13 The aggregate amount we may borrow is limited under our articles of incorporation .................... 13 We have no operating history, and so we have no history of earnings upon which you could evaluate our business ........................................................................... 13 Because of the way we are organized, we would be a difficult takeover target. This could depress the price of our stock and inhibit a management change .................................. 13 Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act ........................................................ 15 There are many factors which can affect distributions to stockholders ................................ 16 Our derivative financial instruments used to hedge against interest rate fluctuations could reduce the overall returns on your investment ................................................... 17 We could issue more shares in the future, which could reduce the market price of our outstanding shares .............................................................................. 17
i Our share repurchase program is limited to .50% of the weighted average number of shares of our stock outstanding during the prior calendar year and may be changed or terminated by us, thereby reducing the potential liquidity of your investment ..................................... 17 Stockholders have limited control over changes in our policies ....................................... 17 If we invest in joint ventures, the objectives of our partners may conflict with our objectives ...................................................................................... 17 If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser ................................................................................ 18 If we do not raise sufficient funds, we may not fulfill our investment objectives, including asset diversification ........................................................................... 18 Delays in acquisitions of properties may have an adverse effect ...................................... 18 We may not be able to immediately invest proceeds in real estate, which will harm your returns ......................................................................................... 18 We depend on our board of directors, advisor and property manager and losing those relationships could negatively affect our operations ............................................ 19 There are conflicts of interest between us and our affiliates ........................................ 19 We cannot predict the amounts of compensation to be paid to our advisor and our other affiliates ...................................................................................... 21 The managing dealer has not made an independent review of us or the prospectus ....................... 21 Our rights and the rights of our stockholders to take action against our directors and officers and the advisor are limited ............................................................ 21 The business of our advisor and our property manager may be acquired by us without further action of our stockholders ...................................................................... 22 Your percentage of ownership may become diluted if we issue new shares of stock ...................... 22 There are inherent risks with real estate investments ................................................ 22 Adverse economic conditions in our primary geographic region and in the market for retail space could reduce our income and distributions to you .......................................... 23 Rising expenses could reduce cash flow and funds available for future acquisitions ................... 23 If our tenants are unable to make rental payments, if their rental payments are reduced, or if they terminate a lease, our financial condition and ability to pay distributions will be adversely affected .............................................................................. 23 Our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a tenant that occupies a large area of the retail center or an anchor tenant ............................. 24 If a tenant claims bankruptcy, we may be unable to collect balances due under relevant leases ........ 24 We may incur additional costs in acquiring or re-leasing retail properties ........................... 24 Our properties will be subject to competition for tenants and customers .............................. 24 Our properties will face competition which may affect tenants' ability to pay rent and the amount of rent paid to us and in turn affect the cash available for distributions and the amount of distributions ......................................................................... 25 We may be restricted from re-leasing space ........................................................... 25 We may be unable to sell a property if or when we decide to do so .................................... 25 If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits ................................ 25 Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect the markets in which we operate, our operations and our profitability ................................................... 26 Real estate related taxes may increase and if these increases are not passed on to tenants, our income will be reduced ...................................................................... 26 Revenue from our properties depends on the amount of our tenants' retail revenue, making us vulnerable to general economic downturns and other conditions affecting the retail industry ..... 26
ii The costs of compliance with environmental laws and other governmental laws and regulations may adversely affect our income and the cash available for any distributions .................... 27 Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distributions ..................................................................... 27 If a sale or leaseback transaction is recharacterized, our financial condition could be adversely affected............................................................................... 28 We may incur additional costs in acquiring newly constructed properties which may adversely affect cash available for distributions to you .................................................. 28 Our investments in unimproved real property may result in additional cost to us to comply with re-zoning restrictions or environmental regulations ........................................ 28 Construction and development activities will expose us to risks such as cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, weather conditions and government regulation ............................... 28 We may acquire or finance properties with lock-out provisions which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties ........................................................................ 29 Your investment has various federal income tax risks ................................................. 29 If we fail to qualify as a REIT or to maintain our REIT status, our dividends will not be deductible to us, and our income will be subject to taxation .................................... 29 You may have tax liability on distributions you elect to reinvest in common stock .................... 29 The opinion of Duane Morris LLP regarding our status as a REIT does not guarantee our ability to remain a REIT ........................................................................ 29 Even REITS are subject to federal and state income taxes ............................................. 30 An investment in our common stock may not be suitable for every employee benefit plan ................ 30 The annual statement of value that we will be sending to stockholders subject to ERISA and to certain other plan stockholders is only an estimate and may not reflect the actual value of our shares ................................................................................... 30 CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS ........................................................... 32 HOW WE OPERATE ................................................................................................. 34 CONFLICTS OF INTEREST .......................................................................................... 36 COMPENSATION TABLE ............................................................................................. 39 ESTIMATED USE OF PROCEEDS ...................................................................................... 46 PRIOR PERFORMANCE OF OUR AFFILIATES ............................................................................ 47 Prior Investment Programs ............................................................................ 47 Summary Information .................................................................................. 47 Publicly Registered REITs ............................................................................ 49 Publicly Registered Limited Partnerships ............................................................. 51 Private Partnerships ................................................................................. 51 Private Placement Real Estate Equity Program ......................................................... 53 Private Placement Note and Mortgage Program .......................................................... 54 1031 Exchange Private Placement Offering Program ..................................................... 55 Summary Tables ....................................................................................... 62 MANAGEMENT ..................................................................................................... 64 Inland Affiliated Companies .......................................................................... 64 Our General Management ............................................................................... 67 Our Directors and Executive Officers ................................................................. 68 Committees of Our Board of Directors ................................................................. 70 Compensation of Directors and Officers ............................................................... 71 Executive Compensation ............................................................................... 71
iii Independent Director Stock Option Plan ............................................................... 71 Our Advisor .......................................................................................... 73 Our Advisory Agreement ............................................................................... 73 The Property Manager and the Management Agreement .................................................... 77 Inland Securities Corporation ........................................................................ 80 LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR ADVISOR ............................. 83 PRINCIPAL STOCKHOLDERS ......................................................................................... 85 OUR STRUCTURE AND FORMATION .................................................................................... 86 Structure ............................................................................................ 86 SELECTED FINANCIAL DATA ........................................................................................ 87 INVESTMENT OBJECTIVES AND POLICIES ............................................................................. 88 General .............................................................................................. 88 Distributions ........................................................................................ 88 Types of Investments ................................................................................. 88 Property Acquisition Standards ....................................................................... 89 Description of Leases ................................................................................ 90 Property Acquisition ................................................................................. 91 Borrowing ............................................................................................ 91 Sale or Disposition of Properties .................................................................... 92 Change in Investment Objectives and Policies ......................................................... 93 Investment Limitations ............................................................................... 93 Other Investments .................................................................................... 93 Appraisals ........................................................................................... 93 Return of Uninvested Proceeds ........................................................................ 94 Additional Offerings and Exchange Listing ............................................................ 94 Joint Ventures ....................................................................................... 95 Construction and Development Activities .............................................................. 95 Other Policies ....................................................................................... 96 REAL PROPERTY INVESTMENTS ...................................................................................... 98 Investing in REITS ................................................................................... 98 General .............................................................................................. 98 Insurance Coverage on Properties .....................................................................100 Properties ...........................................................................................100 Potential Property Acquisitions ......................................................................101 Potential Property: Peoria Station, Peoria, Arizona ..................................................102 CAPITALIZATION .................................................................................................104 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION ................................................105 Liquidity and Capital Resources ......................................................................105 Capital Resources ....................................................................................106 Results of Operations ................................................................................108 Funds from Operations ................................................................................108 Initial Property .....................................................................................108 Critical Accounting Policies .........................................................................108 New Accounting Pronouncement ........................................................................ 111 Inflation ............................................................................................111 Quantitative and Qualitative Disclosures About Market Risk ...........................................111 DESCRIPTION OF SECURITIES ......................................................................................113
iv Authorized Stock .....................................................................................113 Common Stock .........................................................................................113 Preferred Stock ......................................................................................114 Issuance of Additional Securities and Debt Instruments ...............................................115 Restrictions on Issuance of Securities ...............................................................115 Restrictions on Ownership and Transfer ...............................................................115 Provisions of Maryland Law and of Our Articles of Incorporation and Bylaws ...........................118 SHARES ELIGIBLE FOR FUTURE SALE ................................................................................120 Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding Securities ......................................................................................120 Securities Act Restrictions ..........................................................................120 Independent Director Stock Option Plan ...............................................................121 Effect of Availability of Shares on Market Price of Shares ...........................................121 Registration Rights ..................................................................................121 SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS ........................................................................123 Articles of Incorporation and Bylaw Provisions .......................................................123 Stockholders' Meetings ...............................................................................123 Board of Directors ...................................................................................124 Stockholder Voting Rights ............................................................................124 Rights of Objecting Stockholders .....................................................................125 Stockholder Lists; Inspection of Books and Records ...................................................125 Amendment of the Organizational Documents ............................................................126 Dissolution or Termination of the Company ............................................................126 Advance Notice of Director Nominations and New Business ..............................................126 Restrictions on Certain Conversion Transactions and Roll-Ups .........................................127 Limitation on Total Operating Expenses ...............................................................129 Transactions with Affiliates .........................................................................130 Restrictions on Borrowing ............................................................................130 Restrictions on Investments ..........................................................................131 FEDERAL INCOME TAX CONSIDERATIONS ..............................................................................134 Federal Income Taxation as a REIT ....................................................................134 Federal Income Taxation of Stockholders ..............................................................140 Other Tax Considerations .............................................................................143 ERISA CONSIDERATIONS ...........................................................................................145 PLAN OF DISTRIBUTION ...........................................................................................148 General ..............................................................................................148 Escrow Conditions ....................................................................................148 Subscription Process .................................................................................149 Representations and Warranties in the Subscription Agreement .........................................150 Determination of Your Suitability as an Investor .....................................................150 Compensation We Will Pay for the Sale of Our Shares ..................................................151 Volume Discounts .....................................................................................152 Deferred Commission Option ...........................................................................153 Indemnification ......................................................................................155 HOW TO SUBSCRIBE ...............................................................................................157 SALES LITERATURE ...............................................................................................159 DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS ........................................................160
v Distribution Reinvestment Program ....................................................................160 Share Repurchase Program .............................................................................161 REPORTS TO STOCKHOLDERS ........................................................................................164 PRIVACY POLICY NOTICE ..........................................................................................165 LITIGATION .....................................................................................................165 RELATIONSHIPS AND RELATED TRANSACTIONS .........................................................................166 LEGAL MATTERS ..................................................................................................172 EXPERTS ........................................................................................................172 WHERE YOU CAN FIND MORE INFORMATION ............................................................................172 Index to Financial Statements ..................................................................................F-i Appendix A - Prior Performance Tables ..........................................................................A-1 Appendix B - Dividend Reinvestment Plan ........................................................................B-1 Appendix C - Subscription Agreement ............................................................................C-1 Appendix D - Transfer on Death Designation .....................................................................D-1 Appendix E1 - Letter of Direction .............................................................................E1-1 Appendix E2 - Notice of Revocation ............................................................................E2-1 Appendix F - Privacy Policy Notice .............................................................................F-1
vi PROSPECTUS SUMMARY This summary highlights all of the material information in this prospectus. Because this is a summary, it does not contain all the information that may be important to you. You should read this entire prospectus and its appendices carefully before you decide to invest in our shares of common stock. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. We are a Maryland corporation formed in March 2003. We intend to operate as a real estate investment trust, or a REIT, for federal and state income tax purposes beginning with the tax year ending December 31, 2003. We intend that our company will own all of our assets, either directly or indirectly. We currently have one stockholder, our advisor, Inland Western Retail Real Estate Advisory Services, Inc. In March 2003, our advisor purchased from us 20,000 shares for $10 per share for an aggregate purchase price of $200,000 in connection with our organization. Our principal executive offices are located at 2901 Butterfield Road, Oak Brook, Illinois 60523 and our telephone number is (630) 218-8000. THE TYPES OF REAL ESTATE THAT WE MAY ACQUIRE AND MANAGE Our advisor is experienced in acquiring and managing real estate, particularly retail focused shopping centers. We intend to acquire and manage a diversified (by geographical location and by type and size of retail centers) portfolio of real estate primarily improved for use as retail establishments, principally multi-tenant shopping centers. Our portfolio will consist predominantly of grocery and discount store anchored retail, including net lease retail. We may acquire certain mixed use properties that may include lodging, office and/or multi-family residential if they are part of a retail center. And, we may also acquire other types of retail shopping centers, such as enclosed malls, outlet malls and power centers. We also anticipate acquiring real estate improved with other commercial facilities which provide goods and services as well as double or triple net leased properties, which are either commercial or retail, including properties acquired in sale and leaseback transactions. A triple-net leased property is one which is leased to a tenant who is responsible for the base rent and all costs and expenses associated with their occupancy, including property taxes, insurance, repairs and maintenance. We have, however, only identified one property in Phoenix, Arizona, to purchase from the proceeds of this offering. The retail centers we intend to acquire would be located primarily in states west of the Mississippi River in the United States. Where feasible, we will endeavor to acquire multiple properties within the same major metropolitan markets where the acquisitions result in efficient property management operations with the potential to achieve market dominance. We do not intend to invest in real estate properties that are primarily: - farms; - health care facilities; - industrial properties; - leisure home sites; - manufacturing facilities; - mining properties; 1 - ranches; - single-family residential properties; - timberlands; or - unimproved properties not intended to be developed (vacant land). Subject to compliance with the applicable requirement under the federal income tax laws, we may also undertake construction and development activities and render services in connection with such activities. OUR SPONSOR, OUR ADVISOR AND THE INLAND GROUP Our sponsor is Inland Real Estate Investment Corporation, which is owned by The Inland Group, Inc. The Inland Group, together with its subsidiaries and affiliates, is a fully-integrated group of legally and financially separate companies that have been engaged in diverse facets of real estate for over 35 years providing property management, leasing, marketing, acquisition, disposition, development, redevelopment, syndication, renovation, construction, finance and other related services. Inland Western Retail Real Estate Advisory Services, Inc., is a wholly owned subsidiary of our sponsor and is our advisor. Inland Securities Corporation, another affiliate of The Inland Group, is the managing dealer of this offering. Inland Western Management Corp., our property manager, is an entity owned principally by individuals who are affiliates of The Inland Group. The principal executive offices of The Inland Group, our sponsor, our advisor and our property manager are located at 2901 Butterfield Road, Oak Brook, Illinois 60523 and their telephone number is (630) 218-8000. 2 The following organizational chart depicts the services that affiliates or our sponsor will render to us and our organizational structure. ORGANIZATIONAL CHART --------- --------- --------- --------- Daniel L. Robert H. G. Joseph Robert D. Goodwin* Baum* Cosenza* Parks* --------- --------- --------- --------- || || || || =========================================================== || ----------------------- THE INLAND GROUP, INC.* ----------------------- || ============================================================================================================= || || || || | - --------------- ------------------- ----------------- ------------------ | The Inland The Inland Property Inland Real Inland Real | Services Group, Management Estate Investment Estate Transaction | Inc. Group, Inc. Corporation Group, Inc. | (our sponsor) | - --------------- ------------------- ----------------- ------------------- | | | | | | | | ========================================== | | | | || || || | | | | ----------- --------------------- ------------------ | ---------------------- | | Inland Inland Western Retail Inland Partnership | Inland Mortgage - --------------- ----------------- Securities Real Estate Advisory Property Sales | Investment Corporation Inland Risk and Inland Western Corporation Services, Inc. Corporation | Insurance Management Corp. (our advisor) | Management (property manager) ----------- --------------------- ------------------ | ---------------------- Services, Inc. | | | | - --------------- ----------------- | | | | | | | | ================================ ================= | | | | || || || || || | | | | ------------- ----------- ------------- ----------- --------------- | | | | Inland Real Inland Real Inland Real Inland Inland Mortgage --------- | | | Estate Sales, Estate Estate Mortgage Servicing Insurance | | | Inc. Development Acquisitions, Corporation Corporation Services | | | Corporation Inc. --------- | | | ------------- ----------- ------------- ----------- --------------- | | | | | | | | | | | | | | | | | | | | | | -------------- | | | | | | | | Real Estate | | | | | | | | Sales Services | | | | | | | | -------------- | | | | | | | | | | | | | | | | | | | | | | | -------------------- ---------- --------------- | ----------------- ----------- ---------- ------------- | Property Management Securities Organization, | Construction and Property Mortgage Mortgage Loan | and Related Services Sales Advisory | Development Acquisition Brokerage Servicing | and Real Estate | Services Services Services | Services | | -------------------- ---------- --------------- | ----------------- ----------- ---------- ------------- | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - ------------------------------------------------------------------------------------------------------------------------------------ Inland Western Retail Real Estate Trust, Inc. We will be principally owned by public investors. Ownership is represented by shares of our common stock - ------------------------------------------------------------------------------------------------------------------------------------
Solid lines indicate 100% ownership. Broken lines indicate service. * The four indicated individuals control The Inland Group, Inc. and own substantially all of its stock. 3 Investment in shares of our common stock involves risks. If we are unable to effectively manage the impact of these risks, we may not meet our investment objectives and, therefore, you may lose some or all of your investment. The following is a summary of the material risks which we believe are most relevant to an investment in the shares. These risks are generally listed in the order of priority. - our common stock is not currently listed or traded on an exchange and cannot be readily sold (and sales by stockholders may be made at a loss); - we have no operating history nor established financing sources; - we have identified only one property to be purchased with the proceeds of this offering; - if we raise the minimum amount, we will not have sufficient resources to acquire the identified property. We need to raise in excess of $26 million to acquire this property; - although we anticipate that aggregate borrowings will not exceed 55% of the combined fair market value of our properties, our charter imposes a limitation on our borrowings of less than 300% of net assets and there are risks associated with a high amount of leverage; - we have no ownership in our advisor and the advisor is owned by our sponsor or their affiliates; - our advisor and its affiliates will receive substantial fees, including participation in proceeds from the sales, refinancing or liquidation of our assets; - our advisor, property manager and two of our directors are subject to conflicts of interest as a result of their affiliation with The Inland Group, including conflicts of interest relating to: - the negotiation of the terms of the advisors and property management agreements; - the allocation of their time between us and their other business ventures; - decisions whether to acquire and dispose of properties; - the purchase and sale of properties to or from the advisor and our affiliates; and - the allocation of investment opportunities between us and their other business ventures. - the management fee structure could result in our advisor recommending riskier or more speculative investments; - we may make distributions that include a return of principal for federal tax purposes; - we may fail to qualify as a REIT; - there are limits on ownership, transferability and redemption of shares; - our investment policies and strategies may be changed without stockholder consent; - our investments will lack geographic diversification; 4 - we will not be able to meet our business objectives if we only acquire one single net leased property; and - risks that incentive structure of fees payable to our advisor and its affiliates may encourage our advisor to make investments that have greater risks to generate higher fees. CONFLICTS OF INTEREST CONFLICTS OF INTEREST EXIST BETWEEN US AND SOME OF OUR AFFILIATES, INCLUDING OUR ADVISOR. THESE AFFILIATES INCLUDE, INLAND REAL ESTATE CORPORATION, INLAND RETAIL REAL ESTATE TRUST, INC. AND INLAND REAL ESTATE EXCHANGE CORPORATION. INLAND REAL ESTATE CORPORATION IS A PUBLICLY REGISTERED REIT. INLAND REAL ESTATE CORPORATION IS A SELF-ADMINISTERED REIT AND IS NO LONGER AFFILIATED WITH THE INLAND GROUP. INLAND REAL ESTATE CORPORATION PURCHASES SHOPPING CENTERS LOCATED IN THE MIDWEST. INLAND RETAIL REAL ESTATE TRUST, INC. IS AFFILIATED WITH THE INLAND GROUP. INLAND RETAIL REAL ESTATE TRUST, INC. PURCHASES SHOPPING CENTERS LOCATED EAST OF THE MISSISSIPPI RIVER. INLAND REAL ESTATE EXCHANGE CORPORATION IS A SUBSIDIARY OF INLAND REAL ESTATE INVESTMENT CORPORATION. INLAND REAL ESTATE EXCHANGE CORPORATION PROVIDES REPLACEMENT PROPERTIES FOR PEOPLE WISHING TO COMPLETE AN IRS SECTION 1031 REAL ESTATE EXCHANGE. Midwest Real Estate Equities, Inc. is not a subsidiary of The Inland Group, Inc or its affiliates but does have some of the same shareholders as The Inland Group, Inc. Midwest Real Estate Equities buys, manages and sells commercial and multi-family property. Some of these conflicts include: - competition for the time and services of personnel that work for us and our affiliates, including, such persons as Daniel L. Goodwin, Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Roberta S. Matlin, Scott W. Wilton, Kelly E. Tucek, and Brenda G. Gujral, which may limit the amount of time these people may spend on our business matters; - substantial compensation payable by us to Inland Securities Corporation, Inland Western Retail Real Estate Advisory Services, Inc. and Inland Western Management Corp. for their various services which may not be on market terms and is payable, in most cases, whether or not our stockholders receive distributions; - competition for properties, although our affiliates are governed by the Property Acquisition Service Agreement which, with certain limitations, gives us a right of first refusal for all properties west of the Mississippi River; - acquisition of properties from an affiliate who has a contract to acquire it from PDG America; and - the possibility that we may do business with entities that have pre-existing relationships with our affiliates which may result in a conflict between our business and the ongoing business relationships our affiliates have with each other. Conflicts of interest may also arise in connection with the potential sale or refinancing of our properties or the enforcement of agreements. We have an option to acquire or consolidate into us the business conducted by our advisor and/or our property manager for shares of common stock. 5 COMPENSATION TO BE PAID TO OUR ADVISOR AND AFFILIATES We intend to pay our advisor and affiliates substantial fees for managing our business. We will also pay the advisor and other affiliates of our sponsor a number of other fees for services or expense reimbursements during our offering, operational and liquidation stage. Set forth below is a tabular summary of fees and compensation payable to our advisor and other affiliates. Type of Compensation Nonsubordinated payments: Offering stage: Selling commissions 7.5% of the sale price for each share Estimated maximum: $187,500,000 Marketing contribution and due diligence 3.0% of the gross offering proceeds allowance Estimated maximum: $75,000,000 Reimbursable expenses and other We will reimburse our sponsor for expenses of issuance actual costs incurred on our behalf in connection with this offering. Estimated amount: $14,684,000 Acquisition stage: Acquisition expenses We will reimburse Inland Real Estate Acquisitions, Inc. for costs incurred, on our behalf, in connection with the acquisition of properties: Estimated maximum: $13,450,000 Operational stage: Property management fee 4.5% of the gross income from the This fee terminates upon A BUSINESS COMBINATION properties. (cannot exceed 90% of the WITH OUR PROPERTY MANAGER. fee which would be payable to an unrelated third party). Actual amounts cannot be determined at the present time. We will pay the fee for services in connection with the rental, leasing, operation and management of the properties. Loan servicing fee .08% of the total principal amount of the loans being serviced for each full year, up to the first $100 million and a lesser percentage on a sliding scale thereafter. Actual amounts cannot be determined at the present time. Reimbursable expenses relating to administrative The compensation and reimbursements to services our advisor and its affiliates will be approved by a majority of our directors. Actual amounts cannot be determined at the present time. These may include cost of goods and services and non-supervisory services performed directly for us by independent parties.
6 Liquidation stage: Property disposition fee Lesser of 3% of sales price or 50% of THIS FEE TERMINATES UPON A BUSINESS the customary commission which would be COMBINATION WITH OUR ADVISOR. paid to a third party. Actual amounts cannot be determined at the present time. Subordinated payments: Operational stage: Advisor asset management fee Not more than 1% per annum of our THIS FEE TERMINATES UPON A BUSINESS average assets; subordinated to a COMBINATION WITH OUR ADVISOR. non-cumulative, non-compounded return, equal to 6% per annum. Actual amounts cannot be determined at the present time. We will pay the fee for services in connection with our day-to-day operations, including administering our bookkeeping and accounting functions, services as our consultant in connection with policy decisions made by our board, managing our properties or causing them to be managed by another party and providing other services as our board deems appropriate. Liquidation stage: Incentive advisory fee After our stockholders have first THIS FEE TERMINATES UPON A BUSINESS received a 10% cumulative, COMBINATION WITH THE ADVISOR. non-compounded return and a return on their net investment, an incentive advisory fee equal to 15% on net proceeds from the sale of a property will be paid to our advisor. Actual amounts cannot be determined at the present time. We will pay the fee for services in connection with the disposition of our properties.
PRIMARY BUSINESS OBJECTIVE AND STRATEGIES Our primary business objective is to enhance the performance and value of our properties through active management. Key elements of our strategy are: Acquisitions: - To selectively acquire real properties that are diversified types and well-located. - To selectively acquire properties on an all-cash basis if necessary to provide us with a competitive advantage over potential purchasers who must secure financing. We may, however, acquire properties subject to existing indebtedness if we believe this is in our best interest. We may acquire properties free and clear of permanent mortgage debt by paying the entire purchase price of each property in cash or for shares, interests in entities that own one or more of our properties or a combination of these. However, as of the date of this prospectus, we had not paid the purchase price of any properties using shares or interests in entities that will own our properties. 7 - To diversify geographically within the states west of the Mississippi by acquiring properties primarily located in major metropolitan areas to minimize the potential adverse impact of economic downturns in local markets. Operations: - We intend to actively manage costs and minimize operating expenses by centralizing all management, leasing, marketing, financing, accounting, renovation and data processing activities. - We intend to improve rental income and cash flow by aggressively marketing rentable space. - We intend to emphasize regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns. - We intend to maintain a diversified tenant base at our retail centers, consisting primarily of retail tenants providing consumer goods and services. SHARES SOLD BEFORE THE OFFERING This is our initial public offering. We issued 20,000 shares of our common stock for $10 per share, or an aggregate purchase price of $200,000, to our advisor in connection with our organization. TERMS OF THE OFFERING If we only sell the minimum offering, we will have sold a total of 220,000 shares. If we sell the maximum amount of shares under the offering, we will have sold a total of 250,020,000. These numbers do not include shares issued upon exercise of options granted and which may be granted under our independent director stock option plan. We are offering a minimum of 200,000 shares ($2,000,000) and a maximum of 250,000,000 shares ($2,500,000,000). We are offering 250,000,000 shares on a best efforts basis through the managing dealer at $10.00 per share, subject to discounts in some cases. An offering on a best efforts basis is one in which the securities dealers participating in the offering are under no obligation to purchase any of the securities being offered and, therefore, no specified number of securities are guaranteed to be sold and no specified amount of money is guaranteed to be raised from the offering. We are also offering up to 20,000,000 shares at a purchase price of $9.50 per share to stockholders who elect to participate in our distribution reinvestment program. The offering price of our shares is subjective and was determined by our board of directors. Our board of directors determined the offering price based upon the offering price of earlier REITs organized by our sponsor, the range of other REITs that do not have a public trading market and the recommendation of the managing dealer based on its consultations with likely soliciting dealers. IS AN INVESTMENT IN US APPROPRIATE FOR YOU? An investment in us might be appropriate as part of your investment portfolio if: - You are looking for regular distributions. We intend to pay regular monthly distributions to our domestic stockholders and regular quarterly distributions to our foreign 8 stockholders. The maximum time that you should have to wait to receive the first distribution is 45 days from the date in which we accept your subscription. - You are looking for a hedge against inflation. We intend to hedge against inflation by entering into leases with tenants which provide for scheduled rent escalations or participation in the growth of tenant sales. This is designed to provide increased distributions and capital appreciation. - You are looking for capital preservation and appreciation. We intend to acquire a portfolio of diverse properties, usually on an all cash basis, that are well located. After acquiring these properties, we may finance them, but we anticipate that aggregate borrowings secured by our properties will not exceed 55% of their combined fair market value. WE CANNOT GUARANTEE THAT WE WILL ACHIEVE THESE OBJECTIVES. DISTRIBUTIONS We intend to pay regular monthly distributions to our domestic stockholders and regular quarterly distributions to our foreign stockholders. The maximum time that you should have to wait to receive the first distribution is 45 days from the date in which we accept your subscription. In order to maintain our REIT status under federal income tax laws, we intend to distribute at least 90% of our taxable income to our stockholders. For federal income tax purposes only, we may make distributions that include a return of principal or an amount in excess of 95% of cash available to us. REAL PROPERTY INVESTMENTS We have identified one property for purchase in the state of Arizona. We anticipate purchasing an existing shopping center known as Peoria Station, which will contain 181,500 gross leasable square feet upon completion of the current redevelopment. The center currently contains 140,019 gross leasable square feet. The center is located at 10160 North 67th Avenue in Peoria, Arizona. An affiliate of our advisor has entered into a contract to acquire this property. We anticipate that the affiliate will assign this purchase contract to us for no cost to us. We would then anticipate purchasing Peoria Station from PDG America, an unaffiliated third party. Our total acquisition cost, including expenses, is expected to be approximately $25,867,000. This amount may be adjusted based on actual rental rates achieved on the redeveloped square feet. This amount may also increase by additional costs, which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $143 per square foot of leasable space. SHARE REPURCHASE PROGRAM We intend to institute a share repurchase program. Our share repurchase program may provide eligible stockholders with limited interim liquidity by enabling them to sell shares back to us. The prices at which shares may be sold back to us will be one year from the purchase date at $9.25 per share; two years from the purchase date at $9.50 per share; three years from the purchase date at $9.75 per share; and four years from the purchase date at the greater of $10.00 per share or a price equal to ten times our "funds available for distribution" per weighted average share outstanding for the prior calendar year. We may terminate, reduce or otherwise change the above share repurchase program. 9 ESTIMATED USE OF PROCEEDS The amounts listed in the table below represent our current estimates concerning the use of the offering proceeds. Since these are estimates, they may not accurately reflect the actual receipt or application of the offering proceeds. This first scenario assumes we sell the minimum number of 200,000 shares of common stock in this offering. The second scenario assumes: - we sell the maximum of 250,000,000 shares in this offering at $10 per share; and - we sell the maximum of 20,000,000 shares in our distribution reinvestment program at $9.50 per share. Under both scenarios we have not given effect to any special sales or volume discounts which could reduce selling commissions.
MAXIMUM OFFERING (INCLUDING SHARES SOLD UNDER THE MINIMUM OFFERING DISTRIBUTION REINVESTMENT 200,000 SHARES PROGRAM) --------------------------------- --------------------------------- AMOUNT PERCENT AMOUNT PERCENT --------------- --------------- --------------- --------------- Gross proceeds .............. $ 2,000,000 100.0% $ 2,690,000,000 100.00% --------------- --------------- --------------- --------------- Less expenses: Selling commissions ..... 150,000 7.5% 187,500,000 6.97% Marketing contribution .. 60,000 3.0% 75,000,000 2.79% Organization and offering 90,000 4.5% 14,684,000 .55% --------------- --------------- --------------- --------------- Total expenses .......... 300,000 15.0% 277,184,000 10.30% --------------- --------------- --------------- --------------- Gross amount available ...... 1,700,000 85.0% 2,412,816,000 89.70% Less Acquisition expenses .... 10,000 0.5% 13,450,000 0.50% Working capital reserve . 20,000 1.0% 26,900,000 1.00% --------------- --------------- --------------- --------------- Net cash available .......... $ 1,670,000 83.50% $ 2,372,466,000 88.20% =============== =============== =============== ===============
10 RISK FACTORS An investment in our shares involves significant risks and therefore is suitable only for those persons who understand those risks and the consequences of their investment and who are able to bear the risk of loss of their entire investment. You should consider the following material risks in addition to other information set forth elsewhere in this prospectus before making your investment decisions. THE PRICE OF OUR COMMON STOCK IS SUBJECTIVE AND MAY NOT BEAR ANY RELATIONSHIP TO WHAT A STOCKHOLDER COULD RECEIVE IF IT WAS SOLD. Our board of directors determined the offering price of our shares of common stock based on the following factors: - the offering price of the earlier REITs organized by our sponsor; - the range of offering prices of other REITs that do not have a public trading market; and - the recommendation of the managing dealer based on its consultations with likely soliciting dealers. However, the offering price of our shares of common stock may not be the same as the price at which the shares may trade if they were listed on an exchange or actively traded by brokers, nor of the proceeds that a stockholder may receive if we were liquidated or dissolved. As such, any sales may be made at a loss. OUR COMMON STOCK IS NOT CURRENTLY LISTED ON AN EXCHANGE OR TRADING MARKET AND CANNOT BE READILY SOLD. There is currently no public trading market for the shares and we cannot assure you that one will develop. We may never list the shares for trading on a national stock exchange or include the shares for quotation on a national market system. The absence of an active public market for our shares could impair your ability to sell our stock at a profit or at all. By September 15, 2008 our board of directors will determine whether it is in our best interests to apply to have the shares listed on a national stock exchange or included for quotation on a national market system if we meet the applicable listing requirements at that time. YOU DO NOT KNOW WHAT REAL PROPERTIES AND OTHER ASSETS WE MAY ACQUIRE IN THE FUTURE, AND MUST RELY ON OUR ADVISOR, OUR BOARD AND OFFICERS TO SELECT THEM AND STOCKHOLDERS WILL NOT PARTICIPATE IN THESE DECISIONS. We intend to acquire commercial retail properties. We have only recently identified one property we intend to acquire. However, no information is available as to the identification, location, operating histories, lease terms or other relevant economic and financial data of any real properties or other assets we may purchase in the future. As a result, you must rely on us to locate and acquire suitable investment properties. In addition, our board of directors may approve future equity offerings or obtain financing, the proceeds of which may be invested in additional properties; therefore, you will not have an opportunity to evaluate all of the properties that will be in our portfolio. Stockholders will not participate in evaluating these investment opportunities. Nonetheless, you will be unable to evaluate the manner in which we invest the proceeds of this offering or the economic merit of particular properties prior to their acquisition. This prospectus only describes the parameters we will use to acquire additional real properties and other assets. COMPETITION WITH THIRD PARTIES IN ACQUIRING PROPERTIES WILL REDUCE OUR PROFITABILITY AND THE RETURN ON YOUR INVESTMENT. We compete with many other entities engaged in real estate investment activities, many of which have greater resources than we do. Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable 11 investment properties may increase. This will result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties, our profitability is reduced and you will experience a lower return on your investment. WE WILL COMPETE WITH REAL ESTATE INVESTMENT PROGRAMS SPONSORED BY COMPANIES AFFILIATED WITH US FOR THE ACQUISITION OF PROPERTIES AND FOR THE TIME AND SERVICES OF PERSONNEL. Affiliated companies have previously sponsored other REITs, private real estate equity programs and private placement mortgage and note programs, and affiliated companies in the future may sponsor other real estate investment programs. These affiliated companies include Inland Real Estate Corporation, Inland Retail Real Estate Trust, Inc., Inland Real Estate Exchange Corporation and other entities to be formed by The Inland Group, Inc. We will compete with these existing and future real estate investment programs for the acquisition of properties of a type suitable for our investment, for the time and services of personnel of our advisor and affiliates of our advisor in connection with our operation and the management of our assets, and for obtaining and retaining investors for our common stock. We will be limited to acquiring properties that are located west of the Mississippi River and single net lease properties located anywhere in the United States and therefore our geographic diversity will be limited. WE PLAN TO INCUR MORTGAGE INDEBTEDNESS AND OTHER BORROWINGS, WHICH MAY REDUCE THE FUNDS AVAILABLE FOR DISTRIBUTION, MAY INCREASE THE RISK OF LOSS SINCE DEFAULTS MAY RESULT IN FORECLOSURE AND MORTGAGES MAY INCLUDE CROSS-COLLATERALIZATION OR CROSS-DEFAULT PROVISIONS THAT INCREASE THE RISK THAT MORE THAN ONE PROPERTY MAY BE AFFECTED BY A DEFAULT. We may, in some instances, use either existing financing or borrow new funds to acquire properties. We intend to incur or increase our mortgage debt by obtaining loans secured by selected or all of the real properties to obtain funds to acquire additional real properties. We may also borrow funds if necessary to satisfy the requirement that we distribute to stockholders as dividends at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes. We may incur mortgage debt on a particular real property if we believe the property's projected cash flow is sufficient to service the mortgage debt. However, if there is a shortfall in cash flow, then the amount available for distributions to stockholders may be affected. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and our loss of the property securing the loan which is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entity that owns our properties. In such cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default. If mortgage debt is unavailable at reasonable rates, we will not be able to place financing on the properties, which could reduce distributions per share. If we place mortgage debt on the properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, our net income could be reduced, which would reduce cash available for distribution to stockholders and may prevent us from raising capital by issuing more stock and may prevent us from borrowing more money. IF WE HAVE INSUFFICIENT WORKING CAPITAL RESERVES, WE WILL HAVE TO OBTAIN FINANCING FROM OTHER SOURCES. We intend to establish working capital reserves which we believe are adequate to cover our cash needs. However, if these reserves are insufficient to meet our cash needs, we may have to obtain 12 financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Additional borrowing for working capital purposes will increase our interest expense and therefore, our financial condition and our ability to pay distributions may be adversely affected. THE TYPES OF PROPERTIES WHICH WE INTEND TO ACQUIRE AND THE AREA IN WHICH WE MAY ACQUIRE RETAIL CENTERS IS LIMITED. We intend to primarily acquire and manage retail centers. Our acquisition of retail centers is limited primarily to states west of the Mississippi River. Adverse economic conditions affecting that area could adversely affect our profitability to a greater degree than if we had diversified our investments to include other types of real estate over a larger geographic region. WE CURRENTLY PLAN TO ACQUIRE ONLY ONE SINGLE NET LEASED PROPERTY. We currently only have an agreement to acquire one single net leased property. We will not be able to meet our business objectives if we only acquire one single net leased property. This limitation could have an adverse effect on our business. THE AGGREGATE AMOUNT WE MAY BORROW IS LIMITED UNDER OUR ARTICLES OF INCORPORATION. Our articles of incorporation limit the aggregate amount we may borrow, secured and unsecured, to 300% of our net assets, absent a satisfactory showing that a higher level is appropriate. That limitation could have adverse consequences on our business, including: - freezing our ability to purchase properties; - causing us to lose our REIT status if borrowing was necessary to distribute the required minimum amount of cash to our stockholders for us to qualify as a REIT; - causing operational problems if there are cash flow shortfalls for working capital purposes; and - resulting in the loss of a property if, for example, financing was necessary to cure a default on a mortgage. In order to change this limitation, we must obtain approval by a majority of our independent directors and by a majority of our stockholders. There will be a delay before approval can be obtained, if it can be obtained at all. It is possible that even if the required approval is obtained, it may not be obtained in sufficient time to avoid the adverse consequences of not having the additional funding when it is needed. WE HAVE NO OPERATING HISTORY, AND SO WE HAVE NO HISTORY OF EARNINGS UPON WHICH YOU COULD EVALUATE OUR BUSINESS. We were incorporated on March 5, 2003. We have only recently begun operations. We have not acquired any properties or hired any employees. Therefore, we have no operating history upon which you can evaluate our business and prospects. We have no income, cash flow, funds from operations or funds available to make distributions to you. We may be unable to conduct our business as we intend to do. You must carefully consider the risks and uncertainties frequently encountered in new companies like ours. Because we have no operating history, we have no historical basis for predicting if our business will be successful. BECAUSE OF THE WAY WE ARE ORGANIZED, WE WOULD BE A DIFFICULT TAKEOVER TARGET. THIS COULD DEPRESS THE PRICE OF OUR STOCK AND INHIBIT A MANAGEMENT CHANGE. Provisions which may have an anti takeover effect and inhibit a change in our management include: 13 - THERE ARE OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFERABILITY AND OWNERSHIP IN OUR ARTICLES OF INCORPORATION. In order for us to qualify as a REIT, no more than 50% of the outstanding shares of our stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year. To assure that we will not fail to qualify as a REIT under this test, our articles of incorporation provide that, commencing March 1, 2003, subject to some exceptions, no person may beneficially own more than 9.8% of our common stock. This restriction may: - have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might involve a premium price for holders of our common stock; or - compel a stockholder who had acquired more than 9.8% of our stock to dispose of the additional shares and, as a result, to forfeit the benefits of owning the additional shares. - OUR ARTICLES OF INCORPORATION PERMIT OUR BOARD OF DIRECTORS TO ISSUE PREFERRED STOCK WITH TERMS THAT MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US. Our articles of incorporation permit our board of directors to issue, without stockholder approval, up to 10 million shares of preferred stock. The board may classify or reclassify any unissued preferred stock and establish preferences, conversion or other rights, voting power, restrictions, limitations as to dividends and other distributions, qualifications, or terms or conditions of redemption, of any preferred stock. Thus, our board could authorize, without the approval by our stockholders, the issuance of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as merger, tender offer or sale of all or substantially all of our assets) that might provide a premium for holders of our common stock. - MARYLAND LAW MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US. Maryland law restricts mergers and other business combinations between us and an interested stockholder. Under the Maryland Business Combination Act, an anti-takeover statute, for a period of five years after the most recent acquisition of stock by an interested stockholder, we may not engage in any merger or other business combination with that interested stockholder or any affiliate of that interested stockholder. After the five-year period, any merger or other business combination must be approved by our board of directors and by at least 80% of all the votes entitled to be cast by holders of outstanding shares of our voting stock and two-thirds of all the votes entitled to be cast by holders of outstanding shares of our voting stock other than the interested stockholder with whom the business combination is to be effected unless, among other things, the stockholders of the company receive in the business combination a minimum consideration for their common stock equal to the highest price paid by the interested stockholder for its common stock. However, our articles of incorporation provide that the business combination provisions of Maryland law do not apply to any business combination involving us and our affiliates. As a result, the five-year prohibition and the super-majority stockholder vote requirements will not apply to any business combinations between us and our affiliates. The Maryland Business Combination Act could have the effect of discouraging offers from third parties to acquire us and of increasing the 14 difficulty of successfully completing a business combination. See "Description of Securities - Provisions of Maryland Law and our Articles of Incorporation and Bylaws." - MARYLAND LAW ALSO LIMITS THE ABILITY OF A THIRD PARTY TO BUY A LARGE STAKE IN US AND EXERCISE VOTING POWER IN ELECTING DIRECTORS. Maryland law provides a second anti-takeover statute, its Control Share Acquisition Act, which provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by the corporation's disinterested stockholders by a vote of a two-thirds of the votes entitled to be cast on the matter; shares of stock owned by interested stockholders, that is, by the acquirer, by officers or by directors who are employees of the corporation, are not entitled to be cast on the matter. "Control shares" are voting shares of stock which would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the acquisition of control shares. The control share acquisition statute does not apply (i) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (ii) to acquisitions approved or exempted by the articles of incorporation or bylaws of the corporation. Our bylaws exempt our affiliates from the Maryland control share acquisition statute. This statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone other than our affiliates or any of their affiliates. See "Description of Securities - Provisions of Maryland Law and our Articles of Incorporation and Bylaws - Control Share Acquisition." YOUR INVESTMENT RETURN MAY BE REDUCED IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT. We are not registered as an investment company under the Investment Company Act of 1940. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act. These requirements include: - limitations on capital structure; - restrictions on specified investments; - prohibitions on transactions with affiliates; and - compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations. In order to maintain our exemption from regulation under the Investment Company Act of 1940, we must engage primarily in the business of buying real estate, and these investments must be made within a year after the offering ends. If we are unable to invest a significant portion of the proceeds of this offering in properties within one year of the termination of the offering, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in government securities with low returns. This would reduce the cash available for distribution to investors and possibly lower your returns. To maintain compliance with the Investment Company Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise 15 have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our strategy. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business. THERE ARE MANY FACTORS WHICH CAN AFFECT DISTRIBUTIONS TO STOCKHOLDERS. Distributions will be based principally on cash available from our properties, real estate securities, and other investments. The amount of cash available for distributions will be affected by many factors, such as our ability to buy properties as offering proceeds become available, the yields on securities of other REITs which we invest in, and our operating expense levels, as well as many other variables. Actual cash available for distributions may vary substantially from estimates. We can give no assurance that we will be able to pay or maintain distributions or that distributions will increase over time. Nor can we give any assurance that rents from the properties will increase, that the securities we buy will increase in value or provide increased dividends over time, or that future acquisitions of real properties or our investments in securities will increase our cash available for distributions to stockholders. Our actual results may differ from the assumptions used by our board of directors in establishing the initial distribution rate to stockholders. Some of these factors are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions: - If one or more tenants defaults or terminates their lease, there could be a decrease or cessation of rental payments which would mean less cash available for distributions. - Cash available for distributions may be reduced if we are required to spend money to correct defects or to make improvements to properties. - Cash available to make distributions may decrease if the assets we acquire have lower yields than expected. - There may be a delay between the sale of the common stock and our purchase of real properties. During that time, we may invest in lower yielding short term instruments, which could result in a lower yield on your investment. - Federal income tax laws require REITs to distribute at least 90% of their taxable income to stockholders. This limits the earnings which we may retain for corporate growth, such as property acquisition, development or expansion and makes us more dependent upon additional debt or equity financing than corporations which are not REITs. If we borrow more funds in the future, more of our operating cash will be needed to make debt payments and cash available for distributions may therefore decrease. - In connection with future property acquisitions, we may issue additional shares of common stock or interests in other entities that own our properties. We cannot predict the number of shares of common stock, units or interests which we may issue, or the effect that these additional shares might have on cash available for distributions to you. If we issue additional shares, they could reduce the cash available for distributions to you. - We make distributions to our stockholders to comply with the distribution requirements of the Internal Revenue Code and to eliminate, or at least minimize, exposure to federal income taxes and the nondeductible REIT excise tax. Differences in timing between the 16 receipt of income and the payment of expenses and the effect of required debt payments could require us to borrow funds on a short term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. OUR DERIVATIVE FINANCIAL INSTRUMENTS USED TO HEDGE AGAINST INTEREST RATE FLUCTUATIONS COULD REDUCE THE OVERALL RETURNS ON YOUR INVESTMENT. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. Our hedging strategy and use of derivative financial instruments may reduce the overall returns on your investments. As we have yet to raise any money, our board has not yet established policies and procedures regarding our use of derivative financial instruments for hedging or other purposes. WE COULD ISSUE MORE SHARES IN THE FUTURE, WHICH COULD REDUCE THE MARKET PRICE OF OUR OUTSTANDING SHARES. We have the power to issue more shares of our common stock in the future. We cannot predict the effect on the market price of our outstanding common stock, if any, of future sales by us of shares of our common stock, or the availability of shares for future sales through the exercise of options granted to independent directors under our independent director stock option plan. The issuance of these additional shares, or the perception that these shares could be issued, could adversely affect the prevailing market prices, if any, for our common stock. OUR SHARE REPURCHASE PROGRAM IS LIMITED TO 5% OF THE WEIGHTED AVERAGE NUMBER OF SHARES OF OUR STOCK OUTSTANDING DURING THE PRIOR CALENDAR YEAR AND MAY BE CHANGED OR TERMINATED BY US, THEREBY REDUCING THE POTENTIAL LIQUIDITY OF YOUR INVESTMENT. In accordance with our share repurchase program, a maximum of 5% of the weighed average number of shares of our stock outstanding during the prior calendar year may be repurchased by us. This standard limits the number of shares we can purchase. Our board also has the ability to change or terminate, at any time, our share repurchase program. If we terminate or modify our share repurchase program or if we do not have sufficient funds available to repurchase all shares that our stockholders request to repurchase, then our stockholders' ability to liquidate their shares will be diminished. STOCKHOLDERS HAVE LIMITED CONTROL OVER CHANGES IN OUR POLICIES. Our board of directors determines our major policies, including our investment objectives, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. This means that stockholders will have limited control over changes in our policies. IF WE INVEST IN JOINT VENTURES, THE OBJECTIVES OF OUR PARTNERS MAY CONFLICT WITH OUR OBJECTIVES. We may make investments in joint ventures or other partnership arrangements between us and affiliates of our sponsor or with unaffiliated third parties. Investments in joint ventures which own real properties may involve risks otherwise not present when we purchase real properties directly. For example, our co venturer may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions contrary to our instructions, requests, policies or objectives. Among other things, actions by a co venturer might subject real properties owned by the 17 joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences. IF WE SELL PROPERTIES BY PROVIDING FINANCING TO PURCHASERS, WE WILL BEAR THE RISK OF DEFAULT BY THE PURCHASER. If we decide to sell any of our properties, we will use our best efforts to sell for cash. However, we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law. There are no limitations or restrictions on our ability to take purchase money obligations. We may therefore take a purchase money obligation secured by a mortgage as part payment for the purchase price. The terms of payment to us will be affected by custom in the area where the property being sold is located and the then-prevailing economic conditions. If we receive promissory notes or other property in lieu of cash from property sales, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other properties, will be delayed until the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. IF WE DO NOT RAISE SUFFICIENT FUNDS, WE MAY NOT FULFILL OUR INVESTMENT OBJECTIVES, INCLUDING ASSET DIVERSIFICATION. We are making this offering on a best efforts basis and it is conditioned on the sale of at least 200,000 shares of common stock for $2,000,000. Because this offering will be made on a best efforts basis, our potential profitability and our ability to continue to diversify our investments, both geographically and by type of properties purchased, will be limited by the amount of funds we raise. We will be able to purchase additional properties only as additional funds are raised. We cannot guarantee that we will sell the minimum number of shares and, if we do not, all proceeds from subscribers will be returned to them together with the interest earned on the proceeds. We have committed to pay approximately $26 million for the property to be purchased by us located in Phoenix, Arizona. In addition, expenses that we will incur in connection with this offering will impact the amount of funds that we have available to fulfill our investment objectives. If we only sell the minimum amount, we will incur $300,000 in expenses, and therefore will only have $1.7 million available for investment purposes. Funds that we apply towards offering expenses will reduce the amount of funds available for investment purposes. If we do not raise the minimum offering amount, then we will not be able to fulfill our investment objectives. See "Plan of Distribution -- Escrow Conditions" for explanations of when uninvested proceeds and escrowed funds will be returned to you. If we sell the maximum amount, we estimate our total expenses will be $277 million, leaving approximately $2.4 billion available for investment purposes. DELAYS IN ACQUISITIONS OF PROPERTIES MAY HAVE AN ADVERSE EFFECT. Delays we encounter in the selection, acquisition and development of properties could adversely affect your returns and distributions on your investment. Where we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, you could suffer delays in your distributions attributable to those particular properties. In addition, it takes a certain amount of time to locate, negotiate an acceptable purchase contract, conduct due diligence and ultimately acquire a property. If we are unable to invest our offering proceeds in income producing real properties in a timely manner, this may adversely affect the funds available for distribution. WE MAY NOT BE ABLE TO IMMEDIATELY INVEST PROCEEDS IN REAL ESTATE, WHICH WILL HARM YOUR RETURNS. Until we invest the proceeds of this offering in real estate investments, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments are not likely to earn as high a return as we expect to earn on our real estate investments, and we cannot guarantee how long it will take us to fully invest the proceeds of this offering in real estate investments. If we are unable to locate and 18 close on real estate investments promptly, or in a manner consistent with the capital we raise, the funds available for your distributions could be reduced. WE DEPEND ON OUR BOARD OF DIRECTORS, ADVISOR AND PROPERTY MANAGER AND LOSING THOSE RELATIONSHIPS COULD NEGATIVELY AFFECT OUR OPERATIONS. Our board of directors has supervisory control over all aspects of our operations. Our ability to achieve our investment objectives will depend to a large extent on the board's ability to oversee, and the quality of, the management provided by the advisor, the property manager, their affiliates and employees for day-to-day operations. Therefore, we depend heavily on the ability of the advisor and its affiliates to retain the services of each of its executive officers and key employees. However, none of these individuals has an employment agreement with the advisor or its affiliates. The loss of any of these individuals could have a material adverse effect on us. These individuals include Robert D. Parks, G. Joseph Cosenza, Thomas P. McGuinness, Roberta S. Matlin and Brenda G. Gujral. Our advisor must reimburse us for certain operational stage expenses exceeding 15%. If the advisor's net worth or cash flow is not sufficient to cover these expenses, we will not be reimbursed. THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR AFFILIATES. Our operation and management may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates. Our advisor and its affiliates are or will be engaged in other activities that will result in potential conflicts of interest with the services that the advisor and affiliates will provide to us. Those officers could take actions that are more favorable to other entities than to us. The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. These affiliates include, Inland Retail Real Estate Trust, Inc., Inland Western Retail Real Estate Advisory Services, Inc., Inland Real Estate Corporation, Inland Real Estate Exchange Corporation and entities to be formed by The Inland Group, Inc., Inland Western Retail Real Estate Advisory Services, Inc., our advisor. Inland Real Estate Corporation is a publicly registered REIT. Inland Real Estate Corporation is a self-administered REIT and is no longer affiliated with The Inland Group. Inland Real Estate Corporation purchases shopping centers located in the Midwest. Inland Retail Real Estate Trust, Inc. is affiliated with The Inland Group, Inc. Inland Retail Real Estate Trust, Inc. purchases shopping centers located east of the Mississippi River. Inland Real Estate Exchange Corporation is a subsidiary of Inland Real Estate Investment Corporation. Inland Real Estate Exchange Corporation provides replacement properties for people wishing to complete an IRS Section 1031 real estate exchange. Our advisor receives fees based on the book value of the properties under management. Specific conflicts of interest between us and our affiliates include: - WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR IN TRANSACTIONS IN WHICH THE PRICE WILL NOT BE THE RESULT OF ARM'S LENGTH NEGOTIATIONS. The prices we pay to affiliates of our sponsor for our properties will be equal to the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. These prices will not be the subject of arm's length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm's-length transaction. The result of these transactions could cause us to pay more for particular properties than we would have in an arm's length transaction and therefore, adversely effect our cash flow and our ability to pay your distributions. - WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM OUR ADVISOR OR ITS AFFILIATES HAVE PRIOR BUSINESS RELATIONSHIPS AND OUR INTERESTS IN THESE BUSINESS RELATIONSHIPS MAY BE DIFFERENT FROM THE INTERESTS OF OUR ADVISOR OR ITS AFFILIATES IN THESE BUSINESS RELATIONSHIPS. We may purchase properties from third parties who have sold properties in the past, or who may sell properties in the future, to our advisor or its 19 affiliates. If we purchase properties from these third parties, our advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers. This could result in our advisor or its affiliates recommending properties that may be in the best interest of the third party seller, but not our best interest. This could adversely impact our portfolio by causing us to invest in properties that are not necessarily in our best interest. - OUR ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER COMPENSATION BASED UPON OUR INVESTMENTS AND THEREFORE OUR ADVISOR AND ITS AFFILIATES MAY RECOMMEND THAT WE MAKE INVESTMENTS IN ORDER TO INCREASE THEIR COMPENSATION. Our advisor and its affiliates receive commissions, fees and other compensation based upon our investments. They benefit by us retaining ownership of our assets and leveraging our assets, while you may be better served by sale or disposition or not leveraging the assets. In addition, our advisor's ability to receive fees and reimbursements depends on our continued investment in properties and in other assets which generate fees. Our advisor received fees based on the book value of the properties under management. Our property manager receives fees based on the income from properties under management. Therefore, our advisor and/or property manager may recommend that we purchase properties that generate fees for our advisor and property manager, but are not necessarily the most suitable investment for our portfolio. In addition, our affiliates, who receive fees, including our advisor, may recommend that we acquire properties, which may result in our incurring substantive amounts of indebtedness. Therefore, the interest of our advisor and its affiliates in receiving fees may conflict with our ability to earn income and may result in our incurring substantive amounts of indebtedness. The resolution of this conflict of interest may adversely impact our cash flow and our ability to pay your distributions. - OUR ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an interest in a property through a joint venture with its affiliates. In these circumstances, our advisor will have a fiduciary duty to both us and its affiliates participating in the joint venture. The resolution of this conflict of interest may cause the advisor to sacrifice our best interest in favor of the seller of the property and therefore, we may enter into a transaction that is not in our best interest. The resolution of this conflict of interest may negatively impact our financial performance. - THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR ADVISOR AND OUR ADVISOR MAY NOT DEDICATE THE TIME NECESSARY TO MANAGER OUR BUSINESS. We rely on our advisor and its affiliates for our daily operation and the management of our assets. Our officers and other personnel of our advisor and its affiliates have conflicts in allocating their management time, services and functions among the real estate investment programs they currently service and any future real estate investment programs or other business ventures which they may organize or serve. Those personnel could take actions that are more favorable to other entities than to us. The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. - INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE SALE OF THE SHARES. Inland Securities Corporation is our managing dealer of this offering and is affiliated with The Inland Group. Our managing dealer is entitled to selling commissions, reimbursement for marketing and due diligence expenses, and the receipt of warrants. Our managing dealer may be subject to a conflict of interest arising out of 20 its participation in this offering and its affiliation with The Inland Group in performing its "due diligence" obligations which arise under the Securities Act of 1933. The resolution of this conflict of interest could have a negative impact on our financial performance. - WE MAY ACQUIRE THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements with our advisor and our property manager, we have the option to acquire or consolidate the business conducted by them without any consent of our stockholders, our advisor or our property manager. We may elect to exercise this right at any time after September 15, 2008. This unfettered discretion could cause us to take action that otherwise we would not be able to do and therefore, could have a negative impact on our financial performance. - WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS, WHICH COULD CONTAIN TERMS WHICH ARE NOT IN OUR BEST INTEREST. As we have noted, our agreements and arrangements with our advisor or any of its affiliates, including those relating to compensation, are not the result of arm's length negotiations. These agreements may contain terms that our not in our best interest and would not otherwise be applicable if we entered into arm's-length agreements. See "Conflicts of Interest" for a discussion of various conflicts of interest. WE CANNOT PREDICT THE AMOUNTS OF COMPENSATION TO BE PAID TO OUR ADVISOR AND OUR OTHER AFFILIATES. Because the fees that we will pay to our advisor and our other affiliates are based on the level of our business activity, it is not possible to predict the amounts of compensation that we will be required to pay these entities. In addition, because key employees of our affiliates are given broad discretion to determine when to consummate a transaction, we rely on these key persons to dictate the level of our business activity. Fees paid to our affiliates will reduce funds available for distribution. Because we cannot predict the amount of fees due to these affiliates, we cannot predict how precisely such fees will impact our distributions. THE MANAGING DEALER HAS NOT MADE AN INDEPENDENT REVIEW OF US OR THE PROSPECTUS. The managing dealer, Inland Securities Corporation, is one of our affiliates and will not make an independent review of us or the offering. Accordingly, you do not have the benefit of an independent review of the terms of this offering. Further, the due diligence investigation of us by the managing dealer, also an affiliate, cannot be considered to be an independent review and, therefore, may not be as meaningful as a review conducted by an unaffiliated broker-dealer or investment banker. In addition, a substantial portion of the proceeds of the offering will be paid to the managing dealer for managing the offering, including cash selling commissions, a marketing contribution and a due diligence expense allowance. OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR DIRECTORS AND OFFICERS AND THE ADVISOR ARE LIMITED. Maryland law provides that a director has no liability in the capacity as a director if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests, and with the care that an ordinary prudent person in a like position would use under similar circumstances. Maryland law also provides that an act by a director of a Maryland corporation is presumed to satisfy the standards of the preceding sentence. Additionally, our articles of incorporation limit the liability of our directors and officers to us and to our stockholders for monetary damages to the maximum extent permitted under Maryland law. Our articles of incorporation, in the case of our directors, officers, employees and agents, and the advisory agreement, in the case of the advisor, require us to indemnify our directors, officers, employees and agents and the advisor for actions taken by them in good faith and without negligence or misconduct. Moreover, we have entered into separate indemnification agreements with each of our directors and some of our executive officers. As a result, we and our stockholders may have more limited rights against our directors, officers, employees and agents, 21 and the advisor than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or the advisor in some cases. See "Limitation of Liability and Indemnification of Directors, Officers and Our Advisors." THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER MAY BE ACQUIRED BY US WITHOUT FURTHER ACTION OF OUR STOCKHOLDERS. During the term of our agreements with our advisor and our property manager, we have the option to cause the business conducted by our advisor and/or our property manager (including all of their assets) to be acquired by or consolidated into us, without any consent of our stockholders, our advisor or our property manager or their respective board of directors or stockholders or shareholders in certain instances. We may elect to exercise this right as soon as any time after five years from the date of this prospectus. Our decision to exercise this right will be determined by a vote of a majority of our directors not otherwise interested in the transaction (including a majority of our independent directors). Our advisor and our property manager and/or their respective stockholders and shareholders will receive in connection with such an acquisition and in exchange for the transfer of all of the stock or assets of our advisor and/or our property manager, as the case may be, and for terminating their contractual relationships with us and the release or waiver of all their fees payable under the provisions of those contractual arrangements until their stated termination, but not paid, a determinable number of our shares. We will be obligated to pay any fees accrued under such contractual arrangements for services rendered through the closing of such acquisitions. In the event such an acquisition transaction is structured as a purchase of assets by us or a share exchange in which we are the acquiring corporation, our articles of incorporation and Maryland law will permit us to enter into and to consummate such a transaction without obtaining the approval of our stockholders. We do not presently intend to seek such stockholder approval if it is not then required by Maryland law or our articles of incorporation. Any such transaction will occur, if at all, only if our board of directors obtains a fairness opinion from a recognized financial advisor or institution providing valuation services to the effect that the consideration to be paid therefore is fair, from a financial point of view, to our stockholders. As a result, our stockholders will not have a right to vote on a decision to acquire the advisor or property manager and such transaction could dilute your holdings. YOUR PERCENTAGE OF OWNERSHIP MAY BECOME DILUTED IF WE ISSUE NEW SHARES OF STOCK. Stockholders have no rights to buy additional shares of stock in the event we issue new shares of stock, known as preemptive rights. We may issue common stock, convertible debt or preferred stock in a subsequent public offering or a private placement, upon exercise of options, or to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration. Investors purchasing common stock in this offering who do not participate in any future stock issues will experience dilution in the percentage of the issued and outstanding stock they own. Your investment will not be diluted as a result of any future stock issues if we sell any subsequently issued common stock for cash or property having a value of not less than $10 per share. Options to purchase common stock to be issued to independent directors under our independent director stock option plan, and/or convertible securities, if any, likely will be exercised or converted at a time when we seek to obtain needed capital through a new offering of our securities and on terms more favorable than those provided by the offered securities. As long as options on convertible securities remain unexercised or unconverted, the terms on which we could raise additional capital may be adversely affected, increasing the likelihood of your ownership percentage being diluted. THERE ARE INHERENT RISKS WITH REAL ESTATE INVESTMENTS. All real property investments are subject to some degree of risk. Equity real estate investments cannot be quickly converted to cash. This limits our ability to promptly vary our portfolio in response to changing economic, financial and investment conditions. Real property investments are also subject to adverse changes in general economic conditions or local conditions which reduce the demand for rental space. Other factors also affect real estate values, including: 22 - possible federal, state or local regulations and controls affecting rents, prices of goods, fuel and energy consumption and prices, water and environmental restrictions; - increasing labor and material costs; and - the attractiveness of the property to tenants in the neighborhood. The yields available from equity investments in real estate depend in large part on the amount of rental income earned, as well as property operating expenses and other costs we incur. If our properties do not generate revenues sufficient to meet operating expenses, we may have to borrow amounts to cover fixed costs, and our cash available for distributions may be adversely affected. Prior investment programs of our sponsor experienced mortgage defaults and restructuring of debt. The principal real estate related adverse effects experienced by prior investment programs sponsored by The Inland Group and its affiliates were mortgage defaults and restructuring of debt. ADVERSE ECONOMIC CONDITIONS IN OUR PRIMARY GEOGRAPHIC REGION AND IN THE MARKET FOR RETAIL SPACE COULD REDUCE OUR INCOME AND DISTRIBUTIONS TO YOU. Our properties will be located mainly in states west of the Mississippi River in the United States. Our properties will primarily be used as retail establishments, principally multi-tenant shopping centers. The economic performance of our properties could be affected by changes in local economic conditions. Our performance is therefore linked to economic conditions in this region and in the market for retail space generally. Therefore, to the extent that there are adverse economic conditions in this region and in the market for retail space generally that impact the market rents for retail space, such conditions could result in a reduction of our income and cash available for distributions and thus affect the amount of distributions we can make to you. In addition, we intend to predominantly own and operate grocery and discount anchored retail centers. To the extent that the investing public has a negative perception of the retail sector, the value of our common stock may be negatively impacted, thereby resulting in the shares trading at a discount below the inherent value of our assets as a whole. RISING EXPENSES COULD REDUCE CASH FLOW AND FUNDS AVAILABLE FOR FUTURE ACQUISITIONS. Our properties and any properties we buy in the future, are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. While some of our properties may be leased on a triple-net-lease basis or require the tenants to pay a portion of such expenses, renewals of leases or future leases may not be negotiated on that basis, in which event we will have to pay those costs. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs which could adversely affect funds available for future acquisitions or cash available for distributions. IF OUR TENANTS ARE UNABLE TO MAKE RENTAL PAYMENTS, IF THEIR RENTAL PAYMENTS ARE REDUCED, OR IF THEY TERMINATE A LEASE, OUR FINANCIAL CONDITION AND ABILITY TO PAY DISTRIBUTIONS WILL BE ADVERSELY AFFECTED. We are subject to the risk that tenants, as well as lease guarantors, if any, may be unable to make their lease payments or may decline to extend a lease upon its expiration. A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant's 23 election not to extend a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions. OUR FINANCIAL CONDITION AND ABILITY TO MAKE DISTRIBUTIONS MAY BE ADVERSELY AFFECTED BY THE BANKRUPTCY OR INSOLVENCY, A DOWNTURN IN THE BUSINESS, OR A LEASE TERMINATION OF A TENANT THAT OCCUPIES A LARGE AREA OF THE RETAIL CENTER OR AN ANCHOR TENANT. Generally, any tenant occupying a large portion of the gross leasable area of a retail center, a tenant of any of the triple-net single-user retail properties outside the primary geographical area of investment, commonly referred to as an anchor tenant, or a tenant that is an anchor tenant at more than one retail center, may become insolvent, may suffer a downturn in business, or may decide not to renew its lease. Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if an anchor tenant's lease is terminated. In certain properties where there are large tenants, other tenants may require that if certain large tenants or "shadow" tenants discontinue operations, a right of termination or reduced rent may exist. In such event, we may be unable to re-lease the vacated space. Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A transfer lease to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases at the retail center. If we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant. IF A TENANT CLAIMS BANKRUPTCY, WE MAY BE UNABLE TO COLLECT BALANCES DUE UNDER RELEVANT LEASES. Any or all of the tenants, or a guarantor of a tenant's lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims. A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an event could cause a decrease or cessation of rental payments which would mean a reduction in our cash flow and the amount available for distributions to you. In the event of a bankruptcy, we cannot assure you that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to you may be adversely affected. WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING OR RE-LEASING RETAIL PROPERTIES. Some of the properties we may acquire may be designed or built primarily for a particular tenant or a specific type of use. If a tenant fails to renew its lease or defaults on its lease obligations, we may not be able to readily market the property to a new tenant without substantial capital improvements or remodeling, which may adversely affect our results of operation and financial condition. OUR PROPERTIES WILL BE SUBJECT TO COMPETITION FOR TENANTS AND CUSTOMERS. We intend to locate our properties in developed areas. Therefore, there are and will undoubtedly be numerous other retail 24 properties within the market area of each of our properties which will compete with our properties and which will compete with us for tenants. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for customer traffic and creditworthy tenants. This could result in decreased cash flow from tenants and may require us to make capital improvements to properties which we would not have otherwise made, thus affecting cash available for distributions, and the amount available for distributions to you. OUR PROPERTIES WILL FACE COMPETITION WHICH MAY AFFECT TENANTS' ABILITY TO PAY RENT AND THE AMOUNT OF RENT PAID TO US AND IN TURN AFFECT THE CASH AVAILABLE FOR DISTRIBUTIONS AND THE AMOUNT OF DISTRIBUTIONS. Each of our properties will be subject to competition from similar retail centers within their respective market areas. Other retail centers within the market area of our properties will compete with our properties for customers affecting their cash flows and thus affecting their ability to pay rent. In addition, some of our tenant rent payments may be based on the amount of sales revenue generated by them. If these tenants experience competition, the amount of their rent may decrease and our cash flow will decrease. WE MAY BE RESTRICTED FROM RE-LEASING SPACE. In many cases, tenant leases will contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants to sell such merchandise or provide such services. When re-leasing space after a vacancy is required, these provisions may limit the number and types of prospective tenants for the vacant space. The failure to re-lease or to re-lease on satisfactory terms could result in a reduction of net income, funds from operations and cash available for distributions and, thus affect the amount of distributions to you. WE MAY BE UNABLE TO SELL A PROPERTY IF OR WHEN WE DECIDE TO DO SO. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements. In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would restrict our ability to sell a property. IF WE SUFFER LOSSES THAT ARE NOT COVERED BY INSURANCE OR THAT ARE IN EXCESS OF INSURANCE COVERAGE, WE COULD LOSE INVESTED CAPITAL AND ANTICIPATED PROFITS. Each tenant is responsible for insuring its goods and premises and, in some circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts which our advisor determines are sufficient to cover reasonably foreseeable losses. Tenants of single-user properties leased on a triple-net-lease basis typically are required to pay all insurance costs associated with those properties. Material losses may occur in excess of insurance proceeds with respect to any property as insurance may not have sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or 25 environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or copayments. Insurance risks associated with potential terrorism acts could sharply increase the premium we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our potential properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that will have adequate coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism losses between insurance companies and the federal government. We cannot be certain how this act will impact us or what additional cost to us, if any, could result. If such an event occurred to, or caused the destruction of, one or more of our properties, we could lose both our invested capital and anticipated profits from such property. TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND WASHINGTON, D.C. ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY. Terrorist attacks may negatively affect our operations and your investment in our common shares. We cannot assure you that there will not be further terrorist attacks against the United States or United States businesses. Properties we may acquire may be located in areas that may be susceptible to attack, which may make these properties more likely to be viewed as terrorist targets than similar, less recognizable properties. These attacks or armed conflicts may directly impact the value of our properties through damage, destruction, loss or increased security costs. We may obtain terrorism insurance as required by our lenders. The terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. In addition, certain losses resulting from these types of events are uninsurable and others would not be covered by our current terrorism insurance. Additional terrorism insurance may not be available at a reasonable price or at all. The United States' armed conflict in Iraq could have a further impact on our tenants. The consequences of any armed conflict are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment. More generally, any of these events could result in increased volatility in or damage to the United States and worldwide financial markets and economy. They also could result in a continuation of the current economic uncertainty in the United States or abroad. Our revenues will be dependent upon payment of rent by retailers, which may be particularly vulnerable to uncertainty in the local economy. Adverse economic conditions could affect the ability of our tenants to pay rent, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay distributions to stockholders. REAL ESTATE RELATED TAXES MAY INCREASE AND IF THESE INCREASES ARE NOT PASSED ON TO TENANTS, OUR INCOME WILL BE REDUCED. Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. Generally, from time to time our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some tenant leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our income, cash available for distributions, and the amount of distributions to you. REVENUE FROM OUR PROPERTIES DEPENDS ON THE AMOUNT OF OUR TENANTS' RETAIL REVENUE, MAKING US VULNERABLE TO GENERAL ECONOMIC DOWNTURNS AND OTHER CONDITIONS AFFECTING THE RETAIL INDUSTRY. Some of 26 our leases may provide for base rent plus contractual base rent increases. Some of our leases may also include a percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales our tenants generate. Under those leases which contain percentage rent clauses, our revenue from tenants may increase as the sales of our tenants increase. Generally, retailers face declining revenues during downturns in the economy. As a result, the portion of our revenue which we derive from percentage rent leases could decline upon a general economic downturn. THE COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND OTHER GOVERNMENTAL LAWS AND REGULATIONS MAY ADVERSELY AFFECT OUR INCOME AND THE CASH AVAILABLE FOR ANY DISTRIBUTIONS. All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of hazardous or toxic substances at, on, under, or in its property. The costs of removal or remediation could be substantial. In addition, the presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent such property or to use such property as collateral for future borrowing. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations, stricter interpretation of existing laws or the future discovery of environmental contamination may require material expenditures by us. We cannot assure that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the operations of the tenants, by the existing condition of the land, by operations in the vicinity of the properties, such as the presence of underground storage tanks, or by the activities of unrelated third parties. These laws typically allow liens to be placed on the affected property. In addition, there are various local, state and federal fire, health, life-safety and similar regulations which we may be required to comply with, and be subject to liability in the form of fines or damages for noncompliance. State and federal laws in this area are constantly evolving, and we intend to monitor these laws and take commercially reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of each property acquired. We cannot assure that such assessments will reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us. We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist in the future. We cannot assure that our business, assets, results of operations, liquidity or financial condition will not be adversely affected by these laws, which may adversely affect cash available for distributions, and the amount of distributions to you. OUR COSTS ASSOCIATED WITH COMPLYING WITH THE AMERICANS WITH DISABILITIES ACT MAY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS. Our properties will be subject to the Americans with Disabilities Act of 1990. 27 Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for "public accommodations" and "commercial facilities" that generally requires that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Disabilities Act's requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to acquire properties which comply with the Disabilities Act or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the Disabilities Act. However, we cannot assure that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for Disabilities Act compliance may affect cash available for distributions and the amount of distributions to you. IF A SALE OR LEASEBACK TRANSACTION IS RECHARACTERIZED, OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED. We may enter into sale and leaseback transactions, where we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale and leaseback may be recharacterized as either a financing or a joint venture, either of which outcomes could adversely affect our business. If the sale and leaseback were recharacterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. These outcomes could adversely affect our cash flow and the amount available for distributions to you. If the sale and leaseback were recharacterized as a joint venture, we and our lessee could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. The imposition of liability on us could adversely affect our cash flow and the amount available for distributions to our stockholders. WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING NEWLY CONSTRUCTED PROPERTIES WHICH MAY ADVERSELY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS TO YOU. We intend to primarily acquire existing or newly constructed properties. We may purchase properties that are subject to completion of construction and development. The builder's failure to perform may result in tenants terminating leases. These actions may increase our costs or necessitate legal action by us to rescind our purchase of a property, to compel performance, or to sue for damages. Any such legal action may result in increased costs to us. OUR INVESTMENTS IN UNIMPROVED REAL PROPERTY MAY RESULT IN ADDITIONAL COST TO US TO COMPLY WITH RE-ZONING RESTRICTIONS OR ENVIRONMENTAL REGULATIONS. We may invest up to 10% of our assets in unimproved real property. Investments in unimproved properties are subject to the risks of real estate investments in general. The are also subject to risks and uncertainties associated with re-zoning the land for higher use or development and environmental concerns of governmental entities and/or community groups. We do not intend to invest in any unimproved property which is not intended to be developed. CONSTRUCTION AND DEVELOPMENT ACTIVITIES WILL EXPOSE US TO RISKS SUCH AS COST OVERRUNS, CARRYING COSTS OF PROJECTS UNDER CONSTRUCTION OR DEVELOPMENT, AVAILABILITY AND COSTS OF MATERIALS AND LABOR, WEATHER CONDITIONS AND GOVERNMENT REGULATION. Should we elect to engage in construction and development activities, in accordance with current pronouncements of the Internal Revenue Service, we 28 intend to have our employees only perform oversight and review functions. These functions may include selecting sites, reviewing construction and tenant improvement design proposals, negotiating and contracting for feasibility studies, supervising compliance with local, state or federal laws and regulations, negotiating contracts, oversight of construction, accounting and obtaining financing. We will retain an independent general contractor to perform the actual physical construction work on tenant improvements or the installation of heating ventilation and air conditioning systems. These activities will expose us to risks inherent in construction and development, including cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, adverse weather conditions and governmental regulation. WE MAY ACQUIRE OR FINANCE PROPERTIES WITH LOCK-OUT PROVISIONS WHICH MAY PROHIBIT US FROM SELLING A PROPERTY, OR MAY REQUIRE US TO MAINTAIN SPECIFIED DEBT LEVELS FOR A PERIOD OF YEARS ON SOME PROPERTIES. Lock out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distributions to you. Lock out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a nonrecourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Lock out provisions could impair our ability to take actions during the lock-out period that would otherwise be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of the shares, relative to the value that would result if the lock-out provisions did not exist. In particular, lock out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders. YOUR INVESTMENT HAS VARIOUS FEDERAL INCOME TAX RISKS. Although the provisions of the Internal Revenue Code relevant to your investment are generally described in the section of the prospectus titled "Federal Income Tax Considerations," we strongly urge you to consult your own tax advisor concerning the effects of federal, state and local income tax law on an investment and on your individual tax situation. IF WE FAIL TO QUALIFY AS A REIT OR TO MAINTAIN OUR REIT STATUS, OUR DIVIDENDS WILL NOT BE DEDUCTIBLE TO US, AND OUR INCOME WILL BE SUBJECT TO TAXATION. We intend to qualify as a REIT under the Internal Revenue Code of 1986, as amended, which will afford us significant tax advantages. The requirements for this qualification, however, are complex. If we fail to meet these requirements, our dividends will not be deductible to us and we will have to pay a corporate level tax on our income. This would substantially reduce our cash available to pay distributions and your yield on your investment. In addition, tax liability might cause us to borrow funds, liquidate some of our investments or take other steps which could negatively affect our operating results. Moreover, if our REIT status is terminated because of our failure to meet a technical REIT test, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost. YOU MAY HAVE TAX LIABILITY ON DISTRIBUTIONS YOU ELECT TO REINVEST IN COMMON STOCK. If you participate in our distribution reinvestment program, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in common stock. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the common stock received. THE OPINION OF DUANE MORRIS LLP REGARDING OUR STATUS AS A REIT DOES NOT GUARANTEE OUR ABILITY TO REMAIN A REIT. Our legal counsel, Duane Morris LLP, will render its opinion upon commencement of this offering that we will qualify as a REIT, based upon our representations as to the 29 manner in which we will be owned, invest in assets, and operate, among other things. Our qualification as a REIT depends upon our ability to meet, through investments, actual operating results, distributions, and satisfaction of specific stockholder rules, the various tests imposed by the Internal Revenue Code. Duane Morris LLP will not review these operating results or compliance with the qualification standards. This means that we cannot assure you that we will satisfy the REIT requirements in the future. Also, this opinion represents Duane Morris LLP's legal judgment based on the law in effect as of the date of this prospectus and is not binding on the Internal Revenue Service, and could be subject to modification or withdrawal based on future legislative, judicial or administrative changes to the federal income tax laws, any of which could be applied retroactively EVEN REITS ARE SUBJECT TO FEDERAL AND STATE INCOME TAXES. Even if we qualify and maintain our status as a REIT, we may become subject to federal income taxes and related state taxes. For example, if we have net income from a "prohibited transaction," such income will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITS. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. In addition, we may also be subject to state and local taxes on our income or property, either directly or at the level of the operating partnership or at the level of the other companies through which we indirectly own our assets. We cannot assure you that we will be able to continue to satisfy the REIT requirements. IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS OF THE OFFERING, PARTICULARLY IN LIGHT OF THE FACT THAT SOME OF THE TAX ASPECTS OF THE OFFERING WILL NOT BE THE SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE STRONGLY ADVISED TO CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION PRIOR TO AN INVESTMENT IN SHARES OF OUR COMMON STOCK. AN INVESTMENT IN OUR COMMON STOCK MAY NOT BE SUITABLE FOR EVERY EMPLOYEE BENEFIT PLAN. When considering an investment in our common stock, an individual with investment discretion over assets of any pension plan, profit-sharing plan, retirement plan, IRA or other employee benefit plan covered by ERISA should consider whether the investment satisfies the fiduciary requirements of ERISA and other applicable laws. In particular, attention should be paid to the diversification requirements of Section 404(a)(1)(C) of ERISA in light of all the facts and circumstances, including the portion of the plan's portfolio of which the investment will be a part. All plan investors should also consider whether the investment is prudent and meets plan liquidity requirements as there may be only a limited market in which to sell or otherwise dispose of our common stock, and whether the investment is permissible under the plan's governing instrument. We have not, and will not, evaluate whether an investment in our common stock is suitable for any particular plan. Rather, we will accept entities as stockholders if an entity otherwise meets the suitability standards. THE ANNUAL STATEMENT OF VALUE THAT WE WILL BE SENDING TO STOCKHOLDERS SUBJECT TO ERISA AND TO CERTAIN OTHER PLAN STOCKHOLDERS IS ONLY AN ESTIMATE AND MAY NOT REFLECT THE ACTUAL VALUE OF OUR SHARES. The annual statement of value will report the value of each common stock based as of the close of our fiscal year. No independent appraisals will be obtained and the value will be based upon an estimated amount we determine would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to a liquidation. However, the net asset value of each share of common stock will be deemed to be $10 during this offering and for the first three years following the termination of this offering. Because this is only an estimate, we may subsequently revise any annual valuation that is provided. We cannot assure that: 30 - a value included in the annual statement could actually be realized by us or by our stockholders upon liquidation; - stockholders could realize that value if they were to attempt to sell their common stock; or - an annual statement of value would comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law. We will stop providing annual statements of value if the common stock becomes listed for trading on a national stock exchange or included for quotation on a national market system. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 31 CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements that reflect management's expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by using words such as "may," "will," "expects," "anticipates," "believes," "intends," "expects," "estimates," "could" or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors which may cause our 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, and are detailed on the previous pages: - our common stock is not currently listed or traded on an exchange and cannot be readily sold; - we have no operating history nor established financing sources; - we have identified only one property to be purchased with the proceeds of this offering; - if we raise the minimum amount, we will not have sufficient resources to acquire the identified property. We need to raise in excess of $26 million to acquire this property; - although we anticipate that aggregate borrowings will not exceed 55% of the combined fair market value of our properties, our charter imposes a limitation on our borrowings of less than 300% of net assets and there are risks associated with a high amount of leverage; - we have no ownership in our advisor and the advisor is owned by our sponsor or their affiliates; - our advisor and its affiliates will receive substantial fees, including participation in proceeds from the sales, refinancing or liquidation of our assets; - our advisor, property manager and two of our directors are subject to conflicts of interest as a result of their affiliation with The Inland Group, including conflicts of interest relating to: - the negotiation of the terms of the advisors and property management agreements; - the allocation of their time between us and their other business ventures; - decisions whether to acquire and dispose of properties; - the purchase and sale of properties to or from the advisor and our affiliates; and - the allocation of investment opportunities between us and their other business ventures. - the management fee structure could result in our advisor recommending riskier or more speculative investments; - we may make distributions that include a return of principal for federal tax purposes; 32 - we may fail to qualify as a REIT; - there are limits on ownership, transferability and redemption of shares; - our investment policies and strategies may be changed without stockholder consent; - our investments will lack geographic diversification; - we will not be able to meet our business objectives if we only acquire one single net leased property; and - risks that incentive structure of fees payable to our advisor and its affiliates may encourage our advisor to make investments that have greater risks to generate higher fees. You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this prospectus. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 33 HOW WE OPERATE We intend to operate as a REIT for federal and state income tax purposes. Our sponsor is Inland Real Estate Investment Corporation. Our sponsor was instrumental in our organization. We contract with Inland Western Retail Real Estate Advisory Services, Inc. for its services as our advisor. Our advisor has the responsibility for our day-to-day operations and the management of our assets. In addition to the services of our advisor, we contract with Inland Western Management Corp. for their services as our property manager. Inland Western Management Corp. provides the day-to-day property management services for all of our properties. Our sponsor, Inland Real Estate Investment Corporation, is owned by The Inland Group, Inc. Our advisor Inland Western Retail Real Estate Advisory Services, Inc., is owned by our sponsor, and thus is indirectly controlled by The Inland Group. In addition, our property manager, Inland Western Management Corp. is owned by individuals who are affiliates of the Inland Group. The Inland Group, together with its subsidiaries and affiliates, is a fully-integrated group of legally and financially separate companies that have been engaged in diverse facets of real estate for over 35 years providing the following and other related services: Property management Leasing Marketing Acquisition Disposition Development Redevelopment Syndication Renovation Construction Finance Other related services 34 The following organizational chart depicts the services that affiliates or our sponsor will render to us and our organizational structure. ORGANIZATIONAL CHART --------- --------- --------- --------- Daniel L. Robert H. G. Joseph Robert D. Goodwin* Baum* Cosenza* Parks* --------- --------- --------- --------- || || || || =========================================================== || ----------------------- THE INLAND GROUP, INC.* ----------------------- || ============================================================================================================= || || || || | - --------------- ------------------- ----------------- ------------------ | The Inland The Inland Property Inland Real Inland Real | Services Group, Management Estate Investment Estate Transaction | Inc. Group, Inc. Corporation Group, Inc. | (our sponsor) | - --------------- ------------------- ----------------- ------------------- | | | || | | | | ========================================== | | | | || || || | | | | ----------- --------------------- ------------------ | ---------------------- | | Inland Inland Western Retail Inland Partnership | Inland Mortgage - --------------- ----------------- Securities Real Estate Advisory Property Sales | Investment Corporation Inland Risk and Inland Western Corporation Services, Inc. Corporation | Insurance Management Corp. (our advisor) | Management (property manager) ----------- --------------------- ------------------ | ----------------------- Services, Inc. | | | | - --------------- ----------------- | | | | | | | | ============================ ================= | | | | || || || || || | | | | ------------- ----------- ------------- ----------- --------------- | | | | Inland Real Inland Real Inland Real Inland Inland Mortgage --------- | | | Estate Sales, Estate Estate Mortgage Servicing Insurance | | | Inc. Development Acquisitions, Corporation Corporation Services | | | Corporation Inc. --------- | | | ------------- ----------- ------------- ----------- --------------- | | | | | | | | | | | | | | | | | | | | | | ------------- | | | | | | | | Real Estate | | | | | | | | Sales Services | | | | | | | | ------------- | | | | | | | | | | | | | | | | | | | | | | | -------------------- ---------- --------------- | ----------------- ----------- --------- ------------- | Property Management Securities Organization, | Construction and Property Mortgage Mortgage Loan | and Related Services Sales Advisory | Development Acquisition Brokerage Servicing | and Real Estate | Services Services Services | Services | | -------------------- ----------- --------------- | ----------------- ------------ --------- ------------- | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - ------------------------------------------------------------------------------------------------------------------------------------ Inland Western Retail Real Estate Trust, Inc. We will be principally owned by public investors. Ownership is represented by shares of our common stock - ------------------------------------------------------------------------------------------------------------------------------------
Solid lines indicate 100% ownership. Broken lines indicate service. * The four indicated individuals control The Inland Group, Inc. and own substantially all of its stock. 35 CONFLICTS OF INTEREST We are subject to conflicts of interest arising out of our relationship with our sponsor, our advisor and their affiliates. All of our agreements and arrangements with our advisor and its affiliates, including those relating to compensation, are not the result of arm's length negotiations. Some of the conflicts inherent in our transactions with our advisor and its affiliates, and the limitations on our advisor adopted to address these conflicts, are described below. Our advisor and its affiliates will try to balance our interests with their own. However, to the extent that our advisor or its affiliates take actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to you and the value of our stock. In addition, our directors and officers and security holders may engage for their own account in business activities of the types conducted or to be conducted by us and our subsidiaries. THERE MAY BE CONFLICTING INVESTMENT OPPORTUNITIES AMONG AFFILIATES OF OUR ADVISOR AND THE INLAND GROUP. Affiliates of our advisor and The Inland Group have sponsored multiple previous investment programs. Our sponsor may also sponsor other programs which may have investment objectives similar to ours. Therefore, our sponsor, our advisor and their affiliates could face conflicts of interest in determining which investment programs will have the first opportunity to acquire real properties and other assets as they become available. In order to address this situation, we have an agreement with our advisor, some of its affiliates, and Inland Retail Real Estate Trust, Inc., another REIT sponsored by our sponsor. This agreement gives us the right to purchase property in our primary geographic area of investment, which includes the states west of the Mississippi River, placed under contract by our advisor or any of its affiliates, if we are able to close the purchase within 60 days. Similarly, Inland Retail Real Estate Trust, Inc. has the first opportunity to purchase properties in its primary geographical area of investment, which is located in states east of the Mississippi. IN THE SITUATION INVOLVING SINGLE USER NET LEASED RETAIL PROPERTY LOCATED ANYWHERE WITHIN THE UNITED STATES, AND BOTH OF US HAVE FUNDS AVAILABLE TO MAKE THE PURCHASE, THE PROSPECTIVE PROPERTY WILL FIRST BE OFFERED TO INLAND RETAIL REAL ESTATE TRUST, INC. IF INLAND REAL ESTATE TRUST, INC. DOES NOT PURCHASE THE PROSPECTIVE PROPERTY, IT WILL THEN BE OFFERED TO US. Factors which may be considered in connection with evaluating the suitability of the prospective property or other asset for investment by a particular investment program include: - the effect of the acquisition on the diversification of each program's portfolio; - the amount of funds available for investment; - cash flow; and - the estimated income tax effects of the purchase and subsequent disposition. We currently focus on purchase of properties in the states west of the Mississippi River which is outside Inland Retail Real Estate Trust Inc.'s primary geographic area of investment. However, if any conflicts do arise, they will be resolved as provided in the agreement with our advisor discussed above. We currently have identified one property for purchase located in Phoenix, Arizona. Neither The Inland Group nor any of its affiliates owns or has any interest in properties adjacent to this property. 36 All actions taken by our advisor or its affiliates which present potential conflicts with us will be APPROVED BY A MAJORITY OF OUR INDEPENDENT DIRECTORS. WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR. The prices we pay to affiliates of our sponsor for these properties will be equal to the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. These prices will not be the subject of arm's length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm's-length transaction. However, our articles of incorporation provide that the purchase price of any property acquired from an affiliate may not exceed its fair market value as determined by a competent independent appraiser. In addition, the price must be approved by a majority of our directors who have no financial interest in the transaction. If the price to us exceeds the cost paid by our affiliate, there must be substantial justification for the excess cost. WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM AFFILIATES OF OUR ADVISOR HAVE PRIOR BUSINESS RELATIONSHIPS. We may purchase properties from third parties who have sold properties in the past, or who may sell properties in the future, to our advisor or its affiliates. If we purchase properties from these third parties, our advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers. Nevertheless, our advisor has a fiduciary obligation to us. PROPERTY MANAGEMENT SERVICES ARE BEING PROVIDED BY A COMPANY OWNED PRINCIPALLY BY AFFILIATES OF THE INLAND GROUP. Our property manager, which is owned principally by individuals who are our affiliates, provides property management services to us pursuant to management services agreements which we can terminate only in the event of gross negligence or willful misconduct on the part of the property manager. However, our property management services agreement provides that we pay our property manager a monthly management fee of no greater than 90% of the fee which would be payable to an unrelated third party providing such services. In addition, the advisor and the property manager believe that the property manager has sufficient personnel and other required resources to discharge all responsibilities to us. OUR ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER COMPENSATION BASED UPON OUR INVESTMENTS. We believe that the compensation we will pay to our advisor and its affiliates is no more than what we would pay for similar services performed by independent firms. Some compensation is payable whether or not there is cash available to make distributions to our stockholders. To the extent this occurs, our advisor and its affiliates benefit from us retaining ownership of our assets and leveraging our assets, while our stockholders may be better served by sale or disposition or not leveraging the assets. In addition, the advisor's ability to receive fees and reimbursements depends on our continued investment in properties and in other assets which generate fees. Our advisor received fees based on the book value of the properties under management. Our property manager receives fees based on the income from properties under management. Therefore, our advisor and/or property manager may recommend that we purchase properties that generate fees for our advisor and property manager, but are not necessarily the most suitable investment for our portfolio. In addition, our affiliates, who receive fees, including our advisor, may recommend that we acquire properties, which may result in our incurring substantive amounts of indebtedness. Therefore, the interest of the advisor and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock. Our advisor and its affiliates recognize that they have a fiduciary duty to us and our stockholders, and have represented to us that their actions and decisions will be made in the manner most favorable to us and our stockholders. While we will not make loans to our advisor or its affiliates, we may borrow money from them for various purposes, including funding working capital requirements. If we do, the terms, such as the 37 interest rate, security, fees and other charges, will be at least as favorable to us as those which would be charged by unaffiliated lending institutions in the same locality on comparable loans. Any money borrowed from an affiliate of The Inland Group is expected to be repaid within 180 days. Our advisor and its affiliates may do business with others who do business with us, although presently there are no instances of this. However, our advisor or its affiliates may not receive rebates or participate in any reciprocal business arrangements which would have the effect of circumventing our agreement with our advisor. OUR ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an interest in a property through a joint venture with its affiliates. In these circumstances, our advisor will have a fiduciary duty to both us and its affiliates participating in the joint venture. In order to minimize the conflict between these fiduciary duties, the advisory agreement provides guidelines for investments in joint ventures with affiliates. In addition, our articles of incorporation require a majority of our disinterested directors to determine that the transaction is fair and reasonable to us and is on terms and conditions no less favorable than from unaffiliated third parties entering into the venture. THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR ADVISOR. We rely on our advisor and its affiliates for our daily operation and the management of our assets. Personnel of our advisor and its affiliates have conflicts in allocating their management time, services and functions among the real estate investment programs they currently service and any future real estate investment programs or other business ventures which they may organize or serve. Our advisor and its affiliates believe they have enough staff to perform their responsibilities in connection with all of the real estate programs and other business ventures in which they are involved. INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE SALE OF THE SHARES. Inland Securities Corporation is the managing dealer of the offering and is affiliated with The Inland Group. The managing dealer is entitled to selling commissions, reimbursement for marketing and due diligence expenses, and the receipt of warrants. The managing dealer may be subject to a conflict of interest arising out of its participation in this offering and its affiliation with The Inland Group in performing its "due diligence" obligations which arise under the Securities Act of 1933. However, the managing dealer believes it has and will continue to properly perform these "due diligence" activities. WE MAY ACQUIRE THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements with our advisor and our property manager, we have the option to acquire or consolidate the business conducted by them without any consent of our stockholders, our advisor or our property manager. We may elect to exercise this right at any time after September 15, 2008. Before this date, we need the consent of the advisor and the property manager to exercise this right. Our decision to exercise this right will be determined by a vote of a majority of our disinterested directors. Our advisor and our property manager and their shareholders will receive shares of our common stock in the acquisition. The transaction will occur, if at all, only if the board of directors obtains a fairness opinion from a recognized financial valuation service provider to the effect that the consideration to be paid is fair, from a financial point of view, to our stockholders. We will be obligated to pay any fees accrued under any contractual arrangements we have with the advisor and/or the property manager for services rendered through the closing of such acquisitions. WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS. As we have noted, our agreements and arrangements with our advisor or any of its affiliates, including those relating to compensation, are not the result of arm's length negotiations, but we believe these agreements and arrangements approximate the terms of arm's length transactions. 38 COMPENSATION TABLE The compensation arrangements between us and our advisor, The Inland Group and its affiliates, were not determined by arm's-length negotiations. See "Conflicts of Interest." The following table discloses the compensation which we may pay our advisor and its affiliates. In those instances in which there are maximum amounts or ceilings on the compensation which may be received, our advisor and its affiliates may not recover any excess amounts for those services by reclassifying them under a different compensation or fee category. We define net income as total revenues less expenses other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. When we use the term "net income" for purposes of calculating some expenses and fees, it excludes the gain from the sale of our assets. This definition of net income is prescribed by the Statement of Policy Regarding REITs adopted by the North American Securities Administrators Association, Inc., or NASAA; but it is not in accordance with generally accepted accounting principles in the United States, because depreciation and other non-cash reserves are not deducted in determining net income under the NASAA REIT Statement. Excluding depreciation will result in not reimbursing our Advisor for a non-cash expenditure and not excluding the gain from the sale of our assets could result in greater net income on which the 25% reimbursement to our Advisor is allowed. NONSUBORDINATED PAYMENTS The following aggregate amounts of compensation, allowances and fees we may pay to our advisor and its affiliates are not subordinated to the returns on net investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ OFFERING STAGE Selling commissions payable to We will pay a selling commission of 7.5% of the The actual amount depends upon the amount of the managing dealer and sale price for each share (and reallow 7%), shares sold. We will not pay selling commissions dealers designated by the subject to reduction for special sales under the if the minimum offering is not sold. If only the managing dealers referred to circumstances as described in the "Plan of minimum offering is sold and there are no as soliciting dealers. Neither Distribution - Compensation - We Will Pay For special sales, a total of $150,000 in selling the managing dealer, the the Sale of Our Shares." commissions will be paid. A total of soliciting dealers, nor our $187,500,000 in selling commissions will be paid officers or directors will be We will permit the managing dealer and its if the maximum offering is sold and there are no permitted to purchase shares respective officers and employees and certain of special sales. of our stock in order to meet its affiliates to purchase shares net of sales the minimum thresholds. commissions and the marketing contribution and due diligence expense allowance or for $8.95 per share. Also, soliciting dealers and their respective officers and employees and certain of their respective affiliates who request and are entitled to purchase shares net of selling commissions may make an initial purchase of shares net of sales commissions or for $9.30 per share; however, any subsequent purchases of shares by any such persons are limited to a maximum discount of 5%.
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TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ Marketing contribution and due We will pay an amount equal to 2.5% of the gross The actual amount depends on the number of diligence expense allowance offering proceeds to the managing dealer, all or shares. If there are no special sales, paid to the managing dealer a portion of which may be passed on to approximately the following amounts will be paid and soliciting dealers. soliciting dealers, in lieu of reimbursement of for the marketing contribution and the due specific expenses associated with marketing. We diligence expense allowance: may pay an additional 0.5% of the gross offering proceeds to the managing dealer, which will be - $60,000 if we sell the minimum number of passed on to the soliciting dealers, for due shares; or diligence expenses. We will not pay the marketing contribution and due diligence expense - $75,000,000 if we sell the maximum number of allowance in connection with any special sales, shares. except those receiving volume discounts and those described in "Plan of Distribution - Volume Discounts." Other expenses of issuance We expect to incur the following expenses in All amounts other than the Securities and and distribution connection with this offering: Exchange Commission registration fee and the NASD filing fee are estimates. The actual Securities and Exchange amounts of these expenses cannot be determined Commission registration fee $ 217,621 at the present time. We estimate the total NASD filing fee $ 30,500 amount of the issuance and distribution expenses Printing and mailing expenses $ 3,500,000 to be approximately $14,684,121. Blue Sky fees and expenses $ 136,000 Legal fees and expenses $ 650,000 Accounting fees and expenses $ 650,000 Advertising and sales literature $ 5,000,000 Due diligence $ 3,000,000 Transfer Agent fees $ 800,000 Data processing fees $ 500,000 Bank fees and other administrative expenses $ 200,000 We will reimburse our sponsor for actual costs Expenses of approximately $691,911 have been incurred in connection with the offering on our advanced by our sponsor through June 30, 2003 in behalf. However, if the aggregate of all connection with this offering. We may reimburse offering expenses, including selling for offering expenses advanced: commissions, the marketing contribution and due - $90,000 if we sell the minimum offering diligence expense allowance, exceeds 15% of the based on the 15% limitation; or gross offering proceeds, or if the aggregate of all offering expenses, excluding the selling - $14,684,000 if we sell the maximum expenses, exceeds 5.5% of the gross offering offering. proceeds, our advisor or its affiliates will promptly pay the excess and we will have no If the offering is not successful, then our liability for these expenses at any time sponsor will be solely responsible for the afterward. organization and offering expenses to the extent it has not been reimbursed.
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TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ ACQUISITION STAGE Acquisition expenses paid to We will pay an amount, estimated to be up to We may pay the following amounts for the our advisor's affiliates, 0.5% of the total of (1) the gross offering reimbursement of acquisition expenses: Inland Real Estate proceeds from the sale of 250,000,000 shares, Acquisitions, Inc., The Inland (2) the gross proceeds from the sale of up to - no more than $10,000 if the minimum number Real Estate Group, Inc. and 20,000,000 shares pursuant to the distribution of shares are sold; or Inland Western Management reinvestment programs. The acquisition expenses Corp. for any particular property will not exceed 6% - no more than $13,450,000 if the maximum of the gross purchase price of the property. number of shares are sold and all of the 20,000,000 shares are sold pursuant to the However, if we request additional services, the distribution reinvestment program. compensation will be provided on separate agreed-upon terms and the rate will be approved However, the actual amounts cannot be determined by a majority of disinterested directors, at the present time. including a majority of the disinterested independent directors, as fair and reasonable for us. Interest expenses paid to our We may borrow money from our advisor and its The actual amounts are dependent on actual advisor and Inland Mortgage affiliates in order to acquire properties. In borrowings. Therefore, these amounts cannot be Corporation in connection with such instances, we will pay our advisor and its determined at the present time. loans. affiliates interest, at prevailing market rates. TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ OPERATIONAL STAGE Property management fee paid We will pay a monthly fee of 4.5% of the gross The actual amounts are dependent upon results of to our property manager, income from the properties. We will also pay a operations and, therefore, cannot be determined Inland Western Management monthly fee for any extra services equal to no at the present time. If we acquire the Corp. We will pay the fee for more than 90% of that which would be payable to businesses of our advisor and/or our property services in connection with an unrelated party providing the services. The manager, the property management fees will the rental, leasing, operation property manager may subcontract its duties for cease. and management of the a fee that may be less than the fee provided for properties. in the management services agreements. Advisor asset management fee. We will pay our advisor an asset management fee The actual amounts are dependent upon results of We will pay the fee for after our stockholders have first received a 6% operations and, therefore, cannot be determined services in connection with annual return. at the present time. our day-to-day operations, including making strategic decisions, performing day-to-day operations that include accounting, investment advisory services, risk management services and tax reduction services and providing other services as our board deems appropriate.
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TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ OPERATIONAL STAGE Reimbursable expenses to our We will reimburse some expenses of the advisor. The actual amounts are dependent upon results of advisor. These may include The compensation and reimbursements to our operations and, therefore, cannot be determined costs of goods and services, advisor will be approved by a majority of our at the present time. administrative services and directors and a majority of our independent non-supervisory services directors as fair and reasonable for us. performed directly for us by independent parties. We will reimburse some Inland Risk and Insurance Management Services The actual amounts are dependent upon results of expenses of the Inland Risk charges us $50 per hour for assistance in operations and, therefore, cannot be determined and Insurance Management obtaining insurance coverage. Any commissions at the present time. Services for insurance they receive are credited against this hourly coverage. rate. We believe this hourly rate is approximately 90% of the rate charged by unaffiliated third parties. The compensation to this company will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us. We will compensate the Inland Inland Mortgage Servicing Corporation charges us The actual amounts are dependent upon results of Mortgage Servicing Corporation .03% per year on the first billion dollars of operations and, therefore, cannot be determined and Inland Mortgage Investment mortgages serviced and .01% thereafter. Inland at the present time. Corporation for purchase, sale Mortgage Investment Corporation charges us .02% and servicing of mortgages. of the principal amount of each loan placed. The compensation to these companies will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us. TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ LIQUIDATION STAGE Property disposition fee We may pay a property disposition fee to our The actual amounts to be received depend upon payable to our advisor's advisor and its affiliates if we sell any of our the sale price of our properties and, therefore, affiliates, Inland Real Estate real property in an amount equal to the lesser cannot be determined at the present time. If we Sales, Inc. and Inland of: acquire the advisor, the property disposition Partnership Property Sales fee will cease. Corp. 1. 3% of the contract sales price of the property; or 2. 50% of the customary commission which would be paid to a third party broker for the sale of a comparable property. The amount paid, when added to the
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TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ LIQUIDATION STAGE sums paid to unaffiliated parties, will not exceed either the customary commission or an amount equal to 6% of the contracted for sales price. Payment of such fees will be made only if the advisor provides a substantial service in connection with the sale of the property. See "Management -- Our Advisory Agreement."
SUBORDINATED PAYMENTS We may pay the following additional fees to our advisor after returns on net investment have been paid to the stockholders:
TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ OPERATIONAL STAGE Advisor asset management fee We pay an annual advisor asset management fee of The actual amounts to be received depend upon payable to our advisor. not more than 1% of our average assets. Our the sale price of our properties and, therefore, average assets means the average of the total cannot be determined at the present time. If we book value of our real estate assets plus the acquire the advisor, the property disposition total value of our loans receivables secured by fee will cease. real estate, before reserves for depreciation or bad debts or other similar non-cash reserves. We will compute our average assets by taking the average of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our advisor must reimburse us for the following amounts if any: (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: - 2% of our average assets for that fiscal year, or - 25% of our net income for that fiscal year. (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% annual return on the net investment of stockholders. Items such as organization and offering expenses, property expenses, interest payments,
43 taxes, non-cash expenditures, the incentive advisory fee and acquisition expenses are excluded from the definition of total operating expenses. See "Management -- Our Advisory Agreement" for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed.
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ LIQUIDATION STAGE Incentive advisory fee payable We will pay to the advisor an amount equal to The actual amounts to be received depend upon to our advisor. 15% of the net proceeds from the sale of a the sale price of our properties and, property after the stockholders have first therefore, cannot be determined at the present received: time. If we acquire or consolidate with the business conducted by our advisor, the (1) a cumulative non-compounded return equal to incentive advisory fee will terminate. 10% a year on their net investment; and (2) their net investment.
44 COMPENSATION TO OFFICERS AND DIRECTORS We expect to pay the following to our directors (as our officers are not paid directly by us):
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------ ------------------------------------------------ ------------------------------------------------ Director fees Independent directors receive an annual fee of We will pay the five independent directors $5,000 and a fee of $500 for attending each $25,000 in the aggregate, plus fees for meeting of the board or one of its committees in attending meetings. The actual amounts to be person and $350 for attending a meeting via the received for meetings depends upon the number telephone. Our officers who are also our of meetings and their attendance and, directors do not receive director fees. therefore, cannot be determined at the present time. Stock options to independent Each independent director receives This form of compensation is not paid in cash. directors - an initial option to purchase 3,000 shares of common stock at a price of $8.95 per share, when they become an independent director, subject to some conditions; and - each year on the date of the stockholders' annual meeting, an additional option to purchase 500 shares of common stock at an exercise price equal to the then fair market value per share. For additional information on this option plan, see "Management -- Independent Director Stock Option Plan."
45 ESTIMATED USE OF PROCEEDS The amounts listed in the table below represent our current estimates concerning the use of the offering proceeds. Since these are estimates, they may not accurately reflect the actual receipt or application of the offering proceeds. This first scenario assumes we sell the minimum number of 200,000 shares of common stock in this offering. The second scenario assumes: - we sell the maximum of 250,000,000 shares in this offering at $10 per share; and - we sell the maximum of 20,000,000 shares in our distribution reinvestment program at $9.50 per share. Under both scenarios we have not given effect to any special sales or volume discounts which could reduce selling commissions.
MAXIMUM OFFERING (INCLUDING SHARES SOLD UNDER THE MINIMUM OFFERING DISTRIBUTION REINVESTMENT 200,000 SHARES PROGRAM) ---------------------------------- ---------------------------------- AMOUNT PERCENT AMOUNT PERCENT --------------- --------------- --------------- --------------- Gross offering proceeds ............................ $ 2,000,000 100.0% $ 2,690,000,000 100.00% --------------- --------------- --------------- --------------- Less expenses: Selling commission ............................. 150,000 7.5% 187,500,000 6.97% Marketing contribution and due diligence expense allowance .................................... 60,000 3.0% 75,000,000 2.79% Organization and offering expenses ............. 90,000 4.5% 14,684,000 0.55% --------------- --------------- --------------- --------------- Total public offering expenses ................. 300,000 15.0% 277,184,000 10.30% --------------- --------------- --------------- --------------- Gross amount available for investment .............. 1,700,000 85.0% 2,412,816,000 89.70% Less: acquisition expenses .................... 10,000 0.5% 13,450,000 0.50% Less: working capital reserve ................. 20,000 1.0% 26,900,000 1.00% --------------- --------------- --------------- --------------- Net cash portion of gross offering proceeds available for the purchase of properties ...... $ 1,670,000 83.5% $ 2,372,466,000 88.20% =============== =============== =============== ===============
46 PRIOR PERFORMANCE OF OUR AFFILIATES PRIOR INVESTMENT PROGRAMS During the 10-year period ending June 30, 2003, The Inland Group and its affiliates have sponsored two other REITs, one other public real estate equity program, one private real estate equity program, four private placement mortgage and note programs and 13 real estate exchange private placements, which altogether have raised more than $2,934,000,000 from over 64,000 investors. During that period, the public real estate equity programs raised over $32,000,000 from over 2,000 investors; the private real estate equity program raised $2,275,000 from 80 investors; and the private placement mortgage and note programs raised $15,831,000 from 373 investors. In addition, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc., the other REITs, have raised over $2,835,000,000 from over 77,000 investors. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives and policies similar to ours and have invested principally in shopping centers that provide sales of convenience goods and personal services to neighboring communities in the Midwest and Southeast areas. However, Inland Real Estate Corporation is now a self-administered REIT and is no longer affiliated with The Inland Group. Our investment objectives and policies are similar to those of several of the other prior investment programs sponsored by our affiliates which have owned and operated retail properties. However, the vast majority of the other investment programs sponsored by our affiliates were dissimilar from our operation in that the prior programs owned apartment properties, pre-development land and whole or partial interests in mortgage loans. The information in this section and in the Prior Performance Tables included in this supplement as APPENDIX A shows relevant summary information concerning real estate programs sponsored by our affiliates. The purpose is to provide information on the prior performance of these programs so that you may evaluate the experience of the affiliated companies in sponsoring similar programs. The following discussion is intended to briefly summarize the objectives and performance of the prior programs and to disclose any material adverse business developments sustained by them. Past performance is not necessarily indicative of future performance. SUMMARY INFORMATION The table below provides summarized information concerning prior programs sponsored by our affiliates for the 10-year period ending June 30, 2003, and is qualified in its entirety by reference to the introductory discussion above and the detailed information appearing in the Prior Performance Tables in Appendix A of the prospectus. YOU SHOULD NOT CONSTRUE INCLUSION OF THE SUCCEEDING TABLES AS IMPLYING IN ANY MANNER THAT WE WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN THE TABLES BECAUSE THE YIELD AND CASH AVAILABLE AND OTHER FACTORS COULD BE SUBSTANTIALLY DIFFERENT FOR OUR PROPERTIES. YOU SHOULD NOTE THAT BY ACQUIRING OUR SHARES, YOU WILL NOT BE ACQUIRING ANY INTERESTS IN ANY PRIOR PROGRAMS. 47
INLAND RETAIL INLAND REAL REAL ESTATE ESTATE PRIOR PUBLIC TRUST, INC. CORPORATION REAL ESTATE REIT REIT EQUITY PROGRAM AS OF PROGRAM AS OF PROGRAMS AS OF JUNE 30, JUNE 30, JUNE 30, 2003 2003(2) 2003 ------------------ ------------------ ------------------ Number of programs sponsored 1 1 1 Aggregate amount raised from investors $ 2,156,104,000 679,780,000 32,399,000 Approximate aggregate number of investors 58,000 19,000 2,600 Number of properties purchased 201 140 18 Aggregate cost of properties(1) $ 2,835,000,000 1,251,000,000 25,945,000 Number of mortgages/notes 0 0 0 Principal amount of mortgages/notes $ 0 0 0 Principal of properties (based on cost) that were: Commercial-- Retail 92.00% 85.00% 0.00% Single-user retail net-lease 8.00% 15.00% 0.00% Nursing homes 0.00% 0.00% 0.00% Offices 0.00% 0.00% 0.00% Industrial 0.00% 0.00% 0.00% Health clubs 0.00% 0.00% 0.00% Mini-storage 0.00% 0.00% 0.00% Total commercial 100.00% 100.00% 0.00% Multi-family residential 0.00% 0.00% 0.00% Land 0.00% 0.00% 100.00% Percentage of properties (based on cost) that were: Newly constructed (within a year of acquisition) 58.00% 32.00% 0.00% Existing construction 42.00% 68.00% 0.00% Number of properties sold (3) 0 3 14 Number of properties exchanged 0 0 0 Number of mortgages/notes repaid 0 0 0 PRIOR PRIVATE INLAND REAL REAL ESTATE ESTATE EQUITY AND EXCHANGE MORTGAGE PRIVATE AND NOTE PLACEMENT PROGRAMS AS OF OFFERINGS AS OF JUNE 30, JUNE 30, 2003 2003 ------------------ ------------------ Number of programs sponsored 5 13 Aggregate amount raised from investors 18,106,000 48,055,000 Approximate aggregate number of investors 453 97 Number of properties purchased 7 13 Aggregate cost of properties(1) 1,951,930 151,317,000 Number of mortgages/notes 365 0 Principal amount of mortgages/notes 15,831,000 0 Principal of properties (based on cost) that were: Commercial-- Retail 0.00% 24.90% Single-user retail net-lease 0.00% 13.20% Nursing homes 0.00% 0.00% Offices 0.00% 49.30% Industrial 0.00% 12.60% Health clubs 0.00% 0.00% Mini-storage 0.00% 0.00% Total commercial 0.00% 100.00% Multi-family residential 0.00% 0.00% Land 100.00% 0.00% Percentage of properties (based on cost) that were: Newly constructed (within a year of acquisition) 0.00% 47.70% Existing construction 0.00% 52.30% Number of properties sold (3) 6 0 Number of properties exchanged 0 0 Number of mortgages/notes repaid 0 0
48 (1) Includes purchase price and acquisition fees and expenses. (2) On July 1, 2000, the prior REIT program, Inland Real Estate Corporation, became a separate, self-managed entity. (3) Number of properties sold in whole or in part. Of the programs included in the above table, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives similar to ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. represent approximately 97% of the aggregate amount raised from investors, approximately 95% of the aggregate number of investors, approximately 91% of the properties purchased, and approximately 97% of the aggregate cost of the properties. During the three years prior to June 30, 2003, Inland Real Estate Corporation purchased 20 commercial properties and Inland Retail Real Estate Trust, Inc. purchased 201 commercial properties. Upon written request, you may obtain, without charge, a copy of Table VI filed with the Securities and Exchange Commission in Part II of our registration statement. The table provides more information about these acquisitions. PUBLICLY REGISTERED REITs INLAND REAL ESTATE CORPORATION. On October 14, 1994, Inland Real Estate Corporation commenced an initial public offering of 5,000,000 shares of common stock at $10 per share. As of July 24, 1996, it had received subscriptions for a total of 5,000,000 shares, thereby completing the initial offering. On July 24, 1996, it commenced an offering of an additional 10,000,000 shares of common stock at $10 per share. As of July 10, 1997, it had received subscriptions for a total of 10,000,000 shares, thereby completing its second offering. On July 14, 1997, Inland Real Estate Corporation commenced a third offering of an additional 20,000,000 shares of common stock at $10 per share. As of March 19, 1998, Inland Real Estate Corporation had received subscriptions for a total of 20,000,000 shares, thereby completing the third offering. On April 7, 1998, Inland Real Estate Corporation commenced a fourth offering of an additional 25,000,000 shares at $11 per share. Inland Real Estate Corporation elected to terminate the fourth offering as of December 31, 1998, after receiving subscriptions for a total of 16,642,397 shares. In addition, as of June 30, 2003, Inland Real Estate Corporation issued 11,720,169 shares of common stock through its distribution reinvestment program. As of June 30, 2003, Inland Real Estate Corporation repurchased 4,578,588 shares of common stock through its share repurchase program for an aggregate amount of $42,552,838. As a result, Inland Real Estate Corporation's gross offering proceeds totaled approximately $679,780,000 for all of such offerings, as of June 30, 2003. Inland Real Estate Corporation's objective is to purchase shopping centers that provide convenience goods, personal services, wearing apparel and hardware and appliances located within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois, and to provide, at a minimum, cash distributions on a quarterly basis and a hedge against inflation through capital appreciation. It may also acquire single-user retail properties throughout the United States. As of June 30, 2003, the properties owned by Inland Real Estate Corporation were generating sufficient cash flow to cover operating expenses plus pay an annual cash distribution of $0.94 per share paid monthly. As of June 30, 2003, Inland Real Estate Corporation financed approximately $685,237,000 on 124 of its 140 properties. Inland Real Estate Corporation's 140 properties, a total investment of approximately $1,251,000,000 at June 30, 2003, were purchased with proceeds received from the above described offerings of shares of its common stock and financings. From December 31, 1995 through June 30, 2003, distributions have totaled $303,438,218, of which $234,358,143 was ordinary income 49 distribution from operating cash flow, $68,705,489 was return of capital for federal income tax purposes from operating cash flow and $374,586 from capital gain distributions. Through June 30, 2003, distributions were as follows:
Total Ordinary Return of Capital Gain Distribution Income Capital * Distribution ----------------------------------------------------------- 1995 $ 736,627 694,213 42,414 - 1996 3,704,943 3,093,525 611,418 - 1997 13,127,597 9,739,233 3,388,364 - 1998 35,443,213 27,015,143 8,428,070 - 1999 48,379,621 35,640,732 12,738,889 - 2000 52,964,010 40,445,730 12,518,280 - 2001 58,791,604 45,754,604 12,662,414 374,586 2002 60,090,685 41,775,045 18,315,640 - 2003 30,199,918 30,199,918 - - ----------------------------------------------------------- $ 303,438,218 234,358,143 68,705,489 374,586 ===========================================================
* Represents a return of capital for federal income tax purposes. On July 1, 2000, Inland Real Estate Corporation became a self-administered REIT by completing its acquisition of Inland Real Estate Advisory Service, Inc., its advisor, and Inland Commercial Property Management, Inc., its property manager. The acquisition was accomplished by merging its advisor and its property manager into two wholly owned subsidiaries of Inland Real Estate Corporation. As a result of the merger, Inland Real Estate Corporation issued to our sponsor, the sole shareholder of the advisor, and The Inland Property Management Group, Inc., the sole shareholder of its property manager, an aggregate of 6,181,818 shares of Inland Real Estate Corporation's common stock at $11 per share, or approximately 9.008% of its common stock. INLAND RETAIL REAL ESTATE TRUST, INC. On February 11, 1999, Inland Retail Real Estate Trust, Inc. commenced an initial public offering of 50,000,000 shares of common stock at $10 per share. As of January 31, 2001, it had sold 13,687,349 shares in its first offering resulting in gross proceeds of $136,454,948. In addition, it received $200,000 from its advisor for 20,000 shares. As of January 31, 2001, the first offering terminated. Inland Retail Real Estate Trust, Inc. commenced a second offering on February 1, 2001. As of August 29, 2002, it had sold 50,000,000 shares in its second offering resulting in gross proceeds of $497,842,917, thereby completing the second offering. Inland Retail Real Estate Trust, Inc. commenced a third offering on June 7, 2002. As of June 30, 2003, it had sold 147,516,470 shares in its third offering, resulting in gross proceeds of $1,471,607,427. An additional 6,049,526 shares had been sold pursuant to Inland Retail Real Estate Trust, Inc.'s distribution reinvestment program as of June 30, 2003, for which it has received additional net proceeds of $57,470,497. As of June 30, 2003, Inland Retail Real Estate Trust, Inc. has repurchased 793,588 shares through its share repurchase program resulting in disbursements totaling $7,471,853. As a result, Inland Retail Real Estate Trust, Inc.'s net offering proceeds from all offerings total approximately $2,156,104,000 as of June 30, 2003, including amounts raised through its distribution reinvestment program, net of shares repurchased through its share repurchase program. 50 Inland Retail Real Estate Trust, Inc.'s objective is to purchase shopping centers east of the Mississippi River in addition to single-user retail properties in locations throughout the United States, and to provide regular cash distributions and a hedge against inflation through capital appreciation. As of June 30, 2003, the properties owned by Inland Retail Real Estate Trust, Inc. were generating sufficient cash flow to cover operating expenses plus pay an annual cash distribution of $.83 per share per annum paid monthly. Through June 30, 2003, distributions totaled $151,320,937. Through June 30, 2003, distributions were as follows:
Total Ordinary Return of Distribution Income Capital* ---------------------------------------------- 1999 $ 1,396,861 $ 318,484 $ 1,078,377 2000 6,615,454 3,612,577 3,002,877 2001 17,491,342 10,538,534 6,952,808 2002 58,061,491 36,387,136 21,674,355 2003 67,755,789 67,755,789 - ---------------------------------------------- $ 151,320,937 $ 118,612,520 $ 32,708,417 ==============================================
*Represents a return of capital for federal income tax purposes. As of June 30, 2003, Inland Retail Real Estate Trust, Inc. had acquired 201 properties and had seven parcels under development for a total investment of approximately $2,835,000,000. These properties were purchased with proceeds received from the above described offerings of shares of its common stock and financings. As of June 30, 2003, Inland Retail Real Estate Trust, Inc. financed approximately $1,215,200,000 on its properties. PUBLICLY REGISTERED LIMITED PARTNERSHIPS INLAND CAPITAL FUND, L.P. - The offering period for this fund began December 13, 1991 and ended August 23, 1993. The objectives were to invest in pre-development land on an all-cash basis and realize appreciation of such land upon resale. Inland Capital Fund raised $32,399,282 from 2,683 investors and purchased, with the net proceeds available for investment, 18 land parcels, one of which included a house and several outbuildings, for an aggregate purchase price of $25,945,989. As of June 30, 2003, this fund has had multiple sales transactions involving the house and portions of 14 parcels which generated approximately $28,049,000 in net sales proceeds, including notes receivable of approximately $1,311,000. Its cost basis in the land parcels sold was approximately $13,990,000 resulting in a gain, net of selling expenses and commissions, of approximately $14,059,000 for financial reporting purposes. In the opinion of Inland Real Estate Investment Corporation, the partnership is currently meeting its investment objectives and has, through completed sales transactions, realized significant capital appreciation on the assets sold. Cash distributions to limited partners through June 30, 2003 totaled $22,335,763, all from the sale of land parcels. PRIVATE PARTNERSHIPS Since our inception and through June 30, 2003, including the programs described below under " - Private Placement Real Estate Equity Program," and " - -- Private Placement Note and Mortgage Program" in this section, our affiliates have sponsored 514 private placement limited partnerships which have raised 51 more than $524,201,000 from approximately 17,000 investors and invested in properties for an aggregate price of more than $1 billion in cash and notes. Of the 522 properties purchased, 93% have been in Illinois. Approximately 90% of the funds were invested in apartment buildings, 6% in shopping centers, 2% in office buildings and 2% in other properties. Including sales to affiliates, 320 partnerships have sold their original property investments. Officers and employees of our sponsor and its affiliates invested more than $17,000,000 in these private placement limited partnerships. From January 1, 1993 through June 30, 2003, investors in The Inland Group private partnerships have received total distributions in excess of $282,938,000, consisting of cash flow from partnership operations, interest earnings, sales and refinancing proceeds and cash received during the course of property exchanges. Following a proposal by the former corporate general partner, which was an affiliate of The Inland Group, investors in 301 private partnerships voted in 1990 to make our sponsor the corporate general partner for those partnerships. Beginning in December 1993 and continuing into the first quarter of 1994, investors in 101 private limited partnerships for which our sponsor is the general partner received letters from it informing them of the possible opportunity to sell the 66 apartment properties owned by those partnerships to a to-be-formed REIT in which affiliates of our sponsor would receive stock and cash and the limited partners would receive cash. The underwriters of this apartment REIT subsequently advised our sponsor to sell to a third party its management and general partner's interests in those remaining limited partnerships not selling their apartment properties to the apartment REIT. Those not selling their apartment properties constituted approximately 30% of the Inland-sponsored limited partnerships owning apartment buildings. The prospective third-party buyers of our sponsor's interests in the remaining partnerships, however, would make no assurance to support those partnerships financially. As a result, in a March 1994 letter, our sponsor informed investors of its decision not to go forward with the formation of the apartment REIT. Following this decision, two investors filed a complaint in April 1994 in the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on behalf of a class of other unnamed investors, alleging that our sponsor had breached its fiduciary responsibility to those investors whose partnerships would have sold apartment properties to the apartment REIT. The complaint sought an accounting of information regarding the apartment REIT matter, an unspecified amount of damages and the removal of our sponsor as general partner of the partnerships that would have participated in the sale of properties. In August 1994, the court granted our sponsor's motion to dismiss, finding that the plaintiffs lacked standing to bring the case individually. The plaintiffs were granted leave to file an amended complaint. Thereafter, in August 1994, six investors filed an amended complaint, purportedly on behalf of a class of other investors, and derivatively on behalf of six limited partnerships of which our sponsor is the general partner. The derivative counts sought damages from our sponsor for alleged breach of fiduciary duty and breach of contract, and assert a right to an accounting. Our sponsor filed a motion to dismiss in response to the amended complaint. The suit was dismissed in March 1995 with prejudice. The plaintiffs filed an appeal in April 1996. After the parties briefed the issue, arguments were heard by the Appellate Court in February 1997. In September 1997, the Appellate Court affirmed the trial court decision in favor of our sponsor. Inland Real Estate Investment Corporation is the general partner of 27 private limited partnerships and one public limited partnership that own interests in 15 buildings that are net leased to Kmart. The 14 Kmarts owned by the private limited partnerships are all cross collateralized. Relating to the Kmart bankruptcy, the status of the 15 is as follows: 52 - CATEGORY 1 - The leases of nine (9) of the Kmarts are current and have been accepted by Kmart under their Chapter 11 reorganization plan. - CATEGORY 2 - Kmart assigned its designation rights in one lease to Kohl's; the lease was amended and extended for Kohl's by IREIC, the general partner on behalf of the owners and lender; and Kohl's began paying rent February 12, 2003. - CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and upon emergence from bankruptcy on April 22, 2003, Kmart has rejected the remaining 4 property leases; one of which is subject to a ground lease to Kimco. Kmart ceased paying rent as of May 1, 2003. The general partner's, IREIC's, plans for these properties include, but are not limited to the following: 1) renegotiation of the loan encumbering the property; 2) re-tenanting the facility; 3) sale of the asset; or 4) deed in lieu of foreclosure. While it is too early to predict an outcome, the limited partners that own these Kmarts could lose their properties in foreclosure. - CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart rejected the lease for the property owned by the public limited partnership and ceased paying rent as of June 29, 2002. The general partner plans to either re-tenant or sell this facility. PRIVATE PLACEMENT REAL ESTATE EQUITY PROGRAM WISCONSIN CAPITAL LAND FUND, L.P., an Illinois limited partnership, was formed in October 1992. The objectives were to invest in pre-development land in the Madison, Wisconsin area on an all-cash basis and realize appreciation of the land upon resale. The offering period for units in this privately offered partnership began in October 1992 and ended on June 14, 1993 with the maximum amount, $2,275,000, raised from 88 investors. This fund bought seven parcels of land in the Madison, Wisconsin area with the proceeds of the offering. On October 1, 1997, Parcel 6 located in Windsor, Wisconsin, was sold for $566,597 which is equal to 191% of the original parcel capital. Investors received a $375,000 distribution from this sale. On March 19, 1998, the fund sold parcels 3 and 7 for a total of $2,150,000, of which $1,900,000 was distributed to investors. On January 5, 1999, parcels 1 and 4 were sold for $1,325,000 and investors received a $1,137,500 distribution. The fund has sold all 63 of the improved lots in Parcel 5 in the Village of Mt. Horeb for total gross sale proceeds of $2,361,750. Through June 30, 2003, $562,500 from lot sales has been distributed to investors. Through June 30, 2003, investors have received $1,747 for every $1,000 invested or a total of $3,975,000 in distributions. As of June 30, 2003, there were 88 investors in this partnership. The partnership has one remaining asset consisting of 60.876 acres in the Madison, Wisconsin area. Our dealer manager received sales commission equal to 9% of the offering proceeds from which a selling commission of 8% was re-allowed to soliciting dealers. In addition, 0.5% of the offering proceeds were re-allowed to soliciting dealers as reimbursement for due diligence expenses. Additionally, 3.3% of the offering proceeds were used to reimburse the general partner, Inland Real Estate Investment Corporation, and its affiliates for out-of-pocked expenses associated with the offering and acquisition of the land parcels. 53 During the operating phase of the partnership, the general partner will receive an asset management fee paid annually, equal to 1% of the original cost of the partnership of the parcels. In addition, the general partner and its affiliates will be reimbursed for direct expenses relating to the administration of the partnership and its assets, subject to certain limitations. An affiliate of the general partner will participate in real estate brokerage commissions as each parcel is sold, but such commissions will be subordinated to the return of that portion of the limited partners' original investment attributable to that parcel plus a 6% per annum, non-compounded cumulative return on parcel capital. The general partner may share in the net proceeds from the sale of the parcels, but such share of sales proceeds will be subordinated, to the return of the limited partners' original capital and receipt of a 15% per annum, non-compounded cumulative return. The sharing arrangement of net sale proceeds after the 15% cumulative return will be 65% to the limited partners and 35% to the general partner. PRIVATE PLACEMENT NOTE AND MORTGAGE PROGRAM 9% MONTHLY CASH FUND, L.P., an Illinois limited partnership offering investments in promissory notes to accredited investors, was sponsored by our sponsor in February 1993. The offering period for this program began February 1, 1993 and ended on May 17, 1993, when the maximum amount of $4,000,000 was raised from 78 investors. The partnership issued notes maturing August 1, 1999 and providing a 9% annual return. This fund invested in loans made to an affiliate of our sponsor secured by collateral assignments of third party mortgage loans owned by the affiliate. Our sponsor guarantees the return of capital to noteholders and the 9% annual return. Cash distributions through September 30, 1999 totaled $6,291,146, of which $2,291,146 was interest earnings and $4,000,000 was a return of capital. This partnership was completed in August 1999. 9% MONTHLY CASH FUND II, L.P., was an Illinois limited partnership offering investments in promissory notes to accredited investors, with investment objectives identical to those of 9% Monthly Cash Fund, L.P. Our sponsor sponsored it in April 1993. The offering period for this program began April 5, 1993 and ended July 23, 1993, with the maximum amount of $4,000,000 raised from 82 investors. The partnership issued notes maturing February 1, 2000 that provided a 9% annual return. The partnership invested in a loan made to an affiliate or our sponsor secured by collateral assignments of third-party mortgage loans owned by the affiliate. Our sponsor guarantees the return of capital to noteholders and the 9% annual return. Cash distributions through March 31, 2000 totaled $6,417,653, of which $2,417,653 was interest earnings and $4,000,000 was a return of capital. This partnership was completed in February 2000. All fees and expenses including sales commission and due diligence expense to our dealer-manager equal to 9.5% (of which 8% was re-allowed to soliciting dealers as sales commission and up to 0.5% as reimbursable due diligence expenses) and the costs of the memorandum, tax consulting and advise (which were anticipated to be approximately $30,000 were absorbed by the sponsor, Inland Real Estate Investment Corporation, and were not paid from the proceeds of the offering. IMC NOTE ISSUE #2 1993, offering investments in promissory notes was sponsored by Inland Mortgage Corporation, an Illinois corporation and an affiliate of our sponsor, in July 1993. The offering period for this program began August 25, 1993 and closed on June 13, 1994 after raising $6,800,000. Inland Mortgage Corporation issued notes maturing December 31, 2003, providing for interest at the rate of 8% per annum with 100% return of principal guaranteed by our sponsor. Proceeds of the offering have been used to invest in a mortgage loan secured by an apartment property in Manchester, New Hampshire, owned by an affiliate of our sponsor. Investors may also receive additional income dependent on the future sale of the property. Inland Mortgage Corporation made an initial distribution to investors of escrow interest totaling $13,685 in November 1993. Cash distributions through June 30, 2003 totaled 54 $5,147,928, of which $5,128,472 was interest earnings and $19,456 was subsidy income from our sponsor pursuant to the guarantee for that program. As of June 30, 2003, there were 169 noteholders. All fees and expenses incurred in connection with the offer and sale of the Notes - including sales commission and due diligence expense to dealer-manager, Inland Securities Corporation, equal to 8.5% (of which 6.5% was re-allowed to soliciting dealers as sales commissions, 0.5% as a marketing fee, and up to 0.5% as reimbursable due diligence expenses) and the costs of the memorandum, tax counseling and advise (which were anticipated to be approximately $41,000), as well as other costs associated with the refinancing of the property (such as title, surveys, appraisals, recording charges, etc.) were advanced by the sponsor (IREIC) and were not paid from the proceeds of the offering. INLAND CONDOMINIUM FINANCING FUND, L.P., an Illinois limited partnership offering investment in promissory notes, was sponsored by our sponsor in December 1993. The offering period for this program began December 15, 1993 and closed on June 30, 1994. This partnership offered notes in the principal amount of $1,031,000 maturing July 1, 2001, with interest at the rate of 10% per annum and 100% return of principal guaranteed by our sponsor. The proceeds of the offering were used to make unsecured loans to limited partnerships which are affiliates of our sponsor, for the purposes of paying expenses relating to the conversion of apartment properties owned by those partnerships to condominiums, and conducting condominium unit sales and other partnership expenses. Cash distributions began in March 1994. Distributions through November 17, 1997 totaled $1,411,617, of which $380,617 was interest earnings and $1,031,000 was a return of capital. There were 36 investors in this partnership. This partnership was completed in 1997. All fees and expenses incurred in connection with the offering - including sales commission and due diligence expense to dealer-manager, Inland Securities Corporation, equal to 8.5% (of which 6.5% was re-allowed to soliciting dealers as sales commissions, 0.5% as a marketing fee and up to 0.5% as reimbursable due diligence expenses) and the costs of the memorandum, tax counseling and advice (which were anticipated to be approximately $45,000), as well as other costs associated with the funding of the conversion loans were advanced by the sponsor (IREIC) and were not paid from the proceeds of the offering. 1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM In March of 2001, Inland Real Estate Exchange Corporation (IREX) was established as a subsidiary of Inland Real Estate Investment Corporation. The objective of IREX is to provide replacement properties for people wishing to complete an IRS Section 1031 real estate exchange. Through June 30, 2003, IREX offered the sale of ten properties with a total property value of $105,810,559. LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a Delaware corporation and an affiliate of IREX acquired the Landings, a multi-tenant shopping center located in Sarasota, Florida in December 1997 for $9,800,000. In August 2001, Inland Southern Acquisitions, Inc. contributed 100% of its interest in the property into Landings of Sarasota DBT, a Delaware business trust, refinanced the property with a loan of $8,000,000 from Parkway Bank & Trust Co., an Illinois banking corporation, and began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000 in equity investment. $200,000 of the offering proceeds were allocated to a property reserve account. The offering was completed in May 2002 when the maximum offering amount was raised. The private placement memorandum projected a first year annualized cash on cash return of 8.00%. Through June 30, 2003, cash distributions to the owners totaled $482,236, based on the actual holding period of each individual investor. As of June 30, 2003, there were nine investors in this trust. 55 SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a newly constructed, single-tenant office building in Davenport, Iowa in December 2001 from Ryan Companies US Inc., a Minnesota corporation. The trust financed its acquisition of the property with a $7,500,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In January 2002, Sentry Office Building Corporation, a Delaware corporation and the initial beneficiary of the trust, began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $11,000,000, which consisted of $7,500,000 in debt assumption and $3,500,000 in equity investment. $100,000 of the proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in April 2002 when the maximum offering amount was raised. The private placement memorandum projected a first-year annualized cash on cash return of 8.20%. Through June 30, 2003, cash distributions to the owners totaled $363,223, based on the actual holding period of each individual investor. As of June 30, 2003, there were six investors in this trust. PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART, Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its acquisition of the property with a temporary loan of $2,625,305 from Parkway Bank & Trust Co., an Illinois banking corporation, and then replaced this loan with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets Bowie Delaware Business Trust began offering all of its beneficial interests to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,900,000, which consisted of $1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of the proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in July 2002 when the maximum offering amount was raised. The private placement memorandum projected a first year annualized cash on cash return of 8.89%. Through June 30, 2003, cash distributions to the owners totaled $231,314, based on the actual holding period of each individual investor. As of June 30, 2003, there were seven investors in this trust. 1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail property currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The trust financed the property with a loan of $1,500,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C., the initial beneficiary of 1031 Chattanooga DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000 in equity investment. As of June 30, 2003, the offering is still in process, with 95.1295% ($1,807,460) of the capital raised. The private placement memorandum projected a first-year annualized cash on cash return of 8.26%. Through June 30, 2003, cash distributions to the owners totaled $160,855, based on the actual holding period of each individual investor. As of June 30, 2003, there were 11 investors in this trust. LANSING SHOPPING CENTER, DBT purchased a newly constructed, multi-tenant retail shopping center in Lansing, Illinois in June 2002 from LaSalle Bank National Association, as trustee under trust agreement dated May 22, 2001 and known as Trust No. 127294. The Trust financed its acquisition of the property with a $5,900,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In August 2002, Lansing Shopping Center, L.L.C., a Delaware limited liability company and the initial beneficiary of Lansing Shopping Center, DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $10,900,000, which consisted of $5,900,000 in debt assumption and $5,000,000 in equity investment. $80,000 of the proceeds obtained from the new owners was allocated to a property reserve account. The private placement memorandum projected a first year annualized cash on cash return of 8.47%. Through June 30, 2003, cash distributions to the owners totaled $314,014, based on 56 the actual holding period of each individual investor. As of June 30, 2003, there were five investors in this trust. INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building currently leased to Disney in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co., a Florida corporation. The trust financed its acquisition of the property with an $18,000,000 first mortgage loan from Bank of America, N.A., a national banking association. In September 2002, Inland 220 Celebration Place, L.L.C., a Delaware limited liability company and the initial beneficiary of Inland 220 Celebration Place Delaware Business Trust, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $33,800,000, which consisted of $18,000,000 in debt assumption and $15,800,000 in equity investment. $50,000 of the proceeds obtained from the new owners was allocated to a property reserve account. As of June 30, 2003, the offering is still in process, with 89.8075% ($14,189,578) of the capital raised. The private placement memorandum projected a first year annualized cash on cash return of 8.08%. Through June 30, 2003, cash distributions to the owners totaled $852,564, based on the actual holding period of each individual investor. As of June 30, 2003, there were 32 investors in this trust. TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property currently leased to Circuit City in Taunton, Massachusetts in July 2002. The Trust financed the property with a first mortgage of $2,800,000 from MB Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial beneficiary of Taunton Circuit Delaware Business Trust, offered all of its interest in the trust to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $6,550,000, which consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment. The offering was completed in September 2002. The private placement memorandum projected a first-year annualized cash on cash return of 8.31%. Through June 30, 2003, cash distributions to the owner totaled $210,950. As of June 30, 2003, there was one investor in this trust. BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant retail center located in Rochester, Minnesota, in July 2002. The Trust financed the property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the initial beneficiary of Broadway Commons Delaware Business Trust, began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $17,250,000, which consisted of $8,850,000 in debt assumption and $8,400,000 in equity investment. $100,000 of the offering proceeds obtained from the new owners was allocated to a property reserve account. As of June 30, 2003, the offering is still in process, with approximately 70.5434% ($5,925,643) of the capital raised. The private placement memorandum projected an initial annualized cash on cash return of 8.14%. Through June 30, 2003, cash distributions to the owners totaled $447,625, based on the actual holding period of each individual owner. As of June 30, 2003, there were 21 investors in this trust. BELL PLAZA 1031, LLC. Rehab Associates XIII, Inc., an Illinois corporation and an affiliate of IREX acquired Bell Plaza, a multi-tenant shopping center in Oak Lawn, IL on August 28, 1998 for $1,675,000. In October 2002, Rehab Associates XIII contributed 100% of its interest in the property into Bell Plaza 1031, LLC, a Delaware single member limited liability company, and then offered all of its membership interests in Bell Plaza, LLC to North Forsyth Associates, a North Carolina general partnership, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in equity investment. $25,000 of the proceeds obtained by the new owner was allocated to a property reserve account. The offering was completed in November 2002. The private placement memorandum projected a first-year annualized cash on cash return of 14.30%, calculated based on the total original investment of 57 $890,000. Through June 30, 2003, cash distributions to the owner totaled $46,849. As of June 30, 2003, there was one investor in this limited liability company. INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building, currently leased in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co., a Florida corporation. The trust financed its acquisition of the property with a $5,700,000 first mortgage loan from Bear Stearns Commercial Mortgage, Inc. In January 2003, Inland 210 Celebration Place Delaware Business Trust sold its fee simple interest in 210 Celebration Place to Old Bridge Park Celebration, LLC, a Delaware limited liability company, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $5,700,000 in debt assumption and $6,300,000 in equity investment. Through June 30, 2003, cash flow to the new owner totaled $245,712. As of June 30, 2003, this property was owned by one investor. COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited liability company, purchased a single-tenant retail building leased to CompUSA, Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began offering all of the undivided tenant in common interests in the real estate and improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County, Illinois for $3,950,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $7,950,000, which consisted of $4,000,000 in debt assumption and $3,950,000 in equity investment. As required by the lender, Lombard C-USA, L.L.C. shall retain at least a 1% tenant in common interest, which is included in the $3,950,000 equity investment. $75,000 of the offering proceeds was allocated to a property reserve account. As of June 30, 2003, the offering is still in process. The private placement memorandum projected a first-year annualized cash on cash return of 8.05%. Through June 30, 2003, Lombard C-USA, L.L.C. remains the sole investor in the property. DEERE DISTRIBUTION FACILITY. Janesville 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant, light industrial distribution center leased to Deere & Company, a Delaware corporation, in Janesville, Wisconsin in February 2003 from Ryan Janesville, L.L.C., a Minnesota corporation and an affiliate of Ryan Companies US, Inc. The L.L.C. financed its acquisition of the property with a $10,450,000 loan from Bear Stearns Commercial Mortgage, Inc. In May 2003, Janesville 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2900 Beloit Avenue, Janesville, Rock County, Wisconsin for $9,949,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $20,500,000, consisted of $10,450,000 in debt assumption and $10,050,000 in equity investment, 1% of which was required by the lender to be retained by Janesville 1031, L.L.C. $100,000 of the offering proceeds was allocated to a property reserve account. As of June 30, 2003, the offering is still in process. The private placement memorandum projected a first-year annualized cash on cash return of 7.23%. Through June 30, 2003, Janesville 1031, L.L.C. remains the sole investor in the property. FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant office building leased entirely to Fleet National Bank, a national banking association, in Providence, Rhode Island in April 2003 from Fleet National Bank in a sale/leaseback transaction. The L.L.C. financed its acquisition of the property with a $12,900,000 loan from Bear Stearns Commercial Mortgage, Inc. In June 2003, Westminster Office 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 111 Westminster Street, Providence, Providence County, Rhode Island for $9,000,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to 58 complete a 1031 tax-deferred exchange. The total price, $22,900,000, consisted of $12,900,000 in debt assumption and $10,000,000 in equity investment, 1% of which was required by the lender to be retained by Westminster Office 1031, L.L.C. $150,000 of the offering proceeds was allocated to a property reserve account. As of June 30, 2003, the offering is still in process. The private placement memorandum projected a first-year annualized cash on cash return of 7.19%. Through June 30, 2003, Westminster Office 1031, L.L.C. remains the sole investor in the property. 59 The following summary table describes the fees and expenses incurred by each of our entities in our 1031 Exchange Private Placement Offering Project.
1031 Lansing Inland 220 Landings of Sentry Office Pets Bowie Chattanooga Shopping Celebration Sarasota DBT Building DBT DBT DBT Center, DBT Place DBT - --------------------------------------------------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% - --------------------------------------------------------------------------------------------------------------------------------- SELLING COMMISSION TO 3rd PARTY REPS 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% - --------------------------------------------------------------------------------------------------------------------------------- DUE DILIGENCE FEE 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% - --------------------------------------------------------------------------------------------------------------------------------- MARKETING EXPENSES 1.00% 1.50% 1.50% 1.50% 1.50% 1.00% - --------------------------------------------------------------------------------------------------------------------------------- OFFERING & ORGANIZATION 1.00% 0.50% 0.50% 0.50% 0.50% 1.00% - --------------------------------------------------------------------------------------------------------------------------------- Mortgage Broker Fee (IMC)(2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% - --------------------------------------------------------------------------------------------------------------------------------- Acquisition Fee & Carrying Costs(3) - --------------------------------------------------------------------------------------------------------------------------------- ACQUISITION FEE N/A 0.71% 0.77% 0.90% 0.88% 1.18% - --------------------------------------------------------------------------------------------------------------------------------- BRIDGE FINANCING FEES N/A NA 1.49% 0.50% 0.20% 0.10% - --------------------------------------------------------------------------------------------------------------------------------- Total Load(4) 11.25%-12.75% 14.23% 13.68% 14.39% 13.68% 13.23% - --------------------------------------------------------------------------------------------------------------------------------- Asset Management Fees(5) NA 0.75% 1.00% 0.56% 0.55% 0.52% - --------------------------------------------------------------------------------------------------------------------------------- Property Management Fees(6) 4.5% 5.0% Paid by 5.0% 5.0% 4.5% Asset Mgr. - --------------------------------------------------------------------------------------------------------------------------------- Taunton Broadway Inland 210 CompUSA Circuit Commons DBT Bell Plaza Celebration Retail DBT DBT 1031, LLC Place DBT Building - ---------------------------------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 7.72% Up to 8.56% - ---------------------------------------------------------------------------------------------------------------- SELLING COMMISSION TO 3rd PARTY REPS 6.00% 6.00% 6.00% 3.81% 6.00% - ---------------------------------------------------------------------------------------------------------------- DUE DILIGENCE FEE 0.50% 0.50% 0.50% 0.00% 0.50% - ---------------------------------------------------------------------------------------------------------------- MARKETING EXPENSES 1.00% 1.00% 1.00% 0.50% 1.00% - ---------------------------------------------------------------------------------------------------------------- OFFERING & ORGANIZATION 0.50% 1.27% 1.69% 0.96% 1.06% - ---------------------------------------------------------------------------------------------------------------- Mortgage Broker Fee (IMC)(2) 0.61% 0.50% 0.50% 0.50% 0.50% - ---------------------------------------------------------------------------------------------------------------- Acquisition Fee & Carrying Costs(3) - ---------------------------------------------------------------------------------------------------------------- ACQUISITION FEE 0.69% 0.75% NA 0.89% 0.82% - ---------------------------------------------------------------------------------------------------------------- BRIDGE FINANCING FEES 0.07% 0.23% NA 0.23% 0.23% - ---------------------------------------------------------------------------------------------------------------- Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93% - ---------------------------------------------------------------------------------------------------------------- Asset Management Fees(5) 0.57% NA 0.53% 0.53% 0.63% - ---------------------------------------------------------------------------------------------------------------- Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5% - ---------------------------------------------------------------------------------------------------------------- Deere Distribution Fleet Office Facility Building - ---------------------------------------------------------------------- Commissions & Fees(1) Up to 8.6% Up to 8.52% - ---------------------------------------------------------------------- SELLING COMMISSION TO 3rd PARTY REPS 6.00% 6.00% - ---------------------------------------------------------------------- DUE DILIGENCE FEE 0.50% 0.50% - ---------------------------------------------------------------------- MARKETING EXPENSES 1.00% 1.00% - ---------------------------------------------------------------------- OFFERING & ORGANIZATION 1.10% 1.02% - ---------------------------------------------------------------------- Mortgage Broker Fee (IMC)(2) 0.50% 0.50% - ---------------------------------------------------------------------- Acquisition Fee & Carrying Costs(3) - ---------------------------------------------------------------------- ACQUISITION FEE 0.87% 0.85% - ---------------------------------------------------------------------- BRIDGE FINANCING FEES 0.23% 0.35% - ---------------------------------------------------------------------- Total Load(4) 13.93% 14.57% - ---------------------------------------------------------------------- Asset Management Fees(5) 0.49% 0.49% - ---------------------------------------------------------------------- Property Management Fees(6) 4.5% 4.5% - ----------------------------------------------------------------------
Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A - --------------------------------------------------------------------------------------------------------------------------------- Backend Sales Commission N/A NA 3.5% NA NA - ---------------------------------------------------------------------------------------------------------------- Backend Sales Commission NA NA - ----------------------------------------------------------------------
- ---------- (1) Commissions and fees are calculated as a percentage of the equity portion of each deal. (2) The Mortgage Broker Fee is calculated as a percentage of the debt portion of each deal. (3) Acquisition & Carrying Costs are calculated as a percentage of the real estate acquisition price. (4) The Total Load is calculated as a percentage of the equity portion of each deal. The Total Load includes the Commissions & Fees, Mortgage Broker Fee, Acquisition Fee & Carrying Costs, as well as any other non-affiliated third party expenses. (5) Asset Management Fees are calculated as a percentage of the value of the assets under management. However, for The Landings and Broadway Commons, which are both Master Lease deals, the Master Tenant Income is the residual cash flow from the Property after payment of the Master Lease Rent. (6) Property Management Fees are calculated as a percentage of Gross Income from the property. 60 [THIS PAGE INTENTIONALLY LEFT BLANK] 61 SUMMARY TABLES The following summary tables describe information concerning the prior programs discussed above through June 30, 2003. Affiliates of The Inland Group formed Inland Capital Fund, L.P. and Wisconsin Capital Land Fund, L.P. as pure capital appreciation investments. No current return from rents or interest was contemplated or available because capital was invested in non-income producing vacant land parcels. Limited partners receive distributions on an irregular basis, only as a result of a sale of the vacant land parcels. These distributions consist of both the return of the invested capital amount allocated to the purchase of the parcel or parcels sold plus the profit on the involved parcels as measured by the sale price, net of costs of the sale, minus the fully loaded purchase price, or allocated capital. The method of measuring return on investment to date is on a sold parcel by parcel basis as follows: 62
Return on Investment Return on Investment - ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL FULLY LOADED RETURN ON NET SALES PURCHASE PRICE ALLOCATED CAPITAL AVERAGE PRICES OF (ALLOCATED GROSS RETURN % (GROSS RETURN NUMBER OF PARCELS CAPITAL OF NET PROFITS ON (NET %/AVERAGE NUMBER YEARS OF SOLD TO PARCELS SOLD PARCELS SOLD TO PROFIT/ALLOCATED OF YEARS OF CAPITAL FUND DATE LESS TO DATE) = DATE CAPITAL) CAPITAL INVESTED) INVESTED - ---------------------------------------------------------------------------------------------------------------------------------- Inland Capital Fund, L.P. 28,049,000 13,990,000 14,059,000 100% 9.14% 11.00 Wisconsin Land Fund, L.P. 4,137,818 2,120,803 2,017,015 95% 9.05% 10.50
CUMULATIVE DISTRIBUTIONS TO LIMITED PARTNERS
RETURN ON CAPITAL RETURN OF RETURN ON INVESTMENT PER RAISED TOTAL = INVESTMENT + INVESTMENT YEAR - ------------------------------------------------------------------------------------------------------------------ Employee Appreciation Fund, L.P.* 400,000 502,198 400,000 102,198 10.00% Inland Condominium Financing Fund, L.P. 1,031,000 1,411,617 1,031,000 380,617 10.00% 9% Monthly Cash Fund, L.P. 4,000,000 6,291,146 4,000,000 2,291,146 9.00% 9% Monthly Cash Fund II, L.P. 4,000,000 6,417,653 4,000,000 2,417,653 9.00% IMC Note Issue #2 1993 6,800,000 5,147,928 0 5,147,928 8.00%
* Returns of Capital prior to Final Distribution. 63 MANAGEMENT INLAND AFFILIATED COMPANIES The Inland Group, Inc. was started by a group of Chicago schoolteachers in 1967, and incorporated the following year. The founders of The Inland Group and its affiliates are still centered in the Chicago metropolitan area. Over the past 35 years, The Inland Group and its affiliates have experienced significant growth and now make up a fully-integrated group of legally and financially separate companies that have been engaged in diverse facets of real estate providing property management, leasing, marketing, acquisition, disposition, development, redevelopment, renovation, construction, finance, investment products, and other related services. The Inland Real Estate Group of Companies (sometimes referred to as "Inland") represents the marketing name for these separate legal entities that are either subsidiaries of the same entity, affiliates of each other, share some common ownership or were previously sponsored by Inland Real Estate Investment Corporation. Inland in the aggregate was ranked by Crain's Chicago Business in April 2003 as the 33rd largest privately held company headquartered in the Chicago area. Among the affiliates of Inland is one of the largest property management firm in Illinois and one of the largest commercial real estate and mortgage banking firms in the Midwest. As of June 30, 2003 Inland and its affiliates have more than 800 employees, own properties in 39 states, and have managed assets in excess of $5 billion. The senior management includes executives of The Inland Group and its affiliates. Our management personnel have substantial experience in a full range of real estate services. Our top seven senior executives have an average of over 25 years experience in the real estate industry. Our advisor and managing dealer are affiliates of Inland. The relevant skills and experience of each of the Inland affiliated companies, developed over the course of more than 35 years in business, primarily in the Chicago metropolitan area, are available to us in the conduct of our business. As of June 30, 2003, our sponsor, Inland Real Estate Investment Corporation, is the general partner of limited partnerships which own in excess of 5,800 acres of pre-development land in the Chicago area, as well as 16,871,522 square feet of real property in Chicago and nationwide. Inland developed expertise in real estate financing as it bought and sold properties over the years. Inland Mortgage Corporation was incorporated in 1977. As of June 30, 2003 Inland Mortgage Corporation has originated more than $6 billion in financing including loans to third parties and affiliated entities. Inland Mortgage Investment Corporation and Inland Mortgage Servicing Corporation were incorporated in 1990, delineating the functions and duties associated with financing. As of June 30, 2003, Inland Mortgage Investment Corporation owned a $73,947,500 loan portfolio, and Inland Mortgage Servicing Corporation serviced a loan portfolio of 503 loans exceeding $2,117,699,700. The Inland Property Management companies are responsible for collecting rent, and leasing and maintaining the rental properties they manage. As of June 30, 2003 Inland Property Management companies manage 42,982,552 million square feet of commercial properties in 39 states. A substantial portion of the portfolio, approximately 10.8 million square feet, consists of properties leased on a triple-net lease basis to creditworthy tenants. This means that the tenant operates and maintains the property and pays rent that is net of taxes, insurance, and 64 operating expenses. They also manage more than 11,000 multi-family units that are principally located in the Chicago metropolitan area. Inland Western Management Corporation, our management company, was incorporated in January 2003 to segregate responsibility for management of our properties from Inland Property Management companies' growing management portfolio of retail properties. Our property management company will be responsible for collecting rent, leasing, and maintaining the retail properties it will manage. These properties are primarily intended to be our properties in our primary geographical area of investment. Our property management company is owned primarily by individuals who are affiliates of Inland. Inland Real Estate Acquisitions, Inc., another company affiliated with Inland, has extensive experience in acquiring real estate for investment. Over the years, it and its affiliates have acquired more than 1,100 properties. Inland Real Estate Development Corporation, an affiliate of Inland, has expertise in rezoning and developing real estate for industrial, residential, and commercial use. It has constructed more than 3,000 single family and multi-family units and developed over one million square feet of commercial space. As of June 30, 2003, Inland Real Estate Development Corporation had more than 5,000 acres of prime land available for development. Inland Real Estate Sales, Inc., another affiliate of Inland, is one of the largest "mid-market" commercial brokerage specialists in the Midwest. In the last three years it has completed more than $175 million in commercial real estate sales. Inland Real Estate Sales, Inc. has been involved in the sale of more than 40,000 multi-family units and over 10 million square feet of commercial property. See also "Prior Performance of our Affiliates" and APPENDIX A - "Prior Performance Tables" for information concerning over $2.8 billion raised from over 77,000 investors in connection with two other REITs, one other public real estate equity program, one private real estate equity program and five private placement mortgage and note programs and nine real estate exchange private placement offerings sponsored by The Inland Group affiliated companies during the 10-year period ending June 30, 2003, and the prior performance of those programs. During the last 35 years, more than 10,000 investors were in the Inland Group's 231 completed programs as of June 23, 2003, with no investor losses of initial invested capital in any completed equity program. The following sets forth information with respect to the directors and principal executive officers of The Inland Group:
NAME AGE* POSITION AND OFFICE WITH THE INLAND GROUP - ---- ---- ----------------------------------------- Daniel L. Goodwin 59 Chairman, president and director Robert H. Baum 59 Vice chairman, executive vice president - general counsel and director G. Joseph Cosenza 59 Vice chairman and director Robert D. Parks 59 Director
- ---------- *As of January 1, 2003 65 Messrs. Goodwin, Baum, Cosenza and Parks were the founders of Inland. DANIEL L. GOODWIN, is a founding and controlling stockholder of and the Chairman of the Board and Chief Executive Officer of The Inland Group, Inc. Mr. Goodwin also serves as a director or officer of entities wholly owned or controlled by The Inland Group. In addition, Mr. Goodwin is the Chairman of the Board and Chief Executive Officer of Inland Mortgage Investment Corporation and Chairman and Chief Executive Officer of Inland Bancorp, a bank holding company. He also oversees numerous stock market investment portfolios and is the advisor for Inland Mutual Fund Trust, a publicly traded mutual fund. HOUSING. Mr. Goodwin is a member of the National Association of Realtors, the Illinois Association of Realtors and the Northern Illinois Commercial Association of Realtors. He is also the author of a nationally recognized real estate reference book for the management of residential properties. Mr. Goodwin serves on the Board of the Illinois State Affordable Housing Trust Fund. He served as an advisor for the Office of Housing Coordination Services of the State of Illinois, and as a member of the Seniors Housing Committee of the National Multi-Housing Council. He has served as Chairman of the DuPage County Affordable Housing Task Force. Mr. Goodwin also serves as Chairman of New Directions Affordable Housing Corporation. EDUCATION. Mr. Goodwin obtained his Bachelor's and Master's Degrees from Illinois State universities. Following graduation, he taught for five years in the Chicago Public Schools. More recently, Mr. Goodwin has served as a member of the Board of Governors of Illinois State Colleges and Universities. He is Vice Chairman of the Board of Trustees of Benedictine University, Vice Chairman of the Board of Trustees of Springfield College and Chairman of the Board of Trustees of Northeastern Illinois University. ROBERT H. BAUM has been with The Inland Group and has affiliates since 1968 and is one of the four original principals. Mr. Baum is vice chairman and executive vice president-general counsel of The Inland Group. In his capacity as general counsel, Mr. Baum is responsible for the supervision of the legal activities of The Inland Group and its affiliates. This responsibility includes the supervision of The Inland Group Law Department and serving as liaison with outside counsel. Mr. Baum has served as a member of the North American Securities Administrators Association Real Estate Advisory Committee and as a member of the Securities Advisory Committee to the Secretary of State of Illinois. He is a member of the American Corporation Counsel Association and has also been a guest lecturer for the Illinois State Bar Association. Mr. Baum has been admitted to practice before the Supreme Court of the United States, as well as the bars of several federal courts of appeals and federal district courts and the State of Illinois. He is also an Illinois licensed real estate broker. He has served as a director of American National Bank of DuPage and currently serves as a director of Inland Bancorp Holding Company and of Westbank. Mr. Baum also is a member of the Governing Council of Wellness House, a charitable organization that provides emotional support for cancer patients and their families. G. JOSEPH COSENZA has been with The Inland Group and its affiliates since 1968 and is one of the four original principals. Mr. Cosenza is a director and vice chairman of The Inland Group and oversees, coordinates and directs The Inland Group organization's many enterprises. In addition, Mr. Cosenza immediately supervises a staff of 16 persons who engage in property acquisitions. Mr. Cosenza has been a consultant to other real estate entities and lending institutions on property appraisal methods. 66 Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and his Masters Degree from Northern Illinois University. From 1967 to 1968, he taught in the La Grange Illinois School District and, from 1968 to 1972, he served as assistant principal and taught in the Wheeling, Illinois School District. Mr. Cosenza has been a licensed real estate broker since 1968 and an active member of various national and local real estate associations, including the National Association of Realtors and the Urban Land Institute. Mr. Cosenza has also been chairman of the board of American National Bank of DuPage and has served on the board of directors of Continental Bank of Oakbrook Terrace. He was the chairman and is presently a director of Westbank in Westchester, Hillside and Lombard, Illinois. ROBERT D. PARKS has been a director of The Inland Group since 1968 and is one of the four original principals. He has been our chairman, chief executive officer, and an affiliated director since our formation. He is chairman of our sponsor and a director of our managing dealer. Mr. Parks is president, chief executive officer and a director of Inland Real Estate Corporation. He is a director of Inland Real Estate Advisory Services, Inc., Inland Investment Advisors, Inc., Partnership Ownership Corp., Inland Southern Acquisitions, Inc. and Inland Southeast Investment Corp. He is chairman, chief executive officer and director of Inland Retail Real Estate Trust, Inc. and a trustee of Inland Mutual Fund Trust, Inc. Mr. Parks is responsible for the ongoing administration of existing investment programs, corporate budgeting and administration for our sponsor. He oversees and coordinates the marketing of all investments and investor relations. Prior to joining Inland, Mr. Parks was a school teacher in Chicago's public schools. He received his B.A. Degree from Northeastern Illinois University and his M.A. Degree from the University of Chicago. He is a registered Direct Participation Program Limited Principal with the National Association of Securities Dealers, Inc. He is also a member of the Real Estate Investment Association, the Financial Planning Association, the Foundation for Financial Planning, as well as a member of the National Association of Real Estate Investment Trusts, Inc. OUR GENERAL MANAGEMENT We operate under the direction of our board of directors. Our board is responsible for our business and management. Our board sets our policies and strategies. Our advisor is responsible for the day-to-day management of our affairs and the implementation of the policies of our board. Inland Western Management Corp. is responsible for managing, maintaining and leasing the individual properties. Inland Real Estate Acquisitions, Inc. is responsible for acquiring properties. Inland Risk and Insurance Management Services, Inc., an affiliate of The Inland Group, Inc., is responsible for providing insurance coverage on the properties. Inland Mortgage Corporation, Inland Mortgage Servicing Corporation and Inland Mortgage Investment Corporation are responsible for the purchase, sales and servicing of mortgages. See "Compensation Table" for a description for the fees paid to our affiliates. 67 OUR DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information with respect to our directors and executive officers:
NAME AGE POSITION AND OFFICE WITH US ---------- ------- --------------------------------------- Robert D. Parks .............. 59 Chairman, chief executive officer and affiliated director Roberta S. Matlin ............. 58 Vice president -- administration Scott W. Wilton ............... 42 Secretary Kelly E. Tucek ................ 40 Treasurer Brenda G. Gujral .............. 60 Affiliated director Frank A. Catalano, Jr ......... 41 Independent director Kenneth H. Beard .............. 63 Independent director Paul R. Gauvreau .............. 63 Independent director Gerald M. Gorski .............. 60 Independent director Barbara A. Murphy ............. 65 Independent director
---------- *As of January 1, 2003 ROBERTA S. MATLIN has been our vice president of administration since our formation. Ms. Matlin joined Inland in 1984 as director of investor administration and currently serves as senior vice president of investments of our sponsor, directing its day-to-day internal operations. Ms. Matlin is a director of our sponsor and of our managing dealer. Since 1998, she has been vice president of administration of Inland Retail Real Estate Trust and was vice president of administration of Inland Real Estate Corporation from 1995 until 2000. She is president and a director of Inland Investment Advisors, Inc. and Intervest Southern Real Estate Corporation, and a trustee and executive vice president of Inland Mutual Fund Trust. Prior to joining Inland, she worked for the Chicago Region of the Social Security Administration of the United States Department of Health and Human Services. Ms. Matlin is a graduate of the University of Illinois. She holds Series 7, 22, 24, 39, 63 and 65 licenses from the National Association of Securities Dealers, Inc. SCOTT W. WILTON has been our secretary since our formation. Mr. Wilton joined The Inland Group in January 1995. He is assistant vice president of The Inland Real Estate Group, Inc. and assistant counsel with The Inland Real Estate Group law department. In 1998, Mr. Wilton became secretary of Inland Retail Real Estate Trust, Inc. and Inland Retail Real Estate Advisory Services, Inc. In 2001, he became the Secretary of Inland Real Estate Exchange corporation. Mr. Wilton is involved in all aspects of The Inland Group's business, including real estate acquisitions and financing, securities law and corporate governance matters, leasing and tenant matters, and litigation management. He received B.S. degrees in economics and history from the University of Illinois at Champaign 1982 and his law degree from Loyola University of Chicago, Illinois 1985. Prior to joining The Inland Group, Mr. Wilton worked for the Chicago law firm of Williams, Rutstein, Goldfarb, Sibrava and Midura, Ltd., specializing in real estate and corporate transactions and litigation. KELLY E. TUCEK has been our treasurer since our formation. Ms. Tucek joined The Inland Group in 1989 and is an Assistant Vice President of Inland Real Estate Investment Corporation. As of August 1996, Ms. Tucek is responsible for the Investment Accounting Department, which includes all public partnership accounting functions along with quarterly and annual SEC filings. Prior to joining Inland, Ms. Tucek was on the audit staff of Coopers and Lybrand since 1984. She received her B.A. Degree in Accounting and Computer Science from North Central College. 68 BRENDA G. GUJRAL, an affiliated director, is president, chief operating officer and a director of Inland Real Estate Investment Corporation, the parent company of our advisor. She is also president, chief operating officer and a director of our managing dealer. Mrs. Gujral is also a director of Inland Investment Advisors, Inc., an investment advisor. Mrs. Gujral has overall responsibility for the operations of Inland Real Estate Investment Corporation, including the distribution of checks to over 50,000 investors, the review of periodic communications to those investors, the filing of quarterly and annual reports for Inland Real Estate Investment Corporation-sponsored publicly registered investment programs with the Securities and Exchange Commission, compliance with other Securities and Exchange Commission and National Association of Securities Dealers securities regulations both for Inland Real Estate Investment Corporation and Inland Securities Corporation, review of asset management activities and marketing and communications with the independent broker-dealer firms selling current and prior Inland Real Estate Investment Corporation sponsored investment programs. She works with internal and outside legal counsel in structuring Inland Real Estate Investment Corporation's investment programs and in connection with the preparation of its offering documents and registering the related securities with the Securities and Exchange Commission and state securities commissions. Mrs. Gujral has been with the Inland organization for 22 years, becoming an officer in 1982. Prior to joining the Inland organization, she worked for the Land Use Planning Commission establishing an office in Portland, Oregon to implement land use legislation for that state. She is a graduate of California State University. She holds Series 7, 22, 39 and 63 licenses from the National Association of Securities Dealers and is a member of The National Association of Real Estate Investment Trusts. Ms. Gujral is also a member of the Financial Planning Association, the Foundation for Financial Planning and the National Association for Female Executives. FRANK A. CATALANO, JR. has served as president of Catalano & Associates since 1999. Catalano & Associates is a real estate company that includes brokerage, property management and rehabilitation and leasing of office buildings. Mr. Catalano's experience also includes mortgage banking. Since 2002, he has been a vice president of First Home Mortgage Company. Prior to that, Mr. Catalano was a regional manager at Flagstar Bank. He also was president and chief executive officer of CCS Mortgage, Inc. from 1995 through 2000, when Flagstar Bank acquired it. Mr. Catalano is a member of the Elmhurst, IL Chamber of Commerce and as past chairman of the board, he is also a member of the Elmhurst Jaycees, Elmhurst Hospital Board of Governors, Elmhurst Kiwanis and is currently the President of Elmhurst Historical Museum Commission. Mr. Catalano holds a mortgage broker's license. KENNETH H. BEARD was president and chief executive officer of Exelon Services, an energy services company from 1999-2002, where he had responsibility for financial performance including being accountable for creating business strategy, growing the business through acquisition, integrating acquired companies and developing infrastructure for the combined acquired businesses. Exelon Services is a subsidiary of Exelon Corporation, a New York Stock Exchange listed company. Prior to that position, from 1974 to 1999, Mr. Beard was the founder, president and chief executive officer of Midwest Mechanical, Inc., a heating, ventilation and air conditioning company providing innovative and cost effective construction services and solutions for commercial, industrial, and institutional facilities. From 1964 to 1974 Mr. Beard was employed at The Trane Company, a manufacturer of heating, ventilating and air conditioning equipment having positions in sales, sales management and general management. 69 Mr. Beard holds a MBA and BSCE from the University of Kentucky and is a licensed mechanical engineer. He is on the board of directors of the Wellness House in Hinsdale, Illinois, a cancer support organization, and Harris Bank - Hinsdale, serves on the Dean's Advisory Council of the University of Kentucky, School of Engineering, and is a past member of the Oak Brook, Illinois Plan Commission (1981-1991). PAUL R. GAUVREAU is the retired chief financial officer, financial vice president and treasurer of Pittway Corporation, New York Stock exchange listed manufacturer and distributor of professional burglar and fire alarm systems and equipment from 1966 until its sale to Honeywell, Inc. in 2001. He was president of Pittway's non-operating real estate and leasing subsidiaries through 2001. He was a financial consultant to Honeywell, Inc.; Genesis Cable, L.L.C.; ADUSA, Inc. He was a director and audit committee member of Cylink Corporation, a Nasdaq Stock Market listed manufacturer of voice and data security products from 1998 until its merger with Safenet, Inc. in February 2003. Prior to 1995, he was a director and acting chief financial officer instrumental in 1996 Cylink initial public offering. Mr. Gauvreau holds a MBA from the University of Chicago an a BSC from Loyola University of Chicago. He is on the Board of Trustees and Vice Chairman of the Finance Committee of Benedictine University, Lisle, Illinois; a member of the Board of Trustees of the Chaddick Institute of DePaul University, Chicago, Illinois; and a member of the board of directors and treasurer of the Children's Brittle Bone Foundation, Pleasant Prairie, Wisconsin. GERALD M. GORSKI is a partner in the law firm of Gorski and Good, Wheaton Illinois. Mr. Gorski's practice is limited to governmental law. His firm represents numerous units of local government in Illinois and Mr. Gorski has served as a Special Assistant State's Attorney and Special Assistant Attorney General in Illinois. He received a Bachelor of Arts degree from North Central College with majors in Political Science and Economics and a Juris Doctor degree from DePaul University Law School where he was placed on the Deans Honor List. Mr. Gorski serves as the Vice-Chairman of the Board of Commissioners for the DuPage Airport Authority. He has written numerous articles on various legal issues facing Illinois municipalities; has been a speaker at a number of municipal law conferences and is a member of the Illinois Bar Association, the Institute for Local Government Law and the International Municipal Lawyers Association. BARBARA A. MURPHY is the Chairwoman of the DuPage Republican Party. Ms. Murphy is also a member of Illinois Motor Vehicle Review Board and a member of Matrimonial Fee Arbitration Board. Ms. Murphy is a Milton Township Trustee and a committeeman for Milton Township Republican Central Committee. Ms. Murphy previously served as State Central Committeewoman for the Sixth Congressional District and has also served on the DuPage Civic Center Authority Board, the DuPage County Domestic Violence Task Force, and the Illinois Toll Highway Advisory Committee. Ms. Murphy is a founding member of the Family Shelter Service Board. As an active volunteer for Central DuPage Hospital, she acted as the "surgery hostess" (cared for families while a family member was undergoing surgery). Ms. Murphy was a department manager and buyer for J.W. Robinson's and Bloomingdale's and the co-owner of Daffy Down Dilly Gift Shop. COMMITTEES OF OUR BOARD OF DIRECTORS Our bylaws provide that our board may establish such committees as the board believes appropriate. The board will appoint the members of the committee in the board's discretion. Our bylaws require that a majority of the members of each committee of our board is to be comprised of independent directors. 70 AUDIT COMMITTEE. Our bylaws provide for our board to designate an audit committee consisting of at least three independent directors and for all committee members to be independent directors. Our board will designate three of the independent directors as the members of the audit committee. The audit committee makes recommendations concerning the engagement of independent public accountants, reviews the plans and results of the audit engagement with the independent public accountants, approves professional services provided by, and the independence of, the independent public accountants, considers the range of audit and non-audit fees and consults with the independent public accountants regarding the adequacy of our internal accounting controls. EXECUTIVE COMMITTEE. Our board may establish an executive committee consisting of three directors, including two independent directors. The executive committee would likely exercise all powers of the board in the management of the business and affairs of our company, except for those which require actions by all of the directors or by the independent directors under our articles of incorporation or bylaws or under applicable law. MANAGEMENT AND DISCLOSURE COMMITTEE. Our board may establish a management disclosure committee to assist in reviewing our disclosures, controls and procedures. The committee may include our directors and directors and officers of our advisor. EXECUTIVE COMPENSATION COMMITTEE. Our board may establish an executive compensation committee consisting of three directors, including two independent directors, to establish compensation policies and programs for our executive officers. The executive compensation committee will exercise all powers of our board in connection with establishing and implementing compensation matters, including incentive compensation and benefit plans. COMPENSATION OF DIRECTORS AND OFFICERS We pay our independent directors an annual fee of $5,000 plus $500 for each in person meeting and $350 for each meeting of the board or a committee of the board attended by telephone, and reimbursement of their out-of-pocket expenses incurred. Our two other directors, Robert D. Parks and Brenda G. Gujral, do not receive any fees or other remuneration for serving as directors. EXECUTIVE COMPENSATION We have no employees and our executive officers will not receive any compensation from us for their services as such officers. Our executive officers are officers of one or more of our affiliates, and are compensated by those entities, in part, for their services rendered to us. INDEPENDENT DIRECTOR STOCK OPTION PLAN We have an independent director stock option plan under which non-employee directors, as defined under Rule 16b-3 of the Securities Exchange Act of 1934, are eligible to participate. We have authorized and reserved a total of 75,000 shares of our common stock for issuance under our independent director stock option plan. The number and type of shares which could be issued under the plan may be adjusted if we are the surviving entity after a reorganization or merger or if our stock splits, is consolidated or we are recapitalized. If this occurs, the exercise price of the options will be correspondingly adjusted. The independent director stock option plan provides for the grant of non-qualified stock options to purchase 3,000 shares to each independent director upon his or her appointment if they meet the 71 conditions in the plan. The plan also provides for subsequent grants of options to purchase 500 shares on the date of each annual stockholder's meeting to each independent director then in office. However, options may not be granted at any time when the grant, along with the grants to be made at the same time to other independent directors, would exceed 10% of our issued and outstanding shares. We have granted options to purchase 3,000 shares at $8.95 per share to each of our five independent directors. The option price for subsequent options will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders. The option price will be fixed at $8.95 per share until the earlier of the termination of this offering or two years after the commencement of this offering. One-third of the options granted following an individual initially becoming an independent director are exercisable beginning on the date of their grant, one-third will first become exercisable on the first anniversary of the date of their grant, and the remaining one-third will first become exercisable on the second anniversary of the date of their grant. All other options granted under the independent director stock option plan will become fully exercisable on the second anniversary of their date of grant. Options granted under the independent director stock option plan are exercisable until the first to occur of - the tenth anniversary of the date of grant, - the removal for cause of the independent director as an independent director, or - three months following the date the independent director ceases to be an independent director for any other reason except death or disability. The options may be exercised by payment of cash or through the delivery of common stock. They are generally exercisable in the case of death or disability for a period of one year after death or the disabling event, provided that the death or disabling event occurs while the person is an independent director. However, if the option is exercised within the first six months after it becomes exercisable, any shares issued pursuant to such exercise may not be sold until the six month anniversary of the date of the grant of the option. Notwithstanding any other provisions of the independent director stock option plan to the contrary, no option issued pursuant thereto may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code. No option may be sold, pledged, assigned or transferred by an independent director in any manner otherwise than by will or by the laws of descent or distribution. Upon our dissolution, liquidation, reorganization, merger or consolidation as a result of which we are not the surviving corporation, or upon sale of all or substantially all of our property, the independent director stock option plan will terminate, and any outstanding unexercised options will terminate and be forfeited. However, holders of options may exercise any options that are otherwise exercisable immediately prior to the dissolution, liquidation, consolidation or merger. Additionally, our board may provide for any or all of the following alternatives: - for the assumption by the successor corporation of the options previously granted or the substitution by the corporation for the options covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices; 72 - for the continuance of the independent director stock option plan by such successor corporation in which event the independent director stock option plan and the options will continue in the manner and under the terms so provided; or - for the payment in cash or common stock in lieu of and in complete satisfaction of the options. OUR ADVISOR Our advisor, Inland Western Retail Real Estate Advisory Services, Inc., is an Illinois corporation and a wholly owned subsidiary of our sponsor. The following table sets forth information regarding the executive officers and directors of our advisor, all of whom have held their positions and offices since its formation in 1998. The biographies of Messrs. Parks, Cosenza, and Goodwin are set forth above under "-- Inland Affiliated Companies" and the biography of Mr. Wilton is set forth under "-- Our Directors and Executive Officers."
NAME AGE POSITION AND OFFICE WITH OUR ADVISOR ---- --- ------------------------------------------ Daniel L. Goodwin ....... 59 Director Robert D. Parks ......... 59 Director and president G. Joseph Cosenza ....... 59 Director Brenda G. Gujral ........ 60 Vice president Catherine L. Lynch ...... 44 Treasurer Scott W. Wilton ......... 42 Secretary
---------- *As of January 1, 2003 CATHERINE L. LYNCH joined the Inland organization in 1989 and is the treasurer/secretary of our sponsor. Ms. Lynch is responsible for managing the corporate accounting department of our sponsor. Ms. Lynch is also the treasurer/secretary and a director of the dealer manager and treasurer of Inland Retail Real Estate Advisory Services and Inland Investment Advisors, Inc. Prior to joining the Inland organization, Ms. Lynch worked in the field of public accounting for KPMG Peat Marwick LLP since 1980. She received her B.S. Degree in Accounting from Illinois State University. Ms. Lynch is a certified public accountant and a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. She is registered with the National Association of Securities Dealers, Inc. as a financial operations principal. OUR ADVISORY AGREEMENT DUTIES OF OUR ADVISOR. Under the terms of our advisory agreement, our advisor, generally has responsibility for our day-to-day operations. This includes the following: - administering our bookkeeping and accounting functions, - serving as our consultant in connection with policy decisions to be made by our board, managing our properties or causing them to be managed by another party, and - rendering other services as our board deems appropriate. Our advisor is subject to the supervision of its board and has only such functions as are delegated to it by its board. 73 TERM OF THE ADVISORY AGREEMENT. The advisory agreement has an initial term of three years and is renewable for successive one-year terms upon the mutual consent of the parties. It may be terminated by either party, by mutual consent of the parties or by a majority of the independent directors or the advisor, as the case may be, upon 60 days' written notice. If the advisory agreement is terminated, the advisor must cooperate with us and take all reasonable steps requested by our board to assist it in making an orderly transition of the advisory function. Our board shall determine that any successor advisor possesses sufficient qualifications to perform the advisory function for us and justify the compensation provided for in its contract with us. COMPENSATION TO ADVISOR. The advisory agreement provides for the advisor to be paid: - an advisor asset management fee after the stockholders have first received a 6% annual return; and - a property disposition fee; and - an incentive advisory fee from the net proceeds of a sale of a property after the stockholders have first received a 10% cumulative return and a return of their net investment. If the advisor or its affiliates perform services that are outside of the scope of the advisory agreement, we will compensate them at rates and in amounts agreed upon by the advisor and the independent directors. The advisor bears the expenses it incurs in connection with performing its duties under the advisory agreement. These include: - employee expenses; - travel and other expenses of its directors, officers and employees; - rent; - telephone; - equipment expenses to the extent they relate to the office maintained by both us and the advisor; and - miscellaneous administrative expenses incurred in supervising, monitoring and inspecting real property or our other investments or relating to its performance under the advisory agreement. The advisor is reimbursed for the cost to it and its affiliates of goods and services used for and by us and obtained from unaffiliated parties. It is also reimbursed for related administrative services. We bear our own expenses for functions the advisor is not required to perform under the advisory agreement. These generally include capital raising and financing activities, corporate governance matters and other activities not directly related to our properties. REIMBURSEMENT BY ADVISOR. For any year in which we qualify as a REIT, our advisor must reimburse us for the amounts, if any: 74 - by which our total operating expenses paid during the previous fiscal year exceed the greater of - 2% of our average assets for that fiscal year or - 25% of our net income, before any additions to or allowance for reserves for depreciation, amortization or bad debts or other similar low-cash reserves before any gain from the sale of our assets, for that fiscal year; - PLUS an amount, so long as it does not exceed the amount of the advisor asset management fee for that year, equal to any deficit between the total amount of distributions to stockholders for such fiscal year and the current return. Current return refers to a cumulative, non-compounded return, equal to 6% per annum on net investment. The advisor is also obligated to pay organization and offering expenses in excess of specified levels. See "Compensation Table" for a description of the fees and reimbursements to which the advisor is entitled. Provided however, only so much of the excess specified in the first bullet point above will be required to be reimbursed as the board, including a majority of the independent directors, determines should justifiably be reimbursed in light of such unanticipated, unusual or non-recurring factors which may have occurred within 60 days after the end of the quarter for which the excess occurred. In this event, the stockholders will be sent a written disclosure and explanation of the factors the independent directors considered in arriving at the conclusion that the higher total operating expenses were justified. BUSINESS COMBINATION BETWEEN US AND THE ADVISOR. Many REITs that are listed on a national stock exchange or included for quotation on a national market system are considered self-administered, because their employees perform all significant management functions. In contrast, those that are not self-administered, like us, typically engage a third-party, such as our advisor, to perform management functions on its behalf. If for any reason the independent directors determine that we should become self-administered, the advisory agreement permits the business conducted by the advisor, including all of its assets, to be acquired by or consolidated into us. A similar provision is included in each management agreement permitting acquisition of the business conducted by the respective property manager, including all of its assets. Until September 15, 2008, such a business combination could only take place with our consent and that of the advisor and property manager. After September 15, 2008, we could acquire these companies in a business combination without their consent. If the businesses conducted by the advisor and/or a property manager are acquired by or consolidated into us, the advisor and/or the property manager and/or their respective stockholders or members will receive a number of shares in exchange for terminating their respective management agreements and the release and waiver of all fees payable under them. We will be obligated to pay any fees accrued under such contractual arrangements for services rendered through the closing of the acquisitions. The number of shares we will issue to the advisor and/or the property managers, as the case may be, will be determined as follows: - We will first send an election notice to the advisor and/or the property manager, as the case may be, of our election to proceed with such a transaction. 75 - Next, the net income of the advisor and/or the property manager, as the case may be, for the calendar monthly period immediately preceding the calendar month in which the business combination agreement is signed, as determined by an independent audit conducted in accordance with generally accepted auditing standards, will be annualized. The advisor or the property manager will bear the cost of the audit. - The annualized net income will then be multiplied by 90% and divided by our funds from operations per weighted average share. Funds from operations per weighted average share will be equal to our annualized funds from operations per weighted average share for the fiscal quarter immediately preceding the fiscal quarter in which the business combination agreement is signed, all based upon our quarterly report delivered to stockholders. Funds from operations means generally net income in accordance with generally accepted accounting principles, excluding gains or losses, from debt restructuring and sales of properties, plus depreciation of real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The resulting quotient will constitute the number of shares to be issued by us to the advisor or the property manager, or their respective shareholders or members, as the case may be. Delivery of the shares and the closing of the transaction to occur within 90 days of delivery after the election notice. Under some circumstances, this kind of transaction can be entered into and consummated without seeking specific stockholder approval. See "Conflicts of Interest." Any transaction like this will occur, if at all, only if our board obtains a fairness opinion from a recognized financial advisor or institution providing valuation services to the effect that the consideration to be paid is fair to the stockholders from a financial point of view. If the advisory agreement is terminated for any reason other than our acquisition of the business conducted by the advisor, then all obligations of the advisor and its affiliates to offer properties to us will also terminate. LIABILITY AND INDEMNIFICATION OF ADVISOR. Under the advisory agreement, we are required to indemnify the advisor and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding with respect to the advisor's acts or omissions. However, this is only a requirement so long as: - the advisor determined in good faith that the course of conduct which caused a loss or liability was in our best interest; - the advisor was acting on behalf of or performing services for us; - the liability or loss was not the result of misconduct on the part of the advisor; and - the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from the assets of the stockholders. We will advance amounts to those entitled to indemnification for legal and other expenses only if: - the legal action relates to acts or omissions concerning the performance of duties or services by the person seeking indemnification for or on our behalf; 76 - the legal action is initiated by a third party and a court of competent jurisdiction specifically approves its advancement; and - the person seeking indemnification who is receiving the advances undertakes to repay the advanced funds to us, together with the applicable legal rate of interest thereon, if such party is found not to be entitled to indemnification. Inland Retail Real Estate Trust, Inc. is still offering its securities and has not fully invested all of its anticipated funds available for investment. Accordingly, material conflicting investment opportunities between them and us could be expected. However, we have initially focused our purchase of retail centers to those west of the Mississippi River, which is outside Inland Retail Real Estate Trust, Inc.'s primary geographic area of investment. However, if any conflicts do arise, they will be resolved as provided in the property acquisition service agreement. THE PROPERTY MANAGER AND THE MANAGEMENT AGREEMENT Our present property manager provides property management services to us under the terms of the management agreement. The property manager provides services in connection with the rental, leasing, operation and management of the properties. Our property manager is a Delaware corporation, owned principally by individuals who are affiliates of The Inland Group. We have agreed to pay the property manager a monthly management fee in an amount no greater than 90% of the fee which would be payable to an unrelated party providing such services, which fee will initially be 4.5% of gross income, as defined in the management agreement from the properties managed for the month for which the payment is made. In addition, we have agreed to compensate the property manager if it provides us with services other than those specified in the management agreement. There will be a separate management agreement for each property for an initial term ending as of December 31 in the year in which the property is acquired, and each management agreement will be subject to three successive three-year renewals, unless either party notifies the other in writing of its intent to terminate between 60 and 90 days prior to the expiration of the initial or renewal term. We may terminate with 30 days prior written notice in the event of gross negligence or malfeasance by the property manager. The property manager may subcontract the required property management services for less than the management fee provided in the management agreement. See "Compensation Table -- Nonsubordinated Payments -- Operational Stage." Our property manager may form additional property management companies as necessary to manage the properties we acquire, and may approve of the change of management of a property from one manager to another. Our property manager, Inland Western Management Corp., conducts its activities at its principal executive office at 2901 Butterfield Road in Oak Brook, Illinois. See "--The Advisory Agreement" above in this section and "Conflicts of Interest" for a discussion of our option to acquire or consolidate with the business conducted by the property managers. The following sets forth information with respect to the executive officers and directors of the Inland Western Management Corp. 77
POSITION AND OFFICE WITH INLAND WESTERN NAME AGE* MANAGEMENT CORP. ---- ---- ------------------- Thomas P. McGuiness .............. 46 Chairman, director and chief executive officer JoAnn Armenta .................... 29 Senior vice president, director and secretary James H. Neubauer................. 61 Senior vice president and director Alan F. Kremin.................... 56 Director Anthony Casaccio.................. 47 Director
---------- *As of January 1, 2003 THOMAS P. MCGUINNESS joined Inland Property Management in 1982 and became president of Mid-America Management Corporation in July 1990 and chairman in 2001. He is also president of Inland Property Management, Inc. as well as a director of Inland Commercial Property Management. He is chairman and a director of Inland Mid-Atlantic Management Corp. Mr. McGuinness is a licensed real estate broker; and is past president of the Chicagoland Apartment Association, and past regional vice president of the National Apartment Association. He is currently on the board of directors of the Apartment Building Owners and Managers Association, and is a trustee with the Service Employees' Local No. 1 Health and Welfare Fund, as well as the Pension Fund and holds CLS and CSM accreditations from the International Council of Shopping Centers. JOANN ARMENTA joined Inland Property Management in 1992 working in residential management. Ms. Armenta became involved with commercial properties in 1995 overseeing the management of retail, office and industrial properties. She has managed a portfolio of retail properties for Inland Commercial Property Management and was promoted to senior property manager supervising one-half of the property managers. In 2001, she left Inland Commercial Property Management and accepted a position as Assistant Vice President for Inland Southern Corp. Also, she was promoted to Vice President of Inland Mid-Atlantic Management Corp. Her responsibilities in these positions include being in charge of due diligence for all retail acquisitions in approximately 15 states. In 2002 alone she was responsible for all due diligence on approximately 12 million square feet including the pro formas, site inspections, tenant interviews; engineering reports and upgrades. She has also been responsible for coordinating the transition from a property in the due diligence process to the seamless folding of the property into property operations. Mrs. Armenta is also the sole training coordinator for Inland Southeast Property Management Corp., Inland Southern Management Corp., and Inland Mid-Atlantic Management Corp. for all new property managers and employees. In addition, she oversees the management of a portfolio of over two million square feet in the Chicago metropolitan area managing retail, office and light industrial. Ms. Armenta holds a CSM accreditation with the International Council of Shopping Centers. JAMES H. NEUBAUER joined Inland Property Management in 1978. In 1981, he was promoted to the position of director of purchasing. Subsequently, in 1983, he became a regional property manager with responsibility for residential and retail mixed use properties. In 1984, he became the president of Inland Western Property Management, responsible for a portfolio of properties in Arizona. From 1985 to 78 1996, Mr. Neubauer was senior vice president of Mid-America Management where he was responsible for all rental property operations outside the Chicagoland metropolitan area, which included New Hampshire, Arizona, Indiana and Wisconsin. He left Inland Southeast Property Management Corp. as senior vice president and in May 2002 was promoted to President. He has achieved the Certified property Manager (CPM) designation. He is also a member of the International Council of Shopping Centers and is a licensed real estate broker in Florida. He holds a B.A. degree from the University of Maryland, a M.A. degree from Ball State University and a M.B.A. degree from Benedictine College. ALAN F. KREMIN joined The Inland Group in 1982. Mr. Kremin was promoted to treasurer of The Inland Group, Inland Commercial Property Management, Inc., and various other Inland Group subsidiaries in March 1991. In his current capacity as the chief financial officer of The Inland Group, a position he has held since 1991, his responsibilities include preparation of consolidated federal and state corporate tax returns, cash budgeting for the consolidated group and serving as a director for various Inland Group subsidiaries, for which he also serves as treasurer. He is a director of Inland Southeast Property Management Corp., and in March 2002 he became a director, secretary and treasurer of Inland Southern Management LLC. Prior to his current position, Mr. Kremin was treasurer of Inland Real Estate Investment Corporation from 1986 to 1990, when he supervised the daily operations of its accounting department. That department encompasses corporate accounting for the general partner of the Inland Real Estate Investment Corporation-sponsored limited partnership investment programs. Prior to joining The Inland Group, Mr. Kremin served for one year as a controller of CMC Realty and three years as assistant controller of JMB Realty Corporation. Prior to his real estate experience, Mr. Kremin worked eight years in public accounting, including four years at Arthur Young & Company. He received his B.S. degree in accounting from Loyola University. Mr. Kremin is a certified public accountant, holds securities and insurance licenses and is a licensed real estate broker. ANTHONY A. CASACCIO joined Inland in 1984, working for Inland Condo Association Management. From 1987 to 1991 he was president of Partnership Asset Sales Corporation, where he was responsible for the disposition of over 20,000 apartment units located in northeast Illinois and nearby states, as well as non-residential properties leased to nursing homes, health clubs, office, industrial and shopping center tenants. In 1991 when Inland Real Estate Development Corporation was formed, Mr. Casaccio became the president and a director. Still serving in those capacities, Mr. Casaccio is responsible for the disposition of raw land investment programs for which he is also a senior vice president of the sponsor, which owns more than 10,000 acres of development land in Chicago's suburban counties. In connection with land development, Mr. Casaccio, in addition to the sales of improved and raw land parcels, oversees land planning activities associated with readying land for sale, including zoning and annexation, negotiations with local municipal school, sanitary district and county authorities, submission of concept plans, preliminary and site amenities, final plats of subdivision; and completion of infrastructure improvements such as roads, sewer and water lines stormwater management facilities and site amenities. He is also a director and the secretary/treasurer of IRED Development Management, Inc. Mr. Casaccio holds a B.S. degree in accounting from DePaul University. He is a member of the Realtor Association of the Western Suburbs (IL), the Fox Valley (IL) Association of Realtors, the Tri-County Board of Realtors, the National Association of Realtors, the Home Builders Association of Greater Chicago, the Northern Illinois Home Builders Association and the Urban Land Institute. He is a licensed real estate broker in the state of Illinois. 79 INLAND SECURITIES CORPORATION Inland Securities Corporation, our managing dealer, was formed in 1984. It is registered under the applicable federal and state securities laws and is qualified to do business as a securities broker-dealer throughout the United States. Since its formation, the managing dealer has provided the marketing function for distribution of the investment products sponsored by our sponsor. It does not render these services to anyone other than affiliates of The Inland Group, and it does nor focus its efforts on the retail sale side of the securities business. It is a member firm of the National Association of Securities Dealers, Inc. The following table sets forth information with respect to the directors, officers and principal employees of Inland Securities Corporation involved in national sales and marketing activities of Inland Securities Corporation. The biography of Mr. Parks set forth above under "-Inland Affiliated Companies" in this section and the biographies of Mrs. Gujral and Ms. Matlin are set forth above under "-Our Directors and Executive Officers" in this section. The biography of Ms. Lynch is also set forth above under "--Our Advisor."
POSITION AND OFFICE NAME AGE* WITH OUR MANAGING DEALER ---- ---- ------------------------ Brenda G. Gujral.............. 60 President, chief operating officer and director Roberta S. Matlin............. 58 Vice president and director Catherine L. Lynch............ 44 Treasurer, secretary and director Robert D. Parks............... 59 Director Brian Conlon.................. 44 Executive vice president R. Martel Day................. 53 Executive vice president - national sales and marketing Fred C. Fisher................ 58 Senior vice president David Bassitt................. 60 Senior vice president John Cunningham............... 44 Senior vice president Tomas Giardino................ 28 Vice president Curtis Shoch.................. 30 Vice president Shawn Vaughan................. 31 Vice president Mark Lavery................... 27 Vice president Ralph Rudolph................. 39 Vice president
---------- *As of January 1, 2003 BRIAN M. CONLON joined Inland Securities Corporation as executive vice president in September 1999. Prior to joining Inland, Mr. Conlon was executive vice president and chief operating officer of Wells Real Estate Funds, where he was responsible for overseeing day to day operations of the firm's real estate investment and capital raising initiatives. Mr. Conlon is a General Securities Principal, is licensed as a real estate broker in Georgia, and has earned the Certified Financial Planner and Certified Commercial Investment Member designations. Mr. Conlon currently serves on the national board of directors for the Financial Planning Association. Mr. Conlon holds Series 7, 24 and 63 licenses with the National Association of Securities Dealers, Inc. R. MARTEL DAY is executive vice president-national sales and marketing for Inland Securities Corporation. He joined Inland Securities Corporation in 1984 as a regional representative in the southeast. Since then, he has served as regional vice president, senior vice president, and national marketing director. Mr. Day is currently responsible for expanding Inland Securities Corporation's selling group and working closely with broker-dealers in the selling group to maximize sales. 80 Mr. Day has developed and presented numerous motivational and sales training workshops over the past 20 years. He graduated with an engineering degree from the Georgia Institute of Technology. Mr. Day holds General Securities and Registered Investment Advisor licenses from the National Association of Securities Dealers, and is an associate member of The National Association of Real Estate Investment Trusts. He is a director of Inland Investment Advisors, Inc., an Inland affiliated company. FRED C. FISHER is a senior vice president of Inland Securities Corporation, which he joined in 1984. Mr. Fisher began his career with Inland Securities Corporation as regional vice president for the midwest region. In 1994, he was promoted to senior vice president. Mr. Fisher received his bachelor's degree from John Carroll University. Before joining Inland Securities Corporation, he spent nine years as a regional sales manager for the S.S. Pierce Company. Mr. Fisher holds Series 7, 22 and 63 licenses with the National Association of Securities Dealers, Inc. DAVID BASSITT joined Inland Securities Corporation as a senior vice president in March 2001. Prior to joining Inland, Mr. Bassitt was director of financial services with AEI Fund Management, Inc. and was responsible for wholesaling public and private net lease real estate investments and 1031 property exchanges to financial planners. Mr. Bassitt received his bachelor's degree from Ferris State University, and a master's degree from St. Cloud University. Mr. Bassitt holds Series 6, 7, 22 and 63 licenses with the National Association of Securities Dealers, Inc. JOHN CUNNINGHAM is a senior vice president of Inland Securities Corporation. He joined an affiliate of The Inland Group in January 1995 as a commercial real estate broker. In March 1997, Mr. Cunningham was hired by Inland Securities Corporation as a regional representative for the western region, and he was promoted to a vice president in 1999. In 2002, he became senior vice president of the western region. Mr. Cunningham graduated from Governors State University with a B.S. degree in business administration, concentrating in marketing. Before joining the Inland organization, Mr. Cunningham owned and operated his own business and developed real estate. He holds Series 7 and Series 63 licenses with the National Association of Securities Dealers, Inc. TOMAS GIARDINO joined Inland Securities Corporation as vice president in September 2000. Prior to joining Inland, Mr. Giardino was the director of mutual fund sales at SunAmerica Securities, where he was responsible for increasing the market share of nine focus firms at the broker dealer. Mr. Giardino entered the securities industry in January 1999. Prior to entering the securities industry, Mr. Giardino was in the advertising field for four years. Mr. Giardino received his B.A. in political science from Arizona State University in May 1998. He holds Series 7, 63 and 65 licenses with the National Association of Securities Dealers, Inc. CURTIS SHOCH joined Inland Securities Corporation as vice president in January 2000. Prior to joining Inland, Mr. Shoch was assistant vice president at Wells Real Estate Funds, where he was responsible for launching new real estate investment alternatives in the southeastern United States. Mr. Shoch began his career in 1994 with Keogler Investment Advisory Services. Mr. Shoch graduated from Lynchburg College in Lynchburg, Virginia in 1994 with a major in marketing and an emphasis in finance. He is a Registered Representative as well as a Registered Investment Advisor. Mr. Shoch holds Series 7, 63 and 65 licenses with the National Association of Securities Dealers, Inc. SHAWN VAUGHAN joined Inland Securities Corporation as vice president in August 2000. Prior to joining Inland, Mr. Vaughan was assistant vice president at Wells Real Estate Funds, where he was responsible for marketing real estate investments in the mid-Atlantic region. Mr. Vaughan started his career in financial services in 1994 on the retail side of the business with a successful financial planning 81 firm. During this time, he was responsible for handling every aspect of the financial planning process. Mr. Vaughan holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. MARK LAVERY joined Inland Securities Corporation as a vice president in April 2001. Prior to joining Inland, Mr. Lavery was with Charles Schwab, where he was on an active trade team. Mr. Lavery began his career with Investment Planners. Mr. Lavery graduated from Milliken University in 1997 with a B.S. in finance. Mr. Lavery holds Series 7 and 66 licenses with the National Association of Securities Dealers, Inc. RALPH RUDOLPH joined Inland Securities Corporation in 1995 as a regional representative for midwest team and was promoted to a vice president in 2000. Prior to joining Inland, Mr. Rudolph served in the United States Marine Corp. and worked for another broker-dealer. He is a graduate of Elmhurst College with a degree in business administration. Mr. Rudolph holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. 82 LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR ADVISOR The laws that we are subject to and our articles of incorporation provide that our advisor and directors are deemed to be in a fiduciary relationship to us and our stockholders and that our directors have a fiduciary duty to the stockholders to supervise our relationship with the advisor. Maryland law provides that a director has no liability in the capacity as a director if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests, and with the care that an ordinary prudent person in a like position would use under similar circumstances. Maryland law also provides that an act by a director of a Maryland corporation is presumed to satisfy the standards of the preceding sentence. Our articles of incorporation and bylaws provide that the liability of our directors and officers is limited to the fullest extent permitted by Maryland law and that none of our directors and officers will be liable to us or to any of our stockholders for money damages, including for breach of their fiduciary duty to us. As a result, our directors and officers will not be liable for monetary damages unless: - the person actually received an improper benefit or profit in money, property or services; and - the person is adjudged to be liable based on a finding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Except as described below, our articles of incorporation authorize and direct us to indemnify and pay or reimburse reasonable expenses to any director, officer, employee or agent we employ, and the advisor and its affiliates, to the fullest extent permitted by Maryland law. As long as we qualify as a REIT we will not indemnify or reimburse the expenses of any director, officer, employee, agent or the advisor or its affiliates unless: - the directors have determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests; - the person seeking indemnification was acting on our behalf or performing services for us; - the liability or loss was not the result of negligence or misconduct on the part of the person seeking indemnification, except that if the person seeking indemnification is or was an independent director, the liability or loss will not have been the result of gross negligence or willful misconduct; and - such indemnification or agreement to be held harmless is recoverable only out of our net assets and not from the assets of the stockholders. As long as we qualify as a REIT, we will not indemnify any director, officer, employee, agent or the advisor or its affiliates for losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless one or more of the following conditions are met: - there has been a successful adjudication on the merits of each count involving alleged securities law violations; 83 - the claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or - a court of competent jurisdiction approves a settlement of the claims and finds that indemnification of the settlement and related costs should be made, and the court considering the request has been advised of the position of the Securities and Exchange Commission and the published position of any state securities regulatory authority in which our securities were offered and sold as to indemnification for securities law violations. We will advance amounts to a person entitled to indemnification for legal and other expenses and costs incurred as a result of any legal action for which indemnification is being sought only in accordance with Maryland law and, as long as we qualify as a REIT, only if all of the following conditions are satisfied: - the legal action relates to acts or omissions relating to the performance of duties or services by the person seeking indemnification for us or on our behalf; - the legal action is initiated by a third party who is not a stockholder or the legal action is initiated by a stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves advancement; and - the person seeking indemnification undertakes in writing to repay us the advanced funds, together with interest at the applicable legal rate of interest, if the person seeking indemnification is found not to be entitled to indemnification. We may purchase and maintain insurance or provide similar protection on behalf of any director, officer, employee, agent or the advisor or its affiliates against any liability asserted which was incurred in any such capacity with us or arising out of such status; provided, however, that we will 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 our articles of incorporation. We may enter into any contract for indemnity and advancement of expenses with any director, officer, employee or agent as may be determined by the board and as permitted by law. As of the date of this prospectus, we have not purchased any insurance on behalf of any person but we intend to. We have entered into separate indemnification agreements with each of our directors and some of our executive officers. The indemnification agreements will require that we indemnify our directors and officers to the fullest extent permitted by law, and advance to the directors and officers all related expenses, subject to reimbursement if it is subsequently determined that indemnification is not permitted. The agreements provide that we also must indemnify and advance all expenses incurred by directors and officers seeking to enforce their rights under the indemnification agreements and cover directors and officers under the our directors' and officers' liability insurance, if any. Although the indemnification agreements offer substantially the same scope of coverage afforded by provisions in our articles of incorporation and the bylaws, they provide greater assurance to directors and officers that indemnification will be available, because as a contract, it cannot be unilaterally modified by the board or by the stockholders to eliminate the rights it provides. We have been advised that, in the opinion of the Securities and Exchange Commission, any indemnification that applies to liabilities arising under the Securities Act is contrary to public policy and, therefore, unenforceable. 84 PRINCIPAL STOCKHOLDERS The following table sets forth information as of September 10, 2003 regarding the number and percentage of shares beneficially owned by each director, each executive officer, all directors and executive officers as a group, and any person known to us to be the beneficial owner of more than 5% of our outstanding shares. As of September 10, 2003, we had one stockholder of record. Beneficial ownership includes outstanding shares and shares which are not outstanding that any person has the right to acquire within 60 days after the date of this table. However any such shares which are not outstanding are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person. Except as indicated, the persons named in the table have sole voting and investing power with respect to all shares beneficially owned by them.
NUMBER OF SHARES BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS - ------------------------------------ ------------------ ---------------- Robert D. Parks 20,000 (1) 100% Roberta S. Matlin 0 * Scott W. Wilton 0 * Kelly E. Tucek 0 * Brenda G. Gujral 0 * Frank A. Catalano, Jr. 1,000 (2) * Kenneth H. Beard 1,000 (2) * Paul R. Gauvreau 1,000 (2) * Gerald M. Gorski 1,000 (2) * Barbara A. Murphy 1,000 (2) * All directors and executive officers 25,000 (1) 100% as a group (10 persons)
- ---------- *Less than 1% (1) Includes 20,000 shares owned by our advisor. Our advisor is a wholly-owned subsidiary of our sponsor, which is an affiliate of The Inland Group. Mr. Parks is a control person of The Inland Group and disclaims beneficial ownership of these shares owned by our advisor. (2) Includes 1,000 shares issuable upon exercise of options granted to each independent director under our independent director stock option plan, to the extent that such options are currently exercisable or will become exercisable within 60 days after the date of this table. 85 OUR STRUCTURE AND FORMATION We were formed in March 2003 as a Maryland corporation. Our articles of incorporation and bylaws became operative on March 5, 2003. Our existence is perpetual. STRUCTURE We intend to own all of our assets, either directly or indirectly. Our advisor contributed $200,000 to us for 20,000 shares of our common stock to form us. Our advisor has agreed to not sell their initial investment while the advisor remains our sponsor, but may transfer these shares to its own affiliates. A REIT may conduct some of its business and hold some of its interests in properties in "qualified REIT subsidiaries," which must be owned 100% by the REIT or through "taxable REIT subsidiaries" which may be wholly or partially owned. Although we currently do not intend to have any qualified REIT subsidiaries, we may in the future decide to conduct some business or hold some of our interests in properties in qualified REIT subsidiaries. See "How We Operate - Organizational Chart" for a diagram depicting the services to be rendered by our affiliates to us, as well as our organizational structure. If only the minimum offering of 200,000 shares is sold, such shares will represent 90.91% of the issued and outstanding shares, and the advisor's 20,000 shares will then represent 9.09% of the issued and outstanding shares. If 250,000,000 of the shares offered by this prospectus are sold, such shares will represent 99.99% of the issued and outstanding shares, and the advisor's 20,000 shares will then represent only 0.01% of the issued and outstanding shares. We will form entities to acquire each of the properties to be owned by us. They will be owned or controlled directly or indirectly by us. Robert D. Parks, Brenda G. Gujral, Roberta S. Matlin, Daniel L. Goodwin, Catherine L. Lynch, and Kelly E. Tucek are considered our promoters. Mr. Parks is our chairman and a director. Ms. Gujral is a director. Ms. Matlin is our vice president. Ms. Tucek is our treasurer. None of our promoters are employed by us. Other than Mr. Parks and Ms. Gujral, Ms. Matlin or Ms. Tucek, none of our promoters are officers or directors of us. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 86 SELECTED FINANCIAL DATA As of the date of this prospectus, we have not yet had any operations. Therefore, we have not had any income, cash flow, funds from operations, or funds available for distributions, nor have we declared any distributions or issued any shares to public investors. We have sold 20,000 shares to the advisor for an aggregate purchase price of $200,000. See "Management's Discussion and Analysis of Our Financial Condition," and our financial statements and related notes thereto appearing elsewhere in this Prospectus. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 87 INVESTMENT OBJECTIVES AND POLICIES GENERAL Our investment objectives are to: - make regular distributions to the stockholders, which may be in amounts which may exceed our taxable income due to the non-cash nature of depreciation expense and, to such extent, will constitute a tax-deferred return of capital, but in no event less than 90% of our taxable income; - provide a hedge against inflation by entering into leases which contain clauses for scheduled rent escalations or participation in the growth of tenant sales, permitting us to increase distributions and realize capital appreciation; and - preserve stockholders' capital. It is our policy to acquire properties primarily for income as distinguished from primarily for possible capital gain. DISTRIBUTIONS Federal income tax law requires that a REIT distribute annually at least 90% of its REIT Taxable Income. See "Federal Income Tax Considerations -- Federal Income Taxation as a REIT." In order to qualify for REIT status we may be required to make distributions in excess of cash available. For a discussion of the tax treatment of distributions to you, see "Federal Income Tax Considerations." We anticipate that distributions will be paid to our domestic stockholders on a monthly basis and to our foreign stockholders on a quarterly basis. Distributions will be at the discretion of the board. Our ability to pay distributions and the size of these distributions will depend upon a variety of factors. We cannot assure that distributions will continue to be made or that any particular level of distributions established in the future, if any, will be maintained by us. TYPES OF INVESTMENTS We were formed to acquire and manage a portfolio of real estate which is diversified by geographical location and by type and size of retail centers. Our properties will consist of real estate primarily improved for use as retail establishments, principally multi-tenant shopping centers. Our real estate will be located mainly in the states west of the Mississippi River in the United States. We will endeavor to acquire multiple properties within the same major metropolitan markets where acquisitions result in efficient property operations with the potential to achieve market leverage. See "Real Property Investments -- General." Most of these properties will be subject to "net" leases. "Net" leases typically require tenants to pay a share, either pro rata or fixed, of all or a majority of the operating expenses. Operating expenses include real estate taxes, special assessments, utilities, insurance, common area maintenance and building repairs related to the property, as well as base rent payments. We may also acquire real estate improved with other commercial facilities which provide goods and services as well as those leased on a double or triple-net-lease basis which are either commercial or 88 retail. Triple-net-leases also require the tenant to pay a base minimum annual rent with periodic increases. We may enter into sale and leaseback transactions in which we will purchase a property and lease the property to the seller of the property. To provide us with a competitive advantage over potential purchasers of properties who must secure financing, we intend to acquire properties free and clear of permanent mortgage debt. We will do this by paying the entire purchase price of property in cash, shares, interest in entities that own our properties or a combination of any of these. We may incur debt of a property to acquire properties where our board determines that incurring such debt is in our best interest. In addition, from time to time, we intend to acquire some properties without financing and later incur mortgage debt secured by selected or all such properties if favorable financing terms are available. We will use the proceeds from such loans to acquire additional properties. See "Borrowing" under this section for a more detailed explanation of our borrowing intentions and limitations. We may purchase properties subject to completion of construction in accordance with terms and conditions we specify. In these cases, we will be obligated to purchase the property at the completion of construction, if construction conforms to definitive plans, specifications and costs approved by us and embodied in the construction contract, as well as, in most instances, satisfaction that agreed upon percentages of the property are leased. We will receive a certificate of an architect, engineer or other appropriate party, stating that the property complies with all plans and specifications. We may construct or develop properties, and render services in connection with the development or construction, subject to compliance with applicable requirements under federal income tax laws. Construction and development activities will expose us to risks such as cost overruns, carrying costs of projects under construction and development, availability and costs of materials and labor, our inability to obtain tenants, weather conditions, and government regulation. See "- Investment Limitations" under this section and "Summary of Our Organizational Documents -- Restrictions on Investments" for investment limitations. PROPERTY ACQUISITION STANDARDS We have signed a property acquisition service agreement with Inland Real Estate Acquisitions, Inc. Under that agreement, Inland Real Estate Acquisitions has agreed to seek properties for us and to perform due diligence on the properties and negotiate the terms of the purchase. Through its experience with the acquisition of over 1,000 real properties by our affiliates, the advisor believes Inland Real Estate Acquisitions has the ability to identify quality real properties capable of meeting our investment objectives. When evaluating property, Inland Real Estate Acquisitions will consider a number of factors, including a real property's: - geographic location and type; - construction quality and condition; - current and projected cash flow; - potential for capital appreciation; - lease rent roll, including the potential for rent increases; 89 - potential for economic growth in the tax and regulatory environment of the community in which the property is located; - potential for expanding the physical layout of the property and/or the number of sites; - occupancy and demand by tenants for properties of a similar type in the same geographic vicinity; - prospects for liquidity through sale, financing or refinancing of the property; - competition from existing properties and the potential for the construction of new properties in the area; and - treatment under applicable federal, state and local tax and other laws and regulations. Inland Real Estate Acquisitions also requires the seller of a property to provide a current Phase I environmental report and, if necessary, a Phase II environmental report. Before purchasing a property, Inland Real Estate Acquisitions examines and evaluates the potential value of the site, the financial condition and business history of the property, the demographics of the area in which the property is located or to be located, the proposed purchase price, geographic and market diversification and potential sales. In a sale-leaseback situation, since the seller of the property generally is assuming the operating risk, the price paid for the property by us may be greater than if it was not leased back to the seller. All acquisitions from our affiliates must be approved by a majority of our directors, including a majority of the independent directors. DESCRIPTION OF LEASES When spaces become vacant or existing leases expire, we anticipate entering into "net" leases. Net leases require tenants to pay a share, either pro rata or fixed, of all or a majority of the operating expenses, including real estate taxes, special assessments, insurance, utilities, common area maintenance and building repairs related to the properties, as well as base rent payments. We intend to include provisions which increase the amount of base rent payable at various points during the lease term and/or provide for the payment of additional rent calculated as a percentage of a tenant's gross sales above predetermined thresholds in most leases. The leases with most anchor tenants generally have initial terms of 10 to 25 years, with one or more renewal options available to the tenant. By contrast, smaller tenant leases typically have three- to five-year terms. Triple net leases generally have a term of 15 to 25 years and are typically not less than 10 years. In addition, the tenant of a triple-net-lease is responsible for the base rent in addition to the costs and expenses related to property taxes, insurance, repairs and maintenance applicable to the leased space. Each net lease tenant is required to pay its share of the cost of the liability insurance covering the property in which it is a tenant. The third-party liability coverage insures, among others, us, our advisor and our property manager. Typically, each tenant is required to obtain, at its own expense, property insurance naming us as the insured party for fire and other casualty losses in an amount equal to the full value of its premises and the contents of the premises. All property insurance must be approved by the property manager. In general, the net lease may be assigned or subleased with our prior written consent, 90 but the original tenant must remain liable under the lease unless the assignee meets income and net worth tests. In connection with sale and leaseback transactions, the tenant is responsible for paying a predetermined minimum annual rent generally based upon our cost of purchasing the land and building. In addition to the base rent, these tenants are generally responsible for the costs and expenses related to property taxes, insurance, repairs and maintenance applicable to the leased space. PROPERTY ACQUISITION We anticipate acquiring fee interests in properties, although other methods of acquiring a property may be used if we deem it to be advantageous. For example, we may acquire properties through a joint venture or the acquisition of substantially all of the interests of an entity which in turn owns the real property. We may also use separate entities to acquire a property. Such entities will be formed solely for the purpose of acquiring a property or properties. See " -- Joint Ventures" in this section and "Federal Income Tax Considerations -- Federal Income Taxation as a REIT." Our advisor and its affiliates may purchase properties in their own name, assume loans in connection with the purchase or loan and temporarily hold title to the properties for the purpose of facilitating acquisition or financing by us, the completion of construction of the property or any other purpose related to our business. Under our articles of incorporation, we are prohibited from purchasing a property from an affiliate unless a majority of the directors not interested in the transaction and a majority of our independent directors approve the purchase as fair and reasonable to us and at a cost to us no greater than the cost of the asset to our affiliate. However, the cost to us may be greater than the cost to our affiliate if a substantial justification for the excess exists and such excess is reasonable. Our policy currently provides that in no event may our cost of the asset exceed its appraised value at the time we acquire the property. If remodeling is required prior to the purchase of a property, we will pay a negotiated maximum amount either upon completion or in installments commencing prior to completion. The price will be based on the estimated cost of remodeling. In such instances, we will also have the right to review the tenant's books during and following completion of the remodeling to verify actual costs. If substantial disparity exists between estimated and actual costs, an adjustment in the purchase price may be negotiated. If remodeling is required after the purchase of a property, an affiliate of our advisor may serve as construction manager for a fee no greater than 90% of the fee a third party would charge for such services. BORROWING We intend to acquire properties free and clear of permanent mortgage indebtedness by paying the entire purchase price in cash or for shares, limited partnership units in the operating partnership, interest in our subsidiaries that own our properties, or a combination of any of these. However, we may incur indebtedness to acquire properties where our board determines that it is in our best interest. On properties purchased without financing, we may later incur mortgage debt by obtaining loans secured by selected properties, if favorable financing terms are available. We will use the proceeds from such loans to acquire additional properties. We may also incur debt to finance improvements to our properties. Aggregate borrowings secured by all of our properties will not exceed 55% of their combined fair market value. Our articles of incorporation provide that the aggregate amount of borrowing in relation to the net 91 assets, in the absence of a satisfactory showing that a higher level is appropriate, not exceed 300% of net assets. Net assets means our total assets, other than intangibles at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors, disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. We may incur debt secured by our properties, but most likely on a non-recourse basis, some of which may be subject to certain carve outs. This means that a lender's rights on default will generally be limited to foreclosing on the property. We may secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property. We do not borrow funds from a program sponsored by our advisor or its affiliates which makes or invests in mortgage loans. We seek to obtain financing which will result in the most favorable overall economic benefit while balancing various risk factors associated with the debt. At certain times the majority of debt may require level payments and at others the majority may be based on variable rates. We have determined that it may be in our best interest to make use of mortgages the majority of which provide for a balloon payment. There are no prescribed limits on the number or amount of mortgages which may be placed on any one property. Any mortgages secured by a property will comply with the restrictions set forth by the Commissioner of Corporations of the State of California. SALE OR DISPOSITION OF PROPERTIES Our board will determine whether a particular property should be sold or otherwise disposed of after considering the relevant factors, including performance or projected performance of the property and market conditions, with a view toward achieving our principal investment objectives. We intend to hold our properties for a minimum of four years prior to selling them. See "Federal Income Tax Considerations -- Federal Income Taxation as a REIT." We also intend to reinvest the proceeds from the sale, financing, refinancing or other disposition of our properties into additional properties. Alternatively, we may use these proceeds to fund maintenance or repair of existing properties or to increase reserves for such purposes. The objective of reinvesting the sale, financing and refinancing proceeds in new properties is to increase our real estate assets, and our net income, which our board believes will enhance our chances of having our shares traded in a public trading market. Notwithstanding this policy, the board, in its discretion, may distribute all or part of the proceeds from the sale, financing, refinancing or other disposition of all or any of our properties to our stockholders. In determining whether to distribute these proceeds to stockholders, the board will consider, among other factors, the desirability of properties available for purchase, real estate market conditions, the likelihood of the listing of our shares on a national stock exchange or including the shares for quotation on a national market system and compliance with the applicable requirements under federal income tax law under federal income tax laws. Because we may reinvest the proceeds from the sale, financing or refinancing of our properties, we could hold stockholders' capital indefinitely. However, upon the affirmative vote of a majority of the shares of common stock, we will be forced to liquidate our assets and dissolve. When we sell a property, we intend to obtain an all-cash sale price. However, we may take a purchase money obligation secured by a mortgage on the property as partial payment, and there are no limitations or restrictions on our ability to take such purchase money obligations. The terms of payment to us will be affected by custom in the area in which the property being sold is located and the then prevailing economic conditions. If we receive notes and other property instead of cash from sales, these proceeds, other than any interest payable on these proceeds, will not be available for distributions until 92 and to the extent the notes or other property are actually paid, sold, refinanced or otherwise disposed. Therefore, the distribution of the proceeds of a sale to the stockholders may be delayed until that time. In these cases, we will receive payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. See "Federal Income Tax Considerations." CHANGE IN INVESTMENT OBJECTIVES AND POLICIES Our stockholders have no voting rights to implement our investment objectives and policies. Our board has the responsibility for our investment objectives and policies. Our board may not, however, make any material changes regarding the restrictions on investment policies set forth in our articles of incorporation without amending the articles of incorporation. Any amendment to our articles of incorporation requires the affirmative vote of a majority of our then outstanding voting shares of common stock. See "Summary of Our Organizational Documents -- Restrictions on Investments." INVESTMENT LIMITATIONS We will not: - invest more than 10% of our total assets in unimproved real property (and will only invest in unimproved real property intended to be developed) or in mortgage loans on unimproved real property; - invest in commodities or commodity future contracts; - issue redeemable shares of common stock; - issue shares on a deferred payment basis or other similar arrangement; and - operate in such a manner as to be classified as an "investment company" for purposes of the Investment Company Act. See "Summary of Our Organizational Documents -- Restrictions on Investments" for additional investment limitations. We do not intend to engage in hedging or similar activities for speculative purposes. We have no current plans to invest any proceeds from this offering, or other funds, in the securities of other issuers for the purpose of exercising control over such other issuers. OTHER INVESTMENTS Consistent with our investment limitations, we may from time to time invest amounts of money in the securities of other companies that may or may not be REITs or companies related to real estate to seek superior returns on these investments. In addition, we may make loans to third parties from time to time in connection with retail centers we intend to purchase or on a short-term basis to real estate ventures. APPRAISALS All real property acquisitions to be made by us will be supported by an appraisal prepared by a competent, independent appraiser who is a member-in-good standing of the Appraisal Institute prior to 93 the purchase of the property. Our policy currently provides that the purchase price of each property will not exceed its appraised value at the time of our acquisition of the property. Appraisals are, however, estimates of value and should not be relied on as measures of true worth or realizable value. We will maintain the appraisal in our records for at least five years, and copies of each appraisal will be available for review by stockholders upon their request. RETURN OF UNINVESTED PROCEEDS If at least 200,000 shares are not sold within six months from the original effective date of this prospectus, all funds received from subscribers will be promptly returned to them, together with any interest earned on the funds. We would expect to return funds to subscribers within five business days after the offering is terminated if at least 200,000 shares are not sold within six months from the original effective date of this prospectus. Any of the proceeds of this offering allocable to investments in real property which have not been invested in real property or committed for investment within the later of 24 months from the original effective date of this prospectus or 12 months from the termination of the offering, will be distributed to the stockholders. All funds we receive out of the escrow account will be available for our general use from the time we receive them until expiration of the period discussed in the prior sentence. We may use these funds to: - fund expenses incurred to operate the properties which have been acquired, - reimburse the advisor for our expenses, to the extent allowable under the advisory agreement, - pay the advisor its compensation under the advisory agreement; and - pay the property manager its property management fee under the management agreement See "Estimated Use of Proceeds" and "Plan of Distribution -- Escrow Conditions." We will not segregate funds separate from our other funds pending investment, and interest will be payable to the stockholders if uninvested funds are returned to them. ADDITIONAL OFFERINGS AND EXCHANGE LISTING We anticipate that by September 15, 2008, our board will determine when, and if, to apply to have our shares of common stock listed for trading on a national stock exchange or included for quotation on a national market system, if we meet the then applicable listing requirements; and/or whether to commence subsequent offerings after completion of this offering. We believe that an exchange listing or inclusion of our shares in a national market system may allow us to increase our size, portfolio diversity, stockholder liquidity, access to capital and stability, and decrease our operating costs through economies of scale. However, we cannot assure that such listing or inclusion will ever occur. If it is not feasible to list shares or include them in a national market system by September 15, 2008, our board may decide to sell our assets individually, list our shares at a future date; or liquidate us within ten years of such date. The sale of all or substantially all of our assets as well as our liquidation would also require the affirmative vote of a majority of the then-outstanding voting shares of stock. 94 JOINT VENTURES We may invest in joint venture arrangements with other public real estate programs formed by our advisor or any of its affiliates if a majority of our directors not otherwise interested in the transaction and a majority of our independent directors approve the transaction as being fair and reasonable. In addition, the investment by each joint venture partner must be substantially on the same terms and conditions as those received by other joint venturers. We may also invest in general partnerships or joint venture arrangements with our affiliates as co-owners of a property. The general partnership or joint venture agreement for these investments will provide that we will be able to increase our equity participation in such entity as we receive additional proceeds of the offering. As a result, we will ultimately own a 100% equity ownership of the property and the affiliated general or joint venture partner will not be entitled to any profit or other benefit on the sale of its equity participation to us. Once we own, directly or indirectly, 100% of the ownership interests in the general partnership or joint venture entity, we will determine whether the continued existence of that entity is necessary. For example, we may determine to continue the existence of the entity to minimize expenses or to meet lender requirements. In addition, we may enter into joint venture or partnership arrangements with unaffiliated third parties. Therefore, we may enter into acquisitions with sellers who are desirous of transactions in tax advantaged structures such as arrangements typically referred to as "Down REITs." A Down REIT is an organizational structure in which, in addition to owning indirect interests in real estate properties through the ownership of an interest in a lower-tier operating partnership (as in an UPREIT), a REIT also owns real estate properties directly at the REIT level. In a Down REIT structure, because the REIT owns real estate properties directly, the value of the REIT shares do not bear a direct relationship with the value of an interest in the lower-tier Down REIT operating partnership. You should consider the potential risk that our non-affiliated joint venture partner may be unable to agree with us on a matter material to the joint venture. See "Risk Factors -- Risks Related to the Offering." We are unable to estimate the proportion of our assets that may be invested in joint venture interests. CONSTRUCTION AND DEVELOPMENT ACTIVITIES From time to time, we may attempt to enhance investment opportunities by undertaking construction and development activities and rendering services in connection with them. Our advisor has advised us that, in its view, we may be able to reduce overall purchase costs if we were to undertake construction and development rather than merely being limited to purchasing properties subject to completion of construction by a third party. The construction and development activities would expose us to such risks as cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, weather conditions, government regulation and our inability to obtain tenants. We nevertheless have concluded that our investment prospects would be enhanced by permitting us to engage in construction and development activities so long as such activities did not cause us to lose our status as a REIT. To comply with the applicable requirements under federal income tax law under federal income tax law, and until the Internal Revenue Service changes its pronouncements with regard to these requirements, we intends to limit our construction and development activities to the performance of oversight and review functions, including reviewing the construction and tenant improvement design proposals, negotiating and contracting for feasibility studies and supervising compliance with local, state or federal laws and regulations, negotiating contracts, oversight of construction, accounts, and obtaining financing. In addition to using independent contractors to provide services in connection with the 95 operation of our properties, we may also use "taxable REIT subsidiaries" to carry out these functions. See "Federal Future Tax Considerations - Federal Income Taxation as a REIT" for a discussion of a "taxable REIT subsidiary." We will retain independent contractors to perform the actual physical construction work on tenant improvements, the installation of heating, ventilation and air conditioning systems. See "Real Property Investments - General" for a detailed description of the types of properties we may invest in. OTHER POLICIES Before we purchase a particular property, we may obtain an option to purchase the property. The amount paid for the option, if any, usually would be surrendered if the property was not purchased and normally would be credited against the purchase price if the property was purchased. See "Real Property Investments - General" for a detailed description of the types of properties we may invest in. We hold all funds, pending investment in properties, in assets which will allow us to continue to qualify as a REIT. These investments are highly liquid and provide for appropriate safety of principal and may include, but are not limited to, investments such as bonds issued by the Government National Mortgage Association, or GNMA, and real estate mortgage investment conduits also known as REMICs. See "Federal Income Tax Considerations - Federal Income Taxation as a REIT." We will not make distributions-in-kind, except for: - distributions of readily marketable securities; - distributions of beneficial interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms of our articles of incorporation; or - distributions of in-kind property which meet all of the following conditions: - our board of directors advises each stockholder of the risks associated with direct ownership of the in-kind property; - our board of directors offers each stockholder the election of receiving in-kind property distributions; and - the directors distribute in-kind property only to those stockholders who accept our offer. Although our articles of incorporation and bylaws do not prohibit the following, we have no current plans to: - underwrite the securities of other issuers; - invest in real estate mortgages; or - invest the proceeds of the offering, other than on a temporary basis, in non-real estate related investments. 96 We may change our current plans, without stockholder approval, if our board of directors determines that it would be in the best interests of our stockholder to engage in any such transaction. Although we are authorized to issue senior securities, we have no current plans to do so. See "Description of Securities - Preferred Stock," "- Issuance of Additional Securities and Debt Instruments" and "- Restrictions on Issuance of Securities." [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 97 REAL PROPERTY INVESTMENTS INVESTING IN REITS A real estate investment trust or REIT is a company that owns and, in most cases, operates income-producing properties. To qualify as a REIT, generally a company must annually distribute at least 90% of its taxable income to stockholders. According to the National Association of Real Estate Investment Trusts (NAREIT), dividend growth for publicly traded REITs has consistently outpaced inflation. Stock price appreciation for publicly-traded REITs has historically tracked the rate of increase in the Consumer Price Index, according to NAREIT. This information is based on REITs that are listed and traded on a national exchange and would not be representative of an investment in a REIT that is not publicly traded such as us, and there is no assurance that an investment in a non-publicly traded REIT will produce comparable results. An analysis of historical data on publicly-traded REITs by Ibbotson Associates, a leading financial research firm, concluded that REITs have a low correlation with other stocks and bonds and represent a potentially powerful diversification tool. Ibbotson noted, "The asset allocation decision is the most important determinant of portfolio performance, outweighing the benefits of market timing and security selection." In particular, Ibbotson found that REITs may boost return and reduce risk when added to a diversified portfolio. Ibbotson also found that REITs outperformed most other major market benchmarks over the 1972-2002 period with much less volatility. There can be no assurance that future performance will mirror past performance and that these results would be comparable to non-traded REITs, like us. GENERAL Our advisor is experienced in acquiring and managing real estate, particularly retail focused shopping centers. We intend to acquire and manage a diversified (by geographical location and by type and size of retail centers) portfolio of real estate primarily improved for use as retail establishments, principally multi-tenant shopping centers. Our portfolio will consist predominantly of grocery and discount store anchored retail, including net lease retail. We may acquire certain mixed use properties that may include lodging, office and/or multi-family residential if they are part of a retail center. And, we may also acquire other types of retail shopping centers, such as enclosed malls, outlet malls and power centers. We also anticipate acquiring real estate improved with other commercial facilities which provide goods and services as well as double or triple net leased properties, which are either commercial or retail, including properties acquired in sale and leaseback transactions. A triple-net leased property is one which is leased to a tenant who is responsible for the base rent and all costs and expenses associated with their occupancy, including property taxes, insurance, repairs and maintenance. The retail centers we intend to acquire would be located primarily in states west of the Mississippi River in the United States. Where feasible, we will endeavor to acquire multiple properties within the same major metropolitan markets where the acquisitions result in efficient property management operations with the potential to achieve market dominance. We do not intend to invest in real estate properties that are primarily: - farms; - health care facilities; 98 - industrial properties; - leisure home sites; - manufacturing facilities; - mining properties; - ranches; - single-family residential properties; - timberlands; or - unimproved properties not intended to be developed (vacant land). Subject to compliance with the applicable requirement under the federal income tax laws, we may also undertake construction and development activities and render services in connection with such activities. See "Investment Objectives and Policies" generally pertaining to our policies relating to the maintenance, operation and disposition of our properties. We intend to initially focus on acquisition activity in major metropolitan areas in the western United States. The western United States, which consists of the southwest, rocky mountain and far west states, is projected to experience the most growth of any region of the country over the next 25 years. Population is expected to increase by 33.5 million between 2000 and 2025. Most of the states in the region will experience population growth rates ahead of the national average. In addition, the western region is forecast to lead the nation in the rate of employment growth. The western states will generate 22.8 million new jobs between 1999 and 2025 and account for 38% of total United States job growth. California is projected to show the largest gains in population and employment; however, the region's growth is expected to become more dispersed as other western states experience higher rates of growth. Texas is expected to retain its position as the second largest state, with a population likely to exceed 29.8 million by 2025. Nevada is likely to experience the fastest rate of growth (2.4% annually between 2000 and 2025), followed by Arizona, Utah, Idaho, Colorado, Texas, New Mexico, Oregon and Washington. Employment growth is expected to follow a similar pattern. Nevada, Arizona and Utah are projected to lead the nation by generating the fastest rate of annual employment growth. Several western cities are expected to rank among the nation's ten fastest growing metropolitan markets. These areas include Laredo and Austin-San Marcos in Texas, Las Vegas in Nevada, Provo-Orem in Utah and Phoenix-Mesa in Arizona. The Western region benefits from the diversity of its economy, which has enabled many western states to maintain employment and income growth even when some sectors experience reduced demand. Agriculture, natural resources, manufacturing, trade and services are all represented in the region's economy. In addition many of the goods and services produced in the west have international markets. Much of the total United States output of agricultural products, oil and natural gas, lumber and wood products and electronic equipment is produced in the West. 99 INSURANCE COVERAGE ON PROPERTIES We carry comprehensive general liability coverage and umbrella liability coverage on all of our properties with limits of liability which we deem adequate to insure against liability claims and provide for the costs of defense. Similarly, we are insured against the risk of direct physical damage in amounts we estimate to be adequate to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. In addition, we intend to insure our properties against loss caused by earthquake and flood if deemed necessary and economically justified. The form of management agreement for each property specifically provides for us to procure and carry public liability, fire and extended coverage, burglary and theft, rental interruption, flood, if appropriate, and boiler, if appropriate, insurance. The cost of such insurance is passed through to tenants whenever possible. Insurance risks associated with potential terrorism acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additional, mortgage lenders in some cases have begun to insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that we will have adequate coverage for such losses. Legislation has been enacted to provide federal insurance for property losses due to terrorism. We cannot be certain what impact this legislation will have on us or what additional costs to us, if any, could result. PROPERTIES An affiliate, Inland Real Estate Acquisitions, Inc., has entered into an agreement to acquire a community shopping center in Phoenix, Arizona. This Safeway-anchored grocery shopping center has approximately 180,000 square feet. We intend to primarily invest in retail properties ranging from 100,000 to 300,000 square feet in size, we may also purchase larger shopping centers, and properties in larger centers. We may also purchase these larger shopping centers, and properties in larger centers, in the future if such purchases are approved by our board of directors, including a majority of the independent directors. We expect that our neighborhood and community shopping centers will be "anchored" or "shadow-anchored" by a national or regional discount department store, supermarket or drugstore. A "shadow-anchor" is an anchor tenant that has leased space in that portion of the center not owned or controlled by us. In evaluating each of our properties as a potential acquisition and determining the appropriate amount of consideration to be paid for the property, we consider a variety of factors including overall valuation of net rental income, location, demographics, tenant mix, quality of tenants, length of leases, price per square foot, occupancy and that overall rental rates at each property are comparable to market rates. We anticipate that each property will be located within a vibrant economic area. We believe that each of the properties will be well-located, will have acceptable roadway access, will attract high quality tenants, will be well-maintained and will have been professionally managed. Nonetheless, each property will be subject to competition from similar shopping centers within its market area, and its economic performance could be affected by changes in local economic conditions. We generally do not consider any other factors materially relevant to the decision to acquire each of the properties. 100 When we calculate depreciation expense for tax purposes, we use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. A substantial portion of our income will consist of rent received under long-term leases. In general, each tenant pays its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if another tenant's lease is terminated. We may own centers where the tenants may have rights to terminate their leases if certain other tenants are no longer open for business. These "co-tenancy" provisions may also exist in some leases where we own a portion of a shopping center and one or more of the anchor tenants leases space in that portion of the center not owned or controlled by us. If such tenants were to vacate their space, tenants with co-tenancy provisions would have the right to terminate their leases with us, or seek a rent reduction from us. Some of our leases may also contain provisions requiring the payment of additional rent calculated as a percentage of tenants' gross sales above predetermined thresholds. We seek to reduce our operating and leasing risks through geographic and tenant diversity. We will receive an appraisal for each of our properties which states that it was prepared in conformity with the Code of Professional Ethics Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation by an independent appraiser who is a member of the Appraisal Institute. Appraisals are estimates of value and should not be relied on as a measure of truth worth or realizable value. In cases where we have purchased properties from our affiliates, our directors, including the independent directors, must approve the acquisitions of the properties from our affiliates as being fair and reasonable. POTENTIAL PROPERTY ACQUISITIONS We are currently considering acquiring the one property in Phoenix, Arizona. Our decision to acquire this property will generally depend upon: - no material adverse change occurring in the property, the tenants or the local economic conditions; - our receipt of sufficient net proceeds from this offering to make this acquisition or sufficient availability of credit; and - our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information. Other properties may be identified in the future that we may acquire before or instead of this property. We cannot guarantee that we will complete this acquisition. 101 POTENTIAL PROPERTY: PEORIA STATION, PEORIA, ARIZONA We anticipate purchasing an existing shopping center known as Peoria Station, which will contain 181,500 gross leasable square feet upon completion of the current redevelopment. The center currently contains 140,019 gross leasable square feet. The center is located at 10160 North 67th Avenue in Peoria, Arizona. Inland Real Estate Acquisitions, Inc., an affiliate of our advisor, has entered into a contract to acquire this property. We anticipate that Inland Real Estate Acquisitions will assign this purchase contract to us at no cost. We would then anticipate purchasing Peoria Station from PDG America, an unaffiliated third party. Our total acquisition cost, including expenses, is expected to be approximately $25,867,000. This amount may be adjusted based on actual rental rates achieved on the redeveloped square feet. This amount may also increase by additional costs, which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $143 per square foot of leasable space. We may place financing on the property at the time of acquisition. In evaluating this property as a potential acquisition and determining the appropriate amount of consideration to be paid for the property, we considered a variety of factors including overall valuation of net rental income, location, demographics, tenant mix, quality of tenants, length of leases, price per square foot, occupancy and the fact that overall rental rates at the shopping center are comparable to market rates. We believe that this property is well located, has acceptable roadway access, attracts high-quality tenants, is well maintained and has been professionally managed. This property will be subject to competition from similar shopping centers within its market area, and its economic performance could be affected by changes in local economic conditions. We did not consider any other factors materially relevant to the decision to acquire this property. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Peoria Station was built in 1987 and redeveloped in 2002/2003. As of June 30, 2003, this property was 98% leased. We anticipate that all existing leases will be assigned to us. For federal income tax purposes, the depreciable basis in this property will be approximately $19,400,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Two tenants, Safeway and LA Fitness, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 102
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------- Safeway 55,471 31% 5.60 04/01/95 12/31/97 6.92 01/01/98 12/31/17 LA Fitness 40,916 23% 6.60 05/01/02 01/31/03 13.20 02/01/03 01/31/07 * 02/01/07 01/31/12 * 02/01/12 01/31/17
* Rent increases by CPI As of June 30, 2003, a total 137,319 square feet was leased to 17 tenants at this property. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - --------------------------------------------------------------------------- Blackbelt Academy 1,800 08/03 23,886 13.27 Barro's Pizza 2,400 08/03 36,000 15.00 Ombundsman Education 1,763 11/03 28,208 16.00 Melly's Hallmark 3,000 01/04 40,500 13.50 Smartcare Medical Center 1,200 10/04 30,724 25.60 Other Mothers 4,197 12/04 65,054 15.50 Circus Cleaners 900 01/05 14,362 15.96 Cents Store 5,300 04/05 57,400 10.83 H & R Block 1,800 04/05 33,048 18.36 Great Clips 1,200 06/05 21,900 18.25 Peter Piper Pizza 11,067 12/05 138,337 12.50 #1 Nails 900 01/06 14,812 16.46 Tan Banana 1,800 09/06 30,600 17.00 China Palace 1,885 08/07 41,885 22.22 Dunkin Donuts 1,720 04/09 51,416 29.89 LA Fitness 40,916 01/17 540,091 13.20 Safeway 55,471 12/17 383,859 6.92
In general, each tenant pays its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. We will obtain an appraisal on this property prior to acquisition. As with any other property we acquire, our property manager will receive a property management fee for managing this property and our advisor will receive an advisor asset management fee. 103 CAPITALIZATION The following table sets forth our historical capitalization as of June 30, 2003 and our pro forma capitalization as of that date as adjusted to give effect to the sale of 200,000 shares of common stock and the application of the estimated net proceeds therefrom as described in "Estimated Use of Proceeds." We were originally capitalized in March 2003 through the cash contribution of $200,000 by the advisor, for which the advisor received 20,000 shares of common stock. Additionally, the table does not include shares of common stock issuable upon the exercise of options which may be, but have not been, granted under our independent director stock option plan. The information set forth in the following table should be read in conjunction with our historical financial statements included elsewhere in this prospectus and the discussion set forth in "Management's Discussion and Analysis of Our Financial Condition--Liquidity and Capital Resources."
June 30, 2003 Historical Pro Forma ------------ ------------ DEBT: Mortgage notes payable................................................... $ 0 $ 0 STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, 10,000,000 authorized, none outstanding.............................................................. 0 0 Common stock, $.001 par value, 350,000,000 authorized, 20,000 shares issued and outstanding historical; 220,000 shares issued and outstanding pro forma ...................................... 20 220 Additional paid-in capital............................................... 202,230 1,902,030 Retained earnings deficit................................................ (9,750) (9,750) ------------ ------------ Total stockholders' equity............................................. 192,500 1,892,500 ------------ ------------ Total capitalization................................................... $ 192,500 $ 1,892,500 ============ ============
104 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION Certain statements contained in this "Management's Discussion and Analysis of Our Financial Condition" and elsewhere in this prospectus constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. See "Cautionary Note Regarding Forward-Looking Statements." You should read the following discussion along with our financial statements and the related notes included in this prospectus. LIQUIDITY AND CAPITAL RESOURCES We were formed in March 2003 to acquire and manage a diversified portfolio of real estate, primarily located in states west of the Mississippi River. We may also acquire single-user retail properties in locations throughout the United States, certain of which may be sale and leaseback transactions, net leased to creditworthy tenants. The advisor has guaranteed payment of all public offering expenses (excluding selling commissions and other fees payable to the managing dealer) in excess of 5.5% of the gross offering proceeds or all organization and offering expenses (including such selling expenses) which together exceeds 15% of the gross offering proceeds. We will provide the following programs to facilitate investment in the shares and to provide limited liquidity for stockholders until such time as a market for the shares develops: The distribution reinvestment program will allow stockholders who purchase shares pursuant to this offering to automatically reinvest distributions by purchasing additional shares from us. Such purchases will not be subject to selling commissions or the marketing contribution and due diligence expense allowance and will be sold at a price of $9.50 per share. The share repurchase program will provide existing stockholders with limited, interim liquidity by enabling them to sell shares back to us. The prices at which shares may be sold back to us are as follows: - One year from the purchase date, at $9.25 per share; - Two years from the purchase date, at $9.50 per share; - Three years from the purchase date, at $9.75 per share; and - Four years from the purchase date, at the greater of: $10.00 per share; or a price equal to ten times our "funds available for distribution" per weighted average share outstanding for per prior calendar year. Shares purchased by us will not be available for resale. During any offering, the repurchase price shall be equal to or below the price of the shares offered in any offering. The net proceeds of the offering will enable us to purchase properties. It is our policy to acquire properties free and clear of permanent mortgage indebtedness if we deem it advantageous by paying the entire purchase price of each property in cash or for shares, interest in entities that own our properties, or a combination of these means, and to selectively encumber all or some properties. We may, however, acquire properties subject to existing indebtedness. Following acquisition, the proceeds from such loans will be used to acquire additional properties to increase cash flow and provide further diversity. If the 105 offering is not fully sold, our ability to diversify our investments may be diminished. Our advisor expects that the cash to be generated from operations of the properties identified for acquisition, which we intend to acquire if sufficient proceeds are raised in the offering, will be adequate to pay our operating expenses and provide distributions to stockholders. Our management will monitor the various qualification tests we must meet to maintain our status as a REIT. We test large ownership of the shares upon purchase to determine that no more than 50% in value of the outstanding shares is owned, directly or indirectly, by five or fewer persons or entities at any time. Our management also determines, on a quarterly basis, that the gross income, asset and distribution tests described in the section entitled "Federal Income Tax Considerations -- Federal Income Taxation as a REIT" are met. On an ongoing basis, as we and the advisor perform due diligence on potential purchases of properties or temporary investment of uninvested capital, management of both entities will determine that the income from the new asset will qualify for REIT purposes. CAPITAL RESOURCES As of the date of this prospectus, we have identified one property in which to invest. If the minimum 200,000 shares are sold, we would not have sufficient resources to acquire the property identified. We have rights to purchase an investment property currently being redeveloped, known as Peoria Station, from an unaffiliated third party for approximately $25,867,000. This amount may be adjusted based on actual rental rates achieved on the redeveloped square feet. We expect to purchase this property by November 1, 2003, however, the seller may extend the closing date if minimum rental rates stated in the contract have not yet been achieved. The number of properties we will acquire will depend upon the amount of the net proceeds of the offering. The advisor is not aware of any material trends, favorable or unfavorable, in either capital resources or the outlook for long-term cash generation, nor does it expect any material changes in the availability and relative cost of such capital resources, other than as referred to herein. The advisor has guaranteed payment of all organization and offering expenses, including selling commissions and the other fees payable to the managing dealer, in excess of 15% of the gross offering proceeds of the offering and all organization and offering expenses, excluding such selling expenses, in excess of 5.5% of the gross offering proceeds. In addition, if we do not sell the minimum offering, neither our sponsor nor our advisor will be reimbursed for any organization and offering expenses. As of June 30, 2003, we had incurred $691,911 of offering and organization costs, all of which was advanced by our advisor. Certain compensation and fees payable to our advisor for services to be provided to us are limited to maximum amounts. Set forth below is a table describing compensation and fees payable by us to our advisor. 106 Nonsubordinated payments: Offering stage: Selling commissions 7.5% of the sale price for each share Marketing contribution and due 3.0% of the gross offering proceeds diligence allowance Reimbursable expenses and other We will reimburse our sponsor for expenses of issuance actual costs incurred, on our behalf, in connection with the offering Acquisition stage: Acquisition expenses We will reimburse an affiliate of our advisor for costs incurred, on our behalf, in connection with the acquisition of properties Operational stage Property management fee. THIS FEE 4.5% of the gross income from the TERMINATES UPON A BUSINESS properties. (Cannot exceed 90% of COMBINATION WITH OUR PROPERTY the fee which would be payable to MANAGER an unrelated third party) Loan servicing fee .08% of the total principal amount of the loans being serviced for each full year, up to the first $100 million and a lesser percentage on a sliding scale thereafter Reimbursable expenses relating to The compensation and reimbursements administrative services to our advisor and its affiliates will be approved by a majority of our directors Liquidation stage: Property disposition fee. THIS FEE Lesser of 3% of sales price or 50% TERMINATES UPON A BUSINESS of the customary commission which COMBINATION WITH THE ADVISOR would be paid to a third party Subordinated payments: Operational stage: Advisor asset management fee. Not more than 1% per annum of our THIS FEE TERMINATES UPON A average assets; subordinated to a BUSINESS COMBINATION WITH OUR non-cumulative, non-compounded return, ADVISOR equal to 6% per annum Liquidation stage: Incentive advisory fee. THIS FEE After our stockholders have first TERMINATES UPON A BUSINESS received a 10% cumulative, non- COMBINATION WITH OUR ADVISOR compounded return and a return on their net investment, an incentive advisory fee equal to 15% on net proceeds from the sale of a property will be paid to our advisor
As of the date of this prospectus, we have no current plans to acquire the property manager or advisor. No subscriptions for shares have been received from the public. The only funds received to date are from the advisor's contribution of $200,000 for 20,000 common shares. 107 RESULTS OF OPERATIONS As of the date of this prospectus, we have not yet had any operations. We intend to use the proceeds of this offering as set forth under "Estimated Use of Proceeds," principally to acquire properties. Our primary business objective will be to enhance the performance and value of our properties through management strategies designed to meet the needs of an evolving retail marketplace. As we have not acquired any properties yet, our advisor is not aware of any known trends or uncertainties, other than national economic conditions, which have had or which may be reasonably expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition and operation of real properties other than those referred to in the prospectus. We have paid no distributions yet. FUNDS FROM OPERATIONS One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Cash generated from operations is not equivalent to our net operating income as determined under accounting principles generally accepted in the United States of America or GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of REITs, also known as "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 ours. As defined by NAREIT, FFO means net income computed in accordance with GAAP, less extraordinary, unusual and non-recurring items, excluding gains (or losses) from debt restructuring and sales of properties plus depreciation and amortization and after adjustments for unconsolidated partnership and joint ventures in which the REIT holds an interest. We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance and operations 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 us 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 our performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of our capacity to pay distributions. INITIAL PROPERTY We have the right to acquire a neighborhood center, being the initial property. If sufficient funds are raised in the offering, we will, subject to certain conditions, acquire the initial property from an unaffiliated third party. See "Real Property Investments" for a more detailed description of the initial property. CRITICAL ACCOUNTING POLICIES GENERAL. The following disclosure pertains to critical accounting policies management believes will be most "critical" to the portrayal of our financial condition and results of operations which require management's most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting 108 policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with GAAP. GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. This discussion addresses judgments known to management pertaining to trends, events or uncertainties known which will be taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions. VALUATION AND ALLOCATION OF INVESTMENT PROPERTY. In order to ascertain the value of an investment property management will take into consideration many factors which require difficult, subjective or complex judgments to be made. These judgments require management to make assumptions when valuing each investment property. Such assumptions include projecting vacancy rates, rental rates, property operating expenses, capital expenditures, and debt financing rates, among others. The capitalization rate is also a significant driving factor in determining the property valuation which requires management's judgment of factors such as market knowledge, historical experience, length of leases, tenant financial strength, economy, demographics, environment, property location, visibility, age, and physical condition, and investor return requirements, among others. Furthermore, at the acquisition date, every property acquired will be supported by an independent appraisal. All of the aforementioned factors are taken as a whole by management in determining the valuation. The valuation is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole. Should the actual results, differ from management's judgment, the valuation could be negatively effected. We will allocate the purchase price of the each acquired investment property between land, building and improvements, acquired favorable and unfavorable leases, lease origination value (the market cost avoidance of executing each acquired lease), and any assumed financing that is determined to be above or below market terms. The allocation of the purchase price is an area that requires complex judgments and significant estimates. We use the information contained in the independent appraisal we obtained as the primary basis for the allocation to land and building improvements. We determine whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. We also will allocate a portion of the purchase price to the estimated lease origination value based on estimated lease execution costs for similar leases and consider various factors including geographic location and size of leased space. We also will evaluate each acquired lease based upon current market rates at the acquisition date and consider various factors including geographical location, size and location of leased space within the investment property, tenant profile and the credit risk of the tenant in determining whether the acquired lease is favorable or unfavorable. After an acquired lease is determined to be favorable or unfavorable, we will allocate a portion of the purchase price to such favorable or unfavorable acquired lease based upon the present value of the difference between the contractual lease rate and the estimated market rate. The determination of the discount rate used in the present value calculation is based upon the "risk free rate" for each individual lease and primarily based upon the credit worthiness of each individual tenant. On a quarterly basis, we will conduct an impairment analysis in accordance with Statement of Financial Accounting Standards No. 144 to ensure that the property's carrying value does not exceed its fair value. If this were to occur, we are required to record an impairment loss. The valuation and allocation of purchase price, and possible subsequent impairment of investment properties is a significant estimate that can and does change based on management's continuous process of analyzing each property and on management's assumptions about uncertain inherent factors. 109 COST CAPITALIZATION AND DEPRECIATION POLICIES. Our policy will be to review all expenses paid and capitalize any item exceeding a threshold deemed to be an upgrade or a tenant improvement that is included in the investment property asset classification. In addition, we will capitalize costs incurred during the development period, including direct costs and indirect costs such as construction, insurance, architectural costs, and legal fees, interest and other financing costs, and real estate taxes. We will cease capitalization of indirect costs once management considers the property is substantially complete and available for occupancy. Buildings and improvements will be depreciated on a straight line basis based upon estimated useful lives of 30 years for buildings and improvements and 15 years for site improvements. That portion of the purchase price is allocated to acquired favorable and unfavorable leases will be amortized on a straight line basis over the life of the related lease as an adjustment to rental income. Lease origination value, other leasing costs, and tenant improvements will be amortized on a straight line basis over the life of the related lease as a component of amortization expense. Cost capitalization and the estimate of useful lives requires management judgment and includes significant estimates that can and do change based on management's continuous process of analyzing each property and on management's assumptions about uncertain inherent factors. REVENUE RECOGNITION. We will recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight line basis and the cash rent due under the provisions of the lease agreements will be recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets. We anticipate collecting these amounts over the terms of the leases as scheduled rent payments are made. Reimbursements from tenants for recoverable real estate tax and operating expenses will be accrued as revenue in the period the applicable expenditures are incurred. Management makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. Should the actual results differ from management's judgment, the estimated reimbursement could be negatively effected adjusted appropriately. In connection with certain acquisitions, we will receive payments under master lease agreements pertaining to some non-revenue producing spaces either at the time or subsequent to the purchase. GAAP requires that as these payments are received, they be recorded as a reduction in the purchase price rather than as rental income. These master leases may be established at the time of purchase in order to mitigate the potential negative effects of rent and occupancy assumptions utilized in the valuation of the investment property. Master lease payments will be received through a draw of funds escrowed at the time of purchase and will be for a period from one to three years. There is no assurance that upon the expiration of the master leases agreements that the valuation factors pertaining to rent and occupancy assumed by management will be met. Should the actual results differ from management's judgment, the property valuation could be negatively or positively affected. VALUATION OF ACCOUNTS AND RENTS RECEIVABLE. Management will take into consideration certain factors that require judgments to be made as to the collectability of receivables. Collectability factors taken into consideration are the amounts outstanding, payment history, and financial strength of the tenant, which taken as a whole determines the valuation. REIT STATUS. In order to maintain our status as a REIT, we are required to distribute at least 90% of its REIT taxable income to our stockholders. We must also meet certain asset and income tests, as well as other requirements. We will monitor the business and transactions that may potentially impact our 110 REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. NEW ACCOUNTING PRONOUNCEMENT On May 15, 2003, the Financial Accounting Standards Board issued Statement No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. The Statement requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the Statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted the provisions of the Statement on July 1, 2003. The Company did not enter into any financial instruments within the scope of the Statement during June 2003. To the extent stockholders request shares to be repurchased by the Company under the Share Repurchase Program, the Company's obligation to repurchase such shares will be classified as a liability at the redemption amount at the date documentation is complete and accepted by the Company in accordance with the plan documents. INFLATION Inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to market conditions, for any retail centers we acquire. Our rental income and operating expenses for any properties to be owned and operated on a triple-net lease basis are not likely to be directly affected by future inflation, since rents are or will be fixed under those leases and property expenses are the responsibility of the tenants. The capital appreciation of properties leased on triple-net lease basis 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 properties leased on a triple-net-lease basis. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve our objectives we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. It is our policy to enter into these transactions with the same party providing the financing, with the right of offset. In the alternative, we will minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk 111 associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows. While this hedging strategy will have the effect of smoothing out interest rate fluctuations, the result may be to reduce the overall returns on your investments. As we have yet to raise any money, our board has not yet established policies and procedures regarding our use of derivative financial instruments for hedging or other purposes. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 112 DESCRIPTION OF SECURITIES We were formed under the laws of the State of Maryland. Your rights are governed by Maryland law, our articles of incorporation and our bylaws. The following summary of the terms of our stock is only a summary and you should refer to our articles of incorporation and bylaws for a full description. Copies of our articles of incorporation and bylaws are filed as exhibits to the registration statement of which this prospectus is a part. You can obtain copies of our articles of incorporation and bylaws and every other exhibit to our registration statement. See "Where You Can Find More Information," below. AUTHORIZED STOCK Our articles of incorporation provide that we may issue up to 350,000,000 shares of common stock and 10,000,000 shares of preferred stock. Upon completion of this offering, if 250,000,000 shares are sold, there will be 250,020,000 shares of common stock outstanding and no preferred stock outstanding. As permitted by Maryland law, our articles of incorporation contain a provision permitting the board, without any action by the stockholders, to amend our articles of incorporation from time to time, to increase or decrease the aggregate number of shares of stock and the number of shares of stock of any class or series that we have authority to issue. Our articles of incorporation also contain a provision permitting our board of directors, without any action by stockholders, to classify or reclassify any unissued common stock or preferred stock into one or more classes or series by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of any new class or series of shares of stock. Nevertheless, certain laws to which we are subject require the approval by a majority of our then outstanding shares to amend our articles of incorporation to increase or decrease the number of shares authorized by our articles of incorporation. We believe that the power of our board to issue additional authorized but unissued shares of common stock or preferred stock and to classify or reclassify shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise. Following amendment of our articles of incorporation to increase the number of our authorized shares, our board would be able to issue the additional common stock or preferred stock without further action by our stockholders. COMMON STOCK Upon issuance of our shares for full payment in accordance with the terms of this offering, all of the common stock we are offering will be duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock and to the provisions of our articles of incorporation regarding the restriction on the transfer of shares of our stock, holders of our common stock will be entitled to receive distributions if authorized and declared by our board and to share ratably in our assets available for distribution to the stockholders in the event of a liquidation, dissolution or winding-up. Each outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding common stock can elect all of the directors then standing for election, and the holders of the remaining common stock will not be able to elect any directors. 113 Holders of our common stock have no conversion, sinking fund, redemption, exchange or appraisal rights, and have no preemptive rights to subscribe for any of our securities. Our articles of incorporation provide that holders of our common stock are not entitled to exercise any rights of an objecting stockholder provided for under Maryland law. Shares of our common stock have equal dividend, distribution, liquidation and other rights. Under Maryland law and our articles of incorporation, we cannot make certain material changes to our business form or operations without the approval of stockholders holding at least a majority of the shares of stock entitled to vote on the matter. The following events, however, do not require stockholder approval: - share exchanges in which we are the acquiror; - mergers with or into a 90 percent or more owned subsidiary; - mergers in which we do not: - reclassify or change the terms of any of our stock that is outstanding immediately before the effective time of the merger; - amend our articles of incorporation; and - issue in the merger more than 20 percent of the number of shares of any class or series of stock outstanding immediately before the merger; and - transfers of less than substantially all of our assets. Our articles of incorporation provide that the sale of two-thirds or more of our assets or the then current fair market value of our properties and mortgages other than in the ordinary course of our business will be considered the sale of substantially all of our assets. Our bylaws provide that the presence in person or by proxy by the holders of a majority of our outstanding shares will constitute a quorum for the transaction of business at a meeting of our stockholders. Our articles of incorporation provide that the election of directors requires a majority of all the votes present in person or by proxy at a meeting of our stockholders at which a quorum is present. Our articles of incorporation also provide that the affirmative vote of the holders of a majority of our outstanding common stock may remove any director with or without cause. We will act as our own registrar and transfer agent for our common stock. PREFERRED STOCK Shares of our preferred stock may be issued in the future in one or more series as authorized by our board. Prior to the issuance of shares of any series, our board is required by Maryland law and our articles of incorporation to fix the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series. Because our board has the power to establish the preferences, powers and rights of each series of preferred stock, it may, without any consideration or approval by our stockholders, provide the holders of any series of preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control of us, including an extraordinary 114 transaction (such as merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. We have no present plans to issue any preferred stock. ISSUANCE OF ADDITIONAL SECURITIES AND DEBT INSTRUMENTS Our directors are authorized to issue additional stock or other convertible securities for cash, property or other consideration on such terms as they may deem advisable. Our directors are also authorized to classify or reclassify any unissued shares of our capital stock without approval of the holders of our outstanding securities. Subject to some restrictions, our directors may cause us to issue debt obligations, including debt with conversion privileges on more than one class of our capital stock. Our directors may issue debt obligations on such terms and conditions as they may determine, including debt with conversion privileges, where the holders of our debt obligations may acquire our common stock. Subject to some restrictions, our directors may also cause us to issue warrants, options and rights to buy our common stock on such terms as they deem advisable to our stockholders, as part of a financing arrangement, or pursuant to stock option plans. Our directors may cause us to issue warrants, options and rights to buy our common stock and debt with conversion privileges even though their exercise or conversion could result in dilution in the value of our outstanding common stock. RESTRICTIONS ON ISSUANCE OF SECURITIES Our articles of incorporation provide that we will not issue: - common stock which is redeemable at the option of the holder; - debt securities unless the historical debt service coverage in the most recently completed fiscal year is sufficient to properly service the higher level of debt; - options or warrants to purchase stock to our advisor, sponsor, director(s) or any affiliates of our advisor, sponsor or directors except on the same terms as sold to the general public and in an amount not to exceed 10% of our outstanding common or preferred stock on the date of grant of any options or warrants; or - stock on a deferred payment basis or similar arrangement. Our articles of incorporation also provide that we will not issue nonvoting or assessable common stock or warrants, options or similar evidences of rights to buy stock unless they are issued to the holders of stock ratably, as part of a financing arrangement or as part of a stock plan to our directors, officers or employees. RESTRICTIONS ON OWNERSHIP AND TRANSFER In order for us to continue to qualify as a REIT under the Internal Revenue Code, shares of our stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of twelve months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also not more than 50% of the value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include some entities such as qualified person plans) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). 115 Our articles of incorporation, subject to some exceptions, contain restrictions on the number of shares of our stock that a person may own. Our articles of incorporation prohibit any person from acquiring or holding, directly or indirectly, shares of stock in excess of 9.8% in value of the aggregate of our outstanding shares of stock. In addition, our articles of incorporation prohibit any person from acquiring or holding, directly or indirectly, shares of common stock in excess of 9.8% of the aggregate number of our outstanding shares of common stock. The 9.8% common stock ownership limit must be measured in terms of the more restrictive of value or number of shares. Our board of directors, in its sole discretion, may exempt a person from the 9.8% limit and the common stock ownership limit. However, the board may not grant such an exception to any person whose ownership, direct or indirect, of in excess of 9.8% of the value of our outstanding shares of stock would result in us being "closely held" within the meaning of Section 856(h) of the Internal Revenue Code or otherwise would result in us failing to qualify as a REIT. In order to be considered as an excepted holder, a person also must not own, directly or indirectly, an interest in any of our tenants (or in a tenant of any entity owned or controlled by us) that would cause us to own, directly or indirectly, more than a 9.9% interest in such a tenant. The person seeking an exemption must represent to our board's satisfaction that it will not violate these two restrictions. The person also must agree that any violation or attempted violation of any of these restrictions will result in the automatic transfer of the shares of stock causing the violation to a trust as explained below. Our board may require a ruling from the Internal Revenue Service or an opinion of counsel, in either case in form and substance satisfactory to our board of directors in its sole discretion, in order to determine or ensure our status as a REIT. In addition, our articles of incorporation prohibit any person from beneficially or constructively owning shares of our common or preferred stock that would result in us being "closely held" within the meaning of Section 856(h) of the Internal Revenue Code. Our articles of incorporation further provide that any transfer of our common stock or preferred stock that would result in our common stock and preferred stock being beneficially owned by fewer than 100 persons will be void. Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of our common or preferred stock that will or may violate any of the foregoing restrictions on transferability and ownership, or any person who would have owned shares of our common or preferred stock that resulted in a transfer of shares to the trust, is required to give us notice immediately and to provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The foregoing restrictions on transferability and ownership will not apply if our board determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. If any transfer of shares of our stock occurs which, if effective, would result in any person beneficially or constructively owning shares of our stock in excess or in violation of the above transfer or ownership limitations, then the number of shares of our stock the beneficial or constructive ownership of which would cause the person to violate the limitations will be automatically transferred under the provisions of our articles of incorporation to a trust for the exclusive benefit of one or more charitable beneficiaries within the meaning of 501(c)(3) of the Internal Revenue Code. The proposed transferee that exceeds the ownership limitations will not acquire any rights in these shares. The automatic transfer is deemed effective as of the close of business on the business day, as defined in our articles of incorporation, prior to the date of the violative transfer. Shares of stock held in the trust will continue as issued and outstanding common stock or preferred stock. The proposed transferee will not benefit economically from ownership or any shares of stock held in the trust, will have no rights to dividends and will not possess any rights to vote or other rights attributable to the shares of stock held in the trust. The trustee of the trust will have all voting rights and rights to dividends or other distributions with respect to shares of stock held in the trust. The voting rights and rights to dividends will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend or other distribution paid prior to our 116 discovery that shares of stock have been transferred to the trustee will be paid by the recipient of the dividend or distribution to the trustee upon demand, and any dividend or other distributions authorized but unpaid will be paid when due to the trustee. Any dividend or distribution paid to the trustee will be held in trust for the charitable beneficiary. The proposed transferee will have no voting rights with respect to shares of stock held in the trust. Subject to Maryland law, effective as of the date that such shares of stock have been transferred to the trust, the trustee will have the authority at his sole discretion (i) to rescind as void any vote cast by the proposed transferee prior to our discovery that such shares have been transferred to the trust and (ii) to recast such vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote. Within twenty days of receiving notice from us that shares have been transferred to the trust, the trustee shall sell the shares to a person, designated by the trustee, whose ownership of the shares will not violate the ownership limitations set forth in the articles of incorporation. Upon the sale, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and to the charitable beneficiary as follows. The proposed transferee will receive the lesser of (i) the price paid by him for the shares or, if the proposed transferee did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g. a gift, devise or other such transaction), the market price, as defined in our articles of incorporation, of the shares on the day of the event causing the shares to beheld in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any net sale proceeds in excess of the amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that shares of stock have been transferred to the trust, such shares are sold by the proposed transferee, then (i) shares will be deemed to have been sold on behalf of the trust and (ii) to the extent that the proposed transferee received an amount for such shares that exceeds the amount that the proposed transferee was entitled to receive, the excess will be paid to the trustee upon demand. In addition, shares of our stock held in the trust will be deemed to have been offered for sale to us or our designees, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in the transfer to the trust, or, in the case of a devise or gift, the market price at the time of the devise or gift, and (ii) the market price on the date we, or our designate, accept such offer. We can accept this offer until the trustee has sold the shares held in the trust. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee. Our articles of incorporation require all persons who own more than 5%, or any lower percentages as required pursuant to the Internal Revenue Code or the regulations under the Internal Revenue Code, of our outstanding common and preferred stock, within 30 days after the end of each taxable year, to provide to us written notice stating their name and address, the number of shares of common and preferred stock they beneficially own directly or indirectly, and a description of how the shares are held. In addition, each beneficial owner must provide to us any addition information as we may request in order to determine the effect, if any, of their beneficial ownership on our status as a REIT and to ensure compliance with the 9.8% ownership limit. In addition, each stockholder will, upon demand, be required to provide us any information as we may request, in good faith, in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance. All certificates representing any shares of our common or preferred stock will bear a legend referring to the restrictions described above. 117 PROVISIONS OF MARYLAND LAW AND OF OUR ARTICLES OF INCORPORATION AND BYLAWS The following paragraphs summarize some provisions of Maryland law and the material terms of our articles of incorporation and bylaws. The following summary does not purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and our articles of incorporation and bylaws, copies of which are exhibits to the registration statement of which the prospectus is a part. See "Where You Can Find More Information." BUSINESS COMBINATIONS. Under the Maryland Business Combination Act, an anti-takeover statute, completion of a business combination (including a merger, consolidation, share exchange or an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an interested stockholder is prohibited for five years following the most recent date on which the interested stockholder becomes an interested stockholder. Maryland law defines an interested stockholder as any person who beneficially owns ten percent or more of the voting power of the corporation's shares or an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then-outstanding voting stock of the corporation (an interested stockholder) or an affiliate of such interested stockholder. A person is not an interested stockholder if, prior to the most recent time at which the person would otherwise have become an interested stockholder, the board of directors of the Maryland corporation approved the transaction which otherwise would have resulted in the person becoming an interested stockholder. The board of directors may provide that its approval is subject to compliance with any terms and conditions determined by the board. Following the five-year prohibition period, any such business combination with that interested stockholder must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least: - 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and - two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporation's common stockholders receive a minimum price (as defined in the Maryland business combination statute) equal to the highest price paid by the interested stockholder for its shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that the interested stockholder becomes an interested stockholder. As permitted under Maryland law, our articles of incorporation exempt any business combinations involving us and The Inland Group or any of its affiliates. As a result, the five-year prohibition and the super-majority vote requirement will not apply to any business combinations between The Inland Group or any affiliate of The Inland Group and us. Therefore, The Inland Group or any affiliate of The Inland Group may be able to enter into business combinations with us, which may or may not be in the best interests of the stockholders. CONTROL SHARE ACQUISITION. Maryland's Control Share Acquisition Act, an anti-takeover statute, prohibits interested stockholders from engaging in self-dealing business combinations with a Maryland corporation, except to the extent approved by the corporation's disinterested stockholders. Maryland law provides that control shares of a Maryland corporation acquired in a control share acquisition have no 118 voting rights except to the extent approved by the corporation's disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the corporation's disinterested stockholders, whom the Act defines as (1) the acquiring person, (2) the corporation's officers and (3) employees of the corporation who are also directors. Control shares mean voting shares which, if aggregated with all other voting shares owned by an acquiring person or which the acquiring person can exercise or direct the exercise of voting power, would entitle the acquiring person to exercise or direct the exercise of voting power of shares of the corporation in electing directors within one of the following ranges of voting power: - one-tenth or more but less than one-third; - one-third or more but less than a majority; or - a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition occurs when, subject to some exceptions, a person directly or indirectly acquires ownership or the power to direct the exercise of voting power of issued and outstanding control shares. A person who has made or proposes to make a control share acquisition, upon satisfaction of some specific conditions, including an undertaking to pay expenses, may compel our board to call a special meeting of stockholders to be held within 50 days after that person's demand upon the corporation to consider the voting rights to be accorded to the control shares. If no request for a meeting is made, we may present the question at any stockholders' meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to some statutory conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights and be entitled to receive in cash the fair value for their shares of our stock. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is party to the transaction or to acquisitions approved or exempted by the articles of incorporation or bylaws of the corporation. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by The Inland Group or any affiliate of The Inland Group of our shares of stock. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 119 SHARES ELIGIBLE FOR FUTURE SALE SHARES TO BE OUTSTANDING OR ISSUABLE UPON EXERCISE OR CONVERSION OF OTHER OUTSTANDING SECURITIES Upon the completion of the offering and the consummation of the formation transactions, we expect to have outstanding 270,020,000 shares of common stock. This includes: - the 20,000 shares purchased by our advisor; and assumes that: - we sell all 250,000,000 shares of common stock offered on a best efforts basis in this initial public offering; - we sell all 20,000,000 shares to be issued under our distribution reinvestment program described in this offering; and - that there is no exercise of options which are expected to be outstanding and exercisable. In addition, we have reserved: - 75,000 shares for issuance upon exercise of options which may be granted under our independent director stock option plan. Subject to the provisions of our articles of incorporation, we could issue an undetermined number of shares of our common or preferred stock in the discretion of our board and without the approval by our stockholders: - directly for equity interests in real properties; or - upon exchange of any interests in entities that own our properties or in other companies we control, which might be issued for equity interests in real properties. All of the common stock we are offering by this prospectus will be freely tradable in the public market, should a public market develop, which we cannot guarantee, without restriction or limitation under the Securities Act of 1933 by persons other than our affiliates and soliciting dealers considered underwriters. However, all common stock issuable by us in this offering and otherwise will be subject to the restrictions explained under "Description Of Securities - Restrictions on Ownership and Transfer." SECURITIES ACT RESTRICTIONS The common stock owned by our affiliates will be subject to Rule 144 adopted under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including exemptions contained in Rule 144. In general, under Rule 144, a person, or persons whose common stock is aggregated with them in accordance with Rule 144, who has beneficially owned securities acquired from an issuer or an affiliate of the issuer for at least one year, would be entitled, within any three-month period, to sell a number of shares of common stock that does not exceed the greater of (1) 1% of the then-outstanding number of shares or (2) the average weekly reported trading volume of the common stock on a national securities 120 exchange or market during the four calendar weeks preceding each sale. Sales under Rule 144 must be transacted in the manner specified by Rule 144 and must meet requirements for public notice as well as public information about us. Any person who (1) is not deemed to have been our affiliate at any time during the three months preceding a sale, and (2) has beneficially owned our common stock for at least two years, would be entitled to sell the common stock under Rule 144(k) without regard to the volume limitations, manner of sale provisions, notice requirements or public information requirements of Rule 144. An affiliate, for purposes of the Securities Act, is a person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or under common control with, us. INDEPENDENT DIRECTOR STOCK OPTION PLAN We have established an independent director stock option plan for the purpose of attracting and retaining independent directors. See "Management--Independent Director Stock Option Plan." We will issue in the aggregate options to purchase 9,000 shares of our common stock to our independent directors, at the exercise price of $8.95 per share, when, and if, we have 90,000 shares of common stock issued and outstanding. One-third of the shares will be exercisable upon their grant. An additional 66,000 shares will be available for future option grants under the independent director stock option plan. See "Management--Independent Director Stock Option Plan" for additional information regarding the independent director stock option plan. Rule 701 under the Securities Act provides that common stock acquired on the exercise of outstanding options by affiliates may be resold by them subject to all provisions of Rule 144 except its one-year minimum holding period. We intend to register the common stock to be issued under the independent director stock option plan in a registration statement or statements on SEC Form S-8 or other appropriate form. EFFECT OF AVAILABILITY OF SHARES ON MARKET PRICE OF SHARES Prior to the date of this prospectus, there has been no public market for our common stock. No assurance can be given that a public market for our common stock will develop. We cannot predict the effects that future sales of common stock, including sales under Rule 144, or the availability of common stock for future sale will have on the market price, if any, prevailing from time to time. Sales of substantial amounts of our common stock, including shares issued upon the exercise of options or the perception that these sales could occur, could adversely affect prevailing market prices of our common stock and impair our ability to obtain additional capital through the sale of equity securities. See "Risk Factors--Risks Related to the Offering." For a description of restrictions on transfers of common stock, see "Description of Securities--Restrictions on Ownership and Transfer." Also, see the following section regarding registration rights. REGISTRATION RIGHTS In the future we may grant "demand" and/or "piggyback" registration rights to: - stockholders receiving our common stock directly in exchange for their equity interests in assets of theirs we would acquire; and - persons receiving interests in any real property partnership for their interests in real properties we would acquire. "Piggyback" registration rights allow the holder to have his, her or its shares registered along with our shares ONLY at such time(s) in the future when we would choose to register some of our shares for financing purposes - that is, to join with us in the registration of our shares. "Demand" registration rights 121 permit the holder of demand rights to REQUIRE us to register with the SEC his, her or its shares at such time(s) as the holder requests, regardless of any desire by us to register our own shares for financing purposes, even if we do not have sufficient capital resources to effect a registration of shares. These rights will be for registration under the Securities Act of any of our common stock acquired by them directly. The terms and conditions of any agreements for registration rights will be negotiated and determined at such future time as we determine advisable in connection with the acquisition of one or more properties. Our future granting of registration rights could include registration of the subject shares at our expense. If that were the case, our obligation could result in a substantial expense to us at a time when we might not be able to afford such an expense and could also hinder our future attempts to obtain financing. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 122 SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS Each stockholder is bound by and is deemed to have agreed to the terms of our organizational documents by his, her or its election to become a stockholder of our company. Our organizational documents consist of our articles of incorporation and bylaws. Our directors, including all the independent directors, reviewed and unanimously ratified our articles of incorporation and bylaws at our first board meeting, which was required. The following is a summary of material provisions of our organizational documents and does not purport to be complete. This summary is qualified in its entirety by specific reference to the organizational documents filed as exhibits to our registration statement of which this prospectus is a part. See "Where You Can Find More Information." Our articles of incorporation were filed with the State Department of Assessments and Taxation of Maryland and became operative on March 5, 2003. Our articles of incorporation were filed in Maryland, and provide that we have perpetual existence. The bylaws in their present form became operative when our board approved them on March 5, 2003. Neither our articles of incorporation nor bylaws have an expiration date. As a result, they will remain operative in their current form throughout our existence, unless they are amended or we are dissolved. ARTICLES OF INCORPORATION AND BYLAW PROVISIONS The stockholders' rights and related matters are governed by our articles of incorporation and bylaws and Maryland law. Some provisions of the articles of incorporation and bylaws, summarized below, may make it more difficult to change the composition of our board and could have the effect of delaying, deferring, preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. STOCKHOLDERS' MEETINGS Our bylaws provide that an annual meeting of the stockholders will be held on the date and at such time as our board may designate. However, the meeting will not be held less than 30 days after the delivery of our annual report to stockholders. The purpose of each annual meeting of the stockholders is to elect directors and to transact any other proper business. The chairman, the president, a majority of the directors or a majority of the independent directors may call a special meeting of the stockholders. The secretary or some other officer must call a special meeting when stockholders holding 10% or more of the outstanding shares entitled to vote make a written request for a meeting. The written request may be in person or by mail and must state the purpose(s) of the meeting and the matters to be acted upon. We have entered into an agreement with Inland Real Estate Investment Corporation, our sponsor, which provides that it will pay for the reasonably estimated cost to prepare and mail a notice of any special meeting of stockholders requested by the stockholders. The meeting will be held on a date not less than 15 nor more than 60 days after the distribution of the notice, at the time and place specified in the notice. Except as provided in the preceding sentence, we will give notice of any annual or special meeting of stockholders not less than 10 nor more than 90 days before the meeting. The notice will state the purpose of the meeting. At any meeting of the stockholders, each stockholder is entitled to one vote for each share owned of record on the applicable record date. In general, the presence in person or by proxy of a majority of the outstanding shares entitled to vote at a meeting will constitute a quorum. The affirmative vote of a majority of the shares of our stock, present in person or by proxy at a meeting of stockholders duly called and at which a quorum is present, will be sufficient, without the necessity for concurrence by the directors, to elect the directors. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present will be sufficient to approve any other matter which may properly come 123 before the meeting, unless more than a majority of the votes cast is required by statute or our articles of incorporation. BOARD OF DIRECTORS Our articles of incorporation and bylaws provide that we may not have fewer than three nor more than eleven directors. Our bylaws currently provide that the number of directors shall be seven. Our articles of incorporation require that a majority of our directors must be independent directors. Independent directors are directors who are not and have not been affiliated with us, our sponsor, or our advisor, within the two years prior to their becoming our independent director and who perform no services on our behalf other than as a director. A vacancy on the board caused by the death, resignation or incapacity of a director or by an increase in the number of directors, within the limits described above, may be filled by the vote of a majority of the remaining directors whether or not the voting directors constitute a quorum. Our articles of incorporation require that our independent directors must nominate replacements to vacancies in independent director positions irrespective of how the vacancy arises. Our bylaws provide that a vacancy on our board caused by an increase in the number of directors may be filled by a majority of the entire board; that when a vacancy occurs as a result of the removal of a director by our stockholders, the vacancy must be filled by a majority vote of our stockholders; and that any director may resign at any time and may be removed with or without cause by the affirmative vote of the holders of not less than a majority of the outstanding shares. Our bylaws provide that the majority of members of each committee of our board of directors be comprised of independent directors and that all the members of our audit committee be independent directors. Our articles of incorporation provide that a director must have at least three years of relevant experience and demonstrate the knowledge required to successfully acquire and manage the type of assets that we intend to acquire. At least one of our independent directors must have three years of relevant real estate experience. STOCKHOLDER VOTING RIGHTS Each share of our common stock has one vote on each matter submitted to a vote of stockholders. Shares of common stock do not have cumulative voting rights or preemptive rights. Stockholders may vote in person or by proxy. Directors are elected when they receive the majority of votes of holders of shares present in person or by proxy at a stockholders' meeting, provided there was a quorum when the meeting commenced. A quorum is reached when the stockholders holding a majority of the outstanding shares entitled to vote are present either in person or represented by proxy. All questions other than election of directors, removal of a director or directors and except as set forth below must be decided by a majority of the votes cast at a meeting at which a quorum is present. Maryland law provides that any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting by the unanimous written consent of all stockholders (which may be impracticable for a publicly held corporation). The approval by our board and by holders of at least a majority of our outstanding voting shares of stock is necessary for us to do any of the following: - amend our articles of incorporation, except to increase or decrease authorized stock as permitted by Maryland law; - transfer all or substantially all of our assets other than in the ordinary course of business; 124 - engage in mergers, consolidations or share exchanges, except in certain circumstances; or - dissolve or liquidate. Our articles of incorporation provide that a sale of two-thirds or more of our assets, based on the total number or the current fair market value of properties and mortgages we own, is a sale of substantially all of our assets. See "Description of Securities -- Common Stock" for an explanation of instances where stockholder approval is not required. Our articles of incorporation provide that neither the advisor, the sponsor, the directors, nor any affiliate may vote their shares of stock or consent on matters submitted to the stockholders regarding the removal of the advisor, the sponsor, the directors or any affiliate or any transaction between us and any of them. For purposes of determining the necessary percentage and interest of shares needed to approve a matter on which the advisor, the sponsor, the directors and any affiliate may not vote or consent, the shares of our common stock owned by them will not be included. RIGHTS OF OBJECTING STOCKHOLDERS As permitted by Maryland law, our articles of incorporation provide that our stockholders are not entitled to exercise any rights of an objecting stockholder provided for under Maryland law. As a result of this provision, our stockholders will not have any right to dissent under Maryland law to an extraordinary transaction, such as the merger of our company into another company or the sale of all or substantially all of our assets, and in the proceedings to receive a cash payment representing the fair value of their shares of our common stock. STOCKHOLDER LISTS; INSPECTION OF BOOKS AND RECORDS Any stockholder or his designated representative will be permitted access to all of our records at all reasonable times and may inspect and copy any of them for the purposes specified below. We maintain an alphabetical list of names, record addresses and business telephone numbers, if any, of all stockholders with the number of shares held by each at our principal office. The stockholder list is updated at least quarterly and is open for inspection by a stockholder or his designated agent at the stockholder's request. A stockholder may request a copy of the stockholder list to find out about matters relating to the stockholder's voting rights and their exercise under federal proxy laws. We will mail the stockholder list to any stockholder requesting it within 10 days of receiving the request. We may impose a reasonable charge for expenses incurred in reproducing the list. If our advisor or directors neglect or refuse to produce or mail a copy of the stockholder list as requested, then in accordance with applicable law and our articles of incorporation, the advisor and the directors will be liable to the stockholder who requested the list. Their liability will include the costs, including reasonable attorneys' fees, incurred by the stockholder in compelling the production of the list and actual damages suffered by the stockholder because of the refusal or neglect. However, the fact that the actual purpose of the request is to secure the list for the purpose of selling it, or using it for a commercial or other purpose is a defense against liability for refusal to supply the list. We may require the stockholder requesting the list to represent that the stockholder list is not requested for a commercial purpose unrelated to the stockholder's interest in us. In addition, our books and records are open for inspection by state securities administrators upon reasonable notice and during normal business hours at our principal place of business. 125 AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS Our articles of incorporation may be amended, after approval by our board, by the affirmative vote of a majority of our then-outstanding voting shares of stock. Our bylaws may be amended in a manner not inconsistent with the articles of incorporation and bylaws by a majority vote of our directors present at the board meeting. DISSOLUTION OR TERMINATION OF THE COMPANY As a Maryland corporation, we may be dissolved under Maryland law at any time with the approval of a majority of our outstanding shares of stock. However, we anticipate that by September 15, 2008, our board will determine whether to: - apply to have our shares of common stock listed for trading on a national stock exchange or included for quotation on a national market system, provided we meet the then applicable listing requirements; and/or - commence subsequent offerings after completion of the offering. If listing our shares of common stock is not feasible by that time, our board may decide to: - sell our assets individually, provided, however, that if this action would constitute the sale of all or substantially all of our assets, such an action is approved by the holders of at least a majority of the then-outstanding voting shares of stock; - list our shares of common stock at a future date; or - liquidate us within 10 years of such date, provided however, that such an action is approved by the holders of at least a majority of our then-outstanding voting shares of stock. ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS Our bylaws provide that, with respect to our annual meeting of stockholders, nominations for election to our board and the proposal of business to be considered by stockholders may be made only: - in accordance with our notice of the meeting; - by or at the direction of our board; or - by a stockholder who was a stockholder of record both at the time of the giving of notice and at the time of the meeting, who is entitled to vote at the meeting and who has complied with the advance notice procedures set forth in the bylaws. Our bylaws also provide that, with respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before a meeting of stockholders and nominations for election to the board may be made only: - in accordance with our notice of the meeting; - by or at the direction of our board; or 126 - provided that our board has determined that directors will be elected at the meeting, by a stockholder who was a stockholder of record both at the time of the giving of notice and at the time of the annual meeting, who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our bylaws. A stockholder's notice for an annual meeting must be delivered to our secretary at our principal executive offices: - not less than 45 days prior to the first anniversary of the date of mailing of the notice of the previous year's annual meeting; or - if the number of directors to be elected is increased and there is no announcement of that fact, at least 70 days before the first anniversary of the date of mailing of the notice of the previous year's annual meeting, or not later than the close of business on the tenth day of our first public announcement. A stockholder's notice for a special meeting must be delivered to our secretary at our principal executive offices: - not earlier than the ninetieth day prior to the special meeting, and - not later than the close of business on the later of either: - the sixtieth day prior to the special meeting; or - the tenth day following the day of our first public announcement of the date of the special meeting and the nominees proposed by our board to be elected at the meeting. RESTRICTIONS ON CERTAIN CONVERSION TRANSACTIONS AND ROLL-UPS Our articles of incorporation require that some transactions involving an acquisition, merger, conversion or consolidation in which our stockholders receive securities in a surviving entity, a roll-up entity, must be approved by the holders of a majority of our then-outstanding shares. Approval by a majority of our then-outstanding shares for a transaction resulting in a roll-up entity is only required, however, until our board determines that it is no longer in our best interest to attempt or continue to qualify as a REIT. The holders of a majority of the shares do not need to approve any such transaction effected because of changes in applicable law, or to preserve tax advantages for a majority in interest of our stockholders. A roll-up entity is a partnership, REIT, corporation, trust or other entity that would be created or would survive after the successful completion of a proposed roll-up transaction. A roll-up does not include (1) a transaction involving securities that have been listed on a national securities exchange or traded through The Nasdaq Stock Market -- Nasdaq National Market for at least 12 months, or (2) a transaction involving our conversion to a trust or association form if, as a consequence of the transaction, there will be no significant adverse change in any of the following: - stockholders' voting rights; - our term and existence; 127 - sponsor or advisor compensation; or - our investment objectives. In the event of a proposed roll-up, an appraisal of all our assets must be obtained from a person with no current or prior business or personal relationship with our advisor or directors. Further, that person must be substantially engaged in the business of rendering valuation opinions of assets of the kind we hold. The appraisal must be included in a prospectus used to offer the securities of a roll-up entity. It must also be filed with the Securities and Exchange Commission and the state regulatory commissions as an exhibit to the registration statement for the offering of the roll-up entity's shares. As a result, an issuer using the appraisal will be subject to liability for violation of Section 11 of the Securities Act and comparable provisions under state laws for any material misrepresentations or material omissions in the appraisal. Our assets will be appraised in a consistent manner and the appraisal will: - be based on an evaluation of all relevant information; - indicate the value of our assets as of a date immediately prior to the announcement of the proposed roll-up transaction; and - assume an orderly liquidation of our assets over a 12-month period. The terms of the engagement of the appraiser will clearly state that the engagement is for the benefit of us and our stockholders. A summary of the independent appraisal, indicating all material assumptions underlying it, will be included in a report to the stockholders in the event of a proposed roll-up. We may not participate in any proposed roll-up which would: - result in the stockholders of the roll-up entity having rights which are more restrictive to stockholders than those provided in our articles of incorporation, including any restriction on the frequency of meetings; - result in the stockholders having less comprehensive voting rights than are provided in our articles of incorporation; - result in the stockholders having greater liability than provided in our articles of incorporation; - result in the stockholders having fewer rights to receive reports than those provided in our articles of incorporation; - result in the stockholders having access to records that are more limited than those provided for in our articles of incorporation; - include provisions which would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the roll-up entity, except to the minimum extent necessary to preserve the tax status of the roll-up entity; - limit the ability of an investor to exercise its voting rights in the roll-up entity on the basis of the number of the shares held by that investor; 128 - result in investors in the roll-up having less comprehensive rights of access to the records of the roll-up than those provided in our articles of incorporation; or - place any of the costs of the transaction on us if the roll-up is not approved by our stockholders. However, with the prior approval of a majority of our then-outstanding shares of our stock, we may participate in a proposed roll-up if the stockholders would have rights and be subject to restrictions comparable to those contained in our articles of incorporation. Stockholders who vote "no" on the proposed roll-up will have the choice of: - accepting the securities of the roll-up entity offered; or - one of either: - remaining as our stockholders and preserving their interests on the same terms and conditions as previously existed; or - receiving cash in an amount equal to their pro rata share of the appraised value of our net assets. These provisions in our articles of incorporation, bylaws and Maryland law could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. The limitations and restrictions set forth below under " -- Limitation on Total Operating Expenses," " -- Transactions with Affiliates," and " -- Restrictions on Borrowing" in this section will be effective until our board determines that it is no longer in our or our stockholders' best interests that we continue to operate as a REIT, or until such time as we fail to qualify as a REIT. LIMITATION ON TOTAL OPERATING EXPENSES Our articles of incorporation provide that, subject to the conditions described in the following paragraph, our annual total operating expenses in any fiscal year shall not exceed the greater of 2% of our average assets or 25% of our net income, before any additions to or allowances for reserves for depreciation, amortization or bad debts or other similar non-cash reserve and before any gain from the sale of an our assets. Our independent directors have a fiduciary responsibility to limit our annual total operating expenses to amounts that do not exceed these limits. Our independent directors may, however, determine that a higher level of total operating expenses is justified for such period because of unusual and non-recurring expenses. Such a finding by our independent directors and the reasons supporting it shall be recorded in our minutes of meetings of our directors. If at the end of any fiscal quarter our total operating expenses for the 12 months then ended are more than 2% of average assets or more than 25% of net income, before any additions to or allowances for reserves for depreciation, amortization or bad debts or other similar non-cash revenues and before any gain from the sale of our assets, whichever is greater, as described above, we will disclose this in writing to the stockholders within 60 days of the end of the fiscal quarter. If our independent directors conclude that higher total operating expenses are justified, the disclosure will also contain an explanation of the conclusion. If total operating expenses exceed the limitations described above and if our directors are unable to conclude that the excess was justified, then the advisor will reimburse us the amount by which the aggregate annual total operating expenses we paid 129 or incurred exceed the limitation. We must make the reimbursement within 60 days after the end of the fiscal year. TRANSACTIONS WITH AFFILIATES Our articles of incorporation impose restrictions on transactions between us and our advisor, sponsor and any director or their affiliates as follows: - SALES AND LEASES TO US. We will not purchase property from our sponsor, advisor, directors or any of their affiliates, unless a majority or our disinterested directors, including a majority of our disinterested independent directors, approves it as fair and reasonable for us. The price to us can be no greater than the cost of the asset to our sponsor, adviser, director or their affiliate. If our price to us is greater than such cost, there must be substantial, reasonable justification for the excess cost. In no event will our cost for the property exceed its appraised value at the time we acquired it. - SALES AND LEASES TO SPONSOR, ADVISOR, DIRECTOR OR ANY AFFILIATE. Our sponsor, advisor, directors or any of their affiliates will not acquire assets from us unless a majority of disinterested directors, including a majority of our disinterested independent directors, approves the transaction as being fair and reasonable to us. We may lease assets to our sponsor, advisor, director or any of their affiliates, but still only if a majority of our disinterested directors, including a majority of our disinterested independent directors, approves it as fair and reasonable to us. - LOANS. We will not make loans to our sponsor, advisor, directors or any of their affiliates except as provided in clauses (4) and (6) under " -- Restrictions on Investments" below in this section, or to our wholly owned subsidiaries. Also, we may not borrow money from our sponsor, advisor, director or any of their affiliates, unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as fair, competitive and commercially reasonable and no less favorable to us than loans between unaffiliated parties under the same circumstances. - INVESTMENTS. We will not invest in joint ventures with our sponsor, advisor, directors or any of their affiliates, unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as fair and reasonable to us and on substantially the same terms and conditions as those received by the other joint ventures. Neither can we invest in equity securities unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as being fair, competitive and commercially reasonable. - OTHER TRANSACTIONS. All other transactions between us and our sponsor, advisor, directors or any of their affiliates, require approval by a majority of our disinterested directors, including a majority of our disinterested independent directors, as being fair and reasonable and on terms and conditions not less favorable to us than those available from unaffiliated third parties. RESTRICTIONS ON BORROWING We may not incur indebtedness to enable us to make distributions except as necessary to satisfy the requirement to distribute at least the percentage of our REIT taxable income required for annual distribution of dividends by the Internal Revenue Code of 1986, or otherwise as necessary or advisable to 130 ensure that we maintain our qualification as a REIT for federal income tax purposes. Our aggregate borrowings, secured and unsecured, will be reasonable in relation to our net assets and will be reviewed by our board at least quarterly. We anticipate that, in general, aggregate borrowings secured by all our properties will not exceed 55% of their combined fair market value. This anticipated amount of leverage will be achieved over time. Our articles of incorporation provide that the aggregate amount of borrowing in relation to our net assets will, in the absence of a satisfactory showing that a higher level of borrowing is appropriate, not exceed 300% of net assets. Any excess in borrowing over such 300% of net assets level will be: approved by a majority of our independent directors; - disclosed to our stockholders in our next quarterly report to them, along with justification for such excess; and - subject to approval of our stockholders. See "Investment Objectives and Policies -- Borrowing." RESTRICTIONS ON INVESTMENTS The investment policies set forth in our articles of incorporation have been approved by a majority of independent directors. Our articles of incorporation prohibit our investments in: - any foreign currency or bullion; - short sales; and - any security in any entity holding investments or engaging in activities prohibited by our articles of incorporation. In addition to other investment restrictions imposed by our directors from time to time consistent with our objective to qualify as a REIT, we will observe the following restrictions on our investments as set forth in our articles of incorporation: (1) Not more than 10% of our total assets will be invested in unimproved real property or mortgage loans on unimproved real property. For purposes of this paragraph, "unimproved real property" does not include properties acquired for the purpose of producing rental or other operating income, properties under development or construction, and properties under contract for development or in planning for development within one year. (2) We will not invest in commodities or commodity future contracts. This limitation does not apply to interest rate futures when used solely for hedging purposes. (3) We will not invest in contracts for the sale of real estate. (4) We will not invest in or make mortgage loans unless we obtain an appraisal of the underlying property. Mortgage indebtedness on any property will not exceed the property's appraised value. In cases in which the majority of independent directors so determine, and in all cases in which the mortgage loan involves our advisor, sponsor, directors or their affiliates, we must obtain the appraisal from an independent expert. We 131 will keep the appraisal in our records for at least five years, where it will be available for inspection and duplication by any stockholder. In addition to the appraisal, we will also obtain a mortgagee's or owner's title insurance policy or commitment as to the priority of the mortgage or condition of the title. We will not invest in real estate contracts of sale otherwise known as land sale contracts. (5) We will not make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all outstanding mortgage loans outstanding on the property, including our loans, would exceed an amount equal to 85% of the appraised value of the property. However, if there is substantial justification due to other underwriting criteria and provided that loans would not exceed the appraised value of the property at the date of the loans, we could invest in mortgage loans that exceed 85% of the appraised value of the property. The aggregate amount of all mortgage loans outstanding on the property, including the loans of the REIT, shall include all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds 5% per annum of the principal balance of the loan. (6) We will not make or invest in any mortgage loans that are subordinate to any mortgage or equity interest of the advisor, the sponsor, any director or their affiliates. (7) We will not invest in equity securities unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as being fair, competitive and commercially reasonable. Investments in entities affiliated with our advisor, the sponsor, any director or their affiliates are subject to the restrictions on joint venture investments. Notwithstanding these restrictions, we may purchase our own securities when traded on a national securities exchange or market if a majority of our directors, including a majority of our independent directors, determines the purchase to be in our best interests. (8) We will not engage in any short sale nor will we borrow on an unsecured basis if the borrowing will result in an asset coverage of less than 300%. (9) To the extent we invest in properties, a majority of the directors, including a majority of the independent directors, will approve the consideration paid for such properties based on the fair market value of the properties. If a majority of independent directors so determines, the fair market value will be determined by a qualified independent real estate appraiser selected by our independent directors. If any property is acquired from our sponsor, our advisor, any director, or any of their affiliates, the provisions on transactions with affiliates will apply. (10) We will not invest in debt that is secured by a mortgage on real property that is subordinate to the lien of other debt, except where the amount of total debt does not exceed 90% of the appraised value of the property. The value of all of these investments may not exceed 25% of our tangible assets. The value of all investments in this debt that does not meet these requirements will be limited to 10% of our tangible assets, which would be included within the 25% limitation. (11) We will not engage in trading, as compared with investment, activities. 132 (12) We will not engage in underwriting activities, or distribute as agent, securities issued by others. (13) We will not acquire securities in any entity holding investments or engaging in activities prohibited by the restrictions on investments set forth in the foregoing clauses (1) through (12). Temporary investments in cash may be in such entities. Our independent directors will review our investment policies at least annually to determine whether our policies that we are following are in the best interests of our stockholders. Subject to the above restrictions and so long as we qualify as a REIT, a majority of our directors, including a majority of our independent directors, may alter the investment policies if they determine that a change is in our best interests. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 133 FEDERAL INCOME TAX CONSIDERATIONS We intend to qualify as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder and receive the beneficial federal income tax treatment described below. However, we cannot assure you that we will meet the applicable requirements under federal income tax laws, which are highly technical and complex. The following discusses the applicable requirements under federal income tax laws, the federal income tax consequences to maintaining REIT status and the material federal income tax consequences to you. Duane Morris LLP has acted and will act as our tax counsel in connection with our election to be taxed as a REIT, and has rendered the opinion set forth below. Some of the federal income tax implications of your investment are set forth in the "--Federal Income Taxation of Stockholders" section below. We, however, urge you to consult your tax advisor with respect to the federal, state, local, foreign and other tax consequences of the purchase, ownership and disposition of common shares which may be particular to your tax situation. In brief, a corporation that invests primarily in real estate can, if it complies with the provisions in Sections 856-860 of the Internal Revenue Code, qualify as a REIT and claim federal income tax deductions for the dividends it pays to its stockholders. Such a corporation generally is not taxed on its net income that is currently distributed to its shareholders. This treatment substantially eliminates the "double taxation" that a corporation and its shareholders generally bear together. However, as discussed in greater detail below, a corporation could be subject to federal income tax in some circumstances even if it qualifies as a REIT, and would likely suffer adverse consequences, including reduced cash available for distribution to its stockholders, if it failed to qualify as a REIT. We intend to operate in a manner that permits us to elect REIT status for the taxable year ending December 31, 2003, and to maintain this status in each taxable year thereafter, so long as REIT status remains advantageous. Duane Morris LLP is of the opinion, assuming that the actions described in this section are completed on a timely basis and we timely file the requisite elections, that we have been organized in conformity with the requirements for qualification as a REIT beginning with our taxable year ending December 31, 2003, and our proposed method of operation (as described in this prospectus) will enable us to satisfy the applicable requirements under federal income tax laws for qualification as a REIT. This opinion has been filed as an exhibit to the registration statement of which this prospectus is a part, and is based and conditioned, in part, on various assumptions made by Duane Morris LLP and representations made to Duane Morris LLP by us and the advisor as to factual matters. Our qualification and federal income tax treatment as a REIT depends upon our ability to meet, through operation of the properties we acquire and our investment in other assets, the applicable requirements under federal income tax laws. Duane Morris LLP has not reviewed, and will not in the future review, these operating results for compliance with the applicable requirements under federal income tax laws. Therefore, we cannot assure you that our actual operating results will allow us to satisfy the applicable requirements under federal income tax laws in any taxable year. In addition, this opinion represents Duane Morris LLP's legal judgment and is not binding on the Internal Revenue Service. FEDERAL INCOME TAXATION AS A REIT GENERAL. In any year in which we qualify as a REIT and have a valid election in place, we will claim deductions for the dividends we pay to the stockholders, and therefore will not be subject to federal income tax on that portion of our REIT Taxable Income as defined Section 857(b)(2) of the Internal Revenue Code or REIT capital gain which is distributed to our stockholders. We will, however, be subject to federal income tax at normal corporate rates on any REIT Taxable Income or capital gain not distributed. 134 Although we can eliminate or substantially reduce our federal income tax liability by maintaining our REIT status and paying sufficient dividends, we could be subject to federal income tax on certain items of income. If we fail to satisfy either the 95% Gross Income Test or the 75% Gross Income Test (each of which is described below), yet maintain our REIT status by meeting other requirements, we will be subject to a penalty tax based on the amount of income which caused us to fail these tests, as described below. We will also be subject to a 100% federal income tax on the net income from any "prohibited transaction," as described below. In addition, in order to retain our REIT status, we generally must distribute annually at least 90% of our REIT Taxable Income for such year. While we are not required to distribute REIT net capital gain income for any year in order to retain our REIT status, we will pay tax on such income to the extent we do not distribute it in such year. We may also be subject to the corporate alternative minimum tax. Additionally, we will be subject to federal income tax at the highest corporate rate on certain "nonqualifying" income from foreclosure property. In general, foreclosure property consists of property acquired (by foreclosure or otherwise) in connection with the default of a loan secured by such property. REIT QUALIFICATION TESTS. The Code defines a REIT as a corporation, trust or association: - that is managed by one or more trustees or directors; - the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; - that would be taxable as a domestic corporation but for its status as a REIT; - that is neither a financial institution nor an insurance company; - the beneficial ownership of which is held by 100 or more persons on at least 335 days in each full taxable year, proportionately adjusted for a partial taxable year; - generally in which, at any time during the last half of each taxable year, no more than 50% in value of the outstanding stock is owned, directly, or indirectly, by five or fewer individuals or certain entities; and - that meets the gross income, asset and annual distribution requirements, described in greater detail below. The first four and last conditions must be met during each taxable year for which REIT status is sought, while the other two conditions do not have to be met until after the first taxable year for which a REIT election is made. Although the 25% Asset Test (as defined below) generally prevents a REIT from owning more than 10% of the voting stock of an entity other than another REIT, the Internal Revenue Code provides an exception for ownership of voting stock in a "qualified REIT subsidiary." A qualified REIT subsidiary is a corporation that is wholly owned by a REIT throughout its existence. For purposes of the 25% Asset Test and the Gross Income Tests described below, all assets, liabilities and tax attributes of a qualified REIT subsidiary are treated as owned by the REIT. A qualified REIT subsidiary is not subject to federal income tax, but may be subject to state or local tax. We may hold investments through qualified REIT subsidiaries. We, in satisfying the general tests described above, must meet, among others, the following requirements: 135 - - SHARE OWNERSHIP TESTS. The common stock and any other stock we issue must be held by a minimum of 100 persons (determined without attribution to the owners of any entity owning our stock) for at least 335 days in each full taxable year, proportionately adjusted for partial taxable years. In addition, at all times during the second half of each taxable year, no more than 50% in value of our stock may be owned, directly or indirectly, by five or fewer individuals (determined with attribution to the owners of any entity owning our stock). However, these two requirements do not apply until after the first taxable year an entity elects REIT status. In addition, our articles of incorporation contain provisions restricting the transfer of our stock, which provisions are intended to assist us in satisfying both requirements. Furthermore, the distribution reinvestment program contains provisions that prevent it from causing a violation of these tests as do the terms of the options granted to the independent directors and the warrants issuable to the dealer manager and soliciting dealers. Pursuant to the applicable requirements under federal income tax laws, we will maintain records which disclose the actual ownership of the outstanding stock, and demand written statements each year from the record holders of specified percentages of the stock disclosing the beneficial owners. Those stockholders failing or refusing to comply with our written demand are required by the Internal Revenue Code and our articles of incorporation to submit, with their tax returns, a similar statement disclosing the actual ownership of stock and certain other information. See "Description of Securities--Restrictions on ownership and transfer." - - ASSET TESTS. We must satisfy, at the close of each calendar quarter of the taxable year, two tests based on the composition of our assets. After initially meeting the Asset Tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the Asset Tests at the end of a later quarter solely due to changes in value of our assets. In addition, if the failure to satisfy the Asset Tests results from an acquisition during a quarter, the failure can be cured by disposing of nonqualifying assets within 30 days after the close of that quarter. We intend to maintain adequate records of the value of our assets to insure compliance with these tests, and will act within 30 days after the close of any quarter as may be required to cure any noncompliance. 75% ASSET TEST. At least 75% of the value of our assets must be represented by "real estate assets," cash, cash items (including receivables) and government securities. Real estate assets include (i) real property (including interests in real property and interests in mortgages on real property), (ii) shares in other qualifying REITs, and (iii) any property (not otherwise a real estate asset) attributable to the temporary investment of "new capital" in stock or a debt instrument, but only for the one-year period beginning on the date we received the new capital. Property will qualify as being attributable to the temporary investment of new capital if the money used to purchase the stock or debt instrument is received by us in exchange for our stock (other than amounts received pursuant to our distribution reinvestment program) or in a public offering of debt obligations that have a maturity of at least five years. Additionally, regular and residual interests in a real estate mortgage investment conduit, known as a REMIC, and regular interests in a financial asset securitization trust, known as a FASIT, are considered real estate assets. However, if less than 95% of the assets of a REMIC or FASIT are real estate assets, we will be treated as holding a proportionate share of the assets and income of the REMIC or FASIT directly. When we purchase new real estate properties, we intend that the purchase contracts will apportion no more than 5% of the purchase price of any property to property other than "real property," as defined in the Code. In addition, we intend to invest funds not used to acquire properties in cash sources, "new capital" investments or other liquid investments which will allow us to qualify under the 75% Asset Test. Therefore, our investment in the real properties will constitute "real estate assets" and should allow us to meet the 75% Asset Test. 136 25% ASSET TEST. The remaining 25% of our assets may generally be invested subject to the following restrictions: If we invest in any securities that do not qualify under the 75% Asset Test, such securities may not exceed either (i) 5% of the value of our assets as to any one issuer; or (ii) 10% of the outstanding securities by vote or value of any one issuer. Modifications apply to the 25% Asset Test for qualified REIT subsidiaries and taxable REIT subsidiaries. As discussed above, the stock of a "qualified REIT subsidiary" is not counted for purposes of the 25% Asset Test. A qualified REIT subsidiary is a corporation that is wholly owned by a REIT throughout the subsidiary's existence. All assets, liabilities and tax attributes of a qualified REIT subsidiary are treated as belonging to the REIT. A qualified REIT subsidiary is not subject to federal income tax, but may be subject to state or local tax. We may hold investments through qualified REIT subsidiaries. Additionally, for purposes of the 25% Asset Test, securities of a taxable REIT subsidiary are excepted from the 10% vote and value limitations on a REIT's ownership of securities of a single issuer. However, no more than 20% of the value of a REIT may be represented by securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary is a corporation (other than another REIT) that is owned in whole or in part by a REIT, and joins in an election with the REIT to be classified as a taxable REIT subsidiary. Corporations that directly or indirectly operate or manage lodging or health care facilities cannot be taxable REIT subsidiaries. A corporation that is 35% owned by a taxable REIT subsidiary will also be treated as a taxable REIT subsidiary. A taxable REIT subsidiary may not be a qualified REIT subsidiary, and vice versa. As described below regarding the 75% Gross Income Test, a taxable REIT subsidiary is utilized in much the same way an independent contractor is used to provide certain types of services without causing the REIT to receive or accrue certain types of non-qualifying income. In addition to utilizing independent contractors to provide certain services in connection with the operation of our properties, we may also utilize taxable REIT subsidiaries to carry out these functions. We intend to invest funds not otherwise invested in properties in cash sources and other liquid investments in a manner which will enable us to satisfy the 25% Asset Test. GROSS INCOME TESTS. We must satisfy for each calendar year two separate tests based on the composition of our gross income, as defined under our method of accounting. THE 75% GROSS INCOME TEST. At least 75% of our gross income for the taxable year must result from (i) rents from real property, (ii) interest on obligations secured by mortgages on real property or on interests in real property, (iii) gains from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) other than property held primarily for sale to customers in the ordinary course of our trade or business, (iv) dividends from other qualifying REITs and gain (other than gain from prohibited transactions) from the sale of shares of other qualifying REITs, (v) other specified investments relating to real property or mortgages thereon, and, (vi) for a limited time, qualified temporary investment income, as defined under the 75% Asset Test. We intend to invest funds not otherwise invested in real properties in cash sources or other liquid investments in a manner that will allow us to qualify under the 75% Gross Income Test. Income attributable to a lease of real property will generally qualify as "rents from real property" under the 75% Gross Income Test (and the 95% Gross Income Test, described below), subject to the rules discussed below: 137 - Rent from a particular tenant will not qualify if we, or an owner of 10% or more of our stock, directly or indirectly, owns 10% or more of the voting stock or the total number of shares of all classes of stock in, or 10% or more assets or net profits of, the tenant. - The portion of rent attributable to personal property rented in connection with real property will not qualify, unless the portion attributable to personal property is 15% or less of the total rent received under, or in connection with, the lease. - Generally, rent will not qualify if it is based in whole, or in part, on the income or profits of any person from the underlying property. However, rent will not fail to qualify if it is based on a fixed percentage (or designated varying percentages) of receipts or sales, including amounts above a base amount so long as the base amount is fixed at the time the lease is entered into, the provisions are in accordance with normal business practice and the arrangement is not an indirect method for basing rent on income or profits. - Rental income will not qualify if we furnish or render services to tenants or manage or operate the underlying property, other than through a permissible "independent contractor" from whom we derive no revenue, or through a taxable REIT subsidiary. This requirement, however, does not apply to the extent that the services, management or operations we provide are "usually or customarily rendered" in connection with the rental of space, and are not otherwise considered "rendered to the occupant." With respect to the "usual or customarily rendered" rule, our tenants will receive some services in connection with their leases to the real properties. We believe that the services to be provided are usually or customarily rendered in connection with the rental of the properties, and, therefore, that providing these services will not cause the rents we receive with respect to the properties to fail to qualify as rents from real property for purposes of the 75% Gross Income Test (and the 95% Gross Income Test, described below). The board of directors intends to hire qualifying independent contractors or to utilize taxable REIT subsidiaries to render services which it believes, after consultation with Duane Morris LLP, are not usually or customarily rendered in connection with the rental of space. THE 95% GROSS INCOME TEST. In addition to deriving 75% of our gross income from the sources listed above, at least 95% of our gross income (excluding gross income from prohibited transactions) for the taxable year must be derived from (i) sources which satisfy the 75% Gross Income Test, (ii) dividends, (iii) interest, or (iv) gain from the sale or disposition of stock or other securities that are not assets held primarily for sale to customers in the ordinary course of our trade or business. It is important to note that dividends and interest on obligations not collateralized by an interest in real property qualify under the 95% Gross Income Test, but not under the 75% Gross Income Test. We intend to invest funds not otherwise invested in properties in cash sources or other liquid investments which will allow us to qualify under the 95% Gross Income Test. Our share of income from the properties will primarily give rise to rental income and gains on sales of the properties, substantially all of which will generally qualify under the 75% gross income and 95% Gross Income Tests. Our anticipated operations indicate that it is likely that we will have little or no nonqualifying income to cause adverse federal income tax consequences. If we fail to satisfy either the 75% Gross Income Test or the 95% Gross Income Test for any taxable year, we may retain our status as a REIT for such year if we satisfy the Internal Revenue Service that: (i) the failure was due to reasonable cause and not due to willful neglect, (ii) we attach to our return a schedule describing the nature and amount of each item of our gross income, and (iii) any incorrect information on such schedule was not due to fraud with intent to evade federal income tax. If this relief 138 provision is available, we would remain subject to a 100% tax based upon the amount by which we failed the 75% Gross Income Test or the 95% Gross Income Test. ANNUAL DISTRIBUTION REQUIREMENTS. In addition to the other tests described above, we are required to distribute dividends (other than capital gain dividends) to the stockholders each year in an amount at least equal to the excess of: (1) the sum of: (a) 90% of our REIT Taxable Income (determined without regard to the deduction for dividends paid and by excluding any net capital gain); and (b) 90% of the excess of the net income (after tax) from foreclosure property; less (2) the sum of certain types of items of non-cash income. Whether sufficient amounts have been distributed is based on amounts paid in the taxable year to which they relate, or in the following taxable year if we: (1) declare a dividend before the due date of our tax return (including extensions), (2) distribute the dividend within the 12-month period following the close of the taxable year (and not later than the date of the first regular dividend payment made after such declaration), and (3) file an election with our tax return. Additionally, dividends that we declare in October, November or December in a given year payable to stockholders of record in any such month will be treated as having been paid on December 31 of that year so long as the dividends are actually paid during January of the following year. If we fail to meet the annual distribution requirements as a result of an adjustment to our federal income tax return by the Internal Revenue Service, we may cure the failure by paying a "deficiency dividend" (plus penalties and interest to the Internal Revenue Service) within a specified period. If we do not distribute all of our net capital gain or distribute at least 90%, but less than 100% of our REIT Taxable Income, we will be subject to federal income tax on the undistributed portion. Furthermore, to the extent that we fail to distribute by year end at least the sum of: (1) 85% of our REIT Taxable Income for such year; (2) 95% of our REIT capital gain net income for such year; and (3) any undistributed taxable income from prior years, we would be subject to an excise tax equal to 4% of the difference between the amount required to be distributed under this formula and the amount actually distributed. We intend to pay sufficient dividends each year to satisfy the annual distribution requirements and avoid federal income tax on net capital gains. It is possible that we may not have sufficient cash or other liquid assets to meet the annual distribution requirements due to tax accounting rules and other timing differences. We will closely monitor the relationship between our REIT Taxable Income and cash flow and, if necessary to comply with the annual distribution requirements, will borrow funds to fully provide the necessary cash flow. FAILURE TO QUALIFY AS A REIT. If we fail to qualify for federal income tax purposes as a REIT in any taxable year and the relief provisions are not available or cannot be met, we will not be able to deduct our dividends and will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, thereby reducing cash available for distributions. In such event, all distributions to stockholders (to the extent of our current and accumulated earnings and profits), will be taxable as ordinary income. This "double taxation" results from our failure to qualify as a REIT. Unless entitled to relief under specific statutory provisions, we will not be eligible to elect REIT status for the four taxable years following the year during which qualification was lost. PROHIBITED TRANSACTIONS. As discussed above, we will be subject to a 100% federal income tax on any net income derived from "prohibited transactions." Net income derived from prohibited transactions arises from the sale or exchange of property held for sale to customers in the ordinary course of our business which is not foreclosure property. There is an exception to this rule for sales of property that: - is a real estate asset under the 75% Asset Test; 139 - has been held for at least four years; - has aggregate expenditures which are includable in the basis of the property not in excess of 30% of the net selling price; - in certain cases, was held for production of rental income for at least four years; - when combined with other sales in the year, either does not cause the REIT to have made more than seven sales of property during the taxable year, or occurs in a year when the REIT disposes of less than 10% of its assets (measured by federal income tax basis and ignoring involuntary dispositions and sales of foreclosure property); and - in certain cases, substantially all of the marketing and development expenditures were made through an independent contractor. Although we may eventually sell some or all of our properties, our primary intention in acquiring and operating the properties is the production of rental income and we do not expect to hold any property for sale to customers in the ordinary course of our business. FEDERAL INCOME TAXATION OF STOCKHOLDERS TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT, distributions paid to our domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be ordinary dividend income. Distributions in excess of current and accumulated earnings and profits are treated first as a tax-deferred return of capital to the stockholder, reducing the stockholder's tax basis in his or her common stock by the amount of such distribution, and then to the extent such a distribution exceeds a stockholder's tax basis, as capital gain. Because earnings and profits are reduced for depreciation and other noncash items, it is possible that a portion of each distribution will constitute a tax-deferred return of capital. Additionally, because distributions in excess of earnings and profits reduce the stockholder's basis in our stock, this will increase the stockholder's gain on any subsequent sale of the stock. Dividend income is characterized as "portfolio" income under the passive loss rules and cannot be offset by a stockholder's current or suspended passive losses. Corporate stockholders cannot claim the dividends received deduction for such dividends unless we lose our REIT status. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains to the extent they do not exceed our actual net capital gain for the taxable year. However, corporate stockholders may be required to treat up to 20% of some types of capital gain dividends as ordinary income. Although stockholders generally recognize taxable income in the year that a distribution is received, any distribution we declare in October, November or December of any year and is payable to a stockholder of record on a specific date in any such month will be treated as both paid by us and received by the stockholder on December 31 of the year it was declared even if paid by us during January of the following calendar year. Because we are not a pass-through entity for federal income tax purposes, stockholders may not use any of our operating or capital losses to reduce their tax liabilities. We may also decide to retain, rather than distribute, our net long-term capital gains and pay any tax thereon. In this case, stockholders would include their proportionate shares of such gains in income and receive a credit on their returns for their proportionate share of our tax payments. In general, the sale of common stock held for more than 12 months will produce long-term capital gain or loss. All other sales of common stock generally will produce short-term gain or loss. In each case, the gain or loss is equal to the difference between the amount of cash and fair market value of any property received from the sale and the stockholder's basis in the common stock sold. However, any loss 140 from a sale or exchange of common stock by a stockholder who has held such stock for six months or less will be treated as a long-term capital loss, to the extent of our distributions that the stockholder treated as long-term capital gains. We will report to our domestic stockholders and to the Internal Revenue Service the amount of dividends paid during each calendar year, and the amount (if any) of federal income tax we withhold. A stockholder may be subject to backup withholding (the current rate of which is 30%) with respect to dividends paid unless such stockholder: (a) is a corporation or comes within other exempt categories; or (b) provides us with a taxpayer identification number, certifies as to no loss of exemption, and otherwise complies with applicable requirements. A stockholder that does not provide us with its correct taxpayer identification number may also be subject to penalties imposed by the Internal Revenue Service. Any amount paid as backup withholding can be credited against the stockholder's federal income tax liability. In addition, we may be required to withhold a portion of distributions made to any stockholders who fail to certify their nonforeign status to us. See "--Taxation of Foreign Stockholders" in this section. TAXATION OF TAX EXEMPT STOCKHOLDERS. Our distributions to a stockholder that is a tax-exempt entity should not constitute unrelated business taxable income, or UBTI, unless the stockholder borrows funds (or otherwise incurs acquisition indebtedness within the meaning of the Internal Revenue Code) to acquire its common shares, or the common shares are otherwise used in an unrelated trade or business of the tax-exempt entity. Special rules apply to the ownership of REIT shares by certain tax-exempt pension trusts. If we would fail to satisfy the "five or fewer" share ownership test (discussed above with respect to the Share Ownership tests) because the stock held by tax-exempt pension trusts was viewed as being held by the trusts rather than by their respective beneficiaries, tax-exempt pension trusts owning more than 10% by value of our stock may be required to treat a percentage of our dividends as UBTI. This rule applies if: (1) at least one tax-exempt pension trust owns more than 25% by value of our shares, or (2) one or more tax-exempt pension trusts (each owning more than 10% by value of our shares) hold in the aggregate more than 50% by value of our shares. The percentage treated as UBTI is our gross income (less direct expenses) derived from an unrelated trade or business (determined as if we were a tax-exempt pension trust) divided by our gross income from all sources (less direct expenses). If this percentage is less than 5%, however, none of the dividends will be treated as UBTI. Because of the restrictions in our articles of incorporation of incorporation regarding the ownership concentration of our common stock, we believe that a tax-exempt pension trust should not become subject to these rules. However, because our common shares may be publicly traded, we can give no assurance of this. Prospective tax-exempt purchasers should consult their own tax advisors as to the applicability of these rules and consequences to their particular circumstances. TAXATION OF FOREIGN STOCKHOLDERS. The following discussion is intended only as a summary of the rules governing federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and foreign trusts and estates. These rules are quite complex and prospective foreign stockholders should consult with their own tax advisors to determine the impact of federal, state, and local income tax laws including any reporting requirements with respect to their investment in our REIT. In general, foreign stockholders will be subject to regular U.S. income tax with respect to their investment if such investment is "effectively connected" with the conduct of a trade or business in the U.S. A corporate foreign stockholder that receives (or is deemed to have received) income that is effectively connected with a U.S. trade or business may also be subject to the 30% "branch profits tax" under Code Section 884, which is payable in addition to regular federal corporate income tax. The 141 following discussion applies to foreign stockholders whose investment is not considered "effectively connected." Generally, any dividend that constitutes ordinary income for federal income tax purposes will be subject to a U.S. tax equal to the lesser of 30% of the gross amount of dividends or the rate in an applicable tax treaty. Generally, a distribution that does not exceed our earnings and profits will be treated as a dividend taxable as ordinary income. A distribution in excess of our earnings and profits is treated first as a nontaxable return of capital that will reduce a foreign stockholder's basis in its common stock (but not below zero) and then as gain from the disposition of such common stock, subject to the rules discussed below for dispositions. Our distributions that are attributable to gain from the sale or exchange of a "U.S. real property interest" are taxed to a foreign stockholder as if the distributions were gains "effectively connected" with a United States trade or business conducted by such foreign shareholder. As a result, a foreign stockholder will be taxed on these amounts at the capital gain rates applicable to a U.S. stockholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In addition, such dividends may also be subject to a 30% branch profits tax when made to a corporate foreign stockholder that is not entitled to treaty exemptions. We will report to our foreign stockholders and the Internal Revenue Service the amount of dividends paid during each calendar year, and the amount (if any) of federal income tax we withhold. These information reporting requirements apply regardless of whether withholding was reduced or eliminated in any applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the foreign stockholder resides. As discussed below, withholding tax rates of 30% and 35% may apply to distributions on common stock to foreign stockholders. Although tax treaties may reduce our withholding obligations, we will generally be required to withhold from dividends to foreign stockholders, and remit to the Internal Revenue Service, 35% of any distribution that could be designated as a capital gain dividend (regardless of the amount actually designated as a capital gain dividend) and 30% of ordinary dividends paid out of earnings and profits. In addition, if we designate prior dividends as capital gain dividends, subsequent dividends, up to the amount of such prior dividends, will be treated as capital gain dividends for withholding purposes. The amount of federal income tax withheld is creditable against the foreign stockholder's federal income tax liability, and if the amount of tax we withhold exceeds the U.S. tax liability, the foreign stockholder may file for a refund of such excess from the Internal Revenue Service. (Note that the 35% withholding tax rate on capital gain dividends currently corresponds to the maximum income tax rate applicable to corporations, but is higher than the 20% maximum rate on long-term capital gains of individuals.) Applicable Treasury regulations provide certain presumptions under which a foreign stockholder would be subject to backup withholding and information reporting until we receive certification from these stockholders of their foreign status. The regulations generally require a foreign stockholder to provide us with federal Form W-8BEN referred to as a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, Form W-8ECI referred to as a Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States, or Form W-8EXP referred to as a Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding certifying the foreign stockholder's entitlement to the benefits of any treaty. Unless the common shares constitute a "U.S. real property interest" under Section 897 of the Internal Revenue Code, gain on a sale of common stock by a foreign stockholder generally will not be 142 subject to U.S. income taxation unless (i) investment in the common stock is effectively connected with the foreign stockholder's U.S. trade or business, in which case, as discussed above, the foreign shareholder would be subject to the federal income tax, or (ii) the foreign stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual may be subject to a 30% tax on such gain. The common shares will not constitute a "U.S. real property interest" if we are a "domestically controlled REIT." A domestically controlled REIT is a REIT, which at all times during the preceding five-year period, had less than 50% in value of its common stock held directly or indirectly by foreign stockholders. We (or, if shorter, the period during which the REIT is in existence) expect to be a domestically controlled REIT, and, therefore, the sale of common stock should not be subject to such taxation for foreign stockholders, except as discussed above. However, because the common shares may be (but are not guaranteed to be) publicly traded, we can not assure you that we will continue to be a domestically controlled REIT. If we do not constitute a domestically controlled REIT, whether a foreign stockholder's gain on the sale of stock is subject to federal income tax as a sale of a U.S. real property interest depends primarily on whether the common shares are "regularly traded" on an established securities market and on the size of the selling stockholder's interest. If the gain on the sale of common shares is subject to federal income tax under these rules, the foreign stockholder would be subject to the same treatment as a U.S. stockholder with respect to the gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In any event, a purchaser of common stock from a foreign stockholder will not be required to withhold on the purchase price if the purchased shares are "regularly traded" on an established securities market or if we are a domestically controlled REIT. Otherwise, the purchaser of stock may be required to withhold 10% of the purchase price and remit this amount to the Internal Revenue Service. If the proceeds of a disposition of common stock are paid by or through a U.S. office of a broker-dealer, the payment is generally subject to information reporting and to backup withholding (the current rate of which is 30%) unless the disposing foreign stockholder certifies as to his name, address and non-U.S. status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding may not apply to a payment of disposition proceeds if the payment is made outside the U.S. through a foreign office of a foreign broker-dealer. Prospective foreign purchasers should consult their tax advisers concerning these rules. OTHER TAX CONSIDERATIONS DISTRIBUTION REINVESTMENT PROGRAM. Stockholders who participate in the distribution reinvestment program will recognize taxable dividend income in the amount they would have received had they elected not to participate, even though they receive no cash. These deemed dividends will be treated as actual dividends from us to the participating stockholders and will retain the character and federal income tax effects applicable to all dividends. See "--Taxation of Stockholders" in this section. Stock received under the program will have a holding period beginning with the day after purchase, and a federal income tax basis equal to its cost, which is the gross amount of the deemed distribution. STATE AND LOCAL TAXES. We and you may be subject to state or local taxation in various jurisdictions, including those in which we transact business or reside. Our and your state and local tax treatment may not conform to the federal income tax consequences discussed above. Consequently, you should consult your own tax advisors regarding the effect of state and local tax laws on an investment in the common shares. LEGISLATIVE PROPOSALS. You should recognize that our and your present federal income tax treatment may be modified by legislative, judicial or administrative actions at any time, which may be 143 retroactive in effect. The rules dealing with federal income taxation are constantly under review by Congress, the Internal Revenue Service and the Treasury Department, and statutory changes as well as promulgation of new regulations, revisions to existing statutes, and revised interpretations of established concepts occur frequently. We are not currently aware of any pending legislation that would materially affect our or your taxation as described in this prospectus. You should, however, consult your advisors concerning the status of legislative proposals that may pertain to a purchase of common shares. President Bush has proposed to exempt certain dividend payments made by certain corporations from federal taxation. We cannot be sure what impact, if any, any possible legislation could have on us or you as a stockholder. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 144 ERISA CONSIDERATIONS The following is a summary of material considerations arising under ERISA, including the prohibited transaction provisions of ERISA, and of Section 4975 of the Internal Revenue Code that may be relevant to a prospective purchaser of the shares where such prospective purchaser is an employee benefit plan, IRA or other tax-exempt entity under the Internal Revenue Code. This discussion does not deal with all aspects of ERISA or Section 4975 of the Internal Revenue Code or, to the extent not preempted, state law that may be relevant to particular employee benefit plan stockholders (including plans subject to Title I of ERISA, other employee benefit plans and IRAs subject to the prohibited transaction provisions of Section 4975 of the Internal Revenue Code, and governmental plans and church plans that are exempt from ERISA and Section 4975 of the Internal Revenue Code but that may be subject to state law and other Internal Revenue Code requirements) in light of their particular circumstances. A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES ON BEHALF OF A PROSPECTIVE INVESTOR WHICH IS A PENSION, PROFIT-SHARING, RETIREMENT, IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE INTERNAL REVENUE CODE, AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF SHARES BY SUCH BENEFIT PLAN. BENEFIT PLANS SHOULD ALSO CONSIDER THE ENTIRE DISCUSSION UNDER THE PRECEDING SECTION ENTITLED "FEDERAL INCOME TAX CONSIDERATIONS," AS MATERIAL CONTAINED THEREIN IS RELEVANT TO ANY DECISION BY A BENEFIT PLAN TO PURCHASE THE SHARES. In considering whether to invest a portion of the assets of a benefit plan in shares, fiduciaries of the benefit plan should consider, among other things, whether the investment: - will be in accordance with the governing documents of the benefit plan and is authorized and consistent with their fiduciary responsibilities under ERISA; - will allow the benefit plan to satisfy the diversification requirements of ERISA, if applicable; - will result in UBTI to the benefit plan (see "Federal Income Tax Considerations -- Taxation of Stockholders -- Taxation of Tax-Exempt Stockholders"); - will be sufficiently liquid for the benefit plan after taking this investment into account; and - is prudent and in the best interests of the benefit plan, its participants and beneficiaries under ERISA standards. The fiduciary of an IRA or a benefit plan not subject to Title I of ERISA because it is a governmental or church plan or because it does not cover common law employees should consider that such an IRA or non-ERISA plan may be subject to prohibitions against certain related-party transactions under Section 503 of the Internal Revenue Code, which operate similar to the prohibited transaction rules of ERISA and the Internal Revenue Code. In addition, the fiduciary of any governmental or church plan must consider applicable state or local laws, if any, and the restrictions and duties of common law, if any, imposed upon such plan. We express no opinion on whether an investment in shares is appropriate or permissible for any governmental or church plan under Section 503 of the Internal Revenue Code, or under any state, county, local, or other law respecting such plan. 145 In addition to imposing general fiduciary standards of investment prudence and diversification, ERISA and the corresponding provisions of the Internal Revenue Code prohibit a wide range of transactions involving the assets of the benefit plan and persons who have certain specified relationships to the benefit plan ("parties in interest" under ERISA and "disqualified persons" under the Internal Revenue Code). Benefit plan fiduciaries may not enter into a prohibited transaction involving "plan assets" and a "party in interest" or "disqualified person" with respect to a plan investor, unless an exemption applies. A prohibited transaction may occur if our assets are deemed to be assets of a benefit plan (i.e., the "look-through rule") which invests in shares and thereafter a "party in interest" or a "disqualified person" deals with the assets in a manner not permitted under ERISA or the Internal Revenue Code. Under such circumstances, any person that exercises authority or control with respect to the management or disposition of benefit plan assets is a benefit plan fiduciary and, therefore, is a "party in interest" and a "disqualified person" capable of participating in a prohibited transaction with the benefit plan. Thus, the actions of an employee of ours in dealing with our assets could, under certain circumstances, cause a benefit plan which invests in the shares to be a participant in a prohibited transaction. While "plan assets" are not defined in ERISA or the Internal Revenue Code, the United States Department of Labor, or the DOL, has issued regulations that provide guidance on the circumstances under which a benefit plan's investment in shares will be subject to the "look-through rule" and thus result in our assets being deemed benefit plan assets. The DOL regulations provide an exception to the "look-through rule" for a benefit plan which invests in a "publicly-offered security." This exception would apply to the shares, if they are part of a class of securities that is "widely-held," "freely-transferable," and either registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, or sold to the benefit plan pursuant to an effective registration statement under the Securities Act of 1933, provided the class of securities of which the security is a part are registered under the Securities Exchange Act of 1934 within 120 days or such longer period as is allowed by the Securities and Exchange Commission after the end of the fiscal year of the issuer during which the offering occurred. The shares are being sold in an offering registered under the Securities Act of 1933 and we represent that the class of securities of which the shares are a part have been registered under the Securities Exchange Act within the applicable time limits. The DOL regulations indicate that a security is "widely-held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. A security will not fail to be "widely-held" because the number of independent investors falls below 100 subsequent to the initial offering as a result of events beyond the issuer's control. We expect (although no assurances can be given) that the shares will be held by over 100 independent investors and, therefore, should be considered "widely-held." The DOL regulations further provide that whether a security is "freely-transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The DOL regulations state that generally, when a security is part of an offering in which the minimum investment is $10,000 or less, as is the case with this offering, certain restrictions ordinarily will not, alone or in combination, affect the determination of the finding that such securities are "freely-transferable." One such example under the DOL regulations is that a restriction or prohibition against a transfer or assignment which would result in a termination or reclassification of an entity for federal or state income tax purposes will not affect the determination of whether securities are "freely transferable." We believe that the ownership limits imposed under our charter of incorporation on the transfer of the shares are designed to prevent violations of the five or fewer requirement of federal income tax laws (which would cause a termination of REIT status for tax purposes) or are otherwise permitted under the DOL regulations and, therefore, will not cause the shares to not be "freely-transferable." 146 The DOL regulations are interpretive in nature and, therefore, no assurance can be given that the DOL and the United States Department of the Treasury will not conclude that the shares are not "freely-transferable," or not "widely-held." However, we believe that the shares are "publicly offered securities" for purposes of the DOL regulations and that: - our assets will not be deemed to be "plan assets" of any benefit plan that invests in the shares; and - any person who exercises authority or control with respect to our assets should not be treated as a benefit plan fiduciary of any benefit plan that invests in the shares, for purposes of the prohibited transaction rules of ERISA and Section 4975 of the Internal Revenue Code. In addition, a prohibited transaction may also occur under ERISA or the Internal Revenue Code where there are circumstances indicating that: - investment in the shares is made or retained for the purposes of avoiding application of the fiduciary standards of ERISA; - the investment in the REIT constitutes an arrangement under which it is expected that the REIT will engage in transactions which would otherwise be prohibited if entered into directly by the benefit plan purchasing the shares; - the investing benefit plan, by itself, has the authority or influence to cause the REIT to engage in such transactions; or - the person who is prohibited from transacting with the investing benefit plan may, but only with the aid of its affiliates and the investing benefit plan, cause the REIT to engage in such transactions with such person. In any event, a fiduciary or other person investing "plan assets" of any benefit plan should not purchase shares if we or any of our affiliates either: - have investment discretion with respect to the investment of such assets; or - have authority or responsibility to give or regularly gives investment advice with respect to such assets, for a fee, pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to such assets and that such advice will be based on the particular investment needs of such benefit plan. Unless an exemption is available for an employer maintaining or contributing to such benefit plans, any such purchase might result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code. See "Risk Factors -- Employee Benefit Plan Risks -- Annual Statement of Value is an Estimate" for an explanation of the annual statement of value we will provide stockholders subject to ERISA. 147 PLAN OF DISTRIBUTION GENERAL Of the 270,000,000 shares of our common stock offered by this prospectus, we are offering: - up to 250,000,000 shares at a purchase price of $10.00 per share through Inland Securities Corporation, the managing dealer, to the public on a best-efforts basis. Our managing dealer is one of our affiliates. A "best-efforts" basis means that neither the managing dealer nor the soliciting dealers are under any obligation to purchase any of the shares being offered. Therefore, no specified number of shares are guaranteed to be sold and no specified amount of money is guaranteed to be raised from this offering. - up to 20,000,000 shares at a purchase price of $9.50 per share for issuance through our distribution reinvestment program which will provide you with an opportunity to purchase additional shares of our common stock at a reduced rate by reinvesting your distributions. The offering price of our stock is subjective and was determined by our board of directors. Our board of directors determined the offering price based on the offering price of earlier REITs organized by our sponsor, the range of offering prices of other REITs that do not have a public trading market and the recommendation of the managing dealer based on its consultations with likely soliciting dealers. This offering will commence as of the date of this prospectus. If the minimum offering of 200,000 shares is not sold by September 15, 2004, we will cancel this offering and your investment will be returned to you within five business days after cancellation with any interest earned on your investment and with no deduction from your investment. If the minimum offering of 200,000 shares of common stock is sold and if this offering continues thereafter, the offering will terminate on or before, September 15, 2004, unless we elect to extend it to a date no later than September 15, 2005, in states that permit an extension. We reserve the right to terminate this offering at any time. Our dealer manager is a wholly owned subsidiary of our sponsor, Inland Real Estate Investment Corporation. Our dealer manager was also the dealer manager for the offerings for Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. Inland Real Estate Corporation raised approximately $679,780,000 in its offering. As of June 30, 2003, Inland Retail Real Estate Trust, Inc. raised approximately $2,156,104,000 in its offering. Our sponsor is an affiliate of our dealer manager. ESCROW CONDITIONS If you are qualified to participate in this offering, the proceeds from your subscription will be deposited in a segregated escrow account with the escrow agent, LaSalle Bank National Association, 120 South LaSalle Street, Chicago, Illinois, and will be held in trust for your benefit, pending release to us. Your investment will not be commingled with any other funds. None of the common stock offered by this prospectus will be sold, no commissions or fees will be paid, and your initial admission as a stockholder will not take place unless the escrow agent has received and accepted paid subscriptions for at least 200,000 shares of common stock for $2,000,000 within six months from the date of this prospectus. If subscriptions for at least the minimum offering have not been received, accepted, and paid for within six months from the date of this prospectus, the escrow agent will promptly refund your investment, together with your pro rata share of any interest earned. If a refund is made, our sponsor will pay any escrow fees. 148 The escrow agreement between us, the managing dealer and the escrow agent provides that escrowed funds will be invested by the escrow agent in an interest bearing account with the power of investment in short term securities issued or guaranteed by the United States Government which can be readily sold, or other investments permitted under the Securities Exchange Act of 1934. Additionally, as soon as we have received subscription proceeds for at least 200,000 shares of our common stock, we may invest the proceeds in other short term investments which can be readily sold, with appropriate safety of principal. After the minimum offering amount is sold, subscription proceeds are expected to be released to us as subscriptions are accepted. We will accept or reject subscriptions within 10 days after our receipt of a fully completed copy of the subscription agreement and payment for the number of shares of common stock subscribed for. The interest, if any, earned on subscription proceeds relating to the minimum offering prior to the release of the subscription proceeds to us from escrow will be distributed to you on a pro rata basis within 30 days after the end of the quarter during which you were admitted as a stockholder. After your initial admission as a stockholder in connection with the sale of at least 200,000 shares, you will not be entitled to interest earned on our funds or to receive interest on your investment. The escrow agreement provides that the escrow agent will be appointed as an investment manager by a named fiduciary of any ERISA plan that is providing money to the escrow. The escrow agreement among us, the managing dealer, and the escrow agent also provides (1) that until all the conditions precedent for transferring the monies held in escrow are met, the escrow property may be considered plan assets under ERISA and the escrow holder shall act as a fiduciary to any benefit plan with respect to those assets, and (2) that the property will be returned to the benefit plan if the conditions precedent are not met in a reasonable period of time. SUBSCRIPTION PROCESS We are offering up to 250,000,000 shares of our common stock to the public through the managing dealer and the soliciting dealers. The agreement between our managing dealer and the soliciting dealers requires the soliciting dealers to make diligent inquiries of you in order to determine whether a purchase of our common stock is suitable for you, and to transmit promptly to us the completed subscription documentation and any supporting documentation we may reasonably require. The managing dealer or a soliciting dealer is also required to deliver to you a copy of this prospectus and its appendices. We plan to make this prospectus and the appendices available electronically to the managing dealer and the soliciting dealers, as well as to provide them paper copies. As a result, if the managing dealer or a soliciting dealer chooses, with your prior consent, it may provide you with the option of receiving this prospectus and the appendices electronically. In any case, however, you may always receive a paper copy upon request. For at least six years, we shall maintain records of the information we have to determine that an investment in our shares is suitable and appropriate for a stockholder. Our common stock is being sold as subscriptions for the common stock are received and accepted by us, subject to the satisfaction by us of the escrow conditions described in the section immediately above. We have the unconditional right to accept or reject your subscription within 10 days after our receipt of a fully completed copy of the subscription agreement and payment for the number of shares of common stock subscribed for. If we accept your subscription, a confirmation will be mailed to you not more than three business days after our acceptance. No sale of our common stock may be completed until at least five business days after the date you receive this prospectus and, if required by state regulatory authorities, a copy of our organizational documents. If for any reason your subscription is rejected, your 149 funds and your subscription agreement will be returned to you, without interest or deduction, within 10 days after receipt. REPRESENTATIONS AND WARRANTIES IN THE SUBSCRIPTION AGREEMENT The subscription agreement requires you to make the following factual representations: - Your tax identification number set forth in the subscription agreement is accurate and you are not subject to backup withholding; - You received a copy of this prospectus not less than five business days prior to signing the subscription agreement (unless your state requires otherwise); - You meet the minimum income, net worth and any other applicable suitability standards established for you, as described in "Who May Invest," which appears earlier in this prospectus; - You are purchasing our common stock for your own account; and - You acknowledge that our common stock cannot be readily sold. Each of the above representations is included in the subscription agreement in order to help satisfy our responsibility to make every reasonable effort to determine that the purchase of our common stock is a suitable and appropriate investment for you and that appropriate income tax reporting information is obtained. We will not sell any common stock to you unless you are able to make the above factual representations by executing the subscription agreement. By executing the subscription agreement, you will not be waiving any rights under the federal securities laws. DETERMINATION OF YOUR SUITABILITY AS AN INVESTOR We, our managing dealer, each soliciting dealer and our sponsor will make reasonable efforts to determine that you satisfy the suitability standards set forth herein and that an investment in our common stock is an appropriate investment for you. The soliciting dealers must determine whether you can reasonably benefit from this investment. In making this determination, the soliciting dealers will consider whether: - you have the capability of understanding fundamental aspects of our business based on your employment experience, education, access to advice from qualified sources such as attorneys, accountants and tax advisors and prior experience with investments of a similar nature; - you have an apparent understanding of: - the fundamental risks and possible financial hazards of this type of investment; - that the shares cannot be readily sold; - the role of our advisor in directing or managing your investment in us; and - the tax consequences of your investment; and - you have the financial capability to invest in our common stock. 150 By executing the subscription agreement, each soliciting dealer acknowledges its determination that our common stock is a suitable investment for you. Each soliciting dealer is required to represent and warrant that it has complied with all applicable laws in determining the suitability of our common stock as an investment for you. We and our affiliates will coordinate the processes and procedures used by the managing dealer and the soliciting dealers and, where necessary, implement additional reviews and procedures to determine that you meet the suitability standards set forth in this prospectus. COMPENSATION WE WILL PAY FOR THE SALE OF OUR SHARES Except for the special sales described later in this section, we will pay the managing dealer cash selling commissions of 7.5% on all of the up to 250,000,000 shares of common stock sold on a best-efforts basis. Of this 7.5% selling commissions, the managing dealer will reallow up to 7% to soliciting dealers as compensation for their services in soliciting and obtaining subscriptions from you and other investors. Except for the special sales described later in this section, we will pay an additional 2.5% of the gross proceeds from this offering to the managing dealer as a marketing contribution in lieu of reimbursement of expenses associated with marketing, and we may reimburse the managing dealer for its bona fide due diligence expenses and for those of the soliciting dealers. The maximum reimbursement, however, will not exceed 0.5% of the gross proceeds from the up to 250,000,000 shares sold. The managing dealer may, at its discretion, retain or give all or any portion of the marketing contribution and due diligence expense allowance to soliciting dealers. Generally, the managing dealer will not give any portion of the marketing contribution to soliciting dealers unless they have a prescribed minimum annual sales volume of our common stock. Marketing and due diligence costs paid by the managing dealer on behalf of, or to, the soliciting dealers will be deducted from any marketing contribution or due diligence expense allowance otherwise payable to the soliciting dealers. The following table shows the compensation payable to our dealer manager.
TYPE OF COMPENSATION AMOUNT ESTIMATED MAXIMUM AMOUNT -------------------------------------------------------- Selling commissions 7.5% of sale price for each share $ 187,500,000 -------------------------------------------------------- Marketing contribution and due 3% of gross offering diligence allowance proceeds $ 75,000,000 --------------------------------------------------------
We will not pay selling commissions, marketing contributions or due diligence expense allowances in connection with the following special sales: - the sale of common stock in connection with the performance of services to our employees, directors and associates and our affiliates, our advisor, affiliates of our advisor, the managing dealer or their respective officers and employees and some of their affiliates; and - the purchase of common stock under the distribution reinvestment program. - No selling commissions will be paid in connection with the following special sales: 151 - the sale of our common stock to one or more soliciting dealers and to their respective officers and employees and some of their respective affiliates who request and are entitled to purchase common stock net of selling commissions; - the sale of common stock to investors whose contracts for investment advisory and related brokerage services include a fixed or "wrap" fee feature; and - the common stock credited to an investor as a result of a volume discount. It is illegal for us to pay or award any commissions or other compensation to any person engaged by you for investment advice as an inducement to such advisor to advise you to purchase our common stock; however, nothing herein will prohibit a registered broker dealer or other properly licensed person from earning a sales commission in connection with a sale of the common stock. We will not pay any registered investment advisory fees in connection with any purchase by you of our common stock, although you may elect to have your registered investment advisory fees deducted from your account with us and paid directly to your registered investment advisor. See "How to Subscribe." VOLUME DISCOUNTS Investors making an initial purchase of at least $250,010 worth of common stock (25,001 shares) through the same soliciting dealer may receive a reduction of the reallowable 7.0% selling commission payable in connection with the purchase of those shares in accordance with the following schedule: AMOUNT OF PURCHASER'S INVESTMENT
AMOUNT OF SELLING MAXIMUM COMMISSION VOLUME DISCOUNT FROM TO PER SHARE ----------------- ------------ ------------ ------------------ 1% $ 250,010 $ 500,000 6% 2% $ 500,010 $ 1,000,000 5% 3% $ 1,000,010 $ 2,500,000 4% 4% $ 2,500,010 $ 5,000,000 3% 5% $ 5,000,010 $ 10,000,000 2% 6% $ 10,000,010 more than 1% $ 10,000,000
Any reduction in the amount of the selling commissions in respect of volume discounts received may be credited to the investor in the form of additional whole shares or fractional shares. Selling commissions will not be paid on any such whole shares or fractional shares issued for a volume discount. Some purchases may be combined for the purpose of qualifying for a volume discount, and for determining commissions payable to the managing dealer or the soliciting dealers, so long as all the combined purchases are made through the same soliciting dealer. You may combine subscriptions made in this offer with other subscriptions in this offering for the purposes of computing amounts invested. Purchases by spouses may also be combined and purchases by you may be combined with other purchases of common stock to be held as a joint tenant or as tenants-in-common by you with others for purposes of computing amounts invested. Purchases by entities not required to pay federal income tax may only be combined with purchases by other entities not required to pay federal income tax for purposes of computing amounts invested if investment decisions are made by the same person. If the 152 investment decisions are made by an independent investment adviser, that investment adviser may not have any direct or indirect beneficial interest in any of the entities not required to pay federal income tax whose purchases are sought to be combined. You must mark the "Additional Investment" space on the subscription agreement signature page in order for purchases to be combined. We are not responsible for failing to combine purchases if you fail to mark the "Additional Investment" space. If the subscription agreements for the purchases to be combined are submitted at the same time, then the additional common stock to be credited to you as a result of such combined purchases will be credited on a pro rata basis. If the subscription agreements for the purchases to be combined are not submitted at the same time, then any additional common stock to be credited as a result of the combined purchases will be credited to the last component purchase, unless we are otherwise directed in writing at the time of the submission. However, the additional common stock to be credited to any entities not required to pay federal income tax whose purchases are combined for purposes of the volume discount will be credited only on a pro rata basis based on the amount of the investment of each entity not required to pay federal income tax and their combined purchases. Notwithstanding the preceding paragraphs, you may not receive a discount greater than 5% on any purchase of shares if you already own, or may be deemed to already own, any shares. This restriction may limit the amount of the volume discount available to you after your initial purchase and the amount of additional shares that you may be credited as a result of the combination of purchases. If the dollar amount of commissions paid for combined purchases exceeds the maximum commissions for combined purchases, taking the volume discount into effect, the managing dealer will be obligated to return to us, and soliciting dealers will be obligated to return to the managing dealer, any excess commissions received. The managing dealer and we may adjust any future commissions due for any such excess commissions that are not returned. DEFERRED COMMISSION OPTION DETERMINATION OF THE NUMBER OF SHARES TO BE ISSUED AND THE AMOUNT OF THE DEFERRED SELLING COMMISSIONS. You may agree with the participating soliciting dealer and the managing dealer to have selling commissions due with respect to the purchase of your shares paid over a period of up to six years pursuant to a deferred commission option arrangement. Our net proceeds from this offering will not be affected by the election of the deferred commission option. Under this arrangement and based upon a $10 per share deemed value to each share issued, if you elect the deferred commission option, you will pay a 1.5% selling commission upon subscription, of which 1% will be reallowed upon subscription, rather than the 7.5% selling commission, of which 7% is reallowable, and we will deduct an amount equal to up to 1% selling commission per year thereafter for up to the next six years from cash distributions otherwise payable to you. For example, if you elect the deferred commission option, you will be required to pay a total of $9.40 per share purchased upon subscription, rather than $10 per share, with respect to which $0.15 per share will be payable as selling commissions due upon subscription, of which $0.10 per share will be reallowed (based on the number of shares that would have been issued if the deferred commission option had not been elected). For example, for a $100,000 initial investment, we will issue 10,638.298 shares ($100,000 divided by $9.40), and you would pay maximum selling commissions of $1,500 upon subscription ($0.15 times the 10,000 shares which would have been issued for $100,000 if the deferred commission option had not been elected), of which $1,000 is reallowable. For each of the up to six years following the subscription, on a date or dates to be determined from time to time by the managing dealer (initially contemplated to be monthly as of when distributions are paid), we will deduct $0.10 per share (based on the number of shares that would have been issued if the deferred commission option had not been elected) on an annual basis from cash distributions otherwise payable to you. This amount will be used to pay deferred commission obligations. In the example of an initial cash investment of $100,000, 153 $1,000 would be deducted on an annual basis and used in the above described manner for each of the six years following the subscription. The managing dealer will pay the selling commissions paid upon subscription and in each of the following up to six years, which selling commissions may be reallowed to the soliciting dealer by the managing dealer and the deferred commission obligations would be satisfied. As in any volume discount situation, selling commissions are not paid on any shares issued for a volume discount. Therefore, when the deferred commission option is used, we will not make deductions for deferred commission obligations from cash distributions payable on the shares issued for a volume discount, because there will not be any deferred commission obligation as to those particular shares. The number of shares issued, if any, for a volume discount, will be determined as provided above under "Plan of Distribution--Volume Discounts." TAXES. If you elect the deferred commission option and you are subject to federal income taxation, you will incur tax liability for cash distributions payable to them with respect to their shares even though we will withhold such cash distributions and will instead pay third parties to satisfy deferred commission obligations. SUBSCRIPTION AGREEMENT. If you wish to elect the deferred commission option, you must make the election on the subscription agreement/signature page. In addition, the broker-dealer must also complete and sign the subscription agreement/signature page to acknowledge its agreement to the deferred commission option. AUTHORIZATION TO WITHHOLD CASH DISTRIBUTIONS. If you elect the deferred commission option you will be authorizing us to withhold cash distributions otherwise payable to you for the purpose of paying selling commissions due under the deferred commission option; provided, however, that in no event may we withhold in excess of $0.60 per share in the aggregate (lower when the volume discount provisions are also applicable and less than 6% of the selling commissions are deferred) under the deferred commission option. ACCELERATION OF DEFERRED COMMISSION OBLIGATION. If our shares become listed for trading on a national securities exchange or included for quotation on a national market system, or such listing or inclusion is reasonably anticipated to occur at any time prior to the satisfaction of the remaining deferred commission obligations, we will accelerate the remaining selling commissions due under the deferred commission option. In such event, we will provide notice of such acceleration to stockholders who have elected the deferred commission option. The amount of the remaining selling commissions due will be deducted and paid by us out of cash distributions otherwise payable to such stockholders during the time period prior to any such listing of the shares for trading on a national securities exchange or inclusion for quotation on a national market system. However, in no event may we withhold in excess of $0.60 per share in the aggregate during the six-year period following the subscription. The maximum amount that we may withhold and the maximum number of years for which we may offer selling commissions will be lower when the volume discount provisions are also applicable and less than 6% of the selling commissions are deferred. To the extent that the cash distributions during such time period are insufficient to satisfy the remaining deferred selling commissions due, the obligation of us and our stockholders to make any further payments of deferred selling commissions under the deferred commission option shall terminate and the managing dealer (and participating soliciting dealers if the deferred selling commissions are reallowed to them by the managing dealer) will not be entitled to receive any further portion of the unpaid deferred selling commissions following any such listing for trading or inclusion for quotation of our shares. In addition, if you elect the deferred commission option and subsequently elect to participate in our share repurchase program or request that we transfer your shares for any other reason prior to the time 154 that the remaining deferred selling commissions have been deducted from cash distributions otherwise payable to you during the mentioned period of up to six years, then we will accelerate the remaining selling commissions due under the deferred commission option. In such event, we shall provide notice of such acceleration to you, and: - in the case of an election to sell the shares under our share repurchase program, you will be required to pay to us the unpaid portion of the remaining deferred commission obligation prior to or concurrently with our purchase of your shares pursuant to our share repurchase program or we may deduct such unpaid portion of the remaining deferred commission obligation from the amount otherwise due to you for our purchase of your shares under our share repurchase program; or - if you request that we transfer the shares for any other reason, you will not be entitled to effect any such transfer until you first either: - pay to us the unpaid portion of the remaining deferred commission obligation; or - provide a written instrument in form and substance satisfactory to us, and appropriately signed by the transferee, to the effect that the proposed transferee agrees to have the unpaid portion of the remaining deferred commission obligation deducted from cash distributions otherwise payable to the transferee during the remaining portion of the specified up to six year period. LEGEND. All certificates representing any shares that elect the deferred commission option (including any shares issued for the volume discount in connection with the election of the deferred commission option) will bear a legend referring to the fact that such shares are subject to the terms of the deferred commission option including the withholding of cash distributions otherwise payable to the stockholders for the purpose of paying the deferred selling commission obligation. MARKETING CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE. The marketing contribution of 2.5% and the due diligence expense allowance of 0.5% will be payable by us on the gross offering proceeds for all of the shares issued based on an assumed price of $10 per share. We will pay those amounts due from the proceeds we receive at the time of the initial investment. INDEMNIFICATION We will indemnify the managing dealer and the soliciting dealers against liabilities, including liabilities under the Securities Act of 1933, if one or more of the following conditions are met: - there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and a court of competent jurisdiction has approved indemnification of the litigation costs; or - the claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee and the court has approved indemnification of the litigation costs; or - a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and approves indemnification of the settlement and related costs after being advised of the position of the Securities and Exchange Commission and the published opinions of any state securities regulatory authority in which our common stock was offered and sold respecting the availability and/or propriety of indemnification for 155 securities law violations. The soliciting dealer will be required to indemnify us and our advisor against such liabilities. In the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act of 1933 is against public policy and, therefore, unenforceable. The managing dealer and each of the soliciting dealers may be deemed to be an "underwriter" as that term is defined in the Securities Act of 1933. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.] 156 HOW TO SUBSCRIBE Investors who meet the suitability standards described above may purchase shares of common stock. See "Who May Invest" and "Plan of Distribution -- Determination of Your Suitability as an Investor," above, for the suitability standards. Investors who want to purchase shares must proceed as follows: - Read the entire prospectus and the current supplement(s), if any, accompanying the prospectus. - Complete the execution copy of the subscription agreement. A specimen copy of the subscription agreement, including instructions for completing it, is included in the prospectus as Appendix C. - Deliver a check for the full purchase price of the shares being subscribed for, payable to "LNB/Escrow Agent for IWRRET ", along with the completed subscription agreement to the soliciting dealer. If you are qualified to participate in this offering, for administrative convenience, the proceeds from your subscription will be deposited in a segregated escrow account with the escrow agent, LaSalle Bank National Association, 120 South LaSalle Street, Chicago, Illinois, and will be held in trust for your benefit, pending release to us. Your investment will not be commingled with any other funds. Subject to us selling the minimum amount, subscription proceeds are expected to be released to us as subscriptions are accepted. We will accept or reject subscriptions within ten days after we receive them. The name of your soliciting dealer appears on your subscription agreement. - By executing the subscription agreement and paying the full purchase price for the shares subscribed for, each investor attests that he or she meets the suitability standards as stated in the subscription agreement and agrees to be bound by all of its terms. In addition, if a subscriber elects the deferred commission option, he or she must do so by completing and signing the subscription agreement/signature page of the form of subscription agreement. The soliciting dealer must also complete and sign the subscription agreement/signature page to acknowledge its agreement to the deferred commission option. This is more fully explained under "Plan of Distribution - Deferred Commission Option." A sale of the shares may not be completed until at least five business days after the subscriber receives the prospectus. Within 10 days, and generally within 24 hours, of our receipt of each completed subscription agreement, we will accept or reject the subscription. If we accept the subscription, we will mail a confirmation within three days. If for any reason we reject the subscription, we will promptly return the check and the subscription agreement, without interest or deduction, within 10 days after we received it. An approved trustee must process through us and forward to us subscriptions made through individual retirement accounts, Keogh plans and 401(k) plans. In the case of individual retirement accounts, Keogh plans and 401(k) plan stockholders, we will send the confirmation to the trustee. You have the option of placing a transfer on death, or TOD, designation on your shares purchased in this offering. A TOD designation transfers ownership of the shares to your designated beneficiary upon your death. This designation may only be made by individuals, not entities, who are the sole or joint owners with right of survivorship of the shares. This option, however, is not available to residents of the States of Louisiana, New York, and North Carolina. If you would like to place a transfer on death 157 designation on your shares, you must check the TOD box on the subscription agreement and you must complete and return the transfer on death form included as Appendix D to this prospectus in order to effect the designation. You may elect to have any registered investment advisory fees deducted from your account with us and paid directly to your registered investment advisor by completing and signing a letter of instruction (in the form attached as Appendix E1 to this prospectus). The letter of instruction will authorize us to deduct a specified dollar amount or percentage of distributions paid by us as advisory fees payable to your registered investment advisor on a periodic basis. The letter of instruction will be irrevocable and we will continue to pay advisory fees payable from your account until such time as you provide us with a notice (in the form attached as Appendix E2 to this prospectus) of your election to terminate deductions from your account for the purposes of such advisory fees. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 158 SALES LITERATURE In addition to and apart from this prospectus, we may use certain supplemental sales material in connection with the offering. This material, prepared by our advisor, may consist of a brochure describing the advisor and its affiliates and our objectives. The material may also contain pictures and summary descriptions of properties similar to those we intend to acquire that our affiliates have previously acquired. This material may also include audiovisual materials and taped presentations highlighting and explaining various features of the offering, properties of prior real estate programs and real estate investments in general; and articles of incorporation and publications concerning real estate. Business reply cards, introductory letters and seminar invitation forms may be sent to the dealer members of the National Association of Securities Dealers designated by Inland Securities Corporation and prospective investors. No person has been authorized to prepare for, or furnish to, a prospective investor any sales literature other than that described herein and "tombstone" newspaper advertisements or solicitations of interest that are limited to identifying the offering and the location of sources of further information. The use of any sales materials is conditioned upon filing with and, if required, clearance by appropriate regulatory agencies. Such clearance (if provided), however, does not indicate that the regulatory agency allowing the use of the materials has passed on the merits of the offering or the adequacy or accuracy of the materials. This offering is made only by means of this prospectus. Except as described herein, we have not authorized the use of other supplemental literature or sales material in connection with this offering. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 159 DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS DISTRIBUTION REINVESTMENT PROGRAM Our distribution reinvestment program provides our stockholders with an opportunity to purchase additional shares of common stock by reinvesting distributions. Stockholders who elect to participate in the distribution reinvestment program will authorize us to use distributions payable to them to purchase additional shares of common stock. A participant will not be able to acquire common stock under the program if the purchase would cause it to exceed the 9.8% ownership limit or would violate any of the other share ownership restrictions imposed by our articles of incorporation. As further explained below, purchases under the distribution reinvestment program are made at a price, $9.50 per share at first, equal to 95% of the market price of a share of common stock on the date of purchase until such time as our shares are listed on a national stock exchange or included for quotation on a national market system. This reduced price reflects a decrease in costs associated with these issuances. Participants in the distribution reinvestment program may also purchase fractional shares of common stock, so that 100% of distributions will be used to acquire common stock. Common stock will be purchased under the distribution reinvestment program on the record date for the distribution used to purchase the common stock. Distributions on common stock acquired under the distribution reinvestment program will be paid at the same time as distributions are paid on common stock purchased outside the program and are calculated with a daily record and distribution declaration date. Each participant agrees that if, at any time prior to listing the common stock on a national stock exchange or inclusion of them for quotation on a national market system, he or she fails to meet the suitability requirements for making an investment in us or cannot make the other representations or warranties set forth in the subscription agreement, he or she will promptly notify us in writing. Beginning with the first distribution paid after the effective date of the offering, participants will acquire our shares at a fixed price of $9.50 per share. This will continue until the earlier of (1) the increase of the public offering price per share of common stock in the offering from $10 per share, if there is an increase, and (2) the termination of the offering. Thereafter, participants may acquire our shares at a price equal to 95% of the market price of a share on the date of purchase until our shares are listed on a national stock exchange or included for quotation on a national market system. In the event of listing or inclusion, we will purchase shares for the distribution reinvestment program on the exchange or market at the prevailing market price. We will then sell the shares to stockholders at that price. The discount from the public offering price per share will not exceed 5% of the market price of a share on the date of purchase. It is possible that a secondary market will develop for the shares, and that the prices on the secondary market will be lower or higher than the price of shares purchased through the distribution reinvestment program. Neither we nor our affiliates will receive a fee for selling shares through the distribution reinvestment program. We do not warrant or guarantee that participants will acquire shares at the lowest possible price through the program. A participant may stop participating in the distribution reinvestment program at any time without penalty, by delivering written notice to us. Prior to listing the shares on a national securities exchange or including them for quotation on a national market system, any transfer of shares by a participant to a non-participant will terminate participation in the distribution reinvestment program with respect to the transferred shares. Within 90 days after the end of our fiscal year, we will: - issue certificates showing ownership of shares purchased through the distribution reinvestment program during the prior fiscal year, ownership of these shares will be in book-entry form prior to the issuance of certificates; and 160 - provide each participant with an individualized report on his or her investment, including the purchase date(s), purchase price and number of shares owned, as well as the dates of distribution and amount of distributions received during the prior fiscal year. The individualized statement to participants will include receipts and purchases relating to each participant's participation in the distribution reinvestment program including the tax consequences relative thereto. The directors, including a majority of independent directors, by majority vote may amend or terminate the distribution reinvestment program upon 30 days notice to participants. Stockholders who participate in the distribution reinvestment program will recognize dividend income, taxable to the extent of our current or accumulated earnings and profits, in the amount and as though they had received the cash rather than purchased shares through the distribution reinvestment program. These deemed dividends will be treated as actual dividends and will retain the character and tax effects applicable to all dividends. In addition, the 5% discount applicable to shares purchased under the dividend reinvestment program will itself be treated as a deemed distribution to the purchaser. Shares received under the distribution reinvestment program will have a holding period, for tax purposes, beginning with the day after purchase, and a tax basis equal to their cost, which is the gross amount of the deemed distribution. See "Federal Income Tax Considerations -- Federal Income Taxation of Stockholders" for a full discussion of the tax effects of dividend distributions. As explained under "Description of Securities -- Restrictions on Ownership and Transfer," the certificates representing shares purchased through the distribution reinvestment program will bear a legend referring to the restrictions on their ownership and transfer. SHARE REPURCHASE PROGRAM The share repurchase program may, subject to certain restrictions discussed below, provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to us. The prices at which shares may be sold back to us are as follows: - One year from the purchase date, at $9.25 per share; - Two years from the purchase date, at $9.50 per share; - Three years from the purchase date, at $9.75 per share; and - Four years from the purchase date, at the greater of: $10.00 per share; or a price equal to 10 times our "funds available for distribution" per weighted average share outstanding for the prior calendar year. During any offering, the repurchase price shall be equal to or below the price of the shares offered in any offering. A stockholder must have beneficially held the shares for at least one year prior to offering them for sale to us through the share repurchase program. However, if a stockholder dies, we may waive this one-year holding period for the beneficiaries or heirs, as appropriate. We will make repurchases under the share repurchase program, if requested by a stockholder, monthly. Subject to funds being available, we will limit the number of shares repurchased during any calendar year to five percent (5%) of the weighted average number of shares outstanding during the prior calendar year. Funding for the share repurchase program will come exclusively from proceeds we receive from the sale of shares under our distribution reinvestment plan and other operating funds, if any, as the board, at its sole discretion, may reserve for this purpose. 161 A stockholder may request that his or her shares be repurchased by submitting a written request, and then generally within one week an assignment form is sent for execution by the stockholder or his custodian/trustee along with a request to return the certificate of ownership. At the end of each month, the completed requests are reviewed. It is possible that a stockholder may not have his or her entire request honored due to the funds available. If that were to occur, the shares would then be purchased on a "pro rata basis" and the portion of his or her request unfulfilled would then be held until the next month, unless withdrawn. We accept shares on a pro rata basis. Consequently, a stockholder might not be able to have us repurchase his or her shares. Therefore, that stockholder might not be able to sell or otherwise liquidate his or her shares and might have to hold his or her shares for an indeterminate period of time. Following commencement of our offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934. In this regard, we will prepare and file with the SEC annual reports on SEC Form 10-K and quarterly reports on SEC Form 10-Q; we will provide copies of these filings to our stockholders regularly following our filing with the SEC. Additionally, we will amend on a quarterly basis the registration statement of which this prospectus is a part; we will distribute to our stockholders the updated prospectus regularly. Any stockholder who wishes us to repurchase his or her shares must beneficially own the shares for at least one year. Our obligation to repurchase any shares under the program is conditioned upon our having sufficient funds available for repurchase of shares and the other conditions of the plan. The stockholder should direct a written request to Ms. Roberta S. Matlin, Vice President of Administration, Inland Western Retail Real Estate Trust, Inc., 2901 Butterfield Road Oak Brook, Illinois 60523. The request must state the name of the person/entity who owns the shares, the date of purchase of the subject shares and the number of shares to be repurchased. We will forward an assignment form to the owner of record of the subject shares for execution. The requesting stockholder must properly execute and return the form along with the stock certificate for the shares to be repurchased and evidence that no lien or encumbrance is on the shares. Upon receipt of the form, if satisfactory evidence is not provided, we will conduct a Uniform Commercial Code (UCC) search to ensure that no liens are held against the shares at the cost of $100 to the stockholder, which will be deducted from the proceeds of the repurchase. We use a third party to conduct this UCC search. The repurchase will occur on a prorata basis each month assuming all documentation is complete, including a negative response from a UCC search. If the UCC search determines that a lien exists against the shares, we will charge the requesting stockholder for the UCC search. If we do not have sufficient funds available for repurchase of the entire request or we exceed the share limitation, we will purchase only those shares for which we have sufficient funds available or are below the limitation; and we will place the requesting stockholder's request into the next month until funds become available sufficient to complete the transaction or we do not exceed the limitation. If a stockholder wishes to withdraw his or her request to have his or her shares repurchased, the stockholder must notify us in writing. We will not repurchase that stockholder's shares so long as we receive the written request to withdraw prior to the date we send payment to the applicable stockholder. The requesting stockholder will be responsible for payment of the $100 UCC search fee even if that stockholder withdraws his or her request, if we have conducted a UCC search. There is no limit on the number of shares that an individual stockholder may request to be repurchased, subject to the limitations regarding availability of funds and the aggregate amount of stock that we are permitted to purchase under the program. 162 Payment for repurchased shares from the time of the initial request to receipt of the funds is usually three to four weeks dependent upon receipt of the executed assignment form and certificate of ownership, and completion of a UCC search to ensure that no liens are held against the stock or other satisfactory evidence. The board, at its sole discretion, may choose to terminate the share repurchase program after the end of the offering period, or reduce the number of shares purchased under the program, if it determines that the funds allocated to the share repurchase program are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by the board to eliminate or reduce the share repurchase program will require the unanimous affirmative vote of the independent directors. We cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all requests made each year. If no funds are available for the program when repurchase is requested, the stockholder may withdraw the request, or ask that we honor the request when funds are available. Pending requests would be pro rated, depending upon availability of funds. Stockholders are not required to sell their shares to us. The share repurchase program is only intended to provide interim liquidity for stockholders until a liquidity event occurs, such as the listing of the shares on a national securities exchange, inclusion of the shares for quotation on a national market system, or our merger with a listed company. The share repurchase plan will be terminated if the shares become listed on a national securities exchange or included for quotation on a national market system. We cannot guarantee that a liquidity event will occur. Shares we purchase under the share repurchase program will be canceled, and will have the status of authorized but unissued shares. Shares we acquire through the share repurchase program will not be reissued unless they are first registered with the Securities and Exchange Commission under the Securities Act of 1933 and under appropriate state securities laws or otherwise issued in compliance with such laws. If we terminate, reduce or otherwise change the share repurchase program, we will send a letter to stockholders informing them of the change at least 30 days in advance, and we will disclose the changes in quarterly reports filed with the Securities and Exchange Commission on Form 10-Q. See "Plan of Distribution -- Deferred Commission Option" for an explanation of what will be required of the stockholder if the stockholder has elected the deferred commission option and subsequently elects to participate in our share repurchase program while there is an unpaid portion of the remaining deferred commission obligation. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 163 REPORTS TO STOCKHOLDERS Our advisor will keep, or cause to be kept, full and true books of account on an accrual basis of accounting, in accordance with generally accepted accounting principles. All of these books of account, together with a copy of our articles of incorporation, will at all times be maintained at our principal office, and will be open to inspection, examination and duplication at reasonable times by the stockholders or their agents. The advisor will submit to each stockholder our audited annual reports within 120 days following the close of each fiscal year. The annual reports will contain the following: - audited financial statements; - the ratio of the costs of raising capital during the period to the capital raised; - the aggregate amount of advisory fees and the aggregate amount of fees paid to the advisor and any affiliate of the advisor, including fees or charges paid to the advisor and to any affiliate of the advisor by third parties doing business with us; - our total operating expenses, stated as a percentage of the average assets and as a percentage of net income; - a report from the independent directors that the policies we follow are in the best interests of our stockholders and the basis for such determination; and - separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving us, the directors, the advisor and any of their affiliates occurring in the year for which the annual report is made. Independent directors are specifically charged with the duty to examine and comment in the report on the fairness of such transactions. In addition, unaudited quarterly reports containing the information required by Form 10-Q will be submitted to each stockholder within 60 days after the end of the first three fiscal quarters. At the same time as any distribution, we will provide stockholders with a statement disclosing the source of the funds distributed. If the information is not available when the distribution is made, we will provide a statement setting forth the reasons why the information is not available. In no event will the information be provided to stockholders more than 60 days after we make the distribution. Within 60 days following the end of any calendar quarter during the period of the offering in which we have closed an acquisition of a property, we will submit a report to each stockholder containing: - the location and a description of the general character of the property acquired during the quarter; - the present or proposed use of the property and its suitability and adequacy for that use; - the terms of any material leases affecting the property; - the proposed method of financing, if any, including estimated down payment, leverage ratio, prepaid interest, balloon payment(s), prepayment penalties, "due-on-sale" or 164 encumbrance clauses and possible adverse effects thereof and similar details of the proposed financing plan; and - a statement that title insurance has been or will be obtained on the property acquired. - In addition, we will send a report to each stockholder and submit to prospective investors when the advisor believes a property will probably be acquired: - on specified terms, i.e., upon completion of due diligence which includes review of the title insurance commitment, appraisal and environmental analysis; and - involving the use of 10% or more, on a cumulative basis, of the net proceeds of the offering. After the completion of the last acquisition, the advisor will, upon request, send a schedule to the Commissioner of Corporations of the State of California. The schedule, verified under the penalty of perjury, reflects: each acquisition made; the purchase price paid; the aggregate of all acquisition expenses paid on each transaction; and a computation showing compliance with our articles of incorporation. We will, upon request, submit to the Commissioner of Corporations of the State of California or to any of the various state securities administrators, any report or statement required to be distributed to stockholders pursuant to our articles of incorporation or any applicable law or regulation. The accountants we regularly retain will prepare our federal tax return and any applicable state income tax returns. We will submit appropriate tax information to the stockholders within 30 days following the end of each of our fiscal years. We will not provide a specific reconciliation between generally accepted accounting principles and income tax information to the stockholders. However, the reconciling information will be available in our office for inspection and review by any interested stockholder. Annually, at the same time as the dissemination of appropriate tax information to stockholders, we will provide each stockholder with an individualized report on his or her investment, including the purchase date(s), purchase price and number of shares owned, as well as the dates of distribution and amounts of distributions received during the prior fiscal year. The individualized statement to stockholders will include any purchases of shares under the distribution reinvestment program. Stockholders requiring individualized reports on a more frequent basis may request these reports. We will make every reasonable effort to supply more frequent reports, as requested, but we may, at our sole discretion, require payment of an administrative charge either directly by the stockholder, or through pre-authorized deductions from distributions payable to the stockholder making the request. See "Risk Factors -- Employee Benefit Plan Risks" for an explanation of the annual statement of value we provide to stockholders subject to ERISA. PRIVACY POLICY NOTICE To help you understand how we protect your personal information, we have included our Privacy Policy Notice as Appendix F to this Prospectus. This Notice describes our current privacy policy and practices. Should you decide to establish or continue a shareholder relationship with us, we will advise you of our policy and practices at least once annually, as required by law. LITIGATION We are not subject to any material pending legal proceedings. 165 RELATIONSHIPS AND RELATED TRANSACTIONS We have entered into agreements to pay our advisor and its affiliates certain fees or other compensation for providing services to us. The compensation arrangements between us and our advisor, The Inland Group and its affiliates, were not determined by arm's-length negotiations. See "Conflicts of Interest." The following table discloses the compensation which we may pay our advisor and its affiliates. In those instances in which there are maximum amounts or ceilings on the compensation which may be received, our advisor and its affiliates may not recover any excess amounts for those services by reclassifying them under a different compensation or fee category. We define net income as total revenues less expenses other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. When we use the term "net income" for purposes of calculating some expenses and fees, it excludes the gain from the sale of our assets. This definition of net income is prescribed by the Statement of Policy Regarding REITs adopted by the North American Securities Administrators Association, Inc., or NASAA; but it is not in accordance with generally accepted accounting principles in the United States, because depreciation and other non-cash reserves are not deducted in determining net income under the NASAA REIT Statement. Excluding depreciation will result in not reimbursing our Advisor for a non-cash expenditure and not excluding the gain from the sale of our assets could result in greater net income on which the 25% reimbursement to our Advisor is allowed. NONSUBORDINATED PAYMENTS The following aggregate amounts of compensation, allowances and fees we may pay to our advisor and its affiliates are not subordinated to the returns on net investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ----------------------------- ---------------------------------------------------- ------------------------------- OFFERING STAGE Selling commissions payable We will pay a selling commission of 7.5% of the sale The actual amount depends upon to the managing dealer and price for each share (and reallow 7%), subject to the amount of shares sold. We dealers designated by the reduction for special sales under the circumstances will not pay selling managing dealer referred to as described in the "Plan of Distribution - commissions if the minimum as soliciting dealers. Compensation - We Will Pay For the Sale of Our offering is not sold. If only Neither the managing dealer, Shares." the minimum offering is sold the soliciting dealers, nor and there are no special sales, our officers or directors We will permit the managing dealer and its a total of $150,000 in selling will be offered to purchase respective officers and employees and certain of its commissions will be paid. A shares of our stock in order affiliates to purchase shares net of sales total of $187,500,000 in to meet the minimum commissions and the marketing contribution and due selling commissions will be thresholds. diligence expense allowance or for $8.95 per share. paid if the maximum offering is sold and there are no special Also, soliciting dealers and their respective sales. officers and employees and certain of their respective affiliates who request and are entitled to purchase shares net of selling commissions may make an initial purchase of shares net of sales commissions or for $9.30 per share; however, any subsequent purchases of shares by any such persons are limited to a maximum discount of 5%.
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TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ----------------------------- ---------------------------------------------------- ------------------------------- Marketing contribution and due We will pay an amount equal to 2.5% of the gross The actual amount depends on diligence expense allowance offering proceeds to the managing dealer, all or a the number of shares. If there paid to the managing dealer portion of which may be passed on to soliciting are no special sales, and soliciting dealers. dealers, in lieu of reimbursement of specific approximately the following expenses associated with marketing. We may pay an amounts will be paid for the additional 0.5% of the gross offering proceeds to marketing contribution and the the managing dealer, which may be passed on to the due diligence expense soliciting dealers, for due diligence expenses. We allowance: will not pay the marketing contribution and due diligence expense allowance in connection with any - $60,000 if we sell the special sales, except those receiving volume minimum number of shares; discounts and those described in "Plan of or Distribution - Volume Discounts." - $75,000,000 if we sell the maximum number of shares. Other expenses of issuance We expect to incur the following expenses in All amounts other than the and distribution connection with this offering: Securities and Exchange Commission registration fee Securities and Exchange and the NASD filing fee are Commission registration estimates. The actual amounts fee $ 217,621 of these expenses cannot be NASD filing fee $ 30,500 determined at the present Printing and mailing time. We estimate the total expenses $ 3,500,000 amount of the issuance and Blue Sky fees and distribution expenses to be expenses $ 136,000 approximately $14,684,121. Legal fees and expenses $ 650,000 Accounting fees and expenses $ 650,000 Advertising and sales literature $ 5,000,000 Due diligence $ 3,000,000 Data Processing fees $ 500,000 Bank fees and other administrative expenses $ 200,000 We will reimburse our sponsor for actual costs Expenses of approximately incurred in connection with the offering on our $691,911 have been advanced by behalf. However, if the aggregate of all offering our sponsor through June 30, expenses, including selling commissions, the 2003 in connection with this marketing contribution and due diligence expense offering. We may reimburse for allowance, exceeds 15% of the gross offering offering expenses advanced: proceeds, or if the aggregate of all offering - $90,000 if we sell the expenses, excluding the selling expenses, exceeds minimum offering based on 5.5% of the gross offering proceeds, our advisor or the 15% limitation; or its affiliates will promptly pay the excess and we will have no liability for these expenses at any - $14,684,000 if we sell the time afterward. maximum offering. If the offering is not successful, then our sponsor will be solely responsible for the organization and offering expenses to the extent it has not been reimbursed.
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ESTIMATED MAXIMUM TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------- ---------------------------------------------------- ------------------------------- ACQUISITION STAGE Acquisition expenses paid to We will pay an amount, estimated to be up to 0.5% We may pay the following our advisor and its of the total of (1) the gross offering proceeds amounts for the reimbursement affiliates. from the sale of 250,000,000 shares, (2) the gross of acquisition expenses: proceeds from the sale of up to 20,000,000 shares pursuant to the distribution reinvestment - no more than $10,000 if the programs. The acquisition expenses for any minimum number of shares particular property will not exceed 6% of the are sold; or gross purchase price of the property. - no more than $13,450,000 if However, if we request additional services, the the maximum number of compensation will be provided on separate shares are sold and all of agreed-upon terms and the rate will be approved by the 20,000,000 shares are a majority of disinterested directors, including a sold pursuant to the majority of the disinterested independent distribution reinvestment directors, as fair and reasonable for us. program. However, the actual amounts cannot be determined at the present time. Interest expenses paid to our We may borrow money from our advisor and its The actual amounts are advisor and its affiliates and affiliates in order to acquire properties. In such dependent on actual Inland Mortgage Corporation in instances, we will pay our advisor and its borrowings. Therefore, these connection with loans. affiliates customary interest payments. amounts cannot be determined at the present time. ESTIMATED MAXIMUM TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------- ---------------------------------------------------- ------------------------------- OPERATIONAL STAGE Property management fee paid We will pay a monthly fee of 4.5% of the gross The actual amounts are to our property manager, income from the properties. We will also pay a dependent upon results of Inland Western Management monthly fee for any extra services equal to no operations and, therefore, Corp. We will pay the fee for more than 90% of that which would be payable to an cannot be determined at the services in connection with unrelated party providing the services. The present time. If we acquire the rental, leasing, operation property manager may subcontract its and/or our the businesses of our advisor and management of the property manager, duties for a fee that may be properties. less than the property management fees the fee provided for in the management will cease. services agreements. Advisor asset management fee. We will pay our advisor an asset management fee The actual amounts are We will pay the fee for after our stockholders have first received a 6% dependent upon results of services in connection with annual return. operations and, therefore, our day-to-day operations, cannot be determined at the including making strategic present time. decisions, performing day-to-day operations that include accounting,
168 investment advisory services, risk management services and tax reduction services and providing other services as our board deems appropriate.
ESTIMATED MAXIMUM TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------- ---------------------------------------------------- ------------------------------- OPERATIONAL STAGE Reimbursable expenses to our We will reimburse some expenses of the advisor. The actual amounts are advisor. These may include The compensation and reimbursements to our advisor dependent upon results of costs of goods and services, will be approved by a majority of our directors operations and, therefore, administrative services and and a majority of our independent directors as cannot be determined at the non-supervisory services fair and reasonable for us. present time. performed directly for us by independent parties. We will reimburse some Inland Risk and Insurance Management Services The actual amounts are expenses of the Inland Risk charges us $50 per hour for assistance in dependent upon results of and Insurance Management obtaining insurance coverage. Any commissions they operations and, therefore, Services for insurance receive are credited against this hourly rate. We cannot be determined at the coverage. believe this hourly rate is approximately 90% of present time. the rate charged by unaffiliated third parties. The compensation to this company will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us. We will compensate the Inland Inland Mortgage Servicing Corporation charges us The actual amounts are Mortgage Servicing Corporation .03% per year on the first billion dollars of dependent upon results of and Inland Mortgage Investment mortgages serviced and .01% thereafter. Inland operations and, therefore, Corporation for purchase, sale Mortgage Investment Corporation charges us .02% of cannot be determined at the and servicing of mortgages. the principal amount of each loan placed. The present time. compensation to these companies will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us. ESTIMATED MAXIMUM TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------- ---------------------------------------------------- ------------------------------- LIQUIDATION STAGE Property disposition fee We may pay a property disposition fee to our The actual amounts to be payable to our advisor's advisor and its affiliates if we sell any of our received depend upon the sale affiliates, Inland Real real property in an amount equal to the lesser of: price of our properties and, Estate Sales, Inc. and Inland therefore, cannot be Partnership Property Sales 3. 3% of the contract sales price of the property; determined at the present Corp. or time. If we acquire the advisor, the property disposition fee will
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ESTIMATED MAXIMUM TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------- ---------------------------------------------------- ------------------------------- LIQUIDATION STAGE 4. 50% of the customary commission which would be cease. paid to a third party broker for the sale of a comparable property. The amount paid, when added to the sums paid to unaffiliated parties, will not exceed either the customary commission or an amount equal to 6% of the contracted for sales price. Payment of such fees will be made only if the advisor provides a substantial service in connection with the sale of the property. See "Management -- Our Advisory Agreement."
SUBORDINATED PAYMENTS We may pay the following additional fees to our advisor after returns on net investment have been paid to the stockholders:
TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ---------------------------------- ---------------------------------------------------- ------------------------------- OPERATIONAL STAGE Advisor asset management fee We pay an annual advisor asset management fee of The actual amounts to be payable to our advisor. not more than 1% of our average assets. Our received depend upon the sale average assets means the average of the total book price of our properties and, value of our real estate assets plus the total therefore, cannot be value of our loans receivables secured by real determined at the present estate, before reserves for depreciation or bad time. If we acquire the debts or other similar non-cash reserves. We will advisor, the property compute our average assets by taking the average disposition fee will cease. of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our advisor must reimburse us for the following amounts if any: (3) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: - 2% of our average assets for that fiscal year, or - 25% of our net income for that fiscal year. (4) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the
170 total amount of distributions to stockholders for that year and the 6% annual return on the net investment of stockholders. Items such as organization and offering expenses, property expenses, interest payments, taxes, non-cash expenditures, the incentive advisory fee and acquisition expenses are excluded from the definition of total operating expenses. See "Management -- Our Advisory Agreement" for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed.
TYPE OF COMPENSATION ESTIMATED MAXIMUM AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ----------------------------- ---------------------------------------------------- ----------------------------------- LIQUIDATION STAGE Incentive advisory fee We will pay to the advisor an amount equal to 15% The actual amounts to be payable to our advisor. of the net proceeds from the sale of a property received depend upon the sale after the stockholders have first received: price of our properties and, therefore, cannot be (1) a cumulative non-compounded return equal to determined at the present 10% a year on their net investment; and time. If we acquire or consolidate with the business (2) their net investment. conducted by our advisor, the incentive advisory fee will terminate.
171 LEGAL MATTERS Duane Morris LLP, Washington, D.C., has passed upon the legality of the common stock and Duane Morris LLP, Philadelphia, Pennsylvania, has passed upon legal matters in connection with our status as a REIT for federal income tax purposes. Duane Morris LLP is generally referred to in this prospectus as Duane Morris. Duane Morris does not purport to represent our stockholders or potential investors, who should consult their own counsel. Duane Morris also provides legal services to affiliates of our advisor. Duane Morris has reviewed the statements in the section in the prospectus titled "Federal Income Tax Considerations" and elsewhere as they relate to federal income tax matters and the statements in the section in the prospectus titled "ERISA Considerations." EXPERTS The balance sheet of Inland Western Retail Real Estate Trust, Inc. as of June 30, 2003, and the historical summary of gross income and direct operating expenses of Peoria Station for the year ended December 31, 2002, have been included herein in reliance upon the reports of KPMG LLP, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We are filing this registration statement on Form S-11 with the Securities and Exchange Commission in connection with our initial public offering. We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. This prospectus is part of the registration statement and does not contain all of the information included in the registration statement and all of its exhibits, certificates and schedules. Whenever a reference is made in this prospectus to any contract or other document of ours, the reference may not be complete and you should refer to the exhibits that are a part of the registration statement for a copy of the contract or document. You can read our registration statement and our future SEC filings over the Internet at www.sec.gov. You may also read and copy any document we file with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1 800 SEC-0330 or e-mail at publicinfo@sec.gov for further information on the operation of the public reference facilities. 172 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Report of Independent Registered Public Accounting Firm F-1 (b) Balance Sheet at June 30, 2003 F-2 (c) Notes to Balance Sheet at June 30, 2003 F-3 2. PEORIA STATION: (a) Report of Independent Registered Public Accounting Firm F-8 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and six months ended June 30, 2003 (unaudited) F-9 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and six months ended June 30, 2003 (unaudited) F-10
F-i Report of Independent Registered Public Accounting Firm Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying balance sheet of Inland Western Retail Real Estate Trust, Inc. (the "Company") as of June 30, 2003. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit 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 balance sheet is free of material misstatement. An audit of a balance sheet includes examining, on a test basis, evidence supporting the amounts and disclosures in that balance sheet. An audit of a balance sheet also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Inland Western Retail Real Estate Trust, Inc. as of June 30, 2003, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois August 15, 2003 F-1 Inland Western Retail Real Estate Trust, Inc. (A Maryland Corporation) BALANCE SHEET June 30, 2003 ASSETS Cash $ 200,000 Deferred offering costs 684,411 ------------ Total assets $ 884,411 ============ LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued offering expenses $ 691,911 Commitments and contingencies (Note 3) Stockholder's equity: Preferred stock, $.001 par value, 10,000,000 shares authorized, none outstanding - Common stock, $.001 par value, 350,000,000 shares authorized, 20,000 shares issued and outstanding 20 Additional paid in capital 202,230 Retained earnings deficit (9,750) ------------ Total stockholders' equity 192,500 ------------ Total liabilities and stockholders' equity $ 884,411 ============
See accompanying notes to balance sheet. F-2 Inland Western Retail Real Estate Trust, Inc. (A Maryland Corporation) NOTES TO BALANCE SHEET June 30, 2003 (1) Organization Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on March 5, 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers and has not commenced operations. The Advisory Agreement (the "Agreement") provides for Inland Western Retail Real Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, to be the Advisor to the Company. The Company contemplates the sale of up to 250,000,000 shares of common stock ("Shares") at $10 each in an initial public offering (the "Offering") to be registered with the Securities and Exchange Commission (the "Registration Statement") and the issuance of 20,000,000 shares at $9.50 each which may be distributed pursuant to the Company's distribution reinvestment program. No shares will be sold unless subscriptions for at least 200,000 shares (the minimum offering) have been obtained within one year after commencement of the Offering. The Company intends to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2003. If the Company qualifies 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 Company will provide the following programs to facilitate investment in the Company's shares and to provide limited liquidity for stockholders. The Company will allow stockholders who purchase shares in the offering to purchase additional shares from the Company by automatically reinvesting distributions through the distribution reinvestment program ("DRP"), subject to certain share ownership restrictions. Such purchases under the DRP will not be subject to selling commissions or the marketing contribution and due diligence expense allowance, and are made at a price of $9.50 per share. The Company will repurchase shares under the share repurchase program ("SRP"), if requested, monthly on a first-come, first-served basis, subject to certain restrictions. Subject to funds being available, the Company will limit the number of shares repurchased during any calendar year to 5% of the weighted average number of shares outstanding during the prior calendar year. Funding for the SRP will come exclusively from proceeds that the Company receives from the sale of shares under the DRP and such other operating funds, if any, as the Company's Board of Directors, at its sole discretion, may reserve for this purpose. The board, at its sole discretion, may choose to terminate the share repurchase program after the end of the offering period, or reduce the number of shares purchased under the program, if it determines that the funds allocated to the share repurchase program are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by the board to eliminate or reduce the share repurchase program will require the unanimous affirmative vote of the independent directors. F-3 Inland Western Retail Real Estate Trust, Inc. (A Maryland Corporation) NOTES TO BALANCE SHEET (continued) June 30, 2003 (2) Summary of Significant Accounting Policies The preparation of a balance sheet requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates. Costs associated with the offering are deferred and charged against the gross proceeds of the offering upon closing. Formation and organizational costs are expensed as incurred. As of June 30, 2003, $7,500 of organizational costs were expensed. The Company applies the fair value method of accounting as prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION for its stock options granted. Under this method, the Company will report the value of granted options as a charge against earnings ratably over the vesting period. (3) Transactions with Affiliates The Advisor contributed $200,000 to the capital of the Company for which it received 20,000 shares of common stock. As of June 30, 2003, the Company had incurred $691,911 of offering and organization costs, all of which was advanced by the Advisor. Pursuant to the terms of the offering, the Advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or all organization and offering expenses (including selling commissions) which together exceed 15% of gross proceeds. In the event that the minimum offering is not successful, an Affiliate of the Advisor will bear the related costs of the Offering. F-4 Inland Western Retail Real Estate Trust, Inc. (A Maryland Corporation) NOTES TO BALANCE SHEET (continued) June 30, 2003 Certain compensation and fees payable to the Advisor for services to be provided to the Company are limited to maximum amounts. Nonsubordinated payments: Offering stage: Selling commissions 7.5% of the sale price for each share Marketing contribution 3.0% of the gross offering proceeds and due diligence allowance Reimbursable expenses We will reimburse our sponsor for and other expenses of actual costs incurred, on our behalf, issuance in connection with the offering. Acquisition stage: Acquisition expenses We will reimburse an affiliate of our Advisor for costs incurred, on our behalf, in connection with the acquisition of properties Operational stage: Property management fee 4.5% of the gross income from the THIS FEE TERMINATES UPON A properties. (cannot exceed 90% of the BUSINESS COMBINATION WITH THE fee which would be payable to an PROPERTY MANAGEMENT COMPANY. unrelated third party) Loan servicing fee .08% of the total principal amount of the loans being serviced for each full year, up to the first $100 million and a lesser percentage on a sliding scale thereafter Reimbursable expenses The compensation and reimbursements to relating to administrative our advisor and its affiliates will be services approved by a majority of our directors. F-5 Inland Western Retail Real Estate Trust, Inc. (A Maryland Corporation) NOTES TO BALANCE SHEET (continued) June 30, 2003 Liquidation stage: Property disposition fee Lesser of 3% of sales price or 50% of THIS FEE TERMINATES UPON customary the commission which would A BUSINESS COMBINATION be paid to a third party WITH THE ADVISOR Subordinated payments: Operational stage: Advisor asset management fee Not more than 1% per annum of our THIS FEE TERMINATES UPON A average assets; Subordinated to a BUSINESS COMBINATION WITH non-cumulative, non-compounded return, THE ADVISOR equal to 6% per annum Liquidation stage: Incentive advisory fee After the stockholders have first THIS FEE TERMINATES UPON A received a 10% cumulative, BUSINESS COMBINATION WITH non-compounded return and a return on THE ADVISOR their net investment, an incentive advisory fee equal to 15% on net proceeds from the sale of a property will be paid to the Advisor. (3) Commitments The Company has adopted an Independent Director Stock Option Plan which, subject to certain conditions, provides for the grant to each Independent Director of an option to acquire 3,000 shares following their becoming a Director and for the grant of additional options to acquire 500 shares on the date of each annual stockholders' meeting. The options for the initial 3,000 shares are exercisable as follows: 1,000 shares on the date of grant and 1,000 shares on each of the first and second anniversaries of the date of grant. The subsequent options will be exercisable on the second anniversary of the date of grant. The initial options will be exercisable at $8.95 per share. The subsequent options will be exercisable at the fair market value of a share on the last business day preceding the annual meeting of stockholders. As of June 30, 2003, we have issued 3,000 options to acquire shares to each of our Independent Directors, for a total of 9,000 options, of which none have been exercised or expired. F-6 Inland Western Retail Real Estate Trust, Inc. (A Maryland Corporation) NOTES TO BALANCE SHEET (continued) June 30, 2003 The per share weighted average fair value of options granted was $0.60 on the date of the grant using the Black Scholes option-pricing model with the following assumptions: expected dividend yield of 8%, risk free interest rate of 2.0%, expected life of five years and expected volatility rate of 18.0%. The Company has recorded $2,250 as expense for the 3,000 options (1,000 options per director) vesting upon the date of grant and will record the remaining $3,150 in expense ratably over the two-year vesting period. The Company anticipates that the aggregate borrowings related to all of the Company's properties will be limited to certain maximum amounts. See "Investment Objectives and Policies" elsewhere in this Prospectus for a description of such maximum borrowing amounts. The Company has rights to purchase an investment property currently being redeveloped, known as Peoria Station, from an unaffiliated third party for approximately $25,867,000. This amount may be adjusted based on actual rental rates achieved on the redeveloped square feet. The Company expects to purchase this property by November 1, 2003, however, the seller may extend the closing date if minimum rental rates stated in the contract have not yet been achieved. (4) New Accounting Pronouncement On May 15, 2003, the Financial Accounting Standards Board issued Statement No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. The Statement requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the Statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted the provisions of the Statement on July 1, 2003. The Company did not enter into any financial instruments within the scope of the Statement during June 2003. To the extent stockholders request shares to be repurchased by the Company under the Share Repurchase Program, the Company's obligation to repurchase such shares will be classified as a liability at the redemption amount at the date documentation is complete and accepted by the Company in accordance with the plan documents. F-7 Report of Independent Registered Public Accounting Firm The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Peoria Station ("the Property") for the year ended December 31, 2002. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit 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 Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. The presentation is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Peoria Station for the year ended December 31, 2002, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois March 10, 2003 F-8 PEORIA STATION Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 and the six months ended June 30, 2003 (unaudited)
December 31, June 30, 2002 2003 (unaudited) ------------------ ------------------ Gross income: Base rental income $ 1,524,218 779,009 Operating expense and real estate tax recoveries 479,053 229,566 ------------------ ------------------ Total gross income 2,003,271 1,008,575 ------------------ ------------------ Direct operating expenses: Operating expenses 130,419 59,264 Real estate taxes 322,362 155,379 Insurance 26,179 14,923 ------------------ ------------------ Total direct operating expenses 478,960 229,566 ------------------ ------------------ Excess of gross income over direct operating expenses $ 1,524,310 779,009 ================== ==================
See accompanying notes to historical summary of gross income and direct operating expense. F-9 PEORIA STATION Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 and the six months ended June 30, 2003 (unaudited) (1) Business Peoria Station (the "Property") is located in Phoenix, Arizona. The Property consists of 140,019 square feet of gross leasable area and was 100% occupied at December 31, 2002. Three tenants account for 66% of base rental revenue. Inland Real Estate Acquisitions, Inc., on behalf of Inland Western Retail Real Estate Trust, Inc. ("IWRRETI"), has signed a purchase and sale agreement for the purchase of the Property from an unaffiliated third-party ("Seller"). (2) Basis of Presentation and Combination The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2003. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. None of the existing leases include any contingent rentals. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $335,653 for the year ended December 31, 2002. F-10 PEORIA STATION Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 and the six months ended June 30, 2003 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from three to thirty-one years, in effect at December 31, 2002, are as follows:
Year Total --------------- -------------- 2003 $ 1,563,237 2004 1,765,821 2005 1,611,422 2006 1,513,498 2007 1,331,269 Thereafter 14,420,530 -------------- Total $ 22,205,777 ==============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-11 APPENDIX A PRIOR PERFORMANCE TABLES The following prior performance tables contain information concerning real estate programs sponsored by affiliates of our advisor which have investment objectives similar to ours. This information has been summarized in narrative form under "Prior Performance of Our Affiliates" in the prospectus. The tables provide information on the performance of a number of programs. You can use the information to evaluate the experience of our advisor's affiliates as sponsors of the programs. The inclusion of these tables does not imply that we will make investments comparable to those reflected in the tables or that investors in our shares will experience returns comparable to those experienced in the programs referred to in these tables. If you purchase our shares, you will not acquire any ownership in any of the programs to which these tables relate. The tables consist of: Table I Experience in Raising and Investing Funds (unaudited) Table II Compensation to IREIC and Affiliates (unaudited) Table III Operating Results of Prior Programs (unaudited) Table IV Results of Completed Programs (unaudited) Table V Sales or Disposals of Properties (unaudited) Table VI Acquisition of Properties by Programs* (unaudited) * Our prospective investors may obtain copies of Table VI by contacting Inland Western Retail Real Estate Advisory Services, Inc., our advisor. Table VI is included in Part II of the Registration Statement filed with the Securities and Exchange Commission of which this Prospectus is a part. Upon written request to us or our advisor, any prospective investor may obtain, without charge, a copy of Table VI. See also "Where You Can Find More Information" for information on examining at, or obtaining copies from, offices of the SEC. Upon written request, any potential investor may obtain, without charge, the most recent annual report on Form 10-K filed with the SEC by any public program sponsored by any of the Inland's affiliated companies which has reported to the SEC within the last 24 months. For a reasonable fee, the affiliated companies will provide copies of any exhibits to such annual reports upon request. Our investment objectives are to: (i) provide regular distributions to stockholders in amounts which may exceed our taxable income due to the non-cash nature of depreciation expense and, to such extent, will constitute a tax- deferred return of capital, but in no event less than 90% of our taxable income, pursuant to the REIT requirements; (ii) provide a hedge against inflation by entering into leases which contain clauses for scheduled rent escalations or participation in the growth of tenant sales, permitting us to increase distributions and provide capital appreciation; and (iii) preserve stockholders' capital. The following programs have investment objectives similar to ours and are included in the tables. Inland Retail Real Estate Trust, Inc. and Inland Real Estate Corporation are two REITs formed primarily to invest in multi-tenant shopping centers, Inland's Monthly Income Fund, L.P. and Inland Monthly Income Fund II, L.P. are public real estate limited partnerships formed primarily to acquire, operate and sell existing residential and commercial real properties. Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors Fund-II, L.P. and Inland Mortgage Investors Fund III, L.P. were public real estate limited partnerships formed primarily to make or acquire loans secured by mortgages on improved, income producing multifamily residential properties. A-1 TABLE I EXPERIENCE IN RAISING AND INVESTING FUNDS Table I is intended to present information on a dollar and percentage basis showing the experience of Inland Real Estate Investment Corporation ("IREIC"), of which the Advisor is a wholly owned subsidiary, in raising and investing funds in prior programs where the offering closed in the three years prior to December 31, 2002. The table is intended to focus on the dollar amount available for investment in properties expressed as a percentage of total dollars raised. However, since no offering closed in the three years prior to December 31, 2002, Table I is not included. TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) Table II summarizes the amount and type of compensation paid to Inland Real Estate Investment Corporation and its affiliates during the three years ended December 31, 2002 in connection with the prior programs. Some partnerships acquired their properties from affiliates of our Advisor which had purchased such properties from unaffiliated third parties. A-2 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) (000'S OMITTED)
Inland's Inland Inland Retail Inland Real Monthly Monthly Real Estate Estate Income Income Trust, Inc. Corporation Fund, L.P. Fund II, L. P. ---------------------------------------------------------------------------- Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88 Dollar amount raised $ 1,217,656 673,860 30,000 25,324 ========================================================================== Total amounts paid to general partner or affiliates from proceeds of offerings: Selling commissions and underwriting fees 105,809(C) 49,869(C) 273(B) 423(B) Other offering expenses (D) 5,786 2,350 116 230 Acquisition cost and expense 844 925 2,550(E) 1,706(E) ========================================================================== Dollar amount of cash available from operations before deducting payments to general partner or affiliates (F) 78,357 201,947 4,867 4,286 ========================================================================== Amounts paid to general partner or affiliates related to operations: (J) Property management fees (G) 7,403 3,045 69 55 Advisor asset management fee 5,413 2,414 0 0 Accounting services 578 77 50 48 Data processing service 229 43 27 27 Legal services 94 54 14 11 Mortgage servicing fees 253 50 0 0 Mortgage interest expense 0 27 0 0 Acquisition costs expensed 33 138 0 0 Other administrative services 849 138 70 44 Property upgrades 0 0 0 0 Dollar amount of property sales and refinancings before payments to general partner and affiliates (H): Cash 0 1,314 4,964 0 Notes 0 0 0 0 Dollar amounts paid or payable to general partner or affiliates from sales and refinancings (I): Sales commissions 0 0 0 0 Participation in cash distributions 0 0 0 0
A-3 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) NOTES TO TABLE II (A) The figures in this Table II relating to proceeds of the offerings are cumulative and are as of December 31, 2002 and the figures relating to cash available from operations are for the three years ending December 31, 2002. The dollar amount raised represents the cash proceeds collected by the partnerships or program. Amounts paid or payable to IREIC or affiliates from proceeds of the offerings represent payments made or to be made to IREIC and affiliates from investor capital contributions. (B) The selling commissions paid to an affiliate is net of amounts which were in turn paid to third party soliciting dealers. (C) The selling commissions paid to an affiliate includes amounts which were in turn paid to third party soliciting dealers. (D) Consists of legal, accounting, printing and other offering expenses, including amounts to be paid to Inland Securities Corporation to be used as incentive compensation to its regional marketing representatives and amounts for reimbursement of the general partner for marketing, salaries and direct expenses of its employees while directly engaged in registering and marketing the Units and other marketing and organization expenses. (E) Represents acquisition fees paid to IREIC and its affiliates in connection with the acquisition of properties. (F) See Note (B) to Table III. (G) An affiliate provides property management services for all properties acquired by the partnerships or program. Management fees have not exceeded 4.5% of the gross receipts from the properties managed. (H) See Table V and Notes thereto regarding sales and disposals of properties. (I) Real estate sales commissions and participations in cash distributions are paid or payable to IREIC and/or its affiliates in connection with the sales of properties in the public partnership programs. Payments of all amounts shown are subordinated to the receipt by the limited partners of their original capital investment. See Table V and Notes thereto. (J) On July 1, 2000, IREC 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 IREC. As a result of the merger, IREC is now "self-administered." IREC no longer pays advisory or property management fees but instead has hired an internal staff to perform these tasks. A-4 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS Table III presents operating results for programs, the offerings of which closed during each of the five years ended December 31, 2002. The operating results consist of: - The components of taxable income (loss); - Taxable income or loss from operations and property sales; - Cash available and source, before and after cash distributions to investors; and - Tax and distribution data per $1,000 invested. Based on the following termination dates of the offerings, only IREC is included in Table III. - Inland Retail Real Estate Trust, Inc. - currently offering shares - Inland's Monthly Income Fund, L.P. - offering terminated in 1988 - Inland Monthly Income Fund II, L.P. - offering terminated in 1990 - Inland Mortgage Investors Fund, L.P. - offering terminated in 1987 - Inland Mortgage Investors Fund-II, L.P. - offering terminated in 1988 - Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991 A-5 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS (000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) INLAND REAL ESTATE CORPORATION
2002 2001 2000 1999 1998 1997 1996 1995 -------------------------------------------------------------------------------------- Gross revenues $ 156,358 155,048 150,892 123,788 73,302 29,422 6,328 1,180 Profit on sale of properties 1,546 467 0 0 0 0 0 0 Less: Merger consideration costs (D) 0 0 68,775 0 0 0 0 0 Operating expenses 48,967 47,477 47,727 40,303 21,017 8,863 1,873 327 Interest expense 34,428 34,797 33,682 25,654 13,422 5,655 597 164 Program expenses 5,805 5,367 6,493 7,298 3,114 1,576 449 22 Depreciation & amortization 29,428 27,208 26,219 20,361 11,663 4,681 957 170 -------------------------------------------------------------------------------------- Net income (loss)-GAAP basis $ 39,276 40,666 (32,004) 30,172 24,086 8,647 2,452 497 ====================================================================================== Taxable income (loss) (A): 0 0 0 0 0 0 0 0 ====================================================================================== Cash available (deficiency) from operations (B) 69,451 74,062 58,434 53,636 40,142 15,857 5,530 978 Cash available from sales (C) 8,175 2,364 0 0 0 0 0 0 -------------------------------------------------------------------------------------- Total cash available before distributions and special items 77,626 76,426 58,434 53,636 40,142 15,857 5,530 978 Less distributions to investors: From operations 61,913 62,367 54,368 48,773 33,454 11,899 3,286 607 From sales and refinancings 0 467 0 0 0 0 0 0 -------------------------------------------------------------------------------------- Cash available after distributions before special items 15,713 13,592 4,066 4,863 6,688 3,958 2,244 371 Special items: 0 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------- Cash available after distributions and special items $ 15,713 13,592 4,066 4,863 6,688 3,958 2,244 371 ====================================================================================== Tax data per $1,000 invested (A): 0 0 0 0 0 0 0 0 Distribution data per $1,000 invested: Cash distributions to investors: Source (on GAAP basis): Investment income 94 93 90 89 88 86 82 78 Source (on cash basis): Sales 0 0 0 0 0 0 0 0 Operations (E) 94 93 90 89 88 86 82 78 Percent of properties remaining unsold(F) 100.00% =========
A-6 TABLE III--(CONTINUED) OPERATING RESULTS OF PRIOR PROGRAMS NOTES TO TABLE III (A) Inland Real Estate Corporation qualified as a real estate investment trust ("REIT") under the Internal Revenue Code for federal income tax purposes commencing with the tax year ending December 31, 1995. Since it qualified for taxation as a REIT, it generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its stockholders. If Inland Real Estate Corporation fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate tax rates. However, even if the program qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. (B) "Cash Available (Deficiency) from Operations," represents all cash revenues and funds received by the programs, including but not limited to operating income less operating expenses, and interest income. These amounts do not include payments made by the programs from offering proceeds nor do they include proceeds from sales or refinancings. These amounts also exclude advances from or repayments to IREIC and affiliates which are disclosed elsewhere in the table and include principal payments on long-term debt. For example:
Inland Real Estate Corporation (000's omitted) 2002 2001 2000 1999 1998 1997 1996 1995 -------------------------------------------------------------------------------------- Net cash provided by operating activities per the Form 10-K annual report or 10-Q quarterly report $ 69,500 74,091 58,505 53,724 40,216 15,924 5,530 978 Principal payments on long-term debt (49) (29) (71) (88) (74) (67) - - -------------------------------------------------------------------------------------- $ 69,451 74,062 58,434 53,636 40,142 15,857 5,530 978 ======================================================================================
(C) See Table V and Notes thereto regarding sales and disposals of properties. (D) On July 1, 2000, IREC 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 IREC. IREC 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. The expense of these shares and additional costs relating to the merger are reported as an operational expense on IREC's Consolidated Statements of Operations. A-7 TABLE III--(CONTINUED) OPERATING RESULTS OF PRIOR PROGRAMS NOTES TO TABLE III (E) Distributions by IREC to the extent of its current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholder's basis in the shares to the extent thereof, and thereafter as taxable gain (a return of capital). These distributions 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.
2002 2001 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------ % of Distribution representing: Ordinary income 69.52 78.33 76.37 73.67 76.22 74.19 83.50 94.24 Return of Capital 30.48 21.67 23.63 26.33 23.78 25.81 16.50 5.76 ------------------------------------------------------------------------------ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
(F) Percent of properties remaining unsold represents original total acquisition costs of properties retained divided by original total acquisition cost of all properties in the program, plus the total of uninvested offering proceeds (if any). Sales proceeds from the sale of three properties were used to acquire new properties. A-8 TABLE IV RESULTS OF COMPLETED PROGRAMS (000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) Table IV is a summary of operating and disposition results of prior programs sponsored by affiliates of our advisor, which during the five years ended prior to December 31, 2002 have sold their properties and either hold notes with respect to such sales or have liquidated. Three programs with investment objectives similar to ours have disposed of all of their properties during the five years ended prior to December 31, 2002.
INLAND MORTGAGE INLAND MORTGAGE INLAND MORTGAGE PROGRAM NAME INVESTORS FUND, L.P. INVESTORS FUND L.P.- II INVESTORS FUND III, L.P. Dollar amount raised 10,065 9,388 2,837 Number of properties/loans purchased 15 13 7 Date of closing of offering 02/87 08/88 01/91 Date of first sale of property 12/88 09/89 06/93 Date of final sale of property 03/99 12/98 10/98 Tax and distribution data per $1,000 invested (A): Federal income tax results: Ordinary income (loss): Operations 547 633 419 Recapture 0 0 0 Capital Gain 30 0 0 Deferred Gain: Capital 0 0 0 Ordinary 0 0 0 Cash distributions to investors (cash basis): Source (on GAAP basis) Investment income 624 631 421 Return of capital 745 809 827 Source (on cash basis) Sales 745 809 827 Operations 624 631 421
(A) Data per $1,000 invested is presented as of December 31, 2002. See Table V and Notes thereto regarding sales and disposals of properties. A-9 TABLE V SALES OR DISPOSALS OF PROPERTIES Table V presents information on the results of the sale or disposals of properties in programs with investment objectives similar to ours during the three years ended December 31, 2002. Since January 1, 2000, programs sponsored by affiliates of our advisor had five sales transactions. The table provides certain information to evaluate property performance over the holding period such as: - Sales proceeds received by the partnerships in the form of cash down payments at the time of sale after expenses of sale and secured notes received at sale; - Cash invested in properties; - Cash flow (deficiency) generated by the property; - Taxable gain (ordinary and total); and - Terms of notes received at sale. The entities listed in Table V are Inland's Monthly Income Fund, L.P. and IREC. - Inland Real Estate Corporation - offering terminated in 1999. SALES OR DISPOSALS OF PROPERTIES (A) (000'S OMITTED)
Cash Selling Mortgage Secured Received, Commissions at Notes Date Date of net of Closing Paid or Payable Time of Received Acquired Sale Costs(B) to Inland Sale at Sale - ------------------------------------------------------------------------------------------------------------------------- Monthly Income Fund I - McHenry Plaza 10/19/87 07/19/00 3,249 69 0 0 Monthly Income Fund I - Rantoul Walmart 08/05/88 11/17/00 1,715 83 985 0 IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050 0 IREC - Antioch Plaza 12/95 03/28/02 943 0 875 0 IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,989 0 Adjust Resulting Partnership from Net Original Capital Application Selling Mortgage Invested of GAAP Price Financing (C) Total - ------------------------------------------------------------------------------------------------------- Monthly Income Fund I - McHenry Plaza 0 3,180 0 1,967 1,967 Monthly Income Fund I - Rantoul Walmart 0 2,617 0 2,656 2,656 IREC - Lincoln Park Place 0 2,364 0 1,897 1,897 IREC - Antioch Plaza 0 1,818 875 753 1,628 IREC - Shorecrest Plaza 0 6,085 2,978 2,947 5,925
Excess (deficiency) of Amount of property operating cash subsidies included Total Taxable receipts over cash in operating cash Gain (loss) Ordinary Income Capital expenditures (D) receipts from Sale from Sale Gain (loss) - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Income Fund I - McHenry Plaza 1,092 0 374 0 374 Monthly Income Fund I - Rantoul Walmart 2,534 0 787 0 787 IREC - Lincoln Park Place 218 0 467 0 467 IREC - Antioch Plaza 130 0 0(E) 0 0 IREC - Shorecrest Plaza 1,556 0 0(E) 0 0
A-10 TABLE V - (CONTINUED) SALES OR DISPOSALS OF PROPERTIES NOTES TO TABLE V (A) The table includes all sales of properties by the programs with investment objectives similar to ours during the three years ended December 31, 2002. All sales have been made to parties unaffiliated with the partnerships. (B) Consists of cash payments received from the buyers and the assumption of certain liabilities by the buyers at the date of sale, less expenses of sale. (C) Amounts represent the dollar amount raised from the offerings, less sales commissions and other offering expenses plus additional costs incurred on the development of the land parcels. (D) Represents "Cash Available (Deficiency) from Operations (including subsidies)" as adjusted for applicable "Fixed Asset Additions" through the year of sale. (E) For tax purposes, this sale qualified as part of a tax-deferred exchange. As a result, no taxable gain will be recognized until the replacement property is disposed of in a subsequent taxable transaction. A-11 APPENDIX B DIVIDEND REINVESTMENT PLAN INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. DISTRIBUTION REINVESTMENT PROGRAM Inland Western Retail Real Estate Trust, Inc., a Maryland corporation (the "Company"), pursuant to its Articles of Incorporation (the "Articles") has adopted a Distribution Reinvestment Program (the "DRP"), the terms and conditions of which are set forth below. Capitalized terms shall have the same meaning as set forth in the Company's Prospectus dated September 15, 2003 (as the same may be supplemented or modified from time to time) unless otherwise defined herein. i. Distributions. As agent for the Stockholders who purchase Shares from the Company pursuant to the prospectus dated September 15, 2003 (the "Offering") and elect to participate in the DRP (the "Participants"), the Company will apply all distributions, paid with respect to the Shares held by each Participant (the "Distributions"), including Distributions paid with respect to any full or fractional Shares acquired under the DRP, to the purchase of the Shares for said Participants directly, if permitted under state securities laws and, if not, through the Dealer Manager or Soliciting Dealers registered in the Participant's state of residence. Neither the Company nor its Affiliates will receive a fee for selling Shares under the DRP. ii. Procedure for Participation. Any Stockholder who purchases Shares pursuant to the Company's Offering may elect to become a Participant by completing and executing the Subscription Agreement or other appropriate authorization form as may be available from the Company, the Dealer Manager or the Soliciting Dealer. Participation in the DRP will begin with the next Distribution payable after receipt of a Participant's subscription or authorization. Shares will be purchased under the DRP on the record date for the Distribution used to purchase the Shares. Distributions for Shares acquired under the DRP will be paid at the same time as Distributions are paid on Shares purchased outside the DRP and are calculated with a daily record and Distribution declaration date. Each Participant agrees that if, at any time prior to listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on a national market system, he or she fails to meet the suitability requirements for making an investment in the Company or cannot make the other representations or warranties set forth in the Subscription Agreement, he or she will promptly so notify the Company in writing. iii. Purchase of Shares. Participants will acquire Shares from the Company at a fixed price of $10.00 per Share until the first to occur of (i) the termination of the Offering, or (ii) the public offering price per Share in the Offering is increased above $10.00 per share. Thereafter, Participants will acquire Shares from the Company at a price equal to 95% of the Market Price of a Share on the date of purchase until such time as the Company's Shares are listed on a national stock exchange or included for quotation on a national market system. In the event of such listing or inclusion, Shares purchased by the Company for the DRP will be purchased on such exchange or market, at the prevailing market price, and will be sold to Stockholders at such price. The discount per Share is never intended to exceed 5% of the current Market Price of a Share on the date of purchase. Participants in the DRP may also purchase fractional Shares so that 100% of the Distributions will be used to acquire Shares. However, a Participant will not be able to acquire Shares under the DRP to the extent such purchase would cause it to exceed the Ownership Limit or other Share ownership restrictions imposed by the Articles. It is possible that a secondary market will develop for the Shares, and that the Shares may be bought and sold on the secondary market at prices lower or higher than the $10.00 per Share price which will be paid under the DRP. The Company shall endeavor to acquire Shares on behalf of Participants at the lowest price then available. However, the Company does not guarantee or warrant that the Participant will be acquiring Shares at the lowest possible price. If the Company's Shares are listed on a national stock exchange or included for quotation on a national market system, the reservation of any Shares from the Offering for issuance under the DRP, which have not been B-1 issued as of the date of such listing or inclusion, will be canceled, and such Shares will continue to have the status of authorized but unissued Shares. Those unissued Shares will not be issued unless they are first registered with the Securities and Exchange Commission (the "Commission") under the Act and under appropriate state securities laws or are otherwise issued in compliance with such laws. It is understood that reinvestment of Distributions does not relieve a Participant of any income tax liability which may be payable on the Distributions. iv. Share Certificates. Within 90 days after the end of the Company's fiscal year, the Company will issue certificates evidencing ownership of Shares purchased through the DRP during the prior fiscal year. The ownership of the Shares will be in book-entry form prior to the issuance of such certificates. v. Reports. Within 90 days after the end of the Company's fiscal year, the Company will provide each Participant with an individualized report on his or her investment, including the purchase date(s), purchase price and number of Shares owned, as well as the dates of distribution and amounts of Distributions received during the prior fiscal year. The individualized statement to Stockholders will include receipts and purchases relating to each Participant's participation in the DRP including the tax consequences relative thereto. vi. Termination by Participant. A Participant may terminate participation in the DRP at any time, without penalty, by delivering to the Company a written notice. Prior to listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on a national market system, any transfer of Shares by a Participant to a non-Participant will terminate participation in the DRP with respect to the transferred Shares. If a Participant terminates DRP participation, the Company will provide the terminating Participant with a certificate evidencing the whole shares in his or her account and a check for the cash value of any fractional share in such account. Upon termination of DRP participation, Distributions will be distributed to the Stockholder in cash. vii. Amendment or Termination of DRP by the Company. The Directors of the Company may by majority vote (including a majority of the Independent Directors) amend or terminate the DRP for any reason upon 30 days' written notice to the Participants. viii. Liability of the Company. The Company shall not be liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability: (a) arising out of failure to terminate a Participant's account upon such Participant's death prior to receipt of notice in writing of such death; and (b) with respect to the time and the prices at which Shares are purchased or sold for a Participant's account. To the extent that indemnification may apply to liabilities arising under the Act or the securities laws of a state, the Company has been advised that, in the opinion of the Commission and certain state securities commissioners, such indemnification is contrary to public policy and, therefore, unenforceable. ix. Governing Law. This DRP shall be governed by the laws of the State of Maryland. B-2 APPENDIX C INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. INSTRUCTIONS TO SUBSCRIBERS [LOGO] Any person desiring to subscribe for our common shares should carefully read and review the Prospectus, as supplemented to date, and if he/she desires to subscribe for shares, complete the Subscription Agreement/Signature Page that follows these instructions. Follow the appropriate instructions listed below for the items indicated. Please print in ballpoint pen or type the information. A - INVESTMENT Item (1)a Enter the dollars and cents amount of the purchase and the number of shares to be purchased. Minimum purchase 300 shares ($3,000). Qualified Plans 100 shares ($1,000). (Iowa requires 300 shares ($3,000) for IRA accounts; Minnesota requires 200 shares ($2,000) for IRA and qualified accounts). Check the box to indicate whether this is an initial or an additional investment. The "Additional Investment" box must be checked in order for this subscription to be combined with another subscription for purposes of a volume discount. A COMPLETED SUBSCRIPTION AGREEMENT IS REQUIRED FOR EACH INITIAL AND ADDITIONAL INVESTMENT. Item (1)b Deferred Commission Option: Please check the box if you have agreed with your Soliciting Dealer to elect the Deferred Commission Option, as described in the Prospectus, as supplemented to date. By electing the Deferred Commission Option, you are required to pay only $9.40 per share purchased upon subscription. For the next six years, following the year of subscription, you will have a sales commission of $0.10 per share deducted from and paid out of cash distributions otherwise distributable to you. Election of the Deferred Commission Option shall authorize the Company to withhold such amounts from cash distributions otherwise payable to you and to pay them as described in the "Plan of Distribution-Deferred Commission Option" section of the Prospectus, as supplemented to date. Item (1)c Check the box to indicate whether the Registered Representative chooses to purchase common stock net of selling commissions. B - TYPE OF OWNERSHIP FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, please mail the properly completed and executed Subscription Agreement/Signature Page and your check MADE PAYABLE TO "LBNA/ESCROW AGENT FOR IWRRET" to: Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois 60523, Attn: Investor Services. If you have questions, please call 800-826-8228. FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE TO THE CUSTODIAN AND SENT ALONG WITH THIS PROPERLY COMPLETED AND EXECUTED FORM TO THE CUSTODIAN. Item (2)a Check the appropriate box to indicate the type of entity that is subscribing. (Entities for non-custodial ownership accounts appear on the left side; entities for custodial ownership accounts appear on the right side.) If this is an additional purchase, this should be completed exactly the same as previous investment. If the entity is a pension or profit sharing plan, indicate whether it is taxable or exempt from taxation under Section 501A of the Internal Revenue Code. Note: Pension or profit sharing plan appears under non-custodial ownership as well as custodial ownership -- check non-custodial ownership if the plan has a trustee; custodial ownership if the plan has a custodian. If you check the Individual Ownership box and you wish to designate a Transfer on Death beneficiary, you may check the "TOD" box and you must fill out the Transfer on Death Form in order to effect the designation. Item (2)b Enter the exact name of the custodian or trustee and mailing address. IF THIS IS AN ADDITIONAL PURCHASE BY A QUALIFIED PLAN, PLEASE USE THE SAME EXACT PLAN NAME AS PREVIOUSLY USED. Item (2)c The custodian must complete this box by entering its custodian Tax ID number (for tax purposes), custodial account number and its telephone number. C - SUBSCRIBER INFORMATION Item (3) For non-custodial ownership accounts, enter the exact name in which the shares are to be held. For co-subscribers enter the names of all subscribers. For custodial ownership accounts, enter FBO the name of the subscriber. Item (4) Enter mailing address, city, state, and zip code of the subscriber. Note: The custodian or trustee of custodial ownership accounts is the mailing address or address of record completed in Item (2) b. Item (5) Enter the residence address if different than the mailing address in Item (4). For custodial ownership accounts, enter the residence address of the subscriber. Item (6) Enter home telephone, business telephone and email address. Item (7) Enter birth date of subscriber and co-subscriber, if applicable, or date of incorporation. Item (8) Enter the Social Security number of subscriber and co-subscriber, if applicable. The subscriber is certifying that this number is correct. For custodial ownership accounts, enter the subscriber's Social Security number (for identification purposes). Enter Tax ID number, if applicable. Item (9) Check the appropriate box. If the subscriber is a non-resident alien, he must apply to the United States Internal Revenue Service for an identification number via Form SS-4 for an individual or SS-5 for a corporation, and supply the number to the Company as soon as it is available. Item (10) Check this box if the subscriber is an employee of Inland or an individual who has been continuously affiliated with Inland as an independent contractor. D - DISTRIBUTION OPTIONS CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS. Item (11)a Check if you desire distributions to be mailed to address of record in Section C, Item (4) above. Item (11)b Check if you desire to participate in Distribution Reinvestment Program. Item (11)c If subscriber desires direct deposit of his/her/their cash distributions to an account or address other than as set forth in the Subscription Agreement/Signature Page, check the preferred option and complete the required information. For ACH, indicate whether it is a checking or savings account, and enter the name of the institution/individual, mailing address, ABA number, and account number. MUST ENCLOSE VOIDED CHECK, if applicable. CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR CUSTODIAL OWNERSHIP ACCOUNTS. Item (12)a Check if you desire distributions to be mailed to custodian. Item (12)b Check if you desire to participate in Distribution Reinvestment Program. E - SIGNATURE Item (13) The Subscription Agreement/Signature Page MUST BE EXECUTED by the subscriber(s), and if applicable, the trustee or custodian. F - BROKER/DEALER REGISTERED REPRESENTATIVE Item (14) Enter the Registered Representative name, address, B/D Rep ID number, telephone number, and e-mail address. Also, enter the name of the broker/dealer, home office address, and B/D Client Account number. By executing the Subscription Agreement/Signature Page, the Registered Representative substantiates compliance with the conduct rules of the NASD, by certifying that the Registered Representative has reasonable grounds to believe, based on information obtained from the investor concerning his, her or its investment objectives, other investments, financial situation and needs and any other information known by such Registered Representative, that investment in the Company is suitable for such investor in light of his, her or its financial position, net worth and other suitability characteristics and that the Registered Representative has informed the investor of all pertinent facts relating to the liability, liquidity and marketability of an investment in the Company during its term. The Registered Representative (authorized signature) should sign where provided. Item (14)a Check the box to indicate whether the broker/dealer agrees to the Deferred Commission Option if the subscriber has elected the deferred Commission Option; the broker/dealer must sign to acknowledge that agreement. Item (14)b Check the box to indicate whether the Registered Representative chooses to purchase common stock net of selling commissions. G - REGISTERED INVESTMENT ADVISOR (RIA) Item (15) Check the box to indicate whether this subscription was solicited or recommended by an investment advisor/broker/dealer whose agreement with the subscriber includes a fixed or "wrap" fee feature for advisory and related brokerage services, and, accordingly, may not charge the regular selling commission. NO SALES COMMISSIONS ARE PAID ON THESE ACCOUNTS. This box must be checked in order for such subscriber(s) to purchase shares net of the selling commissions. C-1 SUBMISSION OF SUBSCRIPTION FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, the properly completed and executed Subscription Agreement/Signature Page together with a check MADE PAYABLE TO "LBNA/ESCROW AGENT FOR IWRRET" should be mailed to: Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois 60523. Attn: Investor Services. FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE TO THE CUSTODIAN AND SENT ALONG WITH THIS PROPERLY COMPLETED AND EXECUTED FORM TO THE CUSTODIAN. NOTE: If a person other than the person in whose name the shares will be held is reporting the income received from the Company, you must notify the Company in writing of that person's name, address and Social Security number. ALL INVESTORS AND THEIR REGISTERED REPRESENTATIVES MUST SIGN THE SUBSCRIPTION AGREEMENT/ SIGNATURE PAGE PRIOR TO TENDERING ANY FUNDS FOR INVESTMENT IN SHARES. CALIFORNIA INVESTORS All Certificates representing shares which are sold in the State of California will bear the following legend conditions: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Any subscriber seeking to purchase shares pursuant to a discount offered by the Company must submit such request in writing and set forth the basis for the request. Any such request will be subject to verification by the Company. Lack of Liquidity: There is no current market for the shares and the investors may not be able to sell the securities. SPECIAL SUITABILITY STANDARDS CERTAIN STATES HAVE IMPOSED SPECIAL FINANCIAL SUITABILITY STANDARDS FOR SUBSCRIBERS WHO PURCHASE SHARES. IF THE SUBSCRIBER IS A RESIDENT OF MAINE, THE SUBSCRIBER MUST HAVE EITHER: (i) A MINIMUM NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $200,000; OR (ii) A MINIMUM ANNUAL GROSS INCOME OF $50,000 AND A MINIMUM NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $50,000. IF THE SUBSCRIBER IS A RESIDENT OF ARIZONA, CALIFORNIA, IOWA, MASSACHUSETTS, MICHIGAN, MISSOURI, OREGON OR TENNESSEE, THE SUBSCRIBER MUST HAVE EITHER: (i) A MINIMUM NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $225,000; OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A MINIMUM NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000. IN ADDITION, IF THE SUBSCRIBER IS A RESIDENT OF KANSAS, OHIO OR PENNSYLVANIA, THE INVESTMENT MAY NOT EXCEED 10% OF THE INVESTOR'S LIQUID NET WORTH. WE INTEND TO ASSERT THE FOREGOING REPRESENTATIONS AS A DEFENSE IN ANY SUBSEQUENT LITIGATION WHERE SUCH ASSERTION WOULD BE RELEVANT. WE HAVE THE RIGHT TO ACCEPT OR REJECT THIS SUBSCRIPTION IN WHOLE OR IN PART, SO LONG AS SUCH PARTIAL ACCEPTANCE OR REJECTION DOES NOT RESULT IN AN INVESTMENT OF LESS THAN THE MINIMUM AMOUNT SPECIFIED IN THE PROSPECTUS. AS USED ABOVE, THE SINGULAR INCLUDES THE PLURAL IN ALL RESPECTS IF SHARES ARE BEING ACQUIRED BY MORE THAN ONE PERSON. AS USED IN THIS SUBSCRIPTION AGREEMENT, "INLAND" REFERS TO INLAND REAL ESTATE GROUP, INC. AND ITS AFFILIATES. THIS SUBSCRIPTION AGREEMENT AND ALL RIGHTS HEREUNDER SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS. BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY RIGHTS UNDER THE FEDERAL SECURITIES LAWS. ACH LANGUAGE I (WE) HEREBY AUTHORIZE INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. ("COMPANY") TO DEPOSIT DISTRIBUTIONS FROM MY (OUR) INTEREST IN STOCK OF THE COMPANY INTO THE ACCOUNT LISTED IN SECTION D OF SUBSCRIPTION AGREEMENT AT THE FINANCIAL INSTITUTION INDICATED IN SECTION D OF SUBSCRIPTION AGREEMENT. I FURTHER AUTHORIZE THE COMPANY TO DEBIT MY ACCOUNT NOTED IN SECTION D OF SUBSCRIPTION AGREEMENT IN THE EVENT THAT THE COMPANY ERRONEOUSLY DEPOSITS ADDITIONAL FUNDS TO WHICH I AM NOT ENTITLED, PROVIDED THAT SUCH DEBIT SHALL NOT EXCEED THE ORIGINAL AMOUNT OF THE ERRONEOUS DEPOSIT. IN THE EVENT THAT I WITHDRAW FUNDS ERRONEOUSLY DEPOSITED INTO MY ACCOUNT BEFORE THE COMPANY REVERSES SUCH DEPOSIT, I AGREE THAT THE COMPANY HAS THE RIGHT TO RETAIN ANY FUTURE DISTRIBUTIONS THAT I AM ENTITLED UNTIL THE ERRONEOUSLY DEPOSITED AMOUNTS ARE RECOVERED BY THE COMPANY. THIS AUTHORIZATION IS TO REMAIN IN FULL FORCE AND EFFECT UNTIL THE COMPANY HAS RECEIVED WRITTEN NOTICE FROM ME OF THE TERMINATION OF THIS AUTHORIZATION IN TIME TO ALLOW REASONABLE OPPORTUNITY TO ACT ON IT, OR UNTIL THE COMPANY HAS SENT ME WRITTEN NOTICE OF TERMINATION OF THIS AUTHORIZATION. C-2 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. 2901 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523 ~ 800.826.8228 SUBSCRIPTION AGREEMENT/SIGNATURE PAGE FOR PROSPECTUS DATED ______________ [LOGO] PLEASE READ THIS SUBSCRIPTION AGREEMENT/SIGNATURE PAGE AND THE TERMS AND CONDITIONS BEFORE SIGNING. SUBSCRIBER MUST READ THE SUBSCRIPTION INSTRUCTIONS. A - INVESTMENT (1)a This subscription is in the amount of $_________________ for the purchase of ________________ shares of Inland Western Retail Real Estate Trust, Inc. at $10 per share. Minimum initial investment: 300 shares (100 shares for IRA, Keogh and qualified plan accounts-Iowa requires 300 Shares for IRA accounts; Minnesota requires 200 shares for IRA and qualified plan accounts). THIS IS AN: / / INITIAL INVESTMENT / / ADDITIONAL INVESTMENT A completed Subscription Agreement is required for each initial and additional investment. (1)b / / CHECK THE BOX TO ELECT THE DEFERRED COMMISSION OPTION. (This election must be agreed to by the broker/dealer listed on the following page) (1)c / / REGISTERED REPRESENTATIVE NAV PURCHASE B - TYPE OF OWNERSHIP NON-CUSTODIAL OWNERSHIP MAKE CHECK PAYABLE TO: LBNA/ESCROW AGENT FOR IWRRET (2)a / / INDIVIDUAL OWNERSHIP - one signature required / / TOD (FILL OUT TOD FORM TO EFFECT DESIGNATION) / / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign / / COMMUNITY PROPERTY - all parties must sign / / TENANTS IN COMMON - all parties must sign / / TENANTS BY THE ENTIRETY - all parties must sign / / CORPORATE OWNERSHIP - authorized signature required / / PARTNERSHIP OWNERSHIP - authorized signature required / / LLC OWNERSHIP - authorized signature required / / UNIFORM GIFTS TO MINORS ACT - custodian signature required STATE OF ________________ A CUSTODIAN FOR______________________ / / PENSION OR PROFIT SHARING PLAN - trustee signature(s) required / / TAXABLE / / EXEMPT UNDER Section 501A NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________ _______________________________________________________________ / / TRUST - trustee or grantor signature(s) required / / TAXABLE / / GRANTOR A OR B DATE TRUST ESTABLISHED ______ NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________ _______________________________________________________________ / / ESTATE - personal representative signature required / / OTHER (SPECIFY) ______________________________________________ CUSTODIAL OWNERSHIP MAKE CHECK PAYABLE TO THE CUSTODIAN LISTED BELOW AND SEND ALL PAPERWORK DIRECTLY TO THE CUSTODIAN (2)a / / TRADITIONAL IRA - custodian signature required / / ROTH IRA - custodian signature required / / KEOGH - trustee signature required / / SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.) - trustee signature required / / PENSION OR PROFIT SHARING PLAN - custodian signature required / / TAXABLE / / EXEMPT UNDER Section 501A NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________ _______________________________________________________________ / / OTHER (SPECIFY) _______________________________________________ (2)b ___________________________________________________________________ NAME OF CUSTODIAN OR TRUSTEE ___________________________________________________________________ MAILING ADDRESS ___________________________________________________________________ CITY, STATE, ZIP (2)c CUSTODIAN INFORMATION TO BE COMPLETED BY CUSTODIAN LISTED ABOVE CUSTODIAN TAX ID # - CUSTODIAL ACCOUNT # CUSTODIAN TELEPHONE - - C - SUBSCRIBER INFORMATION (3) SUBSCRIBER / / Mr. / / Mrs. / / Ms. CO-SUBSCRIBER / / Mr. / / Mrs. / / Ms. (4) MAILING ADDRESS CITY, STATE & ZIP CODE (5) RESIDENCE ADDRESS (if different from above) CITY, STATE & ZIP CODE (6) HOME TELEPHONE - - BUSINESS TELEPHONE - - EMAIL ADDRESS (7) BIRTH DATE/DATE / / MM/DD/YYYY OF INCORPORATION CO-SUBSCRIBER BIRTH / / MM/DD/YYYY DATE (8) SOCIAL SECURITY # - - CO-SUBSCRIBER SOCIAL - - SECURITY # TAX ID # - (9) PLEASE INDICATE CITIZENSHIP STATUS / / U.S. CITIZEN / / RESIDENT ALIEN / / NON-RESIDENT ALIEN (10) / / EMPLOYEE OR AFFILIATE C-3 D - DISTRIBUTION OPTIONS DISTRIBUTION OPTIONS FOR NON-CUSTODIAL ACCOUNTS (11)a / / MAIL TO ADDRESS OF RECORD (11)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate in the Distribution Reinvestment Program described in the Prospectus. (11)c / / DISTRIBUTIONS DIRECTED TO: / / VIA MAIL COMPLETE INFORMATION BELOW. / / VIA ELECTRONIC DEPOSIT (ACH) COMPLETE INFORMATION BELOW. See ACH language on page 2 of the instructions. MUST ENCLOSE VOIDED CHECK / / CHECKING / / SAVINGS ___________________________________________________________________ NAME OF BANK, BROKERAGE FIRM OR INDIVIDUAL ___________________________________________________________________ MAILING ADDRESS ___________________________________________________________________ CITY, STATE, ZIP BANK ABA # (FOR ACH ONLY) ACCOUNT NUMBER-MUST BE FILLED IN MUST ENCLOSE VOIDED CHECK DISTRIBUTION OPTIONS FOR CUSTODIAL ACCOUNTS (12)a / / MAIL TO CUSTODIAL ACCOUNT (12)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate in the Distribution Reinvestment Program described in the Prospectus. E - SIGNATURE (13) THE UNDERSIGNED CERTIFIES, under penalties of perjury (i) that the taxpayer identification number shown on the Subscription Agreement/Signature Page is true, correct and complete, and (ii) that he is not subject to backup withholding either because he has not been notified that he is subject to backup withholding as a result of a failure to report all interest or distributions, or the Internal Revenue Service has notified him that he is no longer subject to backup withholding. The undersigned further acknowledges and/or represents (or in the case of fiduciary accounts, the person authorized to sign on such Investor's behalf) the following: (a) acknowledges receipt, not less than five (5) business days prior to the signing of this Subscription Agreement, of the Prospectus of the COMPANY RELATING TO THE SHARES, WHEREIN THE TERMS AND CONDITIONS OF THE OFFERING OF THE SHARES ARE DESCRIBED, including among other things, the restrictions on ownership and transfer of shares, which require, under certain circumstances, that a holder of shares shall give written notice and provide certain information to the Company. (Does not apply to Minnesota residents.) (b) represents that I (we) either: (i) have a net worth (excluding home, home furnishings and automobiles) of at least $45,000 and estimate that (without regard to investment in the Company) I (we) have gross income due in the current year of at least $45,000; or (ii) have a net worth (excluding home, home furnishings and automobiles) of at least $150,000 or such higher suitability as may be required by certain states and set forth on page 2 hereof; IN THE CASE OF SALES TO FIDUCIARY ACCOUNTS, THE SUITABILITY STANDARDS MUST BE MET BY THE BENEFICIARY, THE FIDUCIARY ACCOUNT OR BY THE DONOR OR GRANTOR WHO DIRECTLY OR INDIRECTLY SUPPLIES THE FUNDS FOR THE PURCHASE OF THE SHARES. (c) represents that the investor is purchasing the shares for his or her own account and if I am (we are) purchasing shares on behalf of a trust or other entity of which I am (we are) trustee(s) or authorized agent(s) I (we) have due authority to execute the Subscription Agreement/Signature Page and do hereby legally bind the trust or other entity of which I am (we are) trustee(s) or authorized agent(s). (d) acknowledges that the shares are not liquid; (not required for Minnesota or Maine residents) (e) if an Affiliate of the Company, represents that the shares are being purchased for investment purposes only and not for immediate resale. X - --------------------------------- ---------------------------------- SIGNATURE -- REGISTERED OWNER DATE X X - --------------------------------- ---------------------------------- SIGNATURE -- CO-OWNER (IF APPLICABLE) AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE IF APPLICABLE) A SALE OF THE SHARES MAY NOT BE COMPLETED UNTIL AT LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES THE PROSPECTUS. F - BROKER/DEALER-REGISTERED REPRESENTATIVE (14) BROKER/DEALER DATA--COMPLETED BY SELLING REGISTERED REPRESENTATIVE (PLEASE USE REP'S ADDRESS--NOT HOME OFFICE) NAME OF REGISTERED REPRESENTATIVE / / Mr. / / Mrs. / / Ms. MAILING ADDRESS CITY, STATE & ZIP CODE BROKER/DEALER NAME HOME OFFICE MAILING ADDRESS CITY, STATE & ZIP CODE B/D CLIENT ACCOUNT NUMBER # B/D REP ID NUMBER # - - REGISTERED REPRESENTATIVE'S TELEPHONE HAVE YOU CHANGED BROKER/DEALERS? / / YES / / NO ---------------------------------------------------------- REGISTERED REPRESENTATIVE'S E-MAIL X ---------------------------------------------------------- SIGNATURE--REGISTERED REPRESENTATIVE X ---------------------------------------------------------- SIGNATURE--BROKER/DEALER (IF APPLICABLE) (14)a / / DEFERRED COMMISSION OPTION: Requires broker/dealer signature: ------ (14)b / / REGISTERED REPRESENTATIVE NAV PURCHASE G - REGISTERED INVESTMENT ADVISOR (RIA) (15) REGISTERED INVESTMENT ADVISOR (RIA) NO SALES COMMISSIONS ARE PAID ON THESE ACCOUNTS. / / CHECK ONLY IF investment is made through the RIA in its capacity as an RIA and not in its capacity as a Registered Representative, if applicable, whose agreement with the subscriber includes a fixed or "wrap" fee feature for advisory and related brokerage services. If an owner or principal or any member of the RIA firm is an NASD licensed Registered Representative affiliated with a broker/dealer, the transaction should be conducted through that broker/dealer, not through the RIA. C-4 APPENDIX D [LOGO] INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. TRANSFER ON DEATH FORM (T.O.D.) THIS FORM IS NOT VALID FOR TRUST OR IRA ACCOUNTS. Please mail this form to: Inland Securities Corporation, Attn: Investor Services Use this form to designate 2901 Butterfield Road, Oak Brook, a T.O.D. beneficiary (ies) Illinois 60523 800.826.8228 A - INVESTOR INFORMATION 1. Name of registered owner(s), exactly as name(s) appear(s) on stock certificate or subscription agreement: ______________________________________________________________________ ______________________________________________________________________ 2. Social Security number(s) of registered owner(s): - - - - 3. Daytime phone number: - - 4. State of Residence: ______________________________________________________________________ Not accepted from residents of Louisiana, New York or North Carolina B - TRANSFER ON DEATH DESIGNATION I authorize Inland Western Retail Real Estate Trust, Inc. to register all of my shares of its common stock in beneficiary form, assigning ownership on my death to my beneficiary(ies). I understand that if more than one beneficiary is listed, percentages for each must be designated. If percentages are not designated, the shares will be divided equally. Percentages must equal 100%. Additional beneficiaries may be listed on a separate page. 1. Name of Primary Beneficiary: ______________________________________________________________________ 2. Social Security Number: - - OR Tax Identification Number: - 3. Percentage: % 1. Name of Primary Beneficiary: ______________________________________________________________________ 2. Social Security Number: - - OR Tax Identification Number: - 3. Percentage: % 1. Name of Primary Beneficiary: ______________________________________________________________________ 2. Social Security Number: - - OR Tax Identification Number: - 3. Percentage: % 1. Name of Primary Beneficiary: ______________________________________________________________________ 2. Social Security Number: - - OR Tax Identification Number: - 3. Percentage: % C - SIGNATURE By signing below, I (we) authorize Inland Western Retail Real Estate Trust, Inc. to register all of my (our) shares of its common stock in T.O.D. form. The designation(s) will be effective on the date of receipt. Accordingly, I (we) hereby revoke any beneficiary designation(s) made previously with respect to my (our) Inland shares. I (we) have reviewed the information set forth below. I (we) agree on behalf of myself (ourselves) and my (our) heirs, assigns, executors, administrators and beneficiaries to indemnify and hold harmless Inland Western Retail Real Estate Trust, Inc. and any and all of its affiliates, agents, successors and assigns, and their respective directors, officers and employees, from and against any and all claims, liability, damages, actions and expenses arising directly or indirectly out of or resulting from the transfer of my (our) shares in accordance with this T.O.D. designation. I (we) further understand that Inland Western Retail Real Estate Trust, Inc. cannot provide any legal advice and I (we) agree to consult with my (our) attorney, if necessary, to make certain that the T.O.D. designation is consistent with my (our) estate and tax planning. Sign exactly as the name(s) appear(s) on the stock certificate or subscription agreement. All registered owners must sign. THIS AUTHORIZATION FORM IS SUBJECT TO THE ACCEPTANCE OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. X X ------------------ ------------ ------------------- --------- Signature Date Signature Date TRANSFER ON DEATH INFORMATION - - A Transfer on Death (T.O.D.) designation transfers ownership of shares to the registered owner's beneficiary(ies) upon death; provided that Inland Western Retail Real Estate Trust, Inc. receives proof of death and other documentation it deems necessary or appropriate. - - Until the death of the account owner(s), the T.O.D. beneficiary(ies) has (have) no present interest in, or authority over, the T.O.D. account. - - A T.O.D. designation will be accepted only where (1) shares are owned by a natural person and registered in that individual's name or (2) by two or more natural persons as joint tenants with rights of survivorship. - - Accounts registered to trusts, corporations, charities, and other such entities may not declare a T.O.D. designation because they are considered perpetual. These entities, however, may be listed as a beneficiary on a T.O.D. for accounts registered to a natural person. - - A T.O.D. designation made by joint tenants with rights of survivorship does not take effect until the last of all multiple owners dies. The surviving owners may revoke or change the T.O.D. designation at any time. - - If the beneficiary(ies) does (do) not survive the registered owner(s), the shares will be treated as belonging to the decedent's estate. - - A minor may not be named as a beneficiary. - - A T.O.D. designation will not be accepted from residents of Louisiana, New York or North Carolina. - - A T.O.D. designation and all rights related thereto shall be governed by the laws of the state of Illinois. - - A T.O.D. designation may be voided at any time by Inland Western Retail Real Estate Trust, Inc., in its sole discretion, if there is any doubt as to the validity or effectiveness of a T.O.D. designation. D-1 APPENDIX E1 LETTER OF DIRECTION _________________, 2003 Inland Real Estate Investment Corporation 2901 Butterfield Road Oak Brook, Illinois 60523 RE: Registered Investment Advisory Fees Account No. ______________ ("Account") You are hereby instructed and authorized by me to deduct advisory fees payable to ________________, my registered investment advisor, in the following amount from my Account, and to pay such amount by wire transfer in immediately available funds to my registered investment advisor, upon each distribution by Inland Western Retail Real Estate Trust, Inc. (the "Company") on my Account, as payment for my registered investment advisor's advisory fees (select only one). (1) $________________; OR (2) _______________% Annual Fee (calculated on a monthly basis) of the Asset Value to be paid by the Company on my Account. I understand and acknowledge that any and all advisory fees payable to my registered investment advisor are my sole responsibility and you are paying the amounts directed by me as an accommodation. This letter shall serve as an irrevocable instruction to you to pay such advisory fees from my Account until such time as I provide you with written notice of my election to revoke this instruction. Sincerely, E1-1 APPENDIX E2 NOTICE OF REVOCATION __________________, 20__ Inland Real Estate Investment Corporation 2901 Butterfield Road Oak Brook, Illinois 60523 RE: Revocation of Instruction Account No. _________ ("Account") This letter shall serve as notice to you of my revocation of my instruction to you to deduct advisory fees from my Account any pay such fees directly to _________________, my registered investment advisor, pursuant to my letter to you dated _____________. I hereby instruct you to cease any and all future deductions from my Account for the purpose of such advisory fee payments. I understand and acknowledge that this revocation will be effective within one business day of receipt by you. Sincerely, E2-1 APPENDIX F PRIVACY POLICY NOTICE INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. PRIVACY POLICY OUR COMMITMENT TO PROTECTING YOUR PRIVACY. We consider customer privacy to be fundamental to our relationship with our shareholders. In the course of servicing your account, we collect personal information about you ("NONPUBLIC PERSONAL INFORMATION"). We collect this information to know who you are so that we can provide you with products and services that meet your particular financial and investing needs, and to meet our obligations under the laws and regulations that govern us. Throughout our history we have been, and we remain, committed to maintaining the confidentiality, integrity and security of our shareholders' personal information. It is our policy to respect the privacy of our current and former shareholders and to protect the personal information entrusted to us. This Privacy Policy (the "POLICY") describes the standards we follow for handling your personal information, with the dual goals of meeting your financial needs while respecting your privacy. This Policy applies to the Inland family of companies, which includes Inland Western Retail Real Estate Trust, Inc. 1. Information We May Collect We may collect nonpublic personal information about you from three sources: - Information on applications, subscription agreements or other forms. This category may include your name, address, tax identification number, age, marital status, number of dependents, assets, debts, income, employment history, beneficiary information and personal bank account information. - Information about your transactions with us, our affiliates and others such as: the types of products you purchase, your account balances, margin loan history and payment history. - Information obtained from others, such as from consumer credit reporting agencies. This may include information about your creditworthiness, financial circumstances and credit history, including any bankruptcies and foreclosures. 2. Persons to Whom We May Disclose Information We may disclose all three types of nonpublic personal information about you to the unaffiliated third parties and in the circumstances described below, as permitted by applicable laws and regulations. - Companies with whom we have contracted to provide account-related services, such as statement preparation, execution services, custodial services, and report preparation. (Every contract with each of these service providers prohibits the service provider from disclosing or using your nonpublic personal information for any purpose except to provide the service for which we have contracted.) - Our lawyers, accountants, auditors, regulators, advisors, and quality-control consultants. - If we suspect fraud. - To protect the security of our records, Web site and telephone customer service center. - Information you have authorized us to disclose. 3. Protecting Your Information F-1 Our employees are required to follow the procedures we have developed to protect the integrity of your information. These procedures include: - Restricting physical and other access to your nonpublic personal information to persons with a legitimate business need to know the information in order to service your account. - Contractually obligating third parties doing business with us to comply with all applicable privacy and security laws. - Providing information to you only after we have used reasonable efforts to assure ourselves of your identity by asking for and receiving from you information only you should know. - Maintaining reasonably adequate physical, electronic and procedural safeguards to protect your information. 4. Former Customers We treat information concerning our former customers the same way we treat information about our current customers. 5. Keeping You Informed We will send you a copy of this Policy annually. We will also send you all changes to this Policy as they occur. You have the right to "opt out" of this policy by notifying us in writing. QUESTIONS? If you have any questions about this Policy, please do not hesitate to call Roberta Matlin at 630-218-8000. F-2 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses (other than selling commissions) incurred by us while issuing and distributing the securities registered pursuant to this Registration Statement. All amounts other than the SEC registration fee and NASD filing fee are estimates. Securities and Exchange Commission Registration Fee $ 228,621 NASD Filing Fee $ 935 Printing and Mailing Expenses $ 118,443 Blue Sky Fees and Expenses $ 231,400 Legal Fees and Expenses $ 518,328 Accounting Fees and Expenses $ 447,925 Advertising and Sales Literature $ 2,849,107 Due Diligence $ 344,067 Transfer agent fees $ 98,703 Data processing fees $ 21,953 Bank fees and other administrative expenses $ 360,361 -------------- Total $ 5,219,843*
* As of June 30, 2004 ITEM 32. SALES TO SPECIAL PARTIES. Our employees and associates and those of our affiliates are permitted to purchase shares net of sales commissions and the marketing contribution and due diligence expense allowance fee or for $8.95 per share. ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES. As of September 14, 2004, we have sold the following securities for the following aggregate offering prices: In March 2003, Inland Western Retail Real Estate Advisory Services, Inc., the advisor, purchased from us 20,000 shares for $10 per share, for an aggregate purchase price of $200,000 in connection with our organization. No sales commissions or other consideration was paid in connection with such sales The sales were consummated without registration under the Act in reliance upon Rule 506 of Regulation D and the exemption from registration in Section 4(2) of the Securities Act as transactions not involving any public offering. Options to purchase an aggregate of 15,000 shares at an exercise price of $8.95 per share have been granted to the Independent Directors pursuant to the Independent Director Stock Option Plan (options to purchase 3,000 shares as to each of the five independent directors plus options for 500 shares each on the date of the first annual meeting). None of such options have been exercised. Therefore, no shares have been issued in connection with such options. II-1 ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article XV of our articles of incorporation provides as follows: SECTION 3. INDEMNIFICATION (a) Subject to paragraphs (b), (c) and (d) of this Section 3, we 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 General Corporation Law, indemnify and pay, advance, or reimburse reasonable expenses to any Director, officer, employee and agent of the Company and the Advisor and its Affiliates (each an "Indemnified Party"). (b) As long as we qualify as a REIT, it shall not indemnify nor pay, advance or reimburse expenses to an Indemnified Party unless: (i) Directors have determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests; (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 willful misconduct; and (iv) such indemnification or agreement to be held harmless is recoverable only out of our Net Assets and not from the Stockholders. (c) As long as we qualify as a REIT and notwithstanding anything to the contrary in Section 3(b) of this Article XV, the Company shall not indemnify a Director, officer, employee or agent of ours or the Advisor or its Affiliates for losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular 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 the 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 ours were offered or sold as to indemnification for violations of securities laws. (d) We may advance amounts to an Indemnified Party for legal and other expenses and costs incurred as a result of any legal action for which indemnification is being sought only in accordance with Section 2-418 of the Maryland General Corporation Law, and, as long as we qualify as a REIT, 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 our behalf; (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 us, together with the applicable legal rate of interest thereon, in cases in which such party is found not to be entitled to indemnification. (e) We shall have the power to purchase and maintain insurance or provide similar protection on behalf of an Indemnified Party against any liability asserted which was incurred in any such capacity with us or arising out of such status; provided, however, that we 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 these Articles. 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. We shall also have power to enter into any contract for indemnity and advancement of expenses with an officer, employee or agent who is not a Director to such further extent consistent with law. II-2 Our article of incorporation authorize and direct us to indemnify, and pay or reimburse reasonable expenses to, any director, officer, employee or agent we employ to the fullest extent provided by Maryland law. The Maryland General Corporation Law provides that a Maryland corporation may indemnify a director, officer, employee or agent made a party to any proceeding by reason of service in that capacity unless it has been established that (1) the act or omission was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty; or (2) the individual actually received an improper personal benefit in money, property, or services; or (3) in the case of a criminal proceeding, the individual had reasonable cause to believe that the act or omission was unlawful. The Bylaws provide that neither the amendment, nor the repeal, nor the adoption of any other provision of the articles of incorporation or the bylaws will apply to or affect, in any respect, the Indemnitee's right to indemnification for actions or failures to act which occurred prior to such amendment, repeal or adoption. To the extent that the indemnification may apply to liabilities arising under the Act, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is contrary to public policy and, therefore, unenforceable. We entered into separate indemnification agreements with each of our directors and some of our executive officers. The indemnification agreements require, among other things, that we indemnify the directors and officers to the fullest extent permitted by law, and advance to the directors and officers all related expenses, subject to reimbursement if it is subsequently determined that indemnification is not permitted. We must also indemnify and advance all expenses incurred by directors and officers seeking to enforce their rights under the indemnification agreements and cover directors and officers under our Directors' and officers' liability insurance, if any. Although the form of indemnification agreement offers substantially the same scope of coverage afforded by provisions in the articles of incorporation and the Bylaws, as a contract, it cannot be unilaterally modified by the board or by the stockholders to eliminate the rights it provides. ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED. Inapplicable. II-3 ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS. The following financial statements were previously filed as part of the registration statement in the prospectus and are included herein: 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Report of Independent Registered Public Accouting Firm (b) Balance Sheet at June 30, 2003 (audited) (c) Notes to Balance Sheet at June 30, 2003 (audited) 2. PEORIA STATION: (a) Report of Independent Registered Public Accouting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and six months ended June 30, 2003 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and six months ended June 30, 2003 (unaudited) The following financial statements are included as part of Post Effective Amendment No. 2 and are incorporated herein by reference: 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Pro Forma Balance Sheet at September 30, 2003 (unaudited) (b) Notes to Pro Forma Balance Sheet at September 30, 2003 (unaudited) (c) Pro Forma Statement of Operations for the nine months ended September 30, 2003 (unaudited) (d) Notes to Pro Forma Statement of Operations for the nine months ended September 30, 2003 (unaudited) (e) Pro Forma Statement of Operations for the year ended December 31, 2003 (unaudited) (f) Notes to Pro Forma Statement of Operations for the year ended December 31, 2003 (unaudited) 2. SHOPS AT PARK PLACE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and nine months ended September 30, 2003 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and nine months ended September 30, 2003 (unaudited) 3. STONY CREEK MARKETPLACE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the nine months ended September 30, 2003 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the nine months ended September 30, 2003 (unaudited) II-4 The following financial statements are included as part of Post Effective Amendment No. 3 and are incorporated herein by reference: 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Independent Auditors' Report (b) Consolidated Balance Sheet at December 31, 2003 (audited) (c) Consolidated Statement of Operations for the period from March 5, 2003 (inception) to December 31, 2003 (audited) (d) Consolidated Statement of Stockholders' Equity for the period from March 5, 2003 (inception) to December 31, 2003 (audited) (e) Consolidated Statement of Cash Flows for the period from March 5, 2003 (inception) to December 31, 2003 (audited) (f) Notes to Consolidated Financial Statements (audited) (g) Real Estate and Accumulated Depreciation (Schedule III) (h) Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2003 (i) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2003 (j) Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2003 (k) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2003 2. DARIEN TOWNE CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 (d) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) (e) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) 3. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 4. STONY CREEK MARKETPLACE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) II-5 5. SHOPS AT PARK PLACE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) 6. SHAW'S SUPERMARKET (NEW BRITAIN): (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) 7. HICKORY RIDGE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 8. CORWEST PLAZA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 29, 2003 through December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from May 29, 2003 through December 31, 2003 (d) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) (e) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) 9. METRO SQUARE CENTER (SUPERVALUE) : (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 10. LARKSPUR LANDING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 II-6 11. NORTH RANCH PAVILION: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 12. LA PLAZA DEL NORTE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 13. MACARTHUR CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 14. PROMENADE AT RED CLIFF: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 15. PEORIA CROSSINGS: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 16. DORMAN CENTRE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 II-7 17. HERITAGE TOWNE CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 The following financial statements are included as part of Post Effective Amendment No. 4 and are incorporated herein by reference: 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Consolidated Balance Sheets at March 31, 2004 (unaudited) and December 31, 2003 (audited) (b) Consolidated Statements of Operations for the three months ended March 31, 2004 (unaudited) and for the period from March 5, 2003 (inception) to March 31, 2003 (unaudited). (c) Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2004 (unaudited) (d) Consolidated Statements of Cash Flows for the three months ended March 31, 2004 (unaudited) and for the period from March 5, 2003 (inception) to March 31, 2003 (unaudited). (e) Notes to Consolidated Financial Statements (unaudited). (f) Pro Forma Consolidated Balance Sheet (unaudited) at March 31, 2004 (g) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at March 31, 2004 (h) Pro Forma Consolidated Statement of Operations (unaudited) for the three months ended March 31, 2004 (i) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the three months ended March 31, 2004 (j) Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003 (k) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003. 2. PARADISE VALLEY MARKETPLACE: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 3. BEST ON THE BOULEVARD: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) II-8 4. BLUEBONNET PARC: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 5. NORTH RIVERS TOWN CENTER: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period of October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) 6. ARVADA MARKETPLACE AND CONNECTION: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 7. EASTWOOD TOWNE CENTER: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 8. WATAUGA PAVILION: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of August 15, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of August 15, 2003 (commencement of operations to December 31, 2003 and the three months ended March 31, 2004 (unaudited) 9. NORTHPOINTE PLAZA: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) II-9 10. PLAZA SANTA FE II: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 11. PINE RIDGE PLAZA: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 12. HUEBNER OAKS CENTER: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 13. ALISON'S CORNER: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from September 1, 2003 (commencement of operations) through December 31, 2003 and the three months ended March 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from September 1, 2003 (commencement of operations) through December 31, 2003 and the three months ended March 31, 2004 (unaudited) The following financial statements are included as part of Post Effective Amendment No. 5 and are including herein: 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Consolidated Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003 (b) Consolidated Statements of Operations for the three and six months ended June 30, 2004 (unaudited), for the three months ended June 30, 2003, and the period from March 5, 2003 (inception) to June 30, 2003 (unaudited). (c) Consolidated Statement of Stockholders' Equity for the six months period ended June 30, 2004 (unaudited) (d) Consolidated Statements of Cash Flows for the three and six months ended June 30, 2004 (unaudited), three months ended June 30,2003 and for the period from March 5, 2003 (inception) to June 30, 2003 (unaudited). (e) Notes to Consolidated Financial Statements (unaudited). (f) Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004 (g) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004 (h) Pro Forma Consolidated Statement of Operations (unaudited) for the six months ended June 30, 2004 II-10 (i) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the six months ended June 30, 2004 (j) Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003 (k) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003. 2. JOHN'S CREEK VILLAGE: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 3. LAKEWOOD TOWN CENTER: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 4. FULLERTON METROCENTER: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 5. DAVIS TOWNE CROSSING: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 6. NORTHGATE NORTH: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) II-11 7. CRANBERRY SQUARE: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 8. GATEWAY PLAZA SHOPPING CENTER: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 9. SAFEWAY PLAZA AT MARYSVILLE: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 10. FORKS TOWN CENTER: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 11. CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTUE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC: (a) Report of Independent Registered Public Accounting Firm (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 12. THE SHOPS AT BOARDWALK: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) II-12 13. MANCHESTER MEADOWS: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 14. GOVERNOR'S MARKETPLACE: (a) Report of Independent Registered Public Accounting Firm (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 14. MITCHELL RANCH PLAZA: (a) Report of Independent Registerd Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 15. THE COLUMNS: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 16. SAUCON VALLEY SQUARE: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 17. LINCOLN PARK: (a) Report of Independent Registered Public Accounting Firm (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) II-13 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 18. SHOPPES AT PROMINENCE POINT: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 19. LOW COUNTRY VILLAGE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of February 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of February 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 20. SHOPPES AT DALLAS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 21. DORMAN CENTRE - PHASE II: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) 22. VILLAGE SHOPPES AT SIMONTON: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of May 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of May 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 23. HARVEST TOWN CENTER: (c) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) (d) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) EXHIBITS.
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1* Form of Dealer Manager Agreement by and between Inland Western Retail Real Estate Trust, Inc. and Inland Securities Corporation. 1.2* Form of Soliciting Dealers Agreement by and between Inland Securities Corporation and the Soliciting Dealers.
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EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1* First Amended and Restated Articles of Incorporation of Inland Western Retail Real Estate Trust, Inc. 3.2* Bylaws of Inland Western Retail Real Estate Trust, Inc. 4.1* Specimen Certificate for the Shares. 5* Opinion of Duane Morris LLP as to the legality of the Shares being registered. 8* Opinion of Duane Morris LLP as to tax matters. 10.1* Form of Escrow Agreement by and among Inland Western Retail Real Estate Trust, Inc., Inland Securities Corporation and LaSalle Bank National Association. 10.2* Form of Advisory Agreement by and between Inland Western Retail Real Estate Trust, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. 10.3* Form of Master Management Agreement, including the form of Management Agreement for each Property by and between Inland Western Retail Real Estate Trust, Inc. and Inland Western Property Management Corp. 10.4* Property Acquisition Service Agreement by and among Inland Western Retail Real Estate Trust, Inc., Inland Western Retail Real Estate Advisory Services, Inc., Inland Real Estate Corporation, Inland Real Estate Advisory Services, Inc., and Inland Real Estate Acquisitions, Inc. 10.5* Independent Director Stock Option Plan. 10.6* Indemnification Agreement by and between Inland Western Retail Real Estate Trust, Inc. and its directors and executive officers. 10.7* Purchase and Sale Agreement (Re: Peoria Station) dated January 31, 2003. 10.8* Assignment of Purchase and Sale Agreement (Re: Peoria Station) dated June 3, 2003. 10.9* Share Repurchase Plan. 10.10* Agreement for Purchase and Sale (Re: Stony Creek) dated November 11, 2003. 10.11* Real Property Purchase Agreement (Re: Plaza 205 and Mall 205) dated December 3, 2003. 10.12* Amended Real Estate Purchase Contract (Re: Edmond Oklahoma Eckerd Drug Store) dated November 11, 2003. 10.13* Amended Real Estate Purchase Contract (Re: Norman Oklahoma Eckerd Drug Store) dated November 11, 2003. 10.14* Sale-Purchase Agreement Contract (Re: Shops at Park Place) dated September 5, 2003. 10.15* Assignment of Contract (Re: Shops at Park Place) dated September 23, 2003. 10.16* Assignment of Membership Interests (Re: Shops at Park Place) dated October 31, 2003. 10.17* Promissory Note (Re: Shops at Park Place) dated October 31, 2003. 10.18* Loan Agreement (Re: Shops at Park Place) dated October 31, 2003. 10.19* Post Closing Agreement (Re: Shops at Park Place) dated October 31, 2003. 10.20* Purchase and Sale Agreement (Re: Darien Towne Center) dated November 12, 2003.
II-15
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.21* Purchase and Sale Agreement (Re: Shaws Supermarkets- New Britain) dated November 20, 2003. 10.22* Agreement Relating to PetsMart Claims (Re: Darien Towne Center) dated December 18, 2003. 10.23* Agreement Relating to Irv's Lease (Re: Darien Towne Center) dated December 18, 2003. 10.24* Amended Purchase Agreement (Re: Newnan Crossing) dated December 18, 2003. 10.25* Mortgage Note $10M (Re: Darien Towne Center) dated December 19, 2003. 10.26* Mortgage Note $6.5M (Re: Darien Towne Center) dated December 19, 2003. 10.27* Mortgage, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing (Re: Darien Towne Center) dated December 19, 2003. 10.28* Related Agreement (Re: Darien Towne Center) dated December 19, 2003. 10.29* Assignment (Re: Darien Towne Center) dated December 19, 2003. 10.30* Partial Assignment and Assumption of Purchase and Sale Agreement (Re: Shaws Supermarket - New Britain) dated December 30, 2003. 10.31* Amended Purchase Agreement (Re: Pavilion at Kings Grant) dated December 31, 2003. 10.32* Post Closing and Indemnity Agreement (Re: Pavilion at Kings Grant) dated December 31, 2003. 10.33* Mortgage Note (Re: CorWest Plaza) dated January 1, 2004. 10.34* Mortgage, Assignment of Leases and Rents and Security Agreement (Re: CorWest Plaza) dated January 1, 2004. 10.35* Guaranty Agreement (Re: CorWest Plaza) dated January 1, 2004. 10.36* Letter Agreement (Re: Stoney Creek Marketplace) dated January 5, 2004. 10.37* Mortgage Note (Re: Stoney Creek Marketplace) dated January 5, 2004. 10.38* Mortgage, Assignment of Leases and Rents and Security Agreement (Re: Stoney Creek Marketplace) dated January 5, 2004. 10.39* Amended Contract of Sale (Re: La Plaza Del Norte) dated January 16, 2004. 10.40* Promissory Note (Re: Hickory Ridge) dated January 23, 2004. 10.41* Post Closing Agreement (Re: Hickory Ridge) dated January 2004. 10.42* Loan Agreement (Re: Hickory Ridge) dated January 23, 2004. 10.43* Amended and Restated Promissory Noted (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.44* Promissory Note (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.45* Open-End Mortgage and Security Agreement (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.46* Loan Agreement (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.47* Guaranty Agreement Regarding Cross-Collateralization (Re: Shops at Park Place) dated January 2004.
II-16
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.48* Guaranty Agreement Regarding Cross-Collateralization (Re: Shaws Supermarket - New Britain) dated January 2004. 10.49* Notice of Final Agreement (Re: La Plaza Del Norte) dated February 2004. 10.50* Secured Promissory Note Loan No. 753821 (Re: La Plaza Del Norte) dated February 2004. 10.51* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753821 (Re: La Plaza Del Norte) dated February 2004. 10.52* Guaranty Loan No, 753821 (Re: La Plaza Del Norte) dated February 2004. 10.53* Amended Purchase and Sale Agreement (Re: CorWest Plaza) dated October 8, 2003. 10.54* Assignment and Assumption of Purchase and Sale Agreement (Re: CorWest Plaza) dated January 5, 2004. 10.55* Amended Purchase and Sale Agreement (Re: Metro Square Center) dated January 16, 2004. 10.56* Assignment and Assumption of Letter Agreement (Re: Metro Square Center) dated January 20, 2004. 10.57* Reinstatement of and Amendment to Purchase and Sale Agreement (Re: North Ranch Pavilions) dated January 14, 2004. 10.58* Assignment and Assumption of Purchase and Sale Agreement (Re: North Ranch Pavilions) dated January 15, 2004. 10.59* Letter Agreement (Re: MacArthur Crossing) dated November 20, 2003. 10.60* Assignment of Contract (Re: MacArthur Crossing) dated February 2004. 10.61* Secured Promissory Note Loan No. 753820 (Re: Larkspur Landing) dated January 30, 2004. 10.62* Deed of Trust, Security Agreement and Assignment of Rents (Re: Larkspur Landing) dated January 30, 2004. 10.63* Guaranty Loan No. 753820 (Re: Larkspur Landing) dated January 30, 2004. 10.64* Amended Option to Purchase Partnership Interests (Re: Hickory Ridge) dated December 23, 2003. 10.65* Assignment (Re: La Plaza Del Norte) dated January 21, 2004. 10.66* Purchase and Sale Agreement (Re: Larkspur Landing) dated December 12, 2003. 10.67* Assignment (Re: Larkspur Landing) dated January 14, 2004. 10.68* Amended Letter Agreement Offer to Purchase (Re: The Promenade at Red Cliff) dated February 13, 2004. 10.69* Agreement of Sale (Re: Peoria Crossing) dated January, 2004 10.70* Letter Agreement to Purchase (Re: Heritage Towne Crossing) dated January 8, 2004. 10.71* Secured Promissory Note Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004. 10.72* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004. 10.73* Guaranty Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004.
II-17
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.74* Guaranty - II Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004. 10.75* Assignment of Contract (Re: Hickory Ridge ) dated January 9, 2004. 10.76* Promissory Note Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.77* Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.78* Non-Recourse Guaranty Agreement Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.79* Payment Guaranty Agreement Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.80* Secured Promissory Note Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004. 10.81* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004. 10.82* Guaranty Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004. 10.83* Promissory Note Loan No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004. 10.84* Exceptions to Non-Recourse Guaranty Agreement Loan No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004. 10.85* Loan Agreement No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004. 10.86* Post Closing and Indemnity Agreement (Re: Heritage Towne Crossing) dated March 5, 2004. 10.87* Vacancy Escrow Agreement (Re: Heritage Towne Crossing) dated March 5, 2004. 10.88* General Assignment (Re: Heritage Towne Crossing) dated March 5, 2004. 10.89* Assignment of Contract (Re: Heritage Towne Crossing) dated March 5, 2004. 10.90* Assignment of Contract (Re: Dorman Center) dated December 29, 2003. 10.91* Amended Purchase Agreement (Re: Dorman Center) dated December 10, 2003. 10.92* Dorman Center Pier 1 Escrow (Re: Dorman Center) dated March 4, 2004. 10.93* Dorman Center Escrow (Re: Dorman Center) dated March 4, 2004. 10.94* Mortgage Note Loan No. 6518291 (Re: Dorman Center) dated April 9, 2004. 10.95* Mortgage, Assignment of Leases and Rents and Security Agreement (Re: Dorman Center) dated April 9, 2004. 10.96* Transitional Security (Phase II) Reserve Agreement (Re: Dorman Center) dated April 9, 2004, 10.97* Guaranty Agreement Loan No. 6518291 (Re: Dorman Center) dated April 9, 2004. 10.98* Promissory Note: (Re: Heritage Towne Crossing) dated April 26, 2004. 10.99* Promissory Note: (Re: Eckerds - Edmond, OK.) dated April 26, 2004. 10.100* Promissory Note: (Re: Eckerds - Norman, OK.) dated April 26, 2004.
II-18
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.101* Loan Agreement (Re: Heritage Towne Crossing, Eckerds - Edmond, OK. And Eckerds - Norman, OK.) dated April 26, 2004. 10.102* Post-Closing Agreement (Re: Heritage Towne Crossing, Eckerds - Edmond, OK. And Eckerds - Norman, OK.) dated April 26, 2004. 10.103* Guaranty Agreement Regarding Cross-Collateralization (Re: Heritage Towne Crossing) dated April 26, 2004. 10.104* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Edmond, OK.) dated April 26, 2004. 10.105* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Norman, OK.) dated April 26, 2004. 10.106* Assignment of Contract (Re: Promenade at Red Cliff) dated February 13, 2004. 10.107* Assignment of Contract (Re: Peoria Crossings) dated March 3, 2004. 10.108* Post Closing Agreement (Re: Peoria Crossings) dated March 3, 2004. 10.109* Master Lease Escrow Agreement (Re: Peoria Crossings) dated February 4, 2004. 10.110* Tax Proration Agreement (Re: Peoria Crossings) dated March 3, 2004. 10.111* Promissory Note Loan No. 10023006 (Re: Peoria Crossings) dated March 5, 2004. 10.112* Loan Agreement -Loan No. 10023006 (Re: Peoria Crossings) dated March 5, 2004. 10.113* Assignment of Contract (Re: Paradise Valley Marketplace) dated April 8, 2004. 10.114* Revised Letter Agreement to Purchase (Re: Paradise Valley Marketplace) dated January 21, 2004. 10.115* Escrow Agreement (Re: Paradise Valley Marketplace) dated April 8, 2004. 10.116* Assignment and Assumption of Purchase and Sale Agreement (Re: Best on the Boulevard) dated April 4, 2004. 10.117* Post-Closing Agreement (Re: Best on the Boulevard) dated April 14, 2004. 10.118* Amended Purchase and Sale Agreement (Re: Best on the Boulevard) dated March 29, 2004. 10.119* Assignment and Assumption of Purchase and Sales Agreement (Re: Bluebonnet Parc) dated April 21, 2004. 10.120* Escrow Agreement (Re: Bluebonnet Parc) dated April 22, 2004. 10.121* Letter Agreement to Purchase (Re: Bluebonnet Parc) dated February 4, 2004. 10.122* Loan Agreement (Re: Bluebonnet Parc) dated May 7, 2004. 10.123* Assignment and Assumption of Agreement for Purchase and Sale (Re: Alison's Corner) dated April 20, 2004. 10.124* Post Closing Agreement (Re: Alison's Corner) dated April 28, 2004. 10.125* Amended Purchase and Sale Agreement (Re: Alison's Corner) dated April 23, 2004. 10.126* Promissory Note (Re: Alison's Corner) dated May 10, 2004.
II-19
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.127* Loan Agreement (Re: Alison's Corner) dated May 10, 2004. 10.128* Letter Agreement Regarding Escrow (Re: Alison's Corner) dated May 10, 2004. 10.129* Post-Closing Agreement (Re: Alison's Corner) dated May 10, 2004. 10.130* Assignment and Assumption of Purchase and Sales Agreement (Re: North Rivers Town Center) dated April 27, 2004. 10.131* Post-Closing Agreement (Re: North Rivers Town Center) dated April 2004. 10.132* Amended Agreement for Purchase and Sale (Re: North Rivers Town Center) dated April 26, 2004. 10.133* Assignment and Assumption of Purchase and Sales Agreement (Re: Eastwood Towne Center) dated May 12, 2004. 10.134* Revised Letter Agreement (Re: Eastwood Towne Center) dated March 29, 2004. 10.135* Master Fund Escrow Agreement (Eastwood Towne Center) dated May 13, 2004. 10.136* Holdback Agreement (Re: Eastwood Towne Center) dated May 13, 2004. 10.137* Bill of Sale, Assignment and Assumption of Contracts (Re: Eastwood Towne Center) dated May 13, 2004. 10.138* Assignment and Assumption of Purchase and Sales Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 28, 2004. 10.139* Bill of Sale, Assignment and Assumption of Contracts (Re: Arvada Connection and Arvada Marketplace) dated April 29, 2004. 10.140* Purchase and Sale Agreement (Re: Arvada Connection and Arvada Marketplace) dated March 31, 2004. 10.141* Escrow Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 29, 2004. 10.142* Redevelopment Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 28, 2004. 10.143* Easements With Covenants and Restrictions Affecting Land (Re: Arvada Marketplace) dated April 29, 2004. 10.144* Assignment of Contract (Re: Watauga Pavilion) dated May 20, 2004. 10.145* Amended Purchase and Sale Agreement (Re: Watauga Pavilion) dated May 11, 2004. 10.146* Post-Closing Escrow and Master Lease Agreement (Re: Watauga Pavilion) dated May 21, 2004. 10.147* CAM Reconciliation Escrow Agreement (Re: Northpointe Plaza) dated May 2004. 10.148* Reinstatement of and First Amendment to Agreement of Purchase and Sale (Re: Northpointe Plaza) dated April 2004. 10.149* Vacancy Escrow Agreement (Re: Northpointe Plaza) dated May 2004. 10.150* Promissory Note - Loan No. 58108 (Re: Paradise Valley Marketplace) dated June 3, 2004. 10.151* Loan Agreement - Loan No. 58108 (Re: Paradise Valley Marketplace) dated June 3, 2004. 10.152* Promissory Note (Re: North Rivers Town Center) dated June 3, 2004.
II-20
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.153* Mortgage and Security Agreement (Re: North Rivers Town Center) dated June 3, 2004. 10.154* Post-Closing Agreement (Re: North Rivers Town Center) dated June 3, 2004. 10.155* Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Kill Devil Hills, NC) dated March 18, 2004. 10.156* Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Greer, SC) dated April 1, 2004. 10.157* Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Columbia, SC) dated March 18, 2004. 10.158* Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Crossville, TN) dated March 18, 2004. 10.159* Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing Loan No. 58108 (Re: Peoria Crossing) dated June 3, 2004. 10.160* Loan Agreement (Re: North Rivers Town) dated June 3, 2004. 10.161* Secured Promissory Note Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004. 10.162* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004. 10.163* Guaranty Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004. 10.164* Mortgage Note Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004. 10.165* Mortgage - Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004. 10.166* Guaranty Agreement Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004. 10.167* Secured Promissory Note Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004. 10.168* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004. 10.169* Notice of Final Agreement Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004. 10.170* Guaranty Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004. 10.171* General Assignment (Re: Northpointe Plaza) dated May 25, 2004. 10.172* Post Closing and Indemnity Agreement (Re: Northpointe Plaza) dated May, 2004. 10.173* Promissory Note (Re: Northpointe Plaza) dated June 4, 2004. 10.174* Loan Agreement (Re: Northpointe Plaza) dated June 4, 2004. 10.175* Deed of Trust, Security Agreement and Fixture Filing (Re: Northpointe Plaza) dated June 4, 2004. 10.176* Revised Letter Agreement to Purchase (Re: Plaza Santa Fe) dated December 4, 2004. 10.177* Promissory Note Secured By Leasehold Deed of Trust (Re: Plaza Santa Fe) dated November 22, 2002. 10.178* Leasehold Deed of Trust and Absolute Assignment of Rents and Leases and Security Agreement and Fixture Filing Loan No. 31-0900141A (Re: Plaza Santa Fe) dated November, 2002. 10.179* Assignment of Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated June 4, 2004.
II-21 10.180* Assignment and Assumption Agreement Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated May 26, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.181* Amended Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated March 30, 2004. 10.182* Assignment of Contract (Re: Huebner Oaks Center) dated June 8, 2004. 10.183* Agreement of Purchase and Sale (Re: Huebner Oaks Center). 10.184* Secured Promissory Note 1 Loan No. 753971 (Re: Huebner Oaks Center) dated June 22, 2004. 10.185* Secured Promissory Note 2 Loan No. 753972 (Re: Huebner Oaks Center) dated June 22, 2004. 10.186* Deed of Trust, Security Agreement and Assignment of Rents Loan Nos. 753971 and 753972 (Re: Huebner Oaks Center) dated June 22, 2004. 10.187* Guaranty Loan Nos. 753971 and 753972 (Re: Huebner Oaks Center) dated June 22, 2004. 10.188* Notice of Final Agreement Loan Nos. 753971 and 753972 (Huebner Oaks Center) dated June 22, 2004. 10.189* Amended Letter Purchase Agreement (Re: John's Creek Village) dated June 18, 2004. 10.190* Earn-out Agreement (Re: John's Creek Village) dated June 23, 2004. 10.191* Assignment of Contract (Re: Lakewood Towne Center) dated June, 2004. 10.192* Agreement for Purchase and Sale of Real Property and Escrow Instructions (Re: Lakewood Towne Center) dated May 6, 2004. 10.193* Escrow and Leasing Agreement (Re: Lakewood Towne Center) dated June, 2004. 10.194* Commitment Letter Loan Nos. 122498 and 122499 (Re: Lakewood Towne Center) dated June 28, 2004. 10.195* Deed of Trust Note A Loan No. 122498 (Re: Lakewood Towne Center) dated June 28, 2004. 10.196* Deed of Trust Note B Loan No. 122499 (Re: Lakewood Towne Center) dated June 28, 2004. 10.197* Deed of Trust, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing (Re: Lakewood Towne Center) dated June 28, 2004. 10.198* First Amendment to Escrow and Leasing Agreement Loan Nos. 122498 and 122499 (Re: Lakewood Towne Center) dated June 28, 2004. 10.199* Master Lease Escrow Agreement (Re: Paradise Shoppes at Prominence Point) dated June 30, 2004. 10.200* Assignment of Purchase and Sale Agreement (Re: Northgate North) dated June 24, 2004. 10.201* Amended Agreement to Purchase and Sale Agreement (Re: Northgate North) dated June 23, 2004. 10.202* Escrow Agreement Regarding July Rents (Re: Northgate North) dated June 30, 2004. 10.203* Escrow Agreement Regarding Bassett TI Work/Leasing Commission (Re: Northgate North) dated June, 2004. 10.204* Access Agreement (Re: Northgate North) dated June 30, 2004. 10.205* Post Closing and Indemnity Agreement (Re: Davis Towne Crossing) dated June 30, 2004.
II-22
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.206* Letter Agreement to Purchase (Re: Davis Towne Crossing) dated April 21, 2004. 10.207 ** NOT USED 10.208* Assignment of Purchase and Sale Agreement (Re: Fullerton Metrocenter) dated June 24, 2004. 10.209* Post Closing and Indemnity Agreement (Re: Fullerton Metrocenter) dated June, 2004. 10.210* Amended Purchase and Sale Agreement and Joint Escrow Instructions (Re: Fullerton Metrocenter) dated June 30, 2004. 10.211* Assignment and Assumption of Agreement for Purchase and Sale (Re: Low Country Village) datd June 30, 2004. 10.212* Post Closing Agreement (Re: Low Country Village) dated June 30, 2004. 10.213* Agreement of Purchase and Sale (Re: Low Country Village) dated May 20, 2004. 10.214* Installment Note (Re: Pacheco Pass) dated June 30, 2004. 10.215* Loan Proceeds Holdback Agreement (Re: Pacheco Pass) dated June 30, 2004. 10.216* Interest Reserve Holdback Agreement (Re: Pacheco Pass) dated June 30, 2004. 10.217* Loan Guaranty Agreement (Secured Note) (Re: Pacheco Pass) dated June 30, 2004. 10.218* Escrow Agreement (Re: Shoppes at Boardwalk) dated July 1, 2004. 10.219* Secured Promissory Note Loan No. 753948 (Re: Shoppes at Boardwalk) dated July 2, 2004. 10.220* Deed of Trust, Security Agreement and Assignment of Rents (Re: Shoppes at Boardwalk) dated July 2, 2004. 10.221* Guaranty Loan No. 75348 (Re: Shoppes at Boardwalk) dated July 2, 2004. 10.222* Property Reserves Agreement Loan No. 753948 (Re: Shoppes at Boardwalk) dated July 2, 2004. 10.223* Master Lease Escrow Agreement (Re: Paradise Shoppes at Dallas) dated July 1, 2004. 10.224* Assignment of Purchase Agreement (Re: Plaza Santa Fe II) dated May 25, 2004 10.225* Assignment of Contract (Re: Eckerds - Greer) dated May 2004 10.226* Assignment of Contract (Re: Eckerds - Kill Devil Hills) dated May 2004 10.227* Assignment of Contract (Re: Eckerds - Crossville) dated May 2004 10.228* Assignment of Contract (Re: Eckerds - Colimbia) dated May 2004 10.229* Promissory Note (Re: Eckerds - Crossville) dated July 21, 2004 10.230* Post-Closing Agreement (Re: Eckerds - Crossville) dated July 21, 2004 10.231* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds- Crossville) dated July 21, 2004 10.232* Promissory Note (Re: Eckerds - Columbia) dated July 21, 2004 10.233* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds- Columbia) dated July 21, 2004
II-23
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.234* Promissory Note (Re: Eckerds - Kill Devil Hills) dated July 21, 2004 10.235* Post-Closing Agreement (Re: Eckerds - Kill Devil Hills) dated July 21, 2004 10.236* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Kill Devil Hills) dated July 21, 2004 10.237* Promissory Note (Re: Eckerds - Greer) dated July 21, 2004 10.238* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Greer) dated July 21, 2004 10.239* Loan Agreement (Re: Eckerds - Crossville, Columbia, Greer and Kill Devil Hills) dated July 21, 2003 10.240* Promissory Note (Re: Pine Ridge Plaza) dated July 27, 2004 10.241* Loan Agreement (Re: Pine Ridge Plaza) dated July 27, 2004 10.242* Earn-Out Agreement (Re: Johns Creek Village) dated June 23, 2004 10.243* Transitional Security (Phase II) Reserve Agreement (Re: Johns Creek Village) dated June 28, 2004 10.244* Mortgage Note (Re: Johns Creek Village) dated June 28, 2004 10.245* Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement (Re: Johns Creek Village) dated June 28, 2004 10.246* Guaranty Agreement (Re: Johns Creek Village) dated June 28, 2004 10.247* Post-Closing Agreement (Re: Fullerton Metrocenter) dated July 9, 2004 10.248* Promissory Note (Re: Fullerton Metrocenter) dated July 9, 2004 10.249* Loan Agreement (Re: Fullerton Metrocenter) dated July 9, 2004 10.250* Deed of Trust Note (Re: Northgate North) dated July 2004 10.251* Letter Agreement (Re: Northgate North) dated July 14, 2004 10.252* Closing Certificate (Re: Northgate North) dated July 2004 10.253* Limited Payment Guaranty (Re: Northgate North) dated July 2004 10.254* Post-Closing Agreement (Re: Cranberry Square) dated July 2004 10.255* Loan Agreement (Re: Cranberry Square) dated July 2004 10.256* Letter Agreement (Re: Tollgate Marketplace) dated July 21, 2004 10.257* Closing Certificate (Re: Tollgate Marketplace) dated July 21, 2004 10.258* Mortgage Note (Re: Tollgate Marketplace) dated July 21, 2004 10.259* Post Closing Delivery Covenant (Re: Tollgate Marketplace) dated July 21, 2004 10.260* Indemnity Guaranty (Re: Tollgate Marketplace) dated July 21, 2004 10.261* Real Estate Purchase Contract (Re: Wal-Mart Supercenter - Blytheville) dated May 28, 2004 10.262* Letter Agreement (Re: Gateway Village) dated July 21, 2004
II-24
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.263* Closing Certificate (Re: Gateway Village) dated July 21, 2004 10.264* Mortgage Note A (Re: Gateway Village) dated July 21, 2004 10.265* Mortgage Note B (Re: Gateway Village) dated July 21, 2004 10.266* Indemnity Guaranty (Re: Gateway Village) dated July 21, 2004 10.267* Post Closing Delivery Covenant (Re: Gateway Village, Towson Circle, and Tollgate Marketplace) dated July 21, 2004 10.268* Letter Agreement (Re: Towson Circle) dated July 21, 2004 10.269* Closing Certificate (Re: Towson Circle) dated July 21, 2004 10.270* Mortgage Note A (Re: Towson Circle) dated July 21, 2004 10.271* Mortgage Note B (Re: Towson Circle) dated July 21, 2004 10.272* Indemnity Guaranty (Re: Towson Circle) dated July 21, 2004 10.273* Letter Agreement (Re: Gateway Plaza Shopping Center) dated May 20, 2004 10.274* Promissory Note (Re: Wrangler Company Western Headquarters and Distribution Facility) dated July 26, 2004 10.275* Loan Agreement (Re: Wrangler Company Western Headquarters and Distribution Facility) Dated July 26, 2004 10.276* Promissory Note (Re: Plaza at Marysville) dated July 30, 2004 10.277* Loan Agreement (Re: Plaza at Marysville) dated July 30, 2004 10.278* Forks Town Center China Moon Escrow (Re: Forks Town Center) dated July 27, 2004 10.279* Earn Out Agreement (Re: Forks Town Center) dated July 27, 2004 10.280* Promissory Note (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004 10.281* Loan Agreement (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004 10.282* Promissory Note (Re: Reisterstown Plaza) dated August 4, 2004 10.283* Letter Agreement (Re: Reisterstown Plaza) dated July 30, 2004 10.284* Loan Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.285* Guaranty Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.286* Limited Guaranty Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.287* Post-Closing Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.288* Letter Agreement (Re: Wal-Mart Supercenter - Jonesboro) dated June 4, 2004 10.289* Promissory Note (Re: Wal-Mart Supercenter - Jonesboro) dated August 6, 2004 10.290* Loan Agreement (Re: Wal-Mart Supercenter - Jonesboro) dated August 6, 2004
II-25
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.291 Promissory Note Loan No. 10024997 (Re: Davis Towne Crossing) dated August 9, 2004. 10.292 Loan Agreement No. 10024997 (Re: Davis Towne Crossing) dated August 9, 2004. 10.293 Promissory Note Loan No. 10024995 (Re: Shoppes of Prominence Point) dated August 2004. 10.294 Loan Agreement No. 10024995 (Re: Shoppes of Prominence Point) dated August 2004. 10.295 Assignment of Contract (Re: Shops at Boardwalk) dated July 1, 2004. 10.296 Letter Agreement to Purchase (Re: Shops at Boardwalk) dated March 2004. 10.297 Amended Agreement of Sale (Re: Shops at Boardwalk) dated April 15, 2004. 10.298 Assignment of Contract (Re: Cranberry Square) dated June 23, 2004. 10.299 Letter Agreement to Purchase (Re: Cranberry Square) dated April 27, 2004. 10.300 Construction Agreement (Re: Dorman Center Phase II) dated July 15, 2004. 10.301 Escrow Agreement (Re: Dorman Center Phase II) dated July 14, 2004. 10.302 Assignment and Assumption of Purchase and Sale Agreement (Re: Gateway Plaza) dated July 21, 2004. 10.303 Amended Purchase and Sale Agreement (Re: Gateway Plaza) dated July 15, 2004. 10.304 Letter Agreement to Purchase (Re: Gateway Plaza) dated May 20, 2004. 10.305 Assignment of Contract (Re: Plaza at Marysville) dated July 26, 2004. 10.306 Reinstated and Amended Purchase and Sale Agreement (Re: Plaza at Marysville) dated July 23, 2004. 10.307 Purchase and Sale Agreement (Re: Plaza at Marysville) dated May 6, 2004. 10.308 Letter Agreement for Loan (Re: Forks Town Center) dated August 10, 2004. 10.309 Mortgage Note Loan No. 122483 (Re: Forks Town Center) dated August 10, 2004. 10.310 Limited Payment Guarantee Agreement Loan No. 122483 (Re: Forks Town Center) dated August 10, 2004. 10.311 Post-Closing Agreement (Re: Village Shoppes at Simonton) dated August 9, 2004. 10.312 Escrow and Guarantee Agreement (Re: Village Shoppes at Simonton) dated August 2004. 10.313 Assignment and Assumption of Purchase and Sale Agreement (Re: Village Shoppes at Simonton) dated August 2004. 10.314 Letter Agreement to Purchase (Re: Village Shoppes at Simonton) dated April 30, 2004. 10.315 Secured Promissory Note Loan No. 754044 (Re: Manchester Meadows) dated August 24, 2004. 10.316 Deed of Trust, Security Agreement and Assignment of Rents (Re: Manchester Meadows) dated August 24, 2004. 10.317 Guaranty Agreement Loan No. 754044 (Re: Manchester Meadows) dated August 24, 2004. 10.318 Escrow and Guarantee Agreement (Re: Manchester Meadows) dated August 2004.
II-26
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.319 St. Louis Playscapes Escrow and Guarantee Agreement (Re: Manchester Meadows) dated August 2004. 10.320 Assignment and Assumption of Purchase and Sale Agreement (Re: Manchester Meadows) dated August 2004. 10.321 Purchase and Sale Agreement (Re: Manchester Meadows) dated July 13, 2004. 10.322 Amended and Restated Promissory Note Loan No. 10024998 (Re: Governor's Marketplace) dated August 17, 2004. 10.323 Post-Closing Agreement (Re: Governor's Marketplace) dated August 2004. 10.324 Loan Agreement No. 10024998 (Re: Governor's Marketplace) dated August 17, 2004. 10.325 Master Lease Escrow Agreement (Re: Mitchell Ranch Plaza) dated August 23, 2004. 10.326 Agreement of Purchase and Sale (Re: Mitchell Ranch Plaza) dated July 20, 2004. 10.327 Master Lease Escrow Agreement (Re: The Columns) dated August 24, 2004. 10.328 Escrow Agreement (Re: The Columns) dated August 24, 2004. 23.1 Consent of KPMG LLP 23.2* Consent of Duane Morris LLP (included in Exhibit 5). 23.3* Consent of Duane Morris LLP (included in Exhibit 8). 24* Power of Attorney (included on signature page to the Registration Statement). 31.1* Rule 13a-15(e)/15d-15(e) Certification by Chief Executive Officer. 31.2* Rule 13a-15(e)/15d-15(e) Certification by Principal Financial Officer. 31.3* Rule 13a-15(e)/15d-15(e) Certification by Principal Accounting Officer. 32.1* Section 1350 Certification by Chief Executive Officer and Principal Accounting Officer and Principal Financial Officer.
* Previously filed. II-27 ITEM 37. UNDERTAKINGS. 1. The undersigned Registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i). To include any prospectus required by section 10(a)(3) of the Act; (ii). To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii). To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 2. The Registrant undertakes to send to each Stockholder at least on annual basis a detailed statement of any transactions with the Advisor or its Affiliates, and of fees, commissions, compensation and other benefits paid or accrued to the Advisor or its Affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed. 3. The Registrant undertakes to provide to the Stockholders the financial statements required by Form 10-K for the first full fiscal year of operations of the Company. 4. The Registrant hereby undertakes to send to the Stockholders, within 60 days after the close of each quarterly fiscal period, the information specified by Form 10-Q, if such report is required to be filed with the Commission. 5. The Registrant undertakes to file a sticker supplement pursuant to Rule 424(c) under the Act during the distribution period describing each Property not identified in the Prospectus at such time as there arises a reasonable probability that such Property will be acquired and to consolidate all such stickers into a post-effective amendment filed at least once every three months, with the information contained in such amendment provided simultaneously to the existing Stockholders. Each sticker supplement should also disclose all compensation and fees received by the Advisor and its Affiliates in connection with any such acquisition. The post-effective amendment shall include audited financial statements meeting the requirements of Rule 3-14 of Regulation S-X only for Properties acquired during the distribution period. The Registrant also undertakes to file, after the end of the distribution period, a current report on Form 8-K containing the financial statements and additional information required by Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the signing of a binding purchase agreement) made after the end of the distribution period involving the use of 10% or more (on a cumulative basis) of the net proceeds of the offering and to provide the information contained in such report to the Stockholders at least once each quarter after the distribution period of the offering has ended. 6. Insofar as indemnification for liabilities arising under the Act may be permitted to Directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person in connection with securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-28 TABLE VI ACQUISITION OF PROPERTIES BY PROGRAMS (A) (000's omitted, except for Square Feet or Acres) Table VI presents information concerning the acquisition of real properties by programs with similar investment objectives, sponsored by Inland Real Estate Investment Corporation ("IREIC"), in the three years ended December 31, 2003. The detail provided with respect to each acquisition includes the property size, location, purchase price and the amount of mortgage financing. This information is intended to assist the prospective investor in evaluating the property mix as well as the terms involved in acquisitions by programs sponsored by IREIC. II-29 TABLE VI- (CONTINUED) ACQUISITIONS OF PROPERTIES BY PROGRAMS (A) (000'S OMITTED, EXCEPT FOR NUMBER OF SQUARE FEET)
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------- INLAND REAL ESTATE CORPORATION: PETsMART, Gurnee, IL 25,692 04/01 3,304 - Eckerd Drug Store, Chattanooga, TN 10,908 05/02 2,367 - Michael's, Coon Rapids, MN 24,317 07/02 2,808 - Deer Trace, Kohler, WI 149,881 07/02 13,281 - Disney, Celebration, FL 166,131 07/02 27,281 13,600 Townes Crossing, Oswego, IL 105,989 08/02 12,043 - Park Square, Brooklyn Park, MN 137,116 08/02 9,873 5,850 Forest Lake Marketplace, Forest Lake, MN 93,853 09/02 11,856 - Naper West Ph II, Naperville, IL 50,000 10/02 3,116 - Walgreens, Jennings, MO 15,120 10/02 2,706 - Four Flaggs Annex, Niles, IL 21,790 11/02 3,289 - Four Flaggs, Niles, IL 306,479 11/02 21,298 12,510 Brunswick Market Center, Brunswick, OH 119,540 12/02 13,458 - Medina Marketplace, Medina, OH 72,781 12/02 9,511 - Shakopee Valley, Shakopee, MN 146,436 12/02 14,700 - Shops at Orchard Place, Skokie, IL 164,542 12/02 42,752 - Cub Foods, Hutchinson, MN 60,208 01/03 5,388 - Mankato Heights, Mankato, MN 129,410 04/03 15,102 - Caton Crossing, Plainfield, IL 83,792 06/03 11,165 - Village Ten, Coon Rapids, MN 211,568 08/03 15,104 - Rochester Marketplace, Rochester, MN 69,914 09/03 9,371 - University Crossing, Mishawaka, IN 136,422 10/03 14,913 - Total for Inland Real Estate Corporation 2,301,889 $ 264,686 $ 31,960 =========== ================ ==================== OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ INLAND REAL ESTATE CORPORATION: PETsMART, Gurnee, IL 3,304 0 3,304 Eckerd Drug Store, Chattanooga, TN 2,367 2 2,369 Michael's, Coon Rapids, MN 2,808 0 2,808 Deer Trace, Kohler, WI 13,281 0 13,281 Disney, Celebration, FL 13,681 0 27,281 Townes Crossing, Oswego, IL 12,043 319 12,362 Park Square, Brooklyn Park, MN 4,023 160 10,033 Forest Lake Marketplace, Forest Lake, MN 11,856 (41) 11,815 Naper West Ph II, Naperville, IL 3,116 1,298 4,414 Walgreens, Jennings, MO 2,706 6 2,712 Four Flaggs Annex, Niles, IL 3,289 6 3,295 Four Flaggs, Niles, IL 8,788 2,645 23,943 Brunswick Market Center, Brunswick, OH 13,458 247 13,705 Medina Marketplace, Medina, OH 9,511 4 9,515 Shakopee Valley, Shakopee, MN 14,700 12 14,712 Shops at Orchard Place, Skokie, IL 42,752 (129) 42,623 Cub Foods, Hutchinson, MN 5,388 7 5,395 Mankato Heights, Mankato, MN 15,102 (12) 15,090 Caton Crossing, Plainfield, IL 11,165 7 11,172 Village Ten, Coon Rapids, MN 15,104 0 15,104 Rochester Marketplace, Rochester, MN 9,371 (7) 9,364 University Crossing, Mishawaka, IN 14,913 20 14,933 Total for Inland Real Estate Corporation $ 232,726 $ 4,544 $ 269,230 ========== =============== =================
II-30
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------- INLAND RETAIL REAL ESTATE TRUST, INC.: Columbia Promenade, Kissimmee, FL 65,870 01/01 7,440 - K-Mart, Macon, GA 102,098 02/01 9,031 - Lowe's Home Improvement Center, Warner Robbins, GA 131,575 02/01 9,431 - West Oaks, Ocoee, FL 66,539 03/01 11,221 - PETsMART - Chattanooga, Chattanooga, TN 26,040 04/01 3,103 - PETsMART - Daytona Beach, Daytona Beach, FL 26,194 04/01 3,238 - PETsMART - Fredricksburg, Fredricksburg, VA 26,067 04/01 3,410 - Sand Lake Corners, Orlando, FL 189,741 05/01 22,256 - Jo-Ann Fabrics, Alpharetta, GA 44,418 06/01 4,911 - Woodstock Square, Atlanta, GA 218,819 06/01 27,596 - Chickasaw Trails Shopping Center, Orlando, FL 75,492 08/01 8,631 - Just for Feet - Daytona, Daytona Beach, FL 22,255 08/01 3,901 - Skyview Plaza, Orlando, FL 281,247 09/01 21,332 - Aberdeen Square, Boynton Beach, FL 70,555 10/01 6,717 - Anderson Central, Anderson, SC 223,211 11/01 15,863 11,000 Brandon Blvd. Shoppes, Brandon, FL 85,377 11/01 9,482 - Creekwood Crossing, Bradenton, FL 227,052 11/01 23,616 - Eckerd Drug Store - Greenville, Greenville, SC 10,908 11/01 2,828 - Abernathy Square, Atlanta, GA 131,649 12/01 24,131 - Citrus Hills, Citrus Hills, FL 68,927 12/01 6,027 - Douglasville Pavilion, Douglasville, GA 267,764 12/01 27,377 20,000 Eckerd Drug Store - Spartanburg, Spartanburg, SC 10,908 12/01 2,807 - Fayetteville Pavilion, Fayetteville, NC 272,385 12/01 26,898 20,133 Southlake Pavilion, Morrow, GA 525,162 12/01 56,377 39,740 Steeplechase Plaza, Ocala, FL 87,380 12/01 8,647 - Venture Pointev, Duluth, GA 334,620 12/01 26,533 13,334 Sarasota Pavilion, Sarasota, FL 324,140 01/02 42,100 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - --------------------------------------------------------------------------------------------------------- INLAND RETAIL REAL ESTATE TRUST, INC.: Columbia Promenade, Kissimmee, FL 7,440 (6) 7,434 K-Mart, Macon, GA 9,031 - 9,031 Lowe's Home Improvement Center, Warner Robbins, GA 9,431 - 9,431 West Oaks, Ocoee, FL 11,221 27 11,248 PETsMART - Chattanooga, Chattanooga, TN 3,103 - 3,103 PETsMART - Daytona Beach, Daytona Beach, FL 3,238 - 3,238 PETsMART - Fredricksburg, Fredricksburg, VA 3,410 - 3,410 Sand Lake Corners, Orlando, FL 22,256 (90) 22,166 Jo-Ann Fabrics, Alpharetta, GA 4,911 - 4,911 Woodstock Square, Atlanta, GA 27,596 (56) 27,540 Chickasaw Trails Shopping Center, Orlando, FL 8,631 14 8,645 Just for Feet - Daytona, Daytona Beach, FL 3,901 4 3,905 Skyview Plaza, Orlando, FL 21,332 624 21,956 Aberdeen Square, Boynton Beach, FL 6,717 (30) 6,687 Anderson Central, Anderson, SC 4,863 (111) 15,752 Brandon Blvd. Shoppes, Brandon, FL 9,482 5 9,487 Creekwood Crossing, Bradenton, FL 23,616 96 23,712 Eckerd Drug Store - Greenville, Greenville, SC 2,828 (17) 2,811 Abernathy Square, Atlanta, GA 24,131 280 24,411 Citrus Hills, Citrus Hills, FL 6,027 191 6,218 Douglasville Pavilion, Douglasville, GA 7,377 (156) 27,221 Eckerd Drug Store - Spartanburg, Spartanburg, SC 2,807 11 2,818 Fayetteville Pavilion, Fayetteville, NC 6,765 1,285 28,183 Southlake Pavilion, Morrow, GA 16,637 7,413 63,790 Steeplechase Plaza, Ocala, FL 8,647 457 9,104 Venture Pointev, Duluth, GA 13,199 (149) 26,384 Sarasota Pavilion, Sarasota, FL 42,100 182 42,282
II-31
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ Turkey Creek Phase I, Knoxville, TN 284,224 01/02 21,762 - Universal Plaza, Lauderhill, FL 49,816 01/02 9,872 - Hairston Crossing, Decatur, GA 57,884 02/02 6,630 - Just for Feet - Augusta, Augusta, GA 22,115 02/02 3,054 - Just For Feet - Covington, Covington, LA 20,116 02/02 3,447 - Logger Head Junction, Sarasota, FL 4,711 02/02 665 - Shoppes of Golden Acres, Newport Richey, FL 76,371 02/02 10,831 - Newnan Pavilion, Newnan, GA 481,004 03/02 33,114 - Eisenhower Crossing I & II, Macon, GA 403,013 11/01,03/02 43,292 - Acworth Avenue Retail Shopping Center, Acworth, GA 16,130 12/00,3/02 2,834 - Crystal Springs Shopping Center, Crystal Springs, FL 67,021 04/02 7,478 - Eckerd Drug Store - Concord, Concord, NC 10,908 04/02 2,039 - Eckerd Drug Store - Tega Cay, Tega Cay, SC 13,824 04/02 2,544 - Melbourne Shopping Center, Melbourne, FL 209,217 04/02 9,842 5,949 Riverstone Plaza, Canton, GA 302,024 04/02 31,943 - Target Center, Columbia, SC 79,253 04/02 7,673 - Hampton Point, Taylors, SC 58,316 05/02 4,526 - Northpoint Marketplace, Spartanburg, SC 101,982 05/02 8,269 - Oleander Shopping Center, Wilmington, NC 51,888 05/02 5,221 3,000 Sharon Greens, Cumming, GA 98,317 05/02 13,062 - Bass Pro Outdoor World, Dania Beach, FL 165,000 06/02 18,220 - Chesterfield Crossings, Richmond, VA, 68,898 06/02 10,982 - Circuit City-Rome, Rome, GA 33,056 06/02 4,476 - Circuit City-Vero Beach, Vero Beach, FL 33,243 06/02 5,648 - Hillsboro Square, Deerfield Beach, FL 145,647 06/02 18,985 - Stonebridge Square, Roswell, GA 160,104 06/02 19,529 - Ward's Crossing, Lynchburg, VA 80,918 06/02 11,100 - Circuit City Plaza, Orlando, FL 78,625 07/02 11,518 - Eckerd Drug Store - Woodruff, Woodruff, SC 13,824 07/02 2,475 - McFarland Plaza, Tuscaloosa, AL 221,807 07/02 15,259 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ Turkey Creek Phase I, Knoxville, TN 21,762 10,181 31,943 Universal Plaza, Lauderhill, FL 9,872 2 9,874 Hairston Crossing, Decatur, GA 6,630 34 6,664 Just for Feet - Augusta, Augusta, GA 3,054 3 3,057 Just For Feet - Covington, Covington, LA 3,447 - 3,447 Logger Head Junction, Sarasota, FL 665 - 665 Shoppes of Golden Acres, Newport Richey, FL 10,831 101 10,932 Newnan Pavilion, Newnan, GA 33,114 2,623 35,737 Eisenhower Crossing I & II, Macon, GA 43,292 (286) 43,006 Acworth Avenue Retail Shopping Center, Acworth, GA 2,834 16 2,850 Crystal Springs Shopping Center, Crystal Springs, FL 7,478 (2) 7,476 Eckerd Drug Store - Concord, Concord, NC 2,039 156 2,195 Eckerd Drug Store - Tega Cay, Tega Cay, SC 2,544 544 3,088 Melbourne Shopping Center, Melbourne, FL 3,893 935 10,777 Riverstone Plaza, Canton, GA 31,943 243 32,186 Target Center, Columbia, SC 7,673 20 7,693 Hampton Point, Taylors, SC 4,526 55 4,581 Northpoint Marketplace, Spartanburg, SC 8,269 (128) 8,141 Oleander Shopping Center, Wilmington, NC 2,221 12 5,233 Sharon Greens, Cumming, GA 13,062 79 13,141 Bass Pro Outdoor World, Dania Beach, FL 18,220 16 18,236 Chesterfield Crossings, Richmond, VA, 10,982 723 11,705 Circuit City-Rome, Rome, GA 4,476 6 4,482 Circuit City-Vero Beach, Vero Beach, FL 5,648 9 5,657 Hillsboro Square, Deerfield Beach, FL 18,985 2,565 21,550 Stonebridge Square, Roswell, GA 19,529 1,653 21,182 Ward's Crossing, Lynchburg, VA 11,100 (76) 11,024 Circuit City Plaza, Orlando, FL 11,518 - 11,518 Eckerd Drug Store - Woodruff, Woodruff, SC 2,475 374 2,849 McFarland Plaza, Tuscaloosa, AL 15,259 21 15,280
II-32
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ Sycamore Commons, Matthews, NC 256,523 07/02 38,184 - Walk at Highwoods I, Tampa, FL 133,940 07/02 23,999 - Eckerd Drug Store - Blackstock, Spartanburg, SC 10,908 08/02 2,723 - Forestdale Plaza, Jamestown, NC 53,239 08/02 6,670 - Sexton Commons, Fuquay Varina, NC 49,097 08/02 8,023 - Shoppes at Lake Mary, Lake Mary, FL 69,843 08/02 11,140 - Wakefield Crossing, Raleigh, NC 75,929 08/02 10,794 - Circuit City-Cary, Cary, NC 27,891 09/02 5,650 - Cox Creek, Florence, AL 173,934 09/02 19,231 15,287 Forest Hills Centre, Wilson, NC 73,280 09/02 6,675 - Golden Gate, Greensboro, NC 153,114 10/02 10,545 - Goldenrod Groves, Orlando, FL 108,944 10/02 9,177 - City Crossing, Warner Robins, GA 187,099 11/02 14,644 - Clayton Corners, Clayton, NC 125,656 11/02 14,994 9,740 CompUSA Retail Center, Newport News, VA 47,134 11/02 7,324 - Duvall Village, Bowie, MD 82,522 11/02 13,046 - Gateway Plaza - Jacksonville, Jacksonville, NC 101,682 11/02 11,865 - Harundale Plaza, Glen Burnie, MD 274,160 11/02 24,752 - Jones Bridge Plaza, Norcross, GA 83,363 11/02 7,525 - Lakewood Ranch, Bradenton, FL 69,472 11/02 9,494 4,400 North Aiken Bi-Lo Center, Aiken, SC 59,204 11/02 5,816 - Plant City Crossing, Plant City, FL 85,252 11/02 10,879 - Presidential Commons, Snellville, GA 372,149 11/02 45,032 26,113 Rainbow Foods - Garland, Garland, TX 70,576 11/02 5,098 - Rainbow Foods - Rowlett, Rowlett, TX 63,117 11/02 4,604 - River Ridge, Birmingham, AL 158,755 11/02 26,492 - Rosedale Shopping Center, Huntersville, NC 94,248 11/02 19,544 13,300 Shoppes on the Circle, Dothan, AL 149,085 11/02 15,013 12,210 Southlake Shopping Center, Cornelius, NC 131,247 11/02 13,633 7,962 Village Square at Golf, Boynton Beach, FL 134,894 11/02 18,537 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ Sycamore Commons, Matthews, NC 38,184 3,077 41,261 Walk at Highwoods I, Tampa, FL 23,999 72 24,071 Eckerd Drug Store - Blackstock, Spartanburg, SC 2,723 - 2,723 Forestdale Plaza, Jamestown, NC 6,670 (114) 6,556 Sexton Commons, Fuquay Varina, NC 8,023 (129) 7,894 Shoppes at Lake Mary, Lake Mary, FL 11,140 59 11,199 Wakefield Crossing, Raleigh, NC 10,794 (182) 10,612 Circuit City-Cary, Cary, NC 5,650 4 5,654 Cox Creek, Florence, AL 3,944 31 19,262 Forest Hills Centre, Wilson, NC 6,675 11 6,686 Golden Gate, Greensboro, NC 10,545 23 10,568 Goldenrod Groves, Orlando, FL 9,177 741 9,918 City Crossing, Warner Robins, GA 14,644 3,204 17,848 Clayton Corners, Clayton, NC 5,254 (5) 14,989 CompUSA Retail Center, Newport News, VA 7,324 5 7,329 Duvall Village, Bowie, MD 13,046 369 13,415 Gateway Plaza - Jacksonville, Jacksonville, NC 11,865 (24) 11,841 Harundale Plaza, Glen Burnie, MD 24,752 (40) 24,712 Jones Bridge Plaza, Norcross, GA 7,525 401 7,926 Lakewood Ranch, Bradenton, FL 5,094 39 9,533 North Aiken Bi-Lo Center, Aiken, SC 5,816 13 5,829 Plant City Crossing, Plant City, FL 10,879 (16) 10,863 Presidential Commons, Snellville, GA 18,919 6 45,038 Rainbow Foods - Garland, Garland, TX 5,098 5 5,103 Rainbow Foods - Rowlett, Rowlett, TX 4,604 2 4,606 River Ridge, Birmingham, AL 26,492 79 26,571 Rosedale Shopping Center, Huntersville, NC 6,244 (122) 19,422 Shoppes on the Circle, Dothan, AL 2,803 19 15,032 Southlake Shopping Center, Cornelius, NC 5,671 (15) 13,618 Village Square at Golf, Boynton Beach, FL 18,537 (263) 18,274
II-33
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ Chatham Crossing, Siler City, NC 32,000 12/02 3,964 - Columbiana Station, Columbia, SC 270,649 12/02 46,615 - Gateway Plaza - Conway, Conway, SC 62,428 12/02 6,295 - Lakeview Plaza, Kissimmee, FL 54,788 12/02 6,187 3,613 Meadowmont Village Center, Chapel Hill, NC 133,471 12/02 26,808 - Shoppes at Citiside, Charlotte, NC 75,478 12/02 9,706 - Shoppes at New Tampa, Wesley Chapel, FL 158,342 12/02 19,196 - Camp Hill Center, Harrisburg, PA 63,350 01/03 7,786 - Eckerd Drug Store - #5018, Amherst, NY 10,908 01/03 2,805 1,582 Eckerd Drug Store - #5661, Buffalo, NY 12,732 01/03 3,145 1,777 Eckerd Drug Store - #5786, Dunkirk, NY 10,908 01/03 1,720 905 Eckerd Drug Store - #5797, Cheektowaga, NY 10,908 01/03 3,756 1,636 Eckerd Drug Store - #6007, Connelsville, PA 10,908 01/03 3,503 1,636 Eckerd Drug Store - #6036, Pittsburgh, PA 10,908 01/03 3,840 1,636 Eckerd Drug Store - #6040, Monroeville,PA 12,738 01/03 5,430 1,911 Eckerd Drug Store - #6043, Monroeville,PA 10,908 01/03 3,315 1,637 Eckerd Drug Store - #6062, Harborcreek, PA 10,908 01/03 2,527 1,418 Eckerd Drug Store - #6089, Weirton, WV 10,908 01/03 2,472 1,374 Eckerd Drug Store - #6095, Cheswick, PA 10,908 01/03 2,791 1,571 Eckerd Drug Store - #6172, New Castle,PA 10,908 01/03 2,877 1,636 Eckerd Drug Store - #6193, Erie, PA 10,908 01/03 2,919 1,636 Eckerd Drug Store - #6199, Millcreek, PA 10,908 01/03 3,729 1,637 Eckerd Drug Store - #6257, Millcreek, PA 10,908 01/03 1,444 640 Eckerd Drug Store - #6286, Erie, PA 10,908 01/03 4,193 1,601 Eckerd Drug Store - #6334, Erie, PA 10,908 01/03 2,997 1,636 Eckerd Drug Store - #6392, Penn, PA 10,908 01/03 2,949 1,636 Eckerd Drug Store - #6695, Plum Borough, PA 10,908 01/03 3,669 1,637 Eckerd Drug Store - Piedmont, Piedmont, SC 10,908 01/03 1,968 - Market Square, Douglasville, GA 121,774 01/03 12,905 8,390 Springfield Park, Lawrenceville, GA 105,321 01/03 10,924 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ Chatham Crossing, Siler City, NC 3,964 16 3,980 Columbiana Station, Columbia, SC 46,615 193 46,808 Gateway Plaza - Conway, Conway, SC 6,295 - 6,295 Lakeview Plaza, Kissimmee, FL 2,574 19 6,206 Meadowmont Village Center, Chapel Hill, NC 26,808 (581) 26,227 Shoppes at Citiside, Charlotte, NC 9,706 326 10,032 Shoppes at New Tampa, Wesley Chapel, FL 19,196 (266) 18,930 Camp Hill Center, Harrisburg, PA 7,786 5 7,791 Eckerd Drug Store - #5018, Amherst, NY 1,223 - 2,805 Eckerd Drug Store - #5661, Buffalo, NY 1,368 - 3,145 Eckerd Drug Store - #5786, Dunkirk, NY 815 - 1,720 Eckerd Drug Store - #5797, Cheektowaga, NY 2,120 (1) 3,755 Eckerd Drug Store - #6007, Connelsville, PA 1,867 - 3,503 Eckerd Drug Store - #6036, Pittsburgh, PA 2,204 (1) 3,839 Eckerd Drug Store - #6040, Monroeville,PA 3,519 (2) 5,428 Eckerd Drug Store - #6043, Monroeville,PA 1,678 - 3,315 Eckerd Drug Store - #6062, Harborcreek, PA 1,109 - 2,527 Eckerd Drug Store - #6089, Weirton, WV 1,098 - 2,472 Eckerd Drug Store - #6095, Cheswick, PA 1,220 - 2,791 Eckerd Drug Store - #6172, New Castle,PA 1,241 - 2,877 Eckerd Drug Store - #6193, Erie, PA 1,283 - 2,919 Eckerd Drug Store - #6199, Millcreek, PA 2,092 (1) 3,728 Eckerd Drug Store - #6257, Millcreek, PA 804 - 1,444 Eckerd Drug Store - #6286, Erie, PA 2,592 (1) 4,192 Eckerd Drug Store - #6334, Erie, PA 1,361 - 2,997 Eckerd Drug Store - #6392, Penn, PA 1,313 - 2,949 Eckerd Drug Store - #6695, Plum Borough, PA 2,032 - 3,669 Eckerd Drug Store - Piedmont, Piedmont, SC 1,968 5 1,973 Market Square, Douglasville, GA 4,515 787 13,692 Springfield Park, Lawrenceville, GA 10,924 5 10,929
II-34
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ Tequesta Shoppes Plaza, Tequesta, FL 109,937 01/03 11,439 - Capital Crossing, Raleigh, NC 92,248 02/03 9,984 - Colonial Promenade Bardmore Center, Largo, FL 152,667 02/03 17,151 - Commonwealth Center II, Richmond, VA 165,382 02/03 22,278 - Concord Crossing, Concord, NC 55,930 02/03 5,331 - Fountains, Plantation, FL 408,807 02/03 44,412 - Marketplace at Mill Creek, Buford, GA 398,407 02/03 50,118 - Monroe Shopping Center, Monroe, NC 45,080 02/03 3,548 - Oakley Plaza, Asheville, NC 118,727 02/03 9,469 - Overlook at King of Prussia, King of Prussia, PA 186,980 02/03 57,045 30,000 Paraiso Plaza, Hialeah, FL 61,012 02/03 9,481 - Publix Brooker Creek, Palm Harbor, FL 77,596 02/03 8,719 4,468 Sheridan Square, Dania, FL 67,425 02/03 7,586 - Stonecrest Marketplace, Lithonia, GA 264,447 02/03 34,742 - Suwanee Crossroads, Suwanee, GA 69,500 02/03 12,068 - Windsor Court Shopping Center, Windsor Court, CT 78,480 02/03 14,639 - Downtown Short Pump, Richmond, VA 125,553 03/03 33,515 - Valley Park Commons, Hagerstown, MD 89,579 03/03 11,317 - Eckerd - Perry Creek, Perry Creek, NC 10,908 09/02 2,795 - Village Center, Mt. Pleasant, WI 217,103 03/03 23,987 - Watercolor Crossing, Tallahassee, FL 43,200 03/03 5,485 - Bi-Lo - Southern Pines, Southern Pines, NC 57,404 04/03 8,127 - Creeks at Virginia Center, Richmond, VA 266,266 04/03 39,458 27,804 Flamingo Falls, Pembroke Pines, FL 108,565 04/03 23,946 - Glenmark Shopping Center, Morgantown, WV 122,167 04/03 12,982 - River Run, Miramar, FL 93,643 04/03 11,638 - Westside Centre Shopping Center, Huntsville, AL 490,784 04/03 46,015 39,350 440 Commons, Jersey City, NJ 162,533 05/03 18,046 - Barrett Pavilion, Kennesaw, GA 460,755 05/03 80,183 - Bi-Lo - Asheville, Asheville, NC 54,319 05/03 7,727 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ Tequesta Shoppes Plaza, Tequesta, FL 11,439 (248) 11,191 Capital Crossing, Raleigh, NC 9,984 14 9,998 Colonial Promenade Bardmore Center, Largo, FL 17,151 45 17,196 Commonwealth Center II, Richmond, VA 22,278 (133) 22,145 Concord Crossing, Concord, NC 5,331 5 5,336 Fountains, Plantation, FL 44,412 - 44,412 Marketplace at Mill Creek, Buford, GA 50,118 50 50,168 Monroe Shopping Center, Monroe, NC 3,548 5 3,553 Oakley Plaza, Asheville, NC 9,469 4 9,473 Overlook at King of Prussia, King of Prussia, PA 27,045 15 57,060 Paraiso Plaza, Hialeah, FL 9,481 26 9,507 Publix Brooker Creek, Palm Harbor, FL 4,251 146 8,865 Sheridan Square, Dania, FL 7,586 23 7,609 Stonecrest Marketplace, Lithonia, GA 34,742 (115) 34,627 Suwanee Crossroads, Suwanee, GA 12,068 (69) 11,999 Windsor Court Shopping Center, Windsor Court, CT 14,639 10 14,649 Downtown Short Pump, Richmond, VA 33,515 (147) 33,368 Valley Park Commons, Hagerstown, MD 11,317 12 11,329 Eckerd - Perry Creek, Perry Creek, NC 2,795 (66) 2,729 Village Center, Mt. Pleasant, WI 23,987 (33) 23,954 Watercolor Crossing, Tallahassee, FL 5,485 - 5,485 Bi-Lo - Southern Pines, Southern Pines, NC 8,127 (62) 8,065 Creeks at Virginia Center, Richmond, VA 11,654 1,608 41,066 Flamingo Falls, Pembroke Pines, FL 23,946 - 23,946 Glenmark Shopping Center, Morgantown, WV 12,982 335 13,317 River Run, Miramar, FL 11,638 (5) 11,633 Westside Centre Shopping Center, Huntsville, AL 6,665 2,035 48,050 440 Commons, Jersey City, NJ 18,046 9 18,055 Barrett Pavilion, Kennesaw, GA 80,183 (51) 80,132 Bi-Lo - Asheville, Asheville, NC 7,727 (1) 7,726
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PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ Bi-Lo - Shelmore, Mt. Pleasant, SC 61,705 05/03 11,836 - Bi-Lo - Sylvania, Sylvania, GA 36,000 05/03 4,407 - Birkdale Village, Charlotte, NC 653,983 05/03 96,410 - BJ'S Wholesale Club, Charlotte, NC 99,792 05/03 13,025 - Brick Center Plaza, Brick, NJ 114,028 05/03 19,451 - East Hanover Plaza, East Hanover, NJ 122,028 05/03 17,312 - Eckerd Drug Store - #0234, Marietta, GA 10,880 05/03 2,044 1,161 Eckerd Drug Store - #0444, Gainesville, GA 10,594 05/03 1,986 1,129 Eckerd Drug Store - #0818, Ft. Worth, TX 10,908 05/03 2,691 1,540 Eckerd Drug Store - #0862, Wichita Falls, TX 9,504 05/03 2,087 1,203 Eckerd Drug Store - #0943, Richardson, TX 10,560 05/03 2,354 1,338 Eckerd Drug Store - #0963, Richardson, TX 10,560 05/03 2,313 1,316 Eckerd Drug Store - #0968, Wichita Falls, TX 9,504 05/03 1,837 1,036 Eckerd Drug Store - #0980, Dallas, TX 9,504 05/03 1,917 1,097 Eckerd Drug Store - #2320, Snellville, GA 10,594 05/03 2,230 1,271 Eckerd Drug Store - #2506, Dallas, TX 9,504 05/03 2,073 1,177 Eckerd Drug Store - #3072, Richland Hills, TX 10,908 05/03 2,663 1,521 Eckerd Drug Store - #3152, Lake Worth, TX 9,504 05/03 1,805 1,021 Eckerd Drug Store - #3169, River Oaks, TX 10,908 05/03 2,705 1,546 Eckerd Drug Store - #3192, Tyler, TX 9,504 05/03 1,495 845 Eckerd Drug Store - #3338, Kissimmee, FL 10,880 05/03 2,479 1,407 Eckerd Drug Store - #3350, Oklahoma City, OK 9,504 05/03 1,776 1,005 Eckerd Drug Store - #3363, Ft. Worth, TX 9,504 05/03 1,661 941 Eckerd Drug Store - #3449, Lawrenceville, GA 9,504 05/03 2,061 - Eckerd Drug Store - #3528, Plano, TX 10,908 05/03 2,535 1,445 Edgewater Town Center, Edgewater, NJ 77,446 05/03 27,030 - Goody's Shopping Center, Augusta, GA 22,560 05/03 2,051 - Heritage Pavilion, Smyrna, GA 262,961 05/03 40,013 - Hiram Pavilion, Hiram, GA 363,618 05/03 36,787 - Killearn Shopping Center, Tallahassee, FL 94,547 05/03 10,945 4,041 OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ Bi-Lo - Shelmore, Mt. Pleasant, SC 11,836 10 11,846 Bi-Lo - Sylvania, Sylvania, GA 4,407 2 4,409 Birkdale Village, Charlotte, NC 96,410 (897) 95,513 BJ'S Wholesale Club, Charlotte, NC 13,025 1 13,026 Brick Center Plaza, Brick, NJ 19,451 13 19,464 East Hanover Plaza, East Hanover, NJ 17,312 5 17,317 Eckerd Drug Store - #0234, Marietta, GA 883 4 2,048 Eckerd Drug Store - #0444, Gainesville, GA 857 4 1,990 Eckerd Drug Store - #0818, Ft. Worth, TX 1,151 4 2,695 Eckerd Drug Store - #0862, Wichita Falls, TX 884 4 2,091 Eckerd Drug Store - #0943, Richardson, TX 1,016 4 2,358 Eckerd Drug Store - #0963, Richardson, TX 997 4 2,317 Eckerd Drug Store - #0968, Wichita Falls, TX 801 4 1,841 Eckerd Drug Store - #0980, Dallas, TX 820 4 1,921 Eckerd Drug Store - #2320, Snellville, GA 959 4 2,234 Eckerd Drug Store - #2506, Dallas, TX 896 4 2,077 Eckerd Drug Store - #3072, Richland Hills, TX 1,142 4 2,667 Eckerd Drug Store - #3152, Lake Worth, TX 784 4 1,809 Eckerd Drug Store - #3169, River Oaks, TX 1,159 4 2,709 Eckerd Drug Store - #3192, Tyler, TX 650 4 1,499 Eckerd Drug Store - #3338, Kissimmee, FL 1,072 4 2,483 Eckerd Drug Store - #3350, Oklahoma City, OK 771 4 1,780 Eckerd Drug Store - #3363, Ft. Worth, TX 720 4 1,665 Eckerd Drug Store - #3449, Lawrenceville, GA 2,061 4 2,065 Eckerd Drug Store - #3528, Plano, TX 1,090 4 2,539 Edgewater Town Center, Edgewater, NJ 27,030 11 27,041 Goody's Shopping Center, Augusta, GA 2,051 - 2,051 Heritage Pavilion, Smyrna, GA 40,013 4 40,017 Hiram Pavilion, Hiram, GA 36,787 1,559 38,346 Killearn Shopping Center, Tallahassee, FL 6,904 80 11,025
II-36
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ Midway Plaza, Tamarac, FL 227,209 05/03 26,858 - North Hill Commons, Anderson, SC 42,942 05/03 4,541 - Sandy Plains Village, Roswell, GA 175,035 05/03 18,055 - Shoppes at Paradise Pointe, Ft Walton Beach, FL 84,070 05/03 11,591 - Sony Theatre Complex, East Hanover, NJ 70,549 05/03 12,068 - Town & Country, Knoxville, TN 639,135 05/03 49,812 - Village Crossing, Skokie, IL 427,722 05/03 69,443 - West Falls Plaza, West Paterson, NJ 88,913 05/03 20,980 - CostCo Plaza, White Marsh, MD 209,841 06/03 16,857 - Denbigh Village Shopping Center, Newport News, VA 311,583 06/03 20,855 - Shoppes at Lake Dow, McDonough, GA 73,271 06/03 11,014 - Willoughby Hills Shopping Center, Willoughby Hills, OH 359,414 06/03 37,705 14,480 Cascades Marketplace, Sterling, VA 98,532 07/03 16,840 - Fayette Pavilion III, Fayetteville, GA 619,856 07/03 46,308 - Northlake Commons, Palm Beach Gardens, FL 143,955 07/03 21,643 - Route 22 Retail Shopping Center, Union, NJ 110,453 07/03 19,054 11,355 Vision Works, Plantation, FL 6,891 07/03 1,732 - Bellevue Place Shopping Center, Nashville, TN 77,249 08/03 10,884 - Camfield Corners, Charlotte, NC 69,887 08/03 9,339 - Kensington Place, Murfreesboro, TN 70,624 08/03 7,167 - Largo Town Center, Upper Marlboro, MD 270,310 08/03 30,947 - Naugatuck Valley Shopping Center, Waterbury, CT 383,332 08/03 50,452 - Riverdale Shops, West Springfield, MA 273,928 08/03 42,055 - Spring Mall Center, Springfield, VA 56,511 08/03 10,481 - Walgreen's, Port Huron, MI 14,998 08/03 4,368 - Bank First, Winter Park, FL 3,348 09/03 723 - Carlisle Commons, Carlisle, PA 393,023 09/03 39,635 - Circuit City - Culver City, Culver City, CA 32,873 09/03 8,781 - Circuit City - Highland Ranch, Highland Ranch, CO 43,480 09/03 5,628 - Circuit City - Olympia, Olympia, WA 35,776 09/03 5,632 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ Midway Plaza, Tamarac, FL 26,858 265 27,123 North Hill Commons, Anderson, SC 4,541 1 4,542 Sandy Plains Village, Roswell, GA 18,055 84 18,139 Shoppes at Paradise Pointe, Ft Walton Beach, FL 11,591 (94) 11,497 Sony Theatre Complex, East Hanover, NJ 12,068 5 12,073 Town & Country, Knoxville, TN 49,812 1,397 51,209 Village Crossing, Skokie, IL 69,443 6,001 75,444 West Falls Plaza, West Paterson, NJ 20,980 5 20,985 CostCo Plaza, White Marsh, MD 16,857 5 16,862 Denbigh Village Shopping Center, Newport News, VA 20,855 (106) 20,749 Shoppes at Lake Dow, McDonough, GA 11,014 (68) 10,946 Willoughby Hills Shopping Center, Willoughby Hills, OH 23,225 22 37,727 Cascades Marketplace, Sterling, VA 16,840 5 16,845 Fayette Pavilion III, Fayetteville, GA 46,308 2,540 48,848 Northlake Commons, Palm Beach Gardens, FL 21,643 523 22,166 Route 22 Retail Shopping Center, Union, NJ 7,699 - 19,054 Vision Works, Plantation, FL 1,732 6 1,738 Bellevue Place Shopping Center, Nashville, TN 10,884 5 10,889 Camfield Corners, Charlotte, NC 9,339 2 9,341 Kensington Place, Murfreesboro, TN 7,167 - 7,167 Largo Town Center, Upper Marlboro, MD 30,947 7 30,954 Naugatuck Valley Shopping Center, Waterbury, CT 50,452 8 50,460 Riverdale Shops, West Springfield, MA 42,055 34 42,089 Spring Mall Center, Springfield, VA 10,481 2 10,483 Walgreen's, Port Huron, MI 4,368 9 4,377 Bank First, Winter Park, FL 723 8 731 Carlisle Commons, Carlisle, PA 39,635 10 39,645 Circuit City - Culver City, Culver City, CA 8,781 4 8,785 Circuit City - Highland Ranch, Highland Ranch, CO 5,628 3 5,631 Circuit City - Olympia, Olympia, WA 5,632 3 5,635
II-37
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - --------------------------------------------------------------------------------------------------------------------------- Fayette Pavilion I & II, Fayetteville, GA 791,373 09/03 88,521 - Kroger - Cincinnati, Cincinnati, OH 56,634 09/03 7,431 - Kroger - Grand Prairie, Grand Prairie, TX 64,522 09/03 5,793 - Kroger - Westchester, Westchester, OH 56,083 09/03 4,670 - Lowe's Home Improvement - Baytown, Baytown, TX 125,357 09/03 11,478 - Lowe's Home Improvement - Cullman, Cullman, AL 101,287 09/03 8,960 - Lowe's Home Improvement - Houston, Houston, TX 131,644 09/03 12,050 - Lowe's Home Improvement - Steubenville, Steubenville, OH 130,497 09/03 11,442 - Southwood Plantation, Tallahassee, FL 62,700 10/02 7,738 - Super Wal-Mart - Alliance, Alliance, OH 200,084 09/03 15,879 - Super Wal-Mart - Greenville, Greenville, SC 200,084 09/03 16,971 - Super Wal-Mart - Winston-Salem, Winston-Salem, NC 204,931 09/03 18,721 - Eckerd - Gaffney, Gaffney, SC 13,813 12/02 2,374 - Wal-Mart/Sam's Club, Worcester, MA 107,929 09/03 11,194 - Bi-Lo at Northside Plaza, Greenwood, SC 41,581 10/03 4,069 - Cedar Springs Crossing, Spartanburg, SC 86,581 10/03 10,191 - Clearwater Crossing, Flowery Branch, GA 90,566 10/03 13,303 - Cortez Plaza, Bradenton, FL 286,610 10/03 26,819 16,828 Houston Square, Warner Robins, GA 60,799 10/03 5,214 - Lexington Place, Lexington, SC 83,167 10/03 8,481 - Manchester Broad Street, Manchester, CT 68,509 10/03 13,119 - Plaza Del Paraiso, Miami, FL 82,442 10/03 15,417 - Seekonk Town Center, Seekonk, MA 80,713 10/03 11,068 - Shoppes of Ellenwood, Ellenwood, GA 67,721 10/03 10,703 - Shoppes of Lithia, Brandon, FL 71,430 10/03 12,926 - Crossroads Plaza, Lumberton, NJ 89,627 11/03 18,232 - Hilliard Rome, Columbus, OH 110,772 11/03 17,171 11,883 Loisdale Center, Springfield, VA 120,742 11/03 29,051 - Middletown Village, Middletown, RI 98,161 11/03 17,871 - Shoppes at Oliver's Crossing, Winston-Salem, NC 76,512 11/03 10,386 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Fayette Pavilion I & II, Fayetteville, GA 88,521 (357) 88,164 Kroger - Cincinnati, Cincinnati, OH 7,431 3 7,434 Kroger - Grand Prairie, Grand Prairie, TX 5,793 7 5,800 Kroger - Westchester, Westchester, OH 4,670 3 4,673 Lowe's Home Improvement - Baytown, Baytown, TX 11,478 7 11,485 Lowe's Home Improvement - Cullman, Cullman, AL 8,960 3 8,963 Lowe's Home Improvement - Houston, Houston, TX 12,050 7 12,057 Lowe's Home Improvement - Steubenville, Steubenville, OH 11,442 3 11,445 Southwood Plantation, Tallahassee, FL 7,738 4 7,742 Super Wal-Mart - Alliance, Alliance, OH 15,879 3 15,882 Super Wal-Mart - Greenville, Greenville, SC 16,971 3 16,974 Super Wal-Mart - Winston-Salem, Winston-Salem, NC 18,721 3 18,724 Eckerd - Gaffney, Gaffney, SC 2,374 502 2,876 Wal-Mart/Sam's Club, Worcester, MA 11,194 3 11,197 Bi-Lo at Northside Plaza, Greenwood, SC 4,069 - 4,069 Cedar Springs Crossing, Spartanburg, SC 10,191 - 10,191 Clearwater Crossing, Flowery Branch, GA 13,303 - 13,303 Cortez Plaza, Bradenton, FL 9,991 1,854 28,673 Houston Square, Warner Robins, GA 5,214 - 5,214 Lexington Place, Lexington, SC 8,481 - 8,481 Manchester Broad Street, Manchester, CT 13,119 - 13,119 Plaza Del Paraiso, Miami, FL 15,417 - 15,417 Seekonk Town Center, Seekonk, MA 11,068 - 11,068 Shoppes of Ellenwood, Ellenwood, GA 10,703 - 10,703 Shoppes of Lithia, Brandon, FL 12,926 - 12,926 Crossroads Plaza, Lumberton, NJ 18,232 - 18,232 Hilliard Rome, Columbus, OH 5,288 231 17,402 Loisdale Center, Springfield, VA 29,051 - 29,051 Middletown Village, Middletown, RI 17,871 - 17,871 Shoppes at Oliver's Crossing, Winston-Salem, NC 10,386 - 10,386
II-38
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ Squirewood Village, Dandridge, TN 46,150 11/03 3,442 - Waterfront Marketplace/Town Center, Homestead, PA 755,407 11/03 113,024 72,035 Winslow Bay Commons, Mooresville, NC 255,598 11/03 42,132 - Albertson's at Bloomingdale Hills, Brandon, FL 78,686 12/03 5,856 - Oak Summit, Winston-Salem, NC 142,739 12/03 13,666 - Paradise Place, West Palm Beach, FL 69,620 12/03 11,688 - Pointe at Tampa Plams, Tampa, FL 20,258 12/03 5,282 - Southhampton Village, Tyrone, GA 77,900 11/02 10,610 - Shoppes on the Ridge 91,165 12/02 11,422 - ---------------------------------------------------------------------- Total for 2001 through 2003 acquisitions 29,573,733 3,653,755 497,556 ====================================================================== DEVELOPMENT PROJECTS Fayette Pavilion III, Fayetteville, GA N/A 07/03 203 - Fountains, Plantation, FL N/A 02/03 2,664 - Hiram Pavilion, Hiram, GA N/A 05/03 695 - Northlake Commons, Palm Beach Gardens, FL N/A 07/03 640 - Redbud Commons Gastonia, NC N/A 06/03 5,101 - Shoppes of Golden Acres II, Newport Richey, FL N/A 02/02 189 - Southhampton Village, Tyrone, GA N/A 11/02 62 - Southlake Pavilion, Morrow, GA N/A 12/01 702 - Turkey Creek II, Knoxville, TN N/A 01/02 1,317 - Watercolor Crossing, Tallahassee, FL N/A 03/03 1,028 - Westside Center, Huntsville, AL N/A 04/03 4,888 - ---------------------------------------------------------------------- Total for Development projects at 12/31/03 - 17,489 - ====================================================================== GRAND TOTAL 31,875,622 3,935,930 529,516 ====================================================================== OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ------------------------------------------------------------------------------------------------------ Squirewood Village, Dandridge, TN 3,442 - 3,442 Waterfront Marketplace/Town Center, Homestead, PA 40,989 4,694 117,718 Winslow Bay Commons, Mooresville, NC 42,132 - 42,132 Albertson's at Bloomingdale Hills, Brandon, FL 5,856 - 5,856 Oak Summit, Winston-Salem, NC 13,666 - 13,666 Paradise Place, West Palm Beach, FL 11,688 - 11,688 Pointe at Tampa Plams, Tampa, FL 5,282 - 5,282 Southhampton Village, Tyrone, GA 10,610 - 10,610 Shoppes on the Ridge 11,422 - 11,422 --------------------------------------------------- Total for 2001 through 2003 acquisitions 3,156,199 59,541 3,713,296 =================================================== DEVELOPMENT PROJECTS Fayette Pavilion III, Fayetteville, GA 203 - 203 Fountains, Plantation, FL 2,664 - 2,664 Hiram Pavilion, Hiram, GA 695 - 695 Northlake Commons, Palm Beach Gardens, FL 640 - 640 Redbud Commons Gastonia, NC 5,101 - 5,101 Shoppes of Golden Acres II, Newport Richey, FL 189 - 189 Southhampton Village, Tyrone, GA 62 - 62 Southlake Pavilion, Morrow, GA 702 - 702 Turkey Creek II, Knoxville, TN 1,317 - 1,317 Watercolor Crossing, Tallahassee, FL 1,028 - 1,028 Westside Center, Huntsville, AL 4,888 - 4,888 --------------------------------------------------- Total for Development projects at 12/31/03 17,489 - 17,489 =================================================== GRAND TOTAL 3,406,414 64,085 4,000,015 ===================================================
II-39 TABLE VI- (CONTINUED) ACQUISITION OF PROPERTIES BY PROGRAMS NOTES TO TABLE VI (A) "Other Cash Expenditures Capitalized" consists of improvements to the property and acquisition expenses which are capitalized and paid or to be paid from the proceeds of the offering. As part of several purchases, rent is received under master lease agreements on the spaces currently vacant for periods ranging from one to two years or until the spaces are leased. As these payments are received, they are recorded as a reduction in the purchase price of the properties and have been netted against other cash expenditures capitalized. (B) "Total Acquisition Cost" is the sum of columns captioned "Purchase Price Plus Acquisition Fee" and "Other Cash Expenditures Capitalized. II-40 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this Post-Effective Amendment No. 5 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook, State of Illinois, on the 15th day of September, 2004. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. By:/s/ Robert D. Parks ------------------------------------------- Robert D. Parks President, Chief Executive Officer and Chief Operating Officer II-41 Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 5 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME CAPACITY DATE ---- -------- ---- /s/ Robert D. Parks Chairman and Director September 15, 2004 - ------------------------------ Robert D. Parks /s/ Steven P. Grimes Treasurer and Principal financial officer September 15, 2004 - ------------------------------ Steven P. Grimes /s/ Lori J. Foust Principal accounting officer September 15, 2004 - ------------------------------ Lori J. Foust /s/ Brenda G. Gujral Director September 15, 2004 - ------------------------------ Brenda G. Gujral * Independent Director September 15, 2004 - ----------------------- Frank Catalano * Independent Director September 15, 2004 - ----------------------- Ken Beard * Independent Director September 15, 2004 - ----------------------- Paul R. Gauvreau * Independent Director September 15, 2004 - ----------------------- Gerald M. Gorski * Independent Director September 15, 2004 - ----------------------- Barbara A. Murphy
/s/ Roberta S. Matlin - ------------------------------ * Signed on behalf of the named individuals by Roberta S. Matlin, under power of attorney. II-42 EX-10.291 2 a2143310zex-10_291.txt EX-10.291 Exhibit 10.291 Loan No. 10024997 PROMISSORY NOTE $5,365,200.00 August 9, 2004 FOR VALUE RECEIVED, INLAND WESTERN NORTH RICHLAND HILLS DAVIS LIMITED PARTNERSHIP, an Illinois limited partnership, having its principal place of business at 2901 Butterfield Road, Oak Brook, Illinois 60523, as maker hereunder (referred to herein as "BORROWER"), hereby unconditionally promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a national banking association, its successors and assigns, having an address at 911 Main Street, Suite 1500, Kansas City, Missouri 64105 ("LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of FIVE MILLION THREE HUNDRED SIXTY-FIVE THOUSAND TWO HUNDRED AND NO/100 DOLLARS ($5,365,200.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Interest Rate, and to be paid in accordance with the terms of this Note and that certain Loan Agreement, dated as of the date hereof, between Borrower and Lender (the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1 PAYMENT TERMS Borrower agrees to pay interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. This Note shall be the "Note" as defined in the Loan Agreement. ARTICLE 2 DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE 3 LOAN DOCUMENTS This Note is secured by the Mortgage and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgage and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4 SAVINGS CLAUSE It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply strictly with the applicable Texas law, or federal law (if applicable), governing the maximum rate or amount of interest payable on the indebtedness evidenced by this Note and the Loan Documents. All agreements in this Note and all other Loan Documents, whether now existing or hereafter arising and whether written or oral are expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby, prepayment, or otherwise, shall the amount agreed to be paid hereunder for the use, forbearance, or detention of money exceed the highest lawful rate permitted under applicable usury laws (the "MAXIMUM AMOUNT"). To the extent Chapter 303 of the Texas Finance Code, and its successor statutes and amendments, as then in effect (collectively, the "STATUTE"), are applicable, the "weekly ceiling" specified in the Statute, as selected by Lender, is the applicable ceiling. Lender may, in accordance with and to the extent permitted by applicable law, at its option and from time to time revise its election of the applicable "rate ceiling" as to current and future balances outstanding, and may use the "quarterly ceiling" or the "monthly ceiling" from time to time in effect, as such terms are defined in the Statute, or any other legally available "ceilings" as the Maximum Amount under Texas or other applicable law. If the Maximum Amount as determined under any applicable federal law shall at any time exceed the maximum rate of interest as determined under applicable Texas law, then to the extent permitted by law, the applicable federal rate shall be deemed controlling for purposes of determining the Maximum Amount during such period of time. In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulate certain revolving credit loan accounts and revolving triparty accounts) apply to the indebtedness evidenced hereby. This Section 4 will control all agreements between Borrower and Lender. If, from any circumstance whatsoever (including without limitation, the receipt of any late charge or similar amount), fulfillment of any provision of this Note or any other Loan Document at the time performance of such provision shall be due shall involve exceeding any usury limit prescribed by law that a court of competent jurisdiction may deem applicable hereto, then, IPSO FACTO, the obligations to be fulfilled shall be reduced to allow compliance with such limit, and if, from any circumstance whatsoever, Lender shall ever receive anything of value deemed interest in an amount that would exceed the highest lawful rate, the receipt of such excess shall be deemed a mistake and shall be canceled automatically or, if theretofore paid, such excess shall be credited against the principal amount of the indebtedness evidenced hereby to which the same may lawfully be credited, and any portion of such excess not capable of being so credited shall be refunded immediately to Borrower. Borrower hereby agrees that, as a condition precedent to any claim seeking usury penalties against Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Borrower or crediting such excess interest against this Note and/or the indebtedness evidenced hereby or in the Loan Documents then owing by Borrower to Lender. All interest contracted for, charged, taken, reserved, paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of this Note, including any extensions and renewals hereof until payment in full of the principal balance of this Note so that the interest thereon for such full term will not exceed at any time the Maximum Amount. 2 ARTICLE 5 NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6 WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the individuals comprising the partnership, and the term "Borrower," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a limited liability company, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the members comprising the company, and the term "Borrower," as used herein, shall include any alternate or successor company, but any predecessor company and its members shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "Borrower" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. (Nothing in the foregoing sentence shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such entity which may be set forth in the Loan Agreement, the Mortgage or any other Loan Document.) ARTICLE 7 TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer except as provided in the Loan Agreement, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall from that date forward forever be relieved 3 and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8 EXCULPATION The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference into this Note to the same extent and with the same force as if fully set forth herein. ARTICLE 9 GOVERNING LAW THIS NOTE SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND APPLICABLE FEDERAL LAWS. ARTICLE 10 NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] 4 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. BORROWER: INLAND WESTERN NORTH RICHLAND HILLS DAVIS LIMITED PARTNERSHIP, an Illinois limited partnership By: Inland Western North Richland Hills Davis GP, L.L.C., a Delaware limited liability company, its general partner By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------- Name: Valerie Medina Title: Asst. Secretary Pay to the order of _____________________________, without recourse. KEYBANK NATIONAL ASSOCIATION, a national banking association By: --------------------------------------- Print Name: ------------------------------- Print Title: ------------------------------ STATE OF Illinois COUNTY OF DuPage On this 6th day of August, 2004, before me, Susan Maret, a Notary Public in and for said state, personally appeared Valerie Medina, who being by me duly sworn did say that he/she is the Asst Secretary of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of Inland Western North Richland Hills Davis GP, L.L.C., a Delaware limited liability company, the general partner of Inland Western North Richland Hills Davis Limited Partnership, an Illinois limited partnership, and that the within instrument was signed and sealed in behalf of said corporation in behalf of said limited liability company by authority of its board of directors, and acknowledged said instrument to be the free act and deed of said corporation in behalf of said limited liability company for the purposes therein stated. OFFICIAL SEAL SUSAN M MARET NOTARY PUBLIC - STATE OF ILLINOIS MY COMMISSION EXPIRES: 12/08/07 [Notarial Seal] /s/ Susan M. Maret ------------------------ Print Name: Susan M. Maret ---------------- My commission expires: 12/08/07 ------------------ 6 EX-10.292 3 a2143310zex-10_292.txt EX-10.292 Exhibit 10.292 THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS LIMITING LENDER'S LIABILITY FOR NEGLIGENCE. Loan No. 10024997 LOAN AGREEMENT Dated as of August 9, 2004 Between INLAND WESTERN NORTH RICHLAND HILLS DAVIS LIMITED PARTNERSHIP, as Borrower and KEYBANK NATIONAL ASSOCIATION, as Lender TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION.............................................1 Section 1.1 DEFINITIONS.....................................................................1 Section 1.2 PRINCIPLES OF CONSTRUCTION.....................................................17 ARTICLE II GENERAL TERMS.....................................................................18 Section 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER......................................18 Section 2.2 INTEREST; LOAN PAYMENTS; LATE PAYMENT CHARGE...................................18 Section 2.3 PREPAYMENTS....................................................................19 Section 2.4 INTENTIONALLY OMITTED..........................................................21 Section 2.5 RELEASE OF PROPERTY............................................................21 Section 2.6 MANNER OF MAKING PAYMENTS......................................................21 ARTICLE III CONDITIONS PRECEDENT........................................................21 Section 3.1 CONDITIONS PRECEDENT TO CLOSING................................................21 ARTICLE IV REPRESENTATIONS AND WARRANTIES..............................................25 Section 4.1 BORROWER REPRESENTATIONS.......................................................25 Section 4.2 SURVIVAL OF REPRESENTATIONS....................................................32 ARTICLE V BORROWER COVENANTS.................................................................32 Section 5.1 AFFIRMATIVE COVENANTS..........................................................32 Section 5.2 NEGATIVE COVENANTS.............................................................41 ARTICLE VI INSURANCE; CASUALTY; CONDEMNATION...........................................45 Section 6.1 INSURANCE......................................................................45 Section 6.2 CASUALTY.......................................................................49 Section 6.3 CONDEMNATION...................................................................49 Section 6.4 RESTORATION....................................................................50 ARTICLE VII RESERVE FUNDS....................................................................54 Section 7.1 REQUIRED REPAIR FUNDS..........................................................54 Section 7.2 TAX AND INSURANCE ESCROW FUND..................................................55 Section 7.3 REPLACEMENTS AND REPLACEMENT RESERVE...........................................56 Section 7.4 INTENTIONALLY DELETED..........................................................61 Section 7.5 INTENTIONALLY DELETED..........................................................61 Section 7.6 INTENTIONALLY DELETED..........................................................61 Section 7.7 RESERVE FUNDS, GENERALLY.......................................................61 ARTICLE VIII DEFAULTS....................................................................62 Section 8.1 EVENT OF DEFAULT...............................................................62 Section 8.2 REMEDIES.......................................................................64 Section 8.3 REMEDIES CUMULATIVE; WAIVERS...................................................65 ARTICLE IX SPECIAL PROVISIONS..........................................................66 Section 9.1 SALE OF NOTES AND SECURITIZATION...............................................66 Section 9.2 SECURITIZATION.................................................................67 Section 9.3 RATING SURVEILLIANCE...........................................................67 Section 9.4 EXCULPATION....................................................................67 Section 9.5 TERMINATION OF MANAGER.........................................................69 Section 9.6 SERVICER.......................................................................69 Section 9.7 SPLITTING THE LOAN.............................................................69
-i- ARTICLE X MISCELLANEOUS......................................................................70 Section 10.1 SURVIVAL......................................................................70 Section 10.2 LENDER'S DISCRETION...........................................................70 Section 10.3 GOVERNING LAW.................................................................70 Section 10.4 MODIFICATION, WAIVER IN WRITING...............................................70 Section 10.5 DELAY NOT A WAIVER............................................................71 Section 10.6 NOTICES.......................................................................71 Section 10.7 TRIAL BY JURY.................................................................72 Section 10.8 HEADINGS......................................................................72 Section 10.9 SEVERABILITY..................................................................72 Section 10.10 PREFERENCES..................................................................72 Section 10.11 WAIVER OF NOTICE.............................................................72 Section 10.12 REMEDIES OF BORROWER.........................................................73 Section 10.13 EXPENSES; INDEMNITY..........................................................73 Section 10.14 SCHEDULES INCORPORATED.......................................................74 Section 10.15 OFFSETS. COUNTERCLAIMS AND DEFENSES..........................................74 Section 10.16 NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY BENEFICIARIES................74 Section 10.17 PUBLICITY....................................................................75 Section 10.18 WAIVER OF MARSHALLING OF ASSETS..............................................75 Section 10.19 WAIVER OF COUNTERCLAIM.......................................................75 Section 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS: RELIANCE................................75 Section 10.21 BROKERS AND FINANCIAL ADVISORS...............................................76 Section 10.22 PRIOR AGREEMENTS.............................................................76 Section 10.23 TRANSFER OF LOAN.............................................................76
SCHEDULES Schedule I - Intentionally Omitted Schedule II - Rent Roll Schedule III - Required Repairs Schedule IV - Intentionally Omitted Schedule V - Intentionally Omitted Schedule VI - Affiliate Agreements Schedule VII - Intentionally Omitted Schedule VIII - Intentionally Omitted Schedule IX - Intentionally Omitted Schedule X - Other Contract Funds Agreements -ii- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of this 9th day of August, 2004 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "AGREEMENT"), between KEYBANK NATIONAL ASSOCIATION, a national banking association, having an address at 911 Main Street, Suite 1500, Kansas City, Missouri 64105 ("LENDER"), and INLAND WESTERN NORTH RICHLAND HILLS DAVIS LIMITED PARTNERSHIP, an Illinois limited partnership, having an address at 2901 Butterfield Road, Oak Brook, Illinois 60523 ("BORROWER"). W I T N E S S E T H: WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "AFFILIATE" shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "ANNUAL BUDGET" shall mean the operating budget, including all planned capital expenditures, for the Property prepared by Borrower for the applicable Fiscal Year or other period. "ASSIGNMENT OF LEASES" shall mean, with respect to the Property, that certain first priority Assignment of Leases and Rents, dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender all of Borrower's interest in and to the Leases and Rents of the Property as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean that certain Assignment of Management Agreement and Subordination of Management Fees dated as of the date hereof among Lender, Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. 1 "AWARD" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of the Property. "BASIC CARRYING COSTS" shall mean, with respect to the Property, the sum of the following costs associated with the Property for the relevant Fiscal Year or payment period: (i) Taxes and (ii) Insurance Premiums. "BORROWER" shall mean Inland Western North Richland Hills Davis Limited Partnership, together with its permitted successors and assigns. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "CAPITAL EXPENDITURES" shall mean, for any period, the amount expended for items capitalized under accounting principles reasonably acceptable to Lender, consistently applied (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "CASH EXPENSES" shall mean, for any period, the operating expenses for the operation of the Property as set forth in an Approved Annual Budget to the extent that such expenses are actually incurred by Borrower minus any payments into the Tax and Insurance Escrow Fund. "CASUALTY" shall have the meaning specified in Section 6.2 hereof. "CASUALTY CONSULTANT" shall have the meaning set forth in Section 6.4(b)(iii) hereof. "CASUALTY RETAINAGE" shall have the meaning set forth in Section 6.4(b)(iv) hereof. "CLOSING DATE" shall mean the date of the funding of the Loan. "CODE" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "CONDEMNATION" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of the Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting the Property or any part thereof. "DEBT" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including the Prepayment Consideration) due to Lender in respect of the Loan under the Note, this Agreement, the Mortgage or any other Loan Document. 2 "DEBT SERVICE" shall mean, with respect to any particular period of time, scheduled interest payments under the Note. "DEBT SERVICE COVERAGE RATIO" shall mean a ratio for the applicable period in which: (a) the numerator is the Net Operating Income (excluding interest on credit accounts) for such period as set forth in the statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Property, (ii) amounts paid to the Reserve Funds, less (A) management fees equal to the greater of (1) assumed management fees of five percent (5%) of Gross Income from Operations or (2) the actual management fees incurred; (B) assumed Replacement Reserve Fund contributions equal to $0.15 per square foot of gross leaseable area at the Property; and (C) assumed reserves for tenant improvements and leasing commissions equal to $1.03 per square foot of gross leaseable area of the Property; and (b) the denominator is the aggregate amount of interest due and payable on the Note for such applicable period. "DEFAULT" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) five percent (5%) above the Interest Rate. "DISCLOSURE DOCUMENT" shall have the meaning set forth in Section 9.2 hereof. "ELIGIBLE ACCOUNT" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "ELIGIBLE INSTITUTION" shall mean a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least A-l by Standard & Poor's Ratings Services, P-l by Moody's Investors Service, Inc., and F-1+ by Fitch, Inc. in the case of accounts in which funds are held for 30 days or less (or, in the case of accounts in which funds are held for more than 30 days, the long term unsecured debt obligations of which, are rated at least "AA" by Fitch and S&P and "Aa" by Moody's). 3 "ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental Indemnity Agreement executed by Borrower in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1(a) hereof. "EXCHANGE ACT" shall have the meaning set forth in Section 9.2 hereof. "FISCAL YEAR" shall mean each, twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan. "GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GROSS INCOME FROM OPERATIONS" shall mean all sustainable income as reported on the financial statements delivered by Borrower in accordance with this Agreement, computed in accordance with accounting principles reasonably acceptable to Lender, consistently applied, derived from the ownership and operation of the Property from whatever source, including, but not limited to, (i) Rents from Tenants that are in occupancy, open for business and paying unabated Rent, (ii) utility charges, (iii) escalations, (iv) intentionally omitted; (v) service fees or charges, (vi) license fees, (vii) parking fees, and (viii) other required pass-throughs but excluding (i) sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any Governmental Authority, (ii) refunds and uncollectible accounts, (iii) sales of furniture, fixtures and equipment, (iv) Insurance Proceeds (other than business interruption or other loss of income insurance), (v) Awards, (vi) unforfeited security deposits, (vii) utility and other similar deposits and (viii) any disbursements to Borrower from the Reserve Funds. Gross income shall not be diminished as a result of the Mortgage or the creation of any intervening estate or interest in the Property or any part thereof. "IMPROVEMENTS" shall have the meaning set forth in the granting clause of the Mortgage with respect to the Property. "INDEBTEDNESS" of a Person, at a particular date, means the sum (without duplication) at such date of (a) indebtedness or liability for borrowed money; (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss; and (g) obligations secured by any Liens, whether or not the obligations have been assumed. 4 "INDEMNITOR" shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation. "INDEMNITY AGREEMENT" shall mean that certain Indemnity Agreement dated as of the date hereof by and between Borrower and Inland Western Retail Real Estate Trust, Inc., a Maryland corporation in favor of Lender. "INLAND WESTERN RETAIL REAL ESTATE TRUST, INC." shall mean Inland Retail Real Estate Trust, Inc., a Maryland corporation. "INSURANCE PREMIUMS" shall have the meaning set forth in Section 6.1(b) hereof. "INSURANCE PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "INTEREST RATE" shall mean five and one hundred eighty-five hundreths percent (5.185%) per annum. "LEASE" shall mean any lease, sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in the Property of Borrower, and every modification, amendment or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "LEGAL REQUIREMENTS" shall mean, with respect to the Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting the Property or any part thereof, or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting the Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to the Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "LENDER" shall mean KeyBank National Association, together with its successors and assigns. "LICENSES" shall have the meaning set forth in Section 4.1.22 hereof. "LIEN" shall mean, with respect to the Property, any mortgage, deed of trust, deed to secure debt, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, the Property, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the 5 foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LOAN" shall mean the loan made by Lender to Borrower pursuant to this Agreement. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the Mortgage, the Assignment of Leases and Rents, the Environmental Indemnity, the Assignment of Management Agreement, the Indemnity Agreement and all other documents executed and/or delivered in connection with the Loan. "MAJOR TENANT" shall mean any tenant (i) leasing more than 10,000 square feet of the Property or (ii) whose Rents comprise 25% or more of the effective gross income (as determined by Lender) of the Property. "MANAGEMENT AGREEMENT" shall mean, with respect to the Property, the management agreement entered into by and between Borrower and the Manager, pursuant to which the Manager is to provide management and other services with respect to the Property. "MANAGER" shall mean Inland Southwest Management Corp., a Delaware corporation. "MATURITY DATE" shall mean September 1, 2009, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise. "MAXIMUM LEGAL RATE" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "MONTHLY DEBT SERVICE PAYMENT AMOUNT" shall mean an amount equal to $23,182.14. "MORTGAGE" shall mean, with respect to the Property, that certain first priority Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated the date hereof, executed and delivered by Borrower as security for the Loan and encumbering the Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NET CASH FLOW" for any period shall mean the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. "NET CASH FLOW AFTER DEBT SERVICE" for any period shall mean the amount obtained by subtracting Debt Service for such period from Net Cash Flow for such period. 6 "NET CASH FLOW SCHEDULE" shall have the meaning set forth in Section 5.1.1l(b) hereof. "NET OPERATING INCOME" shall mean the amount obtained by subtracting from Gross Income from Operations (i) Operating Expenses, and (ii) a vacancy allowance equal to the greater of (x) market vacancy (as reasonably determined by Lender), less actual vacancy, and (y) underwritten vacancy of 15.4%, less actual vacancy. Notwithstanding the foregoing, if actual vacancy exceeds market vacancy and underwritten vacancy, then there shall be no adjustment for a vacancy allowance. "NET PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "NET PROCEEDS DEFICIENCY" shall have the meaning set forth in Section 6.4(b)(vi) hereof. "NOTE" shall mean that certain Promissory Note of even date herewith in the principal amount of FIVE MILLION THREE HUNDRED SIXTY-FIVE THOUSAND TWO HUNDRED AND NO/100 DOLLARS ($5,365,200.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "OFFICERS' CERTIFICATE" shall mean a certificate delivered to Lender by Borrower which is signed by an authorized senior officer of the Sole Member. "OPERATING EXPENSES" shall mean the total of all expenditures, computed in accordance with accounting principles reasonably acceptable to Lender, consistently applied, of whatever kind relating to the operation, maintenance and management of the Property that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance, insurance, license fees, property taxes and assessments, advertising expenses, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures and contributions to the Reserve Funds. "OTHER CHARGES" shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Property, now or hereafter levied or assessed or imposed against the Property or any part thereof. "OTHER CONTRACT FUNDS" shall mean any payment due to Borrower under any of the agreements described on SCHEDULE X. "PAYMENT DATE" shall mean the first (1st) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately succeeding Business Day. "PERMITTED ENCUMBRANCES" shall mean, with respect to the Property, collectively, (a) the Liens and security interests created by the Loan Documents, (b) all Liens, 7 encumbrances and other matters disclosed in the Title Insurance Policies relating to the Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, and (d) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's reasonable discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrower's ability to repay the Loan. "PERMITTED INVESTMENTS" shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Servicer, the trustee under any Securitization or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the first Payment Date following the date of acquiring such investment and meeting one of the appropriate standards set forth below: (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); PROVIDED, HOWEVER, that the Investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Student Loan Marketing Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; 8 (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 9 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (viii) units of taxable money market funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds or mutual funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a written confirmation that the designation of such security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency: PROVIDED, HOWEVER, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. "PERSON" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "PERSONAL PROPERTY" shall have the meaning set forth in the granting clause of the Mortgage with respect to the Property. "PHYSICAL CONDITIONS REPORT" shall mean, with respect to the Property, a report prepared by a company satisfactory to Lender regarding the physical condition of the Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that the Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building 10 laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on the Property. "POLICIES" shall have the meaning specified in Section 6.1(b) hereof. "PREPAYMENT CONSIDERATION" shall have the meaning set forth in Section 2.3.1. "PREPAYMENT RATE" shall mean the bond equivalent yield (in the secondary market) on the United States Treasury Security that as of the Prepayment Rate Determination Date has a remaining term to maturity closest to, but not exceeding, the remaining term to the Maturity Date, as most recently published in the "Treasury Bonds, Notes and Bills" section in The Wall Street Journal as of the date of the related tender of the payment. If more than one issue of United States Treasury Securities has the remaining term to the Maturity Date referred to above, the "Prepayment Rate" shall be the yield on the United States Treasury Security most recently issued as of such date. If the publication of the Prepayment Rate in The Wall Street Journal is discontinued, Lender shall determine the Prepayment Rate on the basis of "Statistical Release H.15(519), Selected Interest Rates," or any successor publication, published by the Board of Governors of the Federal Reserve System, or on the basis of such other publication or statistical guide as Lender may reasonably select. "PREPAYMENT RATE DETERMINATION DATE" shall mean the date which is five (5) Business Days prior to the prepayment date. "PROPERTY" shall mean the parcel of real property, the Improvements thereon and all personal property owned by Borrower and encumbered by the Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the Granting Clauses of the Mortgage and referred to therein as the "Property." "PROVIDED INFORMATION" shall have the meaning set forth in Section 9.1 (a) hereof. "PURCHASE CONTRACT" shall mean that certain letter agreement dated April 21, 2004, between Inland Real Estate Acquisitions, Inc., Lakepointe Towne Crossing, L.P. (I & II), Davis Towne Crossing, L.P., PRTC Pleasant Run Town Crossing, L.P. and MTC Mansfield Towne Crossing, L.P., as heretofore or hereafter assigned, amended and modified. "PURCHASE PRICE ADJUSTMENT" shall mean an adjustment of the purchase price with respect to the acquisition of the Property in connection with an "Earnout Closing" pursuant to Section 17 of the Purchase Contract. "QUALIFYING ENTITY" shall have the meaning set forth in Section 5.2.l3(b) hereof. "QUALIFYING MANAGER" shall mean either (a) a reputable and experienced management organization reasonably satisfactory to Lender, which organization or its principals possess at least ten (10) years experience in managing properties similar in size, scope and value of the Property and which, on the date Lender determines whether such management organization is a Qualifying Manager, manages at least one million square feet of retail space, provided that Borrower shall have obtained prior written confirmation from the Rating Agency 11 that management of the Property by such entity will not cause a downgrading, withdrawal or qualification of the then current rating of the securities issued pursuant to the Securitization, or (b) the fee owner of the Property, provided that such owner possesses experience in managing and operating properties similar in size, scope and value of the Property, Lender acknowledges that on the date hereof Inland Southwest Management Corp. shall be deemed to be a Qualifying Manager. Lender also acknowledges that a new property management company that is an affiliate of or under common control with Inland Southwest Management Corp. also shall be deemed a Qualifying Manager. "RATING AGENCIES" shall mean each of Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc., Moody's Investors Service, Inc. and Fitch, Inc., or any other nationally-recognized statistical rating agency which has been approved by Lender. "RATING SURVEILLANCE CHARGE" shall have the meaning set forth in Section 9.3 hereof. "RELEVANT LEASING THRESHOLD" shall mean, any Lease for an amount of leaseable square footage equal to or greater than [10,000] square feet. "RELEVANT RESTORATION THRESHOLD" shall mean Three Hundred Fifty Thousand and No/100 dollars ($350,000.00). "REMIC TRUST" shall mean a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code that holds the Note. "RENTS" shall mean, with respect to the Property, all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or its agents or employees from any and all sources arising from or attributable to the Property, and proceeds, if any, from business interruption or other loss of income insurance, including the Other Contract Funds. "REPLACEMENT RESERVE ACCOUNT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE FUND" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE MONTHLY DEPOSIT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENTS" shall have the meaning set forth in Section 7.3.1(a) hereof. "REQUIRED REPAIR ACCOUNT" shall have the meaning set forth in Section 7.1.1 hereof. 12 "REQUIRED REPAIR FUND" shall have the meaning set forth in Section 7.1.1 hereof. "REQUIRED REPAIRS" shall have the meaning set forth in Section 7.1.1 hereof. "RESERVE FUNDS" shall mean the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund (if any), or any other escrow fund established by the Loan Documents. "RESTORATION" shall have the meaning set forth in Section 6.2 hereof. "SECURITIES" shall have the meaning set forth in Section 9.1 hereof. "SECURITIES ACT" shall have the meaning set forth in Section 9.2 hereof. "SECURITIZATION" shall have the meaning set forth in Section 9.1 hereof. "SERVICER" shall have the meaning set forth in Section 9.6 hereof. "SERVICING AGREEMENT" shall have the meaning set forth in Section 9.6 hereof. "SEVERED LOAN DOCUMENTS" shall have the meaning set forth in Section 8.2(c) hereof. "SEVERING DOCUMENTATION" shall have the meaning set forth in Section 9.7 hereof. "SOLE MEMBER" shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of the sole general partner of Borrower. "SPECIAL PURPOSE ENTITY" means a corporation, limited partnership, limited liability company, or Delaware statutory trust which at all times on and after the date hereof: (i) is organized solely for the purpose of (A) acquiring, developing, owning, holding, selling, leasing, transferring, exchanging, managing and operating the Property, entering into this Agreement with the Lender, refinancing the Property in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing; or (B) acting as a general partner of the limited partnership that owns the Property, a member of the limited liability company that owns the Property or the beneficiary or trustee of a Delaware statutory trust that owns the Property; (ii) is not engaged and will not engage in any business unrelated to (A) the acquisition, development, ownership, management or operation of the Property, (B) acting as general partner of the limited partnership that owns the Property, (C) acting as a member of the limited liability company that owns the Property, or (D) acting as the beneficiary or trustee of a Delaware statutory trust that owns the Property, as applicable; 13 (iii) does not have and will not have any assets other than those related to the Property or its partnership interest in the limited partnership, the member interest in the limited liability company or the beneficial interest in the Delaware statutory trust that owns the Property or acts as the general partner, managing member or beneficiary or trustee thereof, as applicable; (iv) has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership, membership or beneficial or trustee interests (if such entity is a general partner in a limited partnership, a member in a limited liability company or a beneficiary of a Delaware statutory trust) or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation, operating agreement or trust formation and governance documents (as applicable) with respect to the matters set forth in this definition; (v) intentionally omitted; (vi) intentionally omitted; (vii) intentionally omitted; (viii) if such entity is a limited liability company and such limited liability company has only one member, such limited liability company has been formed under Delaware law; (ix) if such entity is (a) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (b) a limited partnership, has a limited partnership agreement, (c) a corporation, has a certificate of incorporation or articles, or (d) a Delaware statutory trust, has organizational documents that, in each case, provide that such entity will not: (1) dissolve, merge, liquidate, consolidate; (2) except as permitted herein, sell all or substantially all of its assets or the assets of the Borrower (as applicable) except as permitted herein; (3) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the consent of the Lender; or (4) without the affirmative vote of all other directors of the corporation (that is such entity or the general partner or managing or co-managing member or manager of such entity), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest; (x) intentionally omitted; (xi) is solvent and pays its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same become due, and is maintaining adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; 14 (xii) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity; (xiii) will file its own tax returns; provided, however, that Borrower's assets and income may be included in a consolidated tax return of its parent companies if inclusion on such consolidated tax return is in compliance with applicable law; (xiv) has maintained and will maintain its own resolutions and agreements; (xv) (a) has not commingled and will not commingle its funds or assets with those of any other Person and (b) has not participated and will not participate in any cash management system with any other Person, except with respect to a custodial account maintained by the Manager on behalf of Affiliates of Borrower and, with respect to funds in such custodial account, has separately accounted, and will continue to separately account for, each item of income and expense applicable to the Property and Borrower; (xvi) has held and will hold its assets in its own name; (xvii) has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower; (xviii) has maintained and will maintain its balance sheets, operating statements and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required or permitted by accounting principles reasonably acceptable to Lender, consistently applied; PROVIDED, HOWEVER, that (i) any such consolidated financial statement shall contain a note indicating that it maintains separate balance sheets and operating statements for the Borrower and the Property, or (ii) if such Person is controlled by Inland Western Retail Real Estate Trust, Inc., then such Person may be included in the consolidated financial statement of Inland Western Retail Real Estate Trust, Inc. provided such consolidated financial statement contains a note indicating that it maintains separate financial records for each Person controlled by Inland Western Retail Real Estate Trust, Inc.; (xix) has a sufficient number of employees in light of its contemplated business operations, which may be none; (xx) has observed and will observe all partnership, corporate, limited liability company or Delaware business trust formalities, as applicable; (xxi) has and will have no Indebtedness (including loans (whether or not such loans are evidenced by a written agreement) between Borrower and any Affiliates of Borrower and relating to the management of funds in the custodial account maintained by the Manager) other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business relating to the ownership and operation of the Property and the routine administration of Borrower, which liabilities are not more than sixty (60) days past the date incurred (unless disputed in accordance with applicable law), are not evidenced by a note and are paid when due, and which amounts are normal and reasonable under the 15 circumstances, and (iii) such other liabilities that are permitted pursuant to this Agreement; (xxii) has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; (xxiii) has not and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate; (xxiv) has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an affiliate; (xxv) has not maintained or used, and will not maintain or use, invoices and checks bearing the name of any other Person, PROVIDED, HOWEVER, that Manager, on behalf of such Person, may maintain and use invoices and checks bearing Manager's name; (xxvi) has not pledged and will not pledge its assets for the benefit of any other Person except as permitted or required pursuant to this Agreement; (xxvii) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower and not as a division or part of any other Person, except for services rendered by Manager under the Management Agreement, so long as Manager holds itself out as an agent of the Borrower; (xxviii) has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (xxix) has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity); (xxx) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person; (xxxi) has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except (A) in the ordinary course of its business and on terms which are intrinsically fair, commercially reasonable and are no less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party and (B) in connection with this Agreement; 16 (xxxii) does not and will not have any of its obligations guaranteed by any Affiliate except as otherwise required in the Loan Documents; and (xxxiii) has complied and will comply with all of the terms and provisions contained in its organizational documents. The statement of facts contained in its organizational documents are true and correct and will remain true and correct. "STATE" shall mean, with respect to the Property, the State or Commonwealth in which the Property or any part thereof is located. "SURVEY" shall mean a survey of the Property in question prepared by a surveyor licensed in the State and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender. "TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in Section 7.2 hereof regardless of whether the funds held therein are held by Lender for the payment of Taxes or Insurance Premiums or both. "TAXES" shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against the Property or any part thereof. "TENANT" shall mean any person or entity with a possessory right to all or any part of the Property pursuant to a Lease or other written agreement. "TERRORISM INSURANCE GUARANTOR" shall have the meaning set forth in Section 6.1 hereof. "TITLE INSURANCE POLICIES" shall mean, with respect to the Property, one or more mortgagee title insurance policies in the form (acceptable to Lender) promulgated by the state Board of Insurance issued with respect to the Property and insuring the lien of the Mortgage encumbering the Property. "TRANSFEREE" shall have the meaning set forth in Section 5.2.13 hereof. "TRUSTEE" shall have the meaning set forth in the Mortgage. "UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect in the applicable State in which the Property is located. "U.S. OBLIGATIONS" shall mean direct non-callable obligations of the United States of America as defined in Section 2(a)(16) of the Investment Company Act as amended (15 USC 80a-l) stated in REMIC Section 1.86 OC-2(a)(8). Section 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and "hereunder" 17 and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. ARTICLE II GENERAL TERMS Section 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER. 2.1.1 THE LOAN. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. 2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 THE NOTE, MORTGAGE AND LOAN DOCUMENTS. The Loan shall be evidenced by the Note and secured by the Mortgage, the Assignment of Leases and the other Loan Documents. 2.1.4 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan to (a) repay and discharge any existing loans relating to the Property, (b) pay all past-due Basic Carrying Costs, if any, in respect of the Property, (c) make deposits into the Reserve Funds on the Closing Date in the amounts provided herein, (d) pay costs and expenses incurred in connection with the Closing of the Loan, as approved by Lender, (e) fund any working capital requirements of the Property, and (f) distribute the balance, if any, to Borrower. Section 2.2 INTEREST; LOAN PAYMENTS; LATE PAYMENT CHARGE. 2.2.1 INTEREST GENERALLY. Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to but excluding the Maturity Date at the Interest Rate. 2.2.2 INTEREST CALCULATION. Interest on the outstanding principal balance of the Loan shall be calculated on the basis of a three hundred sixty (360) day year comprised of twelve (12) months of thirty (30) days each, except that interest due and payable for a period of less than a full month shall be calculated by multiplying the actual number of days elapsed in the period for which the calculation is being made by a daily rate based on a three hundred sixty (360) day year. 2.2.3 PAYMENTS GENERALLY. Borrower shall pay to Lender (a) on the Closing Date, an amount equal to interest only on the outstanding principal balance of the Loan from the Closing Date up to but not including the first Payment Date following the Closing Date, and (b) on October 1, 2004 and each Payment Date thereafter up to but not including the Maturity Date, the Monthly Debt Service Payment Amount which is an amount equal to the interest on the 18 outstanding principal amount of the Loan for the prior calendar month, calculated as set forth herein, which payments shall be applied to accrued and unpaid interest at the Interest Rate. 2.2.4 INTENTIONALLY DELETED. 2.2.5 PAYMENT ON MATURITY DATE. Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Mortgage and other the Loan Documents. 2.2.6 PAYMENTS AFTER DEFAULT. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest and other amounts due in respect of the Loan, shall accrue at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (i) the cure of such Event of Default in a manner reasonably satisfactory to Lender or (ii) the actual receipt and collection of the Debt (or that portion thereof that is then due). To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Mortgage. This paragraph shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default and Lender retains its rights under the Note and this Agreement to accelerate and to continue to demand payment of the Debt upon the happening and continuance of any Event of Default. 2.2.7 LATE PAYMENT CHARGE. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower on or prior to the date which is five (5) days after the date it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgage and the other Loan Documents to the extent permitted by applicable law. The foregoing late payment charge shall not apply to the payment of all outstanding principal, interest and other sums due on the Maturity Date. 2.2.8 USURY SAVINGS. The provisions of Section 4 of the Note are hereby incorporated by reference into this Agreement to the same extent and with the same force as if fully set forth herein. Section 2.3 PREPAYMENTS. 2.3.1 VOLUNTARY PREPAYMENTS. (a) Borrower may at any time prior to the Maturity Date, provided it has given Lender prior written notice in accordance with the terms of this Agreement, prepay the unpaid principal balance of the Loan in whole, but not in part, by paying, together with the amount to be prepaid, (i) interest accrued and unpaid on the portion of the principal balance of the Loan being prepaid to and including the date of prepayment, (ii) unless prepayment is tendered on a Payment Date, an amount equal to the interest that would have accrued on the amount being prepaid after 19 the date of prepayment through and including the next Payment Date had the prepayment not been made (which amount shall constitute additional consideration for the prepayment), (iii) all other sums then due under this Agreement, the Note, the Mortgage and the other Loan Documents, and (iv) a prepayment consideration (the "PREPAYMENT CONSIDERATION") equal to the greater of (A) one percent (1%) of the principal balance of the Loan being prepaid or (B) the excess, if any, of (1) the sum of the present values of all then-scheduled payments of principal and interest under this Agreement including, but not limited to, principal and interest on the Maturity Date (with each such payment discounted to its present value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the Prepayment Rate), over (2) the principal amount of the Loan being prepaid. Lender shall notify Borrower of the amount and the basis of determination of the required prepayment consideration. (b) Notwithstanding anything in paragraph (a) of this Section to the contrary, on the Payment Date that is three months prior to the Maturity Date, and on each day thereafter through the Maturity Date, Borrower may, at its option, prepay the Debt without payment of any Prepayment Consideration; PROVIDED, HOWEVER, if such prepayment is not paid on a regularly scheduled Payment Date, the Debt shall include interest that would have accrued on such prepayment through and including the day immediately preceding the next regularly scheduled Payment Date. Borrower's right to prepay any portion of the principal balance of the Loan shall be subject to (i) Borrower's submission of a notice to Lender setting forth the amount to be prepaid and the projected date of prepayment, which date shall be no less than thirty (30) days from the date of such notice, and (ii) Borrower's actual payment to Lender of the amount to be prepaid as set forth in such notice on the projected date set forth in such notice or any day following such projected date occurring in the same calendar month as such projected date. 2.3.2 MANDATORY PREPAYMENTS. On the next occurring Payment Date following the date on which Borrower actually receives any Net Proceeds, if Lender is not obligated to make such Net Proceeds available to Borrower pursuant to this Agreement for the restoration of the Property, Borrower shall, at Lender's option, prepay the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Proceeds. No Prepayment Consideration shall be due in connection with any prepayment made pursuant to this Section 2.3.2. Any partial prepayment under this Section shall be applied to the last payments of principal due under the Loan. 2.3.3 PREPAYMENTS AFTER DEFAULT. Following an Event of Default, if Borrower or anyone on Borrower's behalf makes a tender of payment of all or any portion of the Debt at any time prior to a foreclosure sale (including a sale under the power of sale under the Mortgage), or during any redemption period after foreclosure, (i) the tender of payment shall constitute an evasion of Borrower's obligation to pay any Prepayment Consideration due under this Agreement and such payment shall, therefore, to the maximum extent permitted by law, include a premium equal to the Prepayment Consideration that would have been payable on the date of such tender had the Loan not been so accelerated, or (ii) if at the time of such tender a prepayment of the principal amount of the Loan would have been prohibited under this Agreement had the principal amount of the Loan not been so accelerated, the tender of payment shall constitute an evasion of such prepayment prohibition and shall, therefore, to the maximum extent permitted by law, include an amount equal to the greater of (i) 1% of the then principal amount of the Loan (or the relevant portion thereof being prepaid) and (ii) an amount equal to 20 the excess of (A) the sum of the present values of a series of payments payable at the times and in the amounts equal to the payments of principal and interest (including, but not limited to the principal and interest payable on the Maturity Date) which would have been scheduled to be payable after the date of such tender under this Agreement had the Loan (or the relevant portion thereof) not been accelerated, with each such payment discounted to its present value at the date of such tender at the rate which when compounded monthly is equivalent to the Prepayment Rate, over (B) the then principal amount of the Loan. Section 2.4 INTENTIONALLY OMITTED. Section 2.5 RELEASE OF PROPERTY. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of any Lien of the Mortgage on the Property. If Borrower has elected to prepay the entire amount of the Loan pursuant to Section 2.3.1 and the requirements of this Section 2.5 have been satisfied, the Property shall be released from the Lien of the Mortgage. 2.5.1 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Loan Agreement, release the Lien of the Mortgage on the Property not theretofore released. Section 2.6 MANNER OF MAKING PAYMENTS. 2.6.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 1:00 p.m., New York City time, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. Whenever any payment hereunder or under the Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day. 2.6.2 NO DEDUCTIONS, ETC. All payments made by Borrower hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims. ARTICLE III CONDITIONS PRECEDENT Section 3.1 CONDITIONS PRECEDENT TO CLOSING. The obligation of Lender to make the Loan hereunder is subject to the fulfillment by Borrower or waiver by Lender of the following conditions precedent no later than the Closing Date: 3.1.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH CONDITIONS. The representations and warranties of Borrower contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date with 21 the same effect as if made on and as of such date, and no Default or an Event of Default shall have occurred and be continuing; and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on its part to be observed or performed. 3.1.2 LOAN AGREEMENT AND NOTE. Lender shall have received a copy of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrower. 3.1.3 DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE; REPORTS; LEASES, ETC. (a) MORTGAGE, ASSIGNMENT OF LEASES AND OTHER LOAN DOCUMENTS. Lender shall have received from Borrower fully executed and acknowledged counterparts of the Mortgage and the Assignment of Leases and evidence that counterparts of the Mortgage and Assignment of Leases have been delivered to the title company for recording, in the reasonable judgment of Lender, so as to effectively create upon such recording valid and enforceable Liens upon the Property, of the requisite priority, in favor of Lender (or such trustee as may be required under local law), subject only to the Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents. Lender shall have also received from Borrower fully executed counterparts of the Assignment of Management Agreement and the other Loan Documents. (b) TITLE INSURANCE. Lender shall have received a Title Insurance Policy issued by a title company acceptable to Lender and dated as of the Closing Date. Such Title Insurance Policy shall (i) provide coverage in an amount equal to the principal amount of the Loan together with, if applicable, a "tie-in" or similar endorsement, (ii) insure Lender that the Mortgage creates a valid lien on the Property encumbered thereby of the requisite priority, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (iii) contain such endorsements and affirmative coverages as are available in the State and Lender may reasonably request, and (iv) name Lender, its successors and assigns, as the insured. The Title Insurance Policy shall be assignable without cost to Lender. Lender also shall have received evidence that all premiums in respect of such Title Insurance Policy have been paid. (c) SURVEY. Lender shall have received a title survey for the Property, certified to the title company and Lender and their successors and assigns, in form and content satisfactory to Lender and prepared by a professional and properly licensed land surveyor satisfactory to Lender in accordance with the most recent Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys. The following additional items from the list of "Optional Survey Responsibilities and Specifications" (Table A) should be added to each survey: 2, 3, 4, 6, 8, 9, 10, 11 and 13. The survey shall reflect the same legal description contained in the Title Insurance Policy relating to the Property referred to in clause (ii) above and shall include, among other things, a legal description of the real property comprising part of such Property reasonably satisfactory to Lender. The surveyor's seal shall be affixed to each survey and the surveyor shall provide a certification for each survey in form and substance acceptable to Lender. 22 (d) INSURANCE. Lender shall have received valid certificates of insurance for the policies of insurance required hereunder, satisfactory to Lender in its sole discretion, and evidence of the payment of all premiums payable for the existing policy period. (e) ENVIRONMENTAL REPORTS. Lender shall have received an environmental report in respect of the Property, in each case reasonably satisfactory to Lender. (f) ZONING. With respect to the Property, Lender shall have received, at Lender's option, (i) letters, if available, or other evidence with respect to the Property from the appropriate municipal authorities (or other Persons) concerning applicable zoning and building laws, or (ii) other evidence of zoning compliance, in each case in substance reasonably satisfactory to Lender. (g) ENCUMBRANCES. Borrower shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first Lien on the Property as of the Closing Date with respect to the Mortgage on the Property, subject only to applicable Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof. 3.1.4 RELATED DOCUMENTS. Each additional document not specifically referenced herein, but relating to the transactions contemplated herein, shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies thereof. 3.1.5 DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or before the Closing Date, Borrower shall deliver or cause to be delivered to Lender copies certified by Borrower of all organizational documentation related to Borrower and/or the formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Lender. 3.1.6 OPINIONS OF BORROWER'S COUNSEL. Lender shall have received opinions of Borrower's counsel with respect to due execution, authority, enforceability of the Loan Documents and such other matters as Lender may reasonably require, all such opinions in form, scope and substance reasonably satisfactory to Lender and Lender's counsel in their reasonable discretion. 3.1.7 BUDGET. Borrower shall have delivered, and Lender shall have approved, the Annual Budget for the current Fiscal Year. 3.1.8 BASIC CARRYING COSTS. Borrower shall have paid all Basic Carrying Costs relating to the Property which are in arrears, including without limitation, (a) accrued but unpaid insurance premiums relating to the Property, (b) currently due and payable Taxes (including any in arrears) relating to the Property, and (c) currently due Other Charges relating to the Property, which amounts shall be funded with proceeds of the Loan. 23 3.1.9 COMPLETION OF PROCEEDINGS. All organizational proceedings taken or to be taken in connection with the transactions contemplated by this Agreement and other Loan Documents and all documents incidental thereto shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all such counterpart originals or certified copies of such documents as Lender may reasonably request. 3.1.10 PAYMENTS. All payments, deposits or escrows required to be made or established by Borrower under this Agreement, the Note and the other Loan Documents on or before the Closing Date shall have been paid. 3.1.11 TENANT ESTOPPELS. (a) Lender shall have received an executed tenant estoppel letter, which shall be in form and substance satisfactory to Lender, from each Major Tenant, and (b) Borrower shall exercise reasonable commercial efforts to deliver estoppel letters from Tenants occupying not less than seventy percent (70%), disregarding the area leased by Major Tenants of the remaining gross leasable area of the Property; provided, however, that, in the event that Borrower is unable to deliver some or all of the estoppels described in clause (b) of this Section 3.1.11, Lender agrees that the requirement to deliver such letters to Lender shall be waived by Lender as a condition precedent to the closing of the Loan so long as Borrower delivers on or before the Closing Date, a certificate executed by Borrower with respect to all applicable leases which shall be in substantially the same form and contain the same terms as set forth in Lender's standard form of estoppel certificate. 3.1.12 TRANSACTION COSTS. Borrower shall have paid or reimbursed Lender for all title insurance premiums, recording and filing fees, costs of environmental reports, Physical Conditions Reports, appraisals and other reports, the fees and costs of Lender's counsel and all other third party out-of-pocket expenses incurred in connection with the origination of the Loan. 3.1.13 MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the financial condition or business condition of Borrower, any Major Tenant or the Property since the date of the most recent financial statements delivered to Lender. The income and expenses of the Property, the occupancy leases thereof, and all other features of the transaction shall be as represented to Lender without material adverse change. Neither Borrower nor any of its constituent Persons nor any Major Tenant shall be the subject of any bankruptcy, reorganization, or insolvency proceeding. 3.1.14 LEASES AND RENT ROLL. Lender shall have received copies of all tenant leases, certified copies of any tenant leases as requested by Lender and certified copies of all ground leases affecting the Property. Lender shall have received a current certified rent roll of the Property, reasonably satisfactory in form and substance to Lender. 3.1.15 SUBORDINATION AND ATTORNMENT. Lender shall have received appropriate instruments acceptable to Lender in its commercially reasonable discretion subordinating the Leases of each of the Major Tenants and other Leases of record prior to the Mortgage and including an agreement by such Tenants to attorn to Lender in the event of a foreclosure or delivery of a deed in lieu thereof. 24 3.1.16 TAX LOT. Lender shall have received evidence that the Property constitutes one (1) or more separate tax lots, which evidence shall be reasonably satisfactory in form and substance to Lender. 3.1.17 PHYSICAL CONDITIONS REPORTS. Lender shall have received Physical Conditions Reports with respect to the Property, which reports shall be reasonably satisfactory in form and substance to Lender. 3.1.18 MANAGEMENT AGREEMENT. Lender shall have received a certified copy of the Management Agreement with respect to the Property which shall be satisfactory in form and substance to Lender. 3.1.19 APPRAISAL. Lender shall have received an appraisal of the Property, which shall be satisfactory in form and substance to Lender. 3.1.20 FINANCIAL STATEMENTS. Lender shall have received (a) a balance sheet with respect to the Property for the two most recent Fiscal Years and statements of income and statements of cash flows with respect to the Property for the three most recent Fiscal Years, each in form and substance reasonably satisfactory to Lender or (b) such other financial statements relating to the ownership and operation of the Property, in form and substance reasonably satisfactory to Lender. 3.1.21 FURTHER DOCUMENTS. Lender or its counsel shall have received such other and further approvals, opinions, documents and information as Lender or its counsel may have reasonably requested including the Loan Documents in form and substance reasonably satisfactory to Lender and its counsel. 3.1.22 ENVIRONMENTAL INSURANCE. If required by Lender, Borrower shall have obtained a secured creditor environmental insurance policy with respect to the Property, which shall be in form and substance satisfactory to Lender. Any such policy shall have a term not less than the term of the Loan. Borrower shall have provided to Lender evidence that the premiums for such policy has been paid in full. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 BORROWER REPRESENTATIONS. Borrower represents and warrants as of the date hereof and as of the Closing Date that: 4.1.1 ORGANIZATION. Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own the Property and to transact the businesses in which it is now engaged. Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with the Property, businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own the Property and to transact the businesses in which it is now engaged, and the sole business of Borrower is the ownership, management and operation of the Property. 25 4.1.2 PROCEEDINGS. Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and such other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 NO CONFLICTS. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower or any of Borrower's properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any court or any such regulatory authority or other governmental agency or body required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect. 4.1.4 LITIGATION. To Borrower's knowledge, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting Borrower or the Property, which actions, suits or proceedings, if determined against Borrower or the Property, might materially adversely affect the condition (financial or otherwise) or business of Borrower or the condition or ownership of the Property. 4.1.5 AGREEMENTS. Except such instruments and agreements set forth as Permitted Encumbrances in the Title Insurance Policy, Borrower is not a party to any agreement or instrument or subject to any restriction which might materially and adversely affect Borrower or the Property, or Borrower's business, properties or assets, operations or condition, financial or otherwise. To Borrower's knowledge, Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower or the Property are bound. Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower is a party or by which Borrower or the Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Property and (b) obligations under the Loan Documents. 4.1.6 TITLE. Borrower has good and indefeasible fee simple title to the real property comprising part of the Property and good title to the balance of the Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. The 26 Mortgage, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (a) a valid, perfected lien on the Property, subject only to Permitted Encumbrances and the Liens created by the Loan Documents and (b) perfected security interests in and to, and perfected collateral assignment of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. There are no claims for payment for work, labor or materials affecting the Property which are due and unpaid under the contracts pursuant to which such work or labor was performed or materials provided which are or may become a lien prior to, or of equal priority with, the Liens created by the Loan Documents. 4.1.7 NO BANKRUPTCY FILING. Neither Borrower nor any of its constituent Persons are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of Borrower's assets or property, and Borrower has no knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.8 FULL AND ACCURATE DISCLOSURE. To Borrower's knowledge, no statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no material fact presently known to Borrower which has not been disclosed to Lender which adversely affects, nor as far as Borrower can foresee, might adversely affect, the Property or the business, operations or condition (financial or otherwise) of Borrower. 4.1.9 NO PLAN ASSETS. Borrower is not an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title 1 of ERISA, and none of the assets of Borrower constitutes or will constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) Borrower is not a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower are not subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Loan Agreement. 4.1.10 COMPLIANCE. To Borrower's knowledge, Borrower and the Property and the use thereof comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by Borrower or, to Borrower's knowledge, any other Person in occupancy of or involved with the operation or use of the Property any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. 27 4.1.11 FINANCIAL INFORMATION. All financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of the Property (i) are to the best of Borrower's knowledge, true, complete and correct in all material respects, (ii) accurately represent the financial condition of the Property as of the date of such reports, and (iii) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with accounting principles reasonably acceptable to Lender, consistently applied throughout the periods covered, except as disclosed therein; PROVIDED, HOWEVER, that if any financial data is delivered to Lender by any Person other than Borrower, Indemnitor or any of their Affiliates, or if such financial data has been prepared by or at the direction of any Person other than Borrower, Indemnitor or any of their Affiliates, then the foregoing representations with respect to such financial data shall be to the best of Borrower's knowledge, after due inquiry. Borrower does not have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and reasonably likely to have a materially adverse effect on the Property or the operation thereof as retail shopping centers, except as referred to or reflected in said financial statements. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower from that set forth in said financial statements. 4.1.12 CONDEMNATION. No Condemnation or other proceeding has been commenced or, to Borrower's knowledge, is contemplated with respect to all or any portion of the Property or for the relocation of roadways providing access to the Property. 4.1.13 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 4.1.14 UTILITIES AND PUBLIC ACCESS. The Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service the Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of the Property are located either in the public right-of-way abutting the Property (which are connected so as to serve the Property without passing over other property) or in recorded easements serving the Property and such easements are set forth in and insured by the Title Insurance Policies. All roads necessary for the use of the Property for their current respective purposes have been completed and dedicated to public use and accepted by all Governmental Authorities. 4.1.15 NOT A FOREIGN PERSON. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. 4.1.16 SEPARATE LOTS. The Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of the Property. 28 4.1.17 ASSESSMENTS. There are no pending, or to Borrower's knowledge, proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments. 4.1.18 ENFORCEABILITY. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable, and Borrower has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 4.1.19 NO PRIOR ASSIGNMENT. There is no prior assignment of the Leases or any portion of the Rents by Borrower or any of its predecessors in interest, given as collateral security which is presently outstanding. 4.1.20 INSURANCE. Borrower has obtained and has delivered to Lender certified copies of all insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. To the best of Borrower's knowledge, no claims have been made under any such policy, and no Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any such policy. 4.1.21 USE OF PROPERTY. The Property is used exclusively for retail purposes and other appurtenant and related uses. 4.1.22 CERTIFICATE OF OCCUPANCY; LICENSES. All certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits required to be obtained by Borrower for the legal use, occupancy and operation of the Property as a retail shopping center have been obtained and are in full force and effect, and to the best of Borrower's knowledge, after due inquiry, all certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits required to be obtained by any Person other than Borrower for the legal use, occupancy and operation of the Property as a retail shopping center, have been obtained and are in full force and effect (all of the foregoing certifications, permits, licenses and approvals are collectively referred to as the "LICENSES"). Borrower shall and shall cause all other Persons to, keep and maintain all Licenses necessary for the operation of the Property as a retail shopping center. To Borrower's knowledge, the use being made of the Property is in conformity with all certificates of occupancy issued for the Property. 4.1.23 FLOOD ZONE. To the best of Borrower's knowledge, after due inquiry, none of the Improvements on the Property are located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards. 4.1.24 PHYSICAL CONDITION. Except as disclosed in the Physical Conditions Reports delivered to Lender in connecting with this Loan, to Borrower's knowledge, the Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, 29 irrigation systems and all structural components, are in good condition, order and repair in all material respects; there exists no structural or other material defects or damages in the Property, whether latent or otherwise, and Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in the Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. 4.1.25 BOUNDARIES. To the best of Borrower's knowledge, after due inquiry, all of the improvements which were included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvements on adjoining properties encroach upon the Property, and no easements or other encumbrances upon the Property encroach upon any of the improvements, so as to affect the value or marketability of the Property except those which are insured against by title insurance. 4.1.26 LEASES. The Property is not subject to any Leases other than the Leases described on the Rent Roll attached as SCHEDULE II hereto and made a part hereof. To the best of Borrower's knowledge, no Person has any possessory interest in the Property or right to occupy the same except under and pursuant to the provisions of the Leases. The current Leases are in full force and effect and to Borrower's knowledge, there are no defaults thereunder by either party and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults thereunder. To the best of Borrower's knowledge, no Rent (including security deposits) has been paid more than one (1) month in advance of its due date. To the best of Borrower's knowledge, all work to be performed by Borrower under each Lease has been performed as required and has been accepted by the applicable tenant, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Borrower to any tenant has already been received by such tenant. To the best of Borrower's knowledge, there has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is outstanding. To Borrower's knowledge, no tenant listed on SCHEDULE II has assigned its Lease or sublet all or any portion of the premises demised thereby, no such tenant holds its leased premises under assignment or sublease, nor does anyone except such tenant and its employees occupy such leased premises. No tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the leased premises or the building of which the leased premises are a part. Except as set forth in SCHEDULE II, no tenant under any Lease has any right or option for additional space in the Improvements except as set forth in SCHEDULE II. To Borrower's actual knowledge based on the Environmental Report delivered to Lender in connection herewith, no hazardous wastes or toxic substances, as defined by applicable federal, state or local statutes, rules and regulations, have been disposed, stored or treated by any tenant under any Lease on or about the leased premises nor does Borrower have any knowledge of any tenant's intention to use its leased premises for any activity which, directly or indirectly, involves the use, generation, treatment, storage, disposal or transportation of any petroleum product or any toxic or hazardous chemical, material, substance or waste, except in either event, in compliance with applicable federal, state or local statues, rules and regulations. 30 4.1.27 SURVEY. The Survey for the Property delivered to Lender in connection with this Agreement has been prepared in accordance with the provisions of Section 3.1.3(c) hereof, and does not fail to reflect any material matter affecting the Property or the title thereto. 4.1.28 LOAN TO VALUE. The maximum principal amount of the Loan does not exceed one hundred twenty-five percent (125%) of the fair market value of the Property as set forth on the appraisals of the Property delivered to Lender. 4.1.29 FILING AND RECORDING TAXES. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Property to Borrower have been paid or are simultaneously being paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Mortgage, have been paid, and, under current Legal Requirements, the Mortgage is enforceable in accordance with its terms by Lender (or any subsequent holder thereof). 4.1.30 SPECIAL PURPOSE ENTITY/SEPARATENESS. (a) Until the Debt has been paid in full, Borrower hereby represents, warrants and covenants that the Borrower is, shall be and shall continue to be a Special Purpose Entity. (b) The representations, warranties and covenants set forth in Section 4.1.30(a) shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document. (c) Intentionally omitted. 4.1.31 MANAGEMENT AGREEMENT. The Management Agreement is in full force and effect and, to Borrower's knowledge, there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. 4.1.32 ILLEGAL ACTIVITY. To Borrower's knowledge, no portion of the Property has been or will be purchased with proceeds of any illegal activity. 4.1.33 NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE. All information submitted by Borrower to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower in this Agreement or in any other Loan Document, are accurate, complete and correct in all material respects, provided, however, that if such information was provided to Borrower by non-affiliated third parties, Borrower represents that such information is, to the best, of its knowledge after due inquiry, accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or 31 might materially and adversely affect the Property or the business operations or the financial condition of Borrower. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. 4.1.34 INTENTIONALLY OMITTED. 4.1.35 PRINCIPAL PLACE OF BUSINESS AND ORGANIZATION. Borrower shall not change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Lender thirty (30) days prior written notice. Borrower shall not change the place of its organization as set forth in the introductory paragraph of this Agreement without the consent of Lender, which consent shall not be unreasonably withheld, conditioned or delayed. Upon Lender's request, Borrower shall execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender's security interest in the Property as a result of such change of principal place of business or place of organization. 4.1.36 INVESTMENT COMPANY ACT. Borrower is not (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. Section 4.2 SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. ARTICLE V BORROWER COVENANTS Section 5.1 AFFIRMATIVE COVENANTS. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgage encumbering the Property (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS; INSURANCE. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises and comply with all Legal Requirements applicable to it and the Property. There shall never be committed by Borrower or 32 any other Person in occupancy of or involved with the operation or use of the Property any act or omission affording the federal government or any state or local government the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall at all times maintain, preserve and protect all its franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep the Property in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgage. Borrower shall keep the Property insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. Borrower shall operate, or cause the tenant to operate, any Property that is the subject of an O&M Agreement (if any) in accordance with the terms and provisions thereof in all material respects. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower or the Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) intentionally omitted; (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iv) the Property or any part thereof or interest therein will not be in danger of being sold, forfeited, terminated, concealed or lost; (v) Borrower shall promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (vi) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower or the Property; and (vii) Borrower shall furnish such security as may be required in the proceeding, or as may be requested by Lender, to insure compliance with such Legal Requirement, together, with all interest and penalties payable in connection therewith. Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or the Property (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 5.1.2 TAXES AND OTHER CHARGES. Borrower shall pay or caused to be paid all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Property or any part thereof as the same become due and payable; provided, however, Borrower's obligation to directly pay to the appropriate taxing authority Taxes shall be suspended for so long as Borrower complies with the terms and provisions of Section 7.2 hereof. Borrower will deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent no later than ten (10) days prior to the date on which the Taxes and/or Other Charges would otherwise be delinquent if not paid (PROVIDED, HOWEVER, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Lender pursuant to Section 7.2 hereof). If Borrower pays or causes to be paid all Taxes and Other Charges and provides a copy of the receipt evidencing the 33 payment thereof to Lender, then Lender shall reimburse Borrower, provided that there are then sufficient proceeds in the Tax and Insurance Escrow Fund and provided that the Taxes are being paid pursuant to Section 7.2. Upon written request of Borrower, if Lender has paid such Taxes pursuant to Section 7.2 hereof, Lender shall provide Borrower with evidence that such Taxes have been paid. Borrower shall not suffer and shall promptly cause to be paid and discharged any Lien or charge whatsoever which may be or become a Lien or charge against the Property, and shall promptly pay for all utility services provided to the Property. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (i) Borrower is permitted to do so under the provisions of any mortgage or deed of trust superior in lien to the Mortgage; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iii) the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the Property; and (vi) Borrower shall furnish such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established. 5.1.3 LITIGATION. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower which might materially adversely affect Borrower's condition (financial or otherwise) or business or the Property. 5.1.4 ACCESS TO PROPERTY. Borrower shall permit agents, representatives and employees of Lender to inspect the Property or any part thereof at reasonable hours upon reasonable advance notice, subject to the rights of Tenants under their respective Leases. 5.1.5 NOTICE OF DEFAULT. Borrower shall promptly advise Lender of any material adverse change in Borrower's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge. 5.1.6 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. 5.1.7 PERFORM LOAN DOCUMENTS. Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and 34 expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, Borrower. 5.1.8 INSURANCE BENEFITS. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Insurance Proceeds lawfully or equitably payable in connection with the Property, and Lender shall be reimbursed for any expenses incurred in connection therewith (including reasonable attorneys' fees and disbursements, and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of a fire or other casualty affecting the Property or any part thereof) out of such Insurance Proceeds. 5.1.9 FURTHER ASSURANCES. Borrower shall, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.10 INTENTIONALLY OMITTED. 5.1.11 FINANCIAL REPORTING. (a) Borrower will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with the requirements for a Special Purpose Entity set forth above, proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense in connection with the operation on an individual basis of the Property. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence and during the continuance of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Property, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender's interest. (b) Borrower will furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Borrower, either (i) a complete copy of Borrower's annual financial statements audited by a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender in accordance with the 35 requirements for a Special Purpose Entity set forth above, or (ii) a consolidated and annotated financial statement of Borrower and Sole Member, audited by a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender in accordance with the requirements for a Special Purpose Entity set forth above, together with unaudited financial statements relating to the Borrower and the Property. Such financial statements for the Property for such Fiscal Year and shall contain statements of profit and loss for Borrower and the Property and a balance sheet for Borrower. Such statements shall set forth the financial condition and the results of operations for the Property for such Fiscal Year, and shall include, but not be limited to, amounts representing annual Net Cash Flow, Net Operating Income, Gross Income from Operations and Operating Expenses. Borrower's annual financial statements shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior Fiscal Year, (ii) a certificate executed by the chief financial officer of Borrower or Sole Member, as applicable, stating that each such annual financial statement presents fairly the financial condition and the results of operations of Borrower and the Property being reported upon and has been prepared in accordance with accounting principles reasonably acceptable to Lender, consistently applied, (iii) with respect to any consolidated financial statement of Borrower and Sole Member, an unqualified opinion of a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender, (iv) a certified rent roll containing current rent, lease expiration dates and the square footage occupied by each tenant; (v) a schedule audited by such independent certified public accountant reconciling Net Operating Income to Net Cash Flow (the "NET CASH FLOW SCHEDULE"), which shall itemize all adjustments made to Net Operating Income to arrive at Net Cash Flow deemed material by such independent certified public accountant. Together with Borrower's annual financial statements, Borrower shall furnish to Lender an Officer's Certificate certifying as of the date thereof whether there exists an event or circumstance which constitutes a Default or Event of Default under the Loan Documents executed and delivered by, or applicable to, Borrower, and if such Default or Event of Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy the same. (c) Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) days after the end of each calendar quarter the following items, accompanied by a certificate of the chief financial officer of Borrower or Sole Member, as applicable, stating that such items are true, correct, accurate, and complete and fairly present the financial condition and results of the operations of Borrower and the Property (subject to normal year-end adjustments) as applicable: (i) a rent roll for the subject period accompanied by an Officer's Certificate with respect thereto; (ii) quarterly and year-to-date operating statements (including Capital Expenditures) prepared for each calendar quarter, noting Net Operating Income, Gross Income from Operations, and Operating Expenses (not including any contributions to the Replacement Reserve Fund, and other information necessary and sufficient to fairly represent the financial position and results of operation of the Property during such calendar month, and containing a comparison of budgeted income and expenses and the actual income and expenses together with a detailed explanation of any variances of five percent (5%) or more between budgeted and actual amounts for such periods, all in form satisfactory to Lender; (iii) a calculation reflecting the annual Debt Service Coverage Ratio for the immediately preceding twelve (12) month period as of the last day of such period accompanied by an Officer's Certificate with respect thereto; and (iv) a Net Cash Flow Schedule (such Net Cash Flow for the Borrower may be unaudited if it is certified by an officer of the Borrower). In addition, such certificate shall also be accompanied 36 by a certificate of the chief financial officer of Borrower or Sole Member stating that the representations and warranties of Borrower set forth in Section 4.1.30(a) are true and correct as of the date of such certificate. Provided, further, that during the twelve (12) month period commencing on the date hereof, Borrower will furnish a current rent roll and monthly and year-to-date operating statements within twenty (20) days of Lender's written request. (d) For the partial year period commencing on the date hereof, and for each Fiscal Year thereafter, Borrower shall submit to Lender an Annual Budget not later than thirty (30) days after the commencement of such period or Fiscal Year in form reasonably satisfactory to Lender. (e) Borrower shall furnish to Lender, within ten (10) Business Days after request (or as soon thereafter as may be reasonably possible), such further detailed information with respect to the operation of the Property and the financial affairs of Borrower as may be reasonably requested by Lender. (f) Borrower shall furnish to Lender, within ten (10) Business Days after Lender's request (or as soon thereafter as may be reasonably possible), financial and sales information from each Major Tenant and such other tenants designated by Lender (to the extent such financial and sales information is required to be provided under applicable leases and same is received by Borrower after request therefor). (g) Borrower will cause Indemnitor to furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Indemnitor, financial statements audited by an independent certified public accountant, which shall include an annual balance sheet and profit and loss statement of Indemnitor, in the form reasonably required by Lender. (h) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) on a diskette, and (iii) if requested by Lender and within the capabilities of Borrower's data systems without change or modification thereto, in electronic form and prepared using a Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). 5.1.12 BUSINESS AND OPERATIONS. Borrower will continue to engage in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Property. Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Property. 5.1.13 TITLE TO THE PROPERTY. Borrower will warrant and defend (a) the title to the Property and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) and (b) the validity and priority of the Liens of the Mortgage and the Assignment of Leases on the Property, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever. Borrower shall 37 reimburse Lender for any losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by Lender if an interest in the Property, other than as permitted hereunder, is claimed by another Person. 5.1.14 COSTS OF ENFORCEMENT. In the event (a) that the Mortgage encumbering the Property is foreclosed in whole or in part or that the Mortgage is put into the hands of an attorney for collection, suit, action or foreclosure, (b) of the foreclosure of any mortgage prior to or subsequent to the Mortgage encumbering the Property in which proceeding Lender is made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or any of its constituent Persons or an assignment by Borrower or any of its constituent Persons for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys' fees and costs, incurred by Lender or Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.15 ESTOPPEL STATEMENT. (a) After request by Lender, Borrower shall within ten (10) days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the Interest Rate of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Mortgage and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (b) Borrower shall use commercially reasonable efforts to deliver to Lender upon request, tenant estoppel certificates from each commercial tenant leasing space at the Property in form and substance reasonably satisfactory to Lender provided that Borrower shall not be required to deliver such certificates more frequently than one (1) time in any calendar year. (c) Within thirty (30) days of request by Borrower, Lender shall deliver to Borrower a statement setting forth the items described at (a)(i), (ii), (iii) and (iv) of this Section 5.1.15. 5.1.16 LOAN PROCEEDS. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. 5.1.17 PERFORMANCE BY BORROWER. Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior written consent of Lender. 5.1.18 CONFIRMATION OF REPRESENTATIONS. Borrower shall deliver, in connection with any Securitization, (a) one or more Officer's Certificates certifying as to the accuracy of all 38 representations made by Borrower in the Loan Documents as of the date of the closing of such Securitization, and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower and its member as of the date of the Securitization. 5.1.19 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the joint assessment of the Property (a) with any other real property constituting a tax lot separate from the Property, and (b) which constitutes real property with any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Property. 5.1.20 LEASING MATTERS. Any Leases with respect to the Property written after the date hereof, for more than the Relevant Leasing Threshold square footage, shall be subject to the prior written approval of Lender, which approval may be given or withheld in the sole discretion of Lender. Lender shall approve or disapprove any such Lease within ten (10) Business Days of Lender's receipt of a final execution draft of such Lease (including all exhibits, schedules, supplements, addenda or other agreements relating thereto) and a written notice from Borrower requesting Lender's approval to such Lease, and such Lease shall be deemed approved, if Lender does not disapprove such Lease within said ten (10) Business Day period PROVIDED such written notice conspicuously states, in large bold type, that "PURSUANT TO SECTION 5.1.20 OF THE LOAN AGREEMENT, THE LEASE SHALL BE DEEMED APPROVED IF LENDER DOES NOT RESPOND TO THE CONTRARY WITHIN TEN (10) BUSINESS DAYS OF LENDER'S RECEIPT OF SUCH LEASE AND WRITTEN NOTICE." Borrower shall furnish Lender with executed copies of all Leases. All renewals of Leases and all proposed Leases shall provide for rental rates comparable to existing local market rates (unless such rental rates are otherwise set forth in the Leases executed prior to the date hereof). All proposed Leases shall be on commercially reasonable terms and shall not contain any terms which would materially affect Lender's rights under the Loan Documents. All Leases executed after the date hereof shall provide that they are subordinate to the Mortgage encumbering the Property and that the tenant thereunder agrees to attorn to Lender or any purchaser at a sale by foreclosure or power of sale. Borrower (i) shall observe and perform the obligations imposed upon the lessor under the Leases in a commercially reasonable manner; (ii) shall enforce the terms, covenants and conditions contained in the Leases upon the part of the tenant thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair the value of the Property involved except that no termination by Borrower or acceptance of surrender by a tenant of any Lease shall be permitted unless by reason of a tenant default and then only in a commercially reasonable manner to preserve and protect the Property PROVIDED, HOWEVER, that no such, termination or surrender of any Lease covering more than the Relevant Leasing Threshold will be permitted without the written consent of Lender which consent may be withheld in the sole discretion of Lender; (iii) shall not collect any of the rents more than one (1) month in advance (other than security deposits); (iv) shall not execute any other assignment of lessor's interest in the Leases or the Rents (except as contemplated by the Loan Documents); (v) shall not alter, modify or change the terms of the Leases in a manner inconsistent with the provisions of the Loan Documents without the prior written consent of Lender, which consent may be withheld in the sole discretion of Lender; and (vi) shall execute and deliver at the request of Lender all such further assurances, confirmations and assignment in connection with the 39 Leases as Lender shall from time to time reasonably require. Notwithstanding the foregoing, Borrower may, without the prior written consent of Lender, terminate any Lease which demises less than the Relevant Leasing Threshold under any of the following circumstances: (i) the tenant under said Lease is in default beyond any applicable grace and cure period, and Borrower has the right to terminate such Lease; (ii) such termination is permitted by the terms of the Lease in question and Borrower has secured an obligation from a third party to lease the space under the Lease to be terminated at a rental equal to or higher than the rental due under the Lease to be terminated; and (iii) if the tenant under the Lease to be terminated has executed a right under said Lease to terminate its lease upon payment of a termination fee to Borrower, and has in fact terminated its lease and paid said fee, Borrower may accept said termination. 5.1.21 ALTERATIONS. Subject to the rights of tenants to make alterations pursuant to the terms of their respective Leases, Borrower shall obtain Lender's prior written consent to any alterations to any Improvements, which consent shall not be unreasonably withheld or delayed except with respect to alterations that may have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income. Notwithstanding the foregoing, Lender's consent shall not be required in connection with any alterations that will not have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income, provided that such alterations are made in connection with (a) tenant improvement work performed pursuant to the terms of any Lease executed on or before the date hereof, (b) tenant improvement work performed pursuant to the terms and provisions of a Lease and not adversely affecting any structural component of any Improvements, any utility or HVAC system contained in any Improvements or the exterior of any building constituting a part of any Improvements, (c) alterations performed in connection with the restoration of the Property after the occurrence of a casualty in accordance with the terms and provisions of this Agreement or (d) any structural alteration which costs less than $50,000.00 in the aggregate for all components thereof which constitute such alteration or any non-structural alteration which costs less than $100,000.00 in the aggregate for all components thereof which constitute such alteration. If the total unpaid amounts due and payable with respect to alterations to the Improvements at the Property (other than such amounts to be paid or reimbursed by tenants under the Leases) shall at any time equal or exceed $350,000.00 (the "THRESHOLD AMOUNT"), Borrower shall promptly deliver to Lender as security for the payment of such amounts and as additional security for Borrower's obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the initial, or, if higher, then current ratings assigned in connection with any Securitization, or (D) a completion bond or letter of credit issued by a financial institution having a rating by Standard & Poor's Ratings Group of not less than A-1+ if the term of such bond or letter of credit is no longer than three (3) months or, if such term is in excess of three (3) months, issued by a financial institution having a rating that is acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the initial, or, if higher, then current ratings assigned in connection with any Securitization. Such security shall be in an amount equal to the excess of the total unpaid amounts with respect to alterations to the Improvements on the Property (other than such amounts to be paid or reimbursed by tenants under the Leases) over the Threshold Amount and, if cash, may be applied from time to time, at the option of Borrower, to pay for such alterations. At the option of Lender, following the occurrence and during the continuance 40 of an Event of Default, Lender may terminate any of the alterations and use the deposit to restore the Property to the extent necessary to prevent any material adverse effect on the value of the Property. 5.1.22 PRINCIPAL PLACE OF BUSINESS. Borrower shall not change its principal place of business set forth on the first page of this Agreement without first giving Lender thirty (30) days prior written notice. 5.1.23 INTENTIONALLY OMITTED. Section 5.2 NEGATIVE COVENANTS. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgage encumbering the Property in accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 OPERATION OF PROPERTY. Borrower shall not, without the prior consent of Lender, terminate the Management Agreement or otherwise replace the Manager or enter into any other management agreement with respect to the Property unless the Manager is in default thereunder beyond any applicable grace or cure period, in which event no consent by Lender shall be required. Lender agrees that its consent will not be unreasonably withheld, delayed or conditioned provided that the Person chosen by Borrower as the replacement Manager is a Qualifying Manager. 5.2.2 LIENS. Borrower shall not, without the prior written consent of Lender, create, incur, assume or suffer to exist any Lien on any portion of the Property or permit any such action to be taken, except: (i) Permitted Encumbrances; (ii) Liens created by or permitted pursuant to the Loan Documents; and (iii) Liens for Taxes or Other Charges not yet due. 5.2.3 DISSOLUTION. Borrower shall not (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) engage in any business activity not related to the ownership and operation of the Property, (c) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower except to the extent permitted by the Loan Documents, (d) modify, amend, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (e) cause the Sole Member to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which the Sole Member would be dissolved, wound up or liquidated in whole or in pan, or (ii) amend, modify, waive or terminate the certificate of limited partnership or partnership agreement of the Sole Member, in each case, without obtaining the prior written consent of Lender or Lender's designee. 5.2.4 CHANGE IN BUSINESS. Borrower shall not enter into any line of business other than the ownership and operation of the Property, or make any material change in the scope 41 or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. 5.2.5 DEBT CANCELLATION. Borrower shall not cancel or otherwise forgive or release any claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. 5.2.6 AFFILIATE TRANSACTIONS. Borrower shall not enter into, or be a party to, any transaction with an Affiliate of Borrower or any of the partners of Borrower except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm's length transaction with an unrelated third party. Lender hereby acknowledges disclosure of the agreements described on SCHEDULE VI between Borrower and an Affiliate of Borrower. 5.2.7 ZONING. Borrower shall not initiate or consent to any zoning reclassification of any portion of the Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of the Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Lender. 5.2.8 ASSETS. Borrower shall not purchase or own any properties other than the Property. 5.2.9 DEBT. Borrower shall not create, incur or assume any Indebtedness other than the Debt except to the extent expressly permitted hereby. 5.2.10 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the joint assessment of the Property with (a) any other real property constituting a tax lot separate from the Property, or (b) any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the Lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to the Property. 5.2.11 INTENTIONALLY DELETED. 5.2.12 ERISA. (a) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ER1SA. (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, that (A) Borrower is not and does not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title 1 of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B) Borrower is not subject 42 to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: (i) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (iii) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). 5.2.13 TRANSFERS. Unless such action is permitted by the provisions of this Section 5.2.13, Borrower will not (i) sell, assign, convey, transfer or otherwise dispose of its interests in the Property or any part thereof, (ii) permit any owner, directly or indirectly, of an ownership interest in the Property, to transfer such interest, whether by transfer of stock or other interest in Borrower or any entity, or otherwise, (iii) incur Indebtedness, (iv) mortgage, hypothecate or otherwise encumber or grant a security interest in the Property or any part thereof, (v) sell, assign, convey, transfer, mortgage, encumber, grant a security interest in, or otherwise dispose of any direct or indirect ownership interest in Borrower, or permit any owner of an interest in Borrower to do the same, or (vi) file a declaration of condominium with respect to the Property (any of the foregoing transactions, a "TRANSFER"). For purposes hereof, a "Transfer" shall not include any issuance, sale or transfer of interests in Inland Western Retail Real Estate Trust, Inc. (a) On and after the date that is the later of (i) twelve (12) months following the Closing Date, or (ii) the date of any payment in connection with an Earnout Closing (as defined in the Purchase Contract) relating to the Property, but in no event later than the date that is twenty four (24) months following the Closing Date, Lender shall not withhold its consent to a Transfer of the Property, provided that the following conditions are satisfied: (1) the transferee of the Property shall be a Special Purpose Entity (the "TRANSFEREE") which at the time of such transfer will be in compliance with the covenants contained in Section 5.1.1 and the representations contained in 4.1.30 hereof and which shall have assumed in writing (subject to the terms of Section 9.4 hereof) and agreed to comply with all the terms, covenants and conditions set forth in this Loan Agreement and the other Loan Documents, expressly including the covenants contained in Section 5.1.1 and the representations contained in 4.1.30 hereof; (2) if requested by Lender, Borrower shall deliver confirmation in writing from the Rating Agencies that such proposed Transfer will not cause a downgrading, withdrawal or qualification of the then current rating of any securities issued pursuant to such Securitization; (3) if Manager does not act as manager of the transferred Property then the manager of the Property must be a Qualifying Manager; 43 (4) no Event of Default shall have occurred and be continuing; (5) if required or requested by any of the Rating Agencies, Borrower shall deliver a substantive non-consolidation opinion with respect to Transferee, which opinion shall be acceptable to Lender in its reasonable discretion; (6) Borrower shall have paid (A) an assumption fee equal to one percent (1.0%) of the then outstanding principal balance of the Loan, and (B) the reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer; PROVIDED, HOWEVER, no assumption fee shall be required for a Transfer of the Property to a Transferee acceptable to Lender in connection with a joint venture between Inland Western Retail Real Estate Trust, Inc. and an institution acceptable to Lender provided Inland Western Retail Real Estate Trust, Inc., or an Affiliate wholly-owned (directly or indirectly) by Inland Western Retail Real Estate Trust, Inc., owns at least twenty percent (20%) of the ownership interests in such Transferee and for which Inland Western Retail Real Estate Trust, Inc., or an Affiliate wholly-owned (directly or indirectly) by Inland Western Retail Real Estate Trust, Inc., is the managing entity and otherwise maintains operational and managerial control of such Transferee, provided that Borrower shall pay all of Lender's reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer and a processing fee of $5,000. Lender shall notify Borrower of its approval or disapproval of a proposed Transfer pursuant to this Section 5.2.13(a) within thirty (30) days after receiving from Borrower a written request therefor. (b) On and after the date that is the later of (i) twelve (12) months following the Closing Date, or (ii) the date of any payment in connection with an Earnout Closing (as defined in the Purchase Contact) relating to the Property, but in no event later than the date that is twenty four (24) months following the Closing Date, Lender shall not withhold its consent to, and shall not charge an assumption fee in connection with, (1) a Transfer of up to, in the aggregate, forty-nine percent (49%) of the ownership interests in Borrower; or (2) a Transfer of greater than forty-nine percent (49%) of the ownership interest in Borrower, PROVIDED that (A) such transfer is to a Qualified Entity (as defined below), and (B) Borrower shall pay all of Lender's reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer and a processing fee of $5,000. For purposes of this Agreement, a "QUALIFIED ENTITY" shall mean an entity (x) with a net worth of $200,000,000 or more, (y) with sufficient experience (determined by Lender in its reasonable discretion) in the ownership and management of properties similar to the Property, and (z) which owns or manages retail properties containing at least 500,000 square feet of gross leasable area. 44 (c) Notwithstanding anything in this Section 5.2.13 to the contrary, Borrower shall he permitted to Transfer the entire Property to a newly-formed Special Purpose Entity which shall be wholly-owned subsidiary of Inland Western Retail Real Estate Trust, Inc, or affiliate thereof ("PERMITTED AFFILIATE TRANSFEREE") which shall be approved by Lender by the Closing Date ("PERMITTED AFFILIATE TRANSFER"), provided (1) no Event of Default shall have occurred and be continuing, (2) the creditworthiness of Inland Western Retail Real Estate Trust, Inc., as applicable, has not deteriorated, in the sole discretion of Lender, from the Closing Date to the date of the proposed Transfer, and (3) Borrower shall have paid all reasonable and customary third party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer (but not any assumption or processing fee). (d) Borrower, without the consent of Lender, may grant easements, restrictions, covenants, reservations and rights of way in the ordinary course of business for access, parking, water and sewer lines, telephone and telegraph lines, electric lines and other utilities or for other similar purposes, provided that no transfer, conveyance or encumbrance shall materially impair the utility and operation of the Property or materially adversely affect the value of the Property or the Net Operating Income of the Property. If Borrower shall receive any consideration in connection with any of said described transfers or conveyances, Borrower shall have the right to use any such proceeds in connection with any alterations performed in connection therewith, or required thereby. In connection with any transfer, conveyance or encumbrance permitted above, the Lender shall execute and deliver any instrument reasonably necessary or appropriate to evidence its consent to said action or to subordinate the Lien of the Mortgage to such easements, restrictions, covenants, reservations and rights of way or other similar grants upon receipt by the Lender of; (A) a copy of the instrument of transfer; and (B) an Officer's Certificate stating with respect to any transfer described above, that such transfer does not materially impair the utility and operation of the Property or materially reduce the value of the Property or the Net Operating Income of the Property. ARTICLE VI INSURANCE; CASUALTY; CONDEMNATION Section 6.1 INSURANCE. (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for Borrower and the Property providing at least the following coverages: (i) comprehensive all risk insurance on the Improvements and the Personal Property, including contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each case (A) in an amount equal to one hundred percent (100%) of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation, but the amount shall in no event be less than the outstanding principal balance of the Loan; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing for no deductible in excess of Ten Thousand and No/100 Dollars ($10,000) for all such insurance coverage; and (D) 45 containing an "Ordinance or Law Coverage" or "Enforcement" endorsement if any of the Improvements or the use of the Property shall at any time constitute legal non-conforming structures or uses. In addition, Borrower shall obtain; (y) if any portion of the Improvements is currently or at any time in the future located in a federally designated "special flood hazard area," flood hazard insurance in an amount equal to the lesser of (1) the outstanding principal balance of the Note or (2) the maximum amount of such insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended or such greater amount as Lender shall require; and (z) earthquake insurance in amounts and in form and substance satisfactory to Lender in the event the Property is located in an area with a high degree of seismic activity, provided that the insurance pursuant to clauses (y) and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this subsection (i). (ii) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, such insurance (A) to be on the so-called "occurrence" form with a combined limit, including umbrella coverage, of not less than Two Million and No/100 Dollars ($2,000,000.00) in the aggregate and One Million and No/100 Dollars ($1,000,000.00) per occurrence; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards; (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all legal contracts; and (5) contractual liability covering the indemnities contained in Article 9 of the Mortgage to the extent the same is available; (iii) business income insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in subsection (i) above; (C) covering rental losses or business interruption, as may be applicable, for a period of at least twelve (12) months after the date of the casualty and containing any extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of six (6) months from the date that the Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) in an annual amount equal to 100% of the rents or estimated gross revenues from the operation of the Property (as reduced to reflect expenses not incurred during Restoration). The amount of such business income insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from the Property for the succeeding twelve (12) month period. All proceeds payable to Lender pursuant to this subsection shall be held by Lender and shall be applied to the obligations secured by the Loan Documents from time to time due and payable hereunder and under the Note; PROVIDED, HOWEVER, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured by the Loan Documents on the respective dates of payment provided for in the Note and the other Loan Documents except to the 46 extent such amounts are actually paid out of the proceeds of such business income insurance; (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements, and only if the Property coverage form does not otherwise apply, (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in subsection (i) above written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to subsection (i) above, (3) including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) workers' compensation, subject to the statutory limits of the State; (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial property insurance policy required under subsection (i) above; (vii) umbrella liability insurance in an amount not less than Five Million and No/100 Dollars ($5,000,000.00) per occurrence on terms consistent with the commercial general liability insurance policy required under subsection (ii) above; (viii) if any of the policies of insurance covering the risks required to be covered under subsections (i) through (vii) above contains an exclusion from coverage for acts of terrorism, Borrower shall obtain and maintain a separate policy providing such coverages in the event of any act of terrorism, provided such coverage is commercially available for properties similar to the Property and located in or around the region in which the Property is located. Notwithstanding the foregoing, Borrower shall not be required to obtain such a policy, provided (I) Borrower confirms to Lender, in writing, that it shall protect and hold Lender harmless from any losses associated with such risks by, among other things, either (A) depositing with Lender sums sufficient to pay for all uninsured costs related to a Restoration of the Property following any act of terrorism (which sum shall be treated as a Net Proceeds Deficiency) and any remaining balance following a Restoration shall be remitted by Lender to Borrower in accordance with Section 6.4(b)(vii) hereof), or (B) at the option of Borrower prepaying the Loan in accordance with the terms hereof, including, without limitation, the payment of any Prepayment Consideration due in connection therewith; (II) Inland Western Retail Real Estate Trust, Inc. ("TERRORISM INSURANCE GUARANTOR") executes a guaranty, in form and substance satisfactory to Lender, guaranteeing in the event of any act of terrorism, payment to Lender of any sums that Borrower is obligated to pay to Lender under clause (I) above (which shall be applied in accordance with Section 6.4 hereof), and (III) Terrorism Insurance Guarantor maintains a net worth of at least $300,000,000 (as determined by such entity's most recent audited financial statements), such entity maintains a direct or indirect ownership interest in Borrower, and the aggregate loan-to-value ratio (as determined by Lender) ("LTV") for all properties on which such entity has a direct or indirect ownership interest shall not exceed 55%, however, Terrorism Insurance 47 Guarantor may exceed the 55% LTV for a period not to exceed six (6) months out of any twelve (12) month period either 1) during the time period when Terrorism Insurance Guarantor is offering securities to the public, or 2) when in the business judgement of Terrorism Insurance Guarantor, exceeding an LTV of 55% is necessary given existing circumstances of the credit environment, but in no event shall the LTV exceed 65% if Terrorism Insurance Guarantor maintains a net worth greater than or equal to $300,000,000, but less than $400,000,000, or 70% if Terrorism Insurance Guarantor maintains a net worth of at least $400,000,000. (ix) upon sixty (60) days' written notice, such other reasonable insurance and in such reasonable amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located. (b) All insurance provided for in Section 6.1(a) shall be obtained under valid and enforceable policies (collectively, the "POLICIES" or in the singular, the "POLICY"), and shall be subject to the approval of Lender as to insurance companies, amounts, deductibles, loss payees and insureds. The Policies shall be issued by financially sound and responsible insurance companies authorized to do business in the State and having a rating of "A:X" or better in the current Best's Insurance Reports and a claims paying ability rating of "AA" or better by at least two (2) of the Rating Agencies including, (i) Standard & Poor's Ratings Group, and (ii) Moody's Investors Services, Inc. if Moody's Investors Service, Inc. is rating the Securities. The Policies described in Section 6.1 (other than those strictly limited to liability protection) shall designate Lender as loss payee. Not less than ten (10) days prior to the expiration dates of the Policies theretofore furnished to Lender, certificates of insurance evidencing the Policies accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "INSURANCE PREMIUMS"), shall be delivered by Borrower to Lender. (c) Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Section 6.1(a). (d) All Policies of insurance provided for or contemplated by Section 6.1(a), except for the Policy referenced in Section 6.1(a)(v), shall name Borrower, or the Tenant, as the insured and Lender as the additional insured, as its interests may appear, and in the case of property damage, boiler and machinery, flood and earthquake insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies of insurance provided for in Section 6.1(a) shall contain clauses or endorsements to the effect that; (i) no act or negligence of Borrower, or anyone acting for Borrower, or of any Tenant or other occupant, or failure to comply with the provisions of any Policy, which might otherwise result in a forfeiture of the insurance or any part thereof, shall in 48 any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or canceled without at least thirty (30) days' written notice to Lender and any other party named therein as an additional insured; (iii) the issuers thereof shall give written notice to Lender if the Policy has not been renewed fifteen (15) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, after ten (10) Business Days written notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and, until paid, shall be secured by the Mortgage and shall bear interest at the Default Rate. If Borrower fails in so insuring the Property or in so assigning and delivering the Policies, Lender may, at its option, obtain such insurance using such carriers and agencies as Lender shall elect from year to year and pay the premiums therefor, and Borrower will reimburse Lender for any premium so paid, with interest thereon as stated in the Note from the time of payment, on demand, and the amount so owing to Lender shall be secured by the Mortgage. The insurance obtained by Lender may, but need not, protect Borrower's interest and the coverage that Lender purchases may not pay any claim that Borrower makes or any claim that is made against Borrower in connection with the Property. Section 6.2 CASUALTY. If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"), Borrower (a) shall give to Lender prompt notice of such damage reasonably estimated by Borrower to cost more than One Hundred Thousand Dollars ($100,000.00) to repair, and (b) shall promptly commence and diligently prosecute the completion of the repair and restoration of the Property as nearly as possible to the condition the Property was in immediately prior to such fire or other casualty, with such alterations as may be reasonably approved by Lender (a "RESTORATION") and otherwise in accordance with Section 6.4. Borrower shall pay all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by Borrower. Section 6.3 CONDEMNATION. Borrower shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of the Property and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. 49 Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If the Property or any portion thereof is taken by a condemning authority, Borrower shall promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the provisions of Section 6.4. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt. Section 6.4 RESTORATION. The following provisions shall apply in connection with the Restoration of the Property: (a) If the Net Proceeds shall be less than Relevant Restoration Threshold and the costs of completing the Restoration shall be less than the Relevant Restoration Threshold, the Net Proceeds will be disbursed by Lender to Borrower upon receipt provided that all of the conditions set forth in clauses (A), (E), (F), (G), (H), (J) and (L) of Section 6.4(b)(i) below are met and Borrower delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Agreement. (b) If the Net Proceeds are equal to or greater than the Relevant Restoration Threshold or the costs of completing the Restoration is equal to or greater than the Relevant Restoration Threshold, then in either case, Lender shall make the Net Proceeds available for the Restoration in accordance with the provisions of this Section 6.4(b). The term "NET PROCEEDS" for purposes of this Section 6.4 shall mean: (x) the net amount of all insurance proceeds received by Lender pursuant to Section 6.1 (a)(i), (iv), (vi) and (viii) as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("INSURANCE PROCEEDS"), or (y) the net amount of the Award, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("CONDEMNATION PROCEEDS"), whichever the case may be. (i) The Net Proceeds shall be made available to Borrower for Restoration provided that each of the following conditions are met: (A) no Event of Default shall have occurred and be continuing; (B) (1) in the event the Net Proceeds are Insurance Proceeds, and (x) less than twenty-five percent (25%) of the total floor area of the Improvements on the Property has been damaged, destroyed or rendered unusable as a result of such fire or other casualty, or (y) Borrower is required under a Lease exceeding the 50 Relevant Leasing Threshold to use the Net Proceeds for the restoration of the Property, or (2) in the event the Net Proceeds are Condemnation Proceeds, and (x) less than ten percent (10%) of the land constituting the Property is taken, and such land is located along the perimeter or periphery of the Property, and no portion of the Improvements is located on such land, or (y) Borrower is required under a Lease exceeding the Relevant Leasing Threshold to use the Net Proceeds for the restoration of the Property; (C) Leases demising in the aggregate a percentage amount equal to or greater than the Rentable Space Percentage of the total rentable space in the Property which has been demised under executed and delivered Leases in effect as of the date of the occurrence of such fire or other casualty or taking, whichever the case may be, shall remain in full force and effect during and after the completion of the Restoration, notwithstanding the occurrence of any such fire or other casualty or taking, whichever the case may be, and will make all necessary repairs and restorations thereto at their sole cost and expense. The term "RENTABLE SPACE PERCENTAGE" shall mean (x) in the event the Net Proceeds are Insurance Proceeds, a percentage amount equal to fifty percent (50%) and (y) in the event the Net Proceeds are Condemnation Proceeds, a percentage amount equal to fifty percent (50%); (D) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than ninety (90) days after such damage or destruction or taking, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion; (E) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note, which will be incurred with respect to the Property as a result of the occurrence of any such fire or other casualty or taking, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Section 6.1(a)(iii), if applicable, or (3) by other funds of Borrower; (F) Lender shall be satisfied that the Restoration will be completed on or before the earliest to occur of (1) the Maturity Date, (2) the earliest dale required for such completion under the terms of any Leases, (3) such time as may be required under applicable zoning law, ordinance, rule or regulation in order to repair and restore the Property to the condition it was in immediately prior to such fire or other casualty or to as nearly as possible the condition it was in immediately prior to such taking, as applicable or (4) the expiration of the insurance coverage referred to in Section 6.l(a)(iii); (G) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable zoning laws, ordinances, rules and regulations provided, however, that compliance with such zoning laws, ordinances, rules and regulations (including, without limitation, parking requirements) will not require restoration of the Improvements or the Property to 51 a size, condition, or configuration materially different than that which existed immediately prior to such Casualty or taking; (H) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable governmental laws, rules and regulations (including, without limitation, all applicable environmental laws); (I) such fire or other casualty or taking, as applicable, does not result in the loss of access to the Property or the related Improvements; (J) the Debt Service Coverage Ratio, after giving effect to the Restoration, shall be equal to or greater than 2.1:1; (K) Borrower shall deliver or cause to be delivered to Lender a signed detailed budget approved in writing by Borrower's architect or engineer stating the entire cost of completing the Restoration, which budget should be consistent with restoration budgets of similar retail properties then owned and operated by nationally recognized owners and operators of retail properties located in the areas in which the Property is located; and (L) the Net Proceeds together with any cash or cash equivalent deposited by Borrower with Lender are sufficient in Lender's discretion to cover the cost of the Restoration. (ii) The Net Proceeds shall be held by Lender in an interest bearing account and, until disbursed in accordance with the provisions of this Section 6.4(b), shall constitute additional security for the Debt and other obligations under the Loan Documents. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender that (A) all materials installed and work and labor performed to be paid for out of the requested disbursement in connection with the Restoration have been performed, and (B) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company issuing the Title Insurance Policy. (iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "CASUALTY CONSULTANT"), such review and acceptance not to be unreasonably withheld or delayed. Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender 52 and the Casualty Consultant, such review and acceptance not to be unreasonably withheld or delayed. All costs and expenses incurred by Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty Consultant's fees, shall be paid by Borrower. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Casualty Consultant, MINUS the Casualty Retainage. The term "CASUALTY RETAINAGE" shall mean an amount equal to ten percent (10%) of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until the Restoration has been completed. The Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Section 6.4(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b) and that all approvals necessary for the re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage; PROVIDED, HOWEVER, that Lender will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Casualty Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company issuing the Title Insurance Policy, and Lender receives an endorsement to the Title Insurance Policy insuring the continued priority of the lien of the Mortgage and evidence of payment of any premium payable for such endorsement. If required by Lender, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender in consultation with the Casualty Consultant, be sufficient to pay in full the balance of the costs which are estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "NET PROCEEDS DEFICIENCY") with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall he held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the 53 disbursement of the Net Proceeds, and until so disbursed pursuant to this Section 6.4(b) shall constitute additional security for the Debt and other obligations under the Loan Documents. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Agreement or any of the other Loan Documents. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Section 6.4(b)(vii) may be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its sole discretion shall deem proper (provided no Event of Default exists, such Borrower shall not be required to pay any Prepayment Consideration in connection with such payment), or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall designate, in its discretion. (d) In the event of foreclosure of the Mortgage with respect to the Property, or other transfer of title to the Property in extinguishment in whole or in part of the Debt all right, title and interest of Borrower in and to the Policies that are not blanket Policies then in force concerning the Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title. (e) Lender shall with reasonable promptness following any Casualty or Condemnation notify Borrower whether or not Net Proceeds are required to be made available to Borrower for restoration pursuant to this Section 6.4. ARTICLE VII RESERVE FUNDS Section 7.1 REQUIRED REPAIR FUNDS. 7.1.1 DEPOSITS. Borrower shall perform the repairs at the Property, if any, as more particularly set forth on SCHEDULE III hereto within six (6) months from the date of funding (such repairs hereinafter referred to as "REQUIRED REPAIRS"). Borrower shall complete the Required Repairs on or before the required deadline for each repair as set forth on SCHEDULE III. It shall be an Event of Default under this Agreement if (i) Borrower does not complete the Required Repairs at the Property by the required deadline for each repair as set forth on SCHEDULE III, and (ii) Borrower does not satisfy each condition contained in Section 7.1.2 hereof. Upon, the occurrence of such an Event of Default, Lender, at its option, may withdraw all Required Repair 54 Funds from the Required Repair Account and Lender may apply such funds either to completion of the Required Repairs at the Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply Required Repair Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. On the Closing Date, Borrower shall deposit with Lender the amount for the Property set forth on such SCHEDULE III hereto, if any, to perform the Required Repairs for the Property. Amounts so deposited with Lender, if any, shall be held by Lender in an interest bearing account. Amounts so deposited, if any, shall hereinafter be referred to as Borrower's "REQUIRED REPAIR FUND" and the account, if any, in which such amounts are held shall hereinafter be referred to as Borrower's "REQUIRED REPAIR ACCOUNT." 7.1.2 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse to Borrower the Required Repair Funds from the Required Repair Account from time to time upon satisfaction by Borrower of each of the following conditions: (i) Borrower shall submit a written request for payment to Lender at least fifteen (15) days prior to the date on which Borrower requests such payment be made and specifies the Required Repairs to be paid, (ii) on the date such request is received by Lender and on the date such payment is to be made, no Default or Event of Default shall exist and remain uncured, (iii) Lender shall have received a certificate from Borrower (A) stating that all Required Repairs at the Property to be funded by the requested disbursement have been completed in good and workmanlike manner and in accordance with all applicable federal, state and local laws, rules and regulations, such certificate to be accompanied by a copy of any license, permit or other approval by any Governmental Authority required to commence and/or complete the Required Repairs, (B) identifying each Person that supplied materials or labor in connection with the Required Repairs performed at the Property to be funded by the requested disbursement under a contract in excess of $50,000, and (C) stating that each Person who has supplied materials or labor in connection with the Required Repairs to be funded by, the requested disbursement has been paid in full or will be paid in full upon such disbursement, such certificate to be accompanied by lien waivers or other evidence of payment satisfactory to Lender, (iv) at Lender's option, a title search for the Property indicating that the Property is free from all liens, claims and other encumbrances not previously approved by Lender, and (v) Lender shall have received such other evidence as Lender shall reasonably request that the Required Repairs at the Property to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement to Borrower. Lender shall not be required to make disbursements from the Required Repair Account with respect to the Property more than once each calendar month and such disbursement shall be made only upon satisfaction of each condition contained in this Section 7.1.2. Section 1.1 TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates and (b) one-twelfth of the Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies, (said amounts in (a) and (b) above are hereinafter called the "TAX AND INSURANCE ESCROW FUND"). The Tax and Insurance Escrow Fund and the payments of interest or principal 55 or both, payable pursuant to the Note, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to this Agreement and under the Mortgage. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums) or from Borrower without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof, provided, however, Lender shall use reasonable efforts to pay such real property taxes sufficiently early to obtain the benefit of any available discounts of which it has knowledge. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. The Tax and Insurance Escrow Fund shall be held by Lender in an interest-bearing account and shall at Lender's option be held in Eligible Account at an Eligible Institution. Any interest earned on said account shall be held in said account and credited toward future deposits to the Tax and Insurance Escrow Fund. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall be returned to Borrower. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Property. If at any time Lender reasonably determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes or Insurance Premiums by the dates set forth above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes or Insurance Premiums. Notwithstanding anything to the contrary hereinbefore contained, in the event that Borrower provides (1) evidence satisfactory to Lender that the Property is insured under a "blanket" policy which is acceptable to Lender and which otherwise satisfies the requirements of this Agreement and (2) evidence satisfactory to Lender that the Taxes for the Property have been paid in accordance with the requirements set forth in this Agreement, Lender will waive the requirement set forth herein for Borrower to make deposits into the Tax and Insurance Escrow Fund for the payment of insurance Premiums due on such "blanket" policy of insurance and for payment of such Taxes, provided, however, Lender expressly reserves the right to require Borrower to make deposits to the Tax and Insurance Escrow Fund for the payment of Insurance Premiums if at any time the Property is not insured under a "blanket" insurance policy which satisfies the requirements of this Agreement or Taxes are not paid in accordance with the requirements of this Agreement. Section 7.3 REPLACEMENTS AND REPLACEMENT RESERVE. 7.3.1 REPLACEMENT RESERVE FUND. Borrower shall pay to Lender on the date hereof and on each Payment Date one twelfth of the amount (the "REPLACEMENT RESERVE MONTHLY DEPOSIT") reasonably estimated by Lender in its sole discretion to be due for replacements and repairs required to be made to the Property during the calendar year (collectively, the "REPLACEMENTS"), which Replacement Reserve Monthly Deposit shall be in an amount equal to no less than $0.l5 per year per square foot of gross leasable area. Amounts so deposited shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE FUND" and the account in which such amounts are held shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE ACCOUNT." Lender may reassess its estimate of the amount necessary 56 for the Replacement Reserve Fund from time to time, and may increase the monthly amounts required to be deposited into the Replacement Reserve Fund upon thirty (30) days notice to Borrower if Lender determines in its reasonable discretion that an increase is necessary to maintain the proper maintenance and operation of the Property. Any amount held in the Replacement Reserve Account and allocated for the Property shall be retained by Lender in an interest bearing account, or, at the option of Lender, in an Eligible Account at an Eligible Institution; PROVIDED, HOWEVER, that, any interest accrued on the amounts on deposit in the Replacement Reserve Fund shall be disbursed to Borrower no more than once per calendar year upon the written request of Borrower. Notwithstanding anything to the contrary in this Section 7.3, Borrower shall not be required to make Replacement Reserve Monthly Deposits, provided that: (i) no Event of Default shall have occurred; and (ii) Borrower makes all necessary Replacements and otherwise maintains the Property to Lender's satisfaction. Upon notice from Lender following: (a) an Event of Default; or (b) the failure of Borrower to make necessary Replacements or otherwise maintain the Property to Lender's satisfaction, Borrower shall begin to deposit the Replacement Reserve Monthly Deposit into the Replacement Reserve Fund beginning on the Payment Date (as defined herein) immediately following the date of such notice. 7.3.2 DISBURSEMENTS FROM REPLACEMENT RESERVE ACCOUNT. (a) Lender shall make disbursements from the Replacement Reserve Account to pay Borrower only for the costs of the Replacements. Lender shall not be obligated to make disbursements from the Replacement Reserve Account to reimburse Borrower for the costs of routine maintenance to the Property or for costs which are to be reimbursed from the Required Repair Fund (if any). (b) Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in this Section 7.3.2, disburse to Borrower amounts from the Replacement Reserve Account necessary to pay for the actual approved costs of Replacements or to reimburse Borrower therefor, upon completion of such Replacements (or, upon partial completion in the case of Replacements made pursuant to Section 7.3.2(f)) as determined by Lender. In no event shall Lender be obligated to disburse funds from the Replacement Reserve Account if a Default or an Event of Default exists. (c) Each request for disbursement from the Replacement Reserve Account shall be in a form specified or approved by Lender and shall specify (i) the specific Replacements for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Replacement other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Replacement for which such request for disbursement is made. With each request Borrower shall certify that all Replacements have been made in accordance with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the Property to which the Replacements are being provided and, unless Lender has agreed to issue joint checks as described below, each request shall include evidence of payment of all such amounts. Each request for disbursement shall include copies of invoices for all items or materials purchased and all contracted labor or services provided. Except as provided in Section 57 7.3.2(e), each request for disbursement from the Replacement Reserve Account shall be made only after completion of the Replacement for which disbursement is requested. Borrower shall provide Lender evidence of completion satisfactory to Lender in its reasonable judgment. (d) Borrower shall pay all invoices in connection with the Replacements with respect to which a disbursement is requested prior to submitting such request for disbursement from the Replacement Reserve Account or, at the request of Borrower, Lender will issue joint checks, payable to Borrower and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with a Replacement. In the case of payments made by joint check, Lender may require a waiver of lien from each Person receiving payment prior to Lender's disbursement from the Replacement Reserve Account. In addition, as a condition to any disbursement, Lender may require Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or subcontractor who receives payment in an amount equal to or greater than $100,000 for completion of its work or delivery of its materials. Any lien waiver delivered hereunder shall conform to the requirements of applicable law and shall cover all work performed and materials supplied (including equipment and fixtures) for the Property by that contractor, supplier, subcontractor, mechanic or materialman through the date covered by the current reimbursement request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or materialmen is to be made by a joint check, the release of lien shall be effective through the date covered by the previous release of funds request). (e) If (i) the cost of a Replacement exceeds $100,000, (ii) the contractor performing such Replacement requires periodic payments pursuant to terms of a written contract, and (iii) Lender has approved in writing in advance such periodic payments, a request for reimbursement from the Replacement Reserve Account may be made after completion of a portion of the work under such contract, provided (A) such contract requires payment upon completion of such portion of the work, (B) the materials for which the request is made are on site at the Property and are properly secured or have been installed in the Property, (C) all other conditions in this Agreement for disbursement have been satisfied, (D) funds remaining in the Replacement Reserve Account are, in Lender's judgment, sufficient to complete such Replacement and other Replacements when required, and (E) if required by Lender, each contractor or subcontractor receiving payments under such contract shall, provide a waiver of lien with respect to amounts which have been paid to that contractor or subcontractor. (f) Borrower shall not make a request for disbursement from the Replacement Reserve Account more frequently than once in any calendar month and (except in connection with the final disbursement) the total cost of all Replacements in any request shall not be less than $5,000.00. 7.3.3 PERFORMANCE OF REPLACEMENTS. (a) Borrower shall make Replacements when required in order to keep the Property in condition and repair consistent with other first class, full service retail properties in the same market segment in the metropolitan area in which the Property is located, and to keep the Property or any portion thereof from deteriorating. Borrower shall complete all Replacements in a good and workmanlike manner as soon as practicable following the commencement of making each such Replacement. 58 (b) Lender reserves the right, at its option, to approve all contracts or work orders with materialmen, mechanics, suppliers, subcontractors, contractors or other parties providing labor or materials under contracts for an amount in excess of $100,000 in connection with the Replacements. Upon Lender's request, Borrower shall assign any contract or subcontract to Lender. (c) In the event Lender determines in its reasonable discretion that any Replacement is not being performed in a workmanlike or timely manner or that any Replacement has not been completed in a workmanlike or timely manner, and such failure continues to exist for more than thirty (30) days after notice from Lender to Borrower, Lender shall have the option to withhold disbursement for such unsatisfactory Replacement and to proceed under existing contracts or to contract with third parties to complete such Replacement and to apply the Replacement Reserve Fund toward the labor and materials necessary to complete such Replacement, without providing any prior notice to Borrower and to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (d) In order to facilitate Lender's completion or making of the Replacements pursuant to Section 7.3.3(c) above, Borrower grants Lender the right to enter onto the Property and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect the Property from damage. All sums so expended by Lender, to the extent not from the Replacement Reserve Fund, shall be deemed to have been advanced under the Loan to Borrower and secured by the Mortgage. For this purpose Borrower constitutes and appoints Lender its true and lawful attorney-in-fact with full power of substitution to complete or undertake the Replacements in the name of Borrower. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked but shall only be effective following an Event of Default. Borrower empowers said attorney-in-fact as follows: (i) to use any funds in the Replacement Reserve Account for the purpose of making or completing the Replacements; (ii) to make such additions, changes and corrections to the Replacements as shall be necessary or desirable to complete the Replacements; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against the Property, or as may be necessary or desirable for the completion of the Replacements, or for clearance of title; (v) to execute all applications and certificates in the name of Borrower which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with the Property or the rehabilitation and repair of the Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of this Agreement. (e) Nothing in this Section 7.3.3 shall: (i) make Lender responsible for making or completing the Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund to make or complete any Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement. (f) Borrower shall permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties making Replacements pursuant to this Section 7.3.3 to enter onto the Property during normal business 59 hours (subject to the rights of tenants under their Leases) to inspect the progress of any Replacements and all materials being used in connection therewith, to examine all plans and shop drawings relating to such Replacements which are or may be kept at the Property, and to complete any Replacements made pursuant to this Section 7.3.3. Borrower shall cause all contractors and subcontractors to cooperate with Lender or Lender's representatives or such other persons described above in connection with inspections described in this Section 7.3.3(f) or the completion of Replacements pursuant to this Section 7.3.3. (g) Lender may require an inspection of the Property at Borrower's expense prior to making a monthly disbursement in excess of $10,000 from the Replacement Reserve Account in order to verify completion of the Replacements for which reimbursement is sought. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower shall pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (h) The Replacements and all materials, equipment, fixtures, or any other item comprising a part of any Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialman's or other liens (except for those Liens existing on the date of this Agreement which have been approved in writing by Lender). (i) Before each disbursement from the Replacement Reserve Account, Lender may require Borrower to provide Lender with a search of title to the Property effective to the date of the disbursement, which search shows that no mechanic's or materialmen's liens or other liens of any nature have been placed against the Property since the date of recordation of the Mortgage and that title to the Property is free and clear of all Liens (other than the lien of the Mortgage and any other Liens previously approved in writing by Lender, if any). (j) All Replacements shall comply with, all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (k) In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workmen's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under applicable law in connection with a particular Replacement. All such policies shall be in form and amount reasonably satisfactory to Lender. All such policies which can be endorsed with standard mortgagee clauses making loss payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be delivered to Lender. 7.3.4 FAILURE TO MAKE REPLACEMENTS. (a) It shall be an Event of Default under this Agreement if Borrower fails to comply with any provision of this Section 7.3 and such failure is not cured within thirty (30) 60 days after notice from Lender; PROVIDED, HOWEVER, if such failure is not capable of being cured within said thirty (30) day period, then provided that Borrower commences action to complete such cure and thereafter diligently proceeds to complete such cure, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrower, in the exercise of due diligence, to cure such failure, but such additional period of time shall not exceed sixty (60) days. Upon the occurrence of such an Event of Default, Lender may use the Replacement Reserve Fund (or any portion thereof) for any purpose, including but not limited to completion of the Replacements as provided in Section 7.3.3, or for any other repair or replacement to the Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply the Replacement Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. (b) Nothing in this Agreement shall obligate Lender to apply all or any portion of the Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any specific order or priority. 7.3.5 BALANCE IN THE REPLACEMENT RESERVE ACCOUNT. The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. 7.3.6 INDEMNIFICATION. BORROWER SHALL INDEMNIFY LENDER AND HOLD LENDER HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS, SUITS, CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, OBLIGATIONS AND COSTS AND EXPENSES (INCLUDING LITIGATION COSTS AND REASONABLE ATTORNEYS FEES AND EXPENSES) ARISING FROM OR IN ANY WAY CONNECTED WITH THE PERFORMANCE OF THE REPLACEMENTS UNLESS THE SAME ARE SOLELY DUE TO GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER. BORROWER SHALL ASSIGN TO LENDER ALL RIGHTS AND CLAIMS BORROWER MAY HAVE AGAINST ALL PERSONS OR ENTITIES SUPPLYING LABOR OR MATERIALS IN CONNECTION WITH THE REPLACEMENTS; PROVIDED, HOWEVER, THAT LENDER MAY NOT PURSUE ANY SUCH RIGHT OR CLAIM UNLESS AN EVENT OF DEFAULT HAS OCCURRED AND REMAINS UNCURED. Section 7.4 INTENTIONALLY DELETED. Section 7.5 INTENTIONALLY DELETED. Section 7.6 INTENTIONALLY DELETED. Section 7.7 RESERVE FUNDS, GENERALLY. 7.7.1 Borrower grants to Lender a first-priority perfected security interest in each of the Reserve Funds and any and all monies now or hereafter deposited in each Reserve Fund as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds shall constitute additional security for the Debt. 61 7.7.2 Upon the occurrence of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the payment of the Debt in any order in its sole discretion. 7.7.3 The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender. 7.7.4 The Reserve Funds shall be held in interest bearing accounts. All earnings or interest on the Reserve Funds shall be added to and become a part of such Tax and Insurance Escrow Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Funds. 7.7.5 Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. 7.7.6 Lender shall not be liable for any loss sustained on the investment of any funds constituting the Reserve Funds unless occasioned by the gross negligence or willful misconduct of Lender. 7.7.7 Upon payment in fall of the Debt and performance of all other obligations under this Agreement and the other Loan Documents, Lender shall disburse to Borrower all remaining Reserve Funds. ARTICLE VIII DEFAULTS Section 8.1 EVENT OF DEFAULT (a) Each of the following events shall constitute an event of default hereunder (an "EVENT OF DEFAULT"): (i) if any portion of the Debt is not paid within five (5) days of the applicable due date; (ii) if any of the Taxes or Other Charges are not paid prior to the date when the same become delinquent, except to the extent that there are sufficient funds in the Tax and Insurance Escrow Fund to pay such Taxes or Other Charges and Lender fails to or refuses to release the same from the Tax and Insurance Escrow Fund; (iii) if the Policies are not kept in full force and effect, or if certified copies of the Policies are not delivered to Lender within the time frame provided herein; 62 (iv) if Borrower transfers or encumbers any portion of the Property without Lender's prior written consent (to extent such consent is required) or otherwise violates the provisions of Section 5.2.13 of this Loan Agreement; (v) if any material representation or warranty made by Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if Borrower or indemnitor or any guarantor under any guaranty or indemnity issued in connection with the Loan shall make an assignment for the benefit of creditors; (vii) if a receiver, liquidator or trustee shall be appointed for Borrower or any guarantor or indemnitor under any guarantee or indemnity issued in connection with the Loan or if Borrower or such guarantor or indemnitor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or such guarantor or indemnitor, or if any proceeding for the dissolution or liquidation of Borrower or such guarantor or indemnitor shall be instituted; PROVIDED, HOWEVER, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or such guarantor or indemnitor, upon the same not being discharged, stayed or dismissed within one hundred eighty (180) days; (viii) if Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents; (ix) if Borrower breaches any of its respective negative covenants contained in Section 5.2 or any covenant contained in Section 4.1.30 hereof; (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xi) if any Purchase Price Adjustment is not timely paid in accordance with the Purchase Agreement following satisfaction of Borrower's reasonable documentation requirements of its seller under the Purchase Contract; (xii) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (i) to (xi) above, for ten (10) days after notice to Borrower from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; PROVIDED, HOWEVER, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period 63 and provided further that Borrower shall have commenced to cure such Default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed one hundred eighty (180) days; or (xiii) if there shall be default under any of the other Loan Documents beyond any applicable cure periods contained in such documents, whether as to Borrower or the Property, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vi), (vii) or (viii) above) and at any time thereafter Lender may, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in the Property, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and the Property, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi), (vii) or (viii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. Section 8.2 REMEDIES. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Property. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) Lender is not subject to any "one action" or "election of remedies" law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Property and the Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. Without limiting the generality of the foregoing, it is expressly agreed that upon any Event of Default described in clause (xi) above, in addition to all other remedies available to Lender, 64 Lender shall have the right to enforce Indemnitor's guaranty of the payment of the Purchase Price Adjustment, as set forth in the Indemnity Agreement, without first resorting to or exhausting any security or collateral or without first having recourse to any Loan Document or any of the Property through foreclosure proceedings or otherwise. (b) Lender shall have the right from time to time to partially foreclose the Mortgage in any manner and for any amounts secured by the Mortgage then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Lender may foreclose the Mortgage to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose the Mortgage to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by the Mortgage, as Lender may elect. Notwithstanding one or more partial foreclosures, the Property shall remain subject to the Mortgage to secure payment of sums secured by the Mortgage and not previously recovered. (c) Lender shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, mortgages and other security documents (the "SEVERED LOAN DOCUMENTS") in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender following the occurrence of an Event of Default as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; PROVIDED, HOWEVER, Lender shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Lender of Lender's intent to exercise its rights under such power. Borrower shall not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents, and the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. (d) As used in this Section 8.2, a "foreclosure" shall include any sale by power of sale. Section 8.3 REMEDIES CUMULATIVE; WAIVERS. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or 65 power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. ARTICLE IX SPECIAL PROVISIONS Section 9.1 SALE OF NOTES AND SECURITIZATION. At the request of the holder of the Note and, to the extent not already required to be provided by Borrower under this Agreement, Borrower shall cooperate with Lender to allow Lender to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with the sale of the Note or participations therein or the first successful securitization (such sale and/or securitization, the "SECURITIZATION") of rated single or multi-class securities (the "SECURITIES") secured by or evidencing ownership interests in the Note and the Mortgage. In this regard Borrower shall: (a) (i) provide such financial and other information with respect to the Property, Borrower and the Manager, (ii) provide budgets relating to the Property and (iii) to perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Property, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be necessary or appropriate in connection with the Securitization (the "PROVIDED INFORMATION"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies; (b) cause counsel to render opinions, which may be relied upon by the holder of the Note, the Rating Agencies and their respective counsel, agents and representatives, as to non-consolidation, fraudulent conveyance, and true sale and/or lease or any other opinion customary in securitization transactions, which counsel and opinions shall be reasonably satisfactory to the holder of the Note and the Rating Agencies; (c) make such representations and warranties as of the closing date of the Securitization with respect to the Property, Borrower, and the Loan Documents as are consistent with the representations and warranties made in the Loan Documents; and (d) execute such amendments to the Loan Documents and organizational documents as may be reasonably requested by the holder of the Note or the Rating Agencies or otherwise to effect the Securitization; PROVIDED, HOWEVER, that Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, or (ii) modify or amend any other material economic term of the Loan. 66 All material out-of-pocket third party costs and expenses incurred by Borrower in connection with complying with requests made under this Section 9.1 shall be paid by Lender. Section 9.2 SECURITIZATION. Borrower understands that certain of the Provided Information may be included in disclosure documents in connection with the Securitization, including, without limitation a prospectus, prospectus supplement or private placement memorandum (each, a "DISCLOSURE DOCUMENT") and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. Section 9.3 RATING SURVEILLANCE. Lender, at its option, may retain the Rating Agencies to provide rating surveillance services on any certificates issued in a Securitization. Such rating surveillance will be at the expense of Lender (the "RATING SURVEILLANCE CHARGE"). Section 9.4 EXCULPATION. Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Note, this Agreement, the Mortgage or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender or Trustee may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender or Trustee to enforce and realize upon its interest under the Note, this Agreement, the Mortgage and the other Loan Documents, or in the Property, the Rents following an Event of Default, or any other collateral given to Lender or Trustee pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents following an Event of Default and in any other collateral given to Lender or Trustee, and Lender or Trustee, by accepting the Note, this Agreement, the Mortgage and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under or by reason of or under or in connection with the Note, this Agreement, the Mortgage or the other Loan Documents. The provisions of this section shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender or Trustee to name Borrower as a party defendant in any action or suit for foreclosure and sale under any of the Mortgage; (c) affect the validity or enforceability of or any guaranty made in connection with the Loan or any of the rights and remedies of Lender or Trustee thereunder; (d) impair the right of Lender or Trustee to obtain the appointment of a receiver; (e) impair the enforcement of any of the Assignment of Leases following an Event of Default; (f) constitute a prohibition against Lender or Trustee commencing any other appropriate action or proceeding in order for Lender or Trustee to exercise its remedies against the Property; or (g) constitute a waiver of the right of Lender or Trustee to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by 67 Lender or Trustee (including attorneys' fees and costs reasonably incurred) arising out of or in connection with the following: (i) fraud or intentional misrepresentation by Borrower or any guarantor in connection with the Loan; (ii) the gross negligence or willful misconduct of Borrower; (iii) material physical waste of the Property; (iv) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity or in the Mortgage concerning environmental laws, hazardous substances and asbestos and any indemnification of Lender with respect thereto in either document; (v) the removal or disposal of any portion of the Property after an Event of Default; (vi) the misapplication or conversion by Borrower of (A) any insurance proceeds paid by reason of any loss, damage or destruction to the Property which are not applied by Borrower in accordance with this Agreement, (B) any awards or other amounts received in connection with the condemnation of all or a portion of the Property which are not applied by Borrower in accordance with this Agreement, or (C) any Rents following an Event of Default; (vii) failure to pay charges for labor or materials or other charges that can create liens on any portion of the Property; or (viii) any security deposits, advance deposits or any other deposits collected with respect to the Property which are not delivered to Lender upon a foreclosure of the Property or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof. (ix) the breach of Borrower's indemnification obligation pursuant to Section 10.13(b) hereof with respect to a Purchase Price Adjustment. Notwithstanding anything to the contrary in this Agreement, the Note or any of the Loan Documents, (A) the Debt shall be fully recourse to the Borrower and (B) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Mortgage or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents in the event that the (I) first full monthly payment under the Note is not paid within five (5) days of notice that such payment is late (provided, however, that such grace period relates only to the recourse trigger described in this paragraph), or (II) failure of Borrower to permit on-site inspections of the Property subject to the rights of the Major Tenants under their respective Leases and any applicable cure period set 68 forth in the Loan Documents, to provide financial information as required under the Loan Documents subject to any applicable cure period (except for financial information required to be delivered by the Major Tenants pursuant to their respective Leases that has not been delivered to Borrower, provided Borrower has requested such financial information from the Major Tenants, or to comply with Section 4.1.30 hereof, or (III) failure of Borrower to obtain Lender's prior written consent to any subordinate financing or other voluntary lien encumbering the Property, or (IV) failure of Borrower to obtain Lender's prior written consent to any assignment, transfer or conveyance of the Property, or any portion thereof, or any interest therein as required by this Agreement. Notwithstanding the provision set forth in clause (III) of this paragraph, a voluntary lien OTHER THAN a lien securing an extension of credit filed against the Property shall not constitute a recourse trigger for purposes of this paragraph provided such lien (A) is fully bonded to the satisfaction of Lender and discharged of record within ninety (90) days of filing, or (B) within such ninety (90) day period, Lender receives affirmative title insurance from the title insurance company insuring the lien of the Mortgage that such lien is subject and subordinate to the lien of the Mortgage and no enforcement action is commenced by the applicable lien holder. Section 9.5 TERMINATION OF MANAGER. If (a) the amounts evidenced by the Note have been accelerated pursuant to Section 8.1(b) hereof, (b) the Manager shall become insolvent, (c) the Manager is in default under the terms of the Management Agreement beyond any applicable grace or cure period, or (d) Manager is not managing the Property in accordance with the management practices of nationally recognized management companies managing similar properties in locations comparable to those of the Property, then, in the case of (a), (b), (c) or (d), Borrower shall, at the request of Lender, terminate the Management Agreement and replace the Manager with a manager reasonably approved by Lender on terms and conditions reasonably satisfactory to Lender, it being understood and agreed that the management fee for such replacement manager shall not exceed then prevailing market rates. In addition and without limiting the rights of Lender hereunder or under any of the other Loan Documents, in the event that (i) the Management Agreement is terminated, (ii) the Manager no longer manages the Property, or (iii) a receiver, liquidator or trustee shall be appointed for Manager or if Manager shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Manager, or if any proceeding for the dissolution or liquidation of Manager shall be instituted, then Borrower (at Borrower's sole cost and expense) shall immediately, in its name, establish new deposit accounts separate from any other Person with a depository satisfactory to Lender into which all Rents and other income from the Property shall be deposited and shall grant Lender a first priority security interest in such account pursuant to documentation satisfactory in form and substance to Lender. Section 9.6 SERVICER. At the option of Lender, the Loan may be serviced by a servicer/trustee (the "SERVICER") selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "SERVICING AGREEMENT") between Lender and Servicer. Lender shall be responsible for any set-up fees or any other costs relating to or arising under the Servicing Agreement. Section 9.7 SPLITTING THE LOAN. At the election of Lender in its sole discretion, the Loan shall be split and severed into two or more loans which shall not be cross-collateralized 69 or cross-defaulted with each other. Borrower hereby agrees to deliver to Lender to effectuate such severing of the Loan as reasonably requested by Lender, (a) additional executed documents, or amendments and modifications to the Loan Documents, (b) new opinions or updates to the opinions delivered to Lender in connection with the closing of the Loan, (c) endorsements and/or updates to the title insurance policies delivered to Lender in connection with the closing of the Loan, and (d) any other certificates, instruments and documentation reasonably determined by Lender as necessary or appropriate to such severance (the items described in subsections (a) through (d) collectively hereinafter shall be referred to as "SEVERING DOCUMENTATION"), which Severing Documentation shall be acceptable to Lender in form and substance in its reasonable discretion. Lender hereby agrees to be responsible for all reasonable third-party expenses incurred in connection with the preparation and delivery of the Severing Documentation and the effectuation of the uncrossing of the Loan from the additional Loans. Borrower hereby acknowledges and agrees that upon such severing of the Loan, Lender may effect, in its sole discretion, one or more Securitizations of which the severed loans may be a part. ARTICLE X MISCELLANEOUS Section 10.1 SURVIVAL. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender. Section 10.2 LENDER'S DISCRETION. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Section 10.3 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND APPLICABLE FEDERAL LAWS. Section 10.4 MODIFICATION, WAIVER IN WRITING. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, 70 no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Section 10.5 DELAY NOT A WAIVER. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Section 10.6 NOTICES. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document except as otherwise provided in Section 1.01 of the Rider to the Mortgage, shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section): If to Lender: KeyBank National Association 911 Main Street, Suite 1500 Kansas City, Missouri 64105 Attention: Loan Servicing If to Trustee: Kenneth F. Plifka Stutzman, Bromberg, Esserman & Plifka 2323 Bryan Street, 22nd Floor Dallas, Texas 75201 If to Borrower: Inland Western North Richland Hills Davis Limited Partnership c/o Inland Western Retail Real Estate Trust, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attention: Roberta Matlin 71 With a copy to: Inland Western Retail Real Estate Trust, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attention: Robert H. Baum, Esq. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day, Section 10.7 TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND LENDER. Section 10.8 HEADINGS. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 10.9 SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 10.10 PREFERENCES. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. Section 10.11 WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or 72 the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrower. Section 10.12 REMEDIES OF BORROWER. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Section 10.13 EXPENSES: INDEMNITY. (a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender upon receipt of written notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Property); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (iv) except as otherwise provided in this Agreement, the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters reasonably requested by Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Property, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Property or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such 73 costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. (b) BORROWER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS LENDER FROM AND AGAINST ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR LENDER IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING COMMENCED OR THREATENED, WHETHER OR NOT LENDER SHALL BE DESIGNATED A PARTY THERETO), THAT MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST LENDER IN ANY MANNER RELATING TO OR ARISING OUT OF (I) ANY BREACH BY BORROWER OF ITS OBLIGATIONS UNDER, OR ANY MATERIAL MISREPRESENTATION BY BORROWER CONTAINED IN, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, (II) THE USE OR INTENDED USE OF THE PROCEEDS OF THE LOAN OR (III) ANY PURCHASE PRICE ADJUSTMENT (COLLECTIVELY, THE "INDEMNIFIED LIABILITIES"): PROVIDED. HOWEVER. THAT BORROWER SHALL NOT HAVE ANY OBLIGATION TO LENDER HEREUNDER TO THE EXTENT THAT SUCH INDEMNIFIED LIABILITIES ARISE FROM THE GROSS NEGLIGENCE, ILLEGAL ACTS, FRAUD OR WILLFUL MISCONDUCT OF LENDER. TO THE EXTENT THAT THE UNDERTAKING TO INDEMNIFY, DEFEND AND HOLD HARMLESS SET FORTH IN THE PRECEDING SENTENCE MAY BE UNENFORCEABLE BECAUSE IT VIOLATES ANY LAW OR PUBLIC POLICY, BORROWER SHALL PAY THE MAXIMUM PORTION THAT IT IS PERMITTED TO PAY AND SATISFY UNDER APPLICABLE LAW TO THE PAYMENT AND SATISFACTION OF ALL INDEMNIFIED LIABILITIES INCURRED BY LENDER, Section 10.14 SCHEDULES INCORPORATED. The Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. Section 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. Section 10.16 NO JOINT VENTURE OR PARTNERSHIP: NO THIRD PARTY BENEFICIARIES. (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy 74 relationship between Borrower and Lender nor to grant Lender any interest in the Property other than that of mortgagee, beneficiary or lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. Section 10.17 PUBLICITY. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the Financing evidenced by the Loan Documents, to Lender, or any of its Affiliates shall be subject to the prior written approval of Lender. All news releases, publicity or advertising by Lender through any media intended to reach the general public which refers solely to the Borrower or to the Loan made by the Lender to the Borrower shall be subject to the prior written approval of Borrower, provided however, the foregoing shall not apply to Provided Information included in disclosure documents in connection with a Securitization. Section 10.18 WAIVER OF MARSHALLING OF ASSETS. To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's partners and others with interests in Borrower, and of the Property, or to a sale in inverse order of alienation in the event of foreclosure of the Mortgage or sale of the Properly by power of sale, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Property for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Property in preference to every other claimant whatsoever. Section 10.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents. Section 10.20 CONFLICT: CONSTRUCTION OF DOCUMENTS: RELIANCE. In the event of any conflict between the provisions of this Loan Agreement and any of the other Loan Documents, the provisions of this Loan Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not. be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own 75 judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. Section 10.21 BROKERS AND FINANCIAL ADVISORS. BORROWER HEREBY REPRESENTS THAT IT HAS DEALT WITH NO FINANCIAL ADVISORS, BROKERS, UNDERWRITERS, PLACEMENT AGENTS, AGENTS OR FINDERS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OTHER THAN INLAND MORTGAGE CORP. BORROWER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD LENDER HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, COSTS AND EXPENSES OF ANY KIND (INCLUDING LENDER'S REASONABLE ATTORNEYS' FEES AND EXPENSES) IN ANY WAY RELATING TO OR ARISING FROM A CLAIM BY ANY PERSON THAT SUCH PERSON ACTED ON BEHALF OF BORROWER OR LENDER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREIN. THE PROVISIONS OF THIS SECTION 10.21 SHALL SURVIVE THE EXPIRATION AND TERMINATION OF THIS AGREEMENT AND THE PAYMENT OF THE DEBT. Section 10.22 PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements or understandings among or between such parties, whether oral or written, including, without limitation, the Commitment Letter dated _______________, 2004 between Borrower and Lender are superseded by the terms of this Agreement and the other Loan Documents and unless specifically set forth in a writing contemporaneous herewith the terms, conditions and provisions of such prior agreement do not survive execution of this Agreement. Section 10.23 TRANSFER OF LOAN. In the event that Lender transfers the Loan, Borrower shall continue to make payments at the place set forth in the Note until such time that Borrower is notified in writing by Lender that payments are to be made at another place. [THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 76 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. BORROWER: INLAND WESTERN NORTH RICHLAND HILLS DAVIS LIMITED PARTNERSHIP, an Illinois limited partnership By: Inland Western North Richland Hills Davis GP, L.L.C., a Delaware limited liability company, its general partner By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member, By: /s/ Valerie Medina ------------------------------ Name: Valerie Medina Title: Asst Secretary KEYBANK NATIONAL ASSOCIATION, a national banking association By:--------------------------------- Name:------------------------------- Title:------------------------------ 77 ACKNOWLEDGMENT STATE OF Illinois COUNTY OF DuPage On this 6th day of August, 2004, before me, Susan Maret, a Notary Public in and for said state, personally appeared Valerie Medina, who being by me duly sworn did say that she is the Asst Secretary of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of Inland Western North Richland Hills Davis GP, L.L.C., a Delaware limited liability company, the general partner of lnland Western North Richland Hills Davis Limited Partnership, an Illinois limited partnership, and that the within instrument was signed and sealed in behalf of said corporation in behalf of said limited liability company by authority of its board of directors, and acknowledged said instrument to be the free act and deed of said corporation in behalf of said limited liability company for the purposes therein stated. OFFICIAL SEAL SUSAN M. MARET NOTARY PUBLIC-STATE OF ILLINOIS MY COMMISSION EXPIRES: 12/8/07 [Notarial Seal] Susan M. Maret -------------------------------- Print Name: Susan M. Maret ------------------ My commission expires: 12/8/07 ------------ 78 SCHEDULE 1 Intentionally Omitted SCH. X-I SCHEDULE II RENT ROLL (next page) SCH. X-2 28-Jul-04 04:49 PM Inland Western MS0515_1 OMEAHAWM Commercial Tenant Rent Roll (Annual) PAGE 1 For July 28, 2004 Building: DAVIS TOWNE CROSSING (5014) Owner: { }
Bldg Tenant/ Area Rent Rent Annual Rate/ - Additional Rent / Sq ft - Mgr Uni Te Trade Name (sq ft) Opt From To Rent Sq. Foot Typ CAM Taxes Insur Other - ---- --- -- ------------------- ------- ----- -------- ------- ---------- -------- --- ----- ------ ----- ----- 5014 1 1 SCRAPBOOK PALACE 3,000 10/2003 10/2007 57,000.00 19.00 RET 1.70 2.50 0.00 0.00 LA SCRAPBOOKS-N-GIFT OPT 1 11/2007 10/2009 63,000.00 21.00 5014 2 VACANT 1,500 06/30/04 27,000.00 18.00 RET 5014 3 VACANT 1,560 06/30/04 28,080.00 18.00 RET 5014 4 1 FRIEDMANS JEWELER 1,727 10/2003 10/2008 32,812.92 19.00 RET 1.70 2.25 0.00 0.00 LA F.I. STORES, L.P. OPT 1 11/2008 10/2011 32,812.92 19.00 OPT 2 11/2011 10/2014 34,539.96 20.00 OPT 3 11/2014 10/2017 36,267.00 21.00 5014 5 1 LUXURY NAILS 1,400 09/2003 09/2008 29,400.00 21.00 RET 1.70 2.25 0.00 0.00 LA HUYEN NGUYEN OPT 1 10/2008 09/2013 32,199.96 23.00 5014 6 1 PAYLESS SHOESOURC 3,000 07/2003 07/2008 54,000.00 18.00 RET 1.50 0.00 0.00 0.00 LA PAYLESS SHOESOURC 08/2008 07/2013 57,000.00 19.00 OPT 1 08/2013 07/2018 62,259.96 20.75 OPT 2 08/2018 07/2023 65,250.00 21.75 5014 7 1 RADIOSHACK 2,400 09/2003 08/2008 48,000.00 20.00 RET 1.85 2.00 0.00 0.00 LA RADIOSHACK CONPOR OPT 1 09/2008 08/2013 52,800.00 22.00 OPT 2 09/2013 08/2018 57,600.00 24.00 OPT 3 09/2018 08/2023 63,840.00 26.60 5014 8 1 COTTON PATCH CAFE 4,400 12/2003 11/2008 87,999.96 20.00 RET 1.70 2.25 0.00 0.00 LA COTTON PATCH CAFE OPT 1 12/2008 11/2013 96,799.92 22.00 5014 9 1 H & R BLOCK 2,264 11/2003 05/2007 45,279.96 20.00 RET 1.70 2.25 0.00 0.00 LA H & R BLOCK AND A OPT 1 06/2007 05/2010 48,675.96 21.50 5014 10 1 EB GAMES 1,500 09/2003 09/2008 31,500.00 21.00 RET 1.75 2.50 0.00 0.00 LA ELECTRONIC BOUTIQ OPT 1 10/2008 09/2013 34,500.00 23.00 OPT 2 10/2013 09/2018 37,950.00 25.30 5014 11 1 SPORTS CLIPS 1,440 09/2003 08/2008 28,800.00 20.00 RET 1.45 2.25 0.00 0.00 LA 4 PROPHETS, LLC OPT 1 09/2008 08/2013 31,680.00 22.00 OPT 2 09/2013 08/2018 34,560.00 24.00 5014 12 1 THE UPS STORE 1,400 03/2004 02/2009 26,599.92 19.00 RET 1.65 2.19 0.00 0.00 LA MAILIN INC OPT 1 03/2009 02/2014 0.00 0.00 5014 13 1 QUIZNO'S CLASSIC 1,600 12/2003 11/2008 30,399.96 19.00 RET 1.50 2.00 0.00 0.00 LA C.R.U.S.T. FOOD G 12/2008 11/2013 31,999.92 20.00 OPT 1 12/2013 11/2018 0.00 0.00
28-Jul-04 04:49 PM Inland Western MS0516_1 OMEAHAWM Commercial Tenant Rent Roll (Annual) PAGE 2 For July 28, 2004 Building: DAVIS TOWNE CROSSING (5014) Owner: { }
Bldg Tenant/ Area Rent Rent Annual Rate/ - Additional Rent / Sq ft - Mgr Uni Te Trade Name (sq ft) Opt From To Rent Sq. Foot Typ CAM Taxes Insur Other - ---- --- -- ------------------- ------- ----- -------- ------- ---------- -------- --- ----- ------ ----- ----- 5014 14 1 LADY USA FITNESS 6,000 10/2003 10/2008 102,000.00 17.00 RET 1.70 2.25 0.00 0.00 LA LADY USA FITNESS OPT 1 11/2008 10/2013 112,500.00 18.75 OPT 1 11/2013 10/2018 123,600.00 20.60 5014 15 VACANT 4,144 06/30/04 74,592.00 18.00 RET 5014 16 1 WASHINGTON MUTUAL 4,000 08/2003 08/2013 84,999.96 21.25 RET 1.50 0.00 0.00 0.00 LA WASHINGTON MUTUAL 09/2013 08/2023 93,500.04 23.38 09/2023 08/2028 102,849.96 25.71 OPT 1 09/2028 08/2033 0.00 0.00 OPT 1 09/2033 08/2038 0.00 0.00 OPT 1 09/2038 08/2043 0.00 0.00 OPT 1 09/2041 08/2048 0.00 0.00 5014 17 VACANT 54 06/30/04 0.00 0.00 STO ------- ---------- ----- ------ ----- ---- Totals for DAVIS TOWNE CROSSING (5014) OCCUPIED TOTAL 34,131 658,792.68 CAM 1.65 VACANT TOTAL 7,258 129,672.00 TAX 1.79 ------- ---------- INS 0.00 GROSS TOTAL 41,389 788,464.68 OTH 0.00 AVERAGE RENT PER SQUARE FOOTAGE WITHIN CATEGORIES (Applicants Excluded) STATUS TOT UNITS 0-2,500 2,501-5,000 5,001-8,000 8,001-15,000 15,001-25,000 25,001+ ----------- --------- ------- ----------- ----------- ------------ ------------- ------- Vacant 4 12.00 18.00 0.00 0.00 0.00 0.00 Occupied 13 19.88 19.56 17.00 0.00 0.00 0.00 Both 17 17.73 19.25 17.00 0.00 0.00 0.00 =========== ========= ======= =========== =========== ============ ============= ======= Totals for Report OCCUPIED TOTAL 34,131 658,792.68 CAM 1.65 VACANT TOTAL 7,258 129,672.00 TAX 1.79 ------- ---------- INS 0.00 GROSS TOTAL 41,389 788,464.68 OTH 0.00 AVERAGE RENT PER SQUARE FOOTAGE WITHIN CATEGORIES (Applicants Excluded) STATUS TOT UNITS 0-2,500 2,501-5,000 5,001-8,000 8,001-15,000 15,001-25,000 25,001+ ----------- --------- ------- ----------- ----------- ------------ ------------- ------- Vacant 4 12.00 18.00 0.00 0.00 0.00 0.00 Occupied 13 19.88 19.56 17.00 0.00 0.00 0.00 Both 17 17.73 19.25 17.00 0.00 0.00 0.00 =========== ========= ======= =========== =========== ============ ============= =======
END OF REPORT SCHEDULE III REQUIRED REPAIRS [NONE] SCH. X-3 SCHEDULE IV Intentionally omitted SCH. X-4 SCHEDULE V Intentionally omitted SCH. X-5 SCHEDULE VI AFFILIATE AGREEMENTS MANAGEMENT AGREEMENT SCH. X-6 MANAGEMENT AGREEMENT IN CONSIDERATION of the mutual covenants and agreements herein contained, Inland Western North Richland Hills Limited Partnership, an Illinois limited partnership ("OWNER") and Inland Southwest Management Corp., a Delaware corporation ("MANAGER"), agree as follows; 1. OWNER hereby employs the MANAGER exclusively to rent, lease, operate and manage the property commonly known as Davis Towne Crossing located in North Richland Hills, Texas, and legally described on Exhibit "A" attached hereto and made a part hereof (the "Premises"), upon the terms and conditions hereinafter set forth, for a term beginning on the 30th day of June, 2004 and ending on the 31st day of December, 2004 and thereafter for three successive three year renewal periods, with the first such three year renewal period commencing on January 1 of 2005 and ending December 31 of 2007, unless on or before thirty (30) days prior to the date last above mentioned or on or before thirty (30) days prior to the expiration of any such renewal period, MANAGER shall notify OWNER in writing that it elects to terminate this Agreement, in which case this Agreement shall be thereby terminated on said last mentioned date. In addition, and notwithstanding the foregoing, OWNER may terminate this Agreement at any time upon delivery of written notice to MANAGER not less than thirty (30) days prior to the effective date of termination, in the event of (and only in the event of) a showing by OWNER of willful misconduct, gross negligence, or deliberate malfeasance by MANAGER in the performance of MANAGER'S duties hereunder. In the event this Agreement is terminated for any reason prior to the expiration of its original term or any renewal term, the OWNER shall indemnify, protect, defend, save and hold the MANAGER and all of its shareholders, officers, directors, employees, MANAGERS, successors and assigns (collectively, "Indemnified Parties") harmless from and against any and all claims, causes of action, demands, suits, proceedings, loss, Judgments, damage, awards, liens, fines, costs, attorney's fees and expenses, of every kind and nature whatsoever (collectively, "Losses"), which may be imposed on or incurred by the MANAGER by reason of the willful misconduct, gross negligence and/or unlawful acts (such unlawfulness having been adjudicated by a court of proper jurisdiction) of OWNER. 2. THE MANAGER AGREES: 2.1 To accept the management of the Premises, to the extent, for the period, and upon the terms herein provided and agrees to furnish the services of its organization for the rental, leasing, operation and management of the Premises, and, without limiting the generality of the foregoing, the MANAGER agrees to be responsible for those specific duties and functions set forth in Section 3 hereof. MANAGER shall be entitled at ail times to manage the Premises in accordance with the MANAGER'S standard operating policies and procedures, except to the extent that any specific provisions contained herein are to the contrary, in which case MANAGER shall manage the Premises consistent with such specific provisions. MANAGER agrees to use its best efforts to maintain the highest occupancy at the highest rents for each space comprising the Premises. 2.2 To render monthly reports for the Premises to the OWNER, to the attention of the individual and address as directed by the OWNER from time to time, and to remit to the OWNER the excess of Gross Income (as defined in Section 3.3 hereof) over expenses paid per Section 3.4 hereof ("Net Proceeds") for each month on or before the 15th day of the following month. MANAGER will remit the Net Proceeds to the OWNER at the address - 2 - as stated in Section 6.1 hereof. The reports to be submitted shall consist of the MANAGER'S Commercial Income Report and Commercial Budget Variance Report, (samples of which are attached as "Exhibit B") and such other monthly, quarterly and annual reports as are customary in commercial property management relationships and as reasonably requested by OWNER in writing from time to time. 2.3 In case the expenses paid per Section 3.4 hereof shall be in excess of the Gross Income for any monthly period, MANAGER shall notify OWNER of same and OWNER agrees to pay such excess Immediately upon request from the MANAGER, but nothing herein contained shall obligate the MANAGER to advance its own funds on behalf of the OWNER. All advances by MANAGER on behalf of OWNER shall be paid to MANAGER by OWNER within ten (10) days after request. 2.4 To prepare annualized budgets for operation of the Premises and submit same to the OWNER for approval. Such budgets shall be for planning and informational purposes only, and the MANAGER shall have no liability to the OWNER for any failure to meet any such budget. However, MANAGER will use its best efforts to operate the Premises within the approved budget. The parties acknowledge that the first such annual budget has been prepared and approved for the year commencing June 30th, 2004 and ending on December 31, 2004. Notwithstanding the period covered by the first annual budget, all subsequent annual budgets shall cover the period from January 1st of each year through December 31st of such year. The proposed annual budget for each calendar year shall be submitted by MANAGER to the OWNER by December 1st of the year preceding the year for which it applies. OWNER shall notify MANAGER within fifteen (15) days as to whether OWNER has approved the proposed annual budget or not. If the - 3 - OWNER disapproves the proposed budget, the OWNER shall notify the MANAGER of what, specifically, OWNER disapproves of, and the OWNER and MANAGER shall make the necessary amendments to the annual budget. During the time OWNER and MANAGER are preparing these amendments, MANAGER will continue to operate the Premises according to the last approved budget. The OWNER'S approval of the annual budget shall constitute approval for the MANAGER to expend sums for all budgeted expenditures, without the necessity to obtain additional approval of the OWNER under any other expenditure limitations as set forth elsewhere in this Agreement. 3. THE OWNER AGREES: And does hereby give the MANAGER the following exclusive authority and powers (all of which shall be exercised in the name of MANAGER, as MANAGER for the OWNER) and the OWNER agrees to assume all expenses in connection therewith: 3.1 To advertise the Premises or any part thereof and to display signs thereon, as permitted by law; and to rent the same; to pay all expenses of leasing the Premises, including but not limited to, newspaper and other advertising, signage, banners, brochures, referral commissions, leasing commissions, finder's fees and salaries, bonuses and other compensation of leasing personnel responsible for the leasing of the Premises; to cause references of prospective tenants to be investigated, it being understood and agreed by the parties hereto that the MANAGER does not guarantee the credit worthiness or collectibility of accounts receivable from tenants, users or lessees; and to negotiate new leases and renewals and cancellations of existing leases which shall be subject to the MANAGER obtaining OWNER'S approval. The MANAGER may collect from tenants all or any of the following: a late rent administrative charge, a non-negotiable check charge, credit report - 4 - fee, a subleasing administrative charge and/or broker's commission and need not account for such charges and/or commission to the OWNER; to terminate tenancies and to sign and serve in the name of the OWNER of the Premises such notices as are deemed necessary by the MANAGER; to institute and prosecute actions to evict tenants and to recover possession of the Premises or portions thereof; with the OWNER'S authorization, to sue for in the name of the OWNER of the Premises and recover rent and other sums due; and to settle, compromise, and release such actions or suits, or reinstate such tenancies. All expenses of litigation including, but not limited to, attorneys' fees, filing fees, and court costs which MANAGER shall incur in connection with the collecting of rent and other sums, or to recover possession of the Premises or any portion thereof shall be deemed to be an operational expense of the Premises. MANAGER and OWNER shall concur on the selection of the attorney to handle such litigation. 3.2 To hire, supervise, discharge, and pay all labor required for the operation and maintenance of the Premises including but not limited to on site personnel, managers, assistant managers, leasing consultants, engineers, janitors, maintenance supervisors and other employees required for the operation and maintenance of the Premises, including personnel spending a portion of their working hours (to be charged on a pro rata basis) at the Premises (all of whom shall be deemed employees of the Premises, not of the MANAGER). All expenses of such employment shall be deemed operational expenses of the Premises. To make or cause to be made all ordinary repairs and replacements necessary to preserve the Premises in its present condition and for the operating efficiency thereof and all alterations required to comply with lease requirements, and to do decorating on the Premises; to negotiate and enter into, as MANAGER of the OWNER of the - 5 - Premises, contracts far all items on budgets that have been approved by OWNER, any emergency services or repairs for items not exceeding $5,000.00, appropriate service agreements and labor agreements for normal operation of the Premises, which have terms not to exceed three (3) years, and agreements for all budgeted maintenance, minor alterations, and utility services, including, but not limited to, electricity, gas, fuel, water, telephone, window washing, scavenger service, landscaping, snow removal, pest exterminating, decorating and legal services in connection with the leases and service agreements relating to the Premises, and other services or such of them as the MANAGER may consider appropriate; and to purchase supplies and pay all bills. MANAGER shall use its best efforts to obtain the foregoing services and utilities for the Premises at the most economical costs and terms available to MANAGER. The OWNER hereby appoints MANAGER as OWNER'S authorized MANAGER for the purpose of executing, as managing MANAGER for said OWNER, all such contracts. In addition, the OWNER agrees to specifically assume in writing all obligations under all such contracts so entered into by the MANAGER, on behalf of the OWNER of the Premises, upon the termination of this Agreement and the OWNER shall indemnify, protect, save, defend and hold the MANAGER and all of its shareholders, officers, directors, employees, MANAGERS, successors and assigns harmless from and against any and all claims, causes of action, demands, suits, proceedings, loss, judgments, damage, awards, liens, fines, costs, attorney's fees and expenses, of every kind and nature whatsoever, resulting from, arising out of or in any way related to such contracts and which relate to or concern matters occurring after termination of this Agreement, but excluding matters arising out of MANAGER'S willful misconduct, gross negligence and/or unlawful acts. MANAGER shall - 6 - secure the approval of, and execution of appropriate contracts by, the OWNER for any non-budgeted and non emergency/contingency capital items, alterations or other expenditures in excess of $5,000.00 for any one item, securing for each item at least three (3) written bids, if practicable, or providing evidence satisfactory to OWNER that the contract amount is lower than industry standard pricing, from responsible contractors. MANAGER shall have the right from time to time during the term hereof, to contract with and make purchases from subsidiaries and affiliates of the MANAGER, provided that contract rates and prices are competitive with other available sources. The MANAGER may at any time and from time to time request and receive the prior written authorization of the OWNER of the Premises of any one or more purchases or other expenditures, notwithstanding that the MANAGER may otherwise be authorized hereunder to make such purchases or expenditures. 3.3 To collect rents and/or assessments and other items, including but not limited to tenant payments for real estate taxes, property liability and other insurance, damages and repairs, common area maintenance, tax reduction fees and all other tenant reimbursements, administrative charges, proceeds of rental interruption insurance, parking fees, income from coin operated machines and other miscellaneous income, due or to become due (all such items being referred to herein as "Gross Income") and give receipts therefor and to deposit all such Gross Income collected hereunder in the MANAGER'S custodial account which the MANAGER will open and maintain, in a state or national bank of the MANAGER'S choice and whose deposits are insured by the Federal Deposit Insurance Corporation, exclusively for the Premises and any other properties owned by OWNER (or any entity that is owned or controlled by the general partner of the OWNER) - 7 - and managed by MANAGER. OWNER agrees that MANAGER shall be authorized to maintain a reasonable minimum balance (to be determined jointly from time to time) in such account. MANAGER may endorse any and all checks received in connection with the operation of the Premises and drawn to the order of the OWNER and the OWNER shall, upon request, furnish the MANAGER'S depository with an appropriate authorization for the MANAGER to make such endorsement. 3.4 To pay all expenses of the Premises from the Gross Income collected in accordance with 3.3 above, from the MANAGER'S custodial account. It is understood that the Gross Income will be used first to pay the compensation to the MANAGER as contained in Paragraph 5 below, then operational expenses and then any mortgage indebtedness, including real estate tax and insurance impounds, but only as directed by the OWNER in writing and only if sufficient Gross Income is available for such payments. 3.5 Nothing in this Agreement shall be interpreted in such a manner as to obligate the MANAGER to pay from Gross Income, any expenses incurred by OWNER prior to the commencement of this Agreement, except to the extent the OWNER advances additional funds to pall such expenses. 3.6 To collect and handle tenants' security deposits, including the right to apply such security deposits to unpaid rent, and to comply, on behalf of the OWNER of the Premises, with applicable state or local laws concerning security deposits and interest thereon, if any. 3.7 The MANAGER shall not be required to advance any monies for the care or management of the Premises, and the OWNER agrees to advance all monies necessary therefor. If the MANAGER shall elect to advance any money in connection with the - 8 - Premises, the OWNER agrees to reimburse the MANAGER forthwith and hereby authorizes the MANAGER to deduct such advances from any monies due the OWNER. 3.8 In connection with any insured losses or damages, to handle all steps necessary regarding any such claim; provided that the MANAGER will not make any adjustments or settlements in excess of $10,000.00 without the OWNER'S prior written consent. 3.9 Notwithstanding anything to the contrary contained in this Agreement, OWNER acknowledges and agrees that any or all of the duties of MANAGER as contained herein may be delegated by MANAGER and performed by a person or entity ("Submanager") with whom MANAGER contracts for the purpose of performing such duties. OWNER specifically grants MANAGER the authority to enter into such a contract with a Submanager; provided that OWNER shall have no liability or responsibility to any such Submanager for the payment of the Submanager's fee or for reimbursement to the Submanager of its expenses or to indemnify the Submanager in any manner for any matter; and provided further that MANAGER shall require such Submanager to agree, in the written agreement setting forth the duties and obligations of such Submanager, to indemnify the OWNER for all loss, damage or claims incurred by OWNER as a result of the willful misconduct, gross negligence and/or unlawful acts of the Submanager. OWNER further acknowledges and agrees that MANAGER may assign this Agreement and all of MANAGER'S rights and obligations hereunder, to another management entity that is then managing other property for OWNER ("Successor Manager"). OWNER specifically grants MANAGER the authority to make such an assignment to a Successor Manager. - 9 - 4. THE OWNER FURTHER AGREES: 4.1 To indemnify, defend, protect, save and hold the MANAGER and all of its shareholders, officers, directors, employees., agents, successors and assigns (collectively, "Indemnified Parties") harmless from any and all claims, causes of action, demands, suits, proceedings, loss, judgments, damage, awards, liens, fines, costs, attorney's fees and expenses, of every kind and nature whatsoever (collectively, "Losses") in connection with or in any way related to the Premises and from liability for damage to the Premises and injuries to or death of any person whomsoever, and damage to property; provided, however, that such indemnification shall not extend to any such Losses arising out of the willful misconduct, gross negligence and/or unlawful acts (such unlawfulness having been adjudicated by a court of proper jurisdiction) of MANAGER or any of the other Indemnified Parties. OWNER agrees to procure and carry at its own expense Public Liability insurance, Fire and Extended Coverage Insurance, Burglary and Theft Insurance, Rental Interruption Insurance, Flood Insurance (if appropriate) and Boiler Insurance (if appropriate) naming the OWNER and the MANAGER as insureds and adequate to protect their interests and in form, substance, and amounts reasonably satisfactory to the MANAGER, and to furnish to the MANAGER certificates and policies evidencing the existence of such insurance. The premiums for all such insurance maintained by the OWNER shall be paid by either the OWNER directly or, provided sufficient Gross Income is available, by the MANAGER from such Gross Income. Unless the OWNER shall provide such insurance and furnish such certificate and policy within ten (10) days from the date of this Agreement, the MANAGER may, in its sole discretion, but shall not be obligated to, place said insurance and charge the cost thereof to the account of the OWNER. All such insurance policies shall provide - 10 - that the MANAGER shall receive thirty (30) days' written notice prior to cancellation of the policy. MANAGER shall not be liable for any error of judgment or for any mistake of fact or law, or for any thing which it may do or refrain from doing, except in cases of willful misconduct, gross negligence and/or unlawful acts (such unlawfulness having been adjudicated by a court of proper Jurisdiction). 4.2 OWNER hereby warrants and represents to MANAGER that to the best of OWNER'S knowledge, neither the Premises, nor any part thereof, has previously been or is presently being used to treat, deposit, store, dispose of or place any hazardous substance, that may subject MANAGER to liability or claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.A. Section 9607) or any constitutional provision, statute, ordinance, law, or regulation of any governmental body or of any order or ruling of any public authority or official thereof, having or claiming to have jurisdiction thereover. Furthermore, OWNER agrees to indemnify, protect, defend, save and hold the MANAGER and all of its shareholders, officers, directors, employees, agents, successors and assigns harmless from any and all claims, causes of action, demands, suits, proceedings, loss, judgments, damage, awards, liens, fines, costs, attorney's fees and expenses, of every kind and nature whatsoever, involving, concerning or in any way related to any past, current or future allegations regarding treatment, depositing, storage, disposal or placement by any party other than MANAGER of hazardous substances on the Premises. 4.3 To give adequate advance written notice to the MANAGER if the OWNER desires that the MANAGER make payment, out of Gross Income, to the extent funds are available after the payment of the MANAGER'S compensation as contained in Paragraph 5 - 11 - and all operational expenses, of mortgage indebtedness, general taxes, special assessments, or fire, boiler or any other insurance premiums. In no event shall the MANAGER be required to advance its own money in payment of any such indebtedness, taxes, assessments or premiums. 5. THE OWNER AGREES TO PAY THE MANAGER, AS A MONTHLY MANAGEMENT FEE HEREUNDER, an amount no greater than four and one half percent (4 1/2%) of Gross Income for the month for which the payment is made, which shall be deducted monthly by the MANAGER and retained by the MANAGER from Gross Income prior to payment to OWNER of Net Proceeds. Such Management Fee shall be compensation for those services specified herein. Any services beyond those specified herein, such as sales brokerage, construction management, loan origination and servicing, property tax reduction and risK management services, shall be performed by MANAGER and compensated by OWNER only if the parties agree on the scope of such work and provided that the compensation to be paid therefor will not exceed 90% of that which would be paid to unrelated parties providing such services and provided further that all such compensation must be approved by a majority of the independent directors of OWNER, OWNER acknowledges and agrees that MANAGER may pay or assign all or any portion of its Management Fee to a Submanager as described in section 3.9 hereof. 5.1 MANAGER shall retain all administrative charges actually collected from tenants in connection with annual common area maintenance reconciliations and tenant chargebacks for same. - 12 - 6. IT IS MUTUALLY AGREED THAT: 6.1 OWNER shall designate one (1) person to serve as OWNER'S Representative in all dealings with MANAGER hereunder. Whenever the notification and reporting to OWNER or the approval, consent or other action of OWNER is called for hereunder, any such notification and reporting if sent to or specified in writing to the OWNER'S Representative, and any such approval, consent or action if executed by OWNER'S Representative, shall be binding on OWNER. The OWNER'S Representative shall be: NAME ADDRESS - ---- ------- Roberta S. Matlin 2901 Butterfield Road, Oak Brook, Illinois 60523 The OWNER'S Representative may be changed at the discretion of the OWNER, at any time and from time to time, and shall be effective upon MANAGER'S receipt of written notice of the new OWNER'S Representative. 6.2 The OWNER expressly withholds from the MANAGER any power or authority to make any structural changes in any building or to make any other major alterations or additions in or to any such building or equipment therein, or to incur any expense chargeable to the OWNER, other than expenses related to exercising the express powers above vested in the MANAGER without the prior written direction of the OWNER'S Representative, except such emergency repairs as may be required to ensure the safety of persons or property or which are immediately necessary for the preservation and safety of the Premises or the safety of the tenants and occupants thereof or are required to avoid the suspension of any necessary service to the Premises. The person identified above as - 13 - the OWNER'S Representative (and any designated successor or successors to such OWNER'S Representative) shall be the OWNER'S exclusive representative for all purposes hereof, and the MANAGER shall have the absolute right to rely upon all decisions, approvals and directions of such person. Such representative shall have the right to designate a successor representative by written notice to the MANAGER. 6.3 The MANAGER shall be responsible for notifying OWNER in the event it receives notice that any building on the Premises or any equipment therein does not comply with the requirements of any statute, ordinance, law or regulation of any governmental body or of any public authority or official thereof having or claiming to have jurisdiction thereover, MANAGER shall promptly forward to the OWNER any complaints, warnings, notices or summonses received by it relating to such matters. The OWNER represents that to the best of its knowledge the Premises and such equipment comply with all such requirements and authorizes the MANAGER to disclose the OWNER of the Premises to any such officials and agrees to indemnify, protect, defend, save and hold the MANAGER and the other Indemnified Parties harmless of and from any and all Losses which may be imposed on them or any of them by reason of the failure of OWNER to correct any present or future violation or alleged violation of any and all present or future laws, ordinances, statutes, or regulations of any public authority or official thereof, having or claiming to have jurisdiction thereover, of which it has actual notice. 6.4 In the event it is alleged or charged that any building on the Premises or any equipment therein or any act or failure to act by the OWNER with respect to the Premises or the sale, rental, or other disposition thereof fails to comply with, or is in violation of, any of the requirements of any constitutional provision, statute, ordinance, law, or regulation of - 14 - any governmental body or any order or ruling of any public authority or official thereof having or claiming to have jurisdiction thereover, and the MANAGER, in its sole and absolute discretion, considers that the action or position of the OWNER, with respect thereto may result in damage or liability to the MANAGER, the MANAGER shall have the right to cancel this Agreement at any time by written notice to the OWNER of its election so to do, which cancellation shall be effective upon the service of such notice. Such notice may be served personally or by registered mail, on or to the person named to receive the MANAGER'S monthly statement at the address designated for such person as provided in Paragraph 6.1 above, and if served by mall shall be deemed to have been served when deposited in the mails. Such cancellation shall not release the indemnities of the OWNER set forth in this Agreement, including, but not limited to, those set forth in Paragraphs 1.3.2, 4.1, 4.2 and 6,3 above and shall not terminate any liability or obligation of the OWNER to the MANAGER for any payment, reimbursement, or other sum of money then due and payable to the MANAGER hereunder. 6.5 All personnel expenses, including but not limited to, wages, salaries, insurance, fringe benefits, employment related taxes and other governmental charges, shall be charges incurred in connection with the Premises for purposes of Paragraph 3.4 hereof, to the extent such expenses are apportioned by the MANAGER to services rendered for the benefit of the Premises. The number and classification of employees serving the Premises shall be as determined by the MANAGER to be appropriate for the proper operation of the Premises; provided that the OWNER may request changes in the number and/or classifications of employees, and the MANAGER shall make such changes unless in its judgment the resulting level of operation and/or maintenance of the Premises - 15 - will be inadequate. The MANAGER shall honor any collective bargaining contract covering employment at the Premises which is in effect upon the date of execution of this Agreement; provided that the MANAGER shall not assume or otherwise become a party to such contract for any purpose whatsoever and all personnel subject to such contract shall be considered the employees of the Premises and not the MANAGER. 7. The OWNER shall pay or reimburse the MANAGER for any sums of money due it under this Agreement for services and advances prior to termination of this Agreement. All provisions of this Agreement that require the OWNER to have insured, or to protect, defend, save, hold and indemnify or to reimburse the MANAGER shall survive any expiration or termination of this Agreement and, if MANAGER is or becomes involved in any claim, proceeding or litigation by reason of having been the MANAGER of the OWNER, such provisions shall apply as if this Agreement were still in effect. The parties understand and agree that the MANAGER may withhold funds for sixty (60) days after the end of the month in which thus Agreement is terminated to pay bills previously incurred but not yet invoiced and to close accounts. Should the funds withheld be insufficient to meet the obligation of the MANAGER to pay bills previously incurred, the OWNER will upon demand advance sufficient funds to the MANAGER to ensure fulfillment of MANAGER'S obligation to do so, within ten (10) days of receipt of notice and an itemization of such unpaid bills. 8. Nothing contained herein shall be construed as creating any rights in third parties who are not the parties to this Agreement, nor shall anything contained herein be construed to impose any liability upon OWNER or MANAGER for the performance by the OWNER or MANAGER under any other agreement they have entered into or may in the - 16 - future enter into, without the express written consent of the other having been obtained. Nothing contained in this Agreement shall be deemed or construed to create a partnership or joint venture between OWNER and MANAGER or to cause either party to be responsible in any way for the debts or obligations of the other or any other party (but nothing contained herein shall affect MANAGER'S responsibility to transmit payments for the account of OWNER as provided herein), it being the intention of the parties that the only relationship hereunder is that of MANAGER and principal. 9. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited or invalid under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. This Agreement, its validity, performance and enforcement shall be construed in accordance with, and governed by, the laws of the State in which the Premises are located. 10. This Agreement shall be binding upon the successors and assigns of the MANAGER and the heirs, administrators, executors, successors, and assignees of the OWNER. This Agreement contains the entire Agreement of the parties relating to the subject matter hereof, and there are no understandings, representations or undertakings by either party except as herein contained. This Agreement may be modified solely by a written agreement executed by both parties hereto. 11. If any party hereto defaults under the terms or conditions of this Agreement, the defaulting party shall pay the non-defaulting party's court costs and attorney's fees incurred in the enforcement of any provision of this Agreement. - 17 - 12. The failure of either party to this Agreement to, in any one or more instances, insist upon the performance of any of the terms, covenants or conditions of this Agreement, or to exercise any rights or privileges conferred in this Agreement, shall not be construed as thereafter waiving any such terms, covenants, conditions, rights or privileges, but the same shall continue in full force and effect as if no such forbearance or waiver had occurred. 13. This Agreement is deemed to have been drafted jointly by the parties, and any uncertainty or ambiguity shall not be construed for or against either party as an attribution of drafting to either party. 14. All notices given under this Agreement shall be sent by certified mail, return receipt requested, sent by facsimile transmission, or hand delivered at: FOR OWNER: FOR MANAGER: Inland Western North Richland Hills Inland Southwest Management Corp. Davis Limited Partnership ATTN: Roberta S. Matlin ATTN: Thomas P. McGuinness, President 2901 Butterfield Road 2901 Butterfield Road Oak Brook, Illinois 60523 Oak Brook, Illinois 60523 Fax: #630/218-4935 Fax: #630/218-4928 - 18 - IN WITNESS WHEREOF, the parties hereto, have affixed or caused to be affixed their respective signatures this 30th day of June, 2004. MANAGER: OWNER: INLAND SOUTHWEST INLAND WESTERN NORTH RICHLAND MANAGEMENT CORP. HILLS DAVIS LIMITED PARTNERSHIP, an Illinois limited partnership By: Inland Western North Richland Hills Davis GP, L.L.C., a Delaware limited liability By: /s/ Robert M. Berg company ----------------------- Its: Sr. Vice President ----------------------- By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Debra A Palmer -------------------------------------- Name: Debra A Palmer -------------------------------------- Title: Asst Secretary -------------------------------------- - 19 - SCHEDULE VII Intentionally Omitted SCH. X-7 SCHEDULE VIII Intentionally Omitted SCH. X-8 SCHEDULE IX Intentionally Omitted SCH X-9 SCHEDULE X OTHER CONTRACT FUNDS AGREEMENTS [NONE] SCH. X-10 EX-10.293 4 a2143310zex-10_293.txt EX-10.293 Exhibit 10.293 Loan No. 10024995 PROMISSORY NOTE $9,954,300.00 August ___, 2004 FOR VALUE RECEIVED, INLAND WESTERN CANTON PARADISE, L.L.C., a Delaware limited liability company, having its principal place of business at 2901 Butterfield Road, Oak Brook, Illinois 60523, as maker hereunder (referred to herein as "BORROWER"), hereby unconditionally promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a national banking association, its successors and assigns, having an address at 911 Main Street, Suite 1500, Kansas City, Missouri 64105 ("LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of NINE MILLION NINE HUNDRED FIFTY-FOUR THOUSAND THREE HUNDRED AND NO/100 DOLLARS ($9,954,300.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Interest Rate, and to be paid in accordance with the terms of this Note and that certain Loan Agreement, dated as of the date hereof, between Borrower and Lender (the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1 PAYMENT TERMS Borrower agrees to pay interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. This Note shall be the "Note" as defined in the Loan Agreement. TIME IS OF THE ESSENCE. ARTICLE 2 DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default, notice of exercise of said option being waived. ARTICLE 3 LOAN DOCUMENTS This Note is secured by the Mortgage and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgage and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4 SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the maximum lawful rate or amount, (b) in calculating whether any interest exceeds the lawful maximum, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender, and (c) if through any contingency or event, Lender receives or is deemed to receive interest in excess of the lawful maximum, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender, or if there is no such indebtedness, shall immediately be returned to Borrower. ARTICLE 5 NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6 WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the individuals comprising the partnership, and the term "Borrower," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a limited liability company, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the members comprising the company, and the term "Borrower," as used herein, shall include any alternate or successor company, but any predecessor company and its members shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the shareholders comprising, or the officers and 2 directors relating to, the corporation, and the term "Borrower" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. (Nothing in the foregoing sentence shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such entity which may be set forth in the Loan Agreement, the Mortgage or any other Loan Document.) ARTICLE 7 TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer except as provided in the Loan Agreement, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall from that date forward forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8 EXCULPATION The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference into this Note to the same extent and with the same force as if fully set forth herein. ARTICLE 9 GOVERNING LAW THIS NOTE SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND APPLICABLE FEDERAL LAWS. BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THE LOAN OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE LOAN, THIS NOTE OR ANY OTHER LOAN DOCUMEN, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMETN (WHETHER VERBAL OR WRITTEN), OR ACTION OF BORROWER OR LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER'S MAKING OF THE LOAN. ARTICLE 10 NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. 3 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. BORROWER: INLAND WESTERN CANTON PARADISE, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ---------------------------------- Name: Valerie Medina Title: Asst. Secretary Pay to the order of ________________________________, without recourse. KEYBANK NATIONAL ASSOCIATION, a national banking association By: -------------------------------------------- Print Name: ------------------------------------ Print Title: ----------------------------------- 4 STATE OF Illinois COUNTY OF Cook On this 12th day of August, 2004, before me, Elizabeth Ann Irving, a Notary Public in and for said state, personally appeared Valerie Medina, who being by me duly sworn did say that she is the Asst. Secretary of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of Inland Western Canton Paradise, L.L.C., a Delaware limited liability company, and that the within instrument was signed and sealed in behalf of said corporation in behalf of said limited liability company by authority of its board of directors, and acknowledged said instrument to be the free act and deed of said corporation in behalf of said limited liability company for the purposes therein stated. [Notarial Seal] /s/ Elizabeth Ann Irving -------------------------- Print Name: --------------- My commission expires: -------------------------- [SEAL] "OFFICIAL SEAL" ELIZABETH ANN IRVING NOTARY PUBLIC STATE OF ILLINOIS My Commission Expires 11/14/2004 5 EX-10.294 5 a2143310zex-10_294.txt EX-10.294 Exhibit 10.294 Loan No. 10024995 LOAN AGREEMENT Dated as of August ___, 2004 Between INLAND WESTERN CANTON PARADISE, L.L.C., as Borrower and KEYBANK NATIONAL ASSOCIATION, as Lender TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION.....................................1 Section 1.1 Definitions.............................................................1 Section 1.2 Principles of Construction.............................................18 ARTICLE II GENERAL TERMS.............................................................18 Section 2.1 Loan Commitment; Disbursement to Borrower..............................18 Section 2.2 Interest; Loan Payments; Late Payment Charge...........................18 Section 2.3 Prepayments............................................................20 Section 2.4 Intentionally Omitted..................................................21 Section 2.5 Release of Property....................................................21 Section 2.6 Manner of Making Payments..............................................21 ARTICLE III CONDITIONS PRECEDENT.....................................................22 Section 3.1 Conditions Precedent to Closing........................................22 ARTICLE IV REPRESENTATIONS AND WARRANTIES............................................26 Section 4.1 Borrower Representations...............................................26 Section 4.2 Survival of Representations............................................32 ARTICLE V BORROWER COVENANTS.........................................................33 Section 5.1 Affirmative Covenants..................................................33 Section 5.2 Negative Covenants.....................................................41 ARTICLE VI INSURANCE; CASUALTY; CONDEMNATION.........................................46 Section 6.1 Insurance..............................................................46 Section 6.2 Casualty...............................................................50 Section 6.3 Condemnation...........................................................50 Section 6.4 Restoration............................................................50 ARTICLE VII RESERVE FUNDS............................................................55 Section 7.1 Required Repair Funds..................................................55 Section 7.2 Tax and Insurance Escrow Fund..........................................56 Section 7.3 Replacements and Replacement Reserve...................................57 Section 7.4 Intentionally Deleted..................................................62 Section 7.5 Intentionally Deleted..................................................62 Section 7.6 Intentionally Deleted..................................................62 Section 7.7 Reserve Funds, Generally...............................................62 ARTICLE VIII DEFAULTS................................................................63 Section 8.1 Event of Default.......................................................63 Section 8.2 Remedies...............................................................65 Section 8.3 Remedies Cumulative; Waivers...........................................66 ARTICLE IX SPECIAL PROVISIONS........................................................66 Section 9.1 Sale of Notes and Securitization.......................................66 Section 9.2 Securitization.........................................................67 Section 9.3 Rating Surveillance....................................................67 Section 9.4 Exculpation............................................................67 Section 9.5 Termination of Manager.................................................69 Section 9.6 Servicer...............................................................70 Section 9.7 Splitting the Loan.....................................................70
-i- ARTICLE X MISCELLANEOUS..............................................................70 Section 10.1 Survival..............................................................70 Section 10.2 Lender's Discretion...................................................70 Section 10.3 Governing Law.........................................................71 Section 10.4 Modification, Waiver in Writing.......................................71 Section 10.5 Delay Not a Waiver....................................................71 Section 10.6 Notices...............................................................71 Section 10.7 Trial by Jury.........................................................72 Section 10.8 Headings..............................................................72 Section 10.9 Severability..........................................................72 Section 10.10 Preferences..........................................................72 Section 10.11 Waiver of Notice.....................................................73 Section 10.12 Remedies of Borrower.................................................73 Section 10.13 Expenses; Indemnity..................................................73 Section 10.14 Schedules Incorporated...............................................74 Section 10.15 Offsets, Counterclaims and Defenses..................................74 Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries........74 Section 10.17 Publicity............................................................75 Section 10.18 Waiver of Marshalling of Assets......................................75 Section 10.19 Waiver of Counterclaim...............................................75 Section 10.20 Conflict; Construction of Documents; Reliance........................75 Section 10.21 Brokers and Financial Advisors.......................................76 Section 10.22 Prior Agreements.....................................................76 Section 10.23 Transfer of Loan.....................................................76
SCHEDULES Schedule I - Intentionally Omitted Schedule II - Rent Roll Schedule III - Required Repairs Schedule IV - Intentionally Omitted Schedule V - Intentionally Omitted Schedule VI - Affiliate Agreements Schedule VII - Intentionally Omitted Schedule VIII - Intentionally Omitted Schedule IX - Intentionally Omitted Schedule X - Other Contract Funds Agreements -ii- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of this _____ day of August, 2004 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "AGREEMENT"), between KEYBANK NATIONAL ASSOCIATION, a national banking association, having an address at 911 Main Street, Suite 1500, Kansas City, Missouri 64105 ("LENDER"), and INLAND WESTERN CANTON PARADISE, L.L.C., a Delaware limited liability company, having an address at 2901 Butterfield Road, Oak Brook, Illinois 60523 ("BORROWER"). W I T N E S S E T H: WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "AFFILIATE" shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "ALTA" shall mean American Land Title Association, or any successor thereto. "ANNUAL BUDGET" shall mean the operating budget, including all planned capital expenditures, for the Property prepared by Borrower for the applicable Fiscal Year or other period. "ASSIGNMENT OF LEASES" shall mean, with respect to the Property, that certain first priority Assignment of Leases and Rents, dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender all of Borrower's interest in and to the Leases and Rents of the Property as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean that certain Assignment of Management Agreement and Subordination of Management Fees dated as of the date hereof among Lender, Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "AWARD" shall mean any compensation paid by any Governmental Authority in connection, with a Condemnation in respect of all or any part of the Property. "BASIC CARRYING COSTS" shall mean, with respect to the Property, the sum of the following costs associated with the Property for the relevant Fiscal Year or payment period: (i) Taxes and (ii) Insurance Premiums. "BORROWER" shall mean Inland Western Canton Paradise, L.L.C., together with its permitted successors and assigns. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "CAPITAL EXPENDITURES" shall mean, for any period, the amount expended for items capitalized under accounting principles reasonably acceptable to Lender, consistently applied (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "CASH EXPENSES" shall mean, for any period, the operating expenses for the operation of the Property as set forth in an Approved Annual Budget to the extent that such expenses are actually incurred by Borrower minus any payments into the Tax and Insurance Escrow Fund. "CASUALTY" shall have the meaning specified in Section 6.2 hereof. "CASUALTY CONSULTANT" shall have the meaning set forth in Section 6.4(b)(iii) hereof. "CASUALTY RETAINAGE" shall have the meaning set forth in Section 6.4(b)(iv) hereof. "CLOSING DATE" shall mean the date of the funding of the Loan. "CODE" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "CONDEMNATION" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of the Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting the Property or any part thereof. "DEBT" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all 2 other sums (including the Prepayment Consideration) due to Lender in respect of the Loan under the Note, this Agreement, the Mortgage or any other Loan Document. "DEBT SERVICE" shall mean, with respect to any particular period of time, scheduled interest payments under the Note. "DEBT SERVICE COVERAGE RATIO" shall mean a ratio for the applicable period in which: (a) the numerator is the Net Operating Income (excluding interest on credit accounts) for such period as set forth in the statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Property, (ii) amounts paid to the Reserve Funds, less (A) management fees equal to the greater of (1) assumed management fees of five percent (5%) of Gross Income from Operations or (2) the actual management fees incurred; (B) assumed Replacement Reserve Fund contributions equal to $0.15 per square foot of gross leaseable area at the Property; and (C) assumed reserves for tenant improvements and leasing commissions equal to $0.52 per square foot of gross leaseable area of the Property; and (b) the denominator is the aggregate amount of interest due and payable on the Note for such applicable period. "DEFAULT" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) five percent (5%) above the Interest Rate. "DISCLOSURE DOCUMENT" shall have the meaning set forth in Section 9.2 hereof. "ELIGIBLE ACCOUNT" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "ELIGIBLE INSTITUTION" shall mean a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least A-l by Standard & Poor's Ratings Services, P-l by Moody's Investors Service, Inc., and F-1+ by Fitch, Inc. in the case of accounts in which funds are held for 30 days or less (or, in the case of accounts in which funds are held for more 3 than 30 days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch and S&P and "Aa" by Moody's). "ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental Indemnity Agreement executed by Borrower in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1(a) hereof. "EXCHANGE ACT" shall have the meaning set forth in Section 9.2 hereof. "FISCAL YEAR" shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan. "GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GROSS INCOME FROM OPERATIONS" shall mean all sustainable income as reported on the financial statements delivered by Borrower in accordance with this Agreement, computed in accordance with accounting principles reasonably acceptable to Lender, consistently applied, derived from the ownership and operation of the Property from whatever source, including, but not limited to, (i) Rents from Tenants that are in occupancy, open for business and paying unabated Rent, (ii) utility charges, (iii) escalations, (iv) intentionally omitted; (v) service fees or charges, (vi) license fees, (vii) parking fees, and (viii) other required pass-throughs but excluding (i) sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any Governmental Authority, (ii) refunds and uncollectible accounts, (iii) sales of furniture, fixtures and equipment, (iv) Insurance Proceeds (other than business interruption or other loss of income insurance), (v) Awards, (vi) unforfeited security deposits, (vii) utility and other similar deposits and (viii) any disbursements to Borrower from the Reserve Funds. Gross income shall not be diminished as a result of the Mortgage or the creation of any intervening estate or interest in the Property or any part thereof. "IMPROVEMENTS" shall have the meaning set forth in the granting clause of the Mortgage with respect to the Property. "INDEBTEDNESS" of a Person, at a particular date, means the sum (without duplication) at such date of (a) indebtedness or liability for borrowed money; (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or 4 entity, or otherwise to assure a creditor against loss; and (g) obligations secured by any Liens, whether or not the obligations have been assumed. "INDEMNITOR" shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation. "INDEMNITY AGREEMENT" shall mean that certain Indemnity Agreement dated as of the date hereof by and between Borrower and Inland Western Retail Real Estate Trust, Inc., a Maryland corporation in favor of Lender. "INLAND WESTERN RETAIL REAL ESTATE TRUST, INC." shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation. "INSURANCE PREMIUMS" shall have the meaning set forth in Section 6.1(b) hereof. "INSURANCE PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "INTEREST RATE" shall mean five and two hundred thirty-five one hundredths percent (5.235%) per annum. "LEASE" shall mean any lease, sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in the Property of Borrower, and every modification, amendment or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "LEGAL REQUIREMENTS" shall mean, with respect to the Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting the Property or any part thereof, or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting the Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to the Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "LENDER" shall mean KeyBank National Association, together with its successors and assigns. "LICENSES" shall have the meaning set forth in Section 4.1.22 hereof. "LIEN" shall mean, with respect to the Property, any mortgage, deed of trust, deed to secure debt, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, the Property, any portion thereof 5 or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LOAN" shall mean the loan made by Lender to Borrower pursuant to this Agreement. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the Mortgage, the Assignment of Leases and Rents, the Environmental Indemnity, the Assignment of Management Agreement, the Indemnity Agreement and all other documents executed and/or delivered in connection with the Loan. "MAJOR TENANT" shall mean any tenant (i) leasing more than 10,000 square feet of the Property or (ii) whose Rents comprise 25% or more of the effective gross income (as determined by Lender) of the Property. "MANAGEMENT AGREEMENT" shall mean, with respect to the Property, the management agreement entered into by and between Borrower and the Manager, pursuant to which the Manager is to provide management and other services with respect to the Property. "MANAGER" shall mean Inland Northwest Management Corp., a Delaware corporation. "MATURITY DATE" shall mean September 1, 2009, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise. "MAXIMUM LEGAL RATE" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "MONTHLY DEBT SERVICE PAYMENT AMOUNT" shall mean an amount equal to $43,425.63. "MORTGAGE" shall mean, with respect to the Property, that certain first priority Deed to Secure Debt, Assignment of Leases and Rents, Security Agreement, dated the date hereof, executed and delivered by Borrower as security for the Loan and encumbering the Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NET CASH FLOW" for any period shall mean the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. 6 "NET CASH FLOW AFTER DEBT SERVICE" for any period shall mean the amount obtained by subtracting Debt Service for such period from Net Cash Flow for such period. "NET CASH FLOW SCHEDULE" shall have the meaning set forth in Section 5.1.11(b) hereof. "NET OPERATING INCOME" shall mean the amount obtained by subtracting from Gross Income from Operations (i) Operating Expenses, and (ii) a vacancy allowance equal to the greater of (x) market vacancy (as reasonably determined by Lender), less actual vacancy, and (y) underwritten vacancy of 7.8%, less actual vacancy. Notwithstanding the foregoing, if actual vacancy exceeds market vacancy and underwritten vacancy, then there shall be no adjustment for a vacancy allowance. "NET PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "NET PROCEEDS DEFICIENCY" shall have the meaning set forth in Section 6.4(b)(vi) hereof. "NOTE" shall mean that certain Promissory Note of even date herewith in the principal amount of NINE MILLION NINE HUNDRED FIFTY-FOUR THOUSAND THREE HUNDRED AND NO/100 DOLLARS ($9,954,300.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "OFFICERS' CERTIFICATE" shall mean a certificate delivered to Lender by Borrower which is signed by an authorized senior officer of the sole member of Borrower. "OPERATING EXPENSES" shall mean the total of all expenditures, computed in accordance with accounting principles reasonably acceptable to Lender, consistently applied, of whatever kind relating to the operation, maintenance and management of the Property that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance, insurance, license fees, property taxes and assessments, advertising expenses, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures and contributions to the Reserve Funds. "OTHER CHARGES" shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Property, now or hereafter levied or assessed or imposed against the Property or any part thereof. "OTHER CONTRACT FUNDS" shall mean any payment due to Borrower under any of the agreements described on SCHEDULE X. "OUTPARCEL PURCHASE PRICE" shall mean the purchase price to be paid for the acquisition of the "Outparcel A" (as defined in the Purchase Contract) pursuant to the Purchase Contract. 7 "PAYMENT DATE" shall mean the first (1st) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately succeeding Business Day. "PERMITTED ENCUMBRANCES" shall mean, with respect to the Property, collectively, (a) the Liens and security interests created by the Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies relating to the Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, and (d) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's reasonable discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrower's ability to repay the Loan. "PERMITTED INVESTMENTS" shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Servicer, the trustee under any Securitization or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the first Payment Date following the date of acquiring such investment and meeting one of the appropriate standards set forth below: (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwidc bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Student Loan Marketing Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not 8 have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); PROVIDED, HOWEVER. that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread 9 (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (viii) units of taxable money market funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds or mutual funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a written confirmation that the designation of such security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency; PROVIDED, HOWEVER, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. "PERSON" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "PERSONAL PROPERTY" shall have the meaning set forth in the granting clause of the Mortgage with respect to the Property. 10 "PHYSICAL CONDITIONS REPORT" shall mean, with respect to the Property, a report prepared by a company satisfactory to Lender regarding the physical condition of the Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that the Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on the Property. "POLICIES" shall have the meaning specified in Section 6.1(b) hereof. "PREPAYMENT CONSIDERATION" shall have the meaning set forth in Section 2.3.1. "PREPAYMENT RATE" shall mean the bond equivalent yield (in the secondary market) on the United States Treasury Security that as of the Prepayment Rate Determination Date has a remaining term to maturity closest to, but not exceeding, the remaining term to the Maturity Date, as most recently published in the "Treasury Bonds, Notes and Bills" section in The Wall Street Journal as of the date of the related tender of the payment. If more than one issue of United States Treasury Securities has the remaining term to the Maturity Date referred to above, the "Prepayment Rate" shall be the yield on the United States Treasury Security most recently issued as of such date. If the publication of the Prepayment Rate in The Wall Street Journal is discontinued, Lender shall determine the Prepayment Rate on the basis of "Statistical Release H.15(519), Selected Interest Rates," or any successor publication, published by the Board of Governors of the Federal Reserve System, or on the basis of such other publication or statistical guide as Lender may reasonably select. "PREPAYMENT RATE DETERMINATION DATE" shall mean the date which is five (5) Business Days prior to the prepayment date. "PROPERTY" shall mean the parcel of real property, the Improvements thereon and all personal property owned by Borrower and encumbered by the Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the Granting Clauses of the Mortgage and referred to therein as the "Property." "PROVIDED INFORMATION" shall have the meaning set forth in Section 9.1(a) hereof. "PURCHASE CONTRACT" shall mean that certain Agreement of Purchase and Sale of Shopping Center dated as of June 4, 2004, between Inland Real Estate Acquisitions, Inc. and Paradise Shoppes of Prominence Point, Ltd., as amended by Amendment to Agreement dated June 7, 2004, Second Amendment to Agreement dated June 11, 2004, Third Amendment to Agreement dated June 18, 2004, and Fourth Amendment to Agreement dated June 25, 2004, as heretofore or hereafter assigned, amended, and modified. "QUALIFYING ENTITY" shall have the meaning set forth in Section 5.2.13(b) hereof. "QUALIFYING MANAGER" shall mean either (a) a reputable and experienced management organization reasonably satisfactory to Lender, which organization or its principals possess at least ten (10) years experience in managing properties similar in size, scope and value 11 of the Property and which, on the date Lender determines whether such management organization is a Qualifying Manager, manages at least one million square feet of retail space, provided that Borrower shall have obtained prior written confirmation from the Rating Agency that management of the Property by such entity will not cause a downgrading, withdrawal or qualification of the then current rating of the securities issued pursuant to the Securitization, or (b) the fee owner of the Property, provided that such owner possesses experience in managing and operating properties similar in size, scope and value of the Property. Lender acknowledges that on the date hereof Inland Northwest Management Corp. shall be deemed to be a Qualifying Manager. Lender also acknowledges that a new property management company that is an affiliate of or under common control with Inland Northwest Management Corp. also shall be deemed a Qualifying Manager. "RATING AGENCIES" shall mean each of Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc., Moody's Investors Service, Inc. and Fitch, Inc., or any other nationally-recognized statistical rating agency which has been approved by Lender. "RATING SURVEILLANCE CHARGE" shall have the meaning set forth in Section 9.3 hereof. "RELEVANT LEASING THRESHOLD" shall mean, any Lease for an amount of leaseable square footage equal to or greater than [10,000] square feet. "RELEVANT RESTORATION THRESHOLD" shall mean Three Hundred Fifty Thousand and No/100 dollars ($350,000.00). "REMIC TRUST" shall mean a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code that holds the Note. "RENTS" shall mean, with respect to the Property, all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or its agents or employees from any and all sources arising from or attributable to the Property, and proceeds, if any, from business interruption or other loss of income insurance, including the Other Contract Funds. "REPLACEMENT RESERVE ACCOUNT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE FUND" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE MONTHLY DEPOSIT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENTS" shall have the meaning set forth in Section 7.3.1 (a) hereof. 12 "REQUIRED REPAIR ACCOUNT" shall have the meaning set forth in Section 7.1.1 hereof. "REQUIRED REPAIR FUND" shall have the meaning set forth in Section 7.1.1 hereof. "REQUIRED REPAIRS" shall have the meaning set forth in Section 7.1.1 hereof. "RESERVE FUNDS" shall mean the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund (if any), or any other escrow fund established by the Loan Documents. "RESTORATION" shall have the meaning set forth in Section 6.2 hereof. "SECURITIES" shall have the meaning set forth in Section 9.1 hereof. "SECURITIES ACT" shall have the meaning set forth in Section 9.2 hereof. "SECURITIZATION" shall have the meaning set forth in Section 9.1 hereof. "SERVICER" shall have the meaning set forth in Section 9.6 hereof. "SERVICING AGREEMENT" shall have the meaning set forth in Section 9.6 hereof. "SEVERED LOAN DOCUMENTS" shall have the meaning set forth in Section 8.2(c) hereof. "SEVERING DOCUMENTATION" shall have the meaning set forth in Section 9.7 hereof. "SOLE MEMBER" shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, die sole member of Borrower. "SPECIAL PURPOSE ENTITY" means a corporation, limited partnership, limited liability company, or Delaware statutory trust which at all times on and after the date hereof: (i) is organized solely for the purpose of (A) acquiring, developing, owning, holding, selling, leasing, transferring, exchanging, managing and operating the Property, entering into this Agreement with the Lender, refinancing the Property in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing; or (B) acting as a general partner of the limited partnership that owns the Property, a member of the limited liability company that owns the Property or the beneficiary or trustee of a Delaware statutory trust that owns the Property; (ii) is not engaged and will not engage in any business unrelated to (A) the acquisition, development, ownership, management or operation of the Property, (B) acting as general partner of the limited partnership that owns the Property, (C) acting as a 13 member of the limited liability company that owns the Property, or (D) acting as the beneficiary or trustee of a Delaware statutory trust that owns the Property, as applicable; (iii) does not have and will not have any assets other than those related to the Property or its partnership interest in the limited partnership, the member interest in the limited liability company or the beneficial interest in the Delaware statutory trust that owns the Property or acts as the general partner, managing member or beneficiary or trustee thereof, as applicable; (iv) has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership, membership or beneficial or trustee interests (if such entity is a general partner in a limited partnership, a member in a limited liability company or a beneficiary of a Delaware statutory trust) or amendment of its limited partnership agreement articles of incorporation, articles of organization, certificate of formation, operating agreement or trust formation and governance documents (as applicable) with respect to the matters set forth in this definition; (v) intentionally omitted; (vi) intentionally omitted; (vii) intentionally omitted; (viii) if such entity is a limited liability company and such limited liability company has only one member, such limited liability company (a) has been formed under Delaware law and (b) has either a corporation or other person or entity that shall become a member of the limited liability company upon the dissolution or disassociation of the member; (ix) if such entity is (a) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (b) a limited partnership, has a limited partnership agreement, (c) a corporation, has a certificate of incorporation or articles, or (d) a Delaware statutory trust, has organizational documents that, in each case, provide that such entity will not: (1) dissolve, merge, liquidate, consolidate; (2) except as permitted herein, sell all or substantially all of its assets or the assets of the Borrower (as applicable) except as permitted herein; (3) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the consent of the Lender; or (4) without the affirmative vote of all other directors of the corporation (that is such entity or the general partner or managing or co-managing member or manager of such entity), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest; (x) intentionally omitted; 14 (xi) is solvent and pays its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same become due, and is maintaining adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (xii) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity; (xiii) will file its own tax returns; provided, however, that Borrower's assets and income may be included in a consolidated tax return of its parent companies if inclusion on such consolidated tax return is in compliance with applicable law; (xiv) has maintained and will maintain its own resolutions and agreements; (xv) (a) has not commingled and will not commingle its funds or assets with those of any other Person and (b) has not participated and will not participate in any cash management system with any other Person, except with respect to a custodial account maintained by the Manager on behalf of Affiliates of Borrower and, with respect to funds in such custodial account, has separately accounted, and will continue to separately account for, each item of income and expense applicable to the Property and Borrower; (xvi) has held and will hold its assets in its own name; (xvii) has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower; (xviii) has maintained and will maintain its balance sheets, operating statements and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the Financial statement of any other entity except as required or permitted by accounting principles reasonably acceptable to Lender, consistently applied; PROVIDED, HOWEVER, that (i) any such consolidated financial statement shall contain a note indicating that it maintains separate balance sheets and operating statements for the Borrower and the Property, or (ii) if such Person is controlled by Inland Western Retail Real Estate Trust, Inc., then such Person may be included in the consolidated financial statement of Inland Western Retail Real Estate Trust, Inc. provided such consolidated financial statement contains a note indicating that it maintains separate financial records for each Person controlled by Inland Western Retail Real Estate Trust, Inc.; (xix) has a sufficient number of employees in light of its contemplated business operations, which may be none; (xx) has observed and will observe all partnership, corporate, limited liability company or Delaware business trust formalities, as applicable; (xxi) has and will have no Indebtedness (including loans (whether or not such loans are evidenced by a written agreement) between Borrower and any Affiliates of Borrower and relating to the management of funds in the custodial account maintained by 15 the Manager) other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business relating to the ownership and operation of the Property and the routine administration of Borrower, which liabilities are not more than sixty (60) days past the date incurred (unless disputed in accordance with applicable law), are not evidenced by a note and are paid when due, and which amounts are normal and reasonable under the circumstances, and (iii) such other liabilities that are permitted pursuant to this Agreement; (xxii) has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; (xxiii) has not and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate; (xxiv) has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an affiliate; (xxv) has not maintained or used, and will not maintain or use, invoices and checks bearing the name of any other Person, PROVIDED, HOWEVER, that Manager, on behalf of such Person, may maintain and use invoices and checks bearing Manager's name; (xxvi) has not pledged and will not pledge its assets for the benefit of any other Person except as permitted or required pursuant to this Agreement; (xxvii) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower and not as a division or part of any other Person, except for services rendered by Manager under the Management Agreement, so long as Manager holds itself out as an agent of the Borrower; (xxviii) has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (xxix) has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity); (xxx) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person; (xxxi) has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except (A) in the ordinary course of its business and on terms which are intrinsically fair, 16 commercially reasonable and are no less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party and (B) in connection with this Agreement; (xxxii) does not and will not have any of its obligations guaranteed by any Affiliate except as otherwise required in the Loan Documents; and (xxxiii) has complied and will comply with all of the terms and provisions contained in its organizational documents. The statement of facts contained in its organizational documents are true and correct and will remain true and correct. "STATE" shall mean, with respect to the Property, the State or Commonwealth in which the Property or any part thereof is located. "SURVEY" shall mean a survey of the Property in question prepared by a surveyor licensed in the State and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender. "TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in Section 7.2 hereof regardless of whether the funds held therein are held by Lender for the payment of Taxes or Insurance Premiums or both. "TAXES" shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against the Property or any part thereof. "TENANT" shall mean any person or entity with a possessory right to all or any part of the Property pursuant to a Lease or other written agreement. "TERRORISM INSURANCE GUARANTOR" shall have the meaning set forth in Section 6.1 hereof. "TITLE INSURANCE POLICIES" shall mean, with respect to the Property, one or more ALTA mortgagee title insurance policies in the form (acceptable to Lender) (or, if the Property is in a State which does not permit the issuance of such ALTA policy, such form as shall be permitted in such State and acceptable to Lender) issued with respect to the Property and insuring the lien of the Mortgage encumbering the Property. "TRANSFEREE" shall have the meaning set forth in Section 5.2.13 hereof. "UCC" OR "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect in the applicable State in which the Property is located. "U.S. OBLIGATIONS" shall mean direct non-callable obligations of the United States of America as defined in Section 2(a)(16) of the Investment Company Act as amended (15 USC 80a-l) stated in REMIC Section 1.86 OG-2(a)(8). 17 Section 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified, All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. ARTICLE II GENERAL TERMS Section 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER. 2.1.1 THE LOAN. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. 2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 THE NOTE, MORTGAGE AND LOAN DOCUMENTS. The Loan shall be evidenced by the Note and secured by the Mortgage, the Assignment of Leases and the other Loan Documents. 2.1.4 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan to (a) repay and discharge any existing loans relating to the Property, (b) pay all past-due Basic Carrying Costs, if any, in respect of the Property, (c) make deposits into the Reserve Funds on the Closing Date in the amounts provided herein, (d) pay costs and expenses incurred in connection with the Closing of the Loan, as approved by Lender, (e) fund any working capital requirements of the Property, and (f) distribute the balance, if any, to Borrower. Section 2.2 INTEREST; LOAN PAYMENTS; LATE PAYMENT CHARGE. 2.2.1 INTEREST GENERALLY. Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to but excluding the Maturity Date at the Interest Rate. 2.2.2 INTEREST CALCULATION. Interest on the outstanding principal balance of the Loan shall be calculated on the basis of a three hundred sixty (360) day year comprised of twelve (12) months of thirty (30) days each, except that interest due and payable for a period of less than a full month shall be calculated by multiplying the actual number of days elapsed in the period for which the calculation is being made by a daily rate based on a three hundred sixty (360) day year. 2.2.3 PAYMENTS GENERALLY. Borrower shall pay to Lender (a) on the Closing Date, an amount equal to interest only on the outstanding principal balance of the Loan from the 18 Closing Date up to but not including the first Payment Date following the Closing Date, and (b) on October 1, 2004 and each Payment Date thereafter up to but not including the Maturity Date, the Monthly Debt Service Payment Amount which is an amount equal to the interest on the outstanding principal amount of the Loan for the prior calendar month, calculated as set forth herein, which payments shall be applied to accrued and unpaid interest at the Interest Rate. 2.2.4 INTENTIONALLY DELETED. 2.2.5 PAYMENT ON MATURITY DATE. Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Mortgage and other the Loan Documents. 2.2.6 PAYMENTS AFTER DEFAULT. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest and other amounts due in respect of the Loan, shall accrue at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (i) the cure of such Event of Default in a manner reasonably satisfactory to Lender or (ii) the actual receipt and collection of the Debt (or that portion thereof that is then due). To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Mortgage. This paragraph shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default and Lender retains its rights under the Note and this Agreement to accelerate and to continue to demand payment of the Debt upon the happening and continuance of any Event of Default. 2.2.7 LATE PAYMENT CHARGE. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower on or prior to the date which is five (5) days after the date it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgage and the other Loan Documents to the extent permitted by applicable law. The foregoing late payment charge shall not apply to the payment of all outstanding principal, interest and other sums due on the Maturity Date. 2.2.8 USURY SAVINGS. This Agreement and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of 19 the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. Section 2.3 PREPAYMENTS. 2.3.1 VOLUNTARY PREPAYMENTS. (a) Except as otherwise provided herein, Borrower shall not have the right to prepay the Loan in whole or in part. Borrower may, provided it has given Lender prior written notice in accordance with the terms of this Agreement, prepay the unpaid principal balance of the Loan in whole, but not in part, by paying, together with the amount to be prepaid, (i) interest accrued and unpaid on the portion of the principal balance of the Loan being prepaid to and including the date of prepayment, (ii) unless prepayment is tendered on a Payment Date, an amount equal to the interest that would have accrued on the amount being prepaid after the date of prepayment through and including the next Payment Date had the prepayment not been made (which amount shall constitute additional consideration for the prepayment), (iii) all other sums then due under this Agreement, the Note, the Mortgage and the other Loan Documents, and (iv) a prepayment consideration (the "PREPAYMENT CONSIDERATION") equal to the greater of (A) one percent (1%) of the principal balance of the Loan being prepaid or (B) the excess, if any, of (1) the sum of the present values of all then-scheduled payments of principal and interest under this Agreement including, but not limited to, principal and interest on the Maturity Date (with each such payment discounted to its present value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the Prepayment Rate), over (2) the principal amount of the Loan being prepaid. Lender shall notify Borrower of the amount and the basis of determination of the required prepayment consideration. (b) On the Payment Date that is three months prior to the Maturity Date, and on each day thereafter through the Maturity Date, Borrower may, at its option, prepay the Debt without payment of any Prepayment Consideration; PROVIDED, HOWEVER, if such prepayment is not paid on a regularly scheduled Payment Date, the Debt shall include interest that would have accrued on such prepayment through and including the day immediately preceding the next regularly scheduled Payment Date. Borrower's right to prepay any portion, of the principal balance of the Loan shall be subject to (i) Borrower's submission of a notice to Lender setting forth the amount to be prepaid and the projected date of prepayment, which date shall be no less than thirty (30) days from the date of such notice, and (ii) Borrower's actual payment to Lender of the amount to be prepaid as set forth in such notice on the projected date set forth in such notice or any day following such projected date occurring in the same calendar month as such projected date. 2.3.2 MANDATORY PREPAYMENTS. On the next occurring Payment Date following the date on which Borrower actually receives any Net Proceeds, if Lender is not obligated to make such Net Proceeds available to Borrower pursuant to this Agreement for the restoration of the Property, Borrower shall, at Lender's option, prepay the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Proceeds. No Prepayment 20 Consideration shall be due in connection with any prepayment made pursuant to this Section 2.3.2. Any partial prepayment under this Section shall be applied to the last payments of principal due under the Loan. 2.3.3 PREPAYMENTS AFTER DEFAULT. Following an Event of Default, if Borrower or anyone on Borrower's behalf makes a tender of payment of all or any portion of the Debt at any time prior to a foreclosure sale (including a sale under the power of sale under the Mortgage), or during any redemption period after foreclosure, (i) the tender of payment shall constitute an evasion of Borrower's obligation to pay any Prepayment Consideration due under this Agreement and such payment shall, therefore, to the maximum extent permitted by law, include a premium equal to the Prepayment Consideration that would have been payable on the date of such tender had the Loan not been so accelerated, or (ii) if at the time of such tender a prepayment of the principal amount of the Loan would have been prohibited under this Agreement had the principal amount of the Loan not been so accelerated, the tender of payment shall constitute an evasion of such prepayment prohibition and shall, therefore, to the maximum extent permitted by law, include an amount equal to the greater of (i) 1% of the then principal amount of the Loan (or the relevant portion thereof being prepaid) and (ii) an amount equal to the excess of (A) the sum of the present values of a series of payments payable at the times and in the amounts equal to the payments of principal and interest (including, but not limited to the principal and interest payable on the Maturity Date) which would have been scheduled to be payable after the date of such tender under this Agreement had the Loan (or the relevant portion thereof) not been accelerated, with each such payment discounted to its present value at the date of such tender at the rate which when compounded monthly is equivalent to the Prepayment Rate, over (B) the then principal amount of the Loan. Section 2.4 INTENTIONALLY OMITTED. Section 2.5 RELEASE OF PROPERTY. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of any Lien of the Mortgage on the Property. If Borrower has elected to prepay the entire amount of the Loan pursuant to Section 2.3.1 and the requirements of this Section 2.5 have been satisfied, the Property shall be released from the Lien of the Mortgage. 2.5.1 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Loan Agreement, release the Lien of the Mortgage on the Property not theretofore released. Section 2.6 MANNER OF MAKING PAYMENTS. 2.6.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 1:00 p.m., New York City time, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower, Whenever any payment hereunder or under the Note shall be stated 21 to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day. 2.6.2 NO DEDUCTIONS, ETC. All payments made by Borrower hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims. ARTICLE III CONDITIONS PRECEDENT Section 3.1 CONDITIONS PRECEDENT TO CLOSING. The obligation of Lender to make the Loan hereunder is subject to the fulfillment by Borrower or waiver by Lender of the following conditions precedent no later than the Closing Date: 3.1.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH CONDITIONS. The representations and warranties of Borrower contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date, and no Default or an Event of Default shall have occurred and be continuing; and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on its part to be observed or performed. 3.1.2 LOAN AGREEMENT AND NOTE. Lender shall have received a copy of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrower. 3.1.3 DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE; REPORTS; LEASES, ETC. (a) MORTGAGE, ASSIGNMENT OF LEASES AND OTHER LOAN DOCUMENTS. Lender shall have received from Borrower fully executed and acknowledged counterparts of the Mortgage and the Assignment of Leases and evidence that counterparts of the Mortgage and Assignment of Leases have been delivered to the title company for recording, in the reasonable judgment of Lender, so as to effectively create upon such recording valid and enforceable Liens upon the Property, of the requisite priority, in favor of Lender (or such trustee as may be required under local law), subject only to the Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents. Lender shall have also received from Borrower fully executed counterparts of the Assignment of Management Agreement and the other Loan Documents. (b) TITLE INSURANCE. Lender shall have received a Title Insurance Policy issued by a title company acceptable to Lender and dated as of the Closing Date. Such Title Insurance Policy shall (i) provide coverage in an amount equal to the principal amount of the Loan together with, if applicable, a "tie-in" or similar endorsement, (ii) insure Lender that the Mortgage creates a valid lien on the Property encumbered thereby of the requisite priority, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (iii) contain such endorsements and affirmative coverages as Lender may reasonably request, and (iv) name Lender, its successors and assigns, as the insured. The Title Insurance Policy shall be 22 assignable without cost to Lender. Lender also shall have received evidence that all premiums in respect of such Title Insurance Policy have been paid. (c) SURVEY. Lender shall have received a title survey for the Property, certified to the title company and Lender and their successors and assigns, in form and content satisfactory to Lender and prepared by a professional and properly licensed land surveyor satisfactory to Lender in accordance with the most recent Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys. The following additional items from the list of "Optional Survey Responsibilities and Specifications" (Table A) should be added to each survey: 2, 3, 4, 6, 8, 9, 10, 11 and 13. The survey shall reflect the same legal description contained in the Title Insurance Policy relating to the Property referred to in clause (ii) above and shall include, among other things, a legal description of the real property comprising part of such Property reasonably satisfactory to Lender. The surveyor's seal shall be affixed to each survey and the surveyor shall provide a certification for each survey in form and substance acceptable to Lender. (d) INSURANCE. Lender shall have received valid certificates of insurance for the policies of insurance required hereunder, satisfactory to Lender in its sole discretion, and evidence of the payment of all premiums payable for the existing policy period. (e) ENVIRONMENTAL REPORTS. Lender shall have received an environmental report in respect of the Property, in each case reasonably satisfactory to Lender. (f) ZONING. With respect to the Property, Lender shall have received, at Lender's option, (i) letters, if available, or other evidence with respect to the Property from the appropriate municipal authorities (or other Persons) concerning applicable zoning and building laws, (ii) an ALTA 3.1 zoning endorsement for the Title Insurance Policy or (iii) other evidence of zoning compliance, in each case in substance reasonably satisfactory to Lender. (g) ENCUMBRANCES. Borrower shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first Lien on the Property as of the Closing Date with respect to the Mortgage on the Property, subject only to applicable Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof. 3.1.4 RELATED DOCUMENTS. Each additional document not specifically referenced herein, but relating to the transactions contemplated herein, shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies thereof. 3.1.5 DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or before the Closing Date, Borrower shall deliver or cause to be delivered to Lender copies certified by Borrower of all organizational documentation related to Borrower and/or the formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Lender. 23 3.1.6 OPINIONS OF BORROWER'S COUNSEL. Leader shall have received opinions of Borrower's counsel with respect to due execution, authority, enforceability of the Loan Documents and such other matters as Lender may reasonably require, all such opinions in form, scope and substance reasonably satisfactory to Lender and Lender's counsel in their reasonable discretion. 3.1.7 BUDGET. Borrower shall have delivered, and Lender shall have approved, the Annual Budget for the current Fiscal Year. 3.1.8 BASIC CARRYING COSTS. Borrower shall have paid all Basic Carrying Costs relating to the Property which are in arrears, including without limitation, (a) accrued but unpaid insurance premiums relating to the Property, (b) currently due and payable Taxes (including any in arrears) relating to the Property, and (c) currently due Other Charges relating to the Property, which amounts shall be funded with proceeds of the Loan. 3.1.9 COMPLETION OF PROCEEDINGS. All organizational proceedings taken or to be taken in connection with the transactions contemplated by this Agreement and other Loan Documents and all documents incidental thereto shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all such counterpart originals or certified copies of such documents as Lender may reasonably request. 3.1.10 PAYMENTS. All payments, deposits or escrows required to be made or established by Borrower under this Agreement, the Note and the other Loan Documents on or before the Closing Date shall have been paid. 3.1.11 TENANT ESTOPPELS. (a) Lender shall have received an executed tenant estoppel letter, which shall be in form and substance satisfactory to Lender, from each Major Tenant, and (b) Borrower shall exercise reasonable commercial efforts to deliver estoppel letters from Tenants occupying not less than seventy percent (70%), disregarding the area leased by Major Tenants of the remaining gross leasable area of the Property; provided, however, that, in the event that Borrower is unable to deliver some or all of the estoppels described in clause (b) of this Section 3.1.11, Lender agrees that the requirement to deliver such letters to Lender shall be waived by Lender as a condition precedent to the closing of the Loan so long as Borrower delivers on or before the Closing Date, a certificate executed by Borrower with respect to all applicable leases which shall be in substantially the same form and contain the same terms as set forth in Lender's standard form of estoppel certificate. 3.1.12 TRANSACTION COSTS. Borrower shall have paid or reimbursed Lender for all title insurance premiums, recording and filing fees, costs of environmental reports, Physical Conditions Reports, appraisals and other reports, the fees and costs of Lender's counsel and all other third party out-of-pocket expenses incurred in connection with the origination of the Loan. 3.1.13 MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the financial condition or business condition of Borrower, any Major Tenant or the Property since the date of the most recent financial statements delivered to Lender. The income and expenses of the Property, the occupancy leases thereof, and all other features of the transaction shall be as represented to Lender without material adverse change. Neither Borrower 24 nor any of its constituent Persons nor any Major Tenant shall be the subject of any bankruptcy, reorganization, or insolvency proceeding. 3.1.14 LEASES AND RENT ROLL. Lender shall have received copies of all tenant leases, certified copies of any tenant leases as requested by Lender and certified copies of all ground leases affecting the Property. Lender shall have received a current certified rent roll of the Property, reasonably satisfactory in form and substance to Lender. 3.1.15 SUBORDINATION AND ATTORNMENT. Lender shall have received appropriate instruments acceptable to Lender in its commercially reasonable discretion subordinating the Leases of each of the Major Tenants and other Leases of record prior to the Mortgage and including an agreement by such Tenants to attorn to Lender in the event of a foreclosure or delivery of a deed in lieu thereof. 3.1.16 TAX LOT. Lender shall have received evidence that the Property constitutes one (1) or more separate tax lots, which evidence shall be reasonably satisfactory in form and substance to Lender. 3.1.17 PHYSICAL CONDITIONS REPORTS. Lender shall have received Physical Conditions Reports with respect to the Property, which reports shall be reasonably satisfactory in form and substance to Lender. 3.1.18 MANAGEMENT AGREEMENT. Lender shall have received a certified copy of the Management Agreement with respect to the Property which shall be satisfactory in form and substance to Lender. 3.1.19 APPRAISAL. Lender shall have received an appraisal of the Property, which shall be satisfactory in form and substance to Lender. 3.1.20 FINANCIAL STATEMENTS. Lender shall have received (a) a balance sheet with respect to the Property for the two most recent Fiscal Years and statements of income and statements of cash flows with respect to the Property for the three most recent Fiscal Years, each in form and substance reasonably satisfactory to Lender or (b) such other financial statements relating to the ownership and operation of the Property, in form and substance reasonably satisfactory to Lender. 3.1.21 FURTHER DOCUMENTS. Lender or its counsel shall have received such other and further approvals, opinions, documents and information as Lender or its counsel may have reasonably requested including the Loan Documents in form and substance reasonably satisfactory to Lender and its counsel. 3.1.22 ENVIRONMENTAL INSURANCE. If required by Lender, Borrower shall have obtained a secured creditor environmental insurance policy with respect to the Property, which shall be in form and substance satisfactory to Lender, Any such policy shall have a term not less than the term of the Loan. Borrower shall have provided to Lender evidence that the premiums for such policy has been paid in full. 25 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 BORROWER REPRESENTATIONS. Borrower represents and warrants as of the date hereof and as of the Closing Date that: 4.1.1 ORGANIZATION. Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own the Property and to transact the businesses in which it is now engaged. Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with the Property, businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own the Property and to transact the businesses in which it is now engaged, and the sole business of Borrower is the ownership, management and operation of the Property. 4.1.2 PROCEEDINGS. Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and such other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 NO CONFLICTS. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower or any of Borrower's properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any court or any such regulatory authority or other governmental agency or body required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect. 4.1.4 LITIGATION. To Borrower's knowledge, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting Borrower or the Property, which actions, suits or proceedings, if determined against Borrower or the Property, might materially adversely affect the condition (financial or otherwise) or business of Borrower or the condition or ownership of the Property. 26 4.1.5 AGREEMENTS. Except such instruments and agreements set forth as Permitted Encumbrances in the Title Insurance Policy, Borrower is not a party to any agreement or instrument or subject to any restriction which might materially and adversely affect Borrower or the Property, or Borrower's business, properties or assets, operations or condition, financial or otherwise. To Borrower's knowledge, Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower or the Property are bound. Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower is a party or by which Borrower or the Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Property and (b) obligations under the Loan Documents. 4.1.6 TITLE. Borrower has good, marketable and insurable fee simple title to the real property comprising part of the Property and good title to the balance of the Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. The Mortgage, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (a) a valid, perfected lien on the Property, subject only to Permitted Encumbrances and the Liens created by the Loan Documents and (b) perfected security interests in and to, and perfected collateral assignment of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. There are no claims for payment for work, labor or materials affecting the Property which are due and unpaid under the contracts pursuant to which such work or labor was performed or materials provided which are or may become a lien prior to, or of equal priority with, the Liens created by the Loan Documents. 4.1.7 NO BANKRUPTCY FILING. Neither Borrower nor any of its constituent Persons are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of Borrower's assets or property, and Borrower has no knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.8 FULL AND ACCURATE DISCLOSURE. To Borrower's knowledge, no statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no material fact presently known to Borrower which has not been disclosed to Lender which adversely affects, nor as far as Borrower can foresee, might adversely affect, the Property or the business, operations or condition (financial or otherwise) of Borrower. 4.1.9 NO PLAN ASSETS. Borrower is not an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of Borrower constitutes or will constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) Borrower is not a "governmental plan" within the 27 meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower are not subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Loan Agreement. 4.1.10 COMPLIANCE. To Borrower's knowledge, Borrower and the Property and the use thereof comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by Borrower or, to Borrower's knowledge, any other Person in occupancy of or involved with the operation or use of the Property any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. 4.1.11 FINANCIAL INFORMATION. All financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of the Property (i) are to the best of Borrower's knowledge, true, complete and correct in all material respects, (ii) accurately represent the financial condition of the Property as of the date of such reports, and (iii) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with accounting principles reasonably acceptable to Lender, consistently applied throughout the periods covered, except as disclosed therein; PROVIDED, HOWEVER, that if any financial data is delivered to Lender by any Person other than Borrower, Indemnitor or any of their Affiliates, or if such financial data has been prepared by or at the direction of any Person other than Borrower, Indemnitor or any of their Affiliates, then the foregoing representations with respect to such financial data shall be to the best of Borrower's knowledge, after due inquiry. Borrower does not have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and reasonably likely to have a materially adverse effect on the Property or the operation thereof as retail shopping centers, except as referred to or reflected in said financial statements. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower from that set forth in said financial statements. 4.1.12 CONDEMNATION. No Condemnation or other proceeding has been commenced or, to Borrower's knowledge, is contemplated with respect to all or any portion of the Property or for the relocation of roadways providing access to the Property. 4.1.13 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 28 4.1.14 UTILITIES AND PUBLIC ACCESS. The Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service the Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of the Property are located either in the public right-of-way abutting the Property (which are connected so as to serve the Property without passing over other property) or in recorded easements serving the Property and such easements are set forth in and insured by the Title Insurance Policies. All roads necessary for the use of the Property for their current respective purposes have been completed and dedicated to public use and accepted by all Governmental Authorities. 4.1.15 NOT A FOREIGN PERSON. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. 4.1.16 SEPARATE LOTS. The Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of the Property. 4.1.17 ASSESSMENTS. There are no pending, or to Borrower's knowledge, proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments. 4.1.18 ENFORCEABILITY. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable, and Borrower has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 4.1.19 NO PRIOR ASSIGNMENT. There is no prior assignment of the Leases or any portion of the Rents by Borrower or any of its predecessors in interest, given as collateral security which is presently outstanding. 4.1.20 INSURANCE. Borrower has obtained and has delivered to Lender certified copies of all insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement, To the best of Borrower's knowledge, no claims have been made under any such policy, and no Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any such policy. 4.1.21 USE OF PROPERTY. The Property is used exclusively for retail purposes and other appurtenant and related uses. 4.1.22 CERTIFICATE OF OCCUPANCY; LICENSES. All certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits required to be obtained by Borrower for the legal use, occupancy and operation of the Property as a retail shopping center have been obtained and are in full force and effect, and to the best of Borrower's knowledge, after due inquiry, all certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits required to be obtained by any Person other than Borrower for the legal use, occupancy and operation of the 29 Property as a retail shopping center, have been obtained and are in full force and effect (all of the foregoing certifications, permits, licenses and approvals are collectively referred to as the "LICENSES"). Borrower shall and shall cause all other Persons to, keep and maintain all Licenses necessary for the operation of the Property as a retail shopping center. To Borrower's knowledge, the use being made of the Property is in conformity with all certificates of occupancy issued for the Property. 4.1.23 FLOOD ZONE. To the best of Borrower's knowledge, after due inquiry, none of the Improvements on the Property are located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards. 4.1.24 PHYSICAL CONDITION. Except as disclosed in the Physical Conditions Reports delivered to Lender in connecting with this Loan, to Borrower's knowledge, the Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; there exists no structural or other material defects or damages in the Property, whether latent or otherwise, and Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in the Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. 4.1.25 BOUNDARIES. To the best of Borrower's knowledge, after due inquiry, all of the improvements which were included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvements on adjoining properties encroach upon the Property, and no easements or other encumbrances upon the Property encroach upon any of the improvements, so as to affect the value or marketability of the Property except those which are insured against by title insurance. 4.1.26 LEASES. The Property is not subject to any Leases other than the Leases described on the Rent Roll attached as SCHEDULE II hereto and made a part hereof. To Borrower's knowledge, no Person has any possessory interest in the Property or right to occupy the same except under and pursuant to the provisions of the Leases. The current Leases are in full force and effect and to Borrowers knowledge, there are no defaults thereunder by either party and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults thereunder. To Borrower's knowledge, no Rent (including security deposits) has been paid more than one (1) month in advance of its due date. To Borrower's knowledge, all work to be performed by Borrower under each Lease has been performed as required and has been accepted by the applicable tenant, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Borrower to any tenant has already been received by such tenant. To Borrower's knowledge, there has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is outstanding. To Borrower's knowledge, no tenant listed on SCHEDULE II has assigned its Lease or sublet all or any portion of the premises demised thereby, no such tenant holds its leased premises under assignment or sublease, nor does anyone except such tenant and 30 its employees occupy such leased premises. No tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the leased premises or the building of which the leased premises are a part. Except as set forth in SCHEDULE II, no tenant under any Lease has any right or option for additional space in the Improvements except as set forth in SCHEDULE II. To Borrower's actual knowledge based on the Environmental Report delivered to Lender in connection herewith, no hazardous wastes or toxic substances, as defined by applicable federal, state or local statutes, rules and regulations, have been disposed, stored or treated by any tenant under any Lease on or about the leased premises nor does Borrower have any knowledge of any tenant's intention to use its leased premises for any activity which, directly or indirectly, involves the use, generation, treatment, storage, disposal or transportation of any petroleum product or any toxic or hazardous chemical, material, substance or waste, except in either event, in compliance with applicable federal, state or local statues, rules and regulations. 4.1.27 SURVEY. The Survey for the Property delivered to Lender in connection with this Agreement has been prepared in accordance with the provisions of Section 3.1.3(c) hereof, and does not fail to reflect any material matter affecting the Property or the title thereto. 4.1.28 LOAN TO VALUE. The maximum principal amount of the Loan does not exceed one hundred twenty-five percent (125%) of the fair market value of the Property as set forth on the appraisals of the Property delivered to Lender. 4.1.29 FILING AND RECORDING TAXES. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Property to Borrower have been paid or are simultaneously being paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Mortgage, have been paid, and, under current Legal Requirements, the Mortgage is enforceable in accordance with its terms by Lender (or any subsequent holder thereof). 4.1.30 SPECIAL PURPOSE ENTITY/SEPARATENESS. (a) Until the Debt has been paid in full, Borrower hereby represents, warrants and covenants that the Borrower is, shall be and shall continue to be a Special Purpose Entity. (b) The representations, warranties and covenants set forth in Section 4.1.30(a) shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document. (c) Intentionally omitted. 4.1.31 MANAGEMENT AGREEMENT. The Management Agreement is in full force and effect and, to Borrower's knowledge, there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. 31 4.1.32 ILLEGAL ACTIVITY. To Borrower's knowledge, no portion of the Property has been or will be purchased with proceeds of any illegal activity. 4.1.33 NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE. All information submitted by Borrower to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower in this Agreement or in any other Loan Document, are accurate, complete and correct in all material respects, provided, however, that if such information was provided to Borrower by non-affiliated third parties, Borrower represents that such information is, to the best of its knowledge after due inquiry, accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or might materially and adversely affect the Property or the business operations or the financial condition of Borrower. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. 4.1.34 INTENTIONALLY OMITTED. 4.1.35 PRINCIPAL PLACE OF BUSINESS AND ORGANIZATION. Borrower shall not change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Lender thirty (30) days prior written notice. Borrower shall not change the place of its organization as set forth in the introductory paragraph of this Agreement without the consent of Lender, which consent shall not be unreasonably withheld, conditioned or delayed. Upon Lender's request, Borrower shall execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender's security interest in the Property as a result of such change of principal place of business or place of organization. 4.1.36 INVESTMENT COMPANY ACT. Borrower is not (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. Section 4.2 SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. 32 ARTICLE V BORROWER COVENANTS Section 5.1 AFFIRMATIVE COVENANTS. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgage encumbering the Property (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS; INSURANCE. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises and comply with all Legal Requirements applicable to it and the Property. There shall never be committed by Borrower or any other Person in occupancy of or involved with the operation or use of the Property any act or omission affording the federal government or any state or local government the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall at all times maintain, preserve and protect all its franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep the Property in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgage. Borrower shall keep the Property insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. Borrower shall operate, or cause the tenant to operate, any Property that is the subject of an O&M Agreement (if any) in accordance with the terms and provisions thereof in all material respects. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower or the Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) intentionally omitted; (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iv) the Property or any part thereof or interest therein will not be in danger of being sold, forfeited, terminated, concealed or lost; (v) Borrower shall promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (vi) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower or the Property; and (vii) Borrower shall furnish such security as may be required in the proceeding, or as may be requested by Lender, to insure compliance with such Legal Requirement, together, with all interest and penalties payable in connection therewith. Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Lender, the validity, applicability or violation of such Legal Requirement 33 is finally established or the Property (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 5.1.2 TAXES AND OTHER CHARGES. Borrower shall pay or caused to be paid all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Property or any part thereof as the same become due and payable; provided, however, Borrower's obligation to directly pay to the appropriate taxing authority Taxes shall be suspended for so long as Borrower complies with the terms and provisions of Section 7.2 hereof. Borrower will deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent no later than ten (10) days prior to the date on which the Taxes and/or Other Charges would otherwise be delinquent if not paid (PROVIDED, HOWEVER, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Lender pursuant to Section 7.2 hereof). If Borrower pays or causes to be paid all Taxes and Other Charges and provides a copy of the receipt evidencing the payment thereof to Lender, then Lender shall reimburse Borrower, provided that there are then sufficient proceeds in the Tax and Insurance Escrow Fund and provided that the Taxes are being paid pursuant to Section 7.2. Upon written request of Borrower, if Lender has paid such Taxes pursuant to Section 7.2 hereof, Lender shall provide Borrower with evidence that such Taxes have been paid. Borrower shall not suffer and shall promptly cause to be paid and discharged any Lien or charge whatsoever which may be or become a Lien or charge against the Property, and shall promptly pay for all utility services provided to the Property. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (i) Borrower is permitted to do so under the provisions of any mortgage or deed of trust superior in lien to the Mortgage; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iii) the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the Property; and (vi) Borrower shall furnish such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established. 5.1.3 LITIGATION. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower which might materially adversely affect Borrower's condition (financial or otherwise) or business or the Property. 5.1.4 ACCESS TO PROPERTY. Borrower shall permit agents, representatives and employees of Lender to inspect the Property or any part thereof at reasonable hours upon reasonable advance notice, subject to the rights of Tenants under their respective Leases. 34 5.1.5 NOTICE OF DEFAULT. Borrower shall promptly advise Lender of any material adverse change in Borrower's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge. 5.1.6 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. 5.1.7 PERFORM LOAN DOCUMENTS. Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, Borrower. 5.1.8 INSURANCE BENEFITS. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Insurance Proceeds lawfully or equitably payable in connection with the Property, and Lender shall be reimbursed for any expenses incurred in connection therewith (including reasonable attorneys' fees and disbursements, and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of a fire or other casualty affecting the Property or any part thereof) out of such Insurance Proceeds. 5.1.9 FURTHER ASSURANCES. Borrower shall, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.10 INTENTIONALLY OMITTED. 5.1.11 FINANCIAL REPORTING. (a) Borrower will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with the requirements for a Special Purpose Entity set forth above, proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense in connection with the operation on an individual 35 basis of the Property. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence and during the continuance of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Property, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender's interest. (b) Borrower will furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Borrower, either (i) a complete copy of Borrower's annual financial statements audited by a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender in accordance with the requirements for a Special Purpose Entity set forth above, or (ii) a consolidated and annotated financial statement of Borrower and Sole Member, audited by a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender in accordance with the requirements for a Special Purpose Entity set forth above, together with unaudited financial statements relating to the Borrower and the Property. Such financial statements for the Property for such Fiscal Year and shall contain statements of profit and loss for Borrower and the Property and a balance sheet for Borrower. Such statements shall set forth the financial condition and the results of operations for the Property for such Fiscal Year, and shall include, but not be limited to, amounts representing annual Net Cash Flow. Net Operating Income, Gross Income from Operations and Operating Expenses, Borrower's annual financial statements shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior Fiscal Year, (ii) a certificate executed by the chief financial officer of Borrower or Sole Member, as applicable, stating that each such annual financial statement presents fairly the financial condition and the results of operations of Borrower and the Property being reported upon and has been prepared in accordance with accounting principles reasonably acceptable to Lender, consistently applied, (iii) with respect to any consolidated financial statement of Borrower and Sole Member, an unqualified opinion of a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender, (iv) a certified rent roll containing current rent, lease expiration dates and the square footage occupied by each tenant; (v) a schedule audited by such independent certified public accountant reconciling Net Operating Income to Net Cash Flow (the "NET CASH FLOW SCHEDULE"), which shall itemize all adjustments made to Net Operating Income to arrive at Net Cash Flow deemed material by such independent certified public accountant. Together with Borrower's annual financial statements, Borrower shall furnish to Lender an Officer's Certificate certifying as of the date thereof whether there exists an event or circumstance which constitutes a Default or Event of Default under the Loan Documents executed and delivered by, or applicable to, Borrower, and if such Default or Event of Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy the same. (c) Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) days after the end of each calendar quarter the following items, accompanied by a certificate of the chief financial officer of Borrower or Sole Member, as applicable, stating that such items are true, correct, accurate, and complete and fairly present the financial condition and results of the operations of Borrower and the Property (subject to normal year-end adjustments) as applicable: (i) a rent roll for the subject period accompanied by an Officer's Certificate with 36 respect thereto; (ii) quarterly and year-to-date operating statements (including Capital Expenditures) prepared for each calendar quarter, noting Net Operating Income, Gross Income from Operations, and Operating Expenses (not including any contributions to the Replacement Reserve Fund, and other information necessary and sufficient to fairly represent the financial position and results of operation of the Property during such calendar month, and containing a comparison of budgeted income and expenses and the actual income and expenses together with a detailed explanation of any variances of five percent (5%) or more between budgeted and actual amounts for such periods, all in form satisfactory to Lender; (iii) a calculation reflecting the annual Debt Service Coverage Ratio for the immediately preceding twelve (12) month period as of the last day of such period accompanied by an Officer's Certificate with respect thereto; and (iv) a Net Cash Flow Schedule (such Net Cash Flow for the Borrower may be unaudited if it is certified by an officer of the Borrower). In addition, such certificate shall also be accompanied by a certificate of the chief financial officer of Borrower or Sole Member stating that the representations and warranties of Borrower set forth in Section 4.1.30(a) are true and correct as of the date of such certificate. Provided, further, that during the twelve (12) month period commencing on the date hereof, Borrower will furnish a current rent roll and monthly and year-to-date operating statements within twenty (20) days of Lender's written request. (d) For the partial year period commencing on the date hereof, and for each Fiscal Year thereafter. Borrower shall submit to Lender an Annual Budget not later than thirty (30) days after the commencement of such period or Fiscal Year in form reasonably satisfactory to Lender. (e) Borrower shall furnish to Lender, within ten (10) Business Days after request (or as soon thereafter as may be reasonably possible), such further detailed information with respect to the operation of the Property and the financial affairs of Borrower as may be reasonably requested by Lender. (f) Borrower shall furnish to Lender, within ten (10) Business Days after Lender's request (or as soon thereafter as may be reasonably possible), financial and sales information from each Major Tenant and such other tenants designated by Lender (to the extent such financial and sales information is required to be provided under applicable leases and same is received by Borrower after request therefor). (g) Borrower will cause Indemnitor to furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Indemnitor, financial statements audited by an independent certified public accountant, which shall include an annual balance sheet and profit and loss statement of Indemnitor, in the form reasonably required by Lender. (h) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) on a diskette, and (iii) if requested by Lender and within the capabilities of Borrower's data systems without change or modification thereto, in electronic form and prepared using a Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). 37 5.1.12 BUSINESS AND OPERATIONS. Borrower will continue to engage in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Property. Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Property. 5.1.13 TITLE TO THE PROPERTY. Borrower will warrant and defend (a) the title to the Property and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) and (b) the validity and priority of the Liens of the Mortgage and the Assignment of Leases on the Property, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever. Borrower shall reimburse Lender for any losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by Lender if an interest in the Property, other than as permitted hereunder, is claimed by another Person. 5.1.14 COSTS OF ENFORCEMENT. In the event (a) that the Mortgage encumbering the Property is foreclosed in whole or in part or that the Mortgage is put into the hands of an attorney for collection, suit, action or foreclosure, (b) of the foreclosure of any mortgage prior to or subsequent to the Mortgage encumbering the Property in which proceeding Lender is made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or any of its constituent Persons or an assignment by Borrower or any of its constituent Persons for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys' fees and costs, incurred by Lender or Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.15 ESTOPPEL STATEMENT. (a) After request by Lender, Borrower shall within ten (10) days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the Interest Rate of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Mortgage and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (b) Borrower shall use commercially reasonable efforts to deliver to Lender upon, request, tenant estoppel certificates from each commercial tenant leasing space at the Property in form and substance reasonably satisfactory to Lender provided that Borrower shall not be required to deliver such certificates more frequently than one (1) time in any calendar year. (c) Within thirty (30) days of request by Borrower, Lender shall deliver to Borrower a statement setting forth the items described at (a)(i), (ii), (iii) and (iv) of this Section 5.1.15. 38 5.1.16 LOAN PROCEEDS. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. 5.1.17 PERFORMANCE BY BORROWER. Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior written consent of Lender. 5.1.18 CONFIRMATION OF REPRESENTATIONS. Borrower shall deliver, in connection with any Securitization, (a) one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of such Securitization, and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower and its member as of the date of the Securitization. 5.1.19 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the joint assessment of the Property (a) with any other real property constituting a tax lot separate from the Property, and (b) which constitutes real property with any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Property. 5.1.20 LEASING MATTERS. Any Leases with respect to the Property written after the date hereof, for more than the Relevant Leasing Threshold square footage, shall be subject to the prior written approval of Lender, which approval may be given or withheld in the sole discretion of Lender. Lender shall approve or disapprove any such Lease within ten (10) Business Days of Lender's receipt of a final execution draft of such Lease (including all exhibits, schedules, supplements, addenda or other agreements relating thereto) and a written notice from Borrower requesting Lender's approval to such Lease, and such Lease shall be deemed approved, if Lender does not disapprove such Lease within said ten (10) Business Day period PROVIDED such written notice conspicuously states, in large bold type, that "PURSUANT TO SECTION 5.1.20 OF THE LOAN AGREEMENT, THE LEASE SHALL BE DEEMED APPROVED IF LENDER DOES NOT RESPOND TO THE CONTRARY WITHIN TEN (10) BUSINESS DAYS OF LENDER'S RECEIPT OF SUCH LEASE AND WRITTEN NOTICE." Borrower shall furnish Lender with executed copies of all Leases. All renewals of Leases and all proposed Leases shall provide for rental rates comparable to existing local market rates (unless such rental rates are otherwise set forth in the Leases executed prior to the date hereof). All proposed Leases shall be on commercially reasonable terms and shall not contain any terms which would materially affect Lender's rights under the Loan Documents. All Leases executed after the date hereof shall provide that they are subordinate to the Mortgage encumbering the Property and that the tenant thereunder agrees to attorn to Lender or any purchaser at a sale by foreclosure or power of sale. Borrower (i) shall observe and perform the obligations imposed upon the lessor under the Leases in a commercially reasonable manner; (ii) shall enforce the terms, covenants and conditions contained in the Leases upon the part of the tenant thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair 39 the value of the Property involved except that no termination by Borrower or acceptance of surrender by a tenant of any Lease shall be permitted unless by reason of a tenant default and then only in a commercially reasonable manner to preserve and protect the Property PROVIDED, HOWEVER, that no such termination or surrender of any Lease covering more than the Relevant Leasing Threshold will be permitted without the written consent of Lender which consent may be withheld in the sole discretion of Lender; (iii) shall not collect any of the rents more than one (1) month in advance (other than security deposits); (iv) shall not execute any other assignment of lessor's interest in the Leases or the Rents (except as contemplated by the Loan Documents); (v) shall not alter, modify or change the terms of the Leases in a manner inconsistent with the provisions of the Loan Documents without the prior written consent of Lender, which consent may be withheld in the sole discretion of Lender; and (vi) shall execute and deliver at the request of Lender all such further assurances, confirmations and assignment in connection with the Leases as Lender shall from time to time reasonably require. Notwithstanding the foregoing, Borrower may, without the prior written consent of Lender, terminate any Lease which demises less than the Relevant Leasing Threshold under any of the following circumstances: (i) the tenant under said Lease is in default beyond any applicable grace and cure period, and Borrower has the right to terminate such Lease; (ii) such termination is permitted by the terms of the Lease in question and Borrower has secured an obligation from a third party to lease the space under the Lease to be terminated at a rental equal to or higher than the rental due under the Lease to be terminated; and (iii) if the tenant under the Lease to be terminated has executed a right under said Lease to terminate its lease upon payment of a termination fee to Borrower, and has in fact terminated its lease and paid said fee, Borrower may accept said termination. 5.1.21 ALTERATIONS. Subject to the rights of tenants to make alterations pursuant to the terms of their respective Leases, Borrower shall obtain Lender's prior written consent to any alterations to any Improvements, which consent shall not be unreasonably withheld or delayed except with respect to alterations that may have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income. Notwithstanding the foregoing, Lender's consent shall not be required in connection with any alterations that will not have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income, provided that such alterations are made in connection with (a) tenant improvement work performed pursuant to the terms of any Lease executed on or before the date hereof, (b) tenant improvement work performed pursuant to the terms and provisions of a Lease and not adversely affecting any structural component of any Improvements, any utility or HVAC system contained in any Improvements or the exterior of any building constituting a part of any Improvements, (c) alterations performed in connection with the restoration of the Property after the occurrence of a casualty in accordance with the terms and provisions of this Agreement or (d) any structural alteration which costs less than $50,000.00 in the aggregate for all components thereof which constitute such alteration or any non-structural alteration which costs less than $100,000.00 in the aggregate for all components thereof which constitute such alteration. If the total unpaid amounts due and payable with respect to alterations to the Improvements at the Property (other than such amounts to be paid or reimbursed by tenants under the Leases) shall at any time equal or exceed $350,000.00 (the "THRESHOLD AMOUNT"), Borrower shall promptly deliver to Lender as security for the payment of such amounts and as additional security for Borrower's obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, 40 withdrawal or qualification of the initial, or, if higher, then current ratings assigned in connection with any Securitization, or (D) a completion bond or letter of credit issued by a financial institution having a rating by Standard & Poor's Ratings Group of not less than A-1+ if the term of such bond or letter of credit is no longer than three (3) months or, if such term is in excess of three (3) months, issued by a financial institution having a rating that is acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the initial, or, if higher, then current ratings assigned in connection with any Securitization. Such security shall be in an amount equal to the excess of the total unpaid amounts with respect to alterations to the Improvements on the Property (other than such amounts to be paid or reimbursed by tenants under the Leases) over the Threshold Amount and, if cash, may be applied from time to time, at the option of Borrower, to pay for such alterations. At the option of Lender, following the occurrence and during the continuance of an Event of Default, Lender may terminate any of the alterations and use the deposit to restore the Property to the extent necessary to prevent any material adverse effect on the value of the Property. 5.1.22 PRINCIPAL PLACE OF BUSINESS. Borrower shall not change its principal place of business set forth on the first page of this Agreement without first giving Lender thirty (30) days prior written notice. 5.1.23 INTENTIONALLY OMITTED. Section 5.2 NEGATIVE COVENANTS. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgage encumbering the Property in accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 OPERATION OF PROPERTY. Borrower shall not, without the prior consent of Lender, terminate the Management Agreement or otherwise replace the Manager or enter into any other management agreement with respect to the Property unless the Manager is in default thereunder beyond any applicable grace or cure period, in which event no consent by Lender shall be required. Lender agrees that its consent will not be unreasonably withheld, delayed or conditioned provided that the Person chosen by Borrower as the replacement Manager is a Qualifying Manager. 5.2.2 LIENS. Borrower shall not, without the prior written consent of Lender, create, incur, assume or suffer to exist any Lien on any portion of the Property or permit any such action to be taken, except: (i) Permitted Encumbrances; (ii) Liens created by or permitted pursuant to the Loan Documents; and (iii) Liens for Taxes or Other Charges not yet due. 41 5.2.3 DISSOLUTION. Borrower shall not (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) engage in any business activity not related to the ownership and operation of the Property, (c) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower except to the extent permitted by the Loan Documents, (d) modify, amend, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (e) cause the Sole Member to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which the Sole Member would be dissolved, wound up or liquidated in whole or in part, or (ii) amend, modify, waive or terminate the certificate of limited partnership or partnership agreement of the Sole Member, in each case, without obtaining the prior written consent of Lender or Lender's designee. 5.2.4 CHANGE IN BUSINESS. Borrower shall not enter into any line of business other than the ownership and operation of the Property, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. 5.2.5 DEBT CANCELLATION. Borrower shall not cancel or otherwise forgive or release any claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. 5.2.6 AFFILIATE TRANSACTIONS. Borrower shall not enter into, or be a party to, any transaction with an Affiliate of Borrower or any of the partners of Borrower except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party. Lender hereby acknowledges disclosure of the agreements described on SCHEDULE VI between Borrower and an Affiliate of Borrower. 5.2.7 ZONING. Borrower shall not initiate or consent to any zoning reclassification of any portion of the Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of the Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Lender. 5.2.8 ASSETS. Borrower shall not purchase or own any properties other than the Property. Without limiting the generality of the foregoing or any other provision hereof, including without limitation the Special Purpose Entity requirements, Borrower shall not acquire title to Outparcel A and Borrower shall have no contractual obligation to pay the Outparcel A Purchase Price. 5.2.9 DEBT. Borrower shall not create, incur or assume any Indebtedness other than the Debt except to the extent expressly permitted hereby. 5.2.10 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the joint assessment of the Property with (a) any other real property constituting a tax lot separate from the Property, or (b) any portion of the Property which may be deemed to constitute personal 42 property, or any other procedure whereby the Lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to the Property. 5.2.11 INTENTIONALLY DELETED. 5.2.12 ERISA. (a) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, that (A) Borrower is not and does not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: (i) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (iii) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). 5.2.13 TRANSFERS. Unless such action is permitted by the provisions of this Section 5.2.13, Borrower will not (i) sell, assign, convey, transfer or otherwise dispose of its interests in the Property or any part thereof, (ii) permit any owner, directly or indirectly, of an ownership interest in the Property, to transfer such interest, whether by transfer of stock or other interest in Borrower or any entity, or otherwise, (iii) incur Indebtedness, (iv) mortgage, hypothecate or otherwise encumber or grant a security interest in the Property or any part thereof, (v) sell, assign, convey, transfer, mortgage, encumber, grant a security interest in, or otherwise dispose of any direct or indirect ownership interest in Borrower, or permit any owner of an interest in Borrower to do the same, or (vi) file a declaration of condominium with respect to the Property (any of the foregoing transactions, a "TRANSFER"). For purposes hereof, a "Transfer" shall not include any issuance, sale or transfer of interests in Inland Western Retail Real Estate Trust, Inc. (a) On and after the date that is twelve (12) months following the Closing Date, Lender shall not withhold its consent to a Transfer of the Property, provided that the following conditions are satisfied: 43 (1) the transferee of the Property shall be a Special Purpose Entity (the "TRANSFEREE") which at the time of such transfer will be in compliance with the covenants contained in Section 5.1.1 and the representations contained in 4.1.30 hereof and which shall have assumed in writing (subject to the terms of Section 9.4 hereof) and agreed to comply with all the terms, covenants and conditions set forth in this Loan Agreement and the other Loan Documents, expressly including the covenants contained in Section 5.1.1 and the representations contained in 4.1.30 hereof; (2) if requested by Lender, Borrower shall deliver confirmation in writing from the Rating Agencies that such proposed Transfer will not cause a downgrading, withdrawal or qualification of the then current rating of any securities issued pursuant to such Securitization; (3) if Manager does not act as manager of the transferred Property then the manager of the Property must be a Qualifying Manager; (4) no Event of Default shall have occurred and be continuing; (5) if required or requested by any of the Rating Agencies, Borrower shall deliver a substantive non-consolidation opinion with respect to Transferee, which opinion shall be acceptable to Lender in its reasonable discretion; (6) Borrower shall have paid (A) an assumption fee equal to one percent (1.0%) of the then outstanding principal balance of the Loan, and (B) the reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer; PROVIDED, HOWEVER, no assumption fee shall be required for a Transfer of the Property to a Transferee acceptable to Lender in connection with a joint venture between Inland Western Retail Real Estate Trust, Inc. and an institution acceptable to Lender provided Inland Western Retail Real Estate Trust, Inc., or an Affiliate wholly-owned (directly or indirectly) by Inland Western Retail Real Estate Trust, Inc., owns at least twenty percent (20%) of the ownership interests in such Transferee and for which Inland Western Retail Real Estate Trust, Inc., or an Affiliate wholly-owned (directly or indirectly) by Inland Western Retail Real Estate Trust, Inc., is the managing entity and otherwise maintains operational and managerial control of such Transferee, provided that Borrower shall pay all of Lender's reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer and a processing fee of $5,000. Lender shall notify Borrower of its approval or disapproval of a proposed Transfer pursuant to this Section 5.2.13(a) within thirty (30) days after receiving from Borrower a written request therefor. 44 (b) On and after the date that is twelve (12) months following the Closing Date, Lender shall not withhold its consent to, and shall not charge an assumption fee in connection with, (1) a Transfer of up to, in the aggregate, forty-nine percent (49%) of the ownership interests in Borrower; or (2) a Transfer of greater than forty-nine percent (49%) of the ownership interest in Borrower, PROVIDED that (A) such transfer is to a Qualified Entity (as defined below), and (B) Borrower shall pay all of Lender's reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer and a processing fee of $5,000. For purposes of this Agreement, a "QUALIFIED ENTITY" shall mean an entity (x) with a net worth of $200,000,000 or more, (y) with sufficient experience (determined by Lender in its reasonable discretion) in the ownership and management of properties similar to the Property, and (z) which owns or manages retail properties containing at least 500,000 square feet of gross leasable area. (c) Notwithstanding anything in this Section 5.2.13 to the contrary, Borrower shall be permitted to Transfer the entire Property to a newly-formed Special Purpose Entity which shall be wholly-owned subsidiary of Inland Western Retail Real Estate Trust, Inc. or affiliate thereof ("PERMITTED AFFILIATE TRANSFEREE") which shall be approved by Lender by the Closing Date ("PERMITTED AFFILIATE TRANSFER"), provided (1) no Event of Default shall have occurred and be continuing, (2) the creditworthiness of Inland Western Retail Real Estate Trust, Inc., as applicable, has not deteriorated, in the sole discretion of Lender, from the Closing Date to the date of the proposed Transfer, and (3) Borrower shall have paid all reasonable and customary third party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer (but not any assumption or processing fee). (d) Borrower, without the consent of Lender, may grant easements, restrictions, covenants, reservations and rights of way in the ordinary course of business for access, parking, water and sewer lines, telephone and telegraph lines, electric lines and other utilities or for other similar purposes, provided that no transfer, conveyance or encumbrance shall materially impair the utility and operation of the Property or materially adversely affect the value of the Property or the Net Operating Income of the Property. If Borrower shall receive any consideration in connection with any of said described transfers or conveyances, Borrower shall have the right to use any such proceeds in connection with any alterations performed in connection therewith, or required thereby. In connection with any transfer, conveyance or encumbrance permitted above, the Lender shall execute and deliver any instrument reasonably necessary or appropriate to evidence its consent to said action or to subordinate the Lien of the Mortgage to such easements, restrictions, covenants, reservations and rights of way or other similar grants upon receipt by the Lender of: (A) a copy of the instrument of transfer; and (B) an Officer's Certificate stating with respect to any transfer described above, that such transfer does not materially impair the utility and operation of the Property or materially reduce the value of the Property or the Net Operating Income of the Property. 45 ARTICLE VI INSURANCE; CASUALTY; CONDEMNATION Section 6.1 INSURANCE. (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for Borrower and the Property providing at least the following coverages: (i) comprehensive all risk insurance on the Improvements and the Personal Property, including contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each case (A) in an amount equal to one hundred percent (100%) of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation, but the amount shall in no event be less than the outstanding principal balance of the Loan; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing for no deductible in excess of Ten Thousand and No/100 Dollars ($10,000) for all such insurance coverage; and (D) containing an "Ordinance or Law Coverage" or "Enforcement" endorsement if any of the Improvements or the use of the Property shall at any time constitute legal non-conforming structures or uses. In addition, Borrower shall obtain: (y) if any portion of the Improvements is currently or at any time in the future located in a federally designated "special flood hazard area," flood hazard insurance in an amount equal to the lesser of (1) the outstanding principal balance of the Note or (2) the maximum amount of such insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended or such greater amount as Lender shall require; and (z) earthquake insurance in amounts and in form and substance satisfactory to Lender in the event the Property is located in an area with a high degree of seismic activity, provided that the insurance pursuant to clauses (y) and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this subsection (i). (ii) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, such insurance (A) to be on the so-called "occurrence" form with a combined limit, including umbrella coverage, of not less than Two Million and No/100 Dollars ($2,000,000.00) in the aggregate and One Million and No/100 Dollars ($1,000,000.00) per occurrence; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all legal contracts; and (5) contractual liability covering the indemnities contained in Article 9 of the Mortgage to the extent the same is available; (iii) business income insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in subsection (i) above; (C) 46 covering rental losses or business interruption, as may be applicable, for a period of at least twelve (12) months after the date of the casualty and containing any extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of six (6) months from the date that the Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) in an annual amount equal to 100% of the rents or estimated gross revenues from the operation of the Property (as reduced to reflect expenses not incurred during Restoration). The amount of such business income insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from the Property for the succeeding twelve (12) month period. All proceeds payable to Lender pursuant to this subsection shall be held by Lender and shall be applied to the obligations secured by the Loan Documents from time to time due and payable hereunder and under the Note; PROVIDED, HOWEVER, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured by the Loan Documents on the respective dates of payment provided for in the Note and the other Loan Documents except to the extent such amounts are actually paid out of the proceeds of such business income insurance; (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements, and only if the Property coverage form does not otherwise apply, (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in subsection (i) above written in a so-called builder's risk completed value form (I) on a non-reporting basis, (2) against all risks insured against pursuant to subsection (i) above, (3) including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) workers' compensation, subject to the statutory limits of the State; (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial property insurance policy required under subsection (i) above; (vii) umbrella liability insurance in an amount not less than Five Million and No/100 Dollars ($5,000,000.00) per occurrence on terms consistent with the commercial general liability insurance policy required under subsection (ii) above; (viii) if any of the policies of insurance covering the risks required to be covered under subsections (i) through (vii) above contains an exclusion from coverage for acts of terrorism, Borrower shall obtain and maintain a separate policy providing such coverages in the event of any act of terrorism, provided such coverage is commercially available for properties similar to the Property and located in or around the region in which the Property is located. Notwithstanding the foregoing, Borrower shall not be required to 47 obtain such a policy, provided (I) Borrower confirms to Lender, in writing, that it shall protect and hold Lender harmless from any losses associated with such risks by, among other things, either (A) depositing with Lender sums sufficient to pay for all uninsured costs related to a Restoration of the Property following any act of terrorism (which sum shall be treated as a Net Proceeds Deficiency) and any remaining balance following a Restoration shall be remitted by Lender to Borrower in accordance with Section 6.4(b)(vii) hereof), or (B) at the option of Borrower prepaying the Loan in accordance with the terms hereof, including, without limitation, the payment of any Prepayment Consideration due in connection therewith; (II) Inland Western Retail Real Estate Trust, Inc. ("TERRORISM INSURANCE GUARANTOR") executes a guaranty, in form and substance satisfactory to Lender, guaranteeing in the event of any act of terrorism, payment to Lender of any sums that Borrower is obligated to pay to Lender under clause (I) above (which shall be applied in accordance with Section 6.4 hereof), and (III) Terrorism Insurance Guarantor maintains a net worth of at least $300,000,000 (as determined by such entity's most recent audited financial statements), such entity maintains a direct or indirect ownership interest in Borrower, and the aggregate loan-to-value ratio (as determined by Lender) ("LTV") for all properties on which such entity has a direct or indirect ownership interest shall not exceed 55%, however, Terrorism Insurance Guarantor may exceed the 55% LTV for a period not to exceed six (6) months out of any twelve (12) month period either 1) during the time period when Terrorism Insurance Guarantor is offering securities to the public, or 2) when in the business judgement of Terrorism Insurance Guarantor, exceeding an LTV of 55% is necessary given existing circumstances of the credit environment, but in no event shall the LTV exceed 65% if Terrorism Insurance Guarantor maintains a net worth greater than or equal to $300,000,000, but less than $400,000,000, or 70% if Terrorism Insurance Guarantor maintains a net worth of at least $400,000,000. (ix) upon sixty (60) days' written notice, such other reasonable insurance and in such reasonable amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located. (b) All insurance provided for in Section 6.1(a) shall be obtained under valid and enforceable policies (collectively, the "POLICIES" or in the singular, the "POLICY"), and shall be subject to the approval of Lender as to insurance companies, amounts, deductibles, loss payees and insureds. The Policies shall be issued by financially sound and responsible insurance companies authorized to do business in the State and having a rating of "A:X" or better in the current Best's Insurance Reports and a claims paying ability rating of "AA" or better by at least two (2) of the Rating Agencies including, (i) Standard & Poor's Ratings Group, and (ii) Moody's Investors Services, Inc. if Moody's Investors Service, Inc. is rating the Securities. The Policies described in Section 6.1 (other than those strictly limited to liability protection) shall designate Lender as loss payee. Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to Lender, certificates of insurance evidencing the Policies accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "INSURANCE PREMIUMS"), shall be delivered by Borrower to Lender. 48 (c) Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Section 6.1(a). (d) All Policies of insurance provided for or contemplated by Section 6.1(a), except for the Policy referenced in Section 6.1(a)(v), shall name Borrower, or the Tenant, as the insured and Lender as the additional insured, as its interests may appear, and in the case of property damage, boiler and machinery, flood and earthquake insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies of insurance provided for in Section 6.1(a) shall contain clauses or endorsements to the effect that: (i) no act or negligence of Borrower, or anyone acting for Borrower, or of any Tenant or other occupant, or failure to comply with the provisions of any Policy, which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or canceled without at least thirty (30) days' written notice to Lender and any other party named therein as an additional insured; (iii) the issuers thereof shall give written notice to Lender if the Policy has not been renewed fifteen (15) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, after ten (10) Business Days written notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and, until paid, shall be secured by the Mortgage and shall bear interest at the Default Rate. If Borrower fails in so insuring the Property or in so assigning and delivering the Policies, Lender may, at its option, obtain such insurance using such carriers and agencies as Lender shall elect from year to year and pay the premiums therefor, and Borrower will reimburse Lender for any premium so paid, with interest thereon as stated in the Note from the time of payment, on demand, and the amount so owing to Lender shall be secured by the Mortgage. The insurance obtained by Lender may, but need not, protect Borrower's interest and the coverage that Lender purchases may not pay any claim that Borrower makes or any claim that is made against Borrower in connection with the Property. 49 Section 6.2 CASUALTY. If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"), Borrower (a) shall give to Lender prompt notice of such damage reasonably estimated by Borrower to cost more than One Hundred Thousand Dollars ($100,000.00) to repair, and (b) shall promptly commence and diligently prosecute the completion of the repair and restoration of the Property as nearly as possible to the condition the Property was in immediately prior to such fire or other casualty, with such alterations as may be reasonably approved by Lender (a "RESTORATION") and otherwise in accordance with Section 6.4. Borrower shall pay all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by Borrower. Section 6.3 CONDEMNATION. Borrower shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of the Property and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If the Property or any portion thereof is taken by a condemning authority, Borrower shall promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the provisions of Section 6.4. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt. Section 6.4 RESTORATION. The following provisions shall apply in connection with the Restoration of the Property; (a) If the Net Proceeds shall be less than Relevant Restoration Threshold and the costs of completing the Restoration shall be less than the Relevant Restoration Threshold, the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all of the conditions set forth in clauses (A), (E), (F), (G), (H), (J) and (L) of Section 6.4(b)(i) below are met and Borrower delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Agreement. (b) If the Net Proceeds are equal to or greater than the Relevant Restoration Threshold or the costs of completing the Restoration is equal to or greater than the Relevant Restoration Threshold, then in either case, Lender shall make the Net Proceeds available for the 50 Restoration in accordance with the provisions of this Section 6.4(b). The term "NET PROCEEDS" for purposes of this Section 6.4 shall mean: (x) the net amount of all insurance proceeds received by Lender pursuant to Section 6.1 (a)(i), (iv), (vi) and (viii) as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("INSURANCE PROCEEDS"), or (y) the net amount of the Award, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("CONDEMNATION PROCEEDS"), whichever the case may be. (i) The Net Proceeds shall be made available to Borrower for Restoration provided that each of the following conditions are met: (A) no Event of Default shall have occurred and be continuing; (B) (1) in the event the Net Proceeds are Insurance Proceeds, and (x) less than twenty-five percent (25%) of the total floor area of the Improvements on the Property has been damaged, destroyed or rendered unusable as a result of such fire or other casualty, or (y) Borrower is required under a Lease exceeding the Relevant Leasing Threshold to use the Net Proceeds for the restoration of the Property, or (2) in the event the Net Proceeds are Condemnation Proceeds, and (x) less than ten percent (10%) of the land constituting the Property is taken, and such land is located along the perimeter or periphery of the Property, and no portion of the Improvements is located on such land, or (y) Borrower is required under a Lease exceeding the Relevant Leasing Threshold to use the Net Proceeds for the restoration of the Property; (C) Leases demising in the aggregate a percentage amount equal to or greater than the Rentable Space Percentage of the total rentable space in the Property which has been demised under executed and delivered Leases in effect as of the date of the occurrence of such fire or other casualty or taking, whichever the case may be, shall remain in full force and effect during and after the completion of the Restoration, notwithstanding the occurrence of any such fire or other casualty or taking, whichever the case may be, and will make all necessary repairs and restorations thereto at their sole cost and expense. The term "RENTABLE SPACE PERCENTAGE" shall mean (x) in the event the Net Proceeds are Insurance Proceeds, a percentage amount equal to fifty percent (50%) and (y) in the event the Net Proceeds are Condemnation Proceeds, a percentage amount equal to fifty percent (50%); (D) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than ninety (90) days after such damage or destruction or taking, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion; (E) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note, which will be incurred with respect to the Property as a result of the occurrence of any such fire 51 or other casualty or taking, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Section 6.1(a)(iii), if applicable, or (3) by other funds of Borrower; (F) Lender shall be satisfied that the Restoration will be completed on or before the earliest to occur of (1) the Maturity Date, (2) the earliest date required for such completion under the terms of any Leases, (3) such time as may be required under applicable zoning law, ordinance, rule or regulation in order to repair and restore the Property to the condition it was in immediately prior to such fire or other casualty or to as nearly as possible the condition it was in immediately prior to such taking, as applicable or (4) the expiration of the insurance coverage referred to in Section 6.1(a)(iii); (G) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable zoning laws, ordinances, rules and regulations provided, however, that compliance with such zoning laws, ordinances, rules and regulations (including, without limitation, parking requirements) will not require restoration of the Improvements or the Property to a size, condition, or configuration materially different than that which existed immediately prior to such Casualty or taking; (H) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable governmental laws, rules and regulations (including, without limitation, all applicable environmental laws); (I) such fire or other casualty or taking, as applicable, does not result in the loss of access to the Property or the related Improvements; (J) the Debt Service Coverage Ratio, after giving effect to the Restoration, shall be equal to or greater than 2.1:1; (K) Borrower shall deliver or cause to be delivered to Lender a signed detailed budget approved in writing by Borrower's architect or engineer stating the entire cost of completing the Restoration, which budget should be consistent with restoration budgets of similar retail properties then owned and operated by nationally recognized owners and operators of retail properties located in the areas in which the Property is located; and (L) the Net Proceeds together with any cash or cash equivalent deposited by Borrower with Lender are sufficient in Lender's discretion to cover the cost of the Restoration. (ii) The Net Proceeds shall be held by Lender in an interest bearing account and, until disbursed in accordance with the provisions of this Section 6.4(b), shall constitute additional security for the Debt and other obligations under the Loan Documents. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of 52 evidence satisfactory to Lender that (A) all materials installed and work and labor performed to be paid for out of the requested disbursement in connection with the Restoration have been performed, and (B) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company issuing the Title Insurance Policy. (iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "CASUALTY CONSULTANT"), such review and acceptance not to be unreasonably withheld or delayed. Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Casualty Consultant, such review and acceptance not to be unreasonably withheld or delayed. All costs and expenses incurred by Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty Consultant's fees, shall be paid by Borrower. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Casualty Consultant, MINUS the Casualty Retainage. The term "CASUALTY RETAINAGE" shall mean an amount equal to ten percent (10%) of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until the Restoration has been completed. The Casually Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Section 6.4(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b) and that all approvals necessary for the re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage; PROVIDED, HOWEVER, that Lender will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Casualty Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company issuing the Title Insurance Policy, and Lender receives an endorsement 53 to the Title Insurance Policy insuring the continued priority of the lien of the Mortgage and evidence of payment of any premium payable for such endorsement. If required by Lender, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender in consultation with the Casualty Consultant, be sufficient to pay in full the balance of the costs which are estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "NET PROCEEDS DEFICIENCY") with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Section 6.4(b) shall constitute additional security for the Debt and other obligations under the Loan Documents. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Agreement or any of the other Loan Documents. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Section 6.4(b)(vii) may be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its sole discretion shall deem proper (provided no Event of Default exists, such Borrower shall not be required to pay any Prepayment Consideration in connection with such payment), or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall designate, in its discretion. (d) In the event of foreclosure of the Mortgage with respect to the Property, or other transfer of title to the Property in extinguishment in whole or in part of the Debt all right, title and interest of Borrower in and to the Policies that are not blanket Policies then in force concerning the Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title. 54 (e) Lender shall with reasonable promptness following any Casualty or Condemnation notify Borrower whether or not Net Proceeds are required to be made available to Borrower for restoration pursuant to this Section 6.4. ARTICLE VII RESERVE FUNDS Section 7.1 REQUIRED REPAIR FUNDS. 7.1.1 DEPOSITS. Borrower shall perform the repairs at the Property, if any, as more particularly set forth on SCHEDULE III hereto within six (6) months from the date of funding (such repairs hereinafter referred to as "REQUIRED REPAIRS"). Borrower shall complete the Required Repairs on or before the required deadline for each repair as set forth on SCHEDULE III. It shall be an Event of Default under this Agreement if (i) Borrower does not complete the Required Repairs at the Property by the required deadline for each repair as set forth on SCHEDULE III, and (ii) Borrower does not satisfy each condition contained in Section 7.1.2 hereof. Upon the occurrence of such an Event of Default, Lender, at its option, may withdraw all Required Repair Funds from the Required Repair Account and Lender may apply such funds either to completion of the Required Repairs at the Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply Required Repair Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. On the Closing Date, Borrower shall deposit with Lender the amount for the Property set forth on such SCHEDULE III hereto, if any, to perform the Required Repairs for the Property. Amounts so deposited with Lender, if any, shall be held by Lender in an interest bearing account. Amounts so deposited, if any, shall hereinafter be referred to as Borrower's "REQUIRED REPAIR FUND" and the account, if any, in which such amounts are held shall hereinafter be referred to as Borrower's "REQUIRED REPAIR ACCOUNT." 7.1.2 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse to Borrower the Required Repair Funds from the Required Repair Account from time to time upon satisfaction by Borrower of each of the following conditions: (i) Borrower shall submit a written request for payment to Lender at least fifteen (15) days prior to the date on which Borrower requests such payment be made and specifies the Required Repairs to be paid, (ii) on the date such request is received by Lender and on the date such payment is to be made, no Default or Event of Default shall exist and remain uncured, (iii) Lender shall have received a certificate from Borrower (A) stating that all Required Repairs at the Property to be funded by the requested disbursement have been completed in good and workmanlike manner and in accordance with all applicable federal, state and local laws, rules and regulations, such certificate to be accompanied by a copy of any license, permit or other approval by any Governmental Authority required to commence and/or complete the Required Repairs, (B) identifying each Person that supplied materials or labor in connection with the Required Repairs performed at the Property to be funded by the requested disbursement under a contract in excess of $50,000, and (C) stating that each Person who has supplied materials or labor in connection with the Required Repairs to be funded by the requested disbursement has been paid in full or will be paid in full upon such disbursement, such certificate to be accompanied by lien waivers or other evidence of payment satisfactory to 55 Lender, (iv) at Lender's option, a title search for the Property indicating that the Property is free from all liens, claims and other encumbrances not previously approved by Lender, and (v) Lender shall have received such other evidence as Lender shall reasonably request that the Required Repairs at the Property to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement to Borrower. Lender shall not be required to make disbursements from the Required Repair Account with respect to the Property more than once each calendar month and such disbursement shall be made only upon satisfaction of each condition contained in this Section 7.1.2. Section 7.2 TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates and (b) one-twelfth of the Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies, (said amounts in (a) and (b) above are hereinafter called the "TAX AND INSURANCE ESCROW FUND"). The Tax and Insurance Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to this Agreement and under the Mortgage. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums) or from Borrower without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof, provided, however, Lender shall use reasonable efforts to pay such real property taxes sufficiently early to obtain the benefit of any available discounts of which it has knowledge. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. The Tax and Insurance Escrow Fund shall be held by Lender in an interest-bearing account and shall at Lender's option be held in Eligible Account at an Eligible Institution. Any interest earned on said account shall be held in said account and credited toward future deposits to the Tax and Insurance Escrow Fund. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall be returned to Borrower. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Property. If at any time Lender reasonably determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes or Insurance Premiums by the dates set forth above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes or Insurance Premiums. Notwithstanding anything to the contrary hereinbefore contained, in the event that Borrower provides (1) evidence satisfactory to Lender that the Property is insured under a "blanket" policy which is acceptable to Lender and which otherwise satisfies the requirements of this Agreement and (2) evidence satisfactory to Lender that the Taxes for the Property have been paid in accordance with the requirements set forth in this Agreement, Lender will waive the requirement set forth herein for Borrower to make 56 deposits into the Tax and Insurance Escrow Fund for the payment of Insurance Premiums due on such "blanket" policy of insurance and for payment of such Taxes, provided, however, Lender expressly reserves the right to require Borrower to make deposits to the Tax and Insurance Escrow Fund for the payment of Insurance Premiums if at any time the Property is not insured under a "blanket" insurance policy which satisfies the requirements of this Agreement or Taxes are not paid in accordance with the requirements of this Agreement. Section 7.3 REPLACEMENTS AND REPLACEMENT RESERVE. 73.1 REPLACEMENT RESERVE FUND. Borrower shall pay to Lender on the date hereof and on each Payment Date one twelfth of the amount (the "REPLACEMENT RESERVE MONTHLY DEPOSIT") reasonably estimated by Lender in its sole discretion to be due for replacements and repairs required to be made to the Property during the calendar year (collectively, the "REPLACEMENTS"), which Replacement Reserve Monthly Deposit shall be in an amount equal to no less than $0.15 per year per square foot of gross leasable area. Amounts so deposited shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE FUND" and the account in which such amounts are held shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE ACCOUNT." Lender may reassess its estimate of the amount necessary for the Replacement Reserve Fund from time to time, and may increase the monthly amounts required to be deposited into the Replacement Reserve Fund upon thirty (30) days notice to Borrower if Lender determines in its reasonable discretion that an increase is necessary to maintain the proper maintenance and operation of the Property. Any amount held in the Replacement Reserve Account and allocated for the Property shall be retained by Lender in an interest bearing account, or, at the option of Lender, in an Eligible Account at an Eligible Institution; PROVIDED, HOWEVER, that, any interest accrued on the amounts on deposit in the Replacement Reserve Fund shall be disbursed to Borrower no more than once per calendar year upon the written request of Borrower. Notwithstanding anything to the contrary in this Section 7.3, Borrower shall not be required to make Replacement Reserve Monthly Deposits, provided that: (i) no Event of Default shall have occurred; and (ii) Borrower makes all necessary Replacements and otherwise maintains the Property to Lender's satisfaction. Upon notice from Lender following: (a) an Event of Default; or (b) the failure of Borrower to make necessary Replacements or otherwise maintain the Property to Lender's satisfaction, Borrower shall begin to deposit the Replacement Reserve Monthly Deposit into the Replacement Reserve Fund beginning on the Payment Date (as defined herein) immediately following the date of such notice. 7.3.2 DISBURSEMENTS FROM REPLACEMENT RESERVE ACCOUNT. (a) Lender shall make disbursements from the Replacement Reserve Account to pay Borrower only for the costs of the Replacements. Lender shall not be obligated to make disbursements from the Replacement Reserve Account to reimburse Borrower for the costs of routine maintenance to the Property or for costs which are to be reimbursed from the Required Repair Fund (if any). (b) Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in this Section 7.3.2, disburse to Borrower amounts from the Replacement Reserve Account necessary to pay for the actual approved costs of Replacements or to reimburse 57 Borrower therefor, upon completion of such Replacements (or, upon partial completion in the case of Replacements made pursuant to Section 7.3.2(f)) as determined by Lender. In no event shall Lender be obligated to disburse funds from the Replacement Reserve Account if a Default or an Event of Default exists. (c) Each request for disbursement from the Replacement Reserve Account shall be in a form specified or approved by Lender and shall specify (i) the specific Replacements for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Replacement other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Replacement for which such request for disbursement is made. With each request Borrower shall certify that all Replacements have been made in accordance with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the Property to which the Replacements are being provided and, unless Lender has agreed to issue joint checks as described below, each request shall include evidence of payment of all such amounts. Each request for disbursement shall include copies of invoices for all items or materials purchased and all contracted labor or services provided. Except as provided in Section 7.3.2(c), each request for disbursement from the Replacement Reserve Account shall be made only after completion of the Replacement for which disbursement is requested. Borrower shall provide Lender evidence of completion satisfactory to Lender in its reasonable judgment. (d) Borrower shall pay all invoices in connection with the Replacements with respect to which a disbursement is requested prior to submitting such request for disbursement from the Replacement Reserve Account or, at the request of Borrower, Lender will issue joint checks, payable to Borrower and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with a Replacement. In the case of payments made by joint check, Lender may require a waiver of lien from each Person receiving payment prior to Lender's disbursement from the Replacement Reserve Account. In addition, as a condition to any disbursement, Lender may require Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or subcontractor who receives payment in an amount equal to or greater than $100,000 for completion of its work or delivery of its materials. Any lien waiver delivered hereunder shall conform to the requirements of applicable law and shall cover all work performed and materials supplied (including equipment and fixtures) for the Property by that contractor, supplier, subcontractor, mechanic or materialman through the date covered by the current reimbursement request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or materialmen is to be made by a joint check, the release of lien shall be effective through the date covered by the previous release of funds request). (e) If (i) the cost of a Replacement exceeds $100,000, (ii) the contractor performing such Replacement requires periodic payments pursuant to terms of a written contract, and (iii) Lender has approved in writing in advance such periodic payments, a request for reimbursement from the Replacement Reserve Account may be made after completion of a portion of the work under such contract, provided (A) such contract requires payment upon completion of such portion of the work, (B) the materials for which the request is made are on site at the Property and are properly secured or have been installed in the Property, (C) all other conditions in this Agreement for disbursement have been satisfied, (D) funds remaining in the 58 Replacement Reserve Account are, in Lender's judgment, sufficient to complete such Replacement and other Replacements when required, and (E) if required by Lender, each contractor or subcontractor receiving payments under such contract shall provide a waiver of lien with respect to amounts which have been paid to that contractor or subcontractor. (f) Borrower shall not make a request for disbursement from the Replacement Reserve Account more frequently than once in any calendar month and (except in connection with the final disbursement) the total cost of all Replacements in any request shall not be less than $5,000.00. 7.3.3 PERFORMANCE OF REPLACEMENTS. (a) Borrower shall make Replacements when required in order to keep the Property in condition and repair consistent with other first class, full service retail properties in the same market segment in the metropolitan area in which the Property is located, and to keep the Property or any portion thereof from deteriorating. Borrower shall complete all Replacements in a good and workmanlike manner as soon as practicable following the commencement of making each such Replacement. (b) Lender reserves the right, at its option, to approve all contracts or work orders with materialmen, mechanics, suppliers, subcontractors, contractors or other parties providing labor or materials under contracts for an amount in excess of $100,000 in connection with the Replacements. Upon Lender's request, Borrower shall assign any contract or subcontract to Lender. (c) In the event Lender determines in its reasonable discretion that any Replacement is not being performed in a workmanlike or timely manner or that any Replacement has not been completed in a workmanlike or timely manner, and such failure continues to exist for more than thirty (30) days after notice from Lender to Borrower, Lender shall have the option to withhold disbursement for such unsatisfactory Replacement and to proceed under existing contracts or to contract with third parties to complete such Replacement and to apply the Replacement Reserve Fund toward the labor and materials necessary to complete such Replacement, without providing any prior notice to Borrower and to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (d) In order to facilitate Lender's completion or making of the Replacements pursuant to Section 7.3.3(c) above, Borrower grants Lender the right to enter onto the Property and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect the Property from damage. All sums so expended by Lender, to the extent not from the Replacement Reserve Fund, shall be deemed to have been advanced under the Loan to Borrower and secured by the Mortgage. For this purpose Borrower constitutes and appoints Lender its true and lawful attorney-in-fact with full power of substitution to complete or undertake the Replacements in the name of Borrower. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked but shall only be effective following an Event of Default. Borrower empowers said attorney-in-fact as follows: (i) to use any funds in the Replacement Reserve Account for the purpose of making or completing the Replacements; (ii) to make such additions, changes and corrections to the Replacements as shall 59 be necessary or desirable to complete the Replacements; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against the Property, or as may be necessary or desirable for the completion of the Replacements, or for clearance of title; (v) to execute all applications and certificates in the name of Borrower which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with the Property or the rehabilitation and repair of the Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of this Agreement. (e) Nothing in this Section 7.3.3 shall: (i) make Lender responsible for making or completing the Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund to make or complete any Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement. (f) Borrower shall permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties making Replacements pursuant to this Section 7.3.3 to enter onto the Property during normal business hours (subject to the rights of tenants under their Leases) to inspect the progress of any Replacements and all materials being used in connection therewith, to examine all plans and shop drawings relating to such Replacements which are or may be kept at the Property, and to complete any Replacements made pursuant to this Section 7.3.3. Borrower shall cause all contractors and subcontractors to cooperate with Lender or Lender's representatives or such other persons described above in connection with inspections described in this Section 7.3.3(f) or the completion of Replacements pursuant to Ms Section 7.3.3. (g) Lender may require an inspection of the Property at Borrower's expense prior to making a monthly disbursement in excess of $10,000 from the Replacement Reserve Account in order to verify completion of the Replacements for which reimbursement is sought. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower shall pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (h) The Replacements and all materials, equipment, fixtures, or any other item comprising a part of any Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialman's or other liens (except for those Liens existing on the date of this Agreement which have been approved in writing by Lender). (i) Before each disbursement from the Replacement Reserve Account, Lender may require Borrower to provide Lender with a search of title to the Property effective to the date of the disbursement, which search shows that no mechanic's or materialmen's liens or other liens of any nature have been placed against the Property since the date of recordation of the 60 Mortgage and that title to the Property is free and clear of all Liens (other than the lien of the Mortgage and any other Liens previously approved in writing by Lender, if any). (j) All Replacements shall comply with all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (k) In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workmen's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under applicable law in connection with a particular Replacement. All such policies shall be in form and amount reasonably satisfactory to Lender. All such policies which can be endorsed with standard mortgagee clauses making loss payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be delivered to Lender. 7.3.4 FAILURE TO MAKE REPLACEMENTS. (a) It shall be an Event of Default under this Agreement if Borrower fails to comply with any provision of this Section 7.3 and such failure is not cured within thirty (30) days after notice from Lender; PROVIDED, HOWEVER, if such failure is not capable of being cured within said thirty (30) day period, then provided that Borrower commences action to complete such cure and thereafter diligently proceeds to complete such cure, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrower, in the exercise of due diligence, to cure such failure, but such additional period of time shall not exceed sixty (60) days. Upon the occurrence of such an Event of Default, Lender may use the Replacement Reserve Fund (or any portion thereof) for any purpose, including but not limited to completion of the Replacements as provided in Section 7.3.3, or for any other repair or replacement to the Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply the Replacement Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. (b) Nothing in this Agreement shall obligate Lender to apply all or any portion of the Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any specific order or priority. 7.3.5 BALANCE IN THE REPLACEMENT RESERVE ACCOUNT. The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. 7.3.6 INDEMNIFICATION. Borrower shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations and costs and expenses (including litigation costs and reasonable attorneys fees and expenses) arising from or in any way connected with the performance of the Replacements unless the same are solely due to gross negligence or willful misconduct of Lender. Borrower shall assign to Lender all rights and claims Borrower may have against all 61 persons or entities supplying labor or materials in connection with the Replacements; PROVIDED, HOWEVER, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured. Section 7.4 INTENTIONALLY DELETED. Section 7.5 INTENTIONALLY DELETED. Section 7.6 INTENTIONALLY DELETED. Section 7.7 RESERVE FUNDS, GENERALLY. 7.7.1 Borrower grants to Lender a first-priority perfected security interest in each of the Reserve Funds and any and all monies now or hereafter deposited in each Reserve Fund as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds shall constitute additional security for the Debt. 7.7.2 Upon the occurrence of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the payment of the Debt in any order in its sole discretion. 7.7.3 The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender. 7.7.4 The Reserve Funds shall be held in interest bearing accounts. All earnings or interest on the Reserve Funds shall be added to and become a part of such Tax and Insurance Escrow Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Funds. 7.7.5 Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. 7.7.6 Lender shall not be liable for any loss sustained on the investment of any funds constituting the Reserve Funds unless occasioned by the gross negligence or willful misconduct of Lender. 7.7.7 Upon payment in full of the Debt and performance of all other obligations under this Agreement and the other Loan Documents, Lender shall disburse to Borrower all remaining Reserve Funds. 62 ARTICLE VIII DEFAULTS Section 8.1 EVENT OF DEFAULT. (a) Each of the following events shall constitute an event of default hereunder (an "EVENT OF DEFAULT"): (i) if any portion of the Debt is not paid within five (5) days of the applicable due date; (ii) if any of the Taxes or Other Charges are not paid prior to the date when the same become delinquent, except to the extent that there are sufficient funds in the Tax and Insurance Escrow Fund to pay such Taxes or Other Charges and Lender fails to or refuses to release the same from the Tax and Insurance Escrow Fund; (iii) if the Policies are not kept in full force and effect, or if certified copies of the Policies are not delivered to Lender within ten (10) days of request; (iv) if Borrower transfers or encumbers any portion of the Property without Lender's prior written consent (to extent such consent is required) or otherwise violates the provisions of Section 5.2.13 of this Loan Agreement; (v) if any material representation or warranty made by Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if Borrower or indemnitor or any guarantor under any guaranty or indemnity issued in connection with the Loan shall make an assignment for the benefit of creditors; (vii) if a receiver, liquidator or trustee shall be appointed for Borrower or any guarantor or indemnitor under any guarantee or indemnity issued in connection with the Loan or if Borrower or such guarantor or indemnitor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or such guarantor or indemnitor, or if any proceeding for the dissolution or liquidation of Borrower or such guarantor or indemnitor shall be instituted; PROVIDED, HOWEVER, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or such guarantor or indemnitor, upon the same not being discharged, stayed or dismissed within one hundred eighty (180) days; 63 (viii) if Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents; (ix) if Borrower breaches any of its respective negative covenants contained in Section 5.2 or any covenant contained in Section 4.1.30 hereof; (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xi) intentionally omitted; (xii) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (i) to (xi) above, for ten (10) days after notice to Borrower from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; PROVIDED, HOWEVER, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower shall have commenced to cure such Default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed one hundred eighty (180) days; or (xiii) if there shall be default under any of the other Loan Documents beyond any applicable cure periods contained in such documents, whether as to Borrower or the Property, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vi), (vii) or (viii) above) and at any time thereafter Lender may, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in the Property, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and the Property, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi), (vii) or (viii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. 64 Section 8.2 REMEDIES. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Property. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) Lender is not subject to any "one action" or "election of remedies" law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Property and the Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. (b) Lender shall have the right from time to time to partially foreclose the Mortgage in any manner and for any amounts secured by the Mortgage then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances; (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Lender may foreclose the Mortgage to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose the Mortgage to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by the Mortgage as Lender may elect. Notwithstanding one or more partial foreclosures, the Property shall remain subject to the Mortgage to secure payment of sums secured by the Mortgage and not previously recovered. (c) Lender shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, mortgages and other security documents (the "SEVERED LOAN DOCUMENTS") in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender following the occurrence of an Event of Default as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; PROVIDED, HOWEVER, Lender shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Lender of Lender's intent to exercise its rights under such power. Borrower shall not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the 65 Severed Loan Documents, and the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. (d) As used in this Section 8.2, a "foreclosure" shall include any sale by power of sale. Section 8.3 REMEDIES CUMULATIVE; WAIVERS. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. ARTICLE IX SPECIAL PROVISIONS Section 9.1 SALE OF NOTES AND SECURITIZATION. At the request of the holder of the Note and, to the extent not already required to be provided by Borrower under this Agreement, Borrower shall cooperate with Lender to allow Lender to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with the sale of the Note or participations therein or the first successful securitization (such sale and/or securitization, the "SECURITIZATION") of rated single or multi-class securities (the "SECURITIES") secured by or evidencing ownership interests in the Note and the Mortgage. In this regard Borrower shall: (a) (i) provide such financial and other information with respect to the Property, Borrower and the Manager, (ii) provide budgets relating to the Property and (iii) to perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Property, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be necessary or appropriate in connection with the Securitization (the "PROVIDED INFORMATION"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies; (b) cause counsel to render opinions, which may be relied upon by the holder of the Note, the Rating Agencies and their respective counsel, agents and representatives, as to non-consolidation, fraudulent conveyance, and true sale and/or lease or any other opinion 66 customary in securitization transactions, which counsel and opinions shall be reasonably satisfactory to the holder of the Note and the Rating Agencies; (c) make such representations and warranties as of the closing date of the Securitization with respect to the Property, Borrower, and the Loan Documents as are consistent with the representations and warranties made in the Loan Documents; and (d) execute such amendments to the Loan Documents and organizational documents as may be reasonably requested by the holder of the Note or the Rating Agencies or otherwise to effect the Securitization; PROVIDED, HOWEVER, that Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, or (ii) modify or amend any other material economic term of the Loan. All material out-of-pocket third party costs and expenses incurred by Borrower in connection with complying with requests made under this Section 9.1 shall be paid by Lender. Section 9.2 SECURITIZATION. Borrower understands that certain of the Provided Information may be included in disclosure documents in connection with the Securitization, including, without limitation, a prospectus, prospectus supplement or private placement memorandum (each, a "DISCLOSURE DOCUMENT") and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. Section 9.3 RATING SURVEILLANCE. Lender, at its option, may retain the Rating Agencies to provide rating surveillance services on any certificates issued in a Securitization. Such rating surveillance will be at the expense of Lender (the "RATING SURVEILLANCE CHARGE"). Section 9.4 EXCULPATION. Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Note, this Agreement, the Mortgage or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Mortgage and the other Loan Documents, or in the Property, the Rents following an Event of Default, or any other collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents following an Event of Default and in any other collateral given to Lender, and Lender, by accepting the Note, this Agreement, the Mortgage and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against 67 Borrower in any such action or proceeding under or by reason of or under or in connection with the Note, this Agreement, the Mortgage or the other Loan Documents. The provisions of this section shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under any of the Mortgage; (c) affect the validity or enforceability of or any guaranty made in connection with the Loan or any of the rights and remedies of Lender thereunder; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of any of the Assignment of Leases following an Event of Default; (f) constitute a prohibition against Lender commencing any other appropriate action or proceeding in order for Lender to exercise its remedies against the Property; or (g) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys' fees and costs reasonably incurred) arising out of or in connection with the following: (i) fraud or intentional misrepresentation by Borrower or any guarantor in connection with the Loan; (ii) the gross negligence or willful misconduct of Borrower; (iii) material physical waste of the Property; (iv) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity or in the Mortgage concerning environmental laws, hazardous substances and asbestos and any indemnification of Lender with respect thereto in either document; (v) the removal or disposal of any portion of the Property after an Event of Default; (vi) the misapplication or conversion by Borrower of (A) any insurance proceeds paid by reason of any loss, damage or destruction to the Property which are not applied by Borrower in accordance with this Agreement, (B) any awards or other amounts received in connection with the condemnation of all or a portion of the Property which are not applied by Borrower in accordance with this Agreement, or (C) any Rents following an Event of Default; (vii) failure to pay charges for labor or materials or other charges that can create liens on any portion of the Property; (viii) any security deposits, advance deposits or any other deposits collected with respect to the Property which are not delivered to Lender upon a foreclosure of the Property or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof; or 68 (ix) the breach of Borrower's indemnification obligation pursuant to Section 10.13(b) hereof with respect to the Outparcel Purchase Price. Notwithstanding anything to the contrary in this Agreement, the Note or any of the Loan Documents, (A) the Debt shall be fully recourse to the Borrower and (B) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Mortgage or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents in the event that the (I) first full monthly payment under the Note is not paid within five (5) days of notice that such payment is late (provided, however, that such grace period relates only to the recourse trigger described in this paragraph), or (II) failure of Borrower to permit on-site inspections of the Property subject to the rights of the Major Tenants under their respective Leases and any applicable cure period set forth in the Loan Documents, to provide financial information as required under the Loan Documents subject to any applicable cure period (except for financial information required to be delivered by the Major Tenants pursuant to their respective Leases that has not been delivered to Borrower, provided Borrower has requested such financial information from the Major Tenants, or to comply with Section 4.1.30 hereof, or (III) failure of Borrower to obtain Lender's prior written consent to any subordinate financing or other voluntary lien encumbering the Property, or (IV) failure of Borrower to obtain Lender's prior written consent to any assignment, transfer or conveyance of the Property, or any portion thereof, or any interest therein as required by this Agreement. Notwithstanding the provision set forth in clause (III) of this paragraph, a voluntary lien OTHER THAN a lien securing an extension of credit filed against the Property shall not constitute a recourse trigger for purposes of this paragraph provided such lien (A) is fully bonded to the satisfaction of Lender and discharged of record within ninety (90) days of filing, or (B) within such ninety (90) day period, Lender receives affirmative title insurance from the title insurance company insuring the lien of the Mortgage that such lien is subject and subordinate to the lien of the Mortgage and no enforcement action is commenced by the applicable lien holder. Section 9.5 TERMINATION OF MANAGER. If (a) the amounts evidenced by the Note have been accelerated pursuant to Section 8.1(b) hereof, (b) the Manager shall become insolvent, (c) the Manager is in default under the terms of the Management Agreement beyond any applicable grace or cure period, or (d) Manager is not managing the Property in accordance with the management practices of nationally recognized management companies managing similar properties in locations comparable to those of the Property, then, in the case of (a), (b), (c) or (d), Borrower shall, at the request of Lender, terminate the Management Agreement and replace the Manager with a manager reasonably approved by Lender on terms and conditions reasonably satisfactory to Lender, it being understood and agreed that the management fee for such replacement manager shall not exceed then prevailing market rates. In addition and without limiting the rights of Lender hereunder or under any of the other Loan Documents, in the event that (i) the Management Agreement is terminated, (ii) the Manager no longer manages the Property, or (iii) a receiver, liquidator or trustee shall be appointed for Manager or if Manager shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Manager, or if any proceeding for the dissolution or liquidation of Manager shall be instituted, then Borrower (at Borrower's sole cost and expense) shall immediately, in its name, establish new deposit accounts separate from any 69 other Person with a depository satisfactory to Lender into which all Rents and other income from the Property shall be deposited and shall grant Lender a first priority security interest in such account pursuant to documentation satisfactory in form and substance to Lender. Section 9.6 SERVICER. At the option of Lender, the Loan may be serviced by a servicer/trustee (the "SERVICER") selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "SERVICING AGREEMENT") between Lender and Servicer. Lender shall be responsible for any set-up fees or any other costs relating to or arising under the Servicing Agreement. Section 9.7 SPLITTING THE LOAN. At the election of Lender in its sole discretion, the Loan shall be split and severed into two or more loans which shall not be cross-collateralized or cross-defaulted with each other. Borrower hereby agrees to deliver to Lender to effectuate such severing of the Loan as reasonably requested by Lender, (a) additional executed documents, or amendments and modifications to the Loan Documents, (b) new opinions or updates to the opinions delivered to Lender in connection with the closing of the Loan, (c) endorsements and/or updates to the title insurance policies delivered to Lender in connection with the closing of the Loan, and (d) any other certificates, instruments and documentation reasonably determined by Lender as necessary or appropriate to such severance (the items described in subsections (a) through (d) collectively hereinafter shall be referred to as "SEVERING DOCUMENTATION"), which Severing Documentation shall be acceptable to Lender in form and substance in its reasonable discretion. Lender hereby agrees to be responsible for all reasonable third-party expenses incurred in connection with the preparation and delivery of the Severing Documentation and the effectuation of the uncrossing of the Loan from the additional Loans. Borrower hereby acknowledges and agrees that upon such severing of the Loan, Lender may effect, in its sole discretion, one or more Securitizations of which the severed loans may be a part. ARTICLE X MISCELLANEOUS Section 10.1 SURVIVAL. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender. Section 10.2 LENDER'S DISCRETION. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. 70 Section 10.3 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND APPLICABLE FEDERAL LAWS. Section 10.4 MODIFICATION. WAIVER IN WRITING. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Section 10.5 DELAY NOT A WAIVER. Time is of the essence with respect to each and every covenant, agreement and obligation of the Borrower under this Agreement and any and all other Loan Documents. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Section 10.6 NOTICES. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section): If to Lender: KeyBank National Association 911 Main Street, Suite 1500 Kansas City, Missouri 64105 Attention: Loan Servicing 71 If to Borrower: Inland Western Canton Paradise, L.L.C. c/o Inland Real Estate Corporation 2901 Butterfield Road Oak Brook, IL 60523 Attention: Roberta Matlin With a copy to: Inland Western Retail Real Estate Trust, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attention: Robert H. Baum, Esq. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day. Section 10.7 TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND LENDER. Section 10.8 HEADINGS. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 10.9 SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 10.10 PREFERENCES. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to 72 be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. Section 10.11 WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrower. Section 10.12 REMEDIES OF BORROWER. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrowers sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Section 10.13 EXPENSES; INDEMNITY. (a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender upon receipt of written notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Property); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (iv) except as otherwise provided in this Agreement, the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters reasonably requested by Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan 73 Documents; (vii) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Property, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Property or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. (b) Borrower shall indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, (ii) the use or intended use of the proceeds of the Loan, or (iii) any obligations with respect to any Outparcel Purchase Price (collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that Borrower shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. Section 10.14 SCHEDULES INCORPORATED. The Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. Section 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. Section 10.16 NO JOINT VENTURE OR PARTNERSHIP: NO THIRD PARTY BENEFICIARIES. (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy 74 relationship between Borrower and Lender nor to grant Lender any interest in the Property other than that of mortgagee, beneficiary or lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. Section 10.17 PUBLICITY. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Lender, or any of its Affiliates shall be subject to the prior written approval of Lender. All news releases, publicity or advertising by Lender through any media intended to reach the general public which refers solely to the Borrower or to the Loan made by the Lender to the Borrower shall be subject to the prior written approval of Borrower, provided however, the foregoing shall not apply to Provided Information included in disclosure documents in connection with a Securitization. Section 10.18 WAIVER OF MARSHALLING OF ASSETS. To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's partners and others with interests in Borrower, and of the Property, or to a sale in inverse order of alienation in the event of foreclosure of the Mortgage or sale of the Property by power of sale, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Property for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Property in preference to every other claimant whatsoever. Section 10.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents. Section 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE. In the event of any conflict between the provisions of this Loan Agreement and any of the other Loan Documents, the provisions of this Loan Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own 75 judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. Section 10.21 BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement other than Inland Mortgage Corp. Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Lender's reasonable attorneys' fees and expenses) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower or Lender in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the payment of the Debt. Section 10.22 PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements or understandings among or between such parties, whether oral or written, including, without limitation, the Commitment Letter dated August 5, 2004 between Borrower and Lender are superseded by the terms of this Agreement and the other Loan Documents and unless specifically set forth in a writing contemporaneous herewith the terms, conditions and provisions of such prior agreement do not survive execution of this Agreement. Section 10.23 TRANSFER OF LOAN. In the event that Lender transfers the Loan, Borrower shall continue to make payments at the place set forth in the Note until such time that Borrower is notified in writing by Lender that payments are to be made at another place. [THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 76 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. BORROWER: INLAND WESTERN CANTON PARADISE, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ---------------------- Name: Valerie Medina Title: Asst. Secretary KEYBANK NATIONAL ASSOCIATION, a national banking association By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ACKNOWLEDGMENT STATE OF Illinois SS COUNTY OF Cook On this 12th day of August, 2004, before me, Elizabeth Ann Irving; a Notary Public in and for said state, personally appeared Valerie Medina, who being by me duly sworn did say that she is the Asst. Secretary of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of Inland Western Canton Paradise, L.L.C., a Delaware limited liability company, and that the within instrument was signed and sealed in behalf of said corporation in behalf of said limited liability company by authority of its board of directors, and acknowledged said instrument to be the free act and deed of said corporation in behalf of said limited liability company for the purposes therein stated. [Notarial Seal] /s/ Elizabeth Ann Irving ------------------------------ Print Name: ------------------- My commission expires: ----------------------------- [SEAL] "OFFICIAL SEAL" ELIZABETH ANN IRVING NOTARY PUBLIC STATE OF ILLINOIS My Commission Expires 11/14/2004 SCHEDULE I Intentionally Omitted SCH. X-l SCHEDULE II RENT ROLL (next page) SCH. X-2 PROPERTY: PARADISE SHOPPES OF PROMINENCE POINT LOCATION: INTERSTATE 575 & STATE ROUTE 5 LOAN NUMBER: 10024995 CERTIFICATION The undersigned, By: Inland Western Canton Paradise, L.L.C., a Delaware limited liability company, By: By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member ("Borrower"), hereby certifies to KeyBank National Association, its successors and assigns ("Lender") that the attached is a true, correct, and complete to the best of Borrower's knowledge the SELLERS RENT ROLL DATED 6/15/04 AND SELLERS DETAILED RENT ROLL DATED 6/29/04, relating to the property located in Canton, Georgia and commonly known as Paradise Shoppes of Prominence Point. Executed this ____________ day of July 2004 INLAND WESTERN CANTON PARADISE, L.L.C. a Delaware limited liability company By: Inland Retail Real Estate Trust, Inc. a Maryland corporation, its sole member By: /s/ Debra A Palmer ------------------------- Name: Debra A Palmer ----------------------- Its: Asst Secretary ----------------------- 5/15/04 PDG Management, Inc. 5:28 pm User: JERONKO Rent Roll Page: 1 Property: Shoppes of Prominence Points
Unit Rent Per Lease Lease Reference Monthly Square Square Starting Exp. Deposits Number Name Rent Feet Foot Date Date Hold - ---------------------------------------------------------------------------------------------------------------------------------- 3003-A Publix Super Markets, Inc. 40,354.00 44840 10.50/yr 1/04/04 3/31/24 0.00 0.90/mth 3003-B1 VACANT 0.00 1400 0.00/yr 0.00 0.00/mth 3003-B2 Yoon Suk Choi 2,158.33 1400 18.50/yr 5/23/04 5/31/09 2,158.33 1.54/mth 3003-B3 Michelle Zhou 2,683.33 1000 23.00/yr 4/24/04 4/30/00 2,683.33 1.92/mth 3003-B4 TJS Brooks, LLC 2,683.33 1400 23.00/yr 4/27/04 4/30/02 1,275.00 1.92/mth 3003-B5 Shan Y. Cao 3,412.50 2100 19.50/yr 5/02/04 5/31/09 3,412.50 1.63/mth 3003-B6 VACANT 0.00 1030 0.00/yr 0.00 0.00/mth 3003-B7 Dowen's Taekwondo Plus, Inc. 3,981.25 2450 19.50/yr 4/03/04 4/30/08 3,981.25 1.63/mth 3003-B9 Dow Palomas Inc. 5,606.26 3450 19.50/yr 4/23/04 4/30/10 5,606.25 1.63/mth 3003-C1 Dry Clean USA Dev Corp 2,800.00 1400 24.00/yr 4/30/04 4/30/09 2,800.00 2.00/mth 3003-C2 Corbets Company of GA 2,566.67 1400 22.00/yr 5/07/04 5/31/09 0.00 1.83/mth 3003-C3 Jim Stephens 1,750.00 1050 20.00/yr 3/25/04 3/31/07 1,750.00 1.67/mth 3003-C4 Phat Hung Doan 3,100.00 1050 24.00/yr 4/23/04 4/30/09 1,750.00 2.00/mth 3003-C5 Blockbuster, Inc. 013266 7,682.50 5260 17.50/yr 1/05/04 1/31/09 0.00 1.46/mth 3003-C8 Forest Ventures, Inc. 2,226.67 1400 19.00/yr 5/14/04 5/31/09 2,226.67 1.58/mth 3003-C9 DSW Beef's Inc. 3,885.00 2590 28.00/yr 5/02/04 5/31/12 3,885.00 1.50/mth 3003-C11 Maria R. Gomez 2,549.17 1610 19.00/yr 4/23/04 4/30/07 5,000.00 1.58/mth 3003-C12 Eric & Beverly Cavaciuti 2,216.67 1400 19.00/yr 7/05/04 7/31/07 4,400.00 1.58/mth 3003-C13 VACANT 0.00 1400 0.00/yr 0.00 0.00/mth
5/15/04 PDG Management, Inc. 5:28 pm User: JERONKO Rent Roll Page: 2 Property: Shoppes of Prominence Points
Unit Rent Per Lease Lease Reference Monthly Square Square Starting Exp. Deposits Number Name Rent Feet Foot Date Date Held - -----------------------------------------------------------------------------------------------------------
PROPERTY TOTALS: Total Occupied Rents 85,647.68 Total Vacant Rents 0.00 Total Gross Rents 88,647.68 Total Square Footage 78058 Average Rent/Sq. Ft. /Yr. 13.63 Average Rent/Sq. Ft. /Mth 1.14 Total Security Deposits 41,918.33
___ Percentage of Occupied Units ___ Total Occupied Units 16 Total Vacant Units 3 Total Units 19 Percentage Occupied 84%
___ Percentage of Occupied Sq. Feet ___ Total Occupied Sq. Feet 74208 Total Vacant Sq. Feet 3850 Total Square Footage 78058 Percentage Occupied 95%
5/15/04 PDG Management, Inc. 5:28 pm Users: JERONKO Rent Roll Page: 3 Property: TOTALS
Unit Rent Per Lease Lease Reference Monthly Square Square Starting Exp. Deposits Number Name Rent Feet Foot Date Date Held - -----------------------------------------------------------------------------------------------------------
GRAND TOTALS: Total Occupied Rents 85,647.68 Total Vacant Rents 0.00 Total Gross Rents 88,647.68 Total Square Footage 78058 Average Rent/Sq. Ft. /Yr. 13.63 Average Rent/Sq. Ft. /Mth 1.14 Total Security Deposits 41,918.33
___ Percentage of Occupied Units ___ Total Occupied Units 16 Total Vacant Units 3 Total Units 19 Percentage Occupied 84%
___ Percentage of Occupied Sq. Feet ___ Total Occupied Sq. Feet 74208 Total Vacant Sq. Feet 3850 Total Square Footage 78058 Percentage Occupied 95%
SCHEDULE III REQUIRED REPAIRS [NONE] SCH. X-3 SCHEDULE IV Intentionally omitted SCH. X-4 SCHEDULE V Intentionally omitted SCH. X-5 SCHEDULE VI AFFILIATE AGREEMENTS MANAGEMENT AGREEMENT SCH. X-6 EX-10.295 6 a2143310zex-10_295.txt EX-10.295 Exhibit 10.295 ASSIGNMENT OF CONTRACT This ASSIGNMENT OF CONTRACT (the "ASSIGNMENT") is made and entered into this 1st day of JULY, 2004 by INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("ASSIGNOR") and INLAND WESTERN KANSAS CITY, L.L.C., a Delaware limited liability company ("ASSIGNEE"). Assignor does hereby sell, assign, transfer, set over and convey unto Assignee all of its right, title and interest as Buyer under that certain agreement dated as of March 9, 2004, as amended, and entered into by RED Boardwalk, LLC, a Missouri limited liability company and REDBARRY, L.L.C., a Missouri limited liability company, collectively, as Seller, and Assignor, as Buyer (collectively, the "AGREEMENT"), solely as the Agreement applies to the sale and purchase of the property described by the Agreement, located in Kansas City, Missouri. Assignor represents and warrants that it is the Buyer under the Agreement, and that it has not sold, assigned, transferred, or encumbered such interest in any way to any other person or entity. By acceptance hereof, Assignee accepts the foregoing Assignment and agrees, from and after the date hereof, to (i) perform all of the obligations of Buyer under the Agreement, and (ii) indemnify, defend, protect and hold Assignor harmless from and against all claims and liabilities arising under the Agreement. ASSIGNOR: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ [ILLEGIBLE] --------------------------------- Name: --------------------------------- Title: --------------------------------- ASSIGNEE: INLAND WESTERN KANSAS CITY, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ---------------------------- Name: Valerie Medina ---------------------------- Title: Asst. Secretary ---------------------------- EX-10.296 7 a2143310zex-10_296.txt EX-10.296 Exhibit 10.296 Inland Inc. 2901 Butterfield Road 200 Waymont Court 1955 Lake Park Drive Oak Brook, IL 60523 501 Manatee Ave, West Suite 126, Unit 10 Suite 300 630-218-4948 Fax: 4935 Holmes Beach, FL 34217 Lake Mary, FL 32746 Smyrna, GA 30080 www.inlandgroup.com 941-779-1000 Fax: 2000 407-688-6540 Fax: 6543 678-996-2131 Fax: 2140
March _____, 2004 RED BOARDWALK, LLC, a Missouri limited liability company 4717 Central Kansas City, Missouri 64112 Re: THE SHOPS AT BOARDWALK KANSAS CITY, MISSOURI Dear Mr. Lowe: This letter agreement is intended to contractually bind the parties to its terms. INLAND REAL ESTATE ACQUISITIONS, INC., a __________ corporation ("PURCHASER" or "BUYER") agrees to purchase and RED BOARDWALK, LLC, a Missouri limited liability company and REDBARRY, L.L.C., a Missouri limited liability company (together, "SELLER") agrees to sell the Shops at Boardwalk Shopping Center ("SHOPPING CENTER") with 122,814 net rentable square feet, situated on approximately 14.53 acres of land, located in Kansas City, Missouri. 1. The above property shall include all the land and buildings and common facilities, as well as all personalty within the buildings and common areas, supplies, landscaping equipment, and any other items presently used on the site and belonging to owner, and all intangible rights relating to the property. The parties shall consummate this transaction on the following basis: 2. The total purchase price shall be $36,642,049.00 all cash, plus or minus prorations, WITH NO MORTGAGE CONTINGENCIES, to be paid at CLOSING as hereinafter defined. Purchaser and Seller shall agreed upon the allocation of the purchase price between land, building and depreciable improvements prior to closing. 3. The Contract shall provide that the Purchaser, in order to secure the performance of Purchaser under the terms and provisions of the Contract shall deliver to Escrow Agent, within one (1) business day following full execution of this Agreement or contemporaneously with the execution of Agreement by Purchaser, an earnest money deposit (the "EARNEST MONEY DEPOSIT") in the amount of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00) which shall be refundable only upon a failure of a condition to this Agreement provided in writing to Seller within thirty (30) days of full execution (the "DUE DILIGENCE PERIOD") or the default of Seller. 4. Seller represents and warrants the following as to the above referenced property (to the best of the Seller's knowledge). All warranties shall survive for a period of one year after the Closing. 4.1. The property is leased to the tenants described on Exhibit A on triple net leases covering the building and all of the land, parking areas, reciprocal easements and REA/OEA agreements (if any), for the entire terms and option periods. Any concessions given to any tenants that extend beyond the closing day shall be settled at closing by Seller giving a full cash credit to Purchaser for any and all of those concessions. 4.2. Seller warrants and represents (to the best of the Seller's knowledge), that the property is free of violations, and the interior and exterior structures are in a good state THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 2 of repair, free of leaks, structural problems, and mold, and the property is in full compliance with Federal, State, City and County ordinances, environmental laws and concerns, and no one has a lease that exceeds the lease term stated in said leases, nor does anyone have an option or right of first refusal to purchase or extend the lease (other than as set forth in the leases), nor is there any contemplated condemnation of any part of the property, nor are there any current or contemplated assessments. 4.3. Seller warrants and represents (to the best of the Seller's knowledge), that during the term of the leases the tenants and guarantors are responsible for and pay all operating expenses relating to the property on a prorata basis subject to certain CAM caps, including but not limited to, real estate taxes, REA/OEA agreements, utilities, insurance, all common area maintenance, parking lot and the building. 4.4. Prior to closing, Seller shall not enter into or extend any agreements except commercially reasonable lease agreements in accordance with Section 14.3 without Purchaser's approval and any contract presently in existence not accepted by Purchaser shall be terminated by Seller. Any work presently in progress on the property shall be completed by Seller prior to closing. 4.5. Seller warrants and represents that he has paid all unemployment taxes to date. 4.6. Purchaser acknowledges and agrees that except for the specific warranties and representations specifically set forth in this Agreement, Seller has not made, does not make and specifically negates and disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to the Property. Purchaser further acknowledges and agrees that having been given the opportunity to inspect the Property, except as specifically provided in this Agreement, Purchaser is relying solely on its own investigation of the Property and not on any information provided or to be provided by Seller. Seller is not liable or bound in any manner by any oral or written statements, representations or information pertaining to the Property, or the operation thereof, furnished by any real estate broker, agent, employee, servant or other person. Purchaser further acknowledges and agrees that except as provided in this Agreement, to the maximum extent permitted by law, the sale of the Property as provided for herein is made on an "AS IS" condition and basis with all faults. 5. It is understood that the Seller shall be liable and responsible, at its sole cost and expense, to complete the construction of the 122,814 square foot Shopping Center and all of the land in accordance with paragraph 14. Seller shall be responsible for obtaining any remaining occupancy permits which shall be issued by the City of Kansas City, Missouri and/or any required governmental agencies for the shopping center. Seller shall indemnify and warrants and represents to Purchaser that Purchaser shall have no obligation whatsoever regarding the construction of the above shopping center or placing tenants into the rentable rental spaces. 5.1. Any and all tenants and guarantors shall acknowledge in writing that they shall look solely to the Seller, but not to the Purchaser and titleholder, for anything regarding the construction or improvements of the above-referenced shopping center. 5.2. Said construction shall have been completed in total in accordance with all the plans and specifications as accepted by the City of Kansas City, Missouri for the shopping center. Completion shall be deemed to have occurred after the Seller delivers to Purchaser a final unconditional certificate of occupancy (the "COO") (or a temporary occupancy permit which evidences that the failure to obtain the COO is a result of a tenant's obligation and the tenant is obligated to and is paying rent), for each of the buildings and a certificate for the property signed by the independent project architect and independent engineer that the construction of the shopping center has been fully THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 3 completed in accordance with the plans and specifications as agreed to by the City of Kansas City, Missouri, and all applicable governmental rules, ordinances, regulations and requirements have been satisfied, and each and every tenant, guarantor or subtenant shall accept their space "as is" and take total possession, opens for business and commences full rental payments. Seller shall be solely liable for any and all "punch list" and warranty items requested by any tenant at the property and shall also be liable for construction "call-backs". 5.3. Seller shall indemnify and guarantee to absolutely pay any costs whatsoever to complete the remaining construction (if any) of the above shopping center, including any costs whatsoever needed to place each of the tenants into their agreed spaces according to each tenant's lease, which leases shall be subject to Purchaser's reasonable approval in the event said leases to not meet proforma rents. 6. Ten (10) days prior to closing Seller shall furnish Purchaser with estoppel letters acceptable to Purchaser from not less than 100% of all tenants, guarantors listed as A-Tenants on the Attached Exhibit A and 85% of all tenants listed as B tenants on the attached Exhibit A and with Wal-Mart and Lowe's as to reciprocal and/or operating easement agreements, if applicable. In the event Seller is unable to deliver an estoppel after reasonable efforts. Seller may certify the validity of the items in the estoppel. The parties will attach as Exhibit B the form of such estoppel within 5 working days. The parties acknowledge that the Lessees may provide form estoppels and if they do so, said form estoppel shall be adequate for the purposes of this paragraph. 7. Seller is responsible for payment of any LEASING BROKERAGE FEES or commissions which are due any leasing brokers for the existing leases stated above or for the renewal of same. 8. This Agreement is subject to Seller supplying to Purchaser prior to closing a certificate of insurance from the tenants and guarantors in the form and coverage reasonably acceptable to Purchaser for the closing. 9. Seller shall supply to Purchaser 10 days prior to closing, and Seller shall pay for at closing, a certificate which must be acceptable to Purchaser from an environmental engineer for environmental concerns that there is no asbestos, PCBs, or hazardous substance in the buildings and on the property; in other words, a Level 1 environmental audit (and Level 2 audit, if required). 10. The above sale of the real estate shall be consummated by conveyance of a full warranty deed from Seller to Purchaser's designee, with the Seller paying any city, state, or county transfer taxes for the closing, and Seller agrees to cooperate with Purchaser's lender, if any, and the money lender's escrow agent. 11. The closing shall occur through Chicago Title & Trust Company, in Chicago, Illinois with Nancy Castro as Escrowee, on or before April 15, 2004, at which time title to the above property shall be marketable; i.e., free and clear of all liens, encroachments and encumbrances. An ALTA form B owner's title policy with complete extended coverage and required endorsements, waiving off all new construction, including 3.1 zoning including parking and loading docks, and insuring all improvements as legally conforming uses and not as non-conforming or conditional uses, paid by Seller, shall be issued. All warranties and representations being true now and at closing and surviving the closing for a period of one year, and each party shall be paid in cash their respective credits, including, but not limited to, security deposits, rent and expenses, with a proration of real estate taxes based (at Purchaser's option) on the greater of 100% of the most recent bill or latest assessment, or the estimated assessments for 2003 and 2004 using the Assessor's formula for these sales transactions, with a later re-proration of taxes when the actual bills are received. At closing, no credit will be given to Sellers for any past due, unpaid or delinquent rents, but Seller shall have the right after Closing to collect any such delinquent rents from Tenants. THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 4 12. Neither Seller (Landlord) or any tenant and guarantor shall be in default on any lease or agreement at closing (provided however that in the event a tenant shall be in default, Seller may treat the leasehold as "VACANT SPACE" as hereinafter defined,) nor is there any threatened or pending litigation. 13. Seller shall furnish to Purchaser copies of all guarantees and warranties which Seller received from any and all contractors and sub-contractors pertaining to the property (Contractor Warranties). This Agreement is subject to Purchaser's satisfaction that all guarantees and warranties survive the closing and are assignable and transferable to any titleholder now and in the future. Seller shall deliver the Contractor Warranties on or before the end of the Due Diligence Period. Purchaser may object for ten days after receipt thereof or such Contractor Warranties shall be deemed accepted. 14. This Agreement is subject to the property being 80% occupied at the time of closing, with all tenants occupying their space, open for business, and paying full rent, including CAM, tax and insurance current, as shown on Exhibit A attached provided however, in the event the property is less than 95% occupied, than at the Closing Seller shall deposit with Buyer a letter of credit from a bank reasonably acceptable to Buyer (the "Letter of Credit") in an amount equal to TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) which shall incorporate self effectuating terms as follows: 14.1. The Seller shall have 36 months following the Closing to cause cancellation of all or any portion of the Letter of Credit as hereinafter detailed, provided Seller is successful in the leasing of the Vacant Space as detailed in the attached Exhibit A and each tenant shall have accepted their space and taken possession, and has commenced full rental payments, including CAM, taxes and insurance ("Rent") on a prorata basis. In the event that either (i) Seller has not received an executed lease for the Vacant Space at the end of the thirty six month period, or (ii) Seller fails to appropriately renew the Letter of Credit in accordance with its terms, Buyer may draw on the letter of credit. 14.1.1. Seller may cause a reduction of the Letter of Credit and replacement thereof in the amount of $500,000.00 ("FIRST PARTIAL LETTER OF CREDIT REDUCTION") upon delivery to Buyer of the previous month's operating statement indicating gross Rent at $2,612,010 when annualized. 14.1.2. Seller may cause a reduction of the Letter of Credit and replacement thereof in the amount of $500,000.00 ("SECOND PARTIAL LETTER OF CREDIT REDUCTION") upon delivery to Buyer of the previous month's operating statement indicating gross Rent at $2,649,710 when annualized 14.1.3. Seller may cause a reduction of the Letter of Credit and replacement thereof in the amount of $500,000.00 ("THIRD PARTIAL LETTER OF CREDIT REDUCTION") upon delivery to Buyer of the previous month's operating statement indicating gross Rent at $2,687,410 when annualized. 14.1.4. Seller may cause a reduction of the Letter of Credit and replacement thereof in the amount of $500,000.00 ("FOURTH PARTIAL LETTER OF CREDIT REDUCTION") upon delivery to Buyer of the previous month's operating statement indicating gross Rent at $2,725,110 when annualized. 14.1.5. Seller may cause the cancellation of the Letter of Credit ("LAST LETTER OF CREDIT REDUCTION") upon delivery to Buyer of the previous month's operating statement indicating gross Rent at $2,763,000 when annualized THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 5 14.2. Purchaser and Seller agree to close this transaction, provided that 80% of the net leasable area of the Shopping Center has been leased to tenants with fully executed leases. However, Purchaser shall have the right to draw against the Letter of Credit on a monthly basis in an amount equal to the Proforma Rent as if the Building was 95% leased as shown on Exhibit A, less the actual Rent paid during the period. Thus as an example only, if Proforma Rent were $95 and actual rent were $80 for the previous then Buyer may draw $15.00 from the Letter of Credit for the month. If another lease is executed and begins paying Rent and thus actual Rent is $87 for the next succeeding month, then Buyer may draw $8 and so on, until the letter of credit has been depleted. Notwithstanding the foregoing, Rents for leases for vacant spaces to be executed by Seller shall not be less than those Rents shown on the attached Exhibit A without the express written consent of Buyer. 14.3. It shall be Seller's responsibility and sole cost and expense for leasing out and paying all costs related to placing the tenants into their leasable space. Seller shall be responsible on a monthly basis for all CAM, tax and insurance after the Closing on a prorata basis for the space that is part of the Vacant Space until such time as the Seller perfects the income for said space, but in no event, following 36 months following the closing. 14.4. At the Closing, Seller shall escrow an amount equal to $15.00 per square foot for tenant improvements and $3.00 per square foot for leasing commissions, times square feet of the remaining Vacant Space (the "TI ESCROW"). The TI Escrow shall be reduced by the Seller on a prorata basis as it continues to lease. However, with regards to any vacant space never leased, the balance of the tenant improvements and leasing commissions shall be paid to Purchaser upon the terms of the TI Letter of Credit. 14.5. Notwithstanding anything to the contrary, the purchase price of $36,642,049.00 is the maximum purchase price for The Shops at Boardwalk. 15. Seller shall be responsible for payment of a real estate brokerage commission, as per their agreement, to Block & Company. Said commission shall be paid through the closing escrow. 16. Fifteen (15) days prior to closing, Seller must provide the title as stated above and a current Urban ALTA/ACSM spotted survey in accordance with the minimum standard detail requirements for ALTA/ACSM Land Title surveys jointly established and adopted by ALTA and ACSM in 1999 and includes all Table A optional survey responsibilities and acceptable to Purchaser and the title company. 17. Seller agrees that prior to leasing it shall put all vacant spaces into rentable condition and ready for a new tenant to occupy immediately in accordance with all applicable laws, codes, etc., including all requirements for a certificate of occupancy for said space. 18. Seller agrees to immediately make available and disclose all information that Purchaser needs to evaluate the above property, including all inducements, abatements, concessions or cash payments given to tenants, and for CAM, copies of the bills. Seller agrees to cooperate fully with Purchaser and Purchaser's representatives to facilitate Purchaser's evaluations and reports, including at least a one-year audit of the books and records of the property. 19. In the event that Seller fails to consummate the transactions contemplated herein for any reason, except Purchaser's default or the failure of any of the conditions to Seller's obligations set forth herein to be satisfied, Purchaser may only either (I) enforce specific performance of this THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 6 Agreement or (II) terminate this Agreement and receive a return of its Earnest Money Deposit with neither party having any further obligation to the other. In the event Purchaser fails to consummate the transaction contemplated herein for any reason, except default by Seller or should a Purchaser's Condition set forth in this Agreement not be satisfied, Seller shall be entitled to (i) retain the Earnest Money Deposit as liquidated damages, which shall be and become the property of Seller, such sum(s) being agreed upon as damages for the failure of Purchaser to perform the duties, liabilities, and obligations imposed upon it by the terms and provisions of this Agreement Should either party employ an attorney or attorneys to enforce any of the provisions hereof or to protect its interest in any matter arising under this Agreement or to recover damages for the breach of this Agreement, the losing party in any final judgment agrees to pay the prevailing party all reasonable costs, charges, and expenses, including reasonable attorneys' fees, expended or incurred by it in connection therewith. 20. This Agreement is conditioned upon the Purchaser's review and written approval within the Due Diligence Period of the existing leases, new leases, lease modifications (if any), all tenant correspondence, REA/OEA agreements, tenants' and guarantors' financial statements, sales figures, representations of income and expenses made by Seller, site inspection, environmental, appraisal, etc., and at least one year of audited operating statements on said property is required that qualify, comply with and can be used in a public offering. In the event Purchaser does not provide either approval or disapproval during the Due Diligence period, Purchaser's right to review and object shall be deemed waived. This Agreement executed the dates below written. The remainder of this page left intentionally blank THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement of Sale as of the day and year first above written, which shall be the latest date that either party executes said Agreement, as indicated below. ACCEPTED: PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation (or nominee) By: /s/ Lou Quilici ---------------------------------- Lou Quilici, its Senior Vice President --------------------- Date executed: March 9 2004 ------------- SELLER: RED BOARDWALK, LLC and REDBARRY, L.L.C., each a Missouri limited liability company By: RED BOARDWALK, LLC, a Missouri limited liability company By: R.E.D. BARRY NORTH, L.L.C., a Missouri limited liability company, MANAGER By: /s/ Daniel H. Lowe --------------------------- Daniel H. Lowe, Authorized Signatory Date executed: 3.9.04 ---------------------------- THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 8 EXHIBIT A- THE SHOPS AT BOARDWALK KANSAS CITY, MO
ANNUAL RENT PER SQ. TENANTS S.F. BASE RENT FOOT LEASE COMMENCEMENT DATE - ------------------------------------------------------------------------------------------------------------- SUPER WALMART(NI) LOWES (NI) A BORDERS BOOKS 19,000 265,050.00 $ 13.95 August-03 A RED STAR TAVERN 7,200 208,800.00 $ 29.00 Sept 03 A HALLMARK 3,484 73,164.00 $ 21.00 NEW LEASE A KIRKLANDS 4,915 108,130.00 $ 22.00 October 03 A CHICOS 2,735 68,375.00 $ 25.00 July-03 A TALBOTS 4,501 117,026.00 $ 26.00 July 03 A AVAILABLE 5,384 129,216.00 $ 24.00 NEW LEASE A J JILL 4,040 121,200.00 $ 30.00 July-03 A COLDWATER CREEK 4,620 110,880.00 $ 24.00 June-03 A GENGHIS KAHN (Ex-Lease) 4,421 88,420.00 $ 20.00 NEW LEASE A JOS A BANKS 4,200 92,400.00 $ 22.00 July-03 A CHRISTOPHER & BANKS 3,500 91,000.00 $ 26.00 August-03 A PLANET SUB 3,147 84,969.00 $ 27.00 July-03 B NOGGIN NOODLE 2,390 62,140.00 $ 26.00 November-03 B SELECT COMFORT 2,158 64,740.00 $ 30.00 October-03 A ARCHIVERS 5,957 119,140.00 $ 20.00 February-04 A DRESS BARN (LOI out for signature) 7,125 156,750.00 $ 22.00 NEW LEASE B CLAIRES 1,200 36,000.00 $ 30.00 August-03 B YANKEE CANDLE 2,000 50,000.00 $ 25.00 July-03 A 2ND SWING (LOI out) 3,244 84,344.00 $ 26.00 NEW LEASE A MAURICES 3,781 90,744.00 $ 24.00 August 08 B NEXTEL 2,004 54,108.00 $ 27.00 May-03 B ELECTRONIC BOTIQUE 2,195 60,582.00 $ 27.60 July-03 CHIPOLTE 2,801 78,428.00 $ 28.00 July-03 A TRADE SECRETS 3,099 92,970.00 $ 30.00 NEW LEASE A PAYLESS SHOES (LOI out) 3,294 88,938,00 $ 27.00 NEW LEASE B MIMI MATERNITY (LOI out) 2,400 69,600.00 $ 29.00 NEW LEASE B RITZ CAMERA (LOI out) 2,657 79,710.00 $ 30.00 NEW LEASE AVAILABLE 5,362 128,688.00 $ 24.00 TOTALS 122,814 2,875,512.00
THE SHOPS AT BOARDWALK - KANSAS CITY, MO PAGE 9 EXHIBIT B FORM OF ESTOPPEL EX-10.297 8 a2143310zex-10_297.txt EX-10.297 Exhibit 10.297 SECOND AMENDMENT TO AGREEMENT OF SALE THIS SECOND AMENDMENT TO AGREEMENT OF SALE (the "SECOND AMENDMENT") is made and entered into this 15th day of April, 2004, by and between RED BOARDWALK, LLC, a Missouri limited liability company and REDBARRY, L.L.C., a Missouri limited liability company (together, "SELLER"), and INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation (hereinafter referred to as "PURCHASER"). WHEREAS, Seller and Purchaser have previously entered into that certain letter agreement dated as of March 9, 2004 (the "ORIGINAL AGREEMENT"), as amended on April ___, 2004 (the "FIRST AMENDMENT"), for the purchase and sale of certain property in Kansas City, Platte County, Missouri more particularly described therein (the Original Agreement, together with the First Amendment and this Second Amendment, are collectively referred to as the "AGREEMENT OF SALE"); and WHEREAS, Seller and Purchaser desire to modify and amend the Agreement of Sale in accordance with the terms and provisions of this Second Amendment. NOW, THEREFORE, IT IS AGREED that the Agreement of Sale is hereby modified and amended as follows: 1. SECTION 3, DUE DILIGENCE. Section 3 is hereby deleted in its entirety and replaced with the following: 3. Purchaser, in order to secure the performance of Purchaser under the terms and provisions of the Contract has previously delivered to Escrowee an earnest money deposit in the amount of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00). Within one (1) business day following full execution of this Second Amendment by Purchaser and Seller, Purchaser shall deposit with the Escrowee the additional amount of ONE MILLION AND 00/100 DOLLARS ($1,000,000.00). The $500,000.00 and the $1,000,000.00 are collectively referred to as the "EARNEST MONEY DEPOSIT". The Earnest Money Deposit shall be refundable only upon: termination of the Agreement of Sale by Purchaser provided in writing to Seller on or before April 21, 2004 (the "DUE DILIGENCE PERIOD"), or upon the failure of any condition to closing, or upon the default of Seller. Notwithstanding anything to the contrary contained in the Agreement of Sale, if all of the conditions to closing set forth in the Agreement of Sale have not been satisfied on or before December 1, 2004, then either party may terminate the Agreement of Sale and the Purchaser shall be entitled to a full refund of the Earnest Money Deposit. 2. SECTION 14.2 LEASING CONTINGENCY. The first sentence of Section 14.2 is hereby deleted in its entirety and replaced with the following: 14.2 Purchaser and Seller agree to close this transaction, provided that 80% of the property is occupied at the time of closing, with all tenants occupying their space, open for business, and paying full rent, including CAM, tax and insurance current. 3. SECTION 11, CLOSING. The first sentence of Section 11 is hereby deleted and replaced with the following: 11. The closing shall occur through Chicago Title & Trust Company, in Chicago, Illinois with Nancy Castro as Escrowee, within ten (10) days following satisfaction of all contingencies set forth in the Agreement of Sale ("CLOSING") at which time title to the above property shall be marketable; i.e., free and clear of all liens, encroachments and encumbrances. 4. Seller and Purchaser agree that this document may be signed in counterparts and delivered by facsimile, with the same force and effect as if all required signatures were contained in a single, original instrument: [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK] IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Agreement of Sale as of the day and year first above written. PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., An Illinois corporation (or nominee) By: /s/ Lou Quilici ------------------------- Lou Quilici, its SR VP ------- Date executed: 4/15/2004 -------------- SELLER: RED BOARDWALK, LLC and REDBARRY, L.L.C., each a Missouri limited liability company By: RED BOARDWALK, LLC, a Missouri limited liability company By: R.E.D. BARRY NORTH, L.L.C., a Missouri limited liability company, MANAGER By: /s/ Daniel H. Lowe -------------------------- Daniel H. Lowe, Authorized Signatory Date executed: 4.15.04 -------------------------- EX-10.298 9 a2143310zex-10_298.txt EX-10.298 Exhibit 10.298 ASSIGNMENT OF CONTRACT For and in consideration of the payment of the sum of Ten Dollars and other good and valuable consideration, Inland Real Estate Acquisitions, Inc., an Illinois corporation ("Assignor"), does hereby sell, assign, transfer and set over to Inland Western Cranberry DST ("Assignee"), all of Assignor's right, title and interest in and to that certain Letter Agreement (the "Contract") dated April 27, 2004, as amended, by and between Cranberry Square Associates, L.P., as Seller, and Inland Real Estate Acquisitions, Inc. or its designee, as Purchaser, for the purchase of the Cranberry Square Shopping Center, Cranberry Township, Pennsylvania, as more fully described therein. This Assignment shall be binding upon and inure to the benefit of Assignor and Assignee and their respective successors and assigns. IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed as of the 23rd day of June, 2004. INLAND REAL ESTATE ACQUISITIONS, INC. By: /s/ [ILLEGIBLE] ----------------------------------- Its: President ---------------------------- ACCEPTANCE Inland Western Cranberry DST, as Assignee, hereby accepts the above and foregoing Assignment of Contract and agrees to assume all of the obligations and perform all of the duties of Assignor under the Contract. Dated: June 23, 2004 INLAND WESTERN CRANBERRY DST By: Inland Western Retail Real Estate Trust, Inc., its Signatory Trustee By: /s/ Valerie Medina ----------------------------------- Its: Assistant Secretary ---------------------------- EX-10.299 10 a2143310zex-10_299.txt EX-10.299 Exhibit 10.299 April 27, 2004 Cranberry Square Associates, L.P. 3468 Brodhead Road Monaca, PA 15061 Attention: Charles J. Betters Re: Cranberry Square Shopping Center Cranberry Township, Pennsylvania Dear Mr. Betters: This letter represents Inland Real Estate Acquisitions, Inc.'s offer to purchase from Cranberry Square Associates, L.P. ("Seller"), a Pennsylvania limited partnership, the Cranberry Square Shopping Center ("Shopping Center") with 195,556 net rentable square feet, situated on approximately 11.409 acres of land, designated as Parcel 2-2D Second Revision, as shown on the Plan of Subdivision Cranberry Square/Wal-Mart Revision No. 1 and approximately 10.67 acres of land designated as Parcel 2-2E in the Cranberry Square Associates Cranberry Square Shoppes Subdivision Plat recorded at Plan Book Volume 189, pages 45 and 46, in the Butler County Recorder's Office, and located on US Route 19 (Perry Highway) in Cranberry Township, Pennsylvania together with Seller's rights in a strip of land ("Sign Parcel") located in the center of Cranberry Square Drive, hereinafter defined. The above properties shall include all the land and buildings and common facilities, as well as all personalty within the buildings and common areas, and all intangible rights relating to the properties. Inland Real Estate Acquisitions, Inc. or its nominee ("Purchaser") will consummate this transaction on the following basis: 1. The total purchase price shall be $20,286,549.00 all cash, plus or minus prorations, with no mortgage contingencies, to be paid as follows: (i) the sum of $250,000.00 as an earnest money deposit (the "Hand Money") within two (2) business days following the execution of this Agreement by both Purchaser and Seller, and (ii) the balance of the purchase price at closing (see Paragraph 11). The Hand Money shall be deposited by Purchaser with Chicago Title and Trust Company, as Escrow Agent. The Escrow Agent may deposit the Hand Money in an interest bearing account, and all interest earned thereon shall be for the account of Purchaser unless otherwise expressly provided herein. This Agreement may be terminated by Purchaser, in its sole discretion, upon Purchaser giving written notice of termination to Seller during the period commencing on the date of execution of this Agreement by both Purchaser and Seller and ending on May 24, 2004 ("Due Diligence Period"). The Hand Money and all accrued interest shall be refundable to Purchaser if Purchaser exercises its right of termination on or prior to May 24, 2004 or if the requirements for closing as set forth in this Agreement are not satisfied as of the date scheduled for the closing. If Purchaser has not exercised its right to terminate this Agreement and the transaction contemplated herein fails to close as a result of Purchaser's default under the terms of this Agreement, then Seller shall be entitled to receive the Hand Money and all accrued interest as its sole remedy and liquidated damages (both Purchaser and Seller agreeing, in view of the uncertainty and impossibility of ascertaining such damages to Seller, CRANBERRY SQUARE SHOPPING CENTER CRANBERRY TWP., PA APRIL 27, 2004 PAGE 2 that the aforesaid amount constitutes a reasonable forecast of the damages that would be sustained by Seller). Purchaser shall allocate the land, building and depreciable improvements prior to closing. 2. Each party represents to the other that no commissions are due any broker in connection with any of the transactions contemplated by this Agreement, except the Commission due to Bruce Haney or his assigns, which Commission is to be paid by Seller. Seller and Purchaser represent to each other that in the event any claims for real estate commissions, fees or compensation arise in connection with this transaction, the party so incurring or causing such claims shall indemnify and hold harmless the other party from any loss or damage which such other party suffers because of such claims. 3. Seller represents and warrants that the Shopping Center is leased to the tenants described on Exhibit A providing for CAM and real estate reimbursements/escrows covering the buildings and all of the land, parking areas, reciprocal and/or operating easement agreements, for their entire terms and option periods. Any concessions given to any tenants that extend beyond the closing day shall be settled at closing by Seller giving a full cash credit to Purchaser for any and all of those concessions (except those rent and CAM concessions, if any, set forth in the lease amendments delivered to Purchaser). 4. Seller represents and warrants that the Shopping Center is free of violations, and the interior and exterior structures are in a good state of repair, free of leaks, structural problems, and mold; except as noted on Exhibit "B" attached hereto which repairs shall be Seller's responsibility; that the Shopping Center is in full compliance with Federal, State, City and County ordinances, environmental laws and concerns; that no one has a lease that exceeds the lease term stated in said leases or has an option to extend the term not set forth in the leases; nor does anyone have an option or right of first refusal to purchase the Shopping Center; nor is there any contemplated condemnation of any part of the Shopping Center; nor are there any current or contemplated special assessments that would affect the Shopping Center. 5. Seller represents and warrants that during the term of the leases the tenants and guarantors are responsible for and pay all operating expenses relating to the property on a pro-rata basis (except for Toys R Us, whose pro rata share has been fixed pursuant to its lease), including but not limited to, real estate taxes, reciprocal and/or operating easement agreements, utilities, insurance, all common area maintenance, parking lot and the buildings, etc. Seller has delivered to Purchaser copies of all Leases and Lease Amendments covering the Shopping Center. Purchaser has reviewed and accepts all Leases and Lease Amendments. Prior to closing, Seller shall not enter into nor extend any agreements affecting the Shopping Center without Purchaser's prior written approval, and any agreement presently in existence not accepted by Purchaser shall be terminated by Seller, and Seller shall not enter into any new leases or extend any existing leases without Purchaser's prior written approval. Seller represents and warrants to Purchaser that there is no work presently in progress within the Shopping Center, except the repair work identified in Paragraph 4. 6. Ten (10) days prior to closing Seller shall furnish Purchaser with estoppel letters acceptable to Purchaser, dated within sixty (60) days prior to closing, from all tenants and lease guarantors, and all parties to all reciprocal and/or operating easement agreements affecting the Shopping Center. 7. Seller is responsible for payment of any leasing brokerage fees or commissions which are due any leasing brokers for the existing leases stated above or for the renewal of same. CRANBERRY SQUARE SHOPPING CENTER CRANBERRY TWP., PA APRIL 27, 2004 PAGE 3 8. This offer is subject to Seller supplying to Purchaser prior to closing a certificate of insurance from the tenants and guarantors in the form and coverage acceptable to Purchaser for the closing. 9. The above sale of the real estate shall be consummated by conveyance of a special warranty deed in form and substance acceptable to Purchaser, from Seller to Purchaser's designee, with the Seller and Purchaser each being responsible for and paying one half of any city, state, or county transfer taxes for the closing, and Seller agrees to cooperate with Purchaser's lender, if any, and the money lender's escrow. 10. The closing shall occur through Chicago Title & Trust Company, in Chicago, Illinois with Nancy Castro as Escrowee, at a time and date selected by Purchaser, which closing date shall be no earlier than June 3, 2004 and no later than June 7, 2004, time being of the essence, at which time title to the above property shall be good and marketable; i.e., free and clear of all liens, encroachments and encumbrances, with Chicago Title Insurance Company issuing to Purchaser, at Seller's sole cost and expense, an ALTA Form B owner's title policy covering title to the Shopping Center with complete extended coverage and all endorsements required by Purchaser, waiving off all construction, (said policies and the endorsements being the "Title Policy"). Each party shall be paid in cash their respective credits, including, but not limited to, security deposits, rent and expenses, with a proration of real estate taxes (with the real estate taxes assessed by the county and local municipality being prorated on a calendar year basis, and the real estate taxes assessed by the school district being prorated on a fiscal year basis) based on the actual bills are received. At closing, no credit will be given to Sellers for any past due, unpaid or delinquent rents and Purchaser shall not be required to undertake the collection thereof or account to Seller for any collection thereof, but Seller independently may pursue collection efforts therefor. All Seller warranties and representations are and at closing shall be true and shall survive the closing. 11. Purchaser, in its discretion and at Seller's sole cost and expense, may obtain an appraisal of the property prepared by an MAI or other qualified appraiser selected by Purchaser in Purchaser's sole discretion. It is understood that to the extent that the Seller has in its possession an appraisal of the property prepared by an MAI or other qualified appraiser, Seller shall deliver copies of such appraisal to Purchaser within 5 days of the acceptance of this offer. 12. Seller nor any tenant or guarantor shall be in default on any lease or agreement at closing, nor is there now nor at closing shall there be any threatened or pending litigation except for such matters that the Seller cures as of the closing. 13. Seller warrants and represents that there are no unpaid unemployment taxes to date with respect to the Shopping Center which is the subject of this Agreement. 14. Prior to closing, Seller shall furnish to Purchaser copies of all guarantees and warranties which Seller has received from any and all contractors and sub-contractors pertaining to the Shopping Center. This offer is subject to Purchaser's satisfaction that all guarantees and warranties survive the closing and are assignable and transferable to any titleholder now and in the future. If Purchaser is not satisfied, it may terminate this Agreement during the Due Diligence Period. 15. This offer is subject to the property being 100% occupied at the time of closing (except only for the vacant space, being 14,936 square feet, formerly occupied by Home Place), with all tenants occupying their space, open for business, and paying full rent, including CAM, tax and insurance current, as shown on Exhibit A attached. 16. Promptly following the execution of this Agreement by Purchaser and Seller, Purchaser, at Seller's 3 CRANBERRY SQUARE SHOPPING CENTER CRANBERRY TWP., PA APRIL 27, 2004 PAGE 4 sole cost and expense and as an accommodation to Seller, shall order a title commitment for the Title Policy issued by Chicago Title Insurance Company together with complete and legible copies of the title exceptions listed therein as stated above, including all plats and exhibits referenced therein, and Seller shall provide to Purchaser copies of all existing surveys, site plans, subdivision plans, and other plans and specifications in Seller's possession or under Seller's direction or control. Purchaser shall provide Seller with a copy of the commitment and the exception documents and within ten (10) days following the receipt by Seller of the commitment and the exception documents, Seller, at its sole cost and expense, shall deliver to Purchaser a current ALTA/ACSM Land Title Survey prepared in accordance with the minimum standard detail requirements for ALTA/ACSM Land Title surveys jointly established and adopted by ALTA, ACSM and NSPS in 1999 including all Table A optional survey responsibilities certified to and acceptable to Purchaser and Chicago Title Insurance Company. An update of the survey conforming in all respects to the Subdivision Plan, dated after and reflecting the sale of the Michaels Parcel to Wal-Mart, shall be delivered to Purchaser by Seller, at Seller's sole cost and expense, not less than fifteen (15) days prior to closing. 17. Purchaser agrees that it shall take the 14,936 square feet of vacant space in the former Home Place space in "as is" condition. Seller warrants and represents to Purchaser that such vacant space has its own separately metered utilities. 18. Seller agrees to immediately make available and disclose all information that Purchaser needs to evaluate the Shopping Center, including all inducements, abatements, concessions or cash payments given to tenants, and for CAM, copies of the bills. Seller agrees to cooperate fully with Purchaser and Purchaser's representatives to facilitate Purchaser's evaluations and reports. In addition, Purchaser may, at its discretion, directly contact tenants and any other persons or entities doing business on or in connection with the Shopping Center. 19. During the Due Diligence Period, Purchaser may verify that the South Wall (i) has been constructed to meet all code requirements as an exterior bearing wall upon demolition of the Michaels store, (ii) extends through the existing roofs between the Office Max and Michaels store such that the roof and roof systems covering the Office Max store are completely independent of the roof and roof systems covering the Michaels store, (iii) upon recordation of the subdivision plat the South Wall shall be located solely upon the portion of the Shopping Center being acquired by Purchaser and shall not be or be deemed to be a party wall but is and shall be a severable wall from the Michaels store, wholly owned by Purchaser and upon which the Wal-Mart Improvements shall not rely upon for support but shall only abut the South Wall; and (iv) will not be affected by the demolition or destruction of the Michaels store. 20. Wal-Mart has acquired the Michaels Parcel for the expansion of the adjacent Wal-Mart store. Seller has delivered a Deed in escrow to Wal-Mart for the 914 square foot parcel that is required by Wal-Mart for the construction of its expansion, A copy of that Deed is attached as Exhibit "C:. Seller represents and warrants to Purchaser that Parcel 2-2D Second Revision, after approval and recordation of the Plan of Subdivision for Cranberry Square/Wal-Mart Revision No. 1, shall be a lawfully created subdivided parcel in full compliance with all zoning and governmental requirements, including, without limitation, all set back requirements, and that Parcel 2-2D Second Revision, Parcel 2-2E, the Sign Parcel and all of the improvements on Parcel 2-2D Second Revision, Parcel 2-2E, shall be legal conforming uses, and not as a non-conforming uses, in conformance with the Cranberry Township SU-1 zoning classification, all necessary zoning variances and approvals having been obtained on or before closing. Not less than ten (10) nor more than thirty (30) days prior to closing, Seller shall provide Purchaser with a Zoning Certificate letter issued to Purchaser by Cranberry Township after (or upon) the recording of the subdivision plat certifying the Shopping Center is in conformance with the aforesaid zoning requirements. CRANBERRY SQUARE SHOPPING CENTER CRANBERRY TWP., PA APRIL 27, 2004 PAGE 5 21. At Closing, Seller shall cause Wal-Mart to deliver an Indemnification Agreement substantially in the form attached as Exhibit "D". 22. All notices, requests or demands to be given under this Agreement from one party to the other (collectively, "Notices") shall be in writing and shall be given by personal delivery, or by overnight courier service for next Business Day delivery at the other party's address set forth below, or by telecopy transmission at the other party's facsimile telephone number set forth below (with evidence of transmission sent by overnight courier service for next Business Day delivery at the other party's address set forth below). Notices given by personal delivery (i.e, by the sending party or a messenger) shall be deemed given on the date of delivery, Notices given by overnight courier service shall be deemed given upon deposit with the overnight courier service and Notices given by telecopy transmission shall be deemed given on the date of transmission. If any party's address is a business, receipt by a receptionist, or by any person in the employ of such party, shall be deemed actual receipt by the party of Notices. The term, Business Day, means any day other than Saturday, Sunday or any other day on which banks are required or are authorized to be closed in Chicago, Illinois. Notices may be issued by an attorney for a party and in such case such Notices shall be deemed given by such party. The parties' addresses are as follows: Purchaser: Inland Real Estate Acquisitions, Inc. 1955 Lake Park Drive, Suite 300 Smyrna, GA 30080 Attention: Jason Lazarus Phone: (678) 996.2131 Fax: (678) 996.2140 With a copy to: The Inland Real Estate Group, Inc. Law Department 2901 Butterfield Road Oak Brook, IL 60523 Attn: Elliot B. Kamenear, Esq. Phone: (630) 218-8000 Fax: (630) 218-4900 Seller: Cranberry Square Associates, L.P. c/o C. J. Betters Enterprises 3468 Brodhead Road Monaca, PA 15601 Attn: Charles J. Betters Phone: (724) 773-0444 Fax: (724) 773-0607 With a copy to: Donald P. Graham Dillion McCandless King Coulter & Graham L.L.P. 501 Smith Drive, Suite 3 Cranberry Township, PA 16066 Phone: (724) 776-6644 Fax: (724) 776-6608 A party's address for notice may be changed from time to time by notice given to the other party in the manner herein provided for giving notice. Failure or delay in delivering copies of any Notice to 5 CRANBERRY SQUARE SHOPPING CENTER CRANBERRY TWP., PA APRIL 27, 2004 PAGE 6 the persons designated above to receive copies shall in no way adversely affect the effectiveness of such Notice given to the addressee party. 22. Purchaser herein acknowledges that it is the intention of the Seller to create an IRS Code, Section 1031 Tax Deferred Exchange; that the Seller's rights and obligations under this Agreement may be assigned to LandAmerica Exchange Company to facilitate such exchange. Purchaser agrees to cooperate with the Seller in a manner necessary to enable Seller to qualify for said exchange at no additional cost or liability. This offer is predicated upon the Purchaser's review and approval, in its sole discretion, of all tenant correspondence, REA/OEA agreements, tenants' and guarantors' financial statements, sales figures, representations of income and expenses made by Seller, site inspection, environmental, appraisal, etc., and at least one year of audited operating statements for the Shopping Center is required that qualify, comply with and can be used in a public offering, such audit to be performed at Purchaser's expense and with Seller's cooperation, provided that all such reviews and approvals shall be completed on or before Closing. If this offer is acceptable, please sign the original of this letter and initial each page, keeping copies for your files and returning the original to Purchaser by April 30, 2004. Sincerely, INLAND REAL ESTATE ACQUISITIONS, INC. of nominee /s/ Jason A. Lazarus -------------------------------------- Jason A. Lazarus Acquisitions & Development -------------------------------------- G. Joseph Cosenza Vice Chairman ACCEPTED: Cranberry Square Associates, L.P. By: C.J. Betters Corporation, its General Partner /s/ Charles J. Betters ------------------------------- President Dated: April 28, 2004 4/22/2004 10:53 AM RENT ROLL WITH LEASE CHARGES CRANBERRY SQUARE ASSOCIATES - (2802) MM/YY=03/2004 BLDGA-2 office 23,380 OfficeMax, Inc., 20,652.33 882.71 0.00 362.82 21,897.86 BLDGA-3 toysru 45,000 Toys "R" Us, 14,166.67 0.00 5,389.30 0.00 19,555.97 BLDGB-1 dicksc 50,000 Dick's Clothing & Sporting Goods, Inc., 42,708.33 2,002.16 6,009.89 0.00 50,720.38 BLDGC-1 bestbuy 37,005 Best Buy Stores, L.P., 37,775.94 1,700.00 0.00 0.00 39,475.94 BLDGC-2 bames 25,200 Barnes & Noble Superstores, Inc., 26,250.00 1,009.09 0.00 0.00 27,259.09 BLDGC-3 14,981 VACANT 0.00 0.00 0.00 0.00 0.00
BLDGA-2 0.00 10/1/1996 9/30/2001 BLDGA-3 0.00 11/1/1996 1/31/2012 BLDGB-1 0.00 2/26/1997 2/28/2012 BLDGC-1 0.00 11/1/2002 1/31/2013 BLDGC-2 0.00 11/13/1996 11/30/2011 BLDGC-3 0.00
EXHIBIT "B" LIST OF OUTSTANDING REPAIR ITEMS 1. Lamps under front canopy of Office Max. 2. Roof leak in electronics section of Office Max. 3. Roof leak on Best Buy space. THIS INDENTURE Made the 23rd day of March, 2004, Between CRANBERRY SQUARE ASSOCIATES, L.P., a Pennsylvania limited partnership, PARTY OF THE FIRST PART and WAL-MART STORES, INC., a Delaware corporation, PARTY OF THE SECOND PART; WITNESSETH, THAT THE SAID PARTY OF THE FIRST PART, IN CONSIDERATION OF THE SUM OF ONE DOLLAR AND OTHER GOOD AND VALUABLE CONSIDERATION ($1.00) to it now paid by the said party of the second part, does grant, bargain, sell and convey unto the said party of the second part, its, successors and assigns, ALL that certain five (5) foot wide parcel of land situate in the Township of Cranberry, County of Butler and Commonwealth of Pennsylvania, being part of Lot 2-2D Revised in the Cranberry Square/Wal-Mart Plan to be recorded, more particularly described as follows: BEGINNING at a mag nail set on the dividing line between Lot 2-1 Revised and Lot 2-2D Revised in the Cranberry Square/Wal-Mart Plan to be recorded, said point being the following two courses from a capped survey pin set at the northwest corner of Lot 2-1 in the Terra Cranberry Plan No. 2 recorded in Plan Book Volume 147 page 12: South 87 DEG. 00'00" East, 200.00 feet; and South 03 DEG. 00'00" East, 86.86 feet; thence from said point of beginning along the dividing line between said Lot 2-1 Revised and Lot 2-2D Revised North 03 DEG. 00'00" East, 5.00 feet; thence through Lot 2-2D Revised South 87 DEG. 03'59" East, 182.81 feet (becoming contiguous with the southerly exterior wall of the existing Office Max building at approximately 39 feet and remaining contiguous with said wall for approximately 176 feet) to the dividing line between said Lot 2-1 Revised and Lot 2-2D Revised; thence along said dividing line the following two courses: South 02 DEG. 56'01" West, 5.00 feet; and North 87 DEG. 03'59" West, 182.80 feet to the point of beginning. Containing an area of 914 square feet or 0.021 acre. BEING part of the same premises granted and conveyed to Cranberry Square Associates, L.P. the Grantor herein, by the following three instruments: (a) deed from Joan Milasincic dated 1/22/96 and recorded in Deed Book Volume 2596, page 448; (b) deed from Cranberry Corporate Center Partnership dated 12/19/95 and recorded at Deed Book Volume 2596, page 452; and (c) deed from E/M Cranberry Associates dated 12/19/95 and recorded in Deed Book Volume 2596, page 458. with the appurtenances: To Have and To Hold the same to and for the use of the said Grantee, its successors and assigns forever, and the Grantor, for itself, its successors and assigns, hereby covenants and agrees that it will Warrant SPECIALLY the Property hereby conveyed. NOTICE THIS DOCUMENT MAY NOT/DOES NOT SELL, CONVEY, TRANSFER, INCLUDE OR INSURE THE TITLE TO THE COAL AND RIGHT OF SUPPORT UNDERNEATH THE SURFACE LAND DESCRIBED OR REFERRED TO HEREIN, AND THE OWNER OR OWNERS OF SUCH COAL MAY HAVE/HAVE THE COMPLETE LEGAL RIGHT TO REMOVE ALL OF SUCH COAL AND, IN THAT CONNECTION, DAMAGE MAY RESULT TO THE SURFACE OF THE LAND AND ANY HOUSE, BUILDING OR OTHER STRUCTURE ON OR IN SUCH LAND. THE INCLUSION OF THIS NOTICE DOES NOT ENLARGE, RESTRICT OR MODIFY ANY LEGAL RIGHTS OR ESTATES OTHERWISE CREATED, TRANSFERRED, EXCEPTED OR RESERVED BY THIS INSTRUMENT. This notice is set forth in the manner provided in Section 1 Act of July 17, 1957, P. L. 984 as amended, and is not intended as notice of recorded instruments, if any. WITNESSETH my hand and seal the day and year first above written. WITNESS: CRANBERRY SQUARE ASSOCIATES, L.P., A PENNSYLVANIA LIMITED PARTNERSHIP, BY: C.J. BETTERS CORPORATION, ITS GENERAL PARTNER /s/ [ILLEGIBLE] BY:/s/ Charles J. Betters - -------------------------------- -------------------------------------- Charles J. Betters, President NOTICE THE UNDERSIGNED, AS EVIDENCED BY THE SIGNATURES(S) TO THIS NOTICE AND THE ACCEPTANCE AND RECORDING OF THIS DEED, (IS ARE) FULLY COGNIZANT OF THE FACT THAT THE UNDERSIGNED MAY NOT BE OBTAINING THE RIGHT OF PROTECTION AGAINST SUBSIDENCE, AS TO THE PROPERTY HEREIN CONVEYED, RESULTING FROM COAL MINING OPERATIONS AND THAT THE PURCHASED PROPERTY, HEREIN CONVEYED, MAY BE PROTECTED FROM DAMAGE DUE TO MINE SUBSIDENCE BY A PRIVATE CONTRACT WITH THE OWNERS OF THE ECONOMIC INTEREST IN THE COAL. THIS NOTICE IS INSERTED HEREIN TO COMPLY WITH THE BITUMINOUS MINE SUBSIDENCE AND LAND CONSERVATION ACT OF 1966. WITNESS: - -------------------------------- -------------------------------------- CERTIFICATE OF RESIDENCE I, the undersigned, do hereby certify that Grantees' precise address is 2001 S.E. 10th Street, Bentonville, Arkansas 72716-0550. Witness my hand this ____ day of ___________, 2004. ---------------------------- STATE OF Pennsylvania ) ) SS COUNTY OF Beaver ) On this the 23rd day of March, 2004, Before me, a Notary Public, the undersigned officer, personally appeared Charles J. Betters who acknowledged himself to be the President of C.J. Betters Corporation, the General Partner of Cranberry Square Associates, L.P., a Pennsylvania limited partnership and that as such President, being authorized to do so, executed the foregoing instrument for the purposes therein contained, and in the capacity therein stated, by signing as the President of such corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal /s/ Margie Farinacci ------------------------------ Notary Public My commission expires Aug 3, 2007 COMMONWEALTH OF PENNSYLVANIA Notarial Seal Margie Farinacci, Notary Public Monson Boro, Beaver County My Commission Expires Aug. 3, 2007 Members Pennsylvania Association of Notaries EX-10.300 11 a2143310zex-10_300.txt EX-10.300 Exhibit 10.300 DORMAN CENTRE CONSTRUCTION AGREEMENT This DORMAN CENTRE CONSTRUCTION AGREEMENT ("Agreement") is by and between INLAND WESTERN SPARTANBURG, L.C.C., a Delaware limited liability company ("Inland") with an address of 2901 Butterfield Road, Oak Brook, III. 60523, LCW SPARTANBURG, L.L.C., a South Carolina limited liability company ("LCW") with an address of c/o WRS Inc. 2361 South Centennial Ave., Aiken, South Carolina 29803, Robert O. Collins ("Mr. Collins") with an address of P.O. Box 1307, Barnwell, South Carolina 29812, and Miles Loadholt ("Mr. Loadholt") with an address of P.O. Box 365, Barnwell, South Carolina 29812. RECITALS: WHEREAS, LCW and Inland Real Estate Acquisition, Inc., ("IREA") entered into that certain purchase and sale agreement dated November 7, 2003, as amended by that certain Modification of Purchase Agreement dated March 2, 2004 (collectively the "Contract") for the sale and purchase of the approximately 37,200 net rentable square feet of the Dorman Center Shopping Centre located on approximately 9.701 acres of land at Blackstock Road and W.O. Ezell Road, Spartanburg, South Carolina known as Phase II (the "Property"); and WHEREAS, Mr. Collins and Mr. Loadholt are members of Seller and will benefit by the sale of Phase II of the Property; and WHEREAS, the Contract provides in paragraph 5 thereof that the Seller shall indemnify and hold harmless Inland from obligations regarding the construction of Phase II of the Property and Mr. Loadholt and Mr. Collins will guarantee Seller's obligations. NOW, THEREFORE, for and in consideration of the terms and provisions contained in the Contract and the mutual agreements and understandings contained in this Agreement, Inland, LCW, Mr. Collins and Mr. Loadholt agree as follows: 1. All of the above recitals are incorporated herein by reference as if fully restated herein as this paragraph 1. 2. LCW hereby indemnifies and holds Inland harmless from any obligation to complete, and from all Defects (hereinafter defined) occurring in the initial construction of the improvements on the Property, which improvements include, without limitation, all buildings, building components (e.g., foundations, walls, roofs, windows, heating, electrical, plumbing, HVAC systems, doors, loading docks), parking lots, parking lot lighting, parking space striping, installation of all utilities and storm water detention mains and facilities (collectively "Improvements") and LCW will, pursuant to the terms of the Contract, assign to Inland at closing all warranties and guaranties from the general contractor and all subcontractors and material men who have performed work to complete the Improvements and hereby indemnifies and holds Inland harmless from any and all claims arising out of the construction and installation of the Improvements for a period of one (1) year from the date of this Agreement. It is agreed that the indemnity and the hold harmless obligations of LCW will include, without limitation, the correction of all so called "punch list" items and all construction "call backs" that arise during the aforementioned one (1) year period. LCW also agrees to assist Inland in enforcing all warranties and guaranties with respect to the construction of the Improvements and LCW agrees to be solely responsible for the cost of tenant allowances and improvements and all leasing commissions that are required to be paid by the lessor with respect to any lease for space at the property leased by Seller. In the event that either Inland becomes aware of a defect, failure or breakdown (collectively with punch list items and call backs referred to as "Defects") in the installation and/or construction of the improvements or is notified thereof by any tenant of the Property during the one (1) year period of this Agreement, Inland shall provide written notice to LCW, Mr. Collins and Mr. Loadholt thereof. The parties agree to work together to first attempt to have such Defects corrected under any warranty or guaranty that would cover such Defects. In the event that the general contractor, subcontractor or materialmen responsible for the correction of the Defects fail or refuse to correct same, LCW agrees that it will cause the correction of the Defect to be made in a timely and workman like manner and will make reasonable attempts to insure the Defects do not cause any further damage or destruction to the Improvements or to any of the tenants' property therein. LCW hereby indemnifies and holds Inland harmless from all claims, damages, costs, expenses, settlements, awards, judgment, fines and penalties that arise out of and/or are related to the Defects, which indemnity and hold harmless agreement will include, without limitation, all court costs and attorneys' fees through all legal proceedings that may be incurred by Inland as a result of the Defects or the failure to correct same by a contractor, subcontractor, materialmen or LCW. As is provided in paragraph 5 of the Contract, Mr. Collins and Mr. Loadholt hereby guarantee the performance of the duties and obligations of LCW in the event LCW does not fully perform all of its above described duties and obligations. 3. This Agreement is governed by and is to be construed under the laws of the State of South Carolina. This Agreement, may be executed in counterparts, each of which shall be deemed an original and all such counterparts together shall constitute one and the same instrument. 4. In the event of an uncured default hereunder on the part of LCW, Mr. Loadholt and Mr. Collins, Inland may institute litigation against the defaulting party and the prevailing party in such litigation shall be entitled to collect all reasonable costs and expenses thereof, including, without limitation, reasonable attorney's fees through all appellate proceedings. 5. All notices from and to any of the parties to this Agreement shall be in writing and should be served by an overnight courier or express service, such as Federal Express or UPS, and shall be deemed delivered on the day after deposit with such special delivery service or may be served upon the parties by facsimile transmission provided such transmission is completed by 5:00 p.m. on a business day, otherwise such notice shall be deemed served at 9:00 a.m. on next succeeding business day: Robert O. Collins 1524 Marlboro Ave. Barnwell, SC 29812 Tel: (803) 259-3583 Fax: (803) 259-2850 Miles Loadholt 1750 Jackson Street Barnwell, SC 29812 Tel: (803) 224-8800 Fax: (803) 259-9888 Inland Western Spartanburg, L.L.C. c/o H. Dan Bauer Inland Western Retail Real Estate Trust Inc., 2901 Butterfield Road Oak Brook, Illinois 60523 Tel: (630) 218-8000 Fax: (630) 218-4900 LCW SPARTANBURG, L.L.C., c/o Art Kepes WRS Inc. 2361 South Centennial Ave. Aiken, South Carolina 29803 Tel: (803) 649-1411 Fax: (803) 642-5908 [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, Inland has executed this Agreement this 15th day of July, 2004. INLAND WESTERN SPARTANBURG, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ----------------------------- Name: Valerie Medina Its: Assistant Secretary IN WITNESS WHEREOF, LCW Spartanburg, L.L.C. has executed this Agreement this 15th day of July, 2004 LCW SPARTANBURG, L.L.C., a South Carolina limited liability company By: WRS Inc., a South Carolina corporation, its Manager By: /s/ Arthur J. Kepes ---------------------------------------- Arthur J. Kepes, Vice President IN WITNESS WHEREOF, Robert O. Collins has executed this Agreement this 15th day of July, 2004 /s/ Robert 0. Collins ------------------------- ROBERT 0. COLLINS IN WITNESS WHEREOF, Miles Loadholt has executed this Agreement this 15th day of July, 2004 /s/ Miles Loadholt ------------------------- MILES LOADHOLT IN WITNESS WHEREOF, LCW Spartanburg, L.L.C. has executed this Agreement this 14th day of July, 2004 LCW SPARTANBURG, L.L.C., a South Carolina limited liability company By: WRS Inc., a South Carolina corporation, its Manager By: /s/ Arthur J. Kepes --------------------------------------- Arthur J. Kepes, Vice President IN WITNESS WHEREOF, Inland, LCW, Mr. Collins and Mr. Loadholt have each executed this Agreement this _____ day of ______________, 2004. /s/ Robert O. Collins --------------------------------------- ROBERT O. COLLINS /s/ Miles Loadholt --------------------------------------- MILES LOADHOLT LCW SPARTANBURG, L.L.C., a South Carolina limited liability company By: WRS Inc., a South Carolina corporation, its Manager By: /s/ Arthur J. Kepes ---------------------------------------- Arthur J. Kepes, Vice President INLAND Western Spartanburg, L.L.C., a Delaware limited liability company By: /s/ Valerie Medina ---------------------------------------- Its: Asst. Secretary --------------------------------------- EX-10.301 12 a2143310zex-10_301.txt EX-10.301 Exhibit 10.301 DORMAN CENTRE ESCROW This DORMAN CENTRE ESCROW ("Escrow") is by and between INLAND WESTERN SPARTANBURG, L.L.C., a Delaware limited liability company ("Inland"), LCW SPARTANBURG, L.L.C., a South Carolina limited liability company ("LCW"), and CHICAGO TITLE AND TRUST COMPANY, a Missouri corporation ("CT&T"). RECITALS: WHEREAS, LCW and Inland Real Estate Acquisition, Inc., ("IREA") entered into that certain purchase and sale agreement dated November 7, 2003, as amended by that certain Modification of Purchase Agreement dated March 2, 2004 (collectively the "Contract") for the sale and purchase of the approximately 37,200 net rentable square feet of the Dorman Center Shopping Centre located on approximately 9.701 acres of land at Blackstock Road and W.O. Ezell Road, Spartanburg, South Carolina known as Phase II (the " Property"); and WHEREAS, the Contract provides that in the event that any space in Phase II is not occupied by a tenant currently paying full rent, common area maintenance ("CAM") charges, real estate taxes and insurance (collectively "rent and pass throughs"), then LCW shall deposit with CT&T an amount equal to the annual rent and pass throughs for each such space; and WHEREAS, there are seven (7) spaces in Phase II that require the deposit of the rent and pass throughs as listed on Exhibit "A" attached hereto and made a part hereof. NOW, THEREFORE, for and in consideration of the terms and provisions contained in the Contract and the mutual agreements and understandings contained in this Escrow, Inland, LCW and CT&T agree as follows: 1. All of the above recitals are incorporated herein by reference as if fully restated herein as this paragraph 1. 2. LCW hereby deposits with CT&T the amounts listed on Exhibit "A" for each of the spaces on Exhibit "A", which amounts represent the rent and pass throughs for each such space from July 16, 2004 through July 15, 2006. Commencing on August 10, 2004 and on the tenth (10th) day of each month thereafter, Inland will report to CT&T the amount of any rent and pass throughs for the applicable month that Inland receives from each tenant that occupies one of the spaces listed on Exhibit "A" and on the date that CT&T receives such report, CT&T shall pay to Inland from this Escrow on a per space basis, the amount per space listed on Exhibit "A" less any amount that Inland reports it has received from a tenant occupying such space. Simultaneously with the payment to Inland each month, CT&T shall also pay to LCW from this Escrow on a per space basis, the amount that Inland reports it has received from a tenant occupying the space, less all unpaid costs and expenses of this Escrow which CT&T shall be entitled to pay itself from the funds to be paid to LCW. If after notifying CT&T of the receipt of any payments from the tenants of the spaces, Inland receives any rent and/or pass throughs for the applicable month, then after receiving payment from CT&T, Inland shall pay to LCW the lesser of the CT&T payment for the space or the payments received from the tenant. When a tenant occupies a space, is paying full rent and pass throughs for such space, and a final Certificate of Occupancy has been issued for the space, then LCW and Inland shall notify CT&T in writing ("Full Payment Notice") of such fact. Upon receipt of the Full Payment Notice, CT&T shall pay to itself from the remaining funds held in this Escrow for the applicable space all unpaid costs and expenses of this Escrow and shall pay the balance of such funds for such space to LCW. CT&T shall be entitled to act upon a Full Payment Notice sent solely by LCW ten (10) days after receipt thereof provided that with such notice CT&T receives proof that the Full Payment Notice was delivered to and received by Inland and the Full Payment Notice is not contested in a writing by Inland delivered to CT&T before actual pay out by CT&T. The monthly payment of rent and pass throughs will be made either to Inland or LCW as described above by CT&T until: (i) all funds originally deposited into this Escrow have been paid out as described herein, (ii) Inland and LCW mutually direct CT&T to disburse the funds, or any portion thereof, or (iii) a Full Payment Notice from LCW is not contested by Inland and it directs full payment of all sums less costs and expenses held in this Escrow. A sample of the joint written direction authorizing CT&T to disburse funds is attached hereto and made a part hereof as Exhibit "B." In addition to the rent and pass throughs deposited by LCW, LCW shall also deposit the amount of the $5.00 per square foot per Exhibit "A" space to pay tenant improvement costs for such spaces and $3.00 per square foot per space to pay leasing commissions to lease such spaces. In addition, LCW shall deposit the additional amounts listed on Exhibit "A" for amounts in excess of the aforesaid deposits which are payable, but not yet due, the tenants therein identified. LCW is responsible for procuring tenants for such spaces and is responsible for the costs and expenses of all tenant improvement and the leasing commissions for such spaces that are incurred or accrued for any lease of an Exhibit "A" space during the period of two years from date of this Escrow. It is agreed between LCW, Inland and CT&T that upon the joint written direction of LCW and Inland, CT&T shall disburse from the funds deposited for tenant improvements and leasing commissions the amounts directed by LCW and Inland, and to the parties designated by LCW and Inland, to pay the tenant improvements and leasing commissions for the spaces listed on Exhibit "A" as they are leased to new tenants. 3. All funds deposited into this Escrow shall be invested as directed by Inland and LCW jointly provided that on the tenth day of each month at least one full month's rent and pass throughs per space is available for disbursement as described above. The costs and expenses of this Escrow and any investment costs or fees will be paid by LCW either out of the interest earned on the funds deposited herein or out of additional funds deposited herein by LCW. It is agreed between LCW and Inland that interest earned on the original funds deposited into this Escrow can be used to pay the costs and expenses and investment charges of this Escrow. All interest earned on the funds originally deposited into this Escrow shall be assessed to LCW. 4. Except as to deposits of funds for which CT&T has received express written direction concerning investment or other handling, the parties hereto agree: (i) that CT&T shall be under no duty to invest or reinvest any deposits at any time held by it hereunder; and, further, (ii) that CT&T may commingle such deposits with other deposits or with its own funds in the manner provided for the administration of funds under Section 2-8 of the Corporate Fiduciary Act (205 ILCS 620/2-8), and (iii) that CT&T may use any part or all of such funds for its own benefit without obligation to any party for 2- interest or earnings derived thereby, if any; provided, however, nothing herein shall diminish CT&T's obligation to apply the full amount of the deposits in accordance with the terms of these escrow instructions. In the event CT&T is requested to invest deposits hereunder, CT&T is not to be held responsible for any loss of principal or interest which may be incurred as a result of making the investments or redeeming said investment for the purposes of this Escrow. 5. The undersigned hereby authorize and direct CT&T to accept, comply with and obey any and all writs, orders, judgments or decrees entered or issued by any court with or without jurisdiction; and in case CT&T obeys or complies with any such writ, order, judgment or decree of any court, it shall not be liable to any of the parties hereto or any other person, by reason of such compliance, notwithstanding any such writ, order, judgment or decree be entered without jurisdiction or be subsequently reversed, modified, annulled, set aside or vacated. In case CT&T is made a party defendant to any suit or proceedings regarding this Escrow, the undersigned, for themselves, their heirs, personal representatives, successors and assigns, jointly and severally, agree to pay to CT&T, upon written demand, all reasonable costs, attorney's fees and expenses incurred with respect thereto. CT&T shall have a lien on the deposit(s) herein for any and all such reasonable costs, fees and expenses. If said costs, fees and expenses are not paid, then CT&T shall have the right to reimburse itself out of said deposit(s) after providing notice thereof to the other parties hereto. 6. This Escrow is governed by and is to be construed under the laws of the State of Illinois. This Escrow, amendments or supplemental instructions hereto, may be executed in counterparts, each of which shall be deemed an original and all such counterparts together shall constitute one and the same instrument. 7. In the event of a default hereunder on the part of Inland or LCW, the other party may institute litigation against the defaulting party and the prevailing party in such litigation shall be entitled to collect all reasonable costs and expenses thereof, including, without limitation, all reasonable attorney's fees and paralegal fees through all appellate proceedings together with all costs and expenses charged by CT&T as described in this Escrow. 8. All notices from and to any of the parties to this Escrow shall be in writing and should be served by an overnight courier or express service, such as Federal Express or UPS, and shall be deemed delivered on the day after deposit with such special delivery service or may be served upon the parties by facsimile transmission provided such transmission is completed by 5:00 p.m. on a business day otherwise such notice shall be deemed served at 9:00 a.m. on next succeeding business day: Copy to: LCW Spartanburg, LLC c/o Art Kepes WRS, Inc. 2361 South Centennial Avenue Aiken, South Carolina 29803 Copy to: Inland Western Spartanburg, L.L.C. c/o H. Dan Bauer 3- Inland Western Retail Real Estate Trust Inc., 2901 Butterfield Road Oak Brook, Illinois 60523 Tel: (630) 218-8000 Fax: (630) 218-4900 Copy to: Nancy Castro Chicago Title Insurance Company 171 N. Clark Street, 3rd Floor Chicago, Illinois 60601 Tel: (312) 223-2709 Fax: (312) 223-2108 9. As between LCW and Inland only, any conflicts between this Escrow and the Contract are to be interpreted in favor of the Contract. CT&T is not a party to the Contract and is not required to refer to nor interpret the Contract in order to comply with the terms of this Escrow. [SIGNATURES ON FOLLOWING PAGES] 4- IN WITNESS WHEREOF, Inland has caused its authorized officer to execute this Escrow this ______ day of _______________, 2004. INLAND WESTERN SPARTANBURG, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ----------------------------- Name: Valerie Medina Its: Assistant Secretary 5- IN WITNESS WHEREOF, LCW has caused its authorized officer to execute this Escrow this 14th day of July, 2004 LCW Spartanburg, L.L.C., a South Carolina limited liability company By: WRS Inc., its Manager By: /s/ Arthur J. Kepes ---------------------------------- Its: ARTHUR J. KEPES V President --------------------------------- 6- IN WITNESS WHEREOF, CT&T has caused its authorized officer to execute this Escrow this 16th day of July, 2004. CHICAGO TITLE AND TRUST COMPANY, a Missouri corporation By: /s/ Illegible ---------------------------------- ILLEGIBLE Its: ESCROW ADMINISTRATOR --------------------------------- Escrow No. 24020066-003 --------------------------- 7- EXHIBIT "A" 8- HOLDBACK CALCULATION For Vacant Space Agreement
SF Rent CAM/T/I Annual Months Days -- ---- ------- ------ ---- Italian Pie 3,200 $ 16.50 $ 2.70 $ 61,440 23 $ 117,760.00 16 $ 2,642.58 Vacant Space 1,600 $ 18.00 $ 2.70 $ 33,120 23 $ 63,480.00 16 $ 1,424.52 Vacant Space 2,500 $ 17.00 $ 2.70 $ 49,250 23 $ 94,395.83 16 $ 2,118.28 America's Best 3,000 $ 15.50 $ 2.70 $ 54,600 23 $ 104,650.00 16 $ 2,348.39 Aim Mail 1,600 $ 17.50 $ 2.70 $ 32,320 23 $ 61,946.67 16 $ 1,390.11 Advance Check 1,400 $ 17.50 $ 2.70 $ 28,280 23 $ 54,203.33 16 $ 1,216.34 Vacant Space 4,000 $ 14.00 $ 2.70 $ 66,800 23 $ 128,033.33 16 $ 2,873.12 Rent TI/Leasing TI/Leasing Holdback Rate Holdback TOTAL HOLDBACK -------- ---------- ---------- Italian Pie $ 120,402.58 $ 8.00 $ 25,600.00 $ 146,002.58 Vacant Space $ 64,904.52 $ 8.00 $ 12,800.00 $ 77,704.52 Vacant Space $ 96,514.11 $ 8.00 $ 20,000.00 $ 116,514.11 America's Best $ 106,998.39 $ 8.00 $ 24,000.00 $ 130,998.39 Aim Mail $ 63,336.77 $ 8.00 $ 12,800.00 $ 76,136.77 Advance Check $ 55,419.68 $ 8.00 $ 11,200.00 $ 66,619.68 Vacant Space $ 130,906.45 $ 8.00 $ 32,000.00 $ 162,906.45 -------------- $ 776,882.50
For Other Leased Spaces America's Home $ 20,000.00 America's Best $ 1,500.00 --------------
Holdbacks EXHIBIT 1 OF 1 EXHIBIT B JOINT WRITTEN DIRECTION TO: Chicago Title and Trust Company Attn: _________________________ 171 N. Clark Street Chicago, Illinois 60601 RE: Dorman Centre Escrow No. _______________________ Dear ___________________: You are hereby authorized and directed to withdraw $_________________from Escrow No. _________________ and pay same to _________________________________. INLAND Western Spartanburg, L.L.C., a Delaware limited liability company By: ------------------------------------ Its: ----------------------------------- LCW Spartanburg L.L.C., a South Carolina limited liability company By: ------------------------------------ Its: ----------------------------------- 9- HOLDBACK CALCULATION For Vacant Space Agreement
SF Rent CAM/T/I Annual Months Days -- ---- ------- ------ ---- Italian Pie 3,200 $ 16.50 $ 2.70 $ 61,440 23 $ 117,760.00 16 $ 2,642.58 Vacant Space 1,600 $ 18.00 $ 2.70 $ 33,120 23 $ 63,480.00 16 $ 1,424.52 Vacant Space 2,500 $ 17.00 $ 2.70 $ 49,250 23 $ 94,395.83 16 $ 2,118.28 America's Best 3,000 $ 15.50 $ 2.70 $ 54,600 23 $ 104,650.00 16 $ 2,348.39 Aim Mail 1,600 $ 17.50 $ 2.70 $ 32,320 23 $ 61,946.67 16 $ 1,390.11 Advance Check 1,400 $ 17.50 $ 2.70 $ 28,280 23 $ 54,203.33 16 $ 1,216.34 Vacant Space 4,000 $ 14.00 $ 2.70 $ 66,800 23 $ 128,033.33 16 $ 2,873.12 Rent TI/Leasing TI/Leasing Holdback Rate Holdback TOTAL HOLDBACK -------- ---------- ---------- Italian Pie $ 120,402.58 $ 8.00 $ 25,600.00 $ 146,002.58 Vacant Space $ 64,904.52 $ 8.00 $ 12,800.00 $ 77,704.52 Vacant Space $ 96,514.11 $ 8.00 $ 20,000.00 $ 116,514.11 America's Best $ 106,998.39 $ 8.00 $ 24,000.00 $ 130,998.39 Aim Mail $ 63,336.77 $ 8.00 $ 12,800.00 $ 76,136.77 Advance Check $ 55,419.68 $ 8.00 $ 11,200.00 $ 66,619.68 Vacant Space $ 130,906.45 $ 8.00 $ 32,000.00 $ 162,906.45 -------------- $ 776,882.50
For Other Leased Spaces America's Home $ 20,000.00 America's Best $ 1,500.00 --------------
Holdbacks EXHIBIT 10 OF 17 HOLDBACK CALCULATION For Vacant Space Agreement
SF Rent CAM/T/I Annual Months Days -- ---- ------- ------ ---- Italian Pie 3,200 $ 16.50 $ 2.70 $ 61,440 23 $ 117,760.00 16 $ 2,642.58 Vacant Space 1,600 $ 18.00 $ 2.70 $ 33,120 23 $ 63,480.00 16 $ 1,424.52 Vacant Space 2,500 $ 17.00 $ 2.70 $ 49,250 23 $ 94,395.83 16 $ 2,118.28 America's Best 3,000 $ 15.50 $ 2.70 $ 54,600 23 $ 104,650.00 16 $ 2,348.39 Aim Mail 1,600 $ 17.50 $ 2.70 $ 32,320 23 $ 61,946.67 16 $ 1,390.11 Advance Check 1,400 $ 17.50 $ 2.70 $ 28,280 23 $ 54,203.33 16 $ 1,216.34 Vacant Space 4,000 $ 14.00 $ 2.70 $ 66,800 23 $ 128,033.33 16 $ 2,873.12 Rent TI/Leasing TI/Leasing Holdback Rate Holdback TOTAL HOLDBACK -------- ---------- ---------- Italian Pie $ 120,402.58 $ 8.00 $ 25,600.00 $ 146,002.58 Vacant Space $ 64,904.52 $ 8.00 $ 12,800.00 $ 77,704.52 Vacant Space $ 96,514.11 $ 8.00 $ 20,000.00 $ 116,514.11 America's Best $ 106,998.39 $ 8.00 $ 24,000.00 $ 130,998.39 Aim Mail $ 63,336.77 $ 8.00 $ 12,800.00 $ 76,136.77 Advance Check $ 55,419.68 $ 8.00 $ 11,200.00 $ 66,619.68 Vacant Space $ 130,906.45 $ 8.00 $ 32,000.00 $ 162,906.45 -------------- $ 776,882.50
For Other Leased Spaces America's Home $ 20,000.00 America's Best $ 1,500.00 --------------
Holdbacks EXHIBIT 1 OF 1 EXHIBIT B JOINT WRITTEN DIRECTION TO: Chicago Title and Trust Company Attn: _________________________ 171 N. Clark Street Chicago, Illinois 60601 RE: Dorman Centre Escrow No. _______________________ Dear ___________________: You are hereby authorized and directed to withdraw $_________________from Escrow No. _________________ and pay same to _________________________________. INLAND Western Spartanburg, L.L.C., a Delaware limited liability company By: ------------------------------------- Its: ------------------------------------ LCW Spartanburg L.L.C., a South Carolina limited liability company By: ------------------------------------- Its: ------------------------------------ 9- EX-10.302 13 a2143310zex-10_302.txt EX-10.302 Exhibit 10.302 ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT This ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT (this "Assignment") is made and entered into this 21 day of July, 2004 by Inland Real Estate Acquisitions, Inc., an Illinois Corporation, ("Assignor"), and Inland Western Southlake Limited Partnership, an Illinois limited partnership, ("Assignee"). RECITALS A. Lincoln Southlake, Ltd. ("Seller") and Assignor have previously entered into that certain Purchase and Sale Agreement dated as of May 20, 2004, as amended, (the "Purchase Agreement"), relating to the sale of a certain shopping center commonly known as Gateway Plaza Shopping Center located in the City of Southlake, Texas. B. Assignor desires to assign its interest in and to the Purchase Agreement to Assignee upon the terms and conditions contained herein. NOW, THEREFORE, in consideration of the receipt of ten and 00/100 Dollars ($10.00) and other good and valuable consideration in hand paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged by Assignor, the parties hereby agree as follows: 1. RECITALS. The foregoing recitals are, by this reference, incorporated into the body of this Assignment as if the same had been set forth in the body hereof in their entirety. 2. ASSIGNMENT AND ASSUMPTION. Assignor hereby assigns, conveys, transfers, and sets over to Assignee all of Assignor's right, title, and interest in and to the Purchase Agreement. Assignee hereby accepts the foregoing Assignment and assumes, and agrees to perform, all duties, obligations, liabilities, indemnities, covenants, and agreements of Assignor set forth in the Purchase Agreement. 3. COUNTERPARTS. This document may be executed in any number of counterparts, each of which may be executed by any one or more of the parties hereto, but all of which must constitute one instrument and shall be binding and effective when all parties hereto have executed at least one counterpart. 4. SUCCESSORS. This Assignment shall be binding upon and for the benefit of the parties hereto and their respective Successors and Assigns. IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed as of the day and year first written above. ASSIGNOR: INLAND REAL ESTATE ACQUISITIONS, INC., An Illinois Corporation By: /s/ G. Joseph Cosenza ---------------------------------- Name: G. Joseph Cosenza -------------------------------- Title: President -------------------------------- ASSIGNEE: INLAND WESTERN SOUTHLAKE LIMITED PARTNERSHIP, an Illinois limited partnership By: Inland Western Southlake GP, L.L.C., a Delaware limited liability company, its general partner By: Inland Western Retail Real Estate Trust Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ----------------------------- Name: Valerie Medina ----------------------------- Title: Asst. Secretary ----------------------------- - 2 - EX-10.303 14 a2143310zex-10_303.txt EX-10.303 Exhibit 10.303 SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT THIS SECOND AMENDMENT (the "Second Amendment") is made and entered into this 15th day of July, 2004, by and between LINCOLN SOUTHLAKE, LTD. ("Seller") and INLAND REAL ESTATE ACQUISITIONS, INC. ("Purchaser"). RECITALS A. Purchaser and Seller entered into a Letter Agreement dated May 20, 2004 accepted by Seller on May 21, 2004 (the "Letter Agreement"), as amended by First Amendment to Purchase and Sale Agreement dated June 30, 2004 (the "First Amendment", and together with the Letter Agreement, the "Purchase Agreement"), providing for the purchase and sale of the Gateway Plaza Shopping Center, Southlake, Texas. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Purchase Agreement. B. Purchaser and Seller desire to amend the Purchase Agreement as hereinafter set forth. AMENDMENTS NOW THEREFORE, in consideration of the mutual premises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Paragraph 1 of the Letter Agreement, as amended by the First Amendment, is amended by: a. Deleting the words "on or before July 16, 2004" from the first sentence thereof and inserting the following in its place "on or before July 21, 2004"; b. Deleting the words "on or before July 16, 2004," from the third sentence thereof and inserting the following in its place "on or before July 21, 2004"; and c. Deleting the words "it is understood and agreed that the purchaser may automatically and immediately receive its earnest money deposit back if it terminates this agreement for any reason or no reason at all on or before July 16, 2004" from the last sentence thereof and inserting the following in its place "it is understood and agreed that the purchaser may automatically and immediately receive its earnest money deposit back if it terminates this agreement for any reason or no reason at all on or before July 21, 2004." - 1 - 2. Paragraph 10 of the Letter Agreement, as amended by the First Amendment, is amended by deleting the words "July 16, 2004," and inserting in its place "July 21, 2004". 3. Purchaser and Seller hereby agree that all references to the date of July 16, 2004 set forth in the Letter of Escrow Instructions (a copy of which is attached hereto as Exhibit A) are deleted and replaced with "July 21, 2004." Purchase and Seller, by their execution hereof, agree to execute an amendment to the Letter of Escrow Instructions with the Title Company in conformity herewith, provided, however, regardless of whether or not such amendment is ever executed, with respect to such date, this Second Amendment shall supersede and control. 4. Except as expressly provided herein, the Purchase Agreement remains unmodified and in full force and effect. This Second Amendment may be executed in any number of counterparts, all of which when take together shall constitute one and the same instrument. Signatures transmitted via facsimile shall be deemed original signatures for purposes of creating a valid and binding agreement. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first written above. SELLER: LINCOLN SOUTHLAKE LTD. By: Akard Ervay, Inc., general partner By: /s/ Matt Turner ---------------------- Name: Matt Turner ---------------------- Title: Vice President ---------------------- PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ Joe Cosenza ----------------------------- Name: ----------------------------- Title: ----------------------------- - 2 - FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT THIS FIRST AMENDMENT is made and entered into this 30th day of June, 2004 by and between LINCOLN SOUTHLAKE, LTD. ("Seller") and INLAND REAL ESTATE ACQUISITIONS, INC. ("Purchaser"). RECITALS A. Purchaser and Seller entered into a Letter Agreement dated May 20, 2004 accepted by Seller on May 21, 2004 (the "Purchase Agreement") providing for the purchase and sale of the Gateway Plaza Shopping Center, Southlake, Texas. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Purchase Agreement. B. Pursuant to the terms of the Purchase Agreement, Seller was to provide to Purchaser, INTER ALIA, tenant estoppels ten (10) days prior to Closing, a level I environmental audit ten (10) days prior to Closing, a Survey of the Property fifteen (15) days prior to Closing, and an appraisal of the Property prepared by an MAI appraiser. As of the date hereof, those items have not been received by Purchaser. C. Purchaser and Seller desire to amend the Purchase Agreement in order to afford Seller additional time to deliver those and other items that may be required under the terms of the Purchase Agreement, and to afford Purchaser to evaluate and review such items and the Property. AMENDMENTS NOW THEREFORE, in consideration of the mutual premises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Paragraph 1 of the Purchase Agreement is amended by: a. Deleting the words "45 calendar days following the acceptance of this agreement (see Paragraph 10)" from the first sentence thereof and inserting the following in its place "on or before July 16, 2004", b. Deleting the words "following 45 calendar days after the acceptance of this letter," from the third sentence thereof and inserting the following in its place "on or before July 16, 2004,"; and c. Deleting the words "it is understood and agreed that the Purchaser may automatically and immediately receive its earnest money deposit back if it terminates this agreement for any reason or no reason on or before 45 calendar days following the acceptance of this agreement" from the last sentence thereof and inserting the following in its place "it is understood - 1 - and agreed that the purchaser may automatically and immediately receive its earnest money deposit back if it terminates this agreement for any reason or no reason at all on or before July 16, 2004." 2. Paragraph 10 of the Purchase Agreement is amended by deleting the words "45 calendar days following acceptance of this agreement," and inserting in its place "July 16, 2004". 3. Purchaser and Seller hereby agree that all references to the date of July 6, 2004 set forth in the Letter of Escrow Instructions (a copy of which is attached hereto as Exhibit A) are deleted and replaced with "July 16, 2004." Purchase and Seller, by their execution hereof, agree to execute an amendment to the Letter of Escrow Instructions with the Title Company in conformity herewith, provided, however, regardless of whether or not such amendment is ever executed, with respect to such date, this First Amendment shall supersede and control. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first written above. SELLER: LINCOLN SOUTHLAKE, LTD. By: Akard Ervay, Inc., general partner By: /s/ Matt Turner ---------------------- Name: Matt Turner ---------------------- Title: Vice President ---------------------- PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ Joe Cosenza ----------------------------- Name: Joe Cosenza ----------------------------- Title: Vice Chairman ----------------------------- - 2 - EX-10.304 15 a2143310zex-10_304.txt EX-10.304 Exhibit 10.304 [INLAND(R) LOGO] Inland Real Estate Acquisitions, Inc. 2901 Butterfield Road 200 Waymont Court 1955 Lake Park Drive Oak Brook, IL 60523 501 Manatee Ave, West Suite 126, Unit 10 Suite 300 630-218-4948 Fax: 4935 Holmes Beach, FL 34217 Lake Mary, FL 32746 Smyrna, GA 30080 www.inlandgroup.com 941-779-1000 Fax: 2000 407-688-6540 Fax: 6543 678-996-2131 Fax: 2140
May 20, 2004 Lincoln Southlake, Ltd. ("Seller") 3300 Lincoln Plaza 500 N. Akard Dallas, Texas 75201 Attn: Robert Dozier Re: GATEWAY PLAZA SHOPPING CENTER; SOUTHLAKE, TEXAS Dear Mr. Dozier: This letter represents the offer of Inland Real Estate Acquisition, Inc. ("Purchaser") to purchase the Gateway Plaza Shopping Center (the "Property") with approximately 358,195 net rentable square feet, situated on approximately 42 acres of land, located at the corner of State Highway 114 and Southlake Boulevard (See EXHIBIT A attached). The Property shall include all the land and buildings and common facilities, as well as Seller's right, title and interest in all personalty within the buildings and common areas, supplies, landscaping equipment, and any other items presently used on the site and belonging to Seller, and all of Seller's right, title and interest in and to all intangible rights relating to the Property. This corporation or its nominee will consummate this transaction on the following basis: 1. The total purchase price (the "Purchase Price") shall be $33,025,276.00 all cash, plus or minus prorations, with NO MORTGAGE CONTINGENCIES, to be paid at CLOSING 45 CALENDAR DAYS following the acceptance of this agreement (see Paragraph 10). Concurrently with the execution of this letter, Purchaser has provided a $500,000 earnest money deposit with the Title Company designated in Section 10. If, following 45 calendar days after the acceptance of this letter, Purchaser has not terminated this letter, the $500,000 earnest money shall be deemed non-refundable to Purchaser and payable to Seller. Said money shall be applied to the Purchase Price at the closing. It is understood and agreed that the purchaser may automatically and immediately receive its earnest money deposit back if it terminates this Lincoln Southlake, Ltd. May 20, 2004 Page 2 agreement for any reason or no reason on or before 45 calender days following the acceptance of this agreement. 2. Seller represents and warrants (TO SELLER'S CURRENT, ACTUAL KNOWLEDGE), that, except as provided in the applicable lease documents (the "Leases") for the Property, the Property is leased to the tenants described on EXHIBIT B on triple net leases covering the buildings and all of the land, parking areas, reciprocal easements and REA/OEA agreements (if any), for the entire terms and option periods. Any unearned, free rent concessions given to any tenants (other than those concessions, if any, described in the Leases) that extend beyond the Closing Date (hereinafter defined) shall be settled at closing by Seller giving a full cash credit to Purchaser for any and all of those concessions. 3. Seller warrants and represents (TO SELLER'S CURRENT, ACTUAL KNOWLEDGE), that the property is free of violations, and the interior and exterior structures are in a good state of repair, free of leaks, structural problems, and mold, and the property is in full compliance with Federal, State, City and County ordinances, environmental laws and concerns, and no one has a lease that exceeds the lease term stated in said leases, nor does anyone have an option or right of first refusal to purchase or extend, nor is there any contemplated condemnation of any part of the property, nor are there any current or contemplated assessments. 4. Seller warrants and represents (to Seller's current, actual knowledge), that, except as provided in the Leases, during the term of the Leases, the tenants and guarantors are responsible for and obligated to pay all operating expenses relating to the Property on a prorata basis, including but not limited to, real estate taxes, REA/OEA agreements, utilities, insurance and all common area maintenance. Prior to closing, Seller shall not enter into or extend any agreements without Purchaser's approval, which approval shall not be unreasonably withheld or delayed, and any contract presently in existence not accepted by Purchaser shall be terminated by Seller, but only to the extent Seller has the right to do so prior to closing and can do so without cost to Seller. Seller shall use good faith efforts to cause any work presently in progress on the Property to be completed by Seller prior to closing. 5. Seller shall use good faith efforts to obtain and furnish Purchaser no later than ten (10) days prior to the Closing Date with estoppel letters acceptable to Purchaser (form to be attached to this document) from 90% (based on square footage) of tenants, guarantors, and parties to reciprocal and/or operating easement agreements. Purchaser's obligations under this letter are conditional Lincoln Southlake, Ltd. May 20, 2004 Page 3 upon Purchaser receiving estoppels from Kohl's, TJMaxx, Old Navy, Bed Bath & Beyond, Michaels, Bank of America and Starbucks. 6. Seller is responsible for payment of any leasing brokerage fees or commissions which are due any leasing brokers for the existing leases stated above or for the renewal of same leases whereby renewal occurs prior to the Closing Date. Purchaser shall be responsible for all other leasing brokerage fees and commissions. 7. Purchaser's obligations hereunder are conditioned upon Seller supplying to Purchaser prior to closing a certificate of insurance from the tenants and guarantors in the form and coverage required under the Leases. 8. Purchaser's obligations hereunder are conditioned upon Seller supplying to Purchaser 10 days prior to closing, at Seller's expense, a certificate which must be acceptable to Purchaser from a certified hygienist for environmental concerns that there is no asbestos, PCBs, or hazardous substance in the buildings and on the property in violation of applicable law; in other words, a Level 1 environmental audit (and Level 1 audit, if required). 9. The above sale of the real estate shall be consummated by conveyance of a special warranty deed in a form reasonably acceptable to Seller and Purchaser from Seller to Purchaser's designee, with Seller paying any city, state or county transfer taxes for the closing, and Seller agrees to cooperate with Purchaser's lender, if any, and the money lender's escrow, at no expense to Seller and without liability to Seller. Seller and Purchaser shall also execute and deliver at the closing such other documents, each in a form reasonably acceptable to Seller and Purchaser, as are customary in sales of properties similar to the Property, including an assignment and assumption of lease agreements and a bill of sale. 10. The closing shall occur through Republic Title of Texas, Inc., with Laura Worral, as Escrowee, on the date (the "Closing Date") that is 45 calendar days following acceptance of this agreement, at which time title to the above property shall be indefeasible; i.e., free and clear of all liens, encroachments and encumbrances, except as may be shown on the Survey (hereinafter defined), and a Texas Form T-1 owner's title policy, the basic premium (but not endorsement premiums) for which shall be paid by Seller, shall be issued, with all warranties and representations being true now and at closing and surviving the closing for a period of twelve (12) months, and each party shall be paid in cash their respective credits, including, but not limited to, security deposits, rent and expenses, with a proration of real estate taxes based on the greater of 110% of Lincoln Southlake, Ltd. May 20, 2004 Page 4 the most recent bill or latest assessment of the estimated assessments for 2003 and 2004 using the Assessor's formula for these sales transactions, with a later reproration of taxes when the actual bills are received. At closing, rents and expenses of the Property shall be prorated, however, no credit will be given to Seller for any past due, unpaid or delinquent rents, provided that Seller reserves the right to seek to collect all such rents from the tenants owing same, and Purchaser shall deliver all such rents to Seller if and when received in accordance with the terms of the Leases by Purchaser. 11. This offer is subject to Seller delivering to Purchaser, prior to closing, an appraisal of the property prepared by an MAI or other qualified appraiser, acceptable to Purchaser or Purchaser's lender, if any, all at Seller's cost. 12. Purchaser's obligations hereunder are conditioned upon neither Seller (Landlord) or any tenant and guarantor being in default on any lease or agreement at closing, nor there being any threatened or pending litigation. 13. Seller warrants and represents that it has paid all unemployment taxes to date. 14. Prior to closing, Seller shall furnish to Purchaser copies of all guarantees and warranties which Seller received from any and all contractors and Subordination, Attornment and Non-Disturbance Agreement pertaining to the Property. This offer is subject to Purchaser's satisfaction that all guarantees and warranties survive the closing and are assignable and transferable to any titleholder now and in the future. 15. Except with respect to the Vacant Space described below, this offer is subject to the Property being 100% occupied at the time of closing, with all tenants occupying their space, open for business, and paying full rent in accordance with the terms of the Leases, including CAM, tax and insurance current, as shown on EXHIBIT B attached. 16. If, as and when the closing occurs, but not otherwise, Seller shall be responsible for payment of a real estate brokerage commission of $326,983 to Venture Commercial pursuant to a separate written agreement between Seller and such broker. Said commission shall be paid through the closing escrow as follows: 100% to Venture Commercial, Inc. or its nominee. 17. Not less than fifteen (15) days prior to closing, Seller must provide the title commitment as stated above and a current Urban ALTA/ACSM spotted survey in accordance with the minimum standard detail requirements for ALTA/ACSM Land Title surveys jointly established and adopted by ALTA and ACSM in 1999 Lincoln Southlake, Ltd. May 20, 2004 Page 5 and includes all Table A optional survey responsibilities and acceptable to Purchaser and the title company. 18. Seller agrees that prior to closing it shall put all vacant spaces (the "Vacant Space") into rentable condition (white box - drywall, plumbed for sewer and water, air conditioner and heating system in place) and ready for a new tenant to occupy immediately in accordance with all applicable laws, codes, etc., including all requirements for a certificate of occupancy for said space. 19. Seller agrees to promptly make available and disclose, to the extent not otherwise reflected in the Leases, all inducements, abatements, concessions or cash payments given to tenants, and for CAM, copies of the bills. Seller agrees to cooperate fully, at no expense to Seller, with Purchaser and Purchaser's representatives to facilitate Purchaser's evaluations and reports, including at least a one-year audit of the books and records of the Property to be made upon three (3) business days prior written notice to Seller and during Seller's normal business hours. 20. Purchaser acknowledges that, except only for the representations and warranties of Seller expressly made in this letter, the Property is being sold by Seller to Purchaser on an "as is, where is" basis, with all faults, such that in no event shall Seller be deemed to have made any representations, warranties or assurances of or with respect to the Property, except as expressly provided in this letter. 21. In no event shall Purchaser assign or transfer its rights or obligations under this letter without the prior written consent of Seller, excluding transfers to purchasers affiliates. 22. In the event of a default by Seller under this letter, Purchaser's sole remedies shall be to terminate this letter by written notice to Seller and the title company or seek specific performance of Seller's obligations hereunder and simultaneously purchaser shall receive back its earnest money. In the event of a default by Purchaser under this letter, following the 45 calender days after acceptance of this agreement, Seller's sole remedy shall be to terminate this letter by written notice to Purchaser and the title company and receive the $500,000 earnest money deposit as liquidated damages. 23. Buyer agrees to hire Lincoln Property Company Commercial, Inc. as leasing agent for a term of one year following closing (agreement to be discussed) and property manager (role to be discussed) for six months following close. Lincoln Southlake, Ltd. May 20, 2004 Page 6 This offer is, of course, predicated upon the Purchaser's review and written approval of the existing leases, new leases, lease modifications (if any), all tenant correspondence, REA/OEA agreements, tenants' and guarantors' financial statements, sales figures, representations of income and expenses made by Seller, site inspection, environmental, appraisal, and at least one year of audited operating statements on said property is required that qualify, comply with and can be used in a public offering. If this offer is acceptable, please sign the original of this letter and initial each page, keeping copies for your files and returning the original to me by May 21, 2004. Sincerely, ACCEPTED: LINCOLN SOUTHLAKE, LTD. INLAND REAL ESTATE ACQUISITIONS, INC., or nominee By: Akard Ervay , Inc., general partner /s/ Matthew Tice ------------------------------------ Matthew Tice By: /s/ Robert Dozier ----------------------------- Name: Robert Dozier /s/ G. Joseph Cosenza --------------------------- ------------------------------------ G. Joseph Cosenza Title: Executive Vice President Vice Chairman ------------------------- Date: 5-21-04 ------------------------------ ACKNOWLEDGMENT BY THE TITLE COMPANY Republic Title of Texas, Inc. hereby acknowledges receipt of an executed copy of this letter and agrees to hold and distribute the $500,000 earnest money referenced above in accordance with the terms of this letter. REPUBLIC TITLE OF TEXAS, INC. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- EXHIBIT A [GRAPHIC] EXHIBIT B
GATEWAY PLAZA - SOUTHLAKE, TEXAS -------------------------------------------------- LEASE LEASE ANNUAL COMMENCEMENT EXPIRATION TENANTS S.F. BASE RENT MONTHLY RENT DATE DATE - --------------------------- -------- ------------ --------- ------------ --------------- ------------- Kohl's 87,423 502,187.00 41,848.92 $ 5.74 September-00 January-21 T.J. Maxx 30,600 267,750.00 22,312.50 $ 8.75 September-00 September-10 Bed Bath and Beyond 30,000 330,000.00 27,500.00 $ 11.00 October-00 January-11 Old Navy 25,000 225,000.00 18,750.00 $ 9.00 September-00 September-05 Officemax 23,801 261,335.00 21,777.92 $ 10.98 August-00 January-16 Michael's 23,428 257,708.00 21,475.67 $ 11.00 October-00 February-10 Bank of America 5,430 190,000.00 15,833.33 $ 34.99 January-01 December-20 Starbucks 1,830 54,900.00 4,575.00 $ 30.00 April-01 March-11 Thomasville Home Furn 18,615 252,792.00 21,066.00 $ 13.58 January-01 December-10 Ultra Cosmetics & Salon 11,250 202,500.00 16,875.00 $ 18.00 November-00 October-10 Dress Barn 8,127 142,223.00 11,851.92 $ 17.50 November-00 October-05 Rack Room 7,996 147,926.00 12,327.17 $ 18.50 September-00 September-05 Aaron Brothers Art & Frame 6,500 143,000.00 11,916.67 $ 22.00 November-00 February-11 Home Theather Store 6,100 152,500.00 12,708.33 $ 25.00 January-01 Februrary-08 Calico Corners 5,278 126,672.00 10,556.00 $ 24.00 January-01 December-05 Anamla's Retail 5,058 126,450.00 10,537.50 $ 25.00 March-01 February-11 * Dami Japanese 4,253 114,831.00 9,569.25 $ 27.00 December-03 November-08 Mattress Firm 4,008 88,176.00 7,348.00 $ 22.00 September-00 September-05 Zales 3,587 60,979.00 5,081.58 $ 17.00 December-03 November-13 Carpet Mills of America 3,493 76,846.00 6,403.83 $ 22.00 November-00 November-05 Pearle Vision 3,027 71,437.00 5,953.08 $ 23.60 November-02 October-12 Baker Brothers 3,000 75,000.00 6,250.00 $ 25.00 January-01 December-05 Fitness Headquarters 2,500 57,500.00 4,791.67 $ 23.00 February-01 January-06 Chipotle Mexican Grill 2,432 59,025.00 4,918.75 $ 24.27 December-00 December-05 Cool Cuts for Kids 1,194 28,656.00 2,388.00 $ 24.00 October-00 September-05 Basset Furniture 10,202 98,143.00 8,178.58 $ 9.62 October-04 September-09 VACANT 10,000 100,000.00 8,333.33 $ 10.00 VACANT 5,021 70,294.00 5,857.83 $ 14.00 VACANT 3,059 61,180.00 5,098.33 $ 20.00 VACANT 2,725 54,500.00 4,541.67 $ 20.00 VACANT 2,200 44,000.00 3,666.67 $ 20.00 VACANT 1,056 23,232.00 1,936.00 $ 22.00 VACANT GROUND LEASE 1 65,000.00 5,416.67 $ 65,000.00 VACANT GROUND LEASE 1 80,000.00 6,666.67 $ 80,000.00 TOTALS 358,195 4,611,742.00
* CURRENTLY UNDER NEGOTIATIONS TO BE ASSIGNED TO A NEW OWNER/OPERATOR UNDER SAME TERMS OF DAMI LEASE. LINCOLN PROPERTY COMPANY May 17, 2004 Mr. Matthew Tice INLAND 505 Camrose Lane Murphy, Texas 75094 RE: GATEWAY PLAZA SOUTHLAKE, TEXAS Dear Matt: Per our conversation to date, please let this letter confirm that Akard Ervay, Inc., the general partner, recommends approval of Inland's acquisition under the agreed terms and conditions. Sincerely, LINCOLN PROPERTY COMPANY COMMERCIAL, INC. /s/ Robert Dozier Robert Dozier Executive Vice President LINCOLN PROPERTY COMPANY 3300 LINCOLN PLAZA 500 N. AKARD STREET DALLAS, TX 75201-3394 (214) 740-3300 TENANT ESTOPPEL CERTIFICATE FORM - GENERAL To: Inland Real Estate Acquisitions, Inc., and Inland Southeast____________________, L.L.C. (insert Inland nominee entity), and its lenders, successors and assigns ("Purchaser") 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Karen Kautz Re: Lease Agreement dated ____________ and amended ______________ (collectively, the "Lease"), between Lincoln Southlake, Ltd. as "Landlord", and _____________________________, as "Tenant", guaranteed by _____________________ ("Guarantor") for leased premises containing approximately _________ square feet of space (the "Premises") situated in that certain property commonly known as the Gateway Plaza Shopping Center, Southlake, Texas (the "Property") 1. Tenant hereby certifies that the following representations with respect to the Lease are accurate and complete as of the date hereof. (a) Dates of all amendments, letter agreements, modifications and waivers related to the Lease: ________________________________________________ ______________________________________________________________________ ______________________________________________________________________ (b) Commencement Date: ___________________________________________________ (c) Expiration Date: _____________________________________________________ (d) Current Annual Base Rent: ____________________________________________ Adjustment Date: _____________________________________________________ Rental Amount:________________________________________________________ (e) Fixed or CPI Rent Increases: _________________________________________ (f) Square Footage of the Premises: ______________________________________ (g) Security Deposit paid to Landlord: ___________________________________ (h) Renewal Options: ________________ Additional Terms for ___________ years at $__________ per year (i) Termination Options: Termination Date ________________________________ Fees Payable _________________________________________________________ 2. Tenant further certifies to Purchaser that: (a) the Lease is presently in full force and effect and represents the entire agreement between Tenant and Landlord with respect to the Premises; (b) the Lease has not been assigned and the Premises have not been sublet by Tenant; (c) Tenant has accepted and is occupying the Premises, all construction required by the Lease has been completed and any payments, credits or abatements required to be given by Landlord to Tenant have been given; (d) Tenant is open for business or is operating its business at the Premises; (e) no installment of rent or other charges under the Lease other than current monthly rent has been paid more than 30 days in advance and Tenant is not in arrears on any rental payment or other charges; (f) Landlord has no obligation to segregate the security deposit or to pay interest thereon; (g) to Tenant's knowledge, Landlord is not in default under the Lease and no event has occurred which, with the giving of notice or passage of time, or both, could result in a default by Landlord; (h) to Tenant's knowledge, Tenant has no existing defenses, offsets, liens, claims or credits against the payment obligations under the Lease; (i) Tenant has not been granted any options or rights to terminate the Lease earlier than the Expiration Date (except as stated in paragraph 1(i)); (j) Tenant has not been granted any options or rights of first refusal to purchase the Premises or the Property; (k) Tenant has not received notice of violation of any federal, state, county or municipal laws, regulations, ordinances, orders or directives relating to the use or condition of the Premises or the Property; (1) no hazardous wastes or toxic substances, as defined by all applicable federal, state or local statutes, rules or regulations have been disposed, stored or treated on or about the Premises or the Property by Tenant; (m) Tenant has not received any notice of a prior sale, transfer, assignment, pledge or other hypothecation of the Premises or the Lease or of the rents provided for therein other than the existing financing obtained by Landlord and currently encumbering the Property; (n) Tenant has not filed, and, to Tenant's knowledge, is not currently the subject of any filing, voluntary or involuntary, for bankruptcy or reorganization under any applicable bankruptcy or creditors rights laws; (o) except as specifically provided in the Lease, Tenant does not have any operating exclusives for the Property; and (p) Rent has been paid through ____________, 2004. 3. This certification is made with the knowledge that Purchaser is about to acquire title to the Property and obtain financing which shall be secured by a deed of trust (or mortgage), security agreement and assignment of rents, leases and contracts upon the Property. Tenant acknowledges that Purchaser's interest in the Lease (as landlord) will be assigned to a lender as security for the loan. All rent payments under the Lease shall continue to be paid to Landlord in accordance with the terms of the Lease until Tenant is notified otherwise in writing that the landlord's interest in the Lease has been transferred by Landlord to Purchaser and/or transferred by Purchaser to Purchaser's lender or its successors and assigns. Tenant further acknowledges and agrees that Purchaser (including its lender), their respective successors and assigns, shall have the right to rely on the information contained in this Certificate. The undersigned is authorized to execute this Tenant Estoppel Certificate on behalf of Tenant. [TENANT] By: ------------------------------ Name: ---------------------------- Title: --------------------------- Date: _____________, 2004 GUARANTOR ESTOPPEL CERTIFICATE Date: ________________, 2004 To: ____________________ Inland Real Estate Acquisitions, Inc., and Inland Southeast_____________, L.L.C. (insert Inland nominee entity), and its lenders, successors and assigns ("Purchaser") 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Robert Brinkman Re: Guaranty Agreement dated ___________ ("Guaranty of Lease") pertaining to that certain lease dated _______________ between Lincoln Southlake, Ltd., as landlord, and ___________________________________________ as Tenant for approximately ________________________ of space (the "Premises") located at the property commonly known as the Gateway Plaza Shopping Center, Southlake, Texas (the "Property"). 1. Guarantor certifies to Purchaser and Purchaser's lender that: (a) the Guaranty of Lease has been properly executed by Guarantor and is presently in full force and effect without amendment or modification except as noted above; (b) to Guarantor's knowledge, Guarantor has no existing defenses, offsets, liens, claims or credits against the obligations under the Guaranty of Lease. 2. This certification is made with the knowledge that Purchaser is about to acquire title to the Property and a lender is about to provide Purchaser with financing which shall be secured by a deed of trust (or mortgage), security agreement and assignment of rents, leases and contracts upon the Property. Guarantor further acknowledges and agrees that Purchaser and its lender and their respective successors and assigns shall have the right to rely on the information contained in this Certificate. 3. The undersigned is authorized to execute this Guarantor Estoppel Certificate on behalf of Guarantor. [GUARANTOR] By: -------------------------------- Name: ------------------------------ Title: ----------------------------- 162nd PLACE CONFIDENTIALITY AGREEMENT Gramor Development, Inc. ("Gramor") has prepared this confidential offering summary intended solely for your limited use in evaluating the purchase of 162nd Place, a retail center located in Vancouver, Washington (the "Property"). The Property is owned by 162nd Place Associates, LLC (the "Seller"), who has asked Gramor to market the sale of the Property. This will serve to confirm your agreement concerning certain material, data and information (herein "Evaluation Material") which Gramor will make available to you for study in connection with a possible purchase of 162nd Place. Gramor is prepared to furnish you with the Evaluation Material in connection with discussions and negotiations concerning a possible transaction involving the Property only on. the condition that you treat such Evaluation Material confidentially as detailed below and confirm certain representations to Gramor and/or Seller. Therefore, as a prerequisite to furnishing you with the Evaluation Material, you hereby represent and agree as follows: The Evaluation Material furnished to you will be used by you solely for evaluating a possible transaction exclusively for your own account as a principal in the transaction, or in the event of a broker for assisting your registered prospective buyer in evaluating a possible transaction. Therefore you agree to keep all Evaluation Material strictly confidential; provided however, that any such Evaluation Material may be disclosed to your directors, officers, employees, attorneys, accountants and lenders ("Representatives") who need to know such information for the purpose of assisting you with determining the market value of the Property. Such Representatives shall be informed by you of the confidential nature of such information and shall be directed by you to treat such information with strict confidence and shall agree to be bound by the provisions of this agreement. You are liable for any Representative's beach of this agreement. You will not, and will cause your Representatives to not, copy or duplicate the Evaluation Material (except that you may copy Evaluation Material for your Representatives). You will return to Gramor or destroy, and will cause your Representatives to return to Gramor or destroy, the Evaluation Material promptly if you decide not to go forward with discussions. You agree that Gramor and/or Seller have no adequate remedy at law if you violate any of the terms of this agreement. In such event, Gramor and/or Seller will have the right, in addition to any other right they may have, to seek injunctive relief to restrain any breach or threatened breach by you or your Representatives of this agreement. In addition, you agree that you will not disclose and you will direct your Representatives who are given access to the Evaluation Material in accordance with the terms hereof, not to disclose to any person, the fact that the Evaluation Material has been made available to you, that discussions between you and Seller or Gramor are now taking place or will take place, or any of the terms, conditions or other facts with respect to the possible acquisition of the Property. Although Gramor has endeavored, for your convenience, to include the Evaluation Material information which Gramor believes to be relevant for the purpose of helping you in your evaluation of the Property for possible purchase, you understand and acknowledge that Gramor has made no representation or warranty to you as to the accuracy or completeness of the Evaluation Material. You agree that Gramor will not have any liability to you as a result of your use of the Evaluation Material. It is understood that you are expected to perform your own studies and are responsible for such due diligence investigations and inspections on the Property including, investigation of any environmental conditions, as you deem necessary or desirable as permitted by agreement with Gramor and/or Seller. You agree to defend, indemnify and hold Gramor and Seller harmless from and against all claims, damages, liabilities and expenses, including reasonable attorney's fees and expenses, arising out of any breach of your obligations under this agreement. The obligations under this agreement shall terminate upon the earlier of the third anniversary of the date of this agreement or the date of closing of any transaction regarding the Property. Acknowledge and Approved Fax to: Gramor Development /s/ Matthew Tice (503) 654-9188 - --------------------------------------------- Attn: Robin Berry Signature of prospective buyer Name: Matthew Tice ---------------------------------------- - --------------------------------------------- Signature of broker Name: ---------------------------------------- Company name: Inland Real Estate Acquisitions -------------------------------- Broker phone: -------------------------------- Broker e-mail: ------------------------------- EX-10.305 16 a2143310zex-10_305.txt EX-10.305 Exhibit 10.305 ASSIGNMENT OF CONTRACT This ASSIGNMENT OF CONTRACT (the "ASSIGNMENT") is made and entered into this 26 day of July, 2004 by INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("ASSIGNOR") and INLAND WESTERN MARYSVILLE, L.L.C., a Delaware limited liability company ("ASSIGNEE"). Assignor does hereby sell, assign, transfer, set over and convey unto Assignee all of its right, title and interest as Purchase under that certain agreement dated as of May 6, 2004, as amended, and entered into by ITW Mortgage Investments III, Inc., a Delaware corporation, as Seller, and Assignor, as Purchaser (collectively, the "AGREEMENT"), solely as the Agreement applies to the sale and purchase of the property described by the Agreement, located in Marysville, Washington. Assignor represents and warrants that it is the Purchaser under the Agreement, and that it has not sold, assigned, transferred, or encumbered such interest in any way to any other person or entity. By acceptance hereof, Assignee accepts the foregoing Assignment and agrees, from and after the date hereof, to (i) perform all of the obligations of Purchaser under the Agreement, and (ii) indemnify, defend, protect and hold Assignor harmless from and against all claims and liabilities arising under the Agreement. ASSIGNOR: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ Lou Quilici ---------------------------------- Name: Lou Quilici --------------------------------- Title: SR VP -------------------------------- ASSIGNEE: INLAND WESTERN MARYSVILLE, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Debra A. Palmer ----------------------------- Name: Debra A. Palmer ---------------------------- Title: Asst Secretary --------------------------- EX-10.306 17 a2143310zex-10_306.txt EX-10.306 Exhibit 10.306 REINSTATEMENT AND FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT THIS REINSTATEMENT AND FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT, (this "AMENDMENT") is entered into as of July 23, 2004, by and between ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("SELLER") and INLAND REAL ESTATE ACQUISITIONS, INC. ("PURCHASER"). WITNESSETH: WHEREAS, Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated effective May 6, 2004, as amended by letter dated June 2, 2004, by Second Amendment to Purchase and Sale Agreement dated June 18, 2004 (the "SECOND AMENDMENT") and by Third Amendment to Purchase and Sale Agreement dated June 25, 2004 (the "THIRD AMENDMENT") and by Fourth Amendment to Purchase and Sale Agreement dated July 7, 2004 (the "FOURTH AMENDMENT") (as amended, the "AGREEMENT"), providing for the purchase and sale of certain real property known as "Safeway Plaza at Marysville," located in Marysville, Snohomish County, Washington, as more particularly described in the Agreement, and other real and personal property described in the Agreement; and WHEREAS, prior to the date hereof, Purchaser terminated the Agreement pursuant to Agreement. WHEREAS, Seller and Purchaser desire to reinstate and mutually amend and modify the Agreement as more particularly set forth herein. NOW, THEREFORE, for and in consideration of the mutual covenants of the parties hereto, and other good and valuable consideration to the parties hereto, the receipt and sufficiency of which is hereby acknowledged and confessed by the parties, and for the benefit which will inure to each party from the execution of this Amendment, Seller and Purchaser hereby agree to reinstate and amend and modify the Agreement as follows, with the Amendment to be effective as of the date above. 1. Seller and Purchaser hereby reinstate the Agreement. From and after the date of this Amendment, but only after Title Company's receipt and acknowledgment of the Earnest Money previously returned to Purchaser by Title Company as a result of Purchaser's termination, the Agreement shall be deemed to be in full force and effect as if no termination had occurred, as amended by this Amendment. 2. All contingencies and conditions precedent to Purchaser's Closing obligations set forth in the Agreement are hereby deemed satisfied and Purchaser shall have no further right to terminate the Agreement in connection therewith. The contingencies and conditions precedent that are hereby deemed satisfied include, without limitation, (i) the items set forth on SCHEDULE I of the Second Amendment, Third Amendment and Fourth Amendment, (ii) Purchaser's receipt of all deliveries required under SECTION 4.1 of the Agreement, (iii) Purchaser's satisfaction with the Property pursuant to SECTION 4.1.1 and SECTION 4.2 of the Agreement, (iv) Purchaser's satisfaction with the Title Commitment and the Survey pursuant to SECTION 4.1.2 of the Agreement, and (v) Purchaser's receipt of all Required Tenant Estoppels pursuant to SECTION 4.8 of the Agreement. The $250,000.00 Earnest Money, upon receipt by Title Company, is hereby deemed immediately earned by Seller and shall be non-refundable to Purchaser except as required by SECTIONS 4.7(a), 4.9, 7.1, 7.2 and 8.1 of the Agreement and PARAGRAPH 3 of this Amendment. 3. The Agreement is hereby amended to delete EXHIBIT H and all references in SECTION 4.10 and SECTION 6.7(d) to the Holdback Escrow Agreement are hereby deleted in their entirety. 4. Notwithstanding anything to the contrary contained herein, it shall be a condition precedent to Purchaser's Closing obligations that on or before the Closing Date, Purchaser shall receive (i) a lease amendment, executed by Safeway and Seller, in the form attached hereto as SCHEDULE I, (ii) an indemnity agreement, executed by Safeway, in the form attached hereto as SCHEDULE II, (iii) a waiver of first offer in the form attached hereto as SCHEDULE III, and (iv) the 3-14 Audit Letter, executed by Seller, in the form attached hereto as SCHEDULE IV. If any of the conditions precedent set forth in this PARAGRAPH 3 are not satisfied on or before the Closing Date, Seller shall have the right to extend the scheduled Closing Date an additional three (3) business days in order to satisfied the foregoing conditions. If such conditions remain unsatisfied at the expiration of such addition three (3) day period, Purchaser may, as its sole and exclusive remedy, terminate the Agreement, whereupon the Earnest Money shall be returned to Purchaser and neither party shall have any further rights or obligations hereunder other than the Surviving Obligations. 5. In consideration of Purchaser's waiver of all contingencies and conditions precedent to Purchaser's Closing obligations as more particularly set forth in PARAGRAPH 1 above (the "WAIVED MATTERS"), the parties hereto agree that the Purchase Price is hereby reduced by $750,000.00 to $21,266,000.00. SECTION 2.1 of the Agreement is hereby amended to provide that the Purchase Price is $21,266,000.00. Purchaser, for itself and its successors and assigns, hereby specifically acknowledges and agrees that the Purchase Price reduction set forth above constitutes full and final settlement between the parties as to any claims or demands related to the Waived Matters, notwithstanding the fact that the costs associated with the Waived Matters may exceed the Purchase Price reduction set forth above. 6. Purchaser hereby expressly approves the amendment with Play-It-Again Sports, a copy of which is attached hereto as SCHEDULE V. 7. All of the capitalized terms used in this Amendment, unless otherwise defined herein, shall have the same meaning as assigned to such terms in the Agreement. 8. Except as modified and amended as set forth in this Amendment, the Agreement is hereby ratified and confirmed by Seller and Purchaser and shall remain in full force and effect and enforceable in accordance with its terms. 9. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute one agreement. To facilitate execution of this Amendment, the parties may execute and exchange by telephone facsimile counterparts of the signature pages. 10. SECTION 6.1 of the Agreement is hereby amended to provide that the Closing Date is July 26, 2004. SIGNATURE PAGES FOLLOW SELLER: ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation BY: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: /s/ Illegible ------------------------ Name: Illegible --------------------- Title: VP -------------------- PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ Lou Quilici ------------------------ Name: Lou Quilici --------------------- Title: SR VP -------------------- SCHEDULE I FORM OF LEASE AMENDMENT SEE ATTACHED FIRST AMENDMENT TO SHOPPING CENTER LEASE This First Amendment to Shopping Center Lease is made as of the 16th day of July, 2004 by and between SAFEWAY INC., a Delaware corporation ("Tenant") and ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("Landlord"). WHEREAS, Landlord and Tenant are landlord and tenant, respectively, under that certain Shopping Center Lease dated as of July 6, 2001 (the "Lease"). WHEREAS, Landlord and Tenant wish to amend the Lease as provided herein. NOW, THEREFORE, the parties agree as follows: 1. AMENDMENT OF SECTION 8.2.1, MANAGEMENT FEE Section 8.2.1, "Management Fee," is hereby amended in its entirety to read as follows: 8.2.1 MANAGEMENT FEE. CAM Expenses shall include a third-party management fee, which shall be at a commercially reasonable rate, in no event to exceed two percent (2%) of gross rents received by Landlord from the Shopping Center ("MANAGEMENT FEE"); except that the following expenses shall be excluded from such gross rents for purposes of calculating such Management Fee; (1) insurance premiums, (2) Real Property Taxes, and (3) utility payments. Landlord shall not charge as a CAM Expense, nor otherwise be entitled to receive from Tenant, any administrative fee or reimbursement of its overhead costs associated with managing the Shopping Center. Notwithstanding the foregoing, in no event will Tenant's Share of the Management Fee exceed Twelve Thousand Dollars ($12,000) per year. 2. EFFECTIVE DATE; PREVIOUS CAM BILLINGS. The Management Fee amendment provided herein shall be effective commencing August 1, 2004. There shall be no adjustment, reimbursement or additional charge to Tenant for Management Fees in connection with any period of time prior to August 1, 2004. 3. FULL FORCE AND EFFECT. Except as modified herein, all other terms and conditions of the Lease are and shall remain in full force and effect. 1 IN WITNESS WHEREOF, the parties have executed this First Amendment to Lease as of the day and year first above written. SAFEWAY INC. ITW MORTGAGE INVESTMENTS III, (a Delaware corporation) INC. (a Delaware corporation) By By GE Capital Realty Group, Inc. --------------------------------------- a Texas corporation, Its Services Its Assistant Vice President By: ---------------------------- By Its: --------------------------------------- --------------------------- Its Assistant Secretary [ATTACH ACKNOWLEDGMENTS] 2 SCHEDULE II FORM OF INDEMNITY AGREEMENT SEE ATTACHED SCHEDULE III FORM OF WAIVER OF FIRST OFFER SEE ATTACHED [PLACE ON SAFEWAY LETTERHEAD] July ___, 2004 Inland Western Marysville, L.L.C. C/o Inland Real Estate Acquisitions, Inc. 2901 Butterfield Road Oakbrook, Illinois 60523 ITW Mortgage Investments III, Inc. C/o GE Capital Real Estate 1901 Main Street, 7th Floor Irvine, California 92614 RE: Shopping Center Lease dated July 6, 2001 (the "LEASE"), between ITW Mortgage Investments III, Inc. and Safeway, Inc., Seattle Division ("TENANT"), relating to Tenant's store lease at Safeway Plaza at Marysville, Marysville, Snohomish County, Washington (the "SHOPPING CENTER") Ladies and Gentlemen: As you are aware, Tenant has a Right of First Offer (as defined in SECTION 13.2 of the Lease) to lease all or a portion of the Expansion Area (as defined in SECTION 13.1.4 of the Lease) on the terms and conditions set forth in SECTION 13 of the Lease. Subsequent to the execution of the Lease, Landlord leased space in the Expansion Area (Suite 1254-E) to Rent-A-Center without first expressly offering the premises to Tenant. Also, at the date the Lease was executed, certain portions of the Expansion Area were leased. Tenant hereby unconditionally forever waives and releases its Right of First Offer solely with respect to leases in effect in the Expansion Area as of the date of this letter, including, without limitation, Rent-A-Center's leasing of Suite 1254-E. The foregoing waiver by Tenant shall include any and all notices required under SECTION 13 of the Lease or otherwise required in connection with the Right of First Offer with respect to such now existing leases. Except as otherwise expressly set forth herein, in no event shall the foregoing waiver and release of the Right of First Offer be construed to waive the Right of First Offer with respect to the leasing of space in the Expansion Area in the future to any tenant, including any tenantsnow occupying space in the Shopping Space, all of which shall be subject to Tenant's Right of First Offer. (That is, at the expiration of any existing leases in the Expansion Area, any new lease to the same tenant or proposed extension of an existing lease (other than the exercise of options provided in existing leases) shall be subject to the Right of First Offer.) The parties to whom this letter is addressed understand that in no event shall this letter and the waiver and release set forth herein subject Tenant to any liability whatsoever, except that as between Tenant, the parties to whom this letter is addressed and any landlord under the Lease, Tenant shall be estopped from denying the waiver and release made herein and shall not be entitled to make any claim which is inconsistent with the terms of this letter. Very truly yours, SAFEWAY, INC., A Delaware corporation, Seattle Division By: ------------------------------- Name: -------------------------- Title: ------------------------- SCHEDULE IV 3-14 AUDIT LETTER SEE ATTACHED July 22, 2004 KPMG LLP KPMG Plaza 303 East Wacker Drive Chicago, IL 60601 Ladies and Gentlemen: ITW Mortgage Investments III, Inc., as the owner and Seller (herein so called) of Safeway Plaza at Marysville (the "Property") is confirming its understanding that you are performing an audit of the Property's operating statements ("Historical Summary"). In connection with Inland Western Retail Real Estate Trust, Inc.'s preparation of the Historical Summary, Seller will make available to you certain operating statements for the Property for calendar year ended December, 2003. With respect to the financial records that we will make available to you in accordance with Paragraph 1 below, we confirm, to our current actual knowledge without investigation or inquiry (as defined below), the following statements: 1. To Seller's current actual knowledge, Seller will make available to you during the next forty (40) days from the date of this letter: a) All financial records and related data for the Property reasonably requested by you in our possession for calendar year ended December 2003. To Seller's current actual knowledge, the financial records we deliver to you for the Property for calendar year ended December, 2003 are fairly presented on the basis of modified cash receipts and disbursements (i.e. cash basis with accrual for insurance and taxes). 2. Seller has no current, actual knowledge without investigation or inquiry, of the following: a) Instances of fraud involving any member of management or employees who have significant roles in internal control with respect to the Property, nor is Seller aware, to its current actual knowledge without inquiry or investigation, of instances of fraud by others with respect to the Property. b) Written communications from regulatory agencies concerning non-compliance with, or deficiencies in, financial reporting practices received by the undersigned with respect to the Property that could reasonably be expected to have a material effect on the information provided by the Seller to allow Inland Western Retail Real Estate Trust, Inc. to create the Historical Summary for the Property. c) Violations or possible violations of laws or regulations for the Property for which Seller has received actual written notices from any applicable governmental authority, nor is Seller aware, to its current actual knowledge without inquiry or investigation, of any violations of laws or regulations that to Seller's actual knowledge, without inquiry or KPMG LLP July 22, 2004 Page 2 investigation, would have a material adverse impact upon the materials delivered or made available to you by Seller. 3. Terms such as "to our knowledge," "to the best of our knowledge", "to our actual knowledge" or like phrases mean the current actual present and conscious awareness or knowledge of Mike Malloy ("Seller's Representative"), without any duty of inquiry or investigation; provided that so qualifying Seller's knowledge shall in no event give rise to any personal liability on the part of Seller's Representative, or any of them, or any other officer or employee or representative of Seller, on account of any inaccurate statement made by Seller herein. Said terms do not include constructive knowledge, imputed knowledge, or knowledge Seller or such persons do not have but could have obtained through further investigation or inquiry. Very Truly Yours, ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By ----------------------------------------- Name: ------------------------------------- Title: ------------------------------------ SCHEDULE V PLAY-IT-AGAIN SPORTS LEASE AMENDMENT SEE ATTACHED THIRD AMENDMENT TO COMMERCIAL SHOP LEASE THIS THIRD AMENDMENT TO COMMERCIAL SHOP LEASE, (this "AMENDMENT") is entered into as of July 15, 2004, by and between ITW MORTGAGE INVESTMENT III, INC., a Delaware corporation ("LANDLORD"), and GARRE STOKES, an individual d/b/a Play It Again Sports ("TENANT"). WITNESSETH: WHEREAS, SAFEWAY, INC., a Delaware corporation ("ORIGINAL LANDLORD"), as landlord, and Tenant entered into that certain Commercial Shop Lease dated September 9, 1996, as amended by First Amendment to Shopping Center Lease dated September 9, 1996, and as further amended by Second Amendment to Commercial Shop Lease dated in 2001, as guaranteed by Tenant and Heidi Stokes pursuant to that certain Guaranty which is undated (as amended and guaranteed, the "LEASE"), relating to Units A and B, 1246 State Street, Marysville, Washington (the "PREMISES") at Safeway Plaza at Marysville, Snohomish County, Marysville, Washington (the "PROPERTY"). WHEREAS, Landlord is the successor-in-interest to Original Landlord and is the owner of the interest of the "Landlord" under the Lease. WHEREAS, Landlord and Tenant desire to mutually amend and modify the Lease as more particularly set forth herein. NOW, THEREFORE, for and in consideration of the mutual covenants of the parties hereto, and other good and valuable consideration to the parties hereto, the receipt and sufficiency of which is hereby acknowledged and confessed by the parties, and for the benefit which will inure to each party from the execution of this Amendment, Landlord and Tenant hereby agree to amend and modify the Lease as follows, with this Amendment to be effective as of the date above. 1. Landlord has advised Tenant, and Tenant hereby specifically acknowledges that Tenant is delinquent in its rental payments and other charges owed to Landlord under the Lease in the amount of $42,835.18 as of July 12, 2004 (the "DELINQUENCY"). Tenant further acknowledges that Landlord has, among other remedies set forth in the Lease, the right to pursue and collect such delinquent amounts from Tenant and any guarantor under the Lease. Notwithstanding anything to the contrary set forth herein or in the Lease, Landlord has agreed to forever waive and release Tenant and any guarantor under the Lease from any claims Landlord has agreed to forever waive and release Tenant and any guarantor under the Lease from any claims Landlord may have in and to the aforementioned Delinquency solely in the event (i) Tenant timely pays to Landlord (or its successors and assigns) each monthly rental payment and other charges required under the Lease commencing August 1, 2004 through and including August 1, 2005, and (ii) Landlord receives from Tenant, no later than 3:00 p.m., Marysville, Washington time, on Thursday July 15, 2004, an amount equal to $10,142.60 (the "SETTLEMENT AMOUNT") by certified funds, cashier's check or other immediately available funds, at the following address: JSH Properties, Inc. 10655 Northeast 4th Street, Suite 300 Bellevue, Washington 98004 Attention: Diane Edwards If Tenant fails to remain current on its rental payments and other monetary obligations under the Lease through August 1, 2005, or if Landlord does not timely receive the entire Settlement Amount at the address set forth above (NO PARTIAL PAYMENTS WILL BE ACCEPTED), or if the Settlement Amount received is not in certified funds, by cashier's check or other immediately available funds (NO PERSONAL CHECKS WILL BE ACCEPTED), then Landlord shall retain all rights and remedies it may have against Tenant and any guarantor under the Lease at law and in equity, including, without limitation, the rights and remedies of Landlord set forth in the Lease. In no event shall Landlord's acceptance of the Settlement Amount or in rental payments thereafter in any way be construed as a waiver or release of any rental payments or other charges owed to Landlord under the Lease arising from and after August 1, 2004. 2. All of the capitalized terms used in this Amendment, unless otherwise defined herein, shall have the same meaning as assigned to such term in the Lease. 3. The Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute one agreement. To facilitate execution of this Amendment, the parties may executed the exchange by telephone facsimile counterparts of the signature pages. SIGNATURE PAGES FOLLOWS LANDLORD ITW MORTGAGE INVESTMENTS III, INC., a Delaware Corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its Servicer By: /s/ [ILLEGIBLE] ------------------------------- Name: [ILLEGIBLE] -------------------------- Title: VP ------------------------- TENANT: By: /s/ Garre Stokes ----------------------------------- Garre Stokes, an individual GUARANTOR: By: /s/ Garre Stokes ----------------------------------- Garre Stokes, an individual, SS # ###-##-#### By: /s/ Heidi Stokes ----------------------------------- Heidi Stokes, an individual, SS # ###-##-#### FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT THIS FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT, (this "AMENDMENT") is entered into as of July 7, 2004, by and between ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("SELLER") and INLAND REAL ESTATE ACQUISITIONS, INC. ("PURCHASER"). WITNESSETH: WHEREAS, Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated effective May 6, 2004, as amended by letter dated June 2, 2004, by Second Amendment to Purchase and Sale Agreement dated June 18, 2004 (the "SECOND AMENDMENT") and by Third Amendment to Purchase and Sale Agreement dated June 25, 2004 (the "THIRD AMENDMENT") (as amended, the "AGREEMENT"), providing for the purchase and sale of certain real property known as "Safeway Plaza at Marysville," located in Marysville, Snohomish County, Washington, as more particularly described in the Agreement, and other real and personal property described in the Agreement; and WHEREAS, Seller and Purchaser desire to mutually amend and modify the Agreement as more particularly set forth herein. NOW, THEREFORE, for and in consideration of the mutual covenants of he parties hereto, and other good and valuable consideration to the parties hereto, the receipt and sufficiency of which is hereby acknowledged and confessed by the parties, and for the benefit which will inure to each party from the execution of this Amendment, Seller and Purchaser hereby agree to amend and modify the Agreement as follows, with the Amendment to be effective as of the data above. 1. Except as otherwise expressly set forth on REVISED SCHEDULE I attached hereto (the items set forth on REVISED SCHEDULE I are hereby called the "OUTSTANDING ITEMS"), all contingencies and conditions precedent to Purchaser's Closing obligations, including, without limitation, the items set forth on SCHEDULE I of the Second Amendment and SCHEDULE I of the Third Amendment, are hereby deemed satisfied and Purchaser shall have no further right to terminate the agreement in connection therewith. Notwithstanding anything to the contrary contained herein, Purchaser shall have until July 16, 2004, to satisfy itself (in Purchaser's reasonable discretion) that the Outstanding Items have been resolved. If the Outstanding Items are not resolved in Purchaser's reasonable discretion on or before July 16, 2004, Purchaser may, upon prior written notice to Seller, terminate the Agreement, in which event neither party shall have any further rights or obligations thereunder except for the Surviving Obligations. 2. All of the capitalized terms used in this Amendment, unless otherwise defined herein, shall have the same meaning as assigned to such terms in the Agreement. 3. Except as modified and amended as set forth in this Amendment, the Agreement in hereby ratified and confirmed by Seller and Purchaser and shall remain in full force and effect and enforceable in accordance with its terms. 4. This Amendment may be executed to any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute one agreement. To facilitate execution of this Amendment, the parties may execute and exchange by telephone facsimile counterparts of the signature pages. SELLER: ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: /s/ [ILLEGIBLE] ----------------------------- Name: [ILLEGIBLE] -------------------------- Title: VP ------------------------- PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ Robin Rash -------------------------------- Name: Robin Rash ---------------------------- Title: Authorized Agent ---------------------------- REVISED SCHEDULE I 1. Superouts has an exclusive at the Property: The aforementioned exclusive encumbers lots 2 and 3 (the Bank Parcel and KFC Parcel) in addition to the Property. Purchaser will accept and amendment to Superout's lease, replacing the legal description of the "Shopping Center" with the legal description of the Property attached to the Agreement as EXHIBIT A, which legal description is also attached to this Amendment as SCHEDULE II, and upon delivery to Purchaser of such executed amendment, this condition shall be deemed satisfied. If this condition is not satisfied, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. 2. The 1996 Drive Aisle Easement Agreement recorded as Document No. 9604180297 refers to possible groundwater/soils contamination of a portion of lot 5, and contains an indemnification by the easement grantor (Safeway) of the easement grantee if damages are incurred due to this contamination. The indemnification continues until the grantor obtains a no further action letter from the Washington Department of Ecology. Purchaser has requested that Seller either (i) obtain an indemnity of Purchaser by Safeway in connection with such contamination, or (ii) obtain Safeway's consent to an assignment of Safeway's indemnity of the Seller with respect to such contamination. This condition shall be deemed satisfied upon Seller's delivery to Purchaser of either (i) or (ii) above. If this condition is not satisfied, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under this Agreement except for the Surviving Obligations. 3. The Safeway fuel site lease contains, among other things, the following environmental provisions: (i) remediation obligations of Safeway are limited to releases caused by the tenant and only to the extent required by environmental agencies, and (ii) Safeway's obligation to indemnify is limited to third party claims. Purchaser requires that the lease be amended to (A) expand the indemnity to include any contamination (regardless of whether it is in violation of governmental requirements), and (B) to include contamination from any source (rather than being limited to contamination caused by Safeway). Alternatively, Purchaser has requested that it receive evidence that (C) Safeway maintains sufficient insurance coverage in connection with environmental matters at the fuel site and that Purchaser will be named as an additional insured on Safeway's environmental insurance policy (the "SAFEWAY POLICY"), and (D) that Purchaser shall purchase at Closing an environmental insurance policy, naming Purchaser as the insured, and providing environmental insurance coverage in an amount equal to or greater than the deductible under the Safeway Policy (the "INLAND POLICY"), and Seller shall credit the Purchase Price at Closing the amount of the premium plus deductible for the Inland Policy, but in no event shall such credit exceed $150,000.00. If the amount of the premium plus deductible for the Inland Policy exceeds $150,000.00, and Seller does not elect to credit such amount against the Purchase Price at Closing, then the condition precedent set forth in this paragraph 3 shall be deemed to not be satisfied, in which event Purchaser may, as its sole the exclusive remedy, terminate the Agreement upon prior written notice delivered to Seller, and Title Company shall return the Earnest Moneys to Purchaser and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. If, however, the conditions set forth in (A) and (B) are satisfied, or if the conditions in (C) or (D) are satisfied, then the condition set forth in the paragraph 3 shall be deemed satisfied. Notwithstanding anything to the contrary contained in this Paragraph 3, if any condition in this Paragraph 3 is not satisfied, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under this Agreement except for the Surviving Obligations. 4. Safeway has a right of first offer over certain premises adjacent to its store. Rent-A-Center currently occupies space within the area encumbered by the right of first offer. Purchaser has required that Safeway execute a written waiver of its first offer with respect to the premises now occupied by Rent-A-Center. This condition shall be deemed satisfied upon Seller's delivery to Purchaser of a waiver of the first offer with respect to Rent-A-Center's premises, executed by Safeway. If this condition is not satisfied, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. 5. There are declarations of covenants, conditions and restrictions recorded in Document No. 9407110538 and 950525059 of the Official Real Property Records of Snohomish County, Washington (collectively, the "DECLARATIONS"). These Declarations encumber the Property, lots 2 and 3, and the "Finin Parcel" adjacent to the Property to the east along 43rd Avenue N.E. (Alder Avenue). Purchaser has requested that Seller obtain estoppels from each of the owners of such parcels who are entitled to enforce such Declarations. Upon Purchaser's receipt of executed estoppels from the owners lots 2 and 3 and the "Finin Parcel", this condition shall be deemed satisfied. If this condition is not satisfied, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. 6. The Survey indicated there are monitoring wells within the Property (along State Avenue). Purchaser has requested copies of the monitoring reports, if such monitoring reports exist. This condition shall be deemed satisfied upon Purchaser's receipt of such monitoring reports. If this condition is not satisfied, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. 7. The terms and conditions of SECTION 4.10 of the Agreement (the Citifinancial Holdback) remain outstanding. 8. It shall be a condition precedent to Purchaser's Closing obligations that Purchaser receive originals of the executed subordination, non-disturbance and attornment agreements from Party City, Safeway and Maryaville Dayoare. This condition shall be deemed satisfied upon Seller's delivery to Purchaser of such revised subordination, non-disturbance and attornment agreement, executed by the applicable tenant. If this condition is not satisfied, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. 9. Purchaser has requested a separate discussion with Seller's broker regarding the Hollywood Video CPI rent escalation and was incorrectly stated in the offering memorandum. 10. Purchase has requested a separate discussion regarding Subs and More vacating its premises ate the Property. 11. It shall be a condition precedent to Purchaser's Closing obligations that Seller deliver to Purchaser an audit representation letter, addressed to Purchaser's independent accounting firm, setting forth certain matters relating to SECTION 10.21 of the Agreement, in form the substance acceptable to Purchaser and Seller. If this condition is not satisfied for any reason, including Seller unwilling or unable to deliver such letter in its sole discretion, Purchaser may, as its sole and exclusive remedy, receive a return of the Earnest Money and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. SCHEDULE II PARCEL A: LOT 1 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO, 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WAHINGTON. PARCEL B: LOT A OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612165002, IN SNOHOMISH COUNTY, WASHINGTON, BEING ALL OF LOT 4 AND A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL C: LOT B OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612155002, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY. WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON, EXCEPT THAT PORTION THEREOF CONVEYED TO THE CITY OF MARYSVILLE FOR RIGHT OF WAY BY DEED RECORDED UNDER RECORDING NO. 9602270122. PARCEL C1: A NON-EXCLUSIVE EASEMENT APPURTENANT TO A PORTION OF PARCEL C FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS, UTILITIES AND SIGNAGE AS ESTABLISHED IN CROSS-ACCESS AGREEMENT AND GRANT OF EASEMENTS AND RESTRICTIONS RECORDED UNDER RECORDING NO. 9407110538, AND AMENDED UNDER RECORDING NO. 9604180295 ON A PORTION OF LOT B OF BOUNDARY LINE ADJUSTMENT RECORDED UNDER RECORDING NO. 9407115001, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL D: A NON-EXCLUSIVE EASEMENT FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS AND PARKING AS ESTABLISHED BY DECLARATION RECORDED UNDER RECORDING NO. 9505250509 AND AMENDMENT THERETO UNDER RECORDING NO. 9604180294 ON A PORTION OF LOTS 2 AND 3 OF BINDING SITE PLAN RECORDED UNDER RECORDING NO. 9505255003. PARCEL E: A NON-EXCLUSIVE EASEMENT FOR STORM DRAIN AS CREATED BY INSTRUMENT RECORDED UNDER RECORDING NO. 9407110536. THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT, (this "AMENDMENT") is entered into as of June 25, 2004, by and between ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("SELLER") and INLAND REAL ESTATE ACQUISITIONS, INC. WITNESSETH: WHEREAS, Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated effective May 6, 2004, as amended by letter dated June 2, 2004 and by Second Amendment to Purchase and Sale Agreement dated June 18, 2004 (the "SECOND AMENDMENT") (as amended, the "AGREEMENT"), providing for the purchase and sale of certain real property known as "Safeway Plaza at Marysville," located in Marysville, Snohomish County, Washington, as more particularly described in the Agreement, and other real and personal property described in the Agreement; and WHEREAS, Seller and Purchaser desire to mutually amend and modify the Agreement as more particularly set forth herein. NOW, THEREFORE, for and in consideration of the mutual covenants of the parties hereto, and other good and valuable consideration to the parties hereto, the receipt and sufficiency of which is hereby acknowledged and confessed by the parties, and for the benefit which will inure to each party from the execution of this Amendment, Seller and Purchaser hereby agree to amend and modify the Agreement as follows, with the Amendment to be effective as of the date above. 1. Except as otherwise expressly set forth on REVISED SCHEDULE I attached hereto (the items set forth on REVISED SCHEDULE I are hereby called the "OUTSTANDING ITEMS"), all contingencies and conditions precedent to Purchaser's Closing obligations, including, without limitation, the items set forth on SCHEDULE I of the Second Amendment, are hereby deemed satisfied and Purchaser shall have no further right to terminate the Agreement in connection therewith. Notwithstanding anything to the contrary contained herein. Purchaser shall have until July 8, 2004, to satisfy itself (in Purchaser's reasonable discretion) that the Outstanding Items have been resolved. If the Outstanding Items are not resolved in Purchaser's reasonable discretion on or before July 8, 2004, Purchaser may, upon prior written notice to Seller, terminate the Agreement, in which event neither party shall have any further rights or obligations thereunder except for the Surviving Obligations. 2. SECTION 6.1 of the Agreement is hereby amended to provide that the Closing Date shall be July 16, 2004. 3. All of the capitalized terms used in this Amendment, unless otherwise defined herein, shall have the same meaning as assigned to such terms in the Agreement. 4. Except as modified and amended as set forth in this Amendment, the Agreement is hereby ratified and confirmed by Seller and Purchaser and shall remain in full force and effect and enforceable in accordance with its terms. 5. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute one agreement. To facilitate execution of this Amendment, the parties may execute and exchange by telephone facsimile counterparts of the signature pages. SELLER: ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: /s/ Tim L. Campbell ------------------------ Name: Tim L. Campbell ------------------- Title: V.P. ------------------ PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC. an Illinois corporation By: /s/ Mark Youngman -------------------- Name: Mark Youngman -------------- Title: Vice President -------------- REVISED SCHEDULE I 1. The following tenants have exclusives at the Property: Party City, Hollywood Video, Sun Factory, Alderwood Auto Glass, Rent A Center, and Superouts. Several of the aforementioned exclusives encumber lots 2 and 3 (the Bank Parcel and KFC Parcel) in addition to the Property. Purchaser has requested evidence that when lots 2 and 3 were sold, the grantors took subject to these exclusives-so that the occupants of those two lots cannot change their use and violate those tenants' exclusives, thereby putting Inland in default under those leases. Alternatively, Purchaser will accept amendments to each tenant's lease, replacing the legal description of the "Shopping Center" with the legal description of the Property attached to the Agreement as EXHIBIT A, which legal description is also attached to this Amendment as SCHEDULE II 2. The 1996 Drive Aisle Easement Agreement recorded as Document No. 9604180297 refers to possible groundwater/soils contamination of a portion of lot 5, and contains an indemnification by the easement grantor (Safeway) of the easement grantee if damages are incurred due to this contamination. The indemnification continues until the grantor obtains a no further action letter from the Washington Department of Ecology. Purchaser has requested evidence that this no further action letter was obtained and that this indemnification obligation has been terminated. Alternatively, Purchaser has requested that Seller either (i) obtain an indemnity of Purchaser by Safeway in connection with such contamination, or (ii) obtain Safeway's consent to an assignment of Safeway's indemnity of Seller with respect to such contamination. 3. The Safeway fuel site lease contains, among other things, the following environmental provisions: (i) remediation obligations of Safeway are limited to releases caused by the tenant and only to the extent required by environmental agencies, and (ii) Safeway's obligation to indemnity is limited to third party claims. Purchaser requires that the lease be amended to (A) expand the indemnity to include any contamination (regardless of whether it is in violation of governmental requirements), and (B) to include contamination from any source (rather than being limited to contamination caused by Safeway). Alternatively, Purchaser has requested that it receive evidence that (i) Safeway maintains sufficient insurance coverage in connection with environmental matters at the fuel site and that Purchaser will be named as an additional insured on such insurance policy, or (ii) that Purchaser shall purchase at Closing an environmental insurance policy, naming Purchaser as the insured and providing sufficient environmental insurance coverage in connection with the environmental matters at the fuel site, and Seller shall credit the Purchase Price at Closing the amount of the premium plus deductible for such environmental insurance, but in no event shall such credit exceed $1,50,000.00. If the amount of the premium plus deductible for such environmental insurance exceeds $150,000.00, and Seller does not elect to credit such amount against the Purchase Price at Closing, then the condition precedent set forth in this paragraph 3 shall be deemed to not be satisfied, in which event Purchaser may terminate the Agreement upon prior written notice delivered to Seller, and Title Company shall return the Earnest Money to Purchaser and neither party shall have any further rights or obligations under the Agreement except for the Surviving Obligations. 4. Safeway has a right of first offer over certain premises adjacent to its store. Rent-A-Center currently occupies space within the area encumbered by the right of first offer. Purchaser has requested evidence that Safeway was offered the premises now occupied by Rent-A-Center and waived its right of first offer. 5. There are declarations of covenants, conditions and restrictions recorded in Document No. 9407110538 and 950525059 of the Official Real Property Records of Snohomish County, Washington (collectively, the "DECLARATIONS"). These Declarations encumber the Property, lots 2 and 3, and the "Finin Parcel" adjacent to the Property to the east along 43rd Avenue N.E. (Alder Avenue). Purchaser has requested that Seller obtain estoppels from each of the owners of such parcels who are entitled to enforce such Declarations. 6. The Survey indicates there are monitoring wells within the Property (along State Avenue). Purchaser has requested copies of the monitoring reports, if such monitoring reports exist. 8. The terms and conditions of SECTION 4.10 of the Agreement (the Citifinancial Holdback) remain outstanding. 9. Purchaser has requested receipt of a subordination, non-disturbance and attornment agreement from Marysville Daycare and revised subordination, non-disturbance and attornment agreements from Party City and Safeway, naming Inland Western Marysville, L.L.C., a Delaware limited liability company, as the landlord under the applicable lease. 13. Purchaser has requested a separate discussion with Seller's broker regarding the Hollywood Video CPI rent escalation that was incorrectly stated in the offering memorandum. 14. Purchaser has requested a separate discussion regarding Subs and More vacating its premises at the Property, SCHEDULE II PARCEL A: LOT 1 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M.. IN SNOHOMISH COUNTY, WASHINGTON. PARCEL B: LOT A OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612165002, IN SNOHOMISH COUNTY, WASHINGTON, BEING ALL OF LOT 4 AND A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL C: LOT B OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612165002, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON; EXCEPT THAT PORTION THEREOF CONVEYED TO THE CITY OF MARYSVILLE FOR RIGHT OF WAY BY DEED RECORDED UNDER RECORDING NO. 9602270122. PARCEL Cl: A NON-EXCLUSIVE EASEMENT APPURTENANT TO A PORTION OF PARCEL C FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS, UTILITIES AND SIGNAGE AS ESTABLISHED IN CROSS-ACCESS AGREEMENT AND GRANT OF EASEMENTS AND RESTRICTIONS RECORDED UNDER RECORDING NO. 9407110538, AND AMENDED UNDER RECORDING NO. 9604180295 ON A PORTION OF LOT B OF BOUNDARY LINE ADJUSTMENT RECORDED UNDER RECORDING NO. 9407115001, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL D: A NON-EXCLUSIVE EASEMENT FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS AND PARKING AS ESTABLISHED BY DECLARATION RECORDED UNDER RECORDING NO. 9505250509 AND AMENDMENT THERETO UNDER RECORDING NO. 9604180294 ON A PORTION OF LOTS 2 AND 3 OF BINDING SITE PLAN RECORDED UNDER RECORDING NO. 9505255003. PARCEL E: A NON-EXCLUSIVE EASEMENT FOR STORM DRAIN AS CREATED BY INSTRUMENT RECORDED UNDER RECORDING NO. 9407110536. SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT, (this "AMENDMENT") is entered into as of June 18, 2004, by and between ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("SELLER") and INLAND REAL ESTATE ACQUISITIONS, INC. ("PURCHASER"). WITNESSETH: WHEREAS, Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated effective May 6, 2004, as amended by letter dated June 2, 2004 (as amended, the "AGREEMENT"), providing for the purchase and sale of certain real property known as "Safeway Plaza at Marysville," located in Marysville, Snohomish County, Washington, as more particularly described in the Agreement, and other real and personal property described in the Agreement; and WHEREAS, Seller and Purchaser desire to mutually amend and modify the Agreement as more particularly set forth herein. NOW, THEREFORE, for and in consideration of the mutual covenants of the parties hereto, and other good and valuable consideration to the parties hereto, the receipt and sufficiency of which is hereby acknowledged and confessed by the parties, and for the benefit which will inure to each party from the execution of this Amendment, Seller and Purchaser hereby agree to amend and modify the Agreement as follows, with the Amendment to be effective as of the date above. 1. Except as otherwise expressly set forth on SCHEDULE I attached hereto (the items set forth on SCHEDULE I an hereby called the "OUTSTANDING ITEMS"), all contingencies and conditions precedent to Purchaser's Closing obligations are hereby deemed satisfied and Purchaser shall have no further right to terminate the Agreement in connection therewith. Notwithstanding anything to the contrary contained herein, Purchaser shall have until June 25, 2004, to satisfy itself (in Purchaser's reasonable discretion) that the Outstanding Items have been resolved. If the Outstanding Items are not resolved in Purchaser's reasonable discretion on or before June 25, 2004. Purchaser may, upon prior written notice to Seller, terminate the Agreement, in which event neither party shall have any further rights or obligations thereunder except for the Surviving Obligations. 2. SECTION 6.1 of the Agreement is hereby amended to provide that the Closing Date shall be June 25, 2004. 3. All of the capitalized terms used in this Amendment, unless otherwise defined herein, shall have the same meaning as assigned to such terms in the Agreement. 4. Except as modified and amended as set forth in this Amendment, the Agreement is hereby ratified and confirmed by Seller and Purchaser and shall remain in full force and effect and enforceable in accordance with its terms. 5. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute one agreement. To facilitate execution of this Amendment, the parties may execute and exchange by telephone facsimile counterparts of the signature pages. SIGNATURE PAGES FOLLOWS PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ Mark Youngman ------------------- Name: Mark Youngman ------------- Title: Vice President -------------- SELLER: ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: /s/ [ILLEGIBLE] ------------------------ Name: [ILLEGIBLE] ------------------- Title: VP ------------------ SCHEDULE I 1. The following tenants have exclusives at the Property: Party City, Hollywood Video, Sun Factory, Alderwood Auto Glass, Rent A Center, and Supercuts. Several of the aforementioned exclusives encumber lots 2 and 3 (the Bank Parcel and KFC Parcel) in addition to the Property. Purchaser has requested evidence that when lots 2 and 3 were sold, the grantors took subject to these exclusives-so that the occupants of those two lots cannot change their use and violate those tenants' exclusives, thereby putting Inland in default under those leases. 2. The 1996 Drive Aisle Easement Agreement recorded as Document No. 9604180297 refers to possible groundwater/soils contamination of a portion of lot 5, and contains an indemnification by the easement grantor (Safeway) of the easement grantee if damages are incurred due to this contamination. The indemnification continues until the grantor obtains a no further action letter from the Washington Department of Ecology. Purchaser has requested evidence that this no further action letter was obtained and that this indemnification obligation has been terminated. Alternatively, Purchaser has requested that Seller either (i) obtain an indemnity of Purchaser by Safeway in connection with such contamination, or (ii) obtain Safeway's consent to an assignment of Safeway's indemnity of Seller with respect to such contamination. 3. The Safeway fuel site lease contains, among other things, the following environmental provisions: (i) remediation obligations of Safeway are limited to releases caused by the tenant and only to the extent required by environmental agencies, and (ii) Safeway's obligation to indemnify is limited to third party claims. Purchaser requires that the lease be amended to (A) expand, the indemnity to include any contamination (regardless of whether it is in violation of governmental requirements), and (B) to include contamination from any source (rather than being limited to contamination caused by Safeway). Alternatively, Purchaser has requested that it receive evidence that Safeway maintains sufficient insurance coverage in connection with environmental matters at the fuel site and that Purchaser will be named as an additional insured on such insurance policy. 4. Safeway has a right of first offer over certain premises adjacent to its store. Rent-A-Center currently occupies space within the area encumbered by the right of first offer. Purchaser has requested evidence that Safeway was offered the premises now occupied by Rent-A-Center and waived its right of first offer. 5. There are declarations of covenants, conditions and restrictions recorded in Document No. 9407110538 and 950525059 of the Official Real Property Records of Snohomish County, Washington (collectively, the "DECLARATIONS"). These Declarations encumber the Property, lots 2 and 3, end the "Finin Parcel" adjacent to the Property to the east along 43rd Avenue N.E. (Alder Avenue). Purchaser has requested that Seller obtain estoppels from each of the owners of such parcels who are entitled to enforce such Declarations. 6. Items 16 and 17 of Schedule B, Section 2, of the Title Commitment reflect items set forth on older surveys of the Property. Purchaser has requested that these items be updated based on the new Survey of the Property previously delivered to Purchaser. 7. The Survey indicates there are monitoring wells within the Property (along State Avenue). Purchaser has requested copies of the monitoring reports, if such monitoring reports exist. 8. The terms and conditions of SECTION 4.10 of the Agreement (the Citifinancial Holdback) remain outstanding. 9. Purchaser has requested copies of all warranties for the Property in Seller's possession. 10. Purchaser has requested a copy of page 24 of the lease with Hollywood Video. 11. Purchaser has requested a copy of EXHIBIT A-1 and EXHIBIT C to the Safeway fuel site lease. 12. Purchaser has requested receipt of subordination, non-disturbance and attornment agreements from Hollywood Video, Party City, Daycare and Safeway. 13. Purchaser has requested a separate discussion with Seller's broker regarding the Hollywood Video CPI rent escalation that was incorrectly stated in the offering memorandum. 14. Purchaser has requested a separate discussion regarding Subs and More vacating its premises at the Property. 15. Purchaser has requested a copy of tenant sales for Hollywood Video. This document does not exist. 16. Purchaser has requested copies of recent real estate tax bills and evidence of payment of such taxes. 17. Purchaser has requested a Tenant Delinquency Report for the Property. EX-10.307 18 a2143310zex-10_307.txt EX-10.307 Exhibit 10.307 PURCHASE AND SALE AGREEMENT (SAFEWAY PLAZA AT MARYSVILLE) THIS PURCHASE AND SALE AGREEMENT (this "AGREEMENT") is made by and between ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("SELLER"), and INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("PURCHASER"). In consideration of the mutual covenants and representations herein contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows: 1. PURCHASE AND SALE 1.1 PURCHASE AND SALE. Subject to the terms and conditions of this Agreement, Seller hereby agrees to sell and convey to Purchaser, and Purchaser hereby agrees to purchase from Seller, all of the Seller's assignable and transferable right, title and interest in and to the following described property (herein collectively called the "PROPERTY"): (a) LAND. That certain tract of land (the "LAND") located in the City of Marysville, Snohomish County, Washington, being more particularly described on EXHIBIT A attached hereto and made a part hereof. (b) EASEMENTS. All easements, if any, benefiting the Land or the Improvements (as defined in SECTION 1.1(d) of this Agreement). (c) RIGHTS AND APPURTENANCES. All rights and appurtenances pertaining to the Land, including any right, title and interest of Seller in and to adjacent streets, alleys or rights-of-way. (d) IMPROVEMENTS. All improvements and related amenities known as "Safeway Plaza at Marysville" (the "IMPROVEMENTS") in and on the Land, and having an address of 1218 State Avenue, Marysville, Washington. (e) LEASES. All leases (the "LEASES") of space in the Property, concession leases, and all tenant security deposits held by Seller on the Closing Date (as defined in SECTION 6.1 of this Agreement). (f) TANGIBLE PERSONAL PROPERTY. All appliances, fixtures, equipment, machinery, furniture, carpet, drapes and other personal property, if any, owned by Seller and located on or about the Land and the Improvements (the "TANGIBLE PERSONAL PROPERTY"). (g) CONTRACTS. To the extent assignable without the consent of third parties, the Contracts (as defined in SECTION 4.1(c) of this Agreement). (h) INTANGIBLE PROPERTY. To the extent assignable without the consent of third parties, all intangible property (the "INTANGIBLE PROPERTY"), if any, owned by Seller and pertaining to the Land, the Improvements, or the Tangible Personal Property including, without limitation, all Page 1 logos, designs, trade names, if any, owned and used by Seller in connection with the ownership and operation of the Property or any part thereof, together with the goodwill of the business appurtenant thereto, including, without limitation, the name "Safeway Plaza at Marysville", and any other name or names by which the Property is commonly known, transferable utility contracts, transferable telephone exchange numbers, plans and specifications, engineering plans and studies, floor plans and landscape plans. (i) LICENSES. To the extent assignable without the consent of third parties, all licenses, franchises, certifications, authorizations, approvals and permits, if any, issued or approved by any governmental authority and relating to Seller's operation, ownership and maintenance of the Property or any part thereof ("LICENSES"). 1.2 INDEPENDENT CONSIDERATION. Upon execution of this Agreement, Purchaser has delivered to Seller, and Seller acknowledges receipt of, FIFTY AND NO/100 DOLLARS ($50.00) (the "INDEPENDENT CONSIDERATION"), as consideration for Purchaser's right to purchase the Property and for Seller's execution, delivery and performance of this Agreement. The Independent Consideration is in addition to and independent of any other consideration or payment provided for in this Agreement, is non-refundable and shall be retained by Seller notwithstanding any other provision of this Agreement. 2. PURCHASE PRICE 2.1 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for the Property shall be TWENTY-TWO MILLION SIXTEEN THOUSAND AND NO/100 DOLLARS ($22,016,000.00) and shall be paid in cash by Purchaser to Seller at the Closing (as defined in SECTION 6.1 of this Agreement) by wire transfer in accordance with wire transfer instructions to be provided by Seller. 3. EARNEST MONEY 3.1 EARNEST MONEY. Purchaser shall deliver to the Title Company (as defined in SECTION 6.1 of this Agreement) within two (2) business days after the date a fully-executed copy of this Agreement is delivered to the Title Company by Seller, by wire transfer in accordance with wire transfer instructions provided by the Title Company, the amount of TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) (which amount, together with all interest accrued thereon, if any, is herein called the "EARNEST MONEY") to be invested by the Title Company in an interest-bearing account if and in such manner as Purchaser shall direct. Seller shall have the option of terminating this Agreement if the full amount of Earnest Money is not delivered to the Title Company as prescribed in this SECTION 3.1. Title Company shall deliver written acknowledgment to Purchaser and Seller that the executed copy of this Agreement and the Earnest Money have been received by and are being held by the Title Company pursuant to the terms of this Agreement. If the sale of the Property is consummated under this Agreement, the Earnest Money shall be paid to Seller and applied to the payment of the Purchase Price at Closing. If Purchaser terminates this Agreement in accordance with any right to terminate granted to Purchaser by the terms of this Agreement, the Earnest Money shall be returned to Purchaser, and no party hereto shall have any further obligations under this Agreement except for such obligations which by their terms expressly survive the termination of this Agreement (the "SURVIVING OBLIGATIONS"). Purchaser agrees to deliver to Seller copies of all Reports (as defined in SECTION 4.2 of this Agreement) at the time the notice to terminate this Agreement is given. The obligations to deliver the Reports shall survive the termination of this Agreement. Page 2 4. CONDITIONS TO CLOSING 4.1 SELLER'S OBLIGATIONS. Seller shall deliver to Purchaser, within ten (10) days after the Effective Date (as defined in SECTION 10.13 of this Agreement) hereof, the following: (a) TITLE COMMITMENT. Commitment for Owner's Policy of Tide Insurance (the "TITLE COMMITMENT") with respect to the Property, issued by the Title Company, and legible copies of any restrictive covenants, easements, and other items listed as title exceptions therein, in the full amount of the Purchase Price, covering title to the Land and Improvements on or after the date hereof, showing Seller as owner of the Land and Improvements in fee simple. (b) SURVEY. Seller shall deliver to Purchaser Seller's existing survey of the Property dated July 2, 2001, prepared by William A. Hickok of Bush, Roed & Hitchings, Inc., Job No. 2000021.04 (the "SURVEY"). Purchaser, at Purchaser's sole cost and expense, shall update the Survey (and have it re-certified to include Seller, Purchaser, and Purchaser's lender, if any, and such other parties as Purchaser shall designate) and deliver a copy of such updated Survey to Seller and Title Company on or before five (5) business days prior to the expiration of the Approval Period (as defined in SECTION 4.1.1 of this Agreement). (c) CONTRACTS. Copies of all contracts pertaining to the Property, and not cancelable on thirty (30) days notice without penalty or premium (the "CONTRACTS"), including, but not limited to, service contracts, equipment leases and maintenance contracts, to the extent in the possession of GE Capital Realty Group, Inc. ("GECRG"). (d) RENT ROLL. A rent roll describing all Leases of space in the Improvements as of the last month GECRG has received such information from the property manager of the Property. Seller's failure to deliver to Purchaser items (a) through (d) above within ten (10) days after the Effective Date shall not result in the extension of the Approval Period, and Purchaser's sole remedy therefor shall be Purchaser's right to terminate this Agreement by delivering written notice thereof to Seller within twenty (20) days after the Effective Date hereof and receive a return of the Earnest Money, in which event neither party shall have any obligation hereunder except for the Surviving Obligations. 4.1.1. PURCHASER'S SATISFACTION. During the period commencing on the Effective Date and ending on June 3, 2004 (the "APPROVAL PERIOD"), the following matters shall be conditions precedent to Purchaser's obligations under this Agreement: (a) Purchaser's being satisfied in Purchaser's sole discretion that the Property is suitable for Purchaser's intended uses; and (b) Purchaser's being satisfied, in Purchaser's sole discretion, with the items listed above in SECTION 4.1(a) through SECTION 4.1(d) above, including the information reflected therein. If Purchaser is not satisfied in its sole discretion as to the suitability of the Property for Purchaser's intended uses or any of the items listed above in SECTION 4.1(a) through SECTION 4.1(d) above, Purchaser may give notice thereof to Seller on or before the expiration of the Approval Period, whereupon this Agreement shall terminate, and upon such termination, Purchaser shall be entitled to Page 3 the return of the Earnest Money, and neither party shall have any further obligation hereunder except for the Surviving Obligations. If Purchaser fails to give notice to Seller on or before the expiration of the Approval Period that Purchaser is not satisfied with the suitability of the Property or any of the items listed in SECTION 4.1(a) through SECTION 4.1(d) above, Purchaser shall be deemed to be satisfied with such matters and the conditions precedent in this SECTION 4.1.1 shall be deemed to be satisfied. 4.1.2 TITLE COMMITMENT AND SURVEY. (a) In the event (i) the Survey (including any update of the Survey) shows any easement, right-of-way, encroachment, conflict, protrusion or other matter affecting the Property that is unacceptable to Purchaser, or (ii) any exceptions appear in the Title Commitment that are unacceptable to Purchaser, Purchaser shall, within ten (10) days after receipt of the Survey, the Title Commitment and copies of all documents referred to as exceptions in the Title Commitment, notify Seller in writing of such facts and the reasons therefor ("PURCHASER'S OBJECTIONS"). Upon the expiration of said ten (10) day period, except for Purchaser's Objections if same are timely raised, Purchaser shall be deemed to have accepted the form and substance of the Survey, all matters shown thereon, all exceptions to the Title Commitment and other items shown thereon. If Purchaser shall deliver Purchaser's Objections as aforesaid, Seller shall, within five (5) days after receipt of the same, notify Purchaser in writing whether Seller intends to attempt to either (a) cause any of Purchaser's Objections to be removed, (b) have the Title Company issue a title endorsement insuring against damage and loss caused by any of Purchaser's Objections (which endorsement shall be subject to the review and approval of Purchaser), or (c) take no further action regarding such Purchaser's Objections in which event, subject to the immediately following sentence, such Purchaser's Objections shall become a Permitted Encumbrances (as defined below). If Seller elects, or is deemed to have elected, item (c) above with respect to any or all of Purchaser's Objections, or if Seller is unable to remove Purchaser's Objection or cause Title Company to issue an endorsement notwithstanding Seller's agreement to attempt to cure such objection, then Purchaser shall have the right, by delivering notice to Seller within the earlier to occur of (i) the Closing, or (ii) ten (10) days after Seller delivers (or is deemed to have delivered) written notice to Purchaser that Seller intends to take no further action with respect to Purchaser's Objections, to either (i) terminate this Agreement, in which event the Earnest Money shall be immediately returned to Purchaser and neither party shall have any obligations hereunder other than the Surviving Obligations, or (ii) waive its objection and accept title to the Property subject to such Purchaser's Objection(s). Seller's failure to notify Purchaser within the aforementioned five (5) day period of which foregoing course of action Seller elects to take with respect to Purchaser's Objections shall be deemed to be Seller's election of item (c) above. Except as set forth below in SECTION 4.1.3 of this Agreement, Seller shall have no obligations to take any steps or bring any action or proceeding or otherwise to incur any effort or expense whatsoever to eliminate or modify any of the Purchaser's Objections. (b) The term "PERMITTED ENCUMBRANCES" as used herein includes: (i) any easement, right of way, encroachment, conflict, discrepancy, overlapping of improvements, protrusion, lien, encumbrance, restriction, condition, covenant, exception or other matter with respect to the Property that is reflected or addressed on the Survey or the Title Commitment to which Purchaser fails to timely object pursuant to Section 4.1.2(a) of this Agreement; (ii) any Purchaser's Objection that remains uncured, for whatever reason, at the earlier to occur of (A) Closing hereunder or (B) ten (10) days after Seller notifies Purchaser that Seller is unwilling or unable to cure or modify Purchaser's Objections to the reasonable satisfaction of Purchaser; and (iii) the rights and interests of parties claiming under the Leases described on the rent roll Page 4 delivered to Purchaser pursuant to SECTION 4.1(d) and new leases executed after the Effective Date pursuant to SECTION 9.1(b) of this Agreement. 4.1.3 LIMITATIONS OF SELLER'S OBLIGATIONS. Notwithstanding anything contained herein to the contrary, Seller shall have no obligation to take any steps, bring any action or proceeding or incur any effort or expense whatsoever to eliminate, modify or cure any objection Purchaser may have pursuant to SECTION 4.1.1, SECTION 4.1.2 or SECTION 4.2, except Seller at its sole cost and expense on or before the Closing, shall remove of record (or bond around in a manner reasonably satisfactory to Title Company) (a) any mortgage, deed of trust, assignment of leases and rents (or the equivalent), or financing statement executed by Seller, (b) any mechanic's lien for work contracted for by Seller, and (c) any judgment against Seller for sum certain, U.S. tax lien or real property tax lien (except for any taxes not yet delinquent) of record affecting Seller's interest in the Land, which neither arises from nor was caused by any work, services or labor performed by, or any materials furnished to, or any other act or omission of, Purchaser or any of Purchaser's representatives, the cost of which removal (as it applies only to the matters described in (b) and (c) above) shall not in the aggregate exceed $15,000. 4.2 INSPECTION. At all times after the date of this Agreement, Purchaser (and its consultants, contractors, attorneys, advisers, employees, directors, officers, lenders and prospective lenders, appraisers, agents and representatives (collectively, the "PURCHASER PARTIES")) shall have the right (subject to applicable laws, recorded restrictions and the rights of tenants under the Leases and except as except as expressly provided herein) to enter upon the Property from time to time to perform and conduct any and all tests, inspections, reviews, analyses, studies and appraisals relating to the Property as Purchaser deems necessary or appropriate in connection with its potential acquisition of the Property. Purchaser shall have the right to interview the tenants of the Property only in the event Seller's Agent (as defined in SECTION 10.2 of this Agreement) is also present at such interview and Purchaser gives Seller at least forty-eight (48) hours prior written notice of such interview. Notwithstanding the foregoing, Purchaser must obtain Seller's prior written approval of the scope and method of any environmental testing or investigation (other than a non-intrusive Phase I environmental inspection) and any inspection which would materially alter the physical condition of the Property, prior to Purchaser's commencement of such inspections or testing. In any event, Seller and its representatives, agents, and/or contractors shall have the right to be present during any such testing, investigation, or inspection. If any test, inspection, review or analysis conducted by Purchaser reveals any fact or condition unacceptable to Purchaser, in its sole and absolute discretion, Purchaser shall notify Seller in writing prior to the expiration of the Approval Period of such unacceptable fact or condition and Seller shall have the right (without any obligation to do so) to elect to correct same by the Closing Date, by so notifying Purchaser of such election within two (2) days following Purchaser's notification. If Seller elects to correct such unacceptable fact or condition by the Closing Date, or elects but then fails to correct such unacceptable fact or condition by the Closing Date, Purchaser may terminate this Agreement in which event the Earnest Money will be returned to Purchaser, and neither party shall have any further right or obligation hereunder other than the Surviving Obligations. If Purchaser does not give such notification to Seller in writing prior to the expiration of the Approval Period, the said inspection of the Property shall be deemed satisfactory to Purchaser and Purchaser shall be deemed to have agreed to assume all obligations from and after the date of Closing with respect to the Leases and the Contracts. All information provided by Seller to Purchaser or obtained by Purchaser from third parties relating to the Property in the course of Purchaser's review, including, without limitation, any environmental assessment or audit (collectively, the "REPORTS") shall be treated as confidential information by Purchaser and Purchaser shall instruct all of its employees, agents, representatives and contractors as to the confidentiality of all such information. Purchaser shall restore the Property to its condition existing immediately prior to Purchaser's physical inspection thereof, and Purchaser shall be liable for all damage or injury to any person or property resulting from, relating to or arising out of any such physical inspection, whether occasioned by the acts Page 5 of Purchaser or any of its employees, agents, representatives or contractors, and Purchaser shall indemnify and hold harmless Seller and its agents, employees, officers, directors, affiliates and asset managers from any liability resulting therefrom. This indemnification by Purchaser shall survive the Closing or the termination of this Agreement, as applicable. 4.3 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and warrants to Seller that (a) Purchaser is a corporation, duly organized and in good standing under the laws of the State of Illinois and has the power to enter into this Agreement and to execute and deliver this Agreement and to perform all duties and obligations imposed upon it hereunder, and Purchaser has obtained all necessary partnership and corporate authorizations required in connection with the execution, delivery and performance contemplated by this Agreement and has obtained the consent of all entities and parties necessary to bind Purchaser to this Agreement, and (b) neither the execution nor the delivery of this Agreement, nor the consummation of the purchase and sale contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement conflict with or will result in the breach of any of the terms, conditions, or provisions of any agreement or instrument to which Purchaser, or any partner or related entity or affiliate of Purchaser, is a party or by which Purchaser, any partner or related entity or affiliate of Purchaser, or any of Purchaser's assets is bound, and (c) neither Purchaser nor any partner, related entity or affiliate of Purchaser is in any way affiliated with Seller, GE Capital Realty Group, Inc., General Electric Capital Corporation, General Electric Realty Advisors, Inc., General Electric Company or any affiliate of General Electric Company, and (d) that, with respect to each source of funds to be used by it to purchase the Property (respectively, the "SOURCE"), at least one of the following statements shall be accurate as of the Closing Date: (i) the Source does not include the assets of (A) an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA, or (B) a "plan" as defined in Section 4975(a) of the Internal Revenue Code of 1986, as amended ("CODE"), or (ii) the Source includes the assets of (A) an "employee benefit plan" as defined in Section 3(3) of ERISA or (B) a "plan" as defined in Section 4975 of the Code (each of which has been identified to the Seller in writing pursuant to this SECTION 4.3 at least ten (10) business days prior to the Closing Date), but the use of such Source to purchase the Property will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. Purchaser further represents, warrants and covenants to Seller as follows: 4.3.1 COMPLIANCE WITH INTERNATIONAL TRADE CONTROL LAWS AND OFAC REGULATIONS. (a) Purchaser is not now nor shall it be at any time until Closing an individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision thereof, or any other form of entity (collectively, a "Person") with whom a United States citizen, entity organized under the laws of the United States or its territories or entity having its principal place of business within the United States or any of its territories (collectively, a "U.S. PERSON"), is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under United States law, regulation, executive orders and lists published by the Office of Foreign Assets Control, Department of the Treasury ("OFAC") (including those executive orders and lists published by OFAC with respect to Persons that have been designated by executive order or by the sanction regulations of OFAC as Persons with whom U.S. Persons may not transact business or must limit their interactions to types approved by OFAC ["SPECIALLY DESIGNATED NATIONALS AND BLOCKED PERSONS"]) or otherwise, (b) Neither Purchaser nor any Person who owns a direct interest in Purchaser (collectively, a "PURCHASER PARTY") is now nor shall be at any time until Closing a Person with Page 6 whom a U.S. Person, including a United States Financial Institution as defined in 31 U.S.C. 5312, as periodically amended ("FINANCIAL INSTITUTION"), is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under United States law, regulation, executive orders and lists published by the OFAC (including those executive orders and lists published by OFAC with respect to Specially Designated Nationals and Blocked Persons) or otherwise. 4.3.2 PURCHASER'S FUNDS. (a) Purchaser has taken, and shall continue to take until Closing, such measures as are required by law to assure that the funds used to pay to Seller the Purchase Price are derived (i) from transactions that do not violate United States law nor, to the extent such funds originate outside the United States, do not violate the laws of the jurisdiction in which they originated; and (ii) from permissible sources under United States law and to the extent such funds originate outside the United States, under the laws of the jurisdiction in which they originated. (b) To the best of Purchaser's knowledge after making due inquiry, neither Purchaser nor any Purchaser Party, nor any Person providing funds to Purchaser (i) is under investigation by any governmental authority for, or has been charged with, or convicted of, money laundering, drug trafficking, terrorist related activities, any crimes which in the United States would be predicate crimes to money laundering, or any violation of any Anti Money Laundering Laws; (ii) has been assessed civil or criminal penalties under any Anti-Money Laundering Laws (as defined herein); or (iii) has had any of its funds seized or forfeited in any action under any Anti Money Laundering Laws. For purposes of this SUBSECTION (b), the term "ANTI-MONEY LAUNDERING LAWS" shall mean laws, regulations and sanctions, state and federal, criminal and civil, that (1) limit the use of and/or seek the forfeiture of proceeds from illegal transactions; (2) limit commercial transactions with designated countries or individuals believed to be terrorists, narcotics dealers or otherwise engaged in activities contrary to the interests of the United States; (3) require identification and documentation of the parties with whom a Financial Institution conducts business; or (4) are designed to disrupt the flow of funds to terrorist organizations. Such laws, regulations and sanctions shall be deemed to include the USA PATRIOT Act of 2001, Pub. L. No. 107-56 (the "PATRIOT ACT"), the Bank Secrecy Act, 31 U.S.C, Section 5311 et. seq., the Trading with the Enemy Act, 50 U.S.C, App. Section 1 et. seq., the International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et. seq., and the sanction regulations promulgated pursuant thereto by the OFAC, as well as laws relating to prevention and detection of money laundering in 18 U.S.C. Sections 1956 and 1957. 4.3.3 PURCHASER COMPLIANCE WITH PATRIOT ACT. Purchaser is in compliance with any and all applicable provisions of the Patriot Act. 4.3.4 COOPERATION WITH SELLER. After the Closing Date, Purchaser agrees to cooperate with Seller, and to cause each Purchaser Party to cooperate with Seller, in providing such additional information and documentation on Purchaser's and each Purchaser Party's legal or beneficial ownership, policies, procedures and sources of funds as Seller deems necessary or prudent to enable Seller to comply with Anti Money Laundering Laws as now in existence or hereafter amended. The Purchaser's representations and warranties set forth in this SECTION 4.3 shall survive the Closing or termination of this Agreement. Purchaser's representations and warranties contained herein must be true and correct through the Closing Date, and Purchaser's failure to notify Seller prior to the Closing Date of any inaccuracies shall be a default by Purchaser under this Agreement. Page 7 4.4 SELLER'S AFFIRMATIVE COVENANTS. Seller covenants to Purchaser that: 4.4.1 Seller, at Seller's sole cost and expense, shall maintain or cause to be maintained the Property in substantially its condition as of the Effective Date, ordinary wear and tear and casualty and condemnation excepted. 4.4.2 From the Effective Date to the Closing Date or earlier termination of this Agreement, Seller shall maintain or cause to be maintained in full force and effect its existing or comparable insurance upon and in respect to the Property. 4.4.3 From the Effective Date to the Closing Date or earlier termination of this Agreement, Seller shall operate and manage the Property in the same manner as it has been operated and managed heretofore. 4.5 SELLER'S REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. Seller hereby represents and warrants to Purchaser on and as of the Effective Date and on and as of the Closing Date as follows: 4.5.1 To Seller's knowledge (as defined in SECTION 4.6 of this Agreement), except for Seller and the tenants under the Leases, there are no persons in possession or occupancy of the Property or any part thereof, nor, to Seller's knowledge, are there any persons who have any possessory rights in respect to the Property or any part thereof. To Seller's knowledge, no person or party has or has been granted any right or option to purchase or acquire the Property or any portion thereof, except as disclosed in the public records or in the tenant estoppels or in the Leases. 4.5.2 Seller has full capacity, right, power and authority to execute, deliver and perform this Agreement and all documents to be executed by Seller pursuant hereto, and all required action and approvals therefore have been duly taken and obtained. The individuals signing this Agreement and all other documents executed or to be executed pursuant hereto on behalf of Seller are and shall be duly authorized to sign the same on Seller's behalf and to bind Seller thereto. The transaction contemplated hereby will not result in a breach of or constitute a default or permit acceleration of maturity under any indenture, mortgage, deed of trust, loan agreement or other agreement to which Seller or the Property is subject or by which Seller or the Property is bound. Neither the entering into of this Agreement nor the conveyance of the Property by Seller will constitute or result in a violation or breach by Seller of any judgment, order, writ, injunction or decree issued against or imposed upon it, or will result in a violation by Seller of any applicable law, order, rule or regulation of any governmental authority. To Seller's knowledge, there is no action, suit, litigation, proceeding or investigation pending in any court or before or by any federal, district, county, or municipal department, commission, board, bureau, agency or other governmental instrumentality, against Seller or the Property or to Seller's knowledge, threatened against Seller or the Property which (a) would prevent the conveyance of the Property by Seller, (b) would become a cloud on the title to the Property or any portion thereof or which questions the validity or enforceability of this Agreement or any action taken by Seller pursuant to this Agreement, or (c) materially and adversely affects the Property. To Seller's knowledge, no approval, consent, order or authorization of, or designation, registration or filing (other than for recording purposes) with any governmental authority is required in connection with the due and valid execution and delivery of this Agreement by Seller or Seller's performance under this Agreement. No bankruptcy, insolvency, rearrangement or similar actions or proceedings, whether voluntary or involuntary, are pending or threatened against Seller, nor has Seller any intention of filing or commencing any such action or proceeding, and Seller has not made a general assignment for the benefit of creditors. Page 8 4.5.3 To Seller's knowledge, there are no claims, causes of action or other litigation or proceedings pending or, to Seller's knowledge, threatened in respect to the ownership or operation of the Property or any part thereof (including, without limitation, disputes with tenants, mortgagees, governmental authorities, utilities, contractors, adjoining land owners and suppliers of goods or services) which would have a material, adverse effect on Seller's ability to consummate the transactions contemplated by this Agreement. 4.5.4 To Seller's knowledge, Seller has not received any written notice from a governmental authority of any violations of applicable law in respect to the Property which have not been corrected. 4.5.5 To Seller's knowledge, there is no existing, pending or contemplated, threatened or anticipated (i) condemnation of any part of the Property, (ii) widening, change of grade or limitation on use of streets abutting the Property, (iii) special tax or assessment to be levied against the Property, (iv) change in the zoning classification of the Property, or (v) change in the tax assessment of the Property. 4.5.6 To Seller's knowledge, there are no employment, employee benefit or collective bargaining contracts affecting the Property, including, without limitation, pension or profit sharing plans, agreements or trusts and medical, dental, hospital, life or other insurance plans. 4.6 KNOWLEDGE. As used herein, the term "to Seller's knowledge" shall mean only the current actual knowledge without inquiry" (as defined below) of the following designee of Seller and GECRG: Mike Malloy. As used herein, the term "current actual knowledge without inquiry" shall mean only the actual, current and not constructive, imputed or implied knowledge of such designee without having made a review of the files or other inquiry. Anything herein to the contrary notwithstanding, such designee shall not have any personal liability or obligation whatsoever with respect to any of the matters set forth in this Agreement or any of the Seller's representation herein being or becoming untrue, inaccurate or incomplete in any respect. Notwithstanding anything to the contrary contained herein, Purchaser and any of its successor and assigns, shall be, and hereby are deemed to have knowledge (whether actual, constructive or imputed), of all matters and information set forth in the Reports and/or discovered by Purchaser as part of Purchaser's due diligence of the Property pursuant to this Agreement. 4.7 SURVIVAL; LIABILITY. Any and all of the representations and warranties of Seller as contained in this Agreement shall be true as of the Effective Date and the Closing Date and shall merge with the Deed and shall be void and of no further force or effect whatsoever from and after six (6) months from the Closing Date. Consequently, Purchaser stipulates and agrees that from and after such six (6) month period, it is entitled to and agrees to claim no damages of any kind with respect to any alleged breach and/or violation of any of such representations and/or warranties of Seller. Furthermore, (a) if Purchaser becomes aware prior to Closing of any inaccuracy of any of Seller's representations or warranties as set forth herein, Purchaser shall give Seller written notice of any such inaccuracy, and during the fifteen (15) day period after such notice, Seller shall have the right, but not the obligation, to cure any such inaccuracy to the satisfaction of Purchaser, and the Closing Date shall be extended for such period. In the event Purchaser becomes aware of any inaccuracy of any of Seller's representations and warranties prior to Closing and (a) Purchaser fails to give Seller notice thereof as required hereby or (b) following notice thereof, Seller fails or is unable to cure any such inaccuracy to the reasonable satisfaction of Purchaser, Purchaser's sole remedy for any such inaccuracy shall be to terminate this Agreement by delivering written notice of such termination to Seller on or before the Closing Date, in which event the Earnest Money Page 9 will be returned to Purchaser and neither party shall have any obligation hereunder, except the Surviving Obligations. (b) if Purchaser becomes aware after Closing of any breach and/or violation of any of Seller's representations and/or warranties set forth herein, and Purchaser timely commences any action(s) to enforce any alleged breach and/or violation of any of the representations and/or warranties of Seller as set forth in this Agreement, then Purchaser's sole remedy shall be to seek recovery of its actual damages (but not special, consequential, speculative, punitive or other damages) and the amount of such damages, in the aggregate (with respect to any and all such breaches and/or violations) shall not exceed FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00), which such sum shall include all of Purchaser's attorneys' fees, costs, expert witness fees and court costs. 4.8 TENANT ESTOPPEL CERTIFICATES. Seller agrees to submit or cause its property manager to submit within ten (10) days after the Effective Date hereof to each tenant or lessee under a Lease a request for such tenant or lessee to execute and deliver a tenant estoppel certificate to Purchaser with respect to its Lease in the form attached hereto as EXHIBIT D. It shall be a condition precedent to Purchaser's Closing obligations that Purchaser receive, not less than ten (10) days prior to the Closing Date, tenant estoppel certificates from (i) Safeway and Party City (collectively, the "MAJOR TENANTS"), plus (ii) such number of other tenants which, together with the Major Tenants, collectively occupy at least eighty-five percent (85%) of the leased square footage at the Property (collectively, the "REQUIRED TENANT ESTOPPELS") on the form of the estoppel certificates attached as EXHIBIT D or on the form required by the applicable lease agreement or on the form promulgated by the tenant. If Purchaser does not receive the Required Tenant Estoppels as of the Closing Date, Seller may extend the Closing Date up to fifteen (15) days to allow Seller to obtain the Required Tenant Estoppels. If Purchaser does not receive the Required Tenant Estoppels on or before the expiration of such fifteen (15) day period, if applicable, Purchaser may either (i) terminate this Agreement in writing delivered to Seller on or before the Closing Date, as extended by Seller if applicable, in which event the Earnest Money shall be returned to Purchaser and neither party shall have any further obligations hereunder other than the Surviving Obligations, or (ii) waive the foregoing condition precedent and proceed to Closing. A Required Tenant Estoppel will not be deemed acceptable hereunder for purposes of satisfying the condition specified herein if (i) it discloses a default by Seller or sets forth material adverse matters which are in direct conflict with the applicable Lease and rent roll delivered to Purchaser pursuant to SECTION 4.1(d) of this Agreement (not including minor square footage discrepancies or commencement date discrepancies for leases that have commenced), and (ii) the same is objected to by Purchaser in writing within the sooner to occur of the Closing Date or five (5) days after Purchaser's receipt thereof, and (iii) such matters so objected to are not cured or satisfied by Seller on or before the Closing Date. Notwithstanding anything to the contrary contained herein, Seller hereby discloses to Purchaser that Play-It-Again Sports is delinquent in its payment of rent for approximately six (6) months, and such delinquency is approximately in the amount of $33,324.72. In connection therewith, Purchaser shall not have the right to object to any tenant estoppel certificate for Play-It-Again Sports that discloses such rent delinquency. If Purchaser shall not have terminated this Agreement under this SECTION 4.8 prior to the Closing Date, as may have been extended pursuant hereto, Purchaser shall be deemed for all purposes to be satisfied with the responses to Seller's requests for tenant estoppel certificates and the form and substance of each tenant estoppel certificate and shall have no further right to terminate this Agreement based on the response or lack thereof with respect to the tenant estoppel certificates. Notwithstanding anything to the contrary contained herein, Seller agrees to submit or cause its property manager to submit within ten (10) days after the Effective Date hereof to each guarantor under a Lease a request for such guarantor to execute and deliver a guarantor estoppel certificate to Purchaser with respect to the Lease in the form attached hereto as EXHIBIT D-1. Seller shall have no obligation or responsibility with respect to any guarantor estoppel certificate other Page 10 than to submit or cause to be submitted such certificate to such guarantor and request the execution and return thereof. 4.9 DEFECTIVE CONDITION EXTENSION; TERMINATION. The obligations of Seller hereunder are subject to and contingent upon the following: In the event that subsequent to the execution of this Agreement Seller obtains knowledge of, or Purchaser's inspection of the Property reveals, the presence of any Hazardous Materials (as defined in SECTION 5.2 of this Agreement) or the violation or potential violation of any Environmental Requirements (as defined in SECTION 5.3 of this Agreement) (a "DEFECTIVE CONDITION"), which Seller, in its sole judgment, determines could constitute a potential liability to Seller after the Closing or should be remedied prior to the sale of the Property, Seller shall have the right upon written notice to Purchaser on or before the scheduled Closing Date to terminate this Agreement upon written notice to Purchaser, in which event the Earnest Money shall be refunded to Purchaser and neither party shall have any further right or obligation hereunder other than the Surviving Obligations. The terms of this SECTION 4.9 are solely for the benefit of Seller and Purchaser shall have no additional right or remedy hereunder as a result of the exercise by Seller of its rights under this SECTION 4.9. 4.10 HOLDBACK ESCROW AGREEMENT. In the event that a new lease with Citifinancial for certain space at the Property (the "PREMISES") is not executed by Seller and Citifinancial on or before the Closing Date, then, at Closing, Purchaser shall hold back from the Purchase Price an amount equal to $47,625-00, which is comprised of (i) annual base rent of $17.50 per square foot of the Premises over a twelve (12) month period; (ii) annual triple net charges of $4.25 per square foot of the Premises over a twelve (12) month period; and (iii) $ 10.00 per square foot of the Premises for tenant improvement costs and leasing commissions associated with executing a new lease with Tenant or replacement tenant (collectively, the "HOLDBACK"). The Holdback shall be held by Title Company and shall be disbursed to Purchaser and/or Seller strictly in accordance with the terms and conditions of the Holdback Escrow Agreement attached hereto as EXHIBIT H (the "HOLDBACK ESCROW AGREEMENT"). In no event shall the term of the Holdback Escrow Agreement extend beyond twelve (12) months following Closing. It shall be a condition precedent to Seller's Closing obligations that Purchaser execute the Holdback Escrow Agreement on or before Closing, if applicable. 5. NO REPRESENTATIONS OR WARRANTIES BY SELLER; ACCEPTANCE OF PROPERTY 5.1 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH HEREIN, PURCHASER ACKNOWLEDGES AND AGREES THAT SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES (OTHER THAN THE SPECIAL WARRANTY OF TITLE AS SET OUT IN THE DEED, AS DEFINED BELOW), PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE VALUE, NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY, (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH PURCHASER OR ANY TENANT MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR Page 11 BODY, (E) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY, (F) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY, (G) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY, OR (H) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS, INCLUDING THE EXISTENCE IN OR ON THE PROPERTY OF HAZARDOUS MATERIALS (AS DEFINED BELOW) OR (I) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY. ADDITIONALLY, EXCEPT AS EXPRESSLY SET FORTH HEREIN, NO PERSON ACTING ON BEHALF OF SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF OF PURCHASER ACKNOWLEDGES THAT NO PERSON HAS MADE, ANY REPRESENTATION, AGREEMENT, STATEMENT, WARRANTY, GUARANTY OR PROMISE REGARDING THE PROPERTY OR THE TRANSACTION CONTEMPLATED HEREIN; AND NO SUCH REPRESENTATION, WARRANTY, AGREEMENT, GUARANTY, STATEMENT OR PROMISE IF ANY, MADE BY ANY PERSON ACTING ON BEHALF OF SELLER SHALL BE VALID OR BINDING UPON SELLER UNLESS EXPRESSLY SET FORTH HEREIN. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY, PURCHASER IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ON THE EXPRESS REPRESENTATIONS CONTAINED HEREIN AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER AND AGREES TO ACCEPT THE PROPERTY AT THE CLOSING AND WAIVE ALL OBJECTIONS OR CLAIMS AGAINST SELLER (INCLUDING, BUT NOT LIMITED TO, ANY RIGHT OR CLAIM OF CONTRIBUTION) ARISING FROM OR RELATED TO THE PROPERTY OR TO ANY HAZARDOUS MATERIALS ON THE PROPERTY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND EXCEPT FOR SUCH INFORMATION WHICH IS "CERTIFIED" BY SELLER, THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY, TRUTHFULNESS OR COMPLETENESS OF SUCH INFORMATION. UNLESS EXPRESSLY STATED HEREIN, SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENT, REPRESENTATION OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF, FURNISHED BY ANY REAL ESTATE BROKER, CONTRACTOR, AGENT, EMPLOYEE, SERVANT OR OTHER PERSON. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS" CONDITION AND BASIS WITH ALL FAULTS. IT IS UNDERSTOOD AND AGREED THAT THE PURCHASE PRICE HAS BEEN ADJUSTED BY PRIOR NEGOTIATION TO REFLECT THAT ALL OF THE PROPERTY IS SOLD BY SELLER AND PURCHASED BY PURCHASER SUBJECT TO THE FOREGOING. THE PROVISIONS OF THIS SECTION 5 SHALL SURVIVE THE CLOSING OR ANY TERMINATION HEREOF. 5.2 HAZARDOUS MATERIALS. "Hazardous Materials" shall mean any substance which is or contains (i) any "hazardous substance" as now or hereafter defined in Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA") or any regulations promulgated under CERCLA; (ii) any "hazardous waste" as now or hereafter defined in the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.) ("RCRA") or regulations promulgated under RCRA; (iii) any substance regulated by the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.); (iv) gasoline, diesel fuel, or other petroleum hydrocarbons; (v) asbestos and asbestos containing materials, in any form, whether friable or non-friable; (vi) polychlorinated Page 12 biphenyls; (vii) radon gas; and (viii) any additional substances or materials which are now or hereafter classified or considered to be hazardous or toxic under Environmental Requirements (as defined in SECTION 5.3 of this Agreement) or the common law, or any other applicable laws relating to the Property. Hazardous Materials shall include, without limitation, any substance, the presence of which on the Property, (A) requires reporting, investigation or remediation under Environmental Requirements; (B) causes or threatens to cause a nuisance on the Property or adjacent property or poses or threatens to pose a hazard to the health or safety of persons on the Property or adjacent property; or (C) which, if it emanated or migrated from the Property, could constitute a trespass. 5.3 ENVIRONMENTAL REQUIREMENTS. "Environmental Requirements" shall mean all laws, ordinances, statutes, codes, rules, regulations, agreements, judgments, orders, and decrees, now or hereafter enacted, promulgated, or amended, of the United States, the states, the counties, the cities, or any other political subdivisions in which the Property is located, and any other political subdivision, agency or instrumentality exercising jurisdiction over the owner of the Property, the Property, or the use of the Property, relating to pollution, the protection or regulation of human health, natural resources, or the environment, or the emission, discharge, release or threatened release of pollutants, contaminants, chemicals, or industrial toxic or hazardous substances or waste or Hazardous Materials into the environment (including, without limitation, ambient air, surface water, ground water or land or soil). 6. CLOSING 6.1 CLOSING. The Closing (the "Closing") shall be held at the offices of First American Title Insurance Company (the "TITLE COMPANY") at 30 N. LaSalle Street, Suite 310, Chicago, Illinois 60602, Attention: Steven Zellinger, at a date designated by Seller and Purchaser on or before June 7, 2004 (the "CLOSING DATE") unless the parties mutually agree in writing upon another place, time or date. 6.2 POSSESSION. Possession of the Property shall be delivered to Purchaser at the Closing. 6.3 PRORATION. All rents, other amounts payable by the tenants under the Leases, income, utilities and all other operating expenses with respect to the Property for the month in which the Closing occurs, and real estate and personal property taxes and other assessments with respect to the Property for the year in which the Closing occurs, shall be prorated shall be prorated on a per diem basis as of 11:59 p.m. on the date prior to the Closing Date (the "PRORATION DATE"). Seller and Purchaser pursuant to RCW 60.80.020(1), hereby waive the services of Title Company in administering the disbursement of closing funds necessary to satisfy any unpaid utility charges. All utility billings shall be prorated as of the Proration Date and Seller will attempt to have utility meters read as of that date. (a) If the Closing shall occur before rents and all other amounts payable by the tenants under the Leases and all other income from the Property have actually been paid for the month in which the Closing occurs, the apportionment of such rents and other amounts and other income shall be upon the basis of such rents, other amounts and other income payable under the Leases in the month of Closing, with Purchaser receiving a credit at Closing in an amount equal to the product of (i) the per diem amount of such rent and other charges payable in the month of Closing, and (ii) the number of days from and including the Closing Date until the last day of the month in which the Closing occurs. Rents and all other charges payable by the tenants under the Leases for periods prior to the month of Closing which are in arrears as of the Proration Date shall not be prorated. Subsequent to the Closing, if any rents and other charges are actually received by Purchaser and such delinquent rents and other delinquent charges are for any periods preceding the month of Closing, all such amounts shall first be applied to post-closing rents and Page 13 charges due to Purchaser which are past due and the balance shall be immediately paid by Purchaser to Seller. Subsequent to Closing, if any rents and other charges for the month of Closing are actually received by Purchaser, such amounts shall immediately be paid to Seller. Purchaser shall make a good faith effort and attempt to collect any such rents and other amounts and other income not apportioned at the Closing for the benefit of Seller, however, Purchaser shall not be required to expend any funds or institute any litigation in its collection efforts. Nothing in this SECTION 6.3(a) shall restrict Seller's right to collect delinquent rents directly from a tenant by any legal means; provided, however, Seller shall have no right to terminate a tenant's lease or otherwise commence eviction proceedings against such tenant. (b) Certain of the Leases contain tenant obligations to pay for taxes, common area expenses, operating expenses and/or additional charges of any other nature relating to the Property and/or certain portions thereof (collectively, the "CHARGES"). To the extent that tenants are obligated to reimburse Seller for Charges monthly, and such reimbursement is actually received by Seller and is for the month in which Closing occurs, then any of the Charges actually received by Seller from such tenants for Charges for the month in which Closing occurs shall be pro-rated between Seller and Purchaser, on a per diem basis, based on Charges actually received by Seller for the month of Closing. (c) Purchaser and Seller acknowledge and agree that Charges which Seller has heretofore collected from tenants at the Property (collectively, the "TENANTS") for calendar year 2004 from January 1, 2004 through and including the Closing Date ("SELLER'S RECONCILIATION PERIOD"), have not yet been reconciled with the Tenants to the extent Seller's recovery of such expenses from the Tenants for such period exceeded or was less than the actual amount of such expenses for such period (the "TENANT RECONCILIATION"). In connection with the Tenant Reconciliation, the parties agree that (i) within a reasonable time after Closing, Seller shall deliver to Purchaser the data reasonably supporting the Charges Seller collected from the Tenants during Seller's Reconciliation Period and the amount of Charges actually paid by Seller during Seller's Reconciliation Period, and (ii) at the end of calendar year 2004, Purchaser shall be responsible for preparing the final Tenant Reconciliation (subject to Seller's approval with respect to Seller's Reconciliation Period) strictly in accordance with the terms and conditions of the applicable Leases and, to the extent applicable, either reimbursing or billing Tenants accordingly. If the Tenant Reconciliation for Seller's Reconciliation Period shows that amounts collected during Seller's Reconciliation Period were more than the amount of Charges actually paid by Seller during Seller's Reconciliation Period, then Seller shall reimburse such Tenant to the extent of any over-payment of such Charges actually received by Seller for Seller's Reconciliation Period, except that if Purchaser requests that Seller pay such reimbursements to Purchaser, then Purchaser shall indemnify, defend and hold harmless Seller for Purchaser's failure to pay such reimbursements to the Tenants. If it is determined that Tenant has underpaid to Seller any portion of the Charges for Seller's Reconciliation Period, Purchaser shall make good faith attempts to collect the amount of any under-payment of such Charges from such Tenant, and shall, upon receipt, immediately deliver such amount to Seller. The agreements of Seller and Purchaser set forth herein shall survive the Closing. (d) Notwithstanding anything to the contrary contained herein, (i) Purchaser shall have no rights or claims with respect to the tenant payments of operating expenses for calendar year 2003 and prior years and (ii) Purchaser shall have no rights or claims with respect to amounts owed by tenants to Seller for reimbursement of certain capital expenditures made by Seller to the Property prior to the Effective Date, and with respect to items (i) and (ii) above, Seller shall be entitled to collect such amounts directly from tenants in accordance with this Page 14 SECTION 6.3 and such amounts shall not be prorated and shall not be subject to the priority of payment set forth in SECTION 6.3(a) above. Notwithstanding anything to the contrary contained herein, with respect to tenant payments for operating expenses for calendar year 2003, if Seller's reconciliation thereof determines that tenants overpaid to Seller such operating expenses, Seller shall be responsible for and shall pay to such tenants directly the amount of any such overpayment (whether before or after Closing). Seller shall endeavor in good faith to pay to such tenants directly the amount of any such overpayment on or before the Closing Date. (e) If the Closing shall occur before the tax rate or the assessed valuation of the Property is fixed for the then current year, the apportionment of taxes shall be upon the basis of the tax rate for the preceding year applied to the latest assessed valuation. Subsequent to the Closing, when the tax rate and the assessed valuation of the Property is fixed for the year in which the Closing occurs, the parties agree to adjust the proration of taxes and, if necessary, to refund or repay such sums as shall be necessary to effect such adjustment. If the Property is not assessed as a separate parcel for tax or assessment purposes, then such taxes and assessments attributable to the Property shall be determined by Purchaser and Seller. If, as of the Closing, the Property is not being treated as a separate tax parcel, then within thirty (30) days after the Closing, Purchaser shall, at its sole cost and expense, have the Property assessed separately for tax and assessment purposes. In the event the Property has been assessed for property tax purposes at such rates as could result in "roll-back" taxes upon changes in land usage or ownership of the Property, Purchaser agrees to pay all such taxes and indemnify and save Seller harmless from and against any and all claims and liabilities for such taxes. (f) To the extent utility meters are not read, if the Closing shall occur before the actual amount of utilities and all other operating expenses with respect to the Property for the month in which the Closing occurs are determined, the apportionment of such utilities and other operating expenses shall be upon the basis of an estimate by Seller of such utilities and other operating expenses for such month. Subsequent to the Closing, when the actual amount of such utilities and other operating expenses with respect to the Property for the month in which the Closing occurs are determined, the parties agree to adjust the proration of such utilities and other operating expenses and, if necessary, to refund or repay such sums as shall be necessary to effect such adjustment. (g) Payments under any Contracts for the month in which Closing occurs which are assigned to Purchaser shall be prorated as of the Proration Date. (h) The amount of all refundable rental security deposits in effect as of the Closing Date, including all interest charges required by law or other agreement to be paid thereon, shall be paid by Seller to Purchaser to the extent not previously applied. The agreements of Seller and Purchaser set forth in this SECTION 6.3 shall survive the Closing. 6.4 CLOSING COSTS. Except as otherwise expressly provided herein, Seller shall pay, on the Closing Date one-half (1/2) of any escrow fees (excluding escrow fees associated with the Holdback Escrow Agreement) and other customary charges of the Title Company, the excise tax, the title insurance premium for the base Owner's Policy (as defined in SECTION 6.5(a)), and Purchaser shall pay, on the Closing Date, the cost of any endorsements or additional coverage over the base Owner's Policy, the cost of the updated Survey, all recording costs, all escrow fees associated with the Holdback Escrow Agreement and one-half (1/2) of all other escrow fees and other customary charges of the Title Company. Except as otherwise provided herein, each party shall pay its own attorneys' fees. Page 15 6.5 SELLER'S OBLIGATIONS AT THE CLOSING. At the Closing, or at such other time as indicated below, Seller shall deliver to Purchaser the following: (a) TITLE POLICY. Within a reasonable period of time following Closing, an Owner's Policy of Title Insurance in ALTA standard form (the "OWNER'S POLICY"), naming Purchaser as insured, in the amount of the Purchase Price, insuring that Purchaser owns good and marketable fee simple title to the Property, subject only to the Permitted Encumbrances. Purchaser, at Purchaser's sole expense, may elect to obtain additional coverage or endorsements over the base Owner's Policy, but obtaining such additional coverage or endorsements will not be a condition precedent to Purchaser's Closing obligations pursuant to this Agreement. (b) EVIDENCE OF AUTHORITY. Such organizational and authorizing documents of Seller as shall be reasonably required by the Title Company to evidence Seller's authority to consummate the transactions contemplated by this Agreement. (c) FOREIGN PERSON. An affidavit of Seller certifying that Seller is not a "foreign person," as defined in the federal Foreign Investment in Real Property Tax Act of 1980, and the 1984 Tax Reform Act, as amended. (d) LEASES. The originals of all of the Leases and all security deposits, if any, in the possession of GECRG on the Closing Date. Seller shall have no liability to Purchaser for any tenant security deposit not actually paid to Seller. (e) CONTRACTS. The originals of all of the Contracts, if any, in the possession of GECRG. 6.6 PURCHASER'S OBLIGATIONS AT THE CLOSING. At the Closing, Purchaser shall deliver to Seller the following: (a) PURCHASE PRICE. The Purchase Price by wire transfer of immediately available funds. (b) POST EFFECTIVE DATE LEASE EXPENSES. Immediately available funds in an amount equal to the costs and expenses incurred and paid by Seller under (i) any new lease of space in the Improvements pursuant to SECTION 9.1(b) of this Agreement, and (ii) any extension, renewal or modification of any lease of space in the Improvements pursuant to SECTION 9.1(b) of this Agreement executed after the Effective Date. Said costs and expenses shall include, but not be limited to, costs incurred and paid by Seller for tenant improvements, leasing commissions, capital improvements, and reasonable attorney's fees (provided that Purchaser shall only be obligated to reimburse Seller up to $1,500.00 for such reasonable attorneys' fees). (c) EVIDENCE OF AUTHORITY. Such organizational and authorizing documents of Purchaser as shall be reasonably required by the Title Company to evidence Purchaser's authority to consummate the transactions contemplated by this Agreement, (d) TAXPAYER I.D. CERTIFICATE. Taxpayer I.D. Certificate, in the form attached to this Agreement as EXHIBIT E. 6.7 DOCUMENTS TO BE EXECUTED BY SELLER AND PURCHASER. At the Closing, Seller and Purchaser shall also execute and deliver the following: Page 16 (a) DEED. Statutory Warranty Deed (the "DEED") conveying the Land and the Improvements to Purchaser in the form attached to this Agreement as EXHIBIT B. (b) TENANT NOTICES. Signed statements or notices to all tenants of the Property, in the form attached to this Agreement as EXHIBIT G, notifying such tenants that the Property has been transferred to Purchaser and that Purchaser is responsible for security deposits (specifying the amounts of such deposits). (c) BILL OF SALE, ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY, SERVICE CONTRACTS, WARRANTIES AND LEASES. Bill of Sale, Assignment and Assumption of Personal Property, Service Contracts, Warranties and Leases (the "ASSIGNMENT") in the form attached to this Agreement as EXHIBIT C. (d) HOLDBACK ESCROW AGREEMENT. If applicable, the Holdback Escrow Agreement in the form attached to this Agreement as EXHIBIT H. 7. RISK OF LOSS 7.1 CONDEMNATION. If, prior to the Closing, action is initiated to take any of the Property by eminent domain proceedings or by deed in lieu thereof, Purchaser may either at or prior to Closing (a) terminate this Agreement, in which event the Earnest Money shall be refunded to Purchaser, and neither party shall have any further right or obligation hereunder other than the Surviving Obligations, or (b) consummate the Closing, in which latter event all of Seller's assignable right, title and interest in and to the award of the condemning authority shall be assigned to Purchaser at the Closing and there shall be no reduction in the Purchase Price. 7.2 CASUALTY. Except as provided in SECTIONS 4.2 and 5.1 of this Agreement, Seller assumes all risks and liability for damage to or injury occurring to the Property by fire, storm, accident, or any other casualty or cause until the Closing has been consummated. If the Property, or any part thereof, suffers any damage in excess of $250,000.00 prior to the Closing from fire or other casualty, which Seller, at its sole option, does not elect to repair, or if as a direct result of the fire or other casualty event Safeway or Party City has an immediate right to terminate its Lease, Purchaser may either at or prior to Closing (a) terminate this Agreement, in which event the Earnest Money shall be refunded to Purchaser (subject to Purchaser's delivery of the Reports as required by SECTION 3.1 of this Agreement), and neither party shall have any further right or obligation hereunder other than the Surviving Obligations, or (b) consummate the Closing, in which latter event all of Seller's right, title and interest in and to the proceeds of any insurance covering such damage (less an amount equal to any expenses and costs incurred by Seller to repair or restore the Property and any portion of such proceeds paid or to be paid on account of the loss of rents or other income from the Property for the period prior to and including the Closing Date, all of which shall be payable to Seller), to the extent the amount of such insurance does not exceed the Purchase Price, shall be assigned to Purchaser at the Closing. If the Property, or any part thereof, suffers any damage less than $250,000.00 prior to the Closing, and such damage does not give Safeway or Party City the right to terminate its Lease, Purchaser agrees that it will consummate the Closing and accept the assignment of the proceeds of any insurance covering such damage plus an amount equal to Seller's deductible under its insurance policy and there shall be no reduction in the Purchase Price. Page 17 8. DEFAULT 8.1 BREACH BY SELLER. In the event that Seller shall fail to consummate this Agreement for any reason, except Purchaser's default or a termination of this Agreement by Purchaser or Seller pursuant to a right to do so under the provisions hereof, Purchaser, as its sole and exclusive remedy may either (a) terminate this Agreement and receive a refund of the Earnest Money, and neither party shall have any further right or obligation hereunder other than the Surviving Obligations, or (b) pursue the remedy of specific performance of Seller's obligations under this Agreement; provided, however, that (i) Purchaser shall only be entitled to such remedy if (A) any such suit for specific performance is filed within ninety (90) days after Purchaser becomes aware of the default by Seller, (B) Purchaser is not in default under this Agreement, (C) Purchaser is ready, willing and able to tender the Purchase Price to the Title Company in immediately available funds, and (D) Purchaser has furnished ten (10) days prior written notice to Seller of its intent and election to seek specific enforcement of this Agreement; and (ii) notwithstanding anything to the contrary contained herein, Seller shall not be obligated to expend any sums to cure any defaults under this Agreement and if Purchaser seeks specific performance under this Agreement, Purchaser agrees to accept the Property in its "WHERE IS, AS IS" condition. Purchaser hereby agrees that prior to its exercise of any rights or remedies as a result of any defaults by Seller, Purchaser will first deliver written notice of said default to Seller, and if Seller so elects, Seller shall have the opportunity, but not the obligation, to cure such default within ten (10) days after Seller's receipt of such notice. In no event whatsoever shall Purchaser file any instrument of record against title to the Property; provided, however, Purchaser may file a lis pendens of this Agreement simultaneously with its filing of a suit for specific performance pursuant to this SECTION 8.1. Notwithstanding any of the foregoing to the contrary, in no event whatsoever shall Purchaser have the right to seek money damages of any kind as a result of any default by Seller under any of the terms of this Agreement, except in the event Purchaser prevails in its suit for specific performance pursuant to this SECTION 8.1, Purchaser shall also be entitled to pursue Seller for Purchaser's reasonable attorneys' fees and court costs incurred and directly relating to such lawsuit. In no event shall Seller be liable to Purchaser for any punitive, speculative or consequential damages. 8.2 BREACH BY PURCHASER. (a) If Purchaser fails to complete this purchase without legal excuse, and regardless of whether Seller incurs any actual damages, Seller shall have the right to forfeit and retain the Deposit as its sole and exclusive remedy; provided, however, in any event in which the Deposit exceeds five percent (5%) of the total purchase price under this Agreement or any amendment hereto, the difference represented by such excess shall be returned to Purchaser upon Seller's exercise of such remedy. The parties acknowledge that this provision is intended to satisfy the requirements of RCW 64.04.005(l)(a); is not to be construed to be a limitation upon any right or remedy available to Seller in the event of any other default or indemnity on the part of Purchaser under this or any other agreement; and does not affect Seller's right to recover attorneys' fees in any action commenced with respect to this Agreement. (b) Notwithstanding the provisions of SECTION 8.2(a) above, the foregoing shall not in any way limit, affect or impair any of Purchaser's indemnities as provided in SECTIONS 4.2, 5.1, 6.3(b) OR 10.2 of this Agreement. Page 18 9. FUTURE OPERATIONS 9.1 FUTURE OPERATIONS. (a) From the date of this Agreement until the Closing or earlier termination of this Agreement: (i) Seller will keep and maintain the Property in substantially its condition as of the date of this Agreement; (ii) Seller will perform all of Seller's obligations under the Contracts. Seller will not, without the prior written consent of Purchaser, modify, enter into, or renew any Contract which cannot be cancelled upon thirty (30) days prior written notice. (b) From the Effective Date until the Closing or earlier termination of this Agreement, Seller will not lease any space in the Improvements except upon the prior written approval of Purchaser (such approval not to be unreasonably withheld or delayed); provided, however, this limitation upon Seller shall not apply with respect to non-discretionary lease renewals, lease extensions, rights of first refusal or offer, or options pursuant to rights granted under leases existing as of the Effective Date. For purposes of this SECTION 9.1(b) it shall be unreasonable for Purchaser to withhold its approval of any new lease so long as such new lease satisfies the applicable minimum leasing parameters set forth on EXHIBIT I attached hereto. All costs and expenses incurred and paid by Seller under (i) any new lease entered into after the Effective Date and (ii) any extension, renewal or modification of an existing lease entered into after the Effective Date, shall be paid by Purchaser in accordance with SECTION 6.6(b) of this Agreement. Said costs and expenses shall include, but not be limited to, costs incurred and paid by Seller for tenant improvements, leasing commissions, capital improvements, and reasonable attorney's fees (provided that Purchaser shall only be obligated to reimburse Seller up to $1,500.00 for such reasonable attorneys' fees). If Purchaser does not deliver written notice to Seller of its approval or disapproval of any matters for which Seller seeks Purchaser's approval as set forth above within five (5) business days after Purchaser's receipt of Seller's request for such approval, Purchaser shall be deemed to have approved such matters and to have agreed to assume all obligations with respect thereto. 10. MISCELLANEOUS 10.1 NOTICES. All notices, demands and requests which may be given or which are required to be given by either party to the other, and any exercise of a right of termination provided by this Agreement, shall be in writing and shall be deemed effective either: (a) on the date personally delivered to the address below, as evidenced by written receipt therefore, whether or not actually received by the person to whom addressed; (b) on the third (3rd) business day after being sent, by certified or registered mail, return receipt requested, addressed to the intended recipient at the address specified below; (c) on the first (1st) business day after being deposited into the custody of a nationally recognized overnight delivery service such as Federal Express Corporation, Emery or Purolator, addressed to such party at the address specified below, or (d) on the first (1st) business day after the date delivered by facsimile to the respective numbers specified below. For purposes of this SECTION 10.1, the addresses of the parties for all Page 19 notices are as follows (unless changed by similar notice in writing given by the particular person whose address is to be changed): If to Seller: c/o GE Capital Real Estate 1901 Main Street, 7th Floor Irvine, California 92614 Attention: Mr. Mike Malloy Telephone: (949) 477- 1566 Fax: (949) 477- 0903 Email: Mike.Malloy@gecapital.com with a copy to: Andrews Kurth LLP 1717 Main Street, Suite 3700 Dallas, Texas 75201 Attention: Andrew L. Campbell, Esq. Telephone: (214)659-4511 Fax: (214)659-4401 Email: acampbell@andrewskurth.com If to Purchaser: Inland Real Estate Acquisitions, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attention: Mark Youngman Tel: (630) 218- 8000, Ext. 2019 Fax: (630) 218- 4935 Email: Youngman@inlandgroup.com with a copy to: The Inland Real Estate Group, Inc. 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Robin Rash, Esq. Tel: (630) 218- 8000, Ext. 2854 Fax: (630) 218-4900 Email: rrash@inlandgroup.com Page 20 If to Title Company: First American Title Insurance Company 30 N. LaSalle Street, Suite 310 Chicago, Illinois 60602 Attention: Steven Zellinger Tel: (312) 917- 7257 Fax: (312) 533- 0480 Email: szellinger@firstam.com 10.2 REAL ESTATE COMMISSIONS. Seller shall pay to CB Richard Ellis, Inc. (hereinafter called "AGENT" whether one or more) upon the Closing of the transaction contemplated hereby, and not otherwise, a cash commission in the amount agreed on in a separate listing agreement between Seller and Agent. Said commission shall in no event be earned, due or payable unless and until the transaction contemplated hereby is closed and fully consummated strictly in accordance with the terms of this Agreement and Seller has received the Purchase Price in immediately available funds; if such transaction is not closed and fully consummated for any reason, including, without limitation, failure of title or default by Seller or Purchaser or termination of this Agreement pursuant to the terms hereof, then such commission will be deemed not to have been earned and shall not be due or payable. Except as set forth above with respect to Agent, neither Seller nor Purchaser has authorized any broker or finder to act on Purchaser's behalf in connection with the sale and purchase hereunder and neither Seller nor Purchaser has dealt with any broker or finder purporting to act on behalf of any other party. Purchaser agrees to indemnify and hold harmless Seller from and against any and all claims, losses, damages, costs or expenses of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been made by Purchaser or on Purchaser's behalf with any broker or finder in connection with this Agreement or the transaction contemplated hereby. Seller agrees to indemnify and hold harmless Purchaser from and against any and all claims, losses, damages, costs or expenses of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been made by Seller or on Seller's behalf with any broker or finder in connection with this Agreement or the transaction contemplated hereby. Notwithstanding anything to the contrary contained herein, this SECTION 10.2 shall survive the Closing or any earlier termination of this Agreement. 10.3 ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the parties relative to the subject matter hereof, and there are no oral or written agreements between the parties, nor any representations made by either party relative to the subject matter hereof, which are not expressly set forth herein. 10.4 AMENDMENT. This Agreement may be amended only by a written instrument executed by the party or parties to be bound thereby. 10.5 HEADINGS. The captions and headings used in this Agreement are for convenience only and do not in any way limit, amplify, or otherwise modify the provisions of this Agreement. 10.6 TIME OF ESSENCE. Time is of the essence of this Agreement; however, if the final date of any period which is set out in any provision of this Agreement falls on a Saturday, Sunday or legal holiday under the laws of the United States or the State of Washington, then, in such event, the time of such period shall be extended to the next day which is not a Saturday, Sunday or legal holiday. Page 21 10.7 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Washington and the laws of the United States pertaining to transactions in such State. 10.8 SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall bind and inure to the benefit of Seller and Purchaser and their respective heirs, executors, administrators, personal and legal representatives, successors and permitted assigns. Purchaser shall not assign Purchaser's rights under this Agreement without the prior written consent of Seller, which consent may be withheld absolutely except Purchaser may assign this Agreement to a to-be-formed entity sponsored by Purchaser or its affiliates, so long as Purchaser delivers written notice to Seller of such assignment at least fourteen (14) days prior to scheduled Closing Date and so long as the source of funds used to pay the Purchase Price is the same source of funds controlled by Purchaser on the Effective Date. In the event Seller consents to an assignment for which Seller's consent is required, Purchaser and such assignee shall execute and deliver an Assignment of Purchase and Sale Agreement in the form attached hereto as EXHIBIT F. Any subsequent assignment may be made only with the prior written consent of Seller. No assignment of Purchaser's rights hereunder shall relieve Purchaser of its liabilities under this Agreement. This Agreement is solely for the benefit of Seller and Purchaser; there are no third party beneficiaries hereof. Any assignment of this Agreement in violation of the foregoing provisions shall be null and void. Notwithstanding anything to the contrary contained herein, Seller shall be entitled to assign its rights under this Agreement to one or more entities prior to the Closing Date without the necessity of Purchaser's consent, but notwithstanding such assignment and a conveyance of the Property to Seller's assignee, Seller shall not be released from its obligations under this Agreement. 10.9 INVALID PROVISION. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement; and, the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such illegal, invalid, or unenforceable provision or by its severance from this Agreement. 10.10 ATTORNEYS' FEES. In the event it becomes necessary for either party hereto to File suit to enforce this Agreement or any provision contained herein, the party prevailing in such suit shall be entitled to recover, in addition to all other remedies or damages, as provided herein, reasonable attorneys' fees incurred in such suit. 10.11 MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of identical counterparts which, taken together, shall constitute collectively one (1) agreement; in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart with each party's signature. 10.12 EXPIRATION. The execution of this Agreement by Purchaser and the delivery hereof to Seller shall constitute an offer which shall be automatically withdrawn, revoked and terminated unless Seller accepts the same by executing this Agreement and delivering one fully executed counterpart hereof to the Title Company prior to 4:00 p.m. Central Standard Time the_____day of__________, 2004. 10.13 EFFECTIVE DATE. As used herein the term "Effective Date" shall mean the first date the Title Company is in receipt of both this Agreement executed by Purchaser and Seller (whether in counterparts or not) and the Earnest Money. 10.14 EXHIBITS. The following exhibits are attached to this Agreement and are incorporated into this Agreement by this reference and made a part hereof for all purposes: Page 22 (a) EXHIBIT A, the legal description of the Land. (b) EXHIBIT B, the form of the Deed. (c) EXHIBIT C, the form of the Assignment. (d) EXHIBIT D, the form of the Estoppel Certificate. (e) EXHIBIT D-1, the form of the Guarantor Estoppel Certificate. (f) EXHIBIT E, the form of the Taxpayer I.D. Certificate. (g) EXHIBIT F, the form of Assignment of Purchase and Sale Agreement. (h) EXHIBIT G, the form of Tenant Notice. (i) EXHIBIT H, the form of the Holdback Escrow Agreement. (j) EXHIBIT I, the Leasing Parameters. 10.15 NO RECORDATION. Seller and Purchaser hereby acknowledge that neither this Agreement nor any memorandum or affidavit thereof shall be recorded of public record in Snohomish County, Washington or any other county. Should Purchaser ever record or attempt to record this Agreement, or a memorandum or affidavit thereof, or any other similar document, then, notwithstanding anything herein to the contrary, said recordation or attempt at recordation shall constitute a default by Purchaser hereunder, and, in addition to the other remedies provided for herein, Seller shall have the express right to terminate this Agreement by filing a notice of said termination in the county in which the Land is located. 10.16 MERGER PROVISION. Except as otherwise expressly provided herein, any and all rights of action of Purchaser for any breach by Seller of any representation, warranty or covenant contained in this Agreement shall merge with the Deed and other instruments executed at Closing, shall terminate at Closing and shall not survive Closing. 10.17 DTPA WAIVER. PURCHASER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT (A) PURCHASER IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION, (B) PURCHASER IS REPRESENTED BY LEGAL COUNSEL, AND (C) PURCHASER IS SEEKING TO ACQUIRE THE PROPERTY, WHICH WILL NOT BE USED AS A FAMILY RESIDENCE, FOR A CONSIDERATION THAT EXCEEDS $500,000, OR (D) (i) PURCHASER IS A BUSINESS ENTITY THAT EITHER HAS ASSETS OF $25,000,000 OR MORE OR IS OWNED OR CONTROLLED BY A CORPORATION OR ENTITY WITH ASSETS OF $25,000,000 OR MORE, OR (ii) PURCHASER IS A SOPHISTICATED REAL ESTATE INVESTOR AND HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF THIS TRANSACTION. PURCHASER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS, REMEDIES AND BENEFITS UNDER ANY CONSUMER PROTECTION LAW, WHETHER FEDERAL, STATE OR LOCAL. PURCHASER COVENANTS NOT TO SUE SELLER UNDER ANY SUCH CONSUMER PROTECTION LAW. 10.18 JURY WAIVER. PURCHASER AND SELLER DO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THEIR RIGHT TO A TRIAL BY JURY IN Page 23 RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, OR UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE DOCUMENTS DELIVERED BY PURCHASER AT CLOSING OR SELLER AT CLOSING, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ANY ACTIONS OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THIS AGREEMENT OR THE PROPERTY (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT AND ANY CLAIMS OR DEFENSES ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR SELLER TO ENTER INTO AND ACCEPT THIS AGREEMENT AND THE DOCUMENTS DELIVERED BY PURCHASER AT CLOSING AND SHALL SURVIVE THE CLOSING OF TERMINATION OF THIS AGREEMENT. 10.19 LIMITATION ON LIABILITY. No present or future partner, director, officer, shareholder, employee, advisor, agent, attorney, asset manager, or subasset manager of or in Seller shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any agreement made or entered into under or in connection with the provisions of this Agreement, or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter, and Purchaser and its successors and assigns and, without limitation, all other persons and entities, shall look solely to Seller's assets for the payment of any claim or for any performance, and Purchaser hereby waives any and all such personal liability, PROVIDED, HOWEVER, that the limitation on Seller's liability under this Section 10.19 shall not be deemed to limit the rights of Purchaser to seek specific performance pursuant to SECTION 8.1 of this Agreement. The limitations on liability contained in this SECTION 10.19 are in addition to, and not in limitation of, any limitation on liability applicable to Seller provided in any other provision of this Agreement or by law or by any other contract, agreement or instrument. 10.20 CONFIDENTIALITY. Without limiting the terms and conditions of SECTION 4.2 of this Agreement, Purchaser shall keep confidential and shall not disclose the terms of the transfers contemplated in this Agreement, including, without limitation, the Purchase Price and all other financial terms, without the prior written consent of Seller except: (1) to Purchaser's directors, officers, partners, employees, legal counsel, accountants, engineers, architects, financial advisors and similar professionals and consultants to the extent such party deems it necessary or appropriate in connection with the transaction contemplated hereunder (and Purchaser shall inform each of the foregoing parties of such party's obligations under this SECTION 10.20 and shall secure the agreement of such parties to be bound by the terms hereof) or (2) as otherwise required by law or regulation. 10.21 COOPERATION/AUDIT. Seller agrees to reasonably cooperate with reasonable requests of Purchaser's independent accounting firm (at no cost or expense to Seller) relative to the performance by said accounting firm of an audit of Seller's books and records with respect to the rental income and operating expenses for the Property. Page 24 PURCHASER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation Date of Execution by Purchaser: 5/3/04 - ------ By: /s/ Mark Youngman ------------------------- Name: Mark Youngman --------------------------------- Title: Vice President -------------------------------- SELLER: ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation Date of Execution By: GE CAPITAL REALTY GROUP, INC., by Seller: a Texas corporation, its attorney-in-fact 5/4/04 - ------ By: /s/ [ILLEGIBLE] ---------------------------- Name: [ILLEGIBLE] ---------------------- Title: VP --------------------- The undersigned Title Company hereby acknowledges receipt of the Earnest Money and a copy of this Agreement, and agrees to hold and dispose of the Earnest Money in accordance with the provisions of this Agreement. TITLE COMPANY: FIRST AMERICAN TITLE INSURANCE COMPANY Date of Execution by Title Company: 5-6-04 By: /s/ Elizabeth Luna - ------ -------------------------------------------- Name: Elizabeth Luna -------------------------------------- Title: Asst. Escrow Officer ------------------------------------- Signature Page EXHIBIT A TO PURCHASE AND SALE AGREEMENT LEGAL DESCRIPTION PARCEL A: LOT 1 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL B: LOT A OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612165002, IN SNOHOMISH COUNTY, WASHINGTON, BEING ALL OF LOT 4 AND A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL C: LOT B OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612165002, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMTSH COUNTY, WASHINGTON; EXCEPT THAT PORTION THEREOF CONVEYED TO THE CITY OF MARYSVILLE FOR RIGHT OF WAY BY DEED RECORDED UNDER RECORDING NO. 9602270122. PARCEL C1: A NON-EXCLUSIVE EASEMENT APPURTENANT TO A PORTION OF PARCEL C FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS, UTILITIES AND SIGNAGE AS ESTABLISHED IN CROSS-ACCESS AGREEMENT AND GRANT OF EASEMENTS AND RESTRICTIONS RECORDED UNDER RECORDING NO. 9407110538, AND AMENDED UNDER RECORDING NO. 9604180295 ON A PORTION OF LOT B OF BOUNDARY LINE ADJUSTMENT RECORDED UNDER RECORDING NO. 9407115001, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL D: Page 1 A NON-EXCLUSIVE EASEMENT FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS AND PARKING AS ESTABLISHED BY DECLARATION RECORDED UNDER RECORDING NO. 9505250509 AND AMENDMENT THERETO UNDER RECORDING NO. 9604180294 ON A PORTION OF LOTS 2 AND 3 OF BINDING SITE PLAN RECORDED UNDER RECORDING NO. 9505255003. Page 2 EXHIBIT B TO PURCHASE AND SALE AGREEMENT AFTER RECORDING RETURN TO: - ---------------------- - ---------------------- - ---------------------- STATUTORY WARRANTY DEED Reference # (if applicable):____________________________________________________ Grantor(s): ITW MORTGAGE INVESTMENTS III, INC. Grantee(s): _____________________________________________________ Legal Description (Abbreviated):________________________________________________ Assessor's Tax Parcel ID#:______________________________________________________ THE GRANTOR, ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation, for and in consideration of the sum of Ten Dollars ($10.00) and other valuable consideration in hand paid to Grantor, conveys and warrants to _________________ ___________________, a _____________________________, the following described real estate, situate in the County of Snohomish, State of Washington. PARCEL A: LOT 1 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL B: Page 1 LOT A OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612165002, IN SNOHOMISH COUNTY, WASHINGTON, BEING ALL OF LOT 4 AND A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL C: LOT B OF CITY OF MARYSVILLE LOT LINE ADJUSTMENT NO. BLA95-011, RECORDED UNDER RECORDING NO. 9612165002, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF LOT 5 OF BINDING SITE PLAN/RECORD OF SURVEY OF SAFEWAY PLAZA AT MARYSVILLE, ACCORDING TO SURVEY RECORDED MAY 25, 1995 UNDER RECORDING NO. 9505255003, IN SNOHOMISH COUNTY, WASHINGTON, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON; EXCEPT THAT PORTION THEREOF CONVEYED TO THE CITY OF MARYSVILLE FOR RIGHT OF WAY BY DEED RECORDED UNDER RECORDING NO. 9602270122. PARCEL Cl: A NON-EXCLUSIVE EASEMENT APPURTENANT TO A PORTION OF PARCEL C FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS, UTILITIES AND SIGNAGE AS ESTABLISHED IN CROSS-ACCESS AGREEMENT AND GRANT OF EASEMENTS AND RESTRICTIONS RECORDED UNDER RECORDING NO. 9407110538, AND AMENDED UNDER RECORDING NO. 9604180295 ON A PORTION OF LOT B OF BOUNDARY LINE ADJUSTMENT RECORDED UNDER RECORDING NO. 9407115001, BEING A PORTION OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 30 NORTH, RANGE 5 EAST, W.M., IN SNOHOMISH COUNTY, WASHINGTON. PARCEL D: A NON-EXCLUSIVE EASEMENT FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS AND PARKING AS ESTABLISHED BY DECLARATION RECORDED UNDER RECORDING NO. 9505250509 AND AMENDMENT THERETO UNDER RECORDING NO. 9604180294 ON A PORTION OF LOTS 2 AND 3 OF BINDING SITE PLAN RECORDED UNDER RECORDING NO. 9505255003. SUBJECT to the permitted encumbrances described in EXHIBIT A attached hereto and made a part hereof. Page 2 Dated this_____day of______________, 2004. ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: ------------------------------ Name: ------------------------- Title: ------------------------ THE STATE OF TEXAS SECTION SECTION COUNTY OF DALLAS SECTION On this day personally appeared before me _____________________________, to me known to be the ____________________of GE CAPITAL REALTY GROUP, INC., a Texas corporation, as attorney-in-fact for ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation, described in and who executed the within and foregoing instrument, and acknowledged that s/he signed the same as the free and voluntary act and deed of the corporation(s), for the uses and purposes mentioned in this instrument. Given under my hand and official seal this ________ day of ______________, 2004. __________________________________________ Notary Public, State of Texas Printed Name:_____________________________ Residing at:______________________________ My Commission Expires:____________________ (SEAL) Page 3 EXHIBIT A TO STATUTORY WARRANTY DEED 1. Real property taxes and assessments for the year 2004 and hereafter, not yet due and payable. 2. [INSERT SCHEDULE B EXCEPTIONS PER TITLE COMMITMENT AND VESTING DEED] TOGETHER with all and singular tenements, hereditaments and appurtenances thereunto belonging or in any way appertaining. Page 4 EXHIBIT C TO PURCHASE AND SALE AGREEMENT BILL OF SALE, ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY, SERVICE CONTRACTS, WARRANTIES AND LEASES ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("GRANTOR"), for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration to it in hand paid by _________________________, a ____________________________ ("GRANTEE"), the receipt and sufficiency of which are hereby acknowledged, has Granted, Sold, Assigned, Transferred, Conveyed, and Delivered and does by these presents Grant, Sell, Assign, Transfer, Convey and Deliver unto Grantee, all of Grantor's rights, titles, and interests in and to the following described properties located in, affixed to, and/or arising or used in connection with the improved property with parking and other amenities (the "PROJECT") situated on the land in the County of Snohomish, State of Washington, more particularly described on EXHIBIT A attached hereto and made a part hereof for all purposes (the "LAND," which together with the Project is sometimes hereinafter called the "PROPERTY"): (a) All fixtures, equipment, machinery, building materials, furniture, furnishings, carpet drapes, and other intangible personal property owned by Grantor, and all intangible personal property owned by Grantor, including the name "Safeway Plaza at Marysville," transferable utility contracts, transferable telephone exchange numbers, plans and specifications, engineering plans and studies, floor plans and landscape plans (the "PERSONAL PROPERTY"), and located on, attached to, or used in connection with the operation and maintenance of the Property; (b) Any leases for space in the Project (the "LEASES"), together with security and other deposits owned or held by Grantor pursuant to the Leases, which Leases and security deposits are described on EXHIBIT B attached hereto; (c) The assignable service, maintenance, or management contracts relating to the ownership and operation of the Property (the "SERVICE CONTRACTS") attached hereto as EXHIBIT C; and (d) Any assignable warranties and guaranties relating to the Property or any portion thereof (collectively, the "WARRANTIES"): and Grantor and Grantee hereby covenant and agree as follows: (i) Grantee accepts the aforesaid assignment and Grantee assumes and agrees to be bound by and timely perform, observe, discharge, and otherwise comply with each and every one of the agreements, duties, obligations, covenants and undertakings upon the lessor's part to be kept and performed under the Leases and any obligations of Grantor under the Service Contracts. Page 1 (ii) Grantee hereby indemnifies and agrees to hold harmless Grantor from and against any and all liabilities, claims, demands, obligations, assessments, losses, costs, damages, and expenses of any nature whatsoever (including, without limited the generality of the foregoing, reasonable attorneys' fees and court costs) which Grantor may incur, sustain, or suffer, or which may be asserted or assessed against Grantor on or after the date hereof, arising out of, pertaining to or in any way connected with the obligations, duties, and liabilities under the Leases and the Service Contracts, or any of them, arising from and after the date hereof. (iii) The burden of the indemnity made in paragraph (ii) hereof shall not be assigned. Except as aforesaid, this Agreement shall bind and inure to the benefit of the parties and their respective successors, legal representatives and assigns. (iv) Neither this Agreement nor any term, provision, or condition hereof may be changed, amended or modified, and no obligation, duty or liability or any party hereby may be released, discharged or waived, except in a writing signed by all parties hereto. GRANTEE ACKNOWLEDGES AND AGREES THAT GRANTOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES (OTHER THAN THE WARRANTY OF TITLE AS SET OUT IN THE DEED), PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE VALUE, NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY, (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH GRANTEE MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY, (F) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY, (G) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY, OR (H) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY, AND SPECIFICALLY, THAT GRANTOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS, INCLUDING THE EXISTENCE IN OR ON THE PROPERTY OF HAZARDOUS MATERIALS OR SUBSTANCES. GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY, GRANTEE IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY GRANTOR AND ACCEPTS Page 2 THE PROPERTY AND WAIVES ALL OBJECTIONS OR CLAIMS AGAINST GRANTOR (INCLUDING, BUT NOT LIMITED TO, ANY RIGHT OR CLAIM OF CONTRIBUTION) ARISING FROM OR RELATED TO THE PROPERTY OR TO ANY HAZARDOUS MATERIALS ON THE PROPERTY. GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT GRANTOR HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. GRANTOR IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF, FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE, SERVANT OR OTHER PERSON. GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS" CONDITION AND BASIS WITH ALL FAULTS. IT IS UNDERSTOOD AND AGREED THAT THE PURCHASE PRICE FOR THE PROPERTY HAS BEEN ADJUSTED BY PRIOR NEGOTIATION TO REFLECT THAT ALL OF THE PROPERTY IS SOLD BY GRANTOR AND PURCHASED BY GRANTEE SUBJECT TO THE FOREGOING. Page 3 IN WITNESS WHEREOF, Grantor and Grantee have executed this Assignment of Personal Property, Service Contracts, Warranties and Leases on ________________, 2004 to be effective as of the ______ day of ________________________, 2004. GRANTOR: ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: ------------------------------ Name: ------------------------- Title: ------------------------ GRANTEE: --------------------, a --------- By: --------------------------------, a --------------------------------, its ------------------ By: ------------------------------ Name: ------------------------- Title: ------------------------ Page 4 EXHIBIT A TO ASSIGNMENT LEGAL DESCRIPTION Page 5 EXHIBIT B TO ASSIGNMENT LEASES Page 6 EXHIBIT C TO ASSIGNMENT SERVICE CONTRACTS Page 7 EXHIBIT D TO PURCHASE AND SALE AGREEMENT ESTOPPEL CERTIFICATE To: Inland Real Estate Acquisitions, Inc., and Inland Western Marysville, L.L.C., and its lenders, successors and assigns ("Purchaser") 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Sharon Anderson-Cox Re: Lease Agreement dated and amended ("Lease"), between as "Landlord", and , as "Tenant", guaranteed by ("Guarantor") for leased premises known as Space No. _______ (the "Premises") of the property commonly known as Safeway Plaza at Marysville, Marysville, Washington (the "Property"). 1. Tenant hereby certifies that the following represents with respect to the Lease are accurate and complete as of the date hereof. a. Dates of all amendments, letter agreements, modifications and waivers related to the Lease b. Commencement Date c. Expiration Date d. Current Annual Base Rent Adjustment Date Rental Amount e. Fixed or CPI Rent Increases f. Square Footage of Premises g. Security Deposit Paid to Landlord h. Renewal Options __________ Additional Terms for _________ years at $________ per year i. Termination Options Termination Date _______________ Fees Payable _________________ 2. Tenant further certifies to Purchaser that: Page 1 a. the Lease is presently in full force and effect and represents the entire agreement between Tenant and Landlord with respect to the Premises; b. the Lease has not been assigned and the Premises have not been sublet by Tenant; c. Tenant has accepted and is occupying the Premises, all construction required by the Lease has been completed and any payments, credits or abatements required to be given by Landlord to Tenant have been given; d. Tenant is open for business or is operating its business at the Premises; e. no installment of rent or other charges under the Lease other than current monthly rent has been paid more than 30 days in advance and Tenant is not in arrears on any rental payment or other charges; f. Landlord has no obligation to segregate the security deposit or to pay interest thereon; g. Landlord is not in default under the Lease and no event has occurred which, with the giving of notice or passage of time, or both, could result in a default by Landlord; h. Tenant has no existing defenses, offsets, liens, claims or credits against the payment obligations under the Lease; i. Tenant has not been granted any options or rights to terminate the Lease earlier than the Expiration Date (except as stated in paragraph 1(i)); j. Tenant has not been granted any options or rights of first refusal to purchase the Premises or the Property; k. Tenant has not received notice of violation of any federal, state, county or municipal laws, regulations, ordinances, orders or directives relating to the use or condition of the Premises or the Property; 1. no hazardous wastes or toxic substances, as defined by all applicable federal, state or local statutes, rules or regulations have been disposed, stored or treated on or about the Premises or the Property by Tenant; m. Tenant has not received any notice of a prior sale, transfer, assignment, pledge or other hypothecation of the Premises or the Lease or of the rents provided for therein; n. Tenant has not filed, and is not currently the subject of any filing, voluntary or involuntary, for bankruptcy or reorganization under any applicable bankruptcy or creditors rights laws; the Lease does not give the Tenant any operating exclusives for the Property; o. Rent has been paid through ___________, 2004; p. Tenant agrees to relinquish and waive any rights it may have against Purchaser with respect to reconciliations of common area expenses, taxes, insurance or other charges provided for in the Lease, however denominated, for any period prior to January 1, 2004, and agrees to look solely to the current landlord with respect to any claims in connection therewith. This certification is made with the knowledge that Purchaser is about to acquire title to the Property and obtain financing which shall be secured by a deed of trust (or mortgage), security agreement and assignment of rents, leases and contracts upon the property. Tenant acknowledges that Purchaser's interest in the Lease (as landlord) will be assigned to a lender as security for the loan. All rent payments under the Lease shall continue to be paid to landlord in accordance with the terms of the Lease until Tenant is notified otherwise in writing by Buyer's lender or its successors and assigns. In the event that a lender succeeds to landlord's interest under the Lease, Tenant agrees to attorn to the lender at lender's request, so long as the lender agrees that unless Tenant is in default under the Lease, the Lease will remain in full force and effect. Tenant further acknowledges and agrees that Purchaser (including its lender), their respective successors and assigns shall have the right to rely on the information contained in this Certificate. The undersigned is authorized to execute this Tenant Estoppel Certificate on behalf of Tenant. [TENANT] By: Its: Date: , 2003 Page 2 EXHIBIT D-1 TO PURCHASE AND SALE AGREEMENT GUARANTOR ESTOPPEL CERTIFICATE Date: _______________ , 2004 To: ___________ Inland Real Estate Acquisitions, Inc., and Inland Western Marysville, L.L.C., and its lenders, successors and assigns ("Purchaser") 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Sharon Anderson-Cox Re: Guaranty Agreement dated ___________ ("Guaranty of Lease") pertaining to that certain lease dated _______ between ______________________ as Landlord and _________________________________ as Tenant for leased premises known as ____________________________________ (the "Premises") located at the property commonly known as ________________ (the "Property"). 1. Guarantor certifies to Lender and Purchaser that: (a) the Guaranty of Lease has been properly executed by Guarantor and is presently in full force and effect without amendment or modification except as noted above; (b) Guarantor has no existing defenses, offsets, liens, claims or credits against the obligations under the Guaranty of Lease. 2. This certification is made with the knowledge that Purchaser is about to acquire title to the Property and a lender is about to provide Landlord with financing which shall be secured by a deed of trust (or mortgage), security agreement and assignment of rents, leases and contracts upon the Property. Guarantor further acknowledges and agrees that Purchaser and its lender and their respective successors and assigns shall have the right to rely on the information contained in this Certificate. 3. The undersigned is authorized to execute this Guarantor Estoppel Certificate on behalf of Guarantor. [GUARANTOR] By: ------------------------------------- Page 1 EXHIBIT E TO PURCHASE AND SALE AGREEMENT TAXPAYER I.D. CERTIFICATE In connection with certain Internal Revenue Service reporting requirements imposed upon Seller, Purchaser hereby certifies that listed below is Purchaser's address and taxpayer I.D. number, true and correct as of the Closing Date. Address: ------------------------------------------- ------------------------------------------- Taxpayer I.D. No.: ---------------------------------- Purchaser hereby consents to Seller's release of the above information in connection with any reporting requirements imposed upon Seller by any governmental authority. -------------------, a ----------------- By: --------------------------------, a --------------------------------, its ------------------ By: ------------------------------ Name: ------------------------- Title: ------------------------ Page 1 EXHIBIT F TO PURCHASE AND SALE AGREEMENT ASSIGNMENT OF PURCHASE AND SALE AGREEMENT THIS ASSIGNMENT OF PURCHASE AND SALE AGREEMENT ("ASSIGNMENT"), is made as of this ________ day of ____________, 20__, by and between __________________, a _____________________________ ("SELLER"), ___________________________________, a ___________________________ ("PURCHASER"), and ______________________________, a _______________________ duly formed and organized under the laws of the State of _____________________ ("ASSIGNEE") (Seller, Purchaser and Assignee are sometimes referred herein, collectively, as the "PARTIES"). All initially capitalized terms used herein which are not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement (as such term is defined below). RECITALS A. Seller and Purchaser have entered into that certain Purchase and Sale Agreement ("PURCHASE AGREEMENT"), dated as of __________, 20__, for the sale of the property described in the Purchase Agreement ("PROPERTY") and commonly known as "__________________," located in the City of ____________, County of ______________, State of _______ and more particularly described in the Purchase Agreement. B. The Parties desire to enter into this Assignment to, among other things, assign the Purchaser's rights and interests in the Purchase Agreement to Assignee and to evidence Assignee's assumption of Purchaser's obligations and liabilities under the Purchase Agreement. ASSIGNMENT: NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. ASSIGNMENT OF PURCHASE AGREEMENT. Purchaser hereby assigns and transfers to Assignee all of Purchaser's right, title, claim and interest in and to the Purchase Agreement, the Property, and all sums paid or deposited into escrow or to Seller by Purchaser in connection with the Purchase Agreement. 2. ASSUMPTION. Assignee hereby acknowledges and agrees to all of the terms of the Purchase Agreement and accepts the foregoing assignment and assumes and agrees to perform all obligations of Purchaser under the Purchase Agreement, in accordance with the terms thereof. 3. NO RELEASE. The assignment and assumption set forth in Paragraphs 1 and 2 hereof shall not release Purchaser from the obligation of Purchaser or Assignee to perform in accordance with the terms of the Purchase Agreement. Purchaser acknowledges that, notwithstanding such assignment and assumption, Purchaser shall remain primarily obligated under the Purchase Agreement and Purchaser and Assignee shall be co-obligors under the Purchase Agreement with joint and several liability for the performance of all obligations of Purchaser set forth thereunder, including, without limitation, the indemnification obligations of Purchaser set forth in the Purchase Agreement. Page 1 4. AMENDMENT TO PURCHASE AGREEMENT. The Purchase Agreement is hereby amended in the following manner: (a) The term "PURCHASER" as used in the Purchase Agreement is amended to mean Purchaser and/or Assignee. (b) All exhibits to the Purchase Agreement, as so amended, shall be signed and delivered by Seller and Assignee in accordance with the terms of the Purchase Agreement. 5. REPRESENTATIONS AND WARRANTIES OF ASSIGNEE. Assignee hereby represents and warrants to Seller that each and every representation and warranty made by Purchaser in the Purchase Agreement is true and correct with respect to Assignee as of the date of the Purchase Agreement and the Closing Date (as defined in the Purchase Agreement) and such representations and warranties apply fully to this Assignment and shall survive the Deed (as defined in the Purchase Agreement). In particular, and without any limitation or affect upon the other representations and warranties made by Purchaser and Assignee under the Purchase Agreement, as amended hereunder, Assignee hereby represents and warrants to Seller that neither Assignee, nor any partner, related entity, or affiliate of Assignee is in any way affiliated with Seller, GE Capital Realty Group, Inc., General Electric Capital Corporation, General Electric Company, or any affiliate of General Electric Company, which representation and warranty shall also survive the Closing and the delivery of the Deed (as defined in the Purchase Agreement) to Assignee. Purchaser acknowledges and agrees to be bound by the disclaimer of representations and warranties contained in Article 5 of the Purchase Agreement, which acknowledgment and agreement and disclaimer shall survive the Deed. 6. RATIFICATION OF AGREEMENTS. Except as expressly amended and modified under this Assignment, the Parties hereby ratify and affirm the terms and provisions of the Purchase Agreement in their entirety. 7. GOVERNING LAW. This Assignment shall be governed by and construed in accordance with the laws of the State of ______________. Page 2 IN WITNESS WHEREOF, the parties have executed this Assignment as of the day and year first above written. PURCHASER: -------------------, a ----------------- By: --------------------------------, a --------------------------------, its ------------------ By: ------------------------------ Name: ------------------------- Title: ------------------------ ASSIGNEE: -------------------, a ----------------- By: --------------------------------, a --------------------------------, its ------------------ By: ------------------------------ Name: ------------------------- Title: ------------------------ SELLER: -------------------, a ----------------- By: --------------------------------, a --------------------------------, its ------------------ By: ------------------------------ Name: ------------------------- Title: ------------------------ Page 3 EXHIBIT G TO PURCHASE AND SALE AGREEMENT NOTICE TO TENANT _________ , 2004 ___________________________ Unit No.___________________ ___________________________ ___________________________ RE: Sale by ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("LANDLORD") to _______________________________, a ___________________ ("NEW LANDLORD"), of the land and buildings known as "Safeway Plaza at Marysville"(the "PROPERTY"), Marysville, Snohomish County, Washington Dear Tenant: You are hereby notified that Landlord has sold the Property, of which your leased premises (the "LEASE") is a part, to New Landlord. Accordingly, New Landlord, as the new owner of the Property and now as landlord under the Lease, elects that____________________________ ("TENANT") attorn to Landlord in accordance with the Lease and the Lease is and shall continue in full force and effect for the unexpired portions of the term of the Lease upon all of the terms, covenants, conditions and agreements set forth in the Lease with Landlord. Further, you are advised that New Landlord has received and is responsible for Tenant's security deposit in the amount of $______________________. The address and telephone number of the New Landlord for any notices and all purposes under the Lease is: ____________ ____________ ____________ ____________ Page 1 Thank you for your assistance and cooperation during this transition. LANDLORD: ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: ------------------------------ Name: ------------------------- Title: ------------------------ NEW LANDLORD: --------------------, a --------- By: --------------------------------, a --------------------------------, its ------------------ By: ------------------------------ Name: ------------------------- Title: ------------------------ Page 2 EXHIBIT H TO PURCHASE AND SALE AGREEMENT HOLDBACK ESCROW AGREEMENT THIS HOLDBACK ESCROW AGREEMENT (this "AGREEMENT") is entered into by and among ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation ("SELLER"), ___ ____________________, a ___________________ ("BUYER") and FIRST AMERICAN TITLE INSURANCE COMPANY ("ESCROW AGENT"). RECITALS: A. Seller and Buyer entered into that certain Purchase and Sale Agreement dated as of ____________, 2004 (the "CONTRACT"), pursuant to which Seller agreed to sell to Buyer and Buyer agreed to purchase the real estate and improvements known as "Safeway Plaza at Marysville," located in the City of Marysville, Snohomish County, Washington as more particularly described in the Contract (the "PROPERTY"). B. Prior to the closing of the transaction contemplated by the Contract (the "CLOSING"), Seller did not execute a lease with Citifinancial ("TENANT") for space at the Property for approximately 1,500 net rentable feet known as Suite _________ (the "PREMISES"). C. Seller has agreed that PURSUANT to SECTION 4.7 of the Contract, $47,625.00 (the "HOLDBACK") would be held back from the Purchase Price at the Closing and will be held in escrow and disbursed in accordance with the terms set forth herein. The Holdback is comprised of (i) annual base rent of $17.50 per square foot of the Premises over a twelve (12) month period; (ii) annual triple net charges of $4.25 per square foot of the Premises over a twelve (12) month period ((i) and (ii) are herein collectively called the "ESCROWED RENT"); and (iii) $10.00 per square foot of the Premises for tenant improvement costs and leasing commissions associated with executing a new lease with Tenant or any other tenant ("REPLACEMENT TENANT") ((iii) is herein called the "LEASING COSTS"). D. At Closing, Buyer deposited the portion of the Purchase Price equal to the Holdback with Escrow Agent. E. Escrow Agent agrees to act as escrow agent to hold, administer, invest and disburse the Holdback on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the foregoing and in consideration of the mutual covenants of the parties herein contained, and in further consideration of the sum of One Dollar ($1.00), which each of the parties acknowledges is adequate and sufficient, the parties hereto agree as follows: 1. DEFINITIONS. All capitalized terms used herein, unless otherwise herein defined, shall have the meanings set forth in the Contract. 2. APPOINTMENT. Buyer and Seller hereby appoint Escrow Agent to serve as such for the purpose set forth herein and Escrow Agent accepts such appointment. 3. ACKNOWLEDGMENT OF RECEIPT. Escrow Agent hereby acknowledges receipt of the Holdback. Page 1 4. ADMINISTRATION OF HOLDBACK. Escrow Agent hereby agrees to hold and administer the Holdback pursuant to the terms and conditions of this Agreement. 5. SELLER'S LEASING. From and after Closing until the expiration of this Agreement, Seller shall have the right, but not the obligation, to lease the Premises to Tenant or a Replacement Tenant upon the same or better terms and conditions set forth in this Agreement, or upon terms and conditions otherwise reasonably acceptable to Buyer. If the business terms and conditions of the lease with the Tenant or a Replacement Tenant are the same or better for Buyer than the terms and conditions set forth in this Agreement, or if the terms and conditions of such lease are otherwise reasonably acceptable to Buyer and Seller, and so long as such new lease does not violate any express use restrictions reserved to tenants at the Property existing as of the date of this Agreement, Buyer shall promptly (but in no event later than ten (10) days after receipt of such new lease) execute such new lease. 6. CONDITIONS PRECEDENT TO DISBURSEMENT OF HOLDBACK. It shall be a condition precedent to disbursement that Buyer provide to Seller and Escrow Agent a draw request on or before the seventh (7th) day of each calendar month during the term of this Agreement, specifying the amount then being drawn from the Holdback. Escrow Agent may, without any further evidence or direction, rely on such draw request and the amounts set forth therein and Escrow Agent may presume that such amounts are consistent with the terms, conditions and agreements of Seller and Buyer set forth herein unless Seller objects to such disbursement within ten (10) business days following Seller's receipt of Buyer's draw request, in which event the terms and conditions set forth in PARAGRAPH 11 below shall control. Unless Seller objects to such disbursement within such ten (10) business period, the Holdback shall be disbursed by Escrow Agent to Buyer on the eleventh (11th) day after Escrow Agent's receipt of the draw request from Buyer. 7. DISPOSITION OF HOLDBACK. Commencing on June 7, 2004 and continuing on the seventh (7th) day of each calendar month thereafter during the term of this Agreement, Escrow Agent will disburse to Buyer from the Holdback on the eleventh (11th) day after Escrow Agent's receipt of the draw request from Buyer as set forth in PARAGRAPH 6 above, an amount equal to one-twelfth (1/12) of the Escrowed Rent (less any base rents, triple net charges and other additional rent and charges [excluding security deposits and prepaid rent] received by Buyer from Tenant or a Replacement Tenant). On June 7, 2005, if this Agreement has not previously terminated, Escrow Agent will disburse to Buyer any remaining funds in the Holdback that are due Buyer under this Agreement and the balance, if any, will be disbursed to Seller. Notwithstanding anything to the contrary contained herein, any draw by Buyer from the Holdback on June 7, 2004 shall be an amount equal to Buyer's pro rata share for the month of June. 8. LEASING COSTS. In the event Buyer executes a new lease with a replacement tenant before the Holdback is fully disbursed to Buyer, then Buyer may draw upon the remaining portion of the Holdback in the amount of the lesser of (i) $_____________ or (ii) the Leasing Costs payable by the landlord under such new lease in consummating such lease with Tenant or a Replacement Tenant, subject, however to the conditions set forth in PARAGRAPH 6 above. 9. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the earlier to occur of (i) the full disbursement of the Holdback, or (ii) June 7, 2005, or (iii) the execution by Tenant or a Replacement Tenant of a new lease, or (iv) termination hereof by written agreement of the parties hereto. Notwithstanding anything to the contrary contained herein, in the event Tenant or a Replacement Tenant executes a new lease for the Premises, prior to disbursement to Seller of any Page 2 funds in the Holdback, Escrow Agent shall first disburse to Buyer out of the Holdback the amount of Leasing Costs required by PARAGRAPH 8 of this Agreement. 10. INDEMNIFICATION OF ESCROW AGENT. If this Agreement or any matter relating hereto shall become the subject of any litigation or controversy, Buyer and Seller shall, jointly and severally, hold Escrow Agent free and harmless from any loss or expense, including attorneys' fees, that may be suffered by it by reason thereof other than as a result of Escrow Agent's breach of this Agreement, negligence or willful misconduct. In the event conflicting demands are made or notices served upon Escrow Agent with respect to this Agreement, or if there shall be uncertainty as to the meaning or applicability of the terms of this Agreement, Buyer and Seller expressly agree that Escrow Agent shall be entitled to file a suit in interpleader and to obtain an order from the court requiring Buyer and Seller to interplead and litigate their several claims and rights among themselves. Upon the filing of the action in interpleader and the deposit of the Holdback into the registry of the court, Escrow Agent shall be fully released and discharged from any obligations imposed upon it by this Agreement with respect to the amount so deposited with the court. 11. LIABILITY. Escrow Agent shall not be liable for the sufficiency or correctness as to form, manner, execution or validity of any instrument deposited with it, nor as to the identity, authority or rights of any person executing such instrument. It is agreed that the duties of the Escrow Agent are purely ministerial in nature, and that Escrow Agent's duties hereunder shall be limited to the safekeeping of the Holdback and documents received by it as Escrow Agent, and for their disposition in accordance with the terms of this Agreement. Seller and Buyer hereby release the Escrow Agent from any act done or omitted to be done by Escrow Agent in good faith in the performance of its duties hereunder. The Escrow Agent may seek the advice of independent legal counsel in the event of any dispute or question as to the construction of any of the provisions of this Agreement or its duties hereunder, and it shall incur no liability and shall be fully protected in respect of any action taken or suffered by it in good faith in accordance with the opinion of such counsel. 12. MAINTENANCE OF CONFIDENTIALITY BY ESCROW AGENT. Except as may otherwise be required by law or by this Agreement, Escrow Agent shall maintain in strict confidence and not disclose to anyone the existence of this Agreement, the Contract, the identity of the parties to the foregoing, the amount of the Purchase Price, the provisions of this Agreement or the Contract or any other information concerning the transactions contemplated hereby or by the Contract, without the prior written consent of Buyer and Seller. 13. INVESTMENT OF HOLDBACK. (a)Escrow Agent shall invest and reinvest the Holdback at the written instruction of Buyer in an interest-bearing FEDERALLY insured account as Buyer shall direct. The investment of the Holdback shall be at the sole risk of Buyer. Buyer shall provide the Escrow Agent with a taxpayer identification number and shall pay all income taxes due by reason of interest accrual on the Holdback and all such interest shall be the sole property of Buyer (regardless of whether any portion of the principal sum of the Holdback is released to Seller strictly in accordance with the terms and conditions of this Agreement) to be held or invested by Escrow Agent as Seller may direct. (b)Escrow Agent is not and shall not be responsible for maintaining the value of any investment or providing investment counseling. In addition, Escrow Agent is not to be held responsible for any loss of principal or interest which may be incurred as a result of making the investments or redeeming said investments for the purposes of this Agreement. Page 3 (c)Except as to deposits of funds for which Escrow Agent has received express written direction concerning investment or other handling, the parties hereto agree that the Escrow Agent shall be under no duty to invest or reinvest any deposits at any time held by it hereunder; and further Escrow Agent can commingle such deposits with other deposits or its own funds in accordance with all laws, and may use any part or all such funds for its own benefit without obligation to any part for interest or earnings derived thereby, if any. Nothing herein shall diminish Escrow Agent's obligation to apply the full amount of the Holdback in accordance with the terms of this Agreement. 14. NOTICES. Any notice required or permitted to be given hereunder shall be deemed to be given when hand delivered or one (1) business day after pickup by Emery Air Freight, Airborne, Federal Express, or similar overnight express service, or by facsimile (only as provided below) in either case addressed to the parties at their respective addresses referenced below: If to Seller: c/o GE Capital Real Estate 1901 Main Street, 7th Floor Irvine, California 92614 Attention: Mr. Mike Malloy Telephone: (949) 477- 1566 Fax: (949) 477- 0903 Email: Mike.Malloy@gecapital.com with a copy to: Andrews Kurth LLP 1717 Main Street, Suite 3700 Dallas, Texas 75201 Attention: Andrew L. Campbell, Esq. Telephone: (214)659-4511 Fax: (214)659-4401 Email: acampbell@andrewskurth.com If to Buyer: Inland Real Estate Acquisitions, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attention: Mark Youngman Tel: (630) 218-8000, Ext. 2019 Fax: (630)218-4935 Email: Youngman@inlandgroup.com Page 4 with a copy to: The Inland Real Estate Group, Inc. 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Robin Rash, Esq. Tel: (630) 218-8000, Ext. 2854 Fax: (630)218-4900 Email: rrash@inlandgroup.com If to Escrow Agent: First American Title Insurance Company 30 N. LaSalle Street, Suite 310 Chicago, Illinois 60602 Attention: Steven Zellinger Tel: (312) 917- 7257 Fax: (312) 553- 0480 Email: szellinger@firstarm.com or in each case to such other address as either party may from time to time designate by giving notice in writing to the other party. Except for facsimile notices between 9:00 a.m. and 5:00 p.m. Dallas time on a business day that are followed up by an overnight courier delivery, telephone and facsimile numbers are for informational purposes only. Effective notice will be deemed given only as provided above. For purposes of this PARAGRAPH 14, the addresses of the parties for all notices are as set forth above (unless changed by similar notice in writing given by the particular person whose address is to be changed). 13. MISCELLANEOUS. (a)This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, representatives, successors and assigns. (b)This Agreement shall be construed under and governed by the laws of the State of Washington and, in the event that any provision hereof shall be deemed illegal or unenforceable, said provision shall be severed herefrom and the remainder of this Agreement shall be enforced in accordance with the intent of the parties as herein expressed. (c)This Agreement may not be amended or altered except by an instrument in writing executed by all the parties hereto. (d)Any fee charged by Escrow Agent this escrow shall be paid by Buyer in its entirety and Seller shall have no liability or responsibility therefor. (e)Escrow Agent may resign at any time without designation of cause and without liability, by providing, notice to Buyer and Seller. In such event, Escrow Agent shall hold the Holdback and deliver the same only upon the joint written instructions from Buyer and Seller, and Page 5 Buyer and Seller agree to appoint a new escrow agent within thirty (30) days from the date Escrow Agent resigns. (f)Buyer may not, without Seller's and Escrow Agent's prior consent, assign this Agreement and its rights and obligations hereunder to any entity or individual or other legal person. (g)This Agreement may be executed in multiple counterparts and by the parties on separate counterparts, each of which shall be deemed to be an original and all of which shall together constitute one and the same agreement. The parties may execute and deliver this Agreement by forwarding signed facsimile copies of this Agreement. Such facsimile signatures shall have the same binding effect as original signatures, and the parties hereby waive any defense to validity based on any such copies or signatures. [SIGNATURE PAGES FOLLOW] Page 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of __________ day of _________, 2004. In the event of a conflict between the terms hereof and the terms of the Contract, the Contract shall govern. SELLER ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation By: GE CAPITAL REALTY GROUP, INC., a Texas corporation, its attorney-in-fact By: ------------------------------ Name: ------------------------- Title: ------------------------ Page 7 PURCHASER: --------------------, a -- By: --------------------------------, a --------------------------------, its ------------------ By: --------------------------- Name: ------------------------- Title: ------------------------ Page 8 TITLE COMPANY: FIRST AMERICAN TITLE INSURANCE COMPANY By: ------------------------------ Name: ------------------------- Title: ------------------------ Page 9 EXHIBIT H TO PURCHASE AND SALE AGREEMENT LEASING PARAMETERS 1. SUITE 1246-E (AVAILABLE): 1,500 SF, $16 psf/yr. for rent, $5 psf for tenant improvements and $5 psf for leasing commissions. 2. SUITE 1262-D (AVAILABLE): 1,300 SF, $18 psf/yr. for rent, $5 psf for tenant improvements and $5 psf for leasing commissions. 3. SUITE 1262-J (SUBS 'N MORE - CURRENTLY MONTH TO MONTH): 1,000 SF, $20 psf/yr. for rent, $10 psf for tenant improvements and $5 psf for leasing commissions. Page 1 EX-10.308 19 a2143310zex-10_308.txt EX-10.308 Exhibit 10.308 ALLSTATE LIFE INSURANCE COMPANY ALLSTATE PLAZA SOUTH, SUITE G5C NORTHBROOK, ILLINOIS 60062 August 10, 2004 Inland Western Easton Forks Town, DST 2901 Butterfield Road Oakbrook, Illinois 60523 Re: Allstate Life Insurance Company Loan No. 122483 Forks Towne Center Sullivan Trail & Old Mill Road Easton, Pennsylvania (the "Property") Ladies and Gentlemen: Reference is made to our Commitment Letter dated June 22, 2004, as amended (the "Commitment") with respect to a $10,395,000 loan (the "Loan") to be evidenced by a Mortgage Note of even date herewith, payable to Allstate Life Insurance Company in the principal amount of $10,395,000 (the "Note"), and to be secured by an Open-End Mortgage, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing of even date herewith (the "Mortgage") encumbering the Property. Initially capitalized terms used but not otherwise defined in this letter agreement (the "Letter Agreement") have the same meanings given them in the Mortgage. In consideration of your execution and delivery of the documents evidencing, securing or otherwise pertaining to the Loan (the "Loan Documents"), you (the "Borrower") and we ("Lender") hereby agree as follows: 1. RELATED AGREEMENT. This Letter Agreement shall constitute a Related Agreement. 2. IMPOUNDS. With regard to the provisions contained in Section 1.06 of the Mortgage requiring Borrower to deposit 1/12 of the annual amounts of real estate taxes, regular and special assessments and insurance premiums, Lender hereby agrees to defer collection of such monthly deposits for so long as (a) Borrower is the sole fee simple owner of the Property; and (b) no Event of Default exists under the Loan Documents and no condition or event exists which with notice, the passage of time, or both, would constitute an Event of Default; and (c) at Lender's election, Borrower either pays for a tax reporting service or Borrower promptly and consistently furnishes evidence that taxes and insurance are being currently paid. 3. EARTHQUAKE INSURANCE. With regard to the provisions contained in Section 1.02 of the Mortgage requiring Borrower obtain earthquake insurance coverage on the Property, Lender hereby agrees to waive such requirement until such time as such coverage is available at commercially reasonable rates and in Lender's reasonable opinion such coverage is generally required by other institutional lenders. 4. BORROWER'S RIGHT TO TRANSFER THE PROPERTY. Notwithstanding the provisions contained in Section 1.08 and other applicable provisions of the Mortgage, Borrower shall have a one time right, provided there is no default or an event which, with notice or the passage of time, or both, could result in a default by Borrower under the Loan Documents, to assign, sell or transfer all of the Property (the "Permitted Transfer") to a party with experience, reasonably satisfactory to Lender, in managing property similar to the Property and whose financial condition is reasonably satisfactory to Lender ("Permitted Transferee"). The Permitted Transfer shall be further conditioned upon: (a) the payment by Borrower to Lender of a transfer fee equal to one percent of the outstanding principal balance of the Note (a nonrefundable $5,000 deposit toward such transfer fee shall be due at the time Borrower initially requests a Permitted Transfer, the balance of the transfer fee shall be due on the closing of the transaction); (b) the reimbursement of all of Lender's expenses, including legal fees, incurred in connection with the Permitted Transfer; (c) the Permitted Transferee and such general partners or principals of Permitted Transferee as Lender may request, assuming, in form and substance satisfactory to Lender, all obligations of Borrower under the Loan Documents, including, without limitation, the Environmental Indemnity Agreement and the Nonrecourse Exception Indemnity Agreement, with the same degree of recourse liability as Borrower and subject to the same exculpatory provisions; (d) Lender's receipt of a title policy complying with the requirements of the Commitment, updated to the date of the Permitted Transfer, evidencing that such Permitted Transfer will not adversely affect Lender's first and prior lien on the Property or any other rights or interests granted to Lender under the Loan Documents; (e) Lender's receipt of opinions of counsel acceptable to Lender that all previous opinions, pertaining to Borrower are true with respect to the Permitted Transferee and the Permitted Transferee has duly assumed the Loan Documents, and same are valid and enforceable against Permitted Transferee and the Property; and that Borrower has the requisite power and authority to properly transfer the Property; (f) the Property having maintained a Debt Coverage Ratio of not less than 200 percent for the 12 month period ending 30 days before the date of the Permitted Transfer and the Property having a projected Debt Coverage Ratio for the next 12 months based on the most recently approved and certified financial statements and annual rent roll of not less than 200 percent; (g) the Permitted Transferee paying to Borrower at least 45 percent cash down payment on the date of the Permitted Transfer; 2 (h) Lender's receipt and approval of the purchase and sale contract and copies of the proposed transfer documentation; (i) Lender's receipt and approval of the Permitted Transferee's resume and financial statements; and (j) Lender's receipt and approval of an updated MAI appraisal by an appraiser satisfactory to Lender (prepared at Borrower's expense) specifically confirming a loan to value ratio of no more than 55 percent. In addition, Borrower shall have the right, provided there is no default or an event which, with notice or the passage of time, or both, could result in a default by Borrower under the Loan Documents, to make a Permitted Transfer to INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation ("Owner"), the sole owner of Borrower, so long as (x) Borrower pays to Lender a transfer fee equal to $5,000, (y) the Owner assumes, in form and substance satisfactory to Lender, all obligations of Borrower under the Loan Documents, including, without limitation, the Environmental Indemnity Agreement, with the same degree of recourse liability as Borrower and subject to the same exculpatory provisions, and (z) the conditions and requirements set forth in subparagraphs 4(b), (d) and (e) above are satisfied. Net Operating Income shall be certified to be true and correct by the managing general partner, manager or chief financial officer of Borrower. 5. RIGHT TO CHANGE OWNERSHIP INTERESTS IN BORROWER. Notwithstanding the provisions contained in Section 1.08 and other applicable provisions of the Mortgage, so long as Owner maintains its status as a Real Estate Investment Trust (a "REIT") any encumbrance, security interest or assignment or transfer of ownership of all types and classes of the shares of Owner shall not constitute an improper encumbrance or transfer. 6. DAMAGE TO PROPERTY. With regard to the provisions contained in Section 1.04(A) of the Mortgage requiring Borrower to notify Lender of damage to the Property, the cost threshold for notification shall be increased to One Hundred Thousand Dollars ($100,000). With regard to the provisions contained in Section 1.04(B) and 1.04(C) of the Mortgage regarding the estimated cost of restoration, the threshold amounts shall be increased to Two Hundred Fifty Thousand Dollars ($250,000). 7. INSURANCE. Lender hereby approves the insurance evidenced by the certificates attached as EXHIBIT A hereto. 8. PROPERTY MANAGER. Lender hereby approves Inland Northwest Management Corp. as manager of the Property, subject to its execution of the letter attached as EXHIBIT B hereto. 9. RIGHTS PERSONAL TO BORROWER. This Letter Agreement shall be binding upon Borrower and its successors and assigns, except that the rights granted to Borrower in paragraphs 2 -- 8 of this Letter Agreement shall be personal to Borrower and shall not inure to the benefit of any subsequent owner of the Property. In the event Lender transfers all or any part of the Loan or any interest in the Loan Documents to any other person or entity, Lender agrees to notify such transferee(s) of the existence of this Letter Agreement and the fact that it is binding upon 3 Lender's successors and assigns by delivering such transferee(s) a true, correct and complete copy of this Letter Agreement concurrently with such transfer accompanied by a letter of transmittal from Lender advising such transferee(s) of the binding nature of the provisions of this Letter Agreement. Lender will send a copy of its letter of transmittal and the enclosure to Borrower, and Borrower's name will be shown on the face of the original letter of transmittal as an addressee thereof. * * * * * [Signature Page Follows] Very truly yours, ALLSTATE LIFE INSURANCE COMPANY, an Illinois insurance corporation By: /s/ [ILLEGIBLE] ------------------------------------- By: [ILLEGIBLE] ------------------------------------- Its Authorized Signatories Accepted and agreed: INLAND WESTERN EASTON FORKS TOWN, DST a Delaware statutory Trust By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, Its Signatory Trustee By: Debra A Palmer --------------------------------- Its: Asst Secretary -------------------------------- Dated: August 10, 2004 4 EXHIBIT A INSURANCE CERTIFICATES EXHIBIT "B" [INLAND(R) LOGO] Inland Northwest Management Corp. 2901 Butterfield Road Oak BrooK, Illinois 60523 630-218-8000 Fax: 630-218-4928 PROPERTY MANAGER LETTER INLAND NORTHWEST MANAGEMENT CORP. August 10, 2004 Allstate Life Insurance Company c/o Allstate Investments, LLC Allstate Plaza South, Suite G5C 3075 West Sanders Road Northbrook, Illinois 60062 Attention: Commercial Mortgage Division Re: Allstate Life Insurance Company Loan No. 122483 Forks Towne Center Sullivan Trail & Old Mill Road Easton, Pennsylvania (the "Property") Ladies and Gentlemen: The undersigned ("Manager") is the current property manager of the Property pursuant to that certain Management Agreement (the "Agreement") dated July 27, 2004 by and between INLAND WESTERN EASTON FORKS TOWN, DST, a Delaware statutory trust ("Owner") and Manager. In consideration of your making the Loan to Owner (Manager being an affiliate of Owner), Manager acknowledges and agrees to the following: 1. Allstate, in its sole discretion, may terminate the Agreement by notice to Manager upon acquisition by Allstate of title to the Property by foreclosure, deed in lieu of foreclosure, or other transfer of the Property or upon Allstate otherwise obtaining possession of the Property by any lawful means. Upon the appointment of a receiver or court appointed officer, either Allstate or such receiver or officer may terminate the Agreement in its sole discretion by notice to Manager. 2. Manager waives any right to create a lien against the Property to secure payment of unpaid management fees. 3. Upon the occurrence of, and during the continuation of, a default under any of the documents evidencing the Loan which has not been cured in. Allstate's sole judgment, all management fees paid or payable to Manager thereafter shall be subordinate to amounts owed to Allstate under such Loan documents. 4. Upon the occurrence of, and during the continuation of, a default under any of the documents evidencing the Loan which has not been cured in Allstate's sole judgment, all management fees and other sums received by Manager thereafter in connection with management of the Property shall be held in trust for the benefit of Allstate. 5. Until Allstate elects to terminate the Agreement as provided herein, Manager will perform all of its obligations, covenants, conditions and agreements under the Agreement for the benefit of Allstate and its successors and assigns, so long as Allstate performs the duties and obligations of Owner under the Agreement accruing after the date Allstate exercises its rights under the Mortgage. INLAND NORTHWEST MANAGEMENT CORP., a Delaware corporation By: /s/ Robert M. Berg ---------------------------- Its SR. VP ------------------------- EX-10.309 20 a2143310zex-10_309.txt EX-10.309 Exhibit 10.309 Allstate Life Insurance Company Loan No. 122483 MORTGAGE NOTE Chicago, Illinois $10,395,000 August 10, 2004 1. PAYMENT OF PRINCIPAL AND INTEREST. FOR VALUE RECEIVED, INLAND WESTERN EASTON FORKS TOWN, DST, a Delaware statutory trust (the "Maker"), hereby promises to pay to the order of ALLSTATE LIFE INSURANCE COMPANY, and any subsequent holder of this Note ("Holder" or "Holders") in the manner hereinafter provided, the principal amount of TEN MILLION THREE HUNDRED NINETY FIVE THOUSAND DOLLARS ($10,395,000), together with interest on the outstanding principal balance from the date of the initial disbursement (for purposes of this Note, "disbursement" means the date funds are wire transferred from Holder's account) of all or a part of the principal of this Note ("Disbursement Date") until maturity at the rate of four and 97/100 percent (4.97%) per annum ("Contract Rate") as follows: (a) on the Disbursement Date, interest only, in advance, accruing from the Disbursement Date to the last day of August, 2004, both inclusive; and (b) interest only, in arrears, in the amount of FORTY THREE THOUSAND FIFTY TWO AND 63/100 DOLLARS ($43,052,63) on the first day of October, 2004, and on the first day of each month thereafter until this Note is fully paid (the initial payment and each subsequent payment under this subparagraph (b) shall each hereinafter be referred to as "Monthly Payment"); and (c) on August 1, 2009, the entire unpaid principal amount and any interest accrued but remaining unpaid and all other sums due under this Note. Except for the interest payable under paragraph (a) above, interest shall be payable in arrears and calculated on the basis of a 360 day year containing twelve 30 day months. All such payments on account of the indebtedness evidenced by this Note shall be first applied to interest accrued on the unpaid principal amount and the remainder toward reduction of the unpaid principal amount. 2. PAYMENT INFORMATION. All payments required to be made hereunder shall be made during regular business hours to Holder at its office c/o Commercial Mortgage Division, Allstate Plaza South, Suite G5C, 3075 Sanders Road, Northbrook, Illinois 60062, Attention: Servicing Manager, with sufficient information to identify the source and application of such payment to Holder's Loan #122483, or at such other place as Holder may from time to time designate in writing. All payments shall be made in currency of the United States of America without presentment or surrender of this Note. Payments to Holder shall be made by transferring immediately available federal funds by bank wire or interbank transfer for the account of Holder. Any payment of principal or interest received after 1:00 p.m. Chicago time shall be deemed to have been received by Holder on the next business day and shall bear interest accordingly. If and so long as Holder directs Maker to make payments to a servicing agent, then payments may be made by check. Payments made by check will not be deemed made until good funds for such check are received by Holder or the servicing agent. 3. SECURITY FOR NOTE. The payment of this Note and all other sums due Holder is secured by (a) an Open-End Mortgage, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing ("Mortgage") of even date herewith, granted by Maker, as mortgagor, to Holder, as mortgagee, covering certain real property, the improvements thereon and certain personal property situated in the County of Easton, State of Pennsylvania and described in the Mortgage ("Property"), and (b) those certain instruments of indebtedness and security described as "Related Agreements" in the Mortgage. Except as otherwise defined herein, all of the defined terms contained in the Mortgage and the Related Agreements are hereby incorporated herein by express reference. 4. LATE CHARGES. If any Monthly Payment required under this Note not be paid in full on or before the fifth (5th) day of the month in which such payment is due, Maker acknowledges that the Holder will incur extra expenses for the handling of the delinquent payment and servicing the indebtedness evidenced hereby, and that the exact amount of these extra expenses is extremely difficult and impractical to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment ("Late Charge") would be a fair approximation of the expense so incurred by Holder, If applicable law requires a lesser charge, however, then the maximum charge permitted by such law may be charged by Holder for said purpose. Therefore, Maker shall, in such event, without further notice, and without prejudice to the right of Holder to collect any other amounts provided to be paid hereunder or under the Mortgage, the Related Agreements or any other instrument executed for purposes of further securing payment of the obligations evidenced by this Note, or to declare an Event of Default, as defined below, pay to Holder immediately upon demand the Late Charge to compensate Holder for expenses incurred in handling delinquent payments. 5. INTEREST PAYABLE UPON DEFAULT. If there occurs an Event of Default under this Note or the Mortgage or under any Related Agreement, then the unpaid principal amount of this Note, and all accrued and unpaid interest thereon shall bear interest at the Contract Rate plus five percent (5%) per annum compounded monthly ("Default Rate") from the date of expiration of any applicable cure or grace period until such time, if any, as the Event of Default is cured and the Mortgage and this Note are reinstated as permitted by applicable law, or otherwise until such time as the unpaid principal amount of this Note and all other indebtedness evidenced by this Note are fully repaid, whichever is earlier. 6. EVENTS OF DEFAULT. An "Event of Default" shall exist under this Note: (a) in the event Maker shall fail to make any payment due under this Note, other than the final payment and Prepayment Premium, on or before the fifth (5th) day of the month in which such payment is due; (b) in the event Maker shall fail to make the final payment or the Prepayment Premium when such payment is due; or 2 (c) if there shall exist an Event of Default under the Mortgage, or in any of the Related Agreements. 7. ADDITIONAL PAYMENTS. The additional payments called for under Paragraphs 4 and 5 shall be in addition to, and shall in no way limit, any other rights and remedies provided for in this Note, the Mortgage, any Related Agreements, or otherwise provided by law. 8. PAYMENT OF TAXES AND EXPENSES. Maker further promises to pay to Holder, immediately upon written notice from Holder; (i) all recordation, transfer, stamp, documentary or other fees or taxes levied on Holder (exclusive of Holder's income taxes) by reason of the making or recording of this Note, the Mortgage or any of the Related Agreements, and (ii) all intangible property taxes levied upon any Holder of this Note or mortgagee under the Mortgage or secured party under the Related Agreements. Maker further promises to pay to Holder, immediately upon written notice from Holder, all actual costs, expenses, disbursements, escrow fees, title charges and reasonable legal fees and expenses actually incurred by Holder and its counsel in (i) the collection, attempted collection, or negotiation and documentation of any settlement or workout of the principal amount of this Note, the interest thereon or any installment or other payment due hereunder, and (ii) any suit or proceeding whatsoever at all trial and appellate levels in regard to this Note or to protect, sustain or enforce the lien of any instrument securing this Note, including, without limitation, in any bankruptcy proceeding or judicial or nonjudicial foreclosure proceeding. It is the intent of the parties that Maker pay all expenses and reasonable attorneys' and paralegals' fees incurred by Holder as a result of or in connection with (A) matters described in clauses (i) and (ii) above, (B) the negotiation and closing of the loan transaction evidenced by this Note, and any supplements or amendments thereto, (C) the protection of property given as security for the indebtedness evidenced hereby, and (D) responding to requests from Maker that Holder take certain actions, and as may otherwise be reasonably incurred by Holder as a result of or in connection with entering into the loan transaction evidenced by this Note. 9. PREPAYMENT. Maker is prohibited from prepaying this Note until September 1, 2005 (the "No-Prepayment Period"). Subsequent to the No-Prepayment Period, at any time with thirty (30) days prior written notice to Holder, specifying the date of prepayment, Maker will have the privilege of prepaying the outstanding principal amount together with any accrued but unpaid interest, any other sums secured by the Mortgage and the Related Agreements, and a prepayment premium ("Prepayment Premium") equal to the greater of: (a) one percent of the principal amount prepaid, or (b) the yield maintenance payment calculated as follows: If the Prevailing Interest Rate is less than the Contract Rate, the yield maintenance payment shall be the remainder of (x) minus (y) where "(x)" is the present value of all unpaid installments of principal and interest due under this Note from the date of prepayment to and including the original maturity date of this Note, discounted at the Prevailing Interest Rate, plus 0.50 percent (50 basis points), and "(y)" is the outstanding principal balance of this Note as of the prepayment date. 3 The term "Prevailing Interest Rate" as used herein shall mean the yield to maturity on a United States Treasury Bond or Treasury Note selected by Holder having a maturity date as near as possible to the original maturity date of this Note and an "ask" price, as close as possible to par (as published two weeks prior to the specified date of prepayment in THE WALL STREET JOURNAL or similar publication or available from the Federal Reserve Bank of New York), less the Basis Point Adjustment as computed in accordance with EXHIBIT A attached hereto to convert the monthly payments to a semi-annual equivalent. No Prepayment Premium shall be due on the principal balance prepaid within the thirty (30) day period prior to the Maturity Date of this Note. Written notice of Maker's election to make a prepayment in full of this Note shall be given in the manner provided for notices under the Mortgage. Partial prepayment of the outstanding principal amount of this Note shall not be permitted except in accordance with the terms of the Mortgage. In the event of such a permitted partial prepayment, the Prepayment Premium calculated in this Paragraph 9 shall be prorated based on the amount of the partial prepayment relative to the then current outstanding principal balance of this Note. Maker acknowledges that Holder: (a) has advanced the amounts evidenced by this Note with the expectation that such amounts would be outstanding for a period at least equal to the No-Prepayment Period; (b) would not have been willing to advance such amounts on these terms for a shorter period of time; (c) in making the loan evidenced by this Note, is relying on Maker's creditworthiness and its agreement to pay in strict accordance with the terms set forth in the Note; and (d) would not make the loan evidenced by this Note without full and complete assurance by Maker of its agreement not to prepay all or a part of the principal of this Note except as expressly permitted herein and in the Mortgage. Maker has been advised and acknowledges that Holder is relying on the receipt of payments under this Note to, among other things, match and support its obligations under contracts entered into by Holder with third parties and that in the event of a prepayment, Holder could suffer loss and additional expenses which are extremely difficult and impractical to ascertain. Accordingly, it is the express intent of Maker and Holder that: (a) Maker shall have no right to prepay this Note during the No-Prepayment Period; (b) any prepayment of this Note during the No-Prepayment Period shall only occur in the event Holder accelerates payment under this Note or as otherwise set forth in the Mortgage; (c) any prepayment described in foregoing clause (b) shall (unless otherwise expressly permitted in the Mortgage) require the payment of the Prepayment Premium; and (d) to the extent permitted by applicable law, Maker has waived, and hereby waives, any right to prepay this Note except as expressly provided in the Mortgage or this Note during the No-Prepayment Period. In the event, notwithstanding the foregoing express intent of Maker and Holder and the express waiver by Maker of any right to prepay this Note during the No-Prepayment Period, that the applicable law of the jurisdiction in which the 4 Property is located permits the Maker to prepay this Note during the No-Prepayment Period, then the applicable Prepayment Premium described in clause (c) in the third sentence of this grammatical paragraph shall be paid to Holder as a condition to any such prepayment. Maker expressly acknowledges that, pursuant to the provisions of this Note and except as otherwise provided in this Note or the Mortgage, Maker has no right to prepay this Note in whole or in part during the No-Prepayment Period. In the event any prepayment is required or expressly permitted, Maker shall be liable for the payment of the Prepayment Premium unless expressly stated otherwise in this Note or in the Mortgage. Furthermore, Maker waives any rights it may have under any applicable state laws as they relate to any prepayment restrictions contained in this Paragraph 9 or otherwise contained in this Note and expressly acknowledges that Holder has made the loan evidenced by this Note in reliance upon such agreement and waiver of Maker and that Holder would not have made the loan evidenced by this Note without such agreement and waiver of Maker. Maker acknowledges that specific weight has been given to the consideration given for such agreement, which consideration is the granting of the loan. 10. EVASION OF PREPAYMENT PREMIUM. Maker acknowledges that in the event of an acceleration of payment of this Note following an Event of Default by Maker, a tender of payment of an amount necessary to satisfy the indebtedness evidenced hereby, but not including the Prepayment Premium, made at any time prior to a foreclosure sale by Maker, its successors or assigns or by anyone on behalf of Maker, or by a buyer upon foreclosure or power of sale, shall constitute a prepayment hereunder and shall be presumed to be and conclusively deemed to constitute a deliberate evasion of the prepayment provisions hereof and shall therefore be subject to the Prepayment Premium in accordance with this Note with the date of prepayment being deemed the date of occurrence of the foreclosure sale or the tender of payment of the amount necessary to pay the entire indebtedness evidenced hereby in full, including the Prepayment Premium. 11. MAKER'S COVENANTS. Maker agrees that: (a) this instrument and the rights and obligations of all parties hereunder shall be governed by and construed under the laws of the Commonwealth of Pennsylvania, without regard to its conflict of laws provisions; (b) the obligation evidenced by this Note is an exempted transaction under the Truth-in-Lendmg Act, 15 U.S.C Section 1601, ET SEQ. (1982); (c) said obligation constitutes a business loan for the purpose of the application of any laws that distinguish between consumer loans and business loans and that have as their purpose the protection of consumers in the Commonwealth of Pennsylvania; (d) at the option of the Holder, the United States District Court for the district in which the Property is located and any court of competent jurisdiction of the Commonwealth of Pennsylvania shall have jurisdiction in any action, suit or other proceeding arising out of or relating to any act taken or omitted hereunder or the enforcement of this Note, the Mortgage and the Related Agreements and Maker shall not assert in any such action, suit or other proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or other 5 proceeding is brought in an inconvenient forum or that the venue of the action, suit or other proceeding is improper; (e) it hereby waives any objections to venue; and (f) it hereby waives its right to a trial by jury. 12. SEVERABILITY. The parties hereto intend and believe that each provision of this Note comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or any portion of any provision contained in this Note is held by a court of law to be invalid, illegal, unlawful, void or unenforceable as written in any respect, then it is the intent of all parties hereto that such portion or provision shall be given force to the fullest possible extent that it is legal, valid and enforceable, that the remainder of the Note shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion or provision was not contained therein, and the rights, obligations and interests of Maker and Holder under the remainder of this Note shall continue in full force and effect. 13. USURY LAWS. It is the intention of Maker and Holder to conform strictly to the usury laws now or hereafter in force in the Commonwealth of Pennsylvania, and any interest payable under this Note, the Mortgage, or any Related Agreement shall be subject to reduction to an amount not to exceed the maximum non-usurious amount for commercial loans allowed under the usury laws of the Commonwealth of Pennsylvania as now or hereafter construed by the courts having jurisdiction over such matters. In the event such interest (whether designated as interest, service charges, points, or otherwise) does exceed the maximum legal rate, it shall be: (a) cancelled automatically to the extent that such interest exceeds the maximum legal rate; (b) if already paid, at the option of the Holder, either be rebated to Maker or credited on the principal amount of the Note; and (c) if the Note has been prepaid in full, then such excess shall be rebated to Maker. 14. ACCELERATION. Upon an Event of Default, Holder shall have the right, without further demand or notice, to declare the entire principal amount of this Note and/or any Future Advance (as defined in the Mortgage) then outstanding, all accrued and unpaid interest thereon and all other further sums payable under this Note, which shall include the Prepayment Premium (calculated as provided in Paragraph 9 above), the Mortgage or any note evidencing any Future Advance, to be immediately due and payable and, notwithstanding the stated maturity in this Note or any note evidencing any Future Advance, all such sums declared due and payable shall thereupon become immediately due and payable, During the existence of such Event of Default, Holder may apply payments received on any amounts due under the Note, the Mortgage, any Related Agreement or any note evidencing any Future Advance as Holder may determine in its sole discretion. 6 15. WAIVERS BY MAKER. As to this Note, the Mortgage, the Related Agreements and any other instruments securing the indebtedness, Maker and all guarantors, sureties and endorsers, severally waive all applicable exemption rights, whether under any state constitution, homestead laws or otherwise, and also severally waive diligence, valuation and appraisement, presentment for payment, protest and demand, notice of protest, demand and dishonor and diligence in collection and nonpayment of this Note and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note (except notice of default specifically provided for in the Mortgage and the Related Agreements). To the extent permitted by law, Maker further waives all benefit that might accrue to Maker by virtue of any present or future laws exempting the Property, or any other property, real or personal, or the proceeds arising from any sale of any such property, from attachment, levy, or sale under execution, or providing for any stay of execution to be issued on any judgment recovered on this Note or in any action to foreclose the Mortgage, injunction against sale pursuant to power of sale, exemption from civil process or extension of time for payment. Maker agrees that any real estate or any personalty that may be levied upon pursuant to a judgment obtained by virtue of this Note, or any writ of execution issued thereon, may be sold upon any such writ in whole or in part in any order desired by Holder. 16. MAKER NOT RELEASED. No delay or omission of Holder to exercise any of its rights and remedies under this Note, the Mortgage or any Related Agreements at any time following the happening of an Event of Default shall constitute a waiver of the right of Holder to exercise such rights and remedies at a later time by reason of such Event of Default or by reason of any subsequently occurring Event of Default. The acceptance by Holder of payment of any sum payable hereunder after the due date of such payment shall not be a waiver of Holder's right to either require prompt payment when due of all other sums payable hereunder or to declare a default for failure to make prompt payment. This Note, or any payment hereunder, may be extended from time to time by agreement in writing between Maker and Holder without in any other way affecting the liability and obligations of Maker and endorsers, if any. 17. NONRECOURSE. Except as otherwise set forth in this Paragraph, Holder's recourse under this Note, the Mortgage and the Related Agreements shall be limited to and satisfied from the Property and the proceeds thereof, the rents and all other income arising therefrom during and after the month in which an Event of Default has occurred, the other assets of Maker arising out of the Property which are given as collateral for this Note, and any other collateral given in writing to Holder as security for repayment of this Note (all of the foregoing are collectively referred to as the "Loan Collateral"). Notwithstanding the preceding sentence: (a) Holder may, in accordance with the terms of this Note, the Mortgage or any Related Agreement: (i) foreclose the lien of the Mortgage; (ii) take appropriate action to enforce this Note, the Mortgage and the Related Agreements to realize upon and/or protect the Loan Collateral; (iii) name Maker as a party defendant in any action brought under this Note, the Mortgage or the Related Agreements so long as the exercise of any remedy is limited to the Loan Collateral; (iv) pursue all of its rights and remedies against any guarantor or surety or master tenant whether or not a partner, member or other owner of Maker, and (v) pursue all of its rights and remedies against Maker and the indemnitors under that certain Environmental Indemnity Agreement of even date herewith and that certain Terrorism Insurance Indemnity Agreement of even date herewith; 7 (b) Holder may seek damages or other monetary relief, to the extent of actual monetary loss, or any other remedy at law or in equity against Maker, and the indemnitors/guarantors, if any, under any nonrecourse exception indemnity agreements ("Nonrecourse Indemnitors") by reason of or in connection with; (i) the failure of Maker to pay to Holder, upon demand, all rents, issues and profits of the Property to which Holder is entitled pursuant to this Note, the Mortgage or the Related Agreements following an Event of Default; (ii) any waste of the Property or any willful act or omission by Maker which damages or materially reduces the value of the Property; (iii) the distribution of rents, issues and profits from the Property prior to the payment of operating expenses or the provision for reserves, if any, to be made pursuant to this Note, the Mortgage or the Related Agreement prior to any other expenditure or distribution by Maker; (iv) the failure to account for and to turn over security deposits (and interest required by law or agreement to be paid thereon) or prepaid rents following the occurrence of an Event of Default under this Note, the Mortgage or any Related Agreements; (v) the failure to timely pay all real estate taxes or any regular or special assessments affecting the Property; (vi) the failure to account for and to turn over real estate tax accruals following the occurrence of an Event of Default under this Note, the Mortgage or any Related Agreements; (vii) the failure to maintain casualty and liability insurance as required under the Mortgage or the Related Agreements or to apply insurance proceeds or condemnation awards relating to the Property or other collateral in the manner required under applicable provisions of this Note, the Mortgage or any Related Agreements; (viii) any modification, termination or cancellation of any lease of all or any portion of the Property without Holder's prior written consent, if and to the extent such consent is required under the Mortgage or the Related Agreements and if and to the extent such modification, termination or cancellation has a material adverse affect on the value of the Property; (ix) a default by Maker under any lease of all or any portion of the Property; or (x) costs and expenses, including, without limitation, attorney's fees and transfer taxes, incurred by Holder in connection with the enforcement of this Note, the Mortgage or the Related Agreements or in connection with a deed-in-lieu of foreclosure if the Event of Default giving rise to the enforcement action is one described in subsections (b) or (c) as an exception to the nonrecourse provisions, or if the Maker or any principal of Maker objects to any actions taken by Holder to exercise its remedies under the Loan Documents; Maker or principal of Maker commences any lawsuit to enjoin or delay a foreclosure of the Property by Holder, or raises defenses or counterclaims to a foreclosure action; Maker applies for the appointment of a receiver, trustee or liquidator for it or for any of its property, or, as a debtor, files a voluntary petition in bankruptcy, or petition or answer seeking reorganization or an arrangement with creditors or takes advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or makes a general assignment for the benefit of creditors; or in the event any bankruptcy or reorganization proceedings (voluntary or involuntary), the Maker or any principal of Maker opposes any motion by Holder for relief from the Automatic Stay; and (c) Maker, any general partners of Maker and the Nonrecourse Indemnitor(s), if any, shall become personally liable for payment of all the indebtedness evidenced by this Note and performance of all other obligations of Maker under this Note, the Mortgage and Related Agreements upon the occurrence of any of the following: (i) fraud or willful misrepresentation of a material fact by Maker, any general partners of Maker, or Nonrecourse Indemnitor(s), if any, in connection with this Note, the Mortgage, the Related Agreements or any request for any action or consent by Holder; (ii) a Transfer of any interest in Maker or all or any portion of the Property 8 or any interest therein in violation of the terms of this Note, the Mortgage or the Related Agreements; or (iii) the incurrence by Maker of any indebtedness in violation of the terms of this Note, the Mortgage or Related Agreements (whether secured or unsecured, direct or contingent), other than unsecured debt or routine trade payables incurred in the ordinary course of business in connection with the operation of the Property. In addition, Maker, any general partners of Maker and the Nonrecourse Indemnitors, if any, shall be responsible for any costs and expenses incurred by Holder in connection with the collection of any amounts for which Maker, its general partners, if any, and the Nonrecourse Indemnitors, if any, are personally liable under this Paragraph 17, including attorneys' fees and expenses, court costs, filing fees and all other costs and expenses incurred in connection therewith. 18. SUCCESSORS AND ASSIGNS. The provisions of this Note shall be binding upon Maker and its legal representatives, successors and assigns and shall inure to the benefit of any Holder and its successors and assigns. In the event Maker is composed of more than one party, obligations arising from this Note are and shall be joint and several as to each such party. 19. REMEDIES CUMULATIVE. The remedies of Holder as provided in this Note, the Mortgage or the Related Agreements, and the warranties contained herein or therein shall be cumulative and concurrent, may be pursued singly, successively or together at the sole discretion of Holder, may be exercised as often as occasion for their exercise shall occur and in no event shall the failure to exercise any such right or remedy be construed as a waiver or release of such right or remedy. No remedy under this Note, conferred upon or reserved to Holder is intended to be exclusive of any other remedy provided in this Note, the Mortgage or any of the Related Agreements or provided by law, but each shall be cumulative and shall be in addition to every other remedy given under the Mortgage or any of the Related Agreements or hereunder or now or hereafter existing at law or in equity or by statute. 20. NOTICES. All notices, written confirmation of wire transfers and all other communications with respect to this Note shall be directed as follows: If to Holder: c/o Allstate Investments, LLC Allstate Plaza South, Suite G5C 3075 Sanders Road Northbrook, Illinois 60062 Attention: Commercial Mortgage Division Servicing Manager With a copy to: c/o Allstate Investments, LLC Allstate Plaza South, Suite G5A 3075 Sanders Road Northbrook, Illinois 60062 Attention: Investment Law Division 9 If to Maker Inland Western Easton Forks Town, DST 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: Roberta Matlin With a copy to: The Inland Real Estate Group, Inc. 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: General Counsel or at such other place as Holder or Maker may from time to time designate in writing. All notices shall be in writing and shall be (a) hand-delivered, (b) sent by United States express mail or by private overnight courier, or (c) served by certified mail postage prepaid, return receipt requested, to the appropriate address set forth above. Notices served as provided in (a) and (b) shall be deemed to be effective upon delivery. Any notice served by certified mail shall be deposited in the United States mail with postage thereon fully prepaid and shall be deemed effective on the day of actual delivery as shown by the addressee's return receipt or the expiration of three business days after the date of mailing, whichever is earlier in time. 21. NO ORAL MODIFICATION. This Note may not be modified or discharged orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, modification or discharge is sought. 22. TIME. Time is of the essence with regard to the performance of the obligations of Maker in this Note and each and every term, covenant and condition herein by or applicable to Maker. 23. CAPTIONS. The captions and headings of the paragraphs of this Note are for convenience only and are not to be used to interpret, define or limit the provisions hereof. 24. REPLACEMENT NOTE. Upon receipt of evidence reasonably satisfactory to Maker of the loss, theft, destruction or mutilation of this Note, and in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to Maker or, in the case of any such mutilation, upon surrender and cancellation of this Note, Maker will execute and deliver to Holder in lieu thereof, a replacement note dated as of the date of this Note, identical in form and substance to this Note and upon such execution and delivery all references in the Mortgage to this Note shall be deemed to refer to such replacement note. 25. TRANSFER OF NOTE. Holder may, at any time, sell, transfer or assign this Note, the Mortgage and the Related Agreements, and any or all servicing rights with respect to this Note, or grant participations in this Note or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in this Note. Holder may forward to any prospective purchaser or any rating agency rating securities all documents and information Holder now has or may 10 acquire, as Holder determines necessary or desirable, including, without limitation, financial information regarding Maker, its general partners, shareholders, members or other principals. 26. CONFESSION OF JUDGMENT. THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF AUTHORITY FOR AN ATTORNEY TO CONFESS JUDGMENT AGAINST THE MAKER. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE MAKER, THE MAKER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF SEPARATE COUNSEL OF THE MAKER, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE MAKER HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA. MAKER HEREBY AUTHORIZES ANY ATTORNEY OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE, TO APPEAR FOR MAKER IN ANY ACTION BROUGHT ON THIS NOTE AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, AND TO CONFESS JUDGMENT AGAINST MAKER FOR ALL PRINCIPAL AND INTEREST AND ALL OTHER SUMS THEN DUE PURSUANT TO THE TERMS OF THIS NOTE, THE MORTGAGE AND THE RELATED AGREEMENTS, OR ANY OF THEM, AND FOR COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF FIVE PERCENT OF THE UNPAID PRINCPAL BALANCE, BUT IN ANY EVENT NOT LESS THAN TWENTY THOUSAND DOLLARS ($20,000), NOR MORE THAN FORTY THOUSAND DOLLARS ($40,000), TOGETHER WITH INTEREST ON ANY JUDGMENT OBTAINED BY HOLDER AT THE DEFAULT RATE, INCLUDING INTEREST AT THAT RATE FROM AND AFTER THE DATE OF ANY SHERIFF'S OR JUDICIAL SALE UNTIL ACTUAL PAYMENT IS MADE TO HOLDER OF THE FULL AMOUNT DUE HOLDER, AND FOR SO DOING THIS SHALL BE A GOOD AND SUFFICIENT WARRANT. MAKER WAIVES AND RELINQUISHES ALL PROCEDURAL ERRORS, DEFECTS AND IMPERFECTIONS IN ANY ENTRY OF JUDGMENT AS AFORESAID, OR IN ANY PROCEEDING PURSUANT THERETO, AND ALL BENEFITS THAT MAY ACCRUE TO MAKER BY VIRTUE OF ANY LAW OR RULE OF COURT RELATING TO A STAY OF EXECUTION OR EXEMPTING ANY PROPERTY FROM LEVY OR SALE UNDER EXECUTION. THE AUTHORITY GRANTED IN THIS NOTE TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY EXERCISE OF IT, BUT SHALL CONTINUE AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE, THE MORTGAGE AND THE RELATED AGREEMENTS. * * * * * [Signature Page Follows] 11 IN WITNESS WHEREOF, Maker has caused this Mortgage Note to be duly executed on the date first above written. MAKER: INLAND WESTERN EASTON FORKS TOWN, DST a Delaware statutory Trust By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, Its Signatory Trustee By: /s/ Debra A Palmer -------------------------------- Its: Asst Secretary -------------------------------- 12 EXHIBIT A BASIS POINT ADJUSTMENT TABLE
U.S. Treasury U.S. Treasury Bond or Note Basis Point Bond or Note Basis Point Yield Adjustment Yield Adjustment ------------- ----------- ------------- ----------- 0.00-1.55 .00 14.07-14.24 .40 1.56-2.69 .01 14.25-14.41 .41 2.70-3.48 .02 14.42-14.59 .42 3.49-4.12 .03 14.60-14.77 .43 4.13-4.68 .04 14.78-14.94 .44 4.69-5.17 .05 14.95-15.11 .45 5.18-5.63 .06 15.12-15.28 .46 5.64-6.05 .07 15.29-15.44 .47 6.06-6.44 .08 15.45-15.61 .48 6.45-6.82 .09 15.62-15.77 .49 6.83-7.17 .10 15.78-15.94 .50 7.18-7.51 .11 15.95-16.10 .51 7.52-7.83 .12 16.11-16.26 .52 7.84-8.14 .13 16.27-16.41 .53 8.15-8.44 .14 16.42-16.57 .54 8.45-8.73 .15 16.58-16.73 .55 8.74-9.02 .16 16.74-16.88 .56 9.03-9.29 .17 16.89-17.03 .57 9.30-9.55 .18 17.04-17.18 .58 9.56-9.81 .19 17.19-17.33 .59 9.82-10.07 .20 17.34-17.48 .60 10.08-10.31 .21 17.49-17.63 .61 10.32-10.55 .22 17.64-17.78 .62 10.56-10.79 .23 17.79-17.92 .63 10.80-11.02 .24 17.93-18.07 .64 11.03-11.25 .25 18.08-18.21 .65 11.26-11.47 .26 18.22-18.35 .66 11.48-11.69 .27 18.36-18.49 .67 11.70-11.90 .28 18.50-18.63 .68 11.91-12.11 .29 18.64-18.77 .69 12.12-12.32 .30 18.78-18.91 .70 12.33-12.52 .31 18.92-19.05 .71 12.53-12.72 .32 19.06-19.18 .72 12.73-12.92 .33 19.19-19.32 .73 12.93-13.12 .34 19.33-19.45 .74 13.13-13.31 .35 19.46-19.59 .75 13.32-13.50 .36 19.60-19.72 .76 13.51-13.69 .37 19.73-19.85 .77 13.70-13.87 .38 19.86-19.99 .78 13.88-14.06 .39 20.00-20.12 .79
EX-10.310 21 a2143310zex-10_310.txt EX-10.310 Exhibit 10.310 Allstate Life Insurance Company Loan No. 122483 LIMITED PAYMENT GUARANTY THIS LIMITED PAYMENT GUARANTY (the "Guaranty") is made as of August 10, 2004, by INLAND WESTERN EASTON FORKS TOWN, DST, a Delaware statutory trust ("Borrower") and INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation ("Guarantor"), the sole member of Borrower, to and for the benefit of ALLSTATE LIFE INSURANCE COMPANY, an Illinois corporation ("Lender"). RECITALS A. Borrower is the present owner of the real and personal property commonly known as Forks Town Center, Sullivan Trail & Old Mill Road, Easton, Pennsylvania, and legally described in EXHIBIT A attached hereto (the "Property"). B. Member is the sole owner and signatory trustee of Borrower. C. Pursuant to Leader's commitment letter dated June 22, 2004, as amended, Lender made a loan to Borrower in the aggregate original principal amount of $10,395,000 (the "Loan") evidenced by that certain Mortgage Note (the "Note") of even date herewith in the amount of the Loan, and secured by a Mortgage, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing (the "Mortgage") on the Property. D. The Guarantor will benefit from the disbursement of the Loan evidenced by the Note and secured by the Mortgage and the Related Agreements (as defined in the Mortgage). The Note, Mortgage, Related Agreements and other documents, instruments, certificates and agreements executed or delivered by or on behalf of Borrower in connection with the Loan are collectively referred to as the "Loan Documents." E. The assumption by Guarantor of the obligations under this Guaranty will result in an indirect financial benefit to Guarantor and in a direct financial benefit to the Borrower, thereby enhancing Guarantor's financial interest in Borrower and in the Property. F. As a material inducement to making and as a condition precedent to funding the Loan, Lender requires the execution of this Guaranty. AGREEMENTS NOW THEREFORE, for and in consideration of the above Recitals, which are incorporated herein by reference, the mutual covenants contained herein and in the Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agree as follows: 1. Guarantor absolutely, unconditionally and irrevocably guarantees to Lender: (a) subject to Section 12 hereof, the payment of all sums due Lender under the Loan Documents, including the payment of the principal balance of the Loan, together with all interest accrued thereon; and (b) the payment of all Enforcement Costs (as hereinafter defined in Paragraph 7 hereof). All amounts due, debts, liabilities, and payment obligations of Guarantor described in this Paragraph 1 are referred to herein as the "Indebtedness." 2. (a) Guarantor agrees, on written demand therefor by Lender or the holder of the Note, as applicable, to pay all Indebtedness as is then or thereafter becomes due and owing under the terms of this Guaranty, regardless of any defense, right of setoff or claims which Borrower or Guarantor may have against Lender or the holder of the Note. (b) If Guarantor fails to perform its obligations hereunder after demand by Lender in accordance with Paragraph 2(a) hereof, Lender shall have an immediate right to collect from Guarantor, as damages or otherwise, an amount equal to such unpaid Indebtedness, and Lender may exercise all remedies available under the laws of the State of Pennsylvania for action on a matured contractual indebtedness. 3. Guarantor hereby waives as to Lender (i) notice of acceptance of this Guaranty by Lender and any and all notices and demands of every kind which may be required to be given by any statute, rule or law, (ii) any defense, right of setoff or other claim which Guarantor may have against the Borrower or which Guarantor or Borrower may have against Lender or the holder of the Note, as applicable, (iii) presentment for payment, demand for payment (other than as provided for in Paragraph 2 above), notice of nonpayment or dishonor, protest and notice of protest, diligence in collection and any and all formalities which otherwise might be legally required to charge Guarantor with liability, and (iv) any failure by Lender to inform Guarantor of any facts Lender may now or hereafter know about Borrower, the Property, the Loan, or the transactions contemplated by the Loan, it being understood and agreed that Lender has no duty so to inform and that the Guarantor is fully responsible for being and remaining informed by the Borrower of all circumstances bearing on the existence or creation, or the risk of nonpayment of the Indebtedness. Credit may be granted or continued from time to time by Lender to Borrower without notice to or authorization from Guarantor, regardless of the financial or other condition of the Borrower at the time of any such grant or continuation. Lender shall have no obligation to disclose or discuss with Guarantor its assessment of the financial condition of Borrower. No modification or waiver of any of the provisions of this Guaranty shall be binding upon Lender except as expressly set forth in a writing duly signed and delivered on behalf of Lender. 4. Guarantor further agrees that its liability as guarantor shall not be impaired or affected by any renewals or extensions which may be made from time to time, with or without the knowledge or consent of Guarantor of the time for payment of interest or principal under the Note or by any forbearance or delay in collecting interest or principal under the Note, or by any waiver by Lender under the Mortgage or any other Loan Documents, or by Lender's failure or election not to pursue any other remedies it may have against Borrower, or by any change or 2 modification in the Note, Mortgage or any other Loan Documents, or by the acceptance by Lender of any additional security or any increase, substitution or change therein, or by the release by Lender of any security or any withdrawal thereof or decrease therein, or by the application of payments received from any source to the payment of any obligation other than the Indebtedness, even though Lender might lawfully have elected to apply such payments to any part or all of the Indebtedness, it being the intent hereof that Guarantor shall remain liable as principal for payment of the Indebtedness until all Indebtedness has been paid in full and the other terms, covenants and conditions of this Guaranty have been performed, notwithstanding any act or thing which might otherwise operate as a legal or equitable discharge of a surety. Guarantor further understands and agrees that Lender may at any time enter into agreements with Borrower to amend and modify the Note, Mortgage or other Loan Documents, or any thereof, and may waive or release any provision or provisions of the Note, Mortgage and other Loan Documents or any thereof, and, with reference to such instruments, may make and enter into any such agreement or agreements as Lender and Borrower may deem proper and desirable, without in any manner impairing or affecting this Guaranty or any of Lender's rights hereunder or any of Guarantor's obligations hereunder. 5. This is an absolute, present and continuing guaranty of payment and not of collection. Guarantor agrees that this Guaranty may be enforced by Lender without the necessity at any time of resorting to or exhausting any other security or collateral given in connection herewith or with the Note, the Mortgage or any of the other Loan Documents through foreclosure proceedings under the Mortgage or otherwise, or resorting to any other guaranties, and Guarantor hereby waives the right to require Lender to join Borrower in any action brought hereunder or to commence any action against or obtain any judgment against Borrower or to pursue any other remedy or enforce any other right. Guarantor further agrees that nothing contained herein or otherwise shall prevent Lender from pursuing concurrently or successively all rights and remedies available to it at law or in equity or under the Note, Mortgage or any other Loan Documents, and the exercise of any of its rights or the completion of any of its remedies shall not constitute a discharge of any of Guarantor's obligations hereunder, it being the purpose and intent of Guarantor that its obligations hereunder shall be absolute, independent and unconditional under any and all circumstances whatsoever. Neither Guarantor's obligations under this Guaranty nor any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by any impairment, modification, change, release or limitation of the liability of Borrower under the Note, Mortgage or other Loan Documents or by reason of Borrower's bankruptcy or by reason of any creditor or bankruptcy proceeding instituted by or against Borrower or Guarantor. This Guaranty shall continue to be effective or be reinstated (as the case may be) if at any time payment of all or any part of any sum payable pursuant to the Note, Mortgage or any other Loan Document is rescinded or otherwise required to be returned by the payee upon the insolvency, bankruptcy, or reorganization of the Borrower or Guarantor, or Lender is required to reconvey title to the Property upon the insolvency, bankruptcy or reorganization of the Borrower or Guarantor, all as though such payment to Lender had not been made, regardless of whether Lender contested the order requiring the return of such payment or the reconveyance. 6. In the event Lender or the holder of the Note shall assign the Note to any bank or other entity to secure a loan from such bank or other entity to Lender or such holder for an amount not in excess of the amount which will be due, from time to time, from Borrower to 3 Lender under the Note with interest not in excess of the rate of interest which is payable by Borrower to Lender under the Note, Guarantor will accord full recognition thereto and agrees that all rights and remedies of Lender or such holder hereunder shall be enforceable against Guarantor by such bank or other entity with the same force and effect and to the same extent as would have been enforceable by Lender or such holder but for such assignment; provided, however, that unless Lender shall otherwise consent in writing, the Lender shall have an unimpaired right, prior and superior to that of its assignee or transferee, to enforce this Guaranty for Lender's benefit as to such portions of the Indebtedness or interest therein not assigned or transferred. 7. If: (i) this Guaranty or any of the other Loan Documents is placed in the hands of an attorney for collection or is collected through any legal proceeding; (ii) an attorney is retained to represent Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors' rights and involving a claim under this Guaranty or any of the other Loan Documents; (iii) an attorney is retained to protect or enforce this Guaranty or any of the other Loan Documents or to provide advice or other representation with respect hereto or to any of the other Loan Documents; or (iv) an attorney is retained to represent Lender in any other proceedings whatsoever in connection with the enforcement or protection of this Guaranty or any of the other Loan Documents, then Guarantor shall pay to Lender upon demand all reasonable attorneys' fees, costs and expenses, including, without limitation, court costs, filing fees, recording costs, expenses of foreclosure, title insurance premiums, survey costs, minutes of foreclosure, and all other costs and expenses, incurred in connection therewith (all of which are referred to herein as "Enforcement Costs"), in addition to all other amounts due hereunder or under any of the other Loan Documents. 8. The parties hereto intend and believe that each provision in this Guaranty comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or provisions, or if any portion of any provision or provisions, in this Guaranty is found by a court of law to be in violation of any applicable local, state or federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions of this Guaranty to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Guaranty shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the rights, obligations and interest of Lender or the holder of the Note under the remainder of this Guaranty shall continue in full force and effect. 9. Any indebtedness of Borrower to Guarantor now or hereafter existing (the "Subordinated Debt") is hereby subordinated to the Indebtedness. Guarantor hereby irrevocably waives all legal and equitable rights to recover from Borrower any sums paid by Guarantor under the terms of this Guaranty until such time as the Loan has been paid in full, including without limitation all rights of subrogation and all other rights that would result in Guarantor being deemed a creditor of Borrower under the Federal Bankruptcy Code or any other law. 10. Any amounts received by Lender from any source on account of any Indebtedness may be applied by Lender toward the payment of such Indebtedness, and in such 4 order of application, as Lender may from time to time elect, or as otherwise provided in the Loan Documents. 11. Guarantor hereby submits to personal jurisdiction in the State of Illinois for the enforcement of this Guaranty and waives any and all personal rights to object to such jurisdiction for the purposes of litigation to enforce this Guaranty. In the event such litigation is commenced at any time when Guarantor is not permanently domiciled in the State of Illinois, Guarantor agrees that service of process may be made and personal jurisdiction over Guarantor obtained, by service of a copy of the summons, complaint, and other pleadings required to commence such litigation upon an appointed Agent for Service of Process in the State of Illinois, which Agent each Guarantor hereby designates to be: The Inland Real Estate Group, Inc. 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: General Counsel 11. All notices, waivers, demands, requests or other communications required or permitted hereunder shall, unless otherwise expressly provided, be in writing and shall be (a) hand-delivered, effective upon receipt, (b) sent by United States Express Mail or by private overnight courier, effective upon receipt, or (c) served by certified mail, to the appropriate address set forth below, or at such other place as a party may from time to time designate in writing by ten (10) days prior written notice thereof. Any such notice or demand served by certified mail, return receipt requested, shall be deposited in the United States mail, with postage thereon fully prepaid and addressed to the party so to be served at its address stated below or at such other address of which said party shall have theretofore notified in writing, as provided above, the party giving such notice, Service of any such notice or demand so made shall be deemed effective on the day of actual delivery as shown by the addressee's return receipt or the expiration of three (3) business days after the date of mailing, whichever is the earlier in time. Any notice required to be given by Lender shall be equally effective if given by Lender's agent, if any. Notices to the parties shall be addressed as follows: If to Guarantor: Inland Western Retail Real Estate Trust, Inc. 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: Roberta Matlin with a copy to: The Inland Real Estate Group, Inc. 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: General Counsel In the case of Lender, to: 5 Allstate Life Insurance Company Allstate Plaza South, Suite G5C 3075 Sanders Road Northbrook, Illinois 60062 Attention: Commercial Mortgage Division Servicing Manager with a copy to: Allstate Life Insurance Company Allstate Plaza South, Suite G5A 3075 Sanders Road Northbrook, Illinois 60062 Attention: Investment Law Division 12. Guarantor's liability hereunder: (a) shall be limited to an amount equal to (i) THREE HUNDRED EIGHTY FIVE THOUSAND DOLLARS ($385,000), plus (ii) Enforcement Costs; and (b) shall commence twelve (12) months after the Disbursement Date unless the Conditions (as hereinafter defined) have been met prior to such date; and (c) shall terminate upon the first to occur of (i) payment in full to Lender of all amounts due under or in connection with the Loan and the Loan Documents, or (ii) the occurrence of the following (collectively, the "Conditions"): (A) Borrower has delivered evidence reasonably satisfactory to Lender that Forks Township has accepted the dedication of Town Center Boulevard as a public right of way, and (B) the first day of the first month following the date by which all of the following have occurred: (1) either the PA Liquor Control Board or a tenant reasonably acceptable to Lender has taken occupancy of approximately 3,896 square feet of vacant space pursuant to a lease that is reasonably acceptable to Lender, (2) such tenant has commenced paying rent under such lease, and (3) all full or partial rent concession periods under such lease have expired. 13. In order to induce Lender to make the Loan, each makes the representations and warranties to Lender set forth in this Paragraph 13. Guarantor acknowledges that but for the truth and accuracy of the matters covered by the following representations and warranties, the Lender would not have agreed to make the Loan. Guarantor represents and warrants to Lender that: (a) Guarantor has all requisite corporate power and authority to execute and deliver this Guaranty and to perform its obligations hereunder. This Guaranty has been properly 6 authorized, executed and delivered by or on behalf of Guarantor, and constitutes the legal, valid and binding obligation of Guarantor, enforceable against it in accordance with its terms. (b) The execution, delivery, and performance by Guarantor of this Guaranty does not and will not contravene or conflict with (i) any law, order, rule, regulation, writ, injunction, or decree now in effect of any government, governmental instrumentality or court having jurisdiction over Guarantor, or (ii) any contractual restriction binding on or affecting Guarantor or its property or assets. (c) Except as disclosed in writing to Lender, there is no action, proceeding, or investigation pending or, to the knowledge of Guarantor, threatened or affecting Guarantor, which may materially adversely affect Guarantor's ability to fulfill its obligations under this Guaranty. There are no judgments or orders for the payment of money rendered against Guarantor which has been undischarged for a period of ten or more consecutive days and the enforcement of which is not stayed by reason of a pending appeal or otherwise. Guarantor is not in default under any agreements to which Guarantor is a party. (d) Any and all balance sheets, net worth statements, and other financial data with respect to Guarantor which have heretofore been given to Lender by or on behalf of Guarantor fairly and accurately present, in all material respects, the financial condition of Guarantor as of the respective dates thereof, and, since the respective dates thereof, there has been no material adverse change in the financial condition of Guarantor. (e) Guarantor has disclosed all events, conditions, and facts known to Guarantor which could have any material adverse effect on the financial condition of Guarantor. No representation or warranty by Guarantor contained herein, nor any schedule, certificate, or other document furnished by Guarantor to Lender in connection with this Guaranty or the Loan Documents contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading. (f) There are no facts or circumstances of any kind or nature whatsoever of which Guarantor is aware which could in any way materially impair or prevent Guarantor from performing its obligations under this Guaranty in any material respect. (g) Guarantor is to the best of its knowledge not insolvent (as such term is defined in Section 101(29) of the Bankruptcy Code) and will not be rendered insolvent (as so defined) by executing this Guaranty or by the consummation of the transactions described herein. (h) All statements set forth in the Recitals are true and correct in all material respects. Guarantor hereby agrees to indemnify, defend, protect and hold forever free and harmless Lender of, from and against all loss, cost, damage, and expense, including reasonable attorneys' fees and expenses, which Lender may sustain by reason of the inaccuracy or breach of any of the foregoing representations and warranties as of the date the foregoing representations and warranties are made and are deemed remade. 7 14. Guarantor's liability hereunder shall not be subject to, limited by or affected in any way by any "non-recourse" provisions contained in the Note, the Mortgage or any other documents executed and delivered in connection with the Loan, including without limitation Paragraph 17 of the Note and Section 3.11 of the Mortgage. Guarantor agrees that the obligations contained herein are separate, independent of and in addition to Borrower's undertakings under the Note. Guarantor agrees that a separate action may be brought to enforce the provisions of this Guaranty which shall in no way be deemed to be an action on the Note, whether or not Lender would be entitled to a deficiency judgment following a judicial foreclosure or sale under the Mortgage. 15. This Guaranty shall be binding upon the successors and assigns of Guarantor. 16. Guarantor shall, within three days after receipt thereof, deliver to Lender copies of any notices of default served on it pursuant to the terms of any other agreement to which it is a party, the breach of which may have a material affect on its ability to perform its obligation hereunder. 17. Guarantor's obligations hereunder shall be joint and several with any other guarantor or surety obligated to Lender in respect of the Loan. 18. This Guaranty shall be construed governed by, interpreted and enforced under the internal laws of the State of Pennsylvania without regard to Pennsylvania choice of law principles. 8 IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date first above written. INLAND WESTERN EASTON FORKS TOWN, DST a Delaware statutory Trust By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, Its Signatory Trustee By: /s/ [ILLEGIBLE] ------------------------------- Its: Asst. Secretary ------------------------------ INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation By: /s/ [ILLEGIBLE] ------------------------------------ Its Asst. Secretary ------------------------------------ 9 EXHIBIT A (Property Description) EXHIBIT A (Property Description) DESCRIPTION OF LOT 1 ALL THAT CERTAIN tract or piece of land situate approximately thirteen hundred feet (1,300') northwest of the intersection of T-519 "Old Mill Road" and S.R. 0115 "Sullivan Trail" in Forks Township, Northampton County, Commonwealth of Pennsylvania, as shown on the ALTA/ACSM Land Title Survey for Lot 1 and the Town Center Boulevard, prepared by Stackhouse Bensinger, Inc. Plan No. 2138-001-F-001, dated June 9, 2004 being more fully bounded and described as follows, to wit; BEGINNING at the point on the North right-of-way line of T-519 "Old Mill Road" one hundred thirty feet plus or minus (130') East of the Intersection of T-519 "Old Mill Road" and "Marigold Drive" THENCE extending along the subdivision of "Forks Garden" recorded in the Office of the Recorder of Deeds of Northampton County, Pennsylvania in Plan Book Volume 13, Page 66, North one degree eleven minutes twenty-nine seconds E (N. 01 degrees 11' 29" E.) a distance of one thousand two hundred thirty-one feet and seventy hundredths of a foot (1231.70) to a point, a corner on the property line belonging to the "Township of Forks". THENCE extending along the property belonging to Firehouse, Inc. North eighty-six degrees thirty-one minutes forty-one seconds East (N. 86 degrees 31' 41" E), a distance of six hundred ninety-four feet and twenty-seven hundredths of a foot (694.27') to a point, a corner of Annexation Parcel A of the Forks Plaza Subdivision Plan recorded in P.B.V 2001-5, page 335. THENCE extending along said annexation parcel the following two (2) courses and distances to wit: 1. In the southeasterly direction on a line bearing South three degrees twenty-eight minutes nineteen seconds East (S. 03 degrees 28' 19" E), a distance of twenty-four feet and ten hundredths of a foot (24.10') to a point: 2. In a northeasterly direction on a line bearing North eighty-six degrees thirty-one minutes forty-one seconds East (N. 86 degrees 31' 41" E), a distance of four hundred five feet (405.00') to a point, a comer of property belonging to Northern Lights Properties. THENCE extending along the same South seventeen degrees fifty minutes thirty-six seconds East (S. 17 degrees 50' 36" E), a distance of eighty feet (80.00') to a point, a corner of property belonging to aforesaid property of Northern Lights Properties. THENCE extending along the same North eighty-five degrees zero minutes twenty-four seconds East (N. 85 degrees 00' 24" E.), a distance of one hundred sixty-six feet and thirty-three hundredths of one foot (166.33') to a point on the west right-of-way line of S.R. 0115 "Sullivan Trail". THENCE extending along the same the following two (2) courses and distances to wit: 1. In a southeasterly direction on a line bearing South twenty-one degrees eleven minutes twenty seconds East (S 21 degrees 11' 20" E), a distance of thirty-six feet and ninety-one hundredths of a foot (36.91') to a point of curve: 2. In a southeasterly direction along an arc deflecting to the right, having a radius of one thousand hundred seventy feet and eight hundreths of one foot (1870.08'), a central angle of three degrees sixteen minutes 3 seconds (03 degrees 16' 03"), a tangent of fifty-three feet and thirty-four hundredths of one foot (53.34'), a chord of one hundred six feet and sixty-three hundredths of one foot (106.63'), a chord bearing of South nineteen degrees thirty-three minutes nineteen seconds East (S 19 degrees 33' 19" E), and a distance along the arc of one hundred six feel and sixty-five hundredths of one foot (106.65') to a corner of Lot No. 2 on the Preliminary/Final Plan of CVS Forks Plaza, recorded in P.B.V. 2002-5, page 79-80. THENCE extending along Lot No. 2 the three (3) courses and distances to wit: 1. In a southwesterly direction on a line bearing South seventy-five degrees one minute twenty seconds West (S. 75 degrees 01'20" W), a distance of three hundred forty-two feet and twenty-one hundredths of one foot (342.21'): 2. In a southeasterly direction on a line bearing South fourteen degrees fifty-eight minutes forty seconds East (S 14 degrees 58' 40" E), a distance of one hundred twenty feet and eighty-nine hundredths of one foot (120.89'). 3. In a southwesterly direction on a line bearing South eight degrees thirty-seven minutes twenty-eight seconds West (S. 08 degrees 37' 28" W), a distance of fifty-five feet (55.00') to a point on the North right-of-way line of Town Center Boulevard. THENCE extending along the north right-of-way line of Town Center Boulevard the following nine (9) courses and directions to wit: 1. Along an arc deflecting to the left, having a radius of two hundred thirty-nine feet (239.00'), a central angle of twenty-four degrees thirty minutes forty-eight seconds (24 degrees 30' 48") and an arc length of one hundred two feet and twenty-five hundredths of one fool (102.25') to a point; 2. In a southeasterly direction on a line bearing South fifteen degrees fifty-three minutes twenty seconds East (S. 15 degrees 53' 20"E), a distance of fourteen feet (14.00'), to a point of curve; 3. Along an arc deflecting to the left, having a radius of two hundred twenty-five feet (225.00'), a central angle of twenty-eight degrees thirty-three minutes eleven seconds (28 degrees 33' 11"), and a distance along the arc of one hundred twelve feet and thirteen hundreths of one foot (112.13') to a point of tangent; 4. In a southwesterly direction on a line bearing South forty-five degrees thirty-three minutes twenty-nine seconds West (S. 45 degrees 33' 29"W), a distance of four hundred forty-eight feet and eighty hundredths of one foot (448.80') to a point of curve; 5. Along an arc deflecting to the right, having a radius of five hundred feet (500.00'), a central angle of twenty-six degrees forty-five minutes and six seconds (26 degrees 45' 06"), and a distance along the arc of two hundred thirty-three feet and forty-five hundredths of one foot (233.45') to a point of tangent. 6. In a southwesterly direction on a line bearing South seventy-two degrees eighteen minutes thirty-four seconds West (S 72 degrees 18' 34"W), a distance of one hundred fifty-two feet (152.00') to a point of curve. 7. Along an arc deflecting to the left, having a radius of one hundred seventy-five feet (175.00'), a central angle of seventy-seven degrees forty-one minutes twelve seconds (77 degrees 41' 12"), and a distance along the arc of two hundred thirty-seven feet and twenty-eight hundredths of one foot (237.28') to a point of tangent. 8. In a southwesterly direction on a line bearing South five degrees twenty-two minutes thirty-eight seconds East (S. 05 degrees 22' 38"E), a distance of forty-four feet and ninety-eight hundredths of one foot (44.98') to a point of curve; 9. Along an arc deflecting to the right and having a radius of thirty feet (30.00') a central angle of ninety degrees thirty minutes forty-four seconds (90 degrees 30' 44"), and a distance along the arc of forty-seven feet and thirty-nine hundredths of one foot (47.39') to a point of compound curvature located on the north right-of-way line of T-519 "Old Mill Road". THENCE extending along the same by an arc deflecting to the right, having a radius of four hundred seventy-five feet (475.00'), a central angle of four degrees fifty-four minutes thirty-two seconds (04 degrees 54' 32") and an arc length of forty feet and seventy hundredths of one foot (40.70') to a point of tangent. THENCE extending along the North right-of-way line of "Old Mill Road" North eighty-nine degrees fifty-seven minutes twenty-one seconds West (N. 89 degrees 57' 21" W), a distance of fourteen feet and thirty-nine hundredths of one foot (14.39') to the Place of BEGINNING. TOGETHER WITH those reciprocal easements and covenants as set forth in that certain Declaration of Reciprocal Easements and Covenants by Forks-Easton, LLC, a Delaware limited liability company, dated March 26, 2002 and recorded April 1, 2002 in Record Book Volume 2002-1 page 83864. TAX PARCEL IDENTIFER NUMBER: K9-14-17A EX-10.311 22 a2143310zex-10_311.txt EX-10.311 Exhibit 10.311 POST CLOSING AGREEMENT THIS POST CLOSING AGREEMENT (this "Agreement") is made and entered into as of the 9th day of August, 2004, by and between INLAND WESTERN LAWRENCEVILLE SIMONTON, L.L.C., a Delaware limited liability company ("Purchaser"), and BARCLAY SIMONTON PARTNERS, L.L.C., a Florida limited liability company ("Seller"), in connection with the acquisition by Purchaser of that certain property commonly known as The Village Shoppes at Simonton Shopping Center, Lawrenceville, Georgia (the "Property"). WHEREAS, Purchaser is acquiring the Property from Seller (the "Transaction"). WHEREAS, in order to proceed with and consummate such acquisition and as a condition to closing the Transaction, Purchaser requires that Seller agree to the obligations set forth below, which are to be performed after such closing. NOW, THEREFORE, for good and valuable consideration including the mutual promises contained herein, the parties hereto agree as follows: 1. WARRANTIES. Seller's right, title and interest in, to and under the roof warranty set forth on EXHIBIT A attached hereto and made a part hereof (the "Warranty") was not assigned to Purchaser at the closing of the Transaction because such Warranty may not be assigned or transferred without the prior consent of the Warranty issuer. From and after the date of this Agreement, Seller shall use its best efforts to obtain the aforementioned consent (upon the receipt of which Seller shall assign such Warranty to Purchaser) or have the Warranty reissued in the name of Purchaser. Seller shall be responsible for the payment of any and all fees and costs in connection with obtaining any such consent or the re-issuance of the Warranty. Seller shall, until the first to occur of (i) the expiration of the Warranty and (ii) the date that the Warranty is assigned to Purchaser (with any and all required consents) or reissued in the name of Purchaser, cooperate with Purchaser, at no cost to Seller, with respect to the enforcement of the terms and provisions of, and any and all claims under, the Warranty. 2. CLOSE OUT MANUALS. Within fifteen (15) days of the date hereof, Seller shall compile and deliver original "Close Out Manuals" including, with respect to the Property, copies of warranties from the general contractor and sub-contractors, product warranties from manufacturers of products, equipment and components installed, and operating manuals pertaining to any and all mechanical equipment (including HVAC), fire and safety systems, and sprinkler systems. 3. INDEMNIFICATION. Seller agrees to indemnify and hold harmless Purchaser, and each of their successors, assigns, officers, directors and employees (each an "Indemnified Party" and collectively, the "Indemnified Parties") harmless from any loss, cost or expense incurred by any Indemnified Party, including costs and attorneys fees, ("Loss") as a result of Sellers' failure to obtain the required documents or complete its obligations under this Agreement, or any Loss that results from a certificate hereafter being false of misleading in any material respect. 4. MISCELLANEOUS. This Agreement shall be interpreted and enforced in accordance with the internal laws of the State of Georgia. The invalidity or unenforceability of any provision of this Agreement shall not affect, modify or impair the validity and enforceability of all other provisions of this Agreement. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their representatives, heirs, legatees, successors, and assigns; provided, however, that Seller shall have no right whatsoever to assign its interest under this Agreement and any such attempted assignment shall automatically be null and void and of no force and effect, and shall be deemed a breach by Seller of its obligations hereunder. No failure or delay by Purchaser in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. No change, amendment or modification of this Agreement shall be binding or enforceable unless in writing and executed by the party to be bound thereby. The covenants, agreements and indemnification provisions contained in this Agreement shall be enforceable notwithstanding the closing of the Transaction. In the event of litigation with respect to any portions of this Agreement, the prevailing party will be entitled to collect all reasonable legal fees incurred in connection with such litigation from the non-prevailing party. Purchaser shall have all remedies available at law and in equity on account of a default by Seller under this Agreement. Time is of the essence of this Agreement and the terms hereof. This Agreement maybe signed in counterparts. IN WITNESS WHEREOF, the parties have executed this Post Closing and Indemnity Agreement effective as of the first date written above. SELLER: BARCLAY SIMONTON PARTNERS, LLC, a Florida limited liability company By: /s/ Daniel L. Vietto -------------------------------------- Daniel L. Vietto, Manager PURCHASER: INLAND WESTERN LAWRENCEVILLE SIMONTON, L.L.C., A Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., A Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------------- Name: Valerie Medina --------------------------------------- Title: Asst. Secretary --------------------------------------- EXHIBIT A WARRANTY 3 EX-10.312 23 a2143310zex-10_312.txt EX-312 Exhibit 10.312 ESCROW AND GUARANTEE AGREEMENT This ESCROW AND GUARANTEE AGREEMENT is made and entered into as of the ___, day of August, 2004, by and among Barclay Simonton Partners, L.L.C., a Florida limited liability company, (hereinafter referred to as "Seller"), Inland Western Lawrenceville Simonton, L.L.C., (hereinafter referred to as "Buyer"), and Chicago Title and Trust Company, (hereinafter referred to as "Escrow Agent") having as its address 171 N. Clark Street, Chicago, Illinois 60601. W I T N E S S E T H: WHEREAS, pursuant to that certain Purchase and Sale Agreement dated as of the 30th day of April, 2004 and accepted as of the 5th day of May, 2004, (the "Contract"), Buyer acquired on and as of the date hereof from Seller certain real property commonly known as The Village Shoppes at Simonton located in Lawrenceville, Georgia (the "Property"); and WHEREAS, pursuant to the terms of the Contract, Seller has agreed to deposit with Escrow Agent the sum of Two Hundred Eighty One Thousand Six Hundred Fifty Three Dollars ($281,653.00) (the "Escrow Deposit") with respect to Seller's obligation to pay rent and reimbursable expenses to Buyer for the Vacant Space (as such term is hereinafter defined); and WHEREAS, Escrow Agent is willing to accept the Escrow Deposit and hold and disburse same in accordance with the terms and conditions set forth below. NOW, THEREFORE, for and in consideration of the premises hereto, the covenants and agreements hereinafter made, and for Ten and 00/100 Dollars ($10.00) in hand paid to Escrow Agent, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. ESCROW DEPOSIT. Seller hereby deposits with Escrow Agent, and Escrow Agent hereby acknowledges receipt of the Escrow Deposit. Escrow Agent hereby agrees to deposit the Escrow Deposit into an interest bearing account with a bank, savings and loan institution, money market account, or other depository reasonably satisfactory to Buyer, Seller and Escrow Agent with interest accruing for the benefit of Seller. The federal taxpayer identification of Seller is as follows: 61-1440222. 2. ESCROW DISBURSEMENTS. The Escrow Deposit is comprised of two (2) components, (a) $239,653.00 (the "Leasing Deposit") representing minimum rent, common area maintenance, taxes and insurance payments for a twelve (12) month period, computed on the basis of 8,400 square feet of vacant space (the "Vacant Space"); and (b) an amount equal to $42,000.00 (the "TI/Leasing Deposit") for tenant improvement and leasing commissions costs computed on the basis of $6.00 per square foot vacant space at the Property. The Leasing Deposit shall be held in escrow by Chicago Title subject to the terms and conditions of this Agreement and shall be disbursed as hereinafter provided. Commencing on the day of closing, and continuing on the first day of each calendar month thereafter for twelve (12) months from the Closing Date (provided that if Closing occurs on a day other than the first day of the month, such first payment shall be prorated accordingly), Buyer shall be entitled to receive from the Leasing Deposit, an amount equal to one twelfth (1/12) of the initial balance of the Leasing Deposit, which monthly payment shall continue until the earlier of (x) the date the Leasing Deposit has been disbursed in full or (y) with respect to any portion of the Vacant Space, the date that that portion of the Vacant Space has been leased, all leasing commissions and tenant improvements costs and expenses incurred in connection therewith have been paid in full, the tenant has occupied the space, is open for business, has commenced regularly scheduled monthly rent payments, and a certificate of occupancy has been issued (with respect to each Vacant Space the "Lease Up Event"). At such time as the Lease Up Event has occurred with respect to a particular space and Buyer has received all requisite payments due hereunder, the balance of the Leasing Deposit, if any, with respect to such space, shall be released to Seller. The TI/Leasing Deposit shall be held in escrow by Chicago Title subject to the terms and conditions of this Purchase Agreement and shall be disbursed as hereinafter provided. In the event that a lease is entered into for any Vacant Space of the Property, then the leasing commissions and tenant improvement costs payable with respect to such lease shall be disbursed from the TI/Leasing Deposit to the party entitled to receive payment of the same; provided, however, (x) disbursements from the TI/Leasing Deposit with respect to tenant improvements costs shall be limited to the rate of $3.00 per square foot in any one Vacant Space, unless otherwise approved by Buyer, and (y) disbursements from the TI/Leasing Deposit with respect to leasing commissions shall be limited to the rate of $3.00 per square foot in any one Vacant Space, unless otherwise approved by Buyer. In the event that there are any sums remaining in the TI Leasing Deposit on the date which is 12 months from the Closing Date, then such sums shall be remitted to Buyer. 3. LEASING. Seller shall continue to market and lease the vacant spaces within the Shopping Center; provided that: (i) the rental rate for all vacant space during the one (1) year term shall not be less, in the aggregate, than $24.36 per sq. ft. for the initial lease year, with annual increases of not less than one percent (1%) per annum; (ii) the terms for any such leases shall not be less than three (3) years; (iii) each lease shall require the tenant to pay its pro rata share of real estate taxes, insurance and other operating expenses (initially to be $3.780/sq. ft.); (iv) such leases shall be on the form currently being utilized by Seller; (v) each lease shall provide for typical retail uses not in conflict with other existing leases; and (vi) Seller shall have exercised commercially reasonable efforts to determine that each tenant is creditworthy consistent with past practices. Any deviations from the foregoing leasing parameters shall require the prior written consent of Buyer. During the one (1) year term of this Guarantee, Seller shall pay all brokerage commissions, tenant built-out and rental concessions, if any, agreed to during the one (1) year term, even if due after the expiration of the one (1) year term so long as such payment are for the initial term of the Lease and ont any renewal or option terms. Buyer shall promptly execute such leases, provided such leases are in conformity with the terms of this Agreement or have otherwise been approved by Buyer, promptly upon Seller's request. 4. ESCROW ADMINISTRATION. The costs of administration of this Escrow Agreement by Escrow Agent in the sum of Five Hundred Dollars ($500.00) shall be shared equally by Seller and Buyer. This Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, principals, successors and assigns and shall be governed and construed in accordance with the laws of the State of Illinois. No modification, amendment or waiver of the terms hereof shall be valid or effective unless in writing and signed by all of the parties hereto. This Escrow Agreement may be executed in multiple counterpart originals, each of which shall be deemed to be and shall constitute an original. If there is any conflict between the terms of this Escrow Agreement and the terms of the Contracts, the terms of this Escrow Agreement shall control. 5. NOTICES. All notices, requests, consents and other communications hereunder shall be sent to each of the following parties and be in writing and shall either be: (i) delivered by facsimile transmission, or (ii) personally delivered, or (iii) sent by Federal Express or other overnight or same day courier service providing a return receipt, (and shall be effective when received, when refused or when the same cannot be delivered, as evidenced on the return receipt) to the following addresses: If to Seller: BARCLAY SIMONTON PARTNERS, L.L.C. c/o Barclay Group Operations, LLC 1123 Overcash Drive Dunedin, Florida 34698 Attention: Tye Blume Telephone: (727)733-7585 Facsimile: (727)733-9510 With a copy to: Stephen M. Hudoba, Esq. Hill, Ward & Henderson, P.A. 3700 Bank of America Plaza 101 East Kennedy Boulevard Tampa, Florida 33602-5195 Telephone: (813) 227-8405 Facsimile: (813) 221-2900 If to Buyer: Inland Western Lawrenceville Simonton, L.L.C. Attn: Steven Sanders 501 C. Manatee Avenue West Holmes Beach, Florida 34217 Telephone: (941) 779-1000 Facsimile: (941) 779-2000 With a copy to: The Inland Real Estate Group, Inc. Attn: Dennis K. Holland, Esq. 2901 Butterfield Road Oak Brook, Illinois 60523 Telephone: (630) 218-8000 Facsimile: (630) 218-4900 6. COUNTERPARTS. This Escrow Agreement may be executed in counterparts and shall constitute an agreement binding on all parties notwithstanding that all parties are not signatories of the original or the same counterpart. Furthermore, the signatures from one counterpart may be attached to another to constitute a fully executed original. The Escrow Agreement may be executed by facsimile. 7. REPORTING. Escrow Agent agrees to deliver to Buyer, on a monthly basis, a copy of the bank statement of account of the Escrow Deposit. Such monthly statements shall be delivered to: ___________________________________________________________________. (SIGNATURES ON FOLLOWING PAGE) IN WITNESS WHEREOF, each of the parties hereto has caused this Escrow Agreement to be signed and delivered as of the day and year first above written. BUYER: INLAND WESTERN LAWRENCEVILLE SIMONTON, L.L.C., A Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., A Maryland Corporation, its sole member By: /s/ Valerie Medina --------------------------------------- Name: Valerie Medina --------------------------------------- Title: Asst. Secretary --------------------------------------- SELLER: BARCLAY SIMONTON PARTNERS, LLC, a Florida limited liability company By: /s/ Daniel L. Vietto --------------------------------------- Daniel L. Vietto, Manager ESCROW AGENT: CHICAGO TITLE AND TRUST COMPANY By: /s/ [ILLEGIBLE] --------------------------------------- EX-10.313 24 a2143310zex-10_313.txt EX-10.313 Exhibit 10.313 ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT This ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT (this "Assignment") is made and entered into this ____ day of August, 2004 by Inland Real Estate Acquisitions, Inc., an Illinois Corporation, ("Assignor"), and Inland Western Lawrenceville Simonton, L.L.C., a Delaware limited liability company, ("Assignee"). RECITALS A. Barclay Simonton Partners, LLC ("Seller") and Assignor have previously entered into that certain Letter Agreement dated as of April 30, 2004 and accepted as of May 5, 2004 (the "Purchase Agreement"), relating to the sale of a certain retail property commonly known as The Village Shoppes at Simonton located in the City of Lawrenceville, Georgia. B. Assignor desires to assign its interest in and to the Purchase Agreement to Assignee upon the terms and conditions contained herein. NOW, THEREFORE, in consideration of the receipt of ten and 00/100 Dollars ($10.00) and other good and valuable consideration in hand paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged by Assignor, the parties hereby agree as follows: 1. RECITALS. The foregoing recitals are, by this reference, incorporated into the body of this Assignment as if the same had been set forth in the body hereof in their entirety. 2. ASSIGNMENT AND ASSUMPTION. Assignor hereby assigns, conveys, transfers, and sets over to Assignee all of Assignor's right, title, and interest in and to the Purchase Agreement. Assignee hereby accepts the foregoing Assignment and assumes, and agrees to perform, all duties, obligations, liabilities, indemnities, covenants, and agreements of Assignor set forth in the Purchase Agreement. 3. COUNTERPARTS. This document may be executed in any number of counterparts, each of which may be executed by any one or more of the parties hereto, but all of which must constitute one instrument and shall be binding and effective when all parties hereto have executed at least one counterpart. 4. SUCCESSORS. This Assignment shall be binding upon and for the benefit of the parties hereto and their respective Successors and Assigns. IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed as of the day and year first written above. ASSIGNOR: INLAND REAL ESTATE ACQUISITIONS, INC., An Illinois Corporation By: /s/ Karen M Kantz -------------------------------- Name: Karen M Kantz ------------------------------ Title: Vice President ----------------------------- ASSIGNEE: INLAND WESTERN LAWRENCEVILLE SIMONTON, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, it sole member By: /s/ Valerie Medina --------------------------- Name: Valerie Medina --------------------------- Title: Assistant Secretary --------------------------- - 2 - EX-10.314 25 a2143310zex-10_314.txt EX-10.314 Exhibit 10.314 [INLAND(R) LOGO] Inland Real Estate Acquisitions, Inc. 2901 Butterfield Road 200 Waymont Court 1955 Lake Park Drive Oak Brook, IL 60523 501 Manatee Ave, West Suite 126, Unit 10 Suite 300 630-218-4948 Fax: 4935 Holmes Beach, FL 34217 Lake Mary, FL 32746 Smyrna, GA 30080 www.inlandgroup.com 941-779-1000 Fax: 2000 407-688-6540 Fax: 6543 678-996-2131 Fax: 2140
REVISED - APRIL 30, 2004 (SELLER) c/o Advantis (Broker) Attn: Brad C. Luger 4300 W. Cypress Street, Suite 1000 Tampa, Florida 33607 (813) 342-4000 RE: THE VILLAGE SHOPPES AT SIMONTON LAWRENCEVILLE, GEORGIA Dear Mr. Luger: This letter represents this corporation's offer to purchase The Village Shoppes at Simonton Shopping Center with 66,415 net rentable square feet, situated on approximately 9.5 acres of land, located at the southeast corner of New Hope Road and Simonton Road, Lawrenceville, Georgia. The above properties shall include all the land and buildings and common facilities, as well as all personalty within the buildings and common areas, supplies, landscaping equipment, and any other items presently used on the site and belonging to owner, and all intangible rights relating to the properties. This corporation or its nominee will consummate this transaction on the following basis: 1. The total purchase price shall be $13,750,000.00 all cash, plus or minus prorations, WITH NO MORTGAGE CONTINGENCIES, to be paid at CLOSING 30 BUSINESS DAYS following the acceptance of this agreement (see Paragraph 10). Purchaser shall allocate the land, building and depreciable improvements prior to closing. 2. Seller represents and warrants (TO THE BEST OF THE SELLER'S KNOWLEDGE), that the above referenced property is leased to the tenants described on Exhibit A on triple net leases covering the building and all of the land, not including outparcels parking areas, reciprocal easements and REA/OEA agreements (if any), for the entire terms and option periods. Any concessions given to any tenants that extend beyond the closing day shall be settled with a master lease for 12 months to a by Seller. 3. Seller warrants and represents (TO THE BEST OF THE SELLER'S KNOWLEDGE), that the property is free of violations, and the interior and exterior structures are in a good state of repair, free of leaks, structural problems, and mold, and the property is in full compliance with Federal, State, City and County ordinances, environmental laws and concerns, and no one has a lease that exceeds the lease term stated in said leases, nor does anyone have an option or right of first refusal to purchase or extend (EXCEPT SUCH EXTENSIONS PROVIDED IN THE LEASES), nor is there any contemplated condemnation of any part of the property, nor are there any current or contemplated assessments. 4. Seller warrants and represents (TO THE BEST OF THE SELLER'S KNOWLEDGE), that during the term of the leases the tenants and guarantors are responsible for and pay all operating expenses relating to the property on a prorata basis, including but not limited to, real estate taxes, REA/OEA agreements, utilities, insurance, all common area maintenance, parking lot and the building, etc. VILLAGE SHOPPES AT SIMONTON, LAWRENCEVILLE, GA REVISED - APRIL 30, 2004 PAGE 2 Prior to closing, Seller shall not enter into or extend any agreements without Purchaser's approval and any contract presently in existence not accepted by Purchaser shall be terminated by Seller. Any work presently in progress on the property shall be completed by Seller prior to closing or, at Purchaser's option, Seller may credit Purchaser in cash with an amount required to finish said work. 5. Ten (10) days prior to closing Seller shall furnish Purchaser with estoppel letters acceptable to Purchaser from all tenants, guarantors, and parties to reciprocal and/or operating easement agreements, if applicable. 6. Seller is responsible for payment of any LEASING BROKERAGE FEES or commissions which are due any leasing brokers for the existing leases stated above or for the renewal of same. 7. This offer is subject to Seller supplying to Purchaser prior to closing a certificate of insurance from the tenants and guarantors in the form and coverage acceptable to Purchaser for the closing. 8. Seller shall supply to Purchaser 10 days prior to closing, and Seller shall pay for at closing, a certificate which must be acceptable to Purchaser from a certified hygienist for environmental concerns that there is no asbestos, PCBs, or hazardous substance in the buildings and on the property; in other words, a Level 1 environmental audit (and Level 2 audit, if required). 9. The above sale of the real estate shall be consummated by conveyance of a full warranty deed from Seller to Purchaser's designee, with the Seller paying its customary share of city, state, or county transfer taxes for the closing, and Seller agrees to cooperate with Purchaser's lender, if any, and the money lender's escrow. 10. The closing shall occur through Chicago Title & Trust Company, in Chicago, Illinois with Nancy Castro as Escrowee, 30 business days following acceptance of this agreement, at which time title to the above property shall be marketable; i.e., free and clear of all liens, encroachments and encumbrances, and an ALTA form B owner's title policy with complete extended coverage and required endorsements, waiving of all NEW construction, including 3.1 zoning including parking and loading docks, and insuring all improvements as legally conforming uses and not as non-conforming or conditional uses, paid by Seller, shall be issued, with all warranties and representations being true now and at closing and surviving the closing, and each party shall be paid in cash their respective credits, including, but not limited to, security deposits, rent and expenses, with a proration of real estate taxes based (at Purchaser's option) on the greater of 110% of the most recent bill or latest assessment, or the estimated assessments for 2003 and 2004 using the Assessor's formula for these sales transactions, with a later reproration of taxes when the actual bills are received. At closing, no credit will be given to Sellers for any past due, unpaid or delinquent rents. 11. This offer is not subject to the property being 100% occupied at the time of closing. In the event that it is less than 100% occupied and 100% gross rent collected, the Seller shall escrow an amount equal to the rent and all reimbursable expenses for any vacancy and any tenant not paying full rent current based on the attached rent roll. The amount of the escrow shall be equal to one year of these payments. As an example, if 1,000 square feet were vacant or not paying rent at closing and the rent for the space was $10.00 per square foot and the CAM, tax and insurance were an additional $2.00 per square foot, then the escrow would be equivalent to $12.00 x 1,000 square feet x, or $12,000. Seller shall be responsible for leasing all space involved with the above escrow and shall be responsible for all leasing commissions, tenant improvements and all other costs associated with placing a third party tenant into said space. Once a tenant acceptable to Purchaser is placed into said space and is paying full rent current, then the Seller shall be paid from the escrow any amount of funds unused for that space. VILLAGE SHOPPES AT SIMONTON, LAWRENCEVILLE, GA REVISED - APRIL 30, 2004 PAGE 3 12. 13. Neither Seller (Landlord) or any tenant and guarantor shall be in default on any lease or agreement at closing, nor is there any threatened or pending litigation. 14. 15. Prior to closing, Seller shall furnish to Purchaser copies of all guarantees and warranties which Seller received from any and all contractors and sub-contractors pertaining to the property. This offer is subject to Purchaser's satisfaction that all guarantees and warranties survive the closing and are assignable and transferable to any titleholder now and in the future. 16. Seller shall be responsible for payment of a real estate brokerage commission, as per their agreement, to Advantis. Said commission shall be paid through the closing escrow. 17. Fifteen (15) days prior to closing, Seller must provide the title as stated above and a current Urban ALTA/ACSM spotted survey in accordance with the minimum standard detail requirements for ALTA/ACSM Land Title surveys jointly established and adopted by ALTA and ACSM in 1999 and includes all Table A optional survey responsibilities and acceptable to Purchaser and the title company. 18. Seller agrees that prior to closing it shall put all vacant spaces into rentable condition and ready for a new tenant to occupy immediately in accordance with all applicable laws, codes, etc., including all requirements for a certificate of occupancy for said space/or escrow funds, an amount equal to said work, acceptable to Seller and Buyer. 19. Seller agrees to immediately make available and disclose all information that Purchaser needs to evaluate the above property, including all inducements, abatements, concessions or cash payments given to tenants, and for CAM, copies of the bills. Seller agrees to cooperate fully with Purchaser and Purchaser's representatives to facilitate Purchaser's evaluations and reports, including at least one-year audit of the books and records of the property. This offer is, of course, predicated upon the Purchaser's review and written approval of the existing leases, new leases, lease modifications (if any), all tenant correspondence, REA/OEA agreements, tenants' and guarantors' financial statements, sales figures, representations of income and expenses made by Seller, site inspection, environmental, appraisal, etc., and at least one year of audited operating statements on said property is required that qualify, comply with and can be used in a public offering. If this offer is acceptable, please HAVE THE SELLER sign the original of this letter and initial each page, keeping copies for your files and returning the original to me by May 7, 2004. Sincerely, ACCEPTED: INLAND REAL ESTATE ACQUISITIONS, INC. or nominee By: /s/ [ILLEGIBLE] ------------------------- Date: 5/5/04 /s/ Steven D. Sanders ------------------------- Steven D. Sanders Sr. Vice President /s/ G. Joseph Cosenza G. Joseph Cosenza Vice Chairman EXHIBIT A THE VILLAGE SHOPPES AT SIMONTON
TERMS RENT RENT FYE 2005 SQUARE IN LEASE LEASE [ILLEGIBLE] PER [ILLEGIBLE] SCHEDULED TENANT [ILLEGIBLE] FEET YEARS BEGINS* ENDS* DATE SQ.FT. RENT RENT [ILLEGIBLE] [ILLEGIBLE] Cummings Nails 5 1,200 5 7/1/2004 6/30/2009 7/1/2004 $ 25.00 $ 30,000.00 $ 30,000.00 Pro-Rata - One @ five years and Tanning 7/1/2005 $ 25.50 $ 30,600.00 with rent at the 7/1/2006 $ 26.00 $ 31,200.00 then current 7/1/2007 $ 26.50 $ 31,800.00 market rate. 7/1/2008 $ 27.00 $ 32,400.00 - See Rent Roll Notes Dollar Store 10 2,644 5 7/1/2004 6/30/2009 7/1/2004 $ 23.00 $ 60,812.00 $ 60,812.00 Pro-Rata - One @ five years 7/1/2007 $ 23.50 $ 62,134.00 with rent at the 7/1/2008 $ 24.00 $ 63,456.00 then current market rate. - See Rent Roll Notes PakMail 11 1,400 5 7/1/2004 6/30/2009 7/1/2004 $ 25.00 $ 35,000.00 $ 35,000.00 Pro-Rata - One @ five years 7/1/2006 $ 25.50 $ 35,700.00 with rent as 7/1/2007 $ 26.00 $ 36,400.00 follows: 7/1/2008 $ 27.00 $ 37,800.00 Year 1: $27.50 psf Year 2: $28.00 psf Year 3: $28.50 psf Year 4: $29.00 psf Year 5: $29.50 psf - See Rent Roll Notes Supercuts 12 1,400 5 7/1/2004 6/30/2009 N/A $ 24.00 $ 33,600.00 $ 33,600.00 Pro-Rata - One @ five years upon same terms. - See Rent Roll Notes Vacant 6 1,400 Vacant 7 1,400 Vacant 8 1,400 Vacant 9 1,400 Vacant 13 1,400 Vacant 14 1,400 Vacant 15 1,400 Total Leased 56,615 85.24% Total Vacant 9,800 14.76% ------ ----- Total Gross Leasable 66,415 100%
* All dates are approximate and subject to change due to potential delays in construction. [ADVANTIS(SM) GVA LOGO] a STJOE Company INVESTMENT SERVICES GROUP 24 Tenant Information EX-10.315 26 a2143310zex-10_315.txt EX-10.315 Exhibit 10.315 SECURED PROMISSORY NOTE LOAN NO. 754044 $31,064,550.00 August 24, 2004 1. FOR VALUE RECEIVED, INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company, as "Borrower" ("BORROWER" to be construed as "Borrowers" if the context so requires), hereby promises to pay to the order of PRINCIPAL LIFE INSURANCE COMPANY, an Iowa corporation (as "LENDER"), having a principal place of business and post office address at c/o Principal Real Estate Investors, LLC, 801 Grand Avenue, Des Moines, Iowa 50392-1450, or at such other place as Lender may designate, the principal sum of Thirty One Million Sixty Four Thousand Five Hundred Fifty and No/100 Dollars ($31,064,550.00) (the "LOAN AMOUNT") or so much thereof as shall from time to time have been advanced, together with interest on the unpaid balance of said sum from August 24, 2004 (the "CLOSING DATE"), at the rate of four and 48/100 percent (4.48%) per annum. A payment of interest from the Closing Date to and including August 31, 2004 shall be paid on the Closing Date calculated by multiplying the actual number of days elapsed in the period for which interest is being calculated by a daily rate based on the foregoing annual interest rate and a 360-day year. Thereafter, interest shall be computed on the unpaid balance on the basis of a 360-day year composed of twelve 30-day months. Beginning on October 1, 2004, interest shall be due and payable in installments of One Hundred Fifteen Thousand Nine Hundred Seventy Four and 32/100 Dollars ($115,974.32), with an installment in a like amount due and payable on the same day of each month thereafter, except that all remaining principal and interest to and including the date of payment and other Indebtedness shall be due and payable on September 1, 2007 or such earlier date resulting from the acceleration of the Indebtedness by Lender ("MATURITY DATE"). All principal and interest shall be paid in lawful money of the United States of America by wire transfer of immediately available funds to Lender at Wells Fargo Bank, Iowa, N.A., 7th and Walnut Streets, Des Moines, Iowa 50304, for credit to Principal Life Insurance Company, Account No. 0000014752, RE: Loan No. 754044 with reference to Borrower. In the event Borrower fails to make any monthly payment under this Note on or before the due date thereof, Borrower agrees to make all subsequent payments by automated clearing house transfer through such bank or financial institution as shall be approved in writing by Lender, shall be made to an account designated by Lender, and shall be initiated by Lender or shall be made in such other manner as Lender may direct from time to time. Any other monthly deposits or payments Borrower is required to make to Lender under the terms of the Loan Documents shall be made by the same payment method and on the same date as the installments of interest due under this Note. 2. No privilege is reserved by Borrower to prepay any principal of this Note prior to the Maturity Date, except on or after the date hereof, privilege is reserved, after giving thirty (30) days' prior written notice to Lender, to prepay in full, but not in part, all principal and interest to 1 and including the date on which payment is made, along with all sums, amounts, advances, or charges due under any instrument or agreement by which this Note is secured, upon the payment of a "MAKE WHOLE PREMIUM." The Make Whole Premium shall be the greater of one percent (1%) of the principal amount to be prepaid or a premium calculated as provided in subparagraphs (a) through (c) below: (a) Determine the "REINVESTMENT YIELD." The Reinvestment Yield will be equal to the yield on the U.S. Treasury Issue ("PRIMARY ISSUE") * published one week prior to the date of prepayment and converted to an equivalent monthly compounded nominal yield. * At this time there is not a U.S. Treasury Issue for this prepayment period. At the time of prepayment, Lender shall select in its sole and absolute discretion a U.S. Treasury Issue with similar remaining time to maturity as this Note. (b) Calculate the "PRESENT VALUE OF THE LOAN." The Present Value of the Loan is the present value of the payments to be made in accordance with this Note (all installment payments and any remaining payment due on the Maturity Date) discounted at the Reinvestment Yield for the number of months remaining from the date of prepayment to the Maturity Date. (c) Subtract the amount of the prepaid proceeds from the Present Value of the Loan as of the date of prepayment. Any resulting positive differential shall be the premium. If Borrower has otherwise fully complied with the preceding paragraphs, then, during the last 90 days prior to the Maturity Date, provided no Event of Default exists, no Make Whole Premium shall be payable. 3. Borrower agrees that if Lender accelerates the whole or any part of the principal sum evidenced hereby, after the occurrence of an Event of Default or applies any proceeds pursuant to the provisions of the Loan Documents, Borrower waives any right to prepay said principal sum in whole or in part without premium and agrees to pay, as yield maintenance protection and not as a penalty, the Make Whole Premium. Notwithstanding the above, in the event any proceeds from a casualty or Taking of the Premises are applied to reduce the principal balance hereof, such reduction shall be made without a Make Whole Premium, provided no Event of Default then exists under the Loan Documents. 4. If any payment of principal, interest, Make Whole Premium, or other Indebtedness is not made when due, damages will be incurred by Lender, including additional expense in handling overdue payments, the amount of which is difficult and impractical to ascertain. Borrower therefore agrees to pay, upon demand, the sum of four cents ($.04) for each one dollar ($1.00) of 2 each said payment which becomes overdue ("LATE CHARGE") as a reasonable estimate of the amount of said damages, subject, however, to the limitations contained in paragraph 6 hereof. Notwithstanding anything hereinabove to the contrary, the Late Charge assessed on any amount due on the Maturity Date but not then paid, whether or not by acceleration, shall not be four cents for each one dollar as described above, but shall instead be a sum equal to the interest which would have accrued on the principal balance then outstanding from the date the payment is made to the end of the month in which the Maturity Date occurs. Such Late Charge shall be in addition to interest otherwise accruing under this Note. 5. If any Event of Default has occurred and is continuing under the Loan Documents, the entire principal balance of the Loan, interest then accrued, and Make Whole Premium, and all other Indebtedness whether or not otherwise then due, shall at the option of Lender, become immediately due and payable without demand or notice, and whether or not Lender has exercised said option, interest shall accrue on the entire principal balance, interest then accrued, Make Whole Premium and any other Indebtedness then due, at a rate equal to the Default Rate until fully paid. 6. Notwithstanding anything herein or in any of the other Loan Documents to the contrary, no provision contained herein or therein which purports to obligate Borrower to pay any amount of interest or any fees, costs or expenses which are in excess of the maximum permitted by applicable law, shall be effective to the extent it calls for the payment of any interest or other amount in excess of such maximum. All agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand for payment or acceleration of the maturity hereof or otherwise, shall the interest contracted for, charged or received by Lender exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Lender in excess of the maximum lawful amount, the interest payable to Lender shall be reduced to the maximum amount permitted under applicable law; and if from any circumstance Lender shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall, at the option of Lender, be refunded to Borrower or be applied to the reduction of the principal hereof, without a Make Whole Premium and not to the payment of interest or, if such excessive interest exceeds the unpaid balance of principal hereof such excess shall be refunded to Borrower. This paragraph shall control all agreements between Borrower and Lender. 7. Borrower and any endorsers or guarantors waive presentment, protest and demand, notice of protest, demand and dishonor and nonpayment, and agree the Maturity Date of this Note or any installment may be extended without affecting any liability hereunder, and further promise to pay all reasonable costs and expenses, including but not limited to, reasonable attorney's fees incurred by Lender in connection with any default or in any proceeding to interpret and/or enforce any provision of the Loan Documents. No release of Borrower from liability hereunder shall release any other maker, endorser or guarantor hereof. 3 8. This Note is secured by the Loan Documents creating among other things legal and valid encumbrances on and an assignment of all of Borrower's interest in any Leases of the Premises located in the county of St. Louis, state of Missouri. Capitalized terms used herein and not otherwise defined shall have those meanings given to them in the Loan Documents. In no event shall such documents be construed inconsistently with the terms of this Note, and in the event of any discrepancy between any such documents and this Note, the terms hereof shall govern. The proceeds of this Note are to be used for business, commercial, investment or other similar purposes, and no portion thereof will be used for any personal, family or household use. This Note shall be governed by and construed in accordance with the laws of the State where the Premises is located, without regard to its conflict of law principles. 9. Notwithstanding any provision to the contrary in this Note or the Loan Documents and except as otherwise provided for below, the liability of Borrower under the Loan Documents shall be limited to the interest of Borrower in the Premises and the Rents. In the event of foreclosure of the liens evidenced by the Loan Documents, no judgment for any deficiency upon the Indebtedness evidenced by the Loan Documents shall be sought or obtained by Lender against Borrower. Nothing herein shall in any manner limit or impair (i) the lien or enforcement of the Loan Documents pursuant to the terms thereof or (ii) the obligations of any indemnitor guarantor, if any. Notwithstanding any provision hereinabove to the contrary, Borrower shall be personally liable to Lender for: (a) any loss or damage to Lender arising from (i) the sale or forfeiture of the Premises resulting from Borrower's failure to pay any of the taxes, assessments or charges specified in the Loan Documents or (ii) Borrower's failure to insure the Premises in compliance with the provisions of the Loan Documents; (b) any event or circumstance for which Borrower indemnifies Lender under the Environmental Indemnity; (c) nonpayment of taxes, assessments, insurance premiums and utilities for the Premises and any penalty or late charge associated with nonpayment thereof; (d) material failure to manage, operate, and maintain the Premises in a commercially reasonable manner for similar property types in the surrounding geographic area; (e) any sums expended by Lender in fulfilling the obligations of Borrower as lessor under any Lease of the Premises prior to a sale of the Premises pursuant to foreclosure or power of sale, a bona fide sale (permitted by the terms of paragraph 2(f) of the Mortgage (it being agreed that "Mortgage" as used herein shall be construed to mean "mortgage" or "deed of trust" or "trust deed" as the context so 4 requires) or consented to in writing by Lender) to an unrelated third party or upon conveyance to Lender of the Premises by a deed acceptable to Lender in form and content (each of which shall be referred to as a "Sale" for purposes of this paragraph) or expended by Lender after a Sale of the Premises for obligations of Borrower which arose prior to a Sale of the Premises; Borrower's personal liability for items specified in (c), (d) and (e) above shall be limited to the amount of rents, issues, proceeds and profits from the Premises ("Rents and Profits") received by Borrower for the twenty-four (24) months preceding an Event of Default and thereafter; but less any such Rents and Profits applied to (A) payment of principal, interest and other charges when due under the Loan Documents, or (B) payment of expenses for the operation, maintenance, taxes, assessments, utility charges and insurance of the Premises including sufficient reserves for the same or replacements or renewals thereof ("Operation Expense(s)") provided that (x) Borrower has furnished Lender with evidence reasonably satisfactory to Lender of the Operation Expenses and payment thereof, and (y) any payments to parties related to Borrower shall be considered an Operation Expense only to the extent that the amount expended for the Operation Expense does not exceed the then current market rate for such Operation Expense. (f) any rents or other income regardless of type or source of payment or other considerations in lieu thereof (including, but not limited to, common area maintenance charges, lease termination payments, refunds of any type, prepayment of rents, settlements of litigation, or settlements of past due rents) from the Premises which Borrower has received or will receive after an Event of Default under the Loan Documents which are not applied to (A) payment of principal, interest and other charges when due under the Loan Documents or (B) payment of Operation Expenses provided that (x) Borrower has furnished Lender with evidence reasonably satisfactory to Lender of the Operation Expenses and payment thereof, and (y) any payments to parties related to Borrower shall be considered an Operation Expense only to the extent that the amount expended for the Operation Expense does not exceed the then current market rate for such Operation Expense; (g) any security deposits of tenants not otherwise applied in accordance with the terms of the Lease(s), together with any interest on such security deposits required by law or the leases, not turned over to Lender upon conveyance of the Premises to Lender pursuant to foreclosure or power of sale or by a deed acceptable to Lender in form and content; (h) misapplication or misappropriation of tax reserve accounts, tenant improvement reserve accounts, security deposits, prepaid rents or other similar sums paid to or 5 held by Borrower or any other entity or person in connection with the operation of the Premises; (i) any insurance or condemnation proceeds or other similar funds or payments applied by Borrower in a manner other than as expressly provided in the Loan Documents; and (j) any loss or damage to Lender arising from any fraud or willful misrepresentation by or on behalf of Borrower, Interest Owner or any guarantor regarding the Premises, the making or delivery of any of the Loan Documents or in any materials or information provided by or on behalf of Borrower, Interest Owner or guarantor, if any, in connection with the Loan. Notwithstanding anything contained in paragraphs 9(a)(i) and 9(c) hereinabove as it relates solely to taxes, assessments and insurance premiums, to the extent Lender is impounding for taxes, assessments and insurance premiums in accordance with the Loan Documents and Borrower has fully complied with all terms and conditions of the Loan Documents relating to impounding for the same, then Borrower shall not be personally liable for Lender's failure to apply any of said impound amounts held by Lender in accordance with the Loan Documents. Notwithstanding anything to the contrary in the Loan Documents, the limitation on liability contained in the first paragraph of this paragraph 9 SHALL BECOME NULL AND VOID and shall be of no further force and effect in the event of any breach or violation of paragraph 2(f) (due on sale or encumbrance) of the Mortgage, other than (i) the filing of a nonmaterial mechanic's lien affecting the Premises or a mechanic's lien affecting the Premises for which Borrower has complied with the provisions of paragraph 1(e) of the Mortgage, or (ii) the granting of any utility or other nonmaterial easement or servitude burdening the Premises, or (iii) any transfer or encumbrance of a nonmaterial economic interest in the Premises not otherwise set forth in (i) or (ii). 10. If more than one, all obligations and agreements of Borrower are joint and several. 11. This Note may not be changed or terminated orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. All of the rights, privileges and obligations hereunder shall inure to the benefit of the heirs, successors and assigns of Lender and shall bind the heirs and permitted successors and assigns of Borrower. 12. If any provision of this Note shall, for any reason, be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Note shall be construed as if such invalid or unenforceable provision had never been contained herein. 6 This Note may be executed in counterparts, each of which shall be deemed an original; and such counterparts when taken together shall constitute but one agreement. REMAINDER OF PAGE INTENTIONALLY BLANK (Signatures on next page) 7 IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and delivered as of the date first set forth above. INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, Member By: /s/ Valerie Medina --------------------------- Name: Valerie Medina --------------------- Title: Asst. Secretary --------------------- 8 EX-10.316 27 a2143310zex-10_316.txt EX-10.316 Exhibit 10.316 TITLE OF DOCUMENT: DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS DATE OF DOCUMENT: AUGUST 24, 2004 *GRANTOR(S): INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY *GRANTEE(S): PRINCIPAL LIFE INSURANCE COMPANY, AN IOWA CORPORATION GRANTEE(S) MAILING ADDRESS: C/O PRINCIPAL REAL ESTATE INVESTORS, LLC AT 801 GRAND AVENUE, DES MOINES, IOWA 50392-1450 LEGAL DESCRIPTION: SEE EXHIBIT A ATTACHED HERETO REFERENCE BOOK AND PAGE(S) NOT APPLICABLE *FOR INDEXING PURPOSES ONLY DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS LOAN NO. 754044 THIS INSTRUMENT SECURES, AMONG OTHER THINGS, FUTURE ADVANCES AND FUTURE OBLIGATIONS PURSUANT TO, AND IS TO BE GOVERNED BY THE PROVISIONS OF, SECTION 443.055 OF THE REVISED STATUTES OF MISSOURI. THE TOTAL PRINCIPAL AMOUNT OF THE FUTURE ADVANCES AND FUTURE OBLIGATIONS THAT MAY BE SECURED HEREBY IS $62,000,000. A. THIS DEED OF TRUST (as the same may from time to time hereafter be modified, supplemented or amended, this "DEED OF TRUST") is made as of August ________, 2004, by and between INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company, having its principal place of business and post office address at 2901 Butterfield Road, Oak Brook, Illinois 60523, as "BORROWER" ("Borrower" to be construed as "Borrowers" if the context so requires), BRIAN D. HABERT, whose address is Lewis, Rice & Fingersh, L.C., 1010 Walnut, Suite 500, Kansas City, Missouri 64106, as "TRUSTEE", and PRINCIPAL LIFE INSURANCE COMPANY, an Iowa corporation, having a principal place of business and post office address c/o Principal Real Estate Investors, LLC at 801 Grand Avenue, Des Moines, Iowa 50392-1450, as "LENDER". WITNESSETH: B. Borrower is justly indebted to Lender for money borrowed (the "LOAN") in the original principal sum of Thirty One Million Sixty Four Thousand Five Hundred Fifty and No/100 Dollars ($31,064,550.00) (the "LOAN AMOUNT") evidenced by Borrower's secured promissory note of even date herewith, made payable and delivered to Lender, (as may be modified, amended, supplemented, extended or consolidated in writing and any note(s) issued in exchange therefor or replacement thereof) (the "NOTE") in which Note Borrower promises to pay to Lender the Loan Amount, together with all accrued and unpaid interest thereon, interest accrued at the Default Rate (if any), Late Charges (if any), the Make Whole Premium (if any), and all other obligations and liabilities due or to become due to Lender pursuant to the Loan Documents and all other amounts, sums and expenses paid by or payable to Lender pursuant to the Loan Documents and the Environmental Indemnity (collectively the "INDEBTEDNESS") until the Indebtedness has been paid, but in any event, the unpaid balance (if any) remaining due on the Note shall be due and payable on September 1, 2007 or such earlier date resulting from the acceleration of the Indebtedness by Lender (the "MATURITY DATE"). Capitalized terms used herein and not otherwise defined shall have those meanings given to them in the other Loan Documents. C. NOW, THEREFORE, to secure the payment of the Indebtedness in accordance with the terms and conditions of the Loan Documents, and all extensions, modifications, and renewals 1 thereof and the performance of the covenants and agreements contained therein, and also to secure the payment of any and all other Indebtedness, direct or contingent, that may now or hereafter become owing from Borrower to Lender in connection with the Loan Documents, and in consideration of the Loan Amount in hand paid, receipt of which is hereby acknowledged, Borrower does by these presents GRANT, BARGAIN AND SELL, CONVEY, CONFIRM AND WARRANT, IN TRUST WITH POWER OF SALE unto Trustee, its successors and assigns forever, that certain real estate and all of Borrower's estate, right, title and interest therein, located in the county of St. Louis, state of Missouri, more particularly described in EXHIBIT A attached hereto and made a part hereof (the "LAND"), which Land, together with the following described property, rights and interests, is collectively referred to herein as the "PREMISES". D. Together with Borrower's interest as lessor in and to all Leases and all Rents, which are pledged primarily and on a parity with the Land and not secondarily. E. Together with all and singular the tenements, hereditaments, easements, appurtenances, passages, waters, water courses, riparian rights, sewer rights, rights in trade names, licenses, permits and contracts and all other rights, liberties and privileges of any kind or character in any way now or hereafter appertaining to the Land, including but not limited to, homestead and any other claim at law or in equity as well as any after-acquired title, franchise or license and the reversion and reversions and remainder and remainders thereof. F. Together with the right in the case of foreclosure hereunder of the encumbered property for Lender to take and use the name by which the buildings and all other improvements situated on the Premises are commonly known and the right to manage and operate the said buildings under any such name and variants thereof. G. Together with all right, title and interest of Borrower in any and all buildings and improvements of every kind and description now or hereafter erected or placed on the said Land and all materials intended for construction, reconstruction, alteration and repairs of such buildings and improvements now or hereafter erected thereon, all of which materials shall be deemed to be included within the Premises immediately upon the delivery thereof to the Premises, and all fixtures now or hereafter owned by Borrower and attached to or contained in and used in connection with the Premises including, but not limited to, all machinery, motors, elevators, fittings, radiators, awnings, shades, screens, and all plumbing, heating, lighting, ventilating, refrigerating, incinerating, air-conditioning and sprinkler equipment and fixtures and appurtenances thereto; and all items of furniture, furnishings, equipment and personal property owned by Borrower used or useful in the operation of the Premises; and all renewals or replacements of all of the aforesaid property owned by Borrower or articles in substitution therefor, whether or not the same are or shall be attached to said buildings or improvements in any manner (collectively, the "IMPROVEMENTS"); it being mutually agreed, intended and declared that all the aforesaid property owned by Borrower and placed by it on the Land or used in connection with the operation or maintenance of the Premises shall, so far as permitted by law, be deemed to form a part and parcel of the Land and for the purpose of this Deed of Trust to be Land and covered by this Deed of Trust, and as to any of the property aforesaid which does not 2 form a part and parcel of the Land or does not constitute a "fixture" (as such term is defined in the Uniform Commercial Code) this Deed of Trust is hereby deemed to be, as well, a security agreement under the Uniform Commercial Code for the purpose of creating hereby a security interest in such property which Borrower hereby grants to Lender as secured party. Borrower authorizes Lender at any time until the Indebtedness is paid in full, to prepare and file any and all Uniform Commercial Code financing statements, amendments, assignments, terminations and the like, necessary to create and/or maintain a prior security interest in such property all without Borrower's execution of the same. H. Together with all right, title and interest of Borrower, now or hereafter acquired, in and to any and all strips and gores of land adjacent to and used in connection with the Premises and all right, title and interest of Borrower, now owned or hereafter acquired, in, to, over and under the ways, streets, sidewalks and alleys adjoining the Premises. I. Together with all funds now or hereafter held by Lender under any escrow security agreement or under any of the terms hereof, including but not limited to funds held under the provisions of paragraph 5 hereof, insurance proceeds from all insurance policies required to be maintained by Borrower under the Loan Documents (subject to the balance of the terms contained in this Deed of Trust) and all awards, decrees, proceeds, settlements or claims for damage now or hereafter made to or for the benefit of Borrower by reason of any damage to, destruction of or taking of the Premises or any part thereof, whether the same shall be made by reason of the exercise of the right of eminent domain or by condemnation or otherwise (a "TAKING"). J. TO HAVE AND TO HOLD the same unto Trustee, Trustee's successors and assigns, upon the trusts, covenants and agreements herein expressed. K. Borrower represents that it is the absolute owner in fee simple of the Premises described in Exhibit A, which Premises are free and clear of any liens or encumbrances except as set out in Exhibit B attached hereto, and except for taxes which are not yet due or delinquent. Borrower shall forever warrant and defend the title to the Premises against all claims and demands of all persons whomsoever and will on demand execute any additional instrument which may be required to give Trustee a valid first lien on all of the Premises, subject to the "PERMITTED ENCUMBRANCES" set forth in Exhibit B. L. Borrower further represents that (i) the Premises is not subject to any casualty damage; (ii) Borrower has not received any written notice of any eminent domain or condemnation proceeding affecting the Premises; and (iii) to the best of Borrower's knowledge following due and diligent inquiry, there are no actions, suits or proceedings pending, completed or threatened against or affecting Borrower or any person or entity owning an interest (directly or indirectly) in Borrower ("INTEREST OWNER(S)") or any property of Borrower or any Interest Owner in any court or before any arbitrator of any kind or before or by any governmental authority (whether local, state, federal or foreign) that, individually or in the aggregate, could reasonably be expected by Lender to be material to the transaction contemplated hereby. 3 M. Borrower further represents and warrants that as of the date hereof and until the Indebtedness is paid in full: (i) Borrower is not and will not be an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA; (ii) the assets of Borrower do not and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA; (iii) Borrower is not and will not be a "governmental plan" within the meaning of Section 3(32) of ERISA; (iv) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of and fiduciary obligations with respect to governmental plans; (v) Borrower has made and will continue to make all required contributions to all employee benefit plans, if any, established for or on behalf of Borrower or to which Borrower is required to contribute; (vi) Borrower has and will continue to administer each such plan, if any, in accordance with its terms and the applicable provisions of ERISA and any other federal or state law; and (vii) Borrower has not and will not permit any liability under Sections 4201, 4243, 4062 or 4069 of Title of ERISA or taxes or penalties relating to any employee benefit plan or multi-employer plan to become delinquent or assessed, respectively, which would have a material adverse effect upon (i) the business or the financial position or results of operation of Borrower, (ii) the ability of Borrower to perform, or of Lender to enforce, any of the Loan Documents or Environmental Indemnity or (iii) the value of the Premises. BORROWER COVENANTS AND AGREES AS FOLLOWS: 1. Borrower shall (a) pay each item of Indebtedness secured by this Deed of Trust when due according to the terms of the Loan Documents; (b) pay a Late Charge on any payment of principal, interest, Make Whole Premium or Indebtedness which is not paid on or before the due date thereof to cover the expense involved in handling such late payment; (c) pay on or before the due date thereof any indebtedness permitted to be incurred by Borrower pursuant to the Loan Documents and any other claims which could become a lien on the Premises (unless otherwise specifically addressed in paragraph 1(e) hereof), and upon request of Lender exhibit satisfactory evidence of the discharge thereof; (d) complete within a reasonable time, the construction of any Improvements now or at any time in process of construction upon the Land which are required to be performed by Borrower; (e) manage, operate and maintain the Premises and keep the Premises, including but not limited to, the Improvements, in good condition and repair and free from mechanics' liens or other liens or claims for liens, 4 provided however, that Borrower may in good faith, with reasonable diligence and upon written Notice to Lender within twenty (20) days after Borrower has knowledge of such lien or claim, contest the validity or amount of any such lien or claim and defer payment and discharge thereof during the pendency of such contest in the manner provided by law, provided that (i) such contest may be made without the payment thereof; (ii) such contest shall prevent the sale or forfeiture of the Premises or any part thereof, or any interest therein, to satisfy such lien or claim; (iii) Borrower shall have obtained a bond over such lien or claim from a bonding company acceptable to Lender which has the effect of removing such lien or collection of the claim or lien so contested; and (iv) Borrower shall pay all costs and expenses incidental to such contest; and further provided, that in the event of a final, non-appealable ruling or adjudication adverse to Borrower and provided the court of jurisdiction has not granted a stay of the enforcement of the ruling or judgment, Borrower shall promptly pay such claim or lien, shall indemnify and hold Lender and the Premises harmless from any loss for damage arising from such contest and shall take whatever action necessary to prevent sale, forfeiture or any other loss or damage to the Premises or to the Lender; provided, however, Lender acknowledges and agrees that performance of the obligations set forth in this Paragraph 1(e) by a Major Tenant (as defined in Paragraph 4(c) hereof) shall be deemed compliance with such provisions by Borrower; (f) comply, and cause each lessee or other user of the Premises to comply, with all requirements of law and ordinance, and all rules and regulations, now or hereafter enacted, by authorities having jurisdiction of the Premises and the use thereof, including but not limited to all covenants, conditions and restrictions of record pertaining to the Premises, the Improvements, and the use thereof (collectively, "LEGAL REQUIREMENTS"); (g) subject to the provisions of paragraph 6 hereof, promptly repair, restore or rebuild any Improvements now or hereafter a part of the Premises which may become damaged or be destroyed by any cause whatsoever, so that upon completion of the repair, restoration and rebuilding of such Improvements, there will be no liens of any nature arising out of the construction and the Premises will be of substantially the same character and quality as it was prior to the damage or destruction; (h) if other than a natural person, do all things necessary to preserve and keep in full force and effect its existence, franchises, rights and privileges under the laws of the state of its formation and, if other than its state of formation, the state where the Premises is located. Borrower shall notify Lender at least thirty (30) days prior to (i) any relocation of Borrower's 5 principal place of business to a different state or any change in Borrower's state of formation, and/or (ii) if Borrower is an individual, any relocation of Borrower's principal residence to a different state; (i) do all things necessary to preserve and keep in full force and effect Lender's title insurance coverage insuring the lien of this Deed of Trust as a first and prior lien, subject only to the Permitted Encumbrances stated in Exhibit B and any other exceptions after the date of this Deed of Trust approved in writing by Lender, including without limitation, delivering to Lender not less than 30 days prior to the effective date of any rate adjustment, modification or extension of the Note or any other Loan Document, any new policy or endorsement which may be reasonably required to assure Lender of such continuing coverage; (j) execute any and all documents which may be required to perfect the security interest granted by this Deed of Trust; (k) remain a Single-Purpose Entity; and (l) It is understood and agreed that this Deed of Trust secures future advances and future obligations. The total amount of obligations and advances secured hereby may decrease or increase from time to time, but at no time shall the total principal amount of obligations and advances secured hereby, not including sums expended or incurred for the reasonable protection of the security interest created in the Premises or for other purposes specified in Section 443.055(3) of the Missouri Revised Statutes, exceed the principal amount of $62,000,000.00. This Deed of Trust is governed by Section 443.055 of the Missouri Revised Statutes. As used herein, the term "SINGLE PURPOSE ENTITY" means: a corporation, limited or general partnership, limited liability company, or business trust which, at all times until the Indebtedness is paid in full (i) will be organized solely for the purpose of owning the Premises, (ii) will not engage in any business unrelated to the ownership of the Premises, (iii) will not have any assets other than those related to the Premises, (iv) will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation or merger, and, except as otherwise expressly permitted by the Loan Documents, will not engage in, seek or consent to any asset sale, transfer of partnership, membership, shareholder, beneficial interests, or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation, operating agreement, trust agreement, or trust certificate (as applicable), (v) will not fail to correct any known misunderstanding regarding the separate identity of such entity, (vi) without the unanimous consent of all of the partners, directors, members, beneficial owners and trustees, as applicable, will not with respect to itself or to 6 any other entity in which it has a direct or indirect legal or beneficial ownership interest (a) file a bankruptcy, insolvency or reorganization petition or otherwise institute insolvency proceedings or otherwise seek any relief under any laws relating to the relief from debts or the protection of debtors generally; (b) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for such entity or all or any portion of such entity's properties; (c) make any assignment for the benefit of such entity's creditors; or (d) take any action that might cause such entity to become insolvent, (vii) will maintain its accounts, books and records separate from any other person or entity, (viii) will maintain its books, records, resolutions and agreements as official records, (ix) has not commingled and will not commingle its funds or assets with those of any other person or entity, (x) has held and will hold its assets in its own name, (xi) will conduct its business in its name, (xii) will maintain its financial statements, accounting records and other entity documents separate from any other person or entity, (xiii) will pay its own liabilities out of its own funds and assets, (xiv) will observe all corporate, limited liability company and partnership formalities, as applicable, including any regarding the maintenance of minimum capital to the extent required by the laws of the jurisdiction in which the entity is organized; (xv) has maintained and will maintain an arms-length relationship with its affiliates, (xvi) if such entity owns the Premises, will have no indebtedness other than the Indebtedness and commercially reasonable unsecured trade payables in the ordinary course of business relating to the ownership and operation of the Premises which are paid within sixty (60) days of the date incurred, (xvii) will not assume or guarantee or become obligated for the debts of any other person or entity or hold out its credit as being available to satisfy the obligations of any other person or entity, except for the Indebtedness, (xviii) will not acquire obligations or securities of its partners, members, trustees, beneficial owners or shareholders, (xix) will allocate fairly and reasonably shared expenses, including, without limitation, shared office space and uses separate stationery, invoices and checks, (xx) will not pledge its assets for the benefit of any other person or entity, (xxi) will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other person or entity, (xxii) will not make loans to any person or entity, (xxiii) will not identify its partners, members, shareholders, trustees, beneficiaries or any affiliates of any of them as a division or part of it, (xxiv) will not enter into or be a party to, any transaction with its partners, members, shareholders, beneficiaries, trustees or its affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arms-length transaction with an unrelated third party, (xxv) will pay the salaries of its own employees from its own funds, and (xxvi) if such entity is a limited liability company, limited partnership, or business trust then such entity shall continue and not dissolve whether as a consequence of bankruptcy or insolvency of one or more of the members, general partners, or trustees, as applicable, or otherwise, for so 7 long as a solvent managing member, general partner, or trustee, as applicable, exists and, subject to applicable law, dissolution of the entity shall not occur so long as the entity remains owner of the Premises subject to the Deed of Trust. Such entity's organizational documents shall contain such provision. 2. Borrower shall not: (a) except as required by applicable Legal Requirements, construct any building or structure nor make any alteration or addition (other than normal repair and maintenance) to (i) the roof or any structural component of any Improvements on the Premises, or (ii) the building operating systems, including but not limited to, the mechanical, electrical, heating, cooling, or ventilation systems (other than replacement with equal or better quality and capacity), without the prior written consent of Lender not to be unreasonably withheld; (b) remove or demolish any material Improvements, or any portion thereof, which at any time constitutes a part of the Premises. Notwithstanding anything hereinabove to the contrary, Borrower may construct, remove or demolish tenant improvements within the then existing building(s) or other structures to the extent such work is required solely under the terms of any Leases approved by Lender provided (i) no Event of Default exists under the Loan Documents; (ii) the work is completed on a timely basis, in a good, workmanlike, lien-free manner and in accordance with all Legal Requirements, and (iii) such work does not negatively affect the structural integrity of the Improvements or the value of the Premises; (c) cause or permit any change to be made in the general use of the Premises without Lender's prior written consent; (d) initiate any or acquiesce to a zoning reclassification or material change in zoning without Lender's prior written consent. Borrower shall use all reasonable efforts to contest any such zoning reclassification or change; (e) make or permit any use of the Premises that could with the passage of time result in the creation of any right of use, or any claim of adverse possession or easement on, to or against any part of the Premises in favor of any person or entity or the public; (f) allow any of the following to occur (unless a Permitted Transfer): 8 (i) a Transfer of all or any portion of the Premises or any interest in the Premises; (ii) a Transfer of any ownership interest in Borrower or any entity which owns, directly or indirectly, an interest in Borrower at any level of the ownership structure; or (iii) in addition to (i) and (ii) above, if the Borrower is a trust, or if a trust owns an interest, directly or indirectly, in any entity which owns an interest in Borrower at any level of the ownership structure, the addition, deletion or substitution of a trustee of such trust. If any of such events occur, it shall be null and void and shall constitute an Event of Default under the Loan Documents. It is understood and agreed that the Indebtedness evidenced by the Note is personal to Borrower and in accepting the same Lender has relied upon what it perceived as the willingness and ability of Borrower to perform its obligations under the Loan Documents and the Environmental Indemnity and as lessor under the Leases of the Premises. Furthermore, Lender may consent to a Transfer and expressly waive Borrower's covenants contained in this paragraph 2(f), in writing to Borrower; however any such consent and waiver shall not constitute any consent or waiver of such covenants as to any Transfer other than that for which the consent and waiver was expressly granted. Furthermore, Lender's willingness to consent to any Transfer and waive Borrower's covenants contained in this paragraph 2(f), implies no standard of reasonableness in determining whether or not such consent shall be granted and the same may be based upon what Lender solely deems to be in its best interest. For purposes of the Loan Documents, the following terms shall have the respective meanings set forth below: "TRANSFER" or "TRANSFERRED" shall mean with respect to the Premises, an interest in the Premises, or an ownership interest or interest therein: (i) a sale, assignment, transfer, conveyance or other disposition (whether voluntary, involuntary or by operation of law); (ii) the creation, sufferance or granting of any lien, encumbrance, security interest or collateral assignment (whether voluntarily, involuntarily or by operation of law), other than the lien hereof, the leases of the Premises assigned to Lender, the Permitted Encumbrances, the granting of a lien on a tenant's interest under 9 any Lease in accordance with the terms specifically set forth therein, and those liens which Borrower is contesting in accordance with the provisions of paragraph 1(e); (iii) the issuance or other creation of ownership interests in an entity; (iv) the reconstitution or conversion from one entity to another type of entity; (v) a merger, consolidation, reorganization or any other business combination; or (vi) a conversion to or operation of all or any portion of the Premises as a cooperative or condominium form of ownership. "PERMITTED TRANSFER" shall mean: (i) a minor (as determined by Lender) conveyance of an interest in the Premises by Borrower, such as a utility easement, and for which Lender has given its prior written consent and imposed such conditions as Lender deems advisable and appropriate; (ii) a sale, assignment, transfer or conveyance of all or any portion of the Premises or an interest in the Premises for which Borrower has complied with all of the Property Transfer Requirements; or (iii) any of the following Transfers for which Borrower has complied with all of the Ownership Transfer Requirements as applicable and Lender has given its prior written consent (and in connection with such consent, Lender may impose any conditions it wishes in its sole discretion); (A) a sale, assignment, transfer, or conveyance of an ownership interest or interest therein; (B) the issuance or other creation of ownership interests in an entity; (C) a reconstitution or conversion from one entity to another type of entity; (D) a merger, consolidation, reorganization or any other business combination; (iv) with at least thirty (30) days advance written notice, transfers of ownership interests in Borrower and entities owning interests in Borrower between Inland Western Retail Real Estate Trust, Inc., a Maryland corporation ("IWRRET"), and its wholly owned affiliates for which Borrower has complied with all of the Specific Transfer Requirements - 1; (v) with at least thirty (30) days advance written notice, transfers of ownership interests in Borrower and/or shares in entities owning interests in Borrower to Qualified New Members (hereinafter defined), for which Borrower has complied with all of the Specific 10 Transfer Requirements - 2 (for purposes of this Permitted Transfer, a "Qualified New Member" shall be defined as an institutional investor or fund managed by an institutional investor having assets of $100,000,000 or more; (vi) with at least thirty (30) days advance written notice, transfers of direct or indirect ownership interests in Borrower and entities owning interests in Borrower and IWRRET, and its wholly owned affiliates to a Qualified Successor) (hereinafter defined) and/or its wholly owned affiliates for which Borrower has complied with all of the Specific Transfer Requirements - 3 (for purposes of this Permitted Transfer, a "Qualified Successor" shall be defined as an entity with a tangible net worth of $200,000,000 or more); a debt to equity ratio of 1.5 or less; and management personnel experienced in the ownership and management of retail properties similar to the Premises; or (vii) transfers of ownership interests in IWRRET. "PROPERTY TRANSFER REQUIREMENTS" are all of the following: 1. Prior review and approval of the proposed purchaser or other transferee and the subject transaction by Lender, at Lender's sole discretion. Review of the proposed purchaser or other transferee and the subject transaction shall encompass various factors, including, but not limited to, the proposed purchaser's or other transferee's creditworthiness, financial strength, and real estate management and leasing expertise as well as the proposed transaction's effect on the Premises, the Borrower, and other security for the Loan; 2. Payment to Lender of an assumption fee equal to the greater of: (a) one half of one percent (0.5%) of the principal balance of the Note; or (b) $15,000.00; provided, however, that Lender will require $15,000.00 of such fee to be paid at the beginning of Lender's review process, and such sum shall be nonrefundable and earned upon receipt by Lender whether or not the transaction is ultimately completed or Lender ultimately approves the proposed purchaser or other transferee; 3. Receipt, at Borrower's expense, of either (at Lender's discretion) a new ALTA standard loan policy or an endorsement updating the Lender's existing loan policy in the full amount of the Loan, in form and by an issuer satisfactory to Lender, and which insures this Deed of Trust to be a first and prior lien subject only to those 11 exceptions which were previously approved by Lender and provides coverage against usury and mechanic's liens; 4. Receipt by Lender of copies of all relevant information and documentation relating to or required by Lender in connection with the proposed transfer including but not limited to (a) the organizational documents of the proposed transferee and an opinion of counsel satisfactory to Lender as to its due formation, valid existence and authority to enter into and carry out the proposed transaction as well as the proposed transferee's compliance with its status as a Single Purpose Entity; (b) the deeds or other instruments of transfer and documents relating to the assignment and assumption of Leases; (c) evidence of compliance with the insurance requirements contained in the Loan Documents; and (d) compliance with such other closing requirements as are customarily imposed by Lender in connection with such transactions; 5. Execution, delivery, acknowledgment and recordation, as applicable, of new, revised and/or replacement assumption agreements, loan modification agreements, indemnification agreements, escrow security or property reserves agreements, security instruments, financing statements, UCCs, new or revised letters of credit and/or guarantees in form and substance satisfactory to Lender; 6. Payment of outside counsel fees and costs, other applicable professional's fees and costs, taxes, recording fees and the like, and any other fees and costs incurred; 7. Receipt by Lender of 60 days advance written notice of the proposed Transfer in question; 8. Receipt by Lender of a waiver from any tenant having a right or option to purchase the Premises or any portion thereof, waiving such right or option in form and substance acceptable to Lender; and 9. At Lender's option, and if required by the procedures promulgated by any rating agency(ies) associated with a securitization transaction with respect to the Loan, receipt by Lender of written evidence from such agency(ies) to the effect that the proposed transfer will not result in a re-qualification, reduction or 12 withdrawal of any rating in effect immediately prior to such transfer issued in connection with the securitization transaction. "OWNERSHIP TRANSFER REQUIREMENTS" are all of the Property Transfer Requirements which Lender deems appropriate in its discretion, as well as a reasonable processing fee to be determined by Lender; provided, however, that (i) with respect to item 2 of the Property Transfer Requirements, the 0.5% component of the fee shall be prorated (subject, however, to the $15,000 minimum) based on Lender's calculation of the effective percentage interest in Borrower transferred, and (ii) item 3 of the Property Transfer Requirements shall be required, at Lender's discretion, only in the event of (A) a merger, consolidation, reorganization or any other business combination, or (B) a reconstitution on or conversion from one entity to another type of entity. "SPECIFIC TRANSFER REQUIREMENTS -1" are all of the following which Borrower agrees to provide to Lender prior to each proposed transfer: (i) a transfer fee of $2,000.00; (ii) all relevant documentation and information related to the organization, authority, and validity of the proposed ownership interest purchaser, transferee and the transaction in general; (iii) all documents and instruments of conveyance, transfer and assignment; (iv) at Lender's discretion, a reaffirmation of the obligations of the Guarantor(s) under the Guaranty; and (v) evidence of payment of all outside counsel fees, professional fees, title insurance fees, if any, and any and all other fees, costs and expenses related to the proposed transfer (provided that no assumption or transfer fee other than the $2,000 fee stated in (i) above shall be required). "SPECIFIC TRANSFER REQUIREMENTS - 2" are all of the following which Borrower agrees to provide to Lender prior to each proposed transfer: IWRRET or a wholly owned affiliate thereof (i) (a) retains 51% or more of the ownership interest in the Borrower, or (b) retains ownership of 20% to 50% of the ownership interest in the Borrower subject to Lender's review and approval in each instance of the proposed transferee and the subject transaction; Lender's review of the proposed transferee and the subject transaction shall encompass various factors, including but not limited to, transferee's creditworthiness, financial strength, and real estate management expertise, as well as the proposed transaction's effect on the Premises, Borrower and the other security for the Loan, and (ii) otherwise retains operational and management control of Borrower as determined by Lender, and further provided Borrower provides Lender each of the following items prior to each proposed transfer: (a) a transfer fee equal to the greater of $5,000.00 or the product of the percentage ownership interest in Borrower to be transferred multiplied by one percent (1%) of the outstanding principal balance of the Loan; (b) all relevant documentation and information related to the organization, authority, and validity of the proposed ownership interest purchaser, transferee 13 and the transaction in general; (c) all documents and instruments of conveyance, transfer and assignment; (d) a reaffirmation of the obligations of the Guarantor(s) under the Guaranty; and (e) evidence of payment of all outside counsel fees, professional fees, title insurance fees and any and all other fees, costs and expenses related to the proposed transfer (provided that no assumption or transfer fee other than the $5,000.00 fee stated in (a) above shall be required). "SPECIFIC TRANSFER REQUIREMENTS - 3" are all of the following which Borrower agrees to provide to Lender prior to each proposed transfer: (i) said transfers are made to accommodate either the merger of IWRRET with the Qualified Successor or the sale of a majority of IWRRET's assets to the Qualified Successor; and (ii) the Qualified Successor retains direct or indirect ownership of 51% or more of the ownership interests in the Borrower and (iv) the Qualified Successor otherwise retains operational and management control of Borrower as determined by Lender, and further provided, Borrower provides Lender with each of the following items prior to the proposed transfer: (a) a transfer fee of $10,000.00; (b) all relevant documentation and information related to the organization, authority, and validity of the proposed ownership interest purchaser, transferee and the transaction in general; (c) all documents and instruments of conveyance, transfer and assignment; (d) a reaffirmation of the obligations of the Guarantor(s) under the Guaranty or assumption thereof by an individual(s) or entity(ies) acceptable to Lender in its sole discretion; and (e) evidence of payment of all outside counsel fees, professional fees, title insurance fees and any and all other fees, costs and expenses related to the proposed transfer (provided that no assumption or transfer fee other than the $10,000.00 fee stated in (a) above shall be required). 3. (a) Borrower shall pay or cause to be paid when due and before any penalty attaches or interest accrues all general taxes, special taxes, assessments (including assessments for benefits from public works or improvements whenever begun or completed), utility charges, water charges, sewer service charges, common area maintenance charges, if any, vault or space charges and all other like charges against or affecting the Premises or against any property or equipment located on the Premises, or which might become a lien on the Premises, and shall, within 10 days following Lender's request, furnish to Lender a duplicate receipt of such payment. If any such tax, assessment or charge may legally be paid in installments, Borrower may, at its option, pay such tax, assessment or charge in installments. Lender acknowledges and agrees that performance of the obligations set forth in this Paragraph 3(a) by a Major Tenant under its lease for a portion of the Premises shall be deemed compliance with such provisions by Borrower with respect to such portion of the Premises. 14 (b) If Borrower desires to contest any tax, assessment or charge relating to the Premises, Borrower may do so by paying the same in full, under protest, in the manner provided by law; provided, however, that (i) if contest of any tax, assessment or charge may be made without the payment thereof, and (ii) such contest shall have the effect of preventing the collection of the tax, assessment or charge so contested and the sale or forfeiture of the Premises or any part thereof or any interest therein to satisfy the same, then Borrower may in its discretion and upon the giving of written notice to Lender of its intended action and upon the furnishing to Lender of such security or bond as Lender may require, contest any such tax, assessment or charge in good faith and in the manner provided by law. All costs and expenses incidental to such contest shall be paid by Borrower. In the event of a ruling or adjudication adverse to Borrower, Borrower shall promptly pay such tax, assessment or charge. Borrower shall indemnify and save harmless the Lender and the Premises from any loss or damage arising from any such contest and shall, if necessary to prevent sale, forfeiture or any other loss or damage to the Premises or to Lender, pay such tax, assessment or charge or take whatever action is necessary to prevent any sale, forfeiture or loss. Lender acknowledges and agrees that upon compliance with the foregoing requirements, to the extent permitted under its lease of a portion of the Premises, a Major Tenant shall have all rights of contest as set forth in this Paragraph 3(b). 4. (a) Borrower shall at all times keep or cause to be kept in force (i) property insurance insuring all Improvements which now are or hereafter become a part of the Premises for perils covered by a causes of loss-special form insurance policy, including coverage against terrorism containing both replacement cost and agreed amount endorsements or equivalent coverage; (ii) commercial general liability insurance naming Lender as an additional insured protecting Borrower and Lender against liability for bodily injury or property damage occurring in, on or adjacent to the Premises in commercially reasonable amounts; (iii) boiler and machinery insurance if the property has a boiler or is an office building; (iv) rental value insurance for the perils specified herein for one hundred percent (100%) of the Rents (including operating expenses, real estate taxes, assessments and insurance costs which are lessee's liability) for a period of twelve (12) months; (v) builders risk insurance during all periods of construction; and (vi) insurance against all other hazards as may be reasonably required by Lender, including, without limitation, insurance against loss or damage by 15 flood. Notwithstanding anything herein above to the contrary, if neither: (i) property insurance without an exclusion for terrorism, terrorist acts or similar perils ("Terrorism") nor; (ii) a separate policy insuring specifically against Terrorism is available at a cost which is in Lender's opinion is commercially reasonable, taking into consideration, among other things: (a) how properties similar in type, size, quality and location are insured with respect to Terrorism; and (b) the amount of coverage, premium and deductible applicable to such insurance, then Lender agrees to waive the requirement to provide insurance covering Terrorism until such coverage again becomes available at a cost, which in Lender's opinion is commercially reasonable. (b) All insurance (including deductibles and exclusions) shall be in form, content and amounts approved by Lender and written by an insurance company or companies approved by Lender and rated A-, class size VIII or better in the most current issue of Best's Insurance Reports and which is licensed to do business in the state in which the Premises are located or a governmental agency or instrumentality approved by Lender. The policies for such insurance shall have attached thereto standard mortgagee clauses in favor of and permitting Lender to collect any and all proceeds payable thereunder and shall include a 30 day (except for nonpayment of premium, in which case, a 10 day) notice of cancellation clause in favor of Lender. All certificates of insurance (or policies if requested by Lender) shall be delivered to and held by Lender as further security for the payment of the Note and any other obligations arising under the Loan Documents, with evidence of renewal coverage delivered to Lender at least 30 days before the expiration date of any policy. Borrower shall not carry or permit to be carried separate insurance, concurrent in kind or form and contributing in the event of loss, with any insurance required in the Loan Documents. (c) Unless Borrower provides evidence of the insurance coverage required by this Deed of Trust, Lender may purchase insurance at Borrower's expense to protect Lender's interests in Borrower's collateral. This insurance may, but need not, protect Borrower's interests. The coverage that Lender purchases may not pay any claim that Borrower makes or any claim that is made against Borrower in connection with the collateral. Borrower may later cancel any insurance purchased by Lender, but only after providing evidence that Borrower has obtained insurance as required by this Deed of Trust. If Lender purchases insurance for the collateral, Borrower will be responsible for the costs of that insurance, including the insurance premium, interest and any other charges Lender may impose in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to Borrower's total outstanding balance or obligation. The costs 16 of the insurance may be more than the cost of insurance Borrower may be able to obtain on its own. (d) To the contrary notwithstanding, so long as there is no Event of Default hereunder and so long as (i) the lease between Borrower and Wal-Mart, Inc., a Delaware corporation ("Wal-Mart") dated June 25, 1993, as amended, (ii) the lease between Borrower and Home Depot U.S.A., Inc. ("Home Depot") dated August 17,1993, as amended, (iii) the lease between Borrower and The Sports Authority, Inc. ("TSA") dated August 23, 1993, as amended, or (iv) the lease between Borrower and Boston Chicken, Inc. ("Boston Chicken") dated January 20, 1995, as amended, or any lease to any replacement tenant under any of such leases approved by Lender, remains in full force and effect and there are no material breaches thereof beyond the expiration of any applicable notice and cure periods, Lender will allow Wal-Mart, Home Depot, TSA and Boston Chicken (each a "Major Tenant") or any said replacement tenant approved by Lender (a "Replacement Tenant") to keep in force the insurance required herein with respect to their respective leased premises, except with respect to coverage for rental insurance, and such performance by such Major Tenant shall be deemed performance by Borrower with respect to such required insurance hereunder. All insurance coverages and requirements that are not maintained by a Major Tenant or a Replacement Tenant in accordance with the Lender's insurance requirements herein shall at all times during the Loan be maintained by Borrower. (e) To the contrary notwithstanding, so long as there is no Event of Default hereunder and so long as (i) the lease between Borrower and a Major Tenant remains in full force and effect and there are no material breaches thereof beyond the expiration of any applicable notice and cure periods, Lender agrees to accept self-insurance by a Major Tenant for its respective leased premises. Lender will only accept self-insurance by a Major Tenant under the terms of its lease if such Major Tenant maintains a minimum tangible net worth of $100,000,000.00. All insurance coverages and requirements that are not self insured by a Major Tenant in accordance with the Lender's insurance requirements herein shall at all times during the Loan be maintained by such Major Tenant or Borrower (with the exception of coverage for rental insurance, which shall be provided by Borrower). 5. (a) Upon the occurrence of an Event of Default and upon request of Lender, Borrower shall deposit with, and pay to Lender, on each payment date specified in the Note, sums calculated by Lender for payment of the following as they become due and payable: (i) the estimated taxes and assessments assessed or levied against the Premises, and (ii) the estimated 17 premiums for insurance required by the Loan Documents, excluding commercial general liability insurance. Lender shall use such deposits to pay the taxes, assessments and premiums when the same become due. Borrower shall procure and deliver to Lender, in advance, statements for such charges. If the total payments made by Borrower under this paragraph exceed the amount of payments actually made by Lender for taxes, assessments and insurance premiums, such excess shall be credited by Lender on subsequent deposits to be made by Borrower. If, however, the deposits are insufficient to pay the taxes, assessments and insurance premiums when the same shall be due and payable, Borrower will pay to Lender any amount necessary to make up the deficiency, five (5) business days before the date when payment of such taxes, assessments and insurance premiums shall be due. If at any time Borrower shall tender to Lender, in accordance with the provisions of the Note secured by this Deed of Trust, full payment of the entire Indebtedness represented thereby, Lender shall, in computing the amount of such Indebtedness, credit to the account of Borrower any balance remaining in the funds accumulated and held by Lender under the provisions of this paragraph. If there is an Event of Default resulting in a public sale of the Premises, or if Lender otherwise acquires the Premises after an Event of Default, Lender shall apply, at the time of commencement of such proceedings, or at the time the Premises is otherwise acquired, the balance then remaining in the funds accumulated under this paragraph as a credit toward any delinquent or accrued taxes and then in such priority as Lender elects to the other Indebtedness. (b) Any funds held under this paragraph shall not constitute any deposit or account of the Borrower or moneys to which the Borrower is entitled upon demand, or upon the mere passage of time, or sums to which Borrower is entitled to any interest or crediting of interest by virtue of Lender's mere possession of such deposits. Lender shall not be required to segregate such deposits and may hold such deposits in its general account or any other account and may commingle such deposits with any other moneys of Lender or moneys which Lender is holding on behalf of any other person or entity. 6. In the event of any damage to or destruction of the Premises, or any part thereof: (a) Borrower will immediately notify Lender thereof in the manner provided in this Deed of Trust for the giving of notices. Lender shall have the right (which may be waived by Lender in writing) to settle and adjust any claim under such insurance policies required to be maintained by Borrower. In all circumstances, the proceeds thereof shall be paid to Lender and Lender is authorized to collect and to give receipts therefor. Borrower agrees and acknowledges that such proceeds shall be held by Lender without any 18 allowance of interest and that in any bankruptcy proceeding of Borrower, all such proceeds shall be deemed to be "Cash Collateral" as that term is defined in Section 363 of the Bankruptcy Code. Provided that no Event of Default exists, Borrower shall have the right to participate in any settlement or adjustment; provided, however, that any settlement or adjustment shall be subject to the written approval of Lender, not to be unreasonably withheld. (b) Such proceeds, after deducting therefrom any reasonable expenses incurred by Lender in the collection thereof (including but not limited to reasonable attorneys' fees and costs), shall be applied by Lender to pay the Indebtedness secured hereby including, but not limited to the Make Whole Premium, whether or not then due and payable, provided, however, that if no Event of Default exists at the time of such application, no Make Whole Premium shall be due. Notwithstanding anything hereinabove to the contrary, (i) in the event the casualty occurs more than six (6) months prior to the Maturity Date and no Event of Default exists, Lender shall apply such proceeds as outlined below; provided, further, that Lender's rights in this subparagraph are subject to Borrower's rights to use such proceeds for rebuilding and restoring the buildings and improvements as may be required or permitted by law in effect at the time of the loss. (A) If the aggregate amount of such proceeds is less than $250,000, Lender shall pay such proceeds directly to Borrower, to be held in trust for Lender and applied to the cost of rebuilding and restoring the Premises. (B) If the aggregate amount of such proceeds equals or exceeds $250,000 Lender shall disburse such amounts of the proceeds as Lender reasonably deems necessary for the repair or replacement of the Premises, subject to the conditions set forth in paragraph 6(c) below. (ii) in the event (x) an Event of Default exists, or (y) the casualty occurs during the last six (6) months prior to the Maturity Date and Lender determines that the repair and restoration of such casualty cannot be completed prior to the Maturity Date, or (z) the conditions set forth in paragraph 6(c) are not met, then Lender, in its sole and absolute discretion may either: 19 (A) declare the entire Indebtedness to be immediately due and payable, provided, however, that if no Event of Default exists, no Make Whole Premium shall be due. All proceeds shall be applied toward payment of the Indebtedness in such priority as Lender elects; or (B) disburse such proceeds as Lender reasonably deems necessary for the repair or replacement of the Premises subject to those conditions set forth in paragraph 6(c) which Lender in its sole and absolute discretion may require. (c) (i) In the event that Borrower is to be reimbursed out of the insurance proceeds or out of any award or payment received with respect to a Taking, Lender shall from time to time make available such proceeds, subject to the following conditions: (a) there continues to exist no Event of Default; (b) the delivery to Lender of satisfactory evidence of the estimated cost of completion of such repair and restoration work and any architect's certificates, waivers of lien, contractor's sworn statements, and other evidence of cost and of payment and of the continued priority of the lien hereof over any potential liens of mechanics and materialmen (including, without limitation, title policy endorsements) as Lender may reasonably require and approve; (c) the time required to complete the repair and restoration work and for the income from the Premises to return to the level it was prior to the loss will not exceed the coverage period of the rental value insurance required hereunder; (d) the annual net cash flow (annual net operating income after deduction for tenant improvements, leasing commissions, annual replacement reserves, and a management fee) shall equal or exceed 1.5 times the annual debt service on the Note. Only net operating income from approved executed Leases in effect on the Premises, having at least three (3) years remaining prior to the expiration of their term, with no uncured defaults, shall be used in Lender's determination of the annual net cash flow; (e) Lender approves the plans and specifications of such work before such work is commenced if the estimated cost of rebuilding and restoration exceeds 25% of the Indebtedness or involves any structural changes or modifications. If said plans and specifications substantially comply with those previously approved by Lender, Lender's approval shall not be unreasonably withheld; (f) if the amount of any insurance proceeds, award or other payment is insufficient to cover the cost of restoring and rebuilding the Premises, Borrower shall pay such cost in excess of such proceeds, award or other payment before being entitled to reimbursement out 20 of such funds; (g) Borrower pays to Lender a non-refundable processing fee equal to the greater of $5,000.00 or .25% of the amount of such proceeds within sixty (60) days of the occurrence of any such damage or destruction and before Lender disburses any proceeds; and (h) such other conditions to such disbursements, in Lender's reasonable discretion, as would be customarily required by a construction lender doing business in the area where the Premises is located or which are otherwise required by any rating agency rating a securitization transaction with respect to the Loan. (ii) No payment made by Lender prior to the final completion of the repair or restoration work shall, together with all payments theretofore made, exceed 90% of the cost of such work performed to the time of payment, and at all times the undisbursed balance of said proceeds shall be at least sufficient to pay for the cost of completion of such work free and clear of all liens. Any proceeds remaining after payment of the cost of rebuilding and restoration shall, at the option of Lender, either be (a) applied in reduction of the Indebtedness secured hereby, provided, however, that if no Event of Default exists at the time of such application, no Make Whole Premium shall be due, or (b) paid to Borrower. (iii) Repair and restoration of the Premises shall be commenced promptly after the occurrence of the loss and shall be prosecuted to completion diligently, and the Premises shall be so restored and rebuilt to substantially the same character and quality as prior to such damage and destruction and shall comply with all Legal Requirements. (d) Should such damage or destruction occur after foreclosure or sale proceedings have been instituted, the proceeds of any such insurance policy or policies, if not applied in rebuilding or restoration of the Improvements, shall be used to pay (i) the Indebtedness then due and owing in the event of a non-judicial sale in such priority as Lender elects, or (ii) the amount due in accordance with any decree of foreclosure or deficiency judgment that may be entered in connection with such proceedings, and the balance, if any, shall be paid to the owner of the equity of redemption if it shall then be entitled to the same, or otherwise as any court having jurisdiction may direct. (e) To the contrary notwithstanding, so long as there is no Event of Default hereunder and so long as the lease with a Major Tenant remains in full force and effect, Lender agrees that the provisions of the lease with such Major Tenant governing the application of insurance proceeds and 21 restoration shall apply with respect to that portion of the Premises subject to such lease. 7. In the event of the commencement of a Taking affecting the Premises: (a) Borrower shall notify Lender thereof in the manner provided in this Deed of Trust for the giving of notices. Lender may participate in such proceeding, and Borrower shall deliver to Lender all documents requested by it to permit such participation. (b) Borrower shall cause the proceeds of any award or other payment made relating to a Taking, to be paid directly to Lender. Lender, in its sole and absolute discretion: (i) may apply all such proceeds to pay the Indebtedness in such priority as Lender elects, provided however, that if no Event of Default exists at the time of such application no Make Whole Premium shall be due; or (ii) subject to and in accordance with the provisions set forth in paragraph 6(c) above, may disburse such amounts of the proceeds as Lender reasonably deems necessary for the repair or replacement of the Premises. (c) Notwithstanding anything herein above to the contrary, provided no Event of Default exists, Lender agrees to disburse the proceeds received from any Inconsequential Taking, as hereinafter defined, to Borrower for the repair and/or replacement of the Premises. An Inconsequential Taking shall be a Taking which (i) results in less than $250,000 in proceeds; (ii) does not, in Lender's determination, materially or adversely affect the Improvements, parking, access, ingress, egress or use of the Premises; and (iii) does not trigger any rights or options of tenants under the Leases. (d) To the contrary notwithstanding, so long as there is no Event of Default hereunder and so long as the lease with a Major Tenant remains in full force and effect, Lender agrees that the provisions of the lease with such Major Tenant governing the application of the proceeds of a Taking shall apply with respect to that portion of the Premises subject to such lease. 8. If by the laws of the United States of America or of any state or governmental subdivision having jurisdiction over Borrower or of the Premises or of the Loan evidenced by the Loan Documents or any amendments or modifications thereof, any tax or fee is due or becomes due or is imposed upon Lender in respect of the issuance of the Note hereby secured or the making, recording and registration of this Deed of Trust or otherwise in connection with the Loan Documents, the Environmental Indemnity or the Loan, except for Lender's income or franchise tax, Borrower covenants and agrees to pay such tax or fee in the manner required by such law and to hold harmless and indemnify Trustee and Lender, their 22 successors and assigns, against any liability incurred by reason of the imposition of any such tax or fee. 9. (a) Upon the occurrence of any Event of Default, Lender may, but need not, make any payment or perform any act herein required of Borrower, in any form and manner deemed expedient and may, but need not, make full or partial payments of principal or interest on prior encumbrances, if any, and purchase, discharge, compromise or settle any tax lien or other prior lien or title or claim thereof, or redeem from any tax sale or forfeiture affecting said Premises, or contest any tax or assessment. All moneys paid for any of the purposes herein authorized and all reasonable expenses paid or incurred in connection therewith, including but not limited to, reasonable attorneys' fees and costs and reasonable attorneys' fees and costs on appeal, and any other money advanced by Lender to protect the Premises and the lien hereof, shall be so much additional Indebtedness secured hereby and shall become immediately due and payable without notice and with interest thereon at the Default Rate from the date of expenditure or advance until paid. (b) In making any payment hereby authorized relating to taxes or assessments or for the purchase, discharge, compromise or settlement of any prior lien, Lender may make such payment according to any bill, statement or estimate secured from the appropriate public office without inquiry into the accuracy thereof or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof or without inquiry as to the validity or amount of any claim for lien which may be asserted. 10. If one or more of the following events (herein called an "EVENT OF DEFAULT" or "EVENTS OF DEFAULT" as the context so requires) shall have occurred: (a) failure to pay when due any principal, interest, Make Whole Premium or other Indebtedness, utilities, taxes or assessments or insurance premiums required pursuant to the Loan Documents or the Environmental Indemnity, and such failure shall have continued for 5 days as to payment of any principal, interest or taxes or assessments, or insurance premiums or for 5 days after written notice specifying such default is given by Lender to Borrower as to payment of any Make Whole Premium; or (b) Borrower, Interest Owner or any guarantor voluntarily brings or acquiesces to any of the following: (A) any action for dissolution, act of dissolution or dissolution or the like of Borrower, Interest Owner or any guarantor under the Federal Bankruptcy Code as now or hereafter constituted; (B) the filing of a petition or answer proposing the adjudication of Borrower, Interest Owner or any guarantor as a bankrupt or its reorganization or 23 arrangement, or any composition, readjustment, liquidation, dissolution or similar relief with respect to it pursuant to any present or future federal or state bankruptcy or similar law; or (C) the appointment by order of a court of competent jurisdiction of a receiver, trustee or liquidator of the Premises or any part thereof or of Borrower, Interest Owner or any guarantor or of substantially all of the assets of Borrower, Interest Owner or any guarantor; or (c) one or more of the items set forth in paragraph 10(b) above occur which were either not (i) voluntarily brought by Borrower, Interest Owner or any guarantor or (ii) acquiesced in by Borrower, Interest Owner or any guarantor, and which are not discharged or dismissed within 90 days after the action, filing or appointment, as the case may be; or With respect to the matters in (b) and (c) above for an Interest Owner only, no Event of Default shall occur until an interested party or Interest Owner asserts a claim or right against Borrower or the Premises which delays or otherwise affects Lender's rights, remedies, or interests granted under the Loan Documents (whether or not such assertion is successful). (d) with respect to the matters not described in the other subparagraphs of this paragraph 10, failure to duly observe or perform any covenant, condition or agreement of the Borrower or any guarantor contained in this Deed of Trust, the Guaranty, the Note or the Assignment of Leases from Borrower to Lender or in any other instrument or agreement which evidences or secures the Loan (the "LOAN DOCUMENTS"), or in the Environmental Indemnity and such failure shall have continued for 30 days after Notice specifying such failure is given by Lender to Borrower; or If any failure to observe or perform under (d) above shall be of such nature that it cannot be cured or remedied within 30 days, Borrower shall be entitled to a reasonable period of time to cure or remedy such failure (not to exceed 90 days following the giving of Notice), provided Borrower commences the cure or remedy thereof within the 30 day period following the giving of Notice and thereafter proceeds with diligence, as determined by Lender, to complete such cure or remedy. (e) the failure of Borrower to duly observe or perform any of the covenants, conditions and agreements of the Borrower contained in paragraph 2(f) of this Deed of Trust; or (f) any representation when made by or on behalf of Borrower, Interest Owner or any guarantor regarding the Premises, the making or delivery of any of the Loan Documents or the Environmental Indemnity or in any material 24 written information provided by or on behalf of Borrower, Interest Owner or any guarantor in connection with the Loan shall prove to be untrue or inaccurate in any material respect; or (g) the failure of Borrower to give Notice to Lender within 90 days after the death of any individual who is personally liable for any obligation under the Loan Documents or the Environmental Indemnity, as Borrower, indemnitor or guarantor, whether or not such individual had executed the Note or this Deed of Trust; or (h) subject to the provisions of paragraph 2(f), the failure of Borrower to provide Lender with an assumption agreement in form and substance and executed by a person(s) or entity(ies) acceptable to Lender in its sole discretion to assume the obligations of any deceased individual who is personally liable for any obligation under the Loan Documents or the Environmental Indemnity, as Borrower, indemnitor or guarantor, whether or not such individual had executed the Note or this Deed of Trust, and such failure shall have continued for 90 days after the death of such individual; or (i) the failure of Borrower to remain a Single-Purpose Entity; or (j) notification of Lender by Borrower of Borrower's election pursuant to Mo. Rev. Stat. Section 443.055 to terminate the operation of this Deed of Trust as security for future advances or future obligations; then, in each and every such case, the whole of said principal sum hereby secured shall, at the option of the Lender and without further notice to Borrower, become immediately due and payable together with accrued interest thereon, a Make Whole Premium calculated in accordance with the provisions of the Loan Documents and all other Indebtedness, and whether or not Lender has exercised said option, interest shall accrue on the entire principal balance and any interest or Make Whole Premium or other Indebtedness then due, at the Default Rate until fully paid or if Lender has not exercised said option, for the duration of any Event of Default. 11. Borrower agrees that if Lender accelerates the whole or any part of the principal sum hereby secured after the occurrence of an Event of Default, or applies any proceeds pursuant to the provisions hereof, Borrower waives any right to prepay the principal sum hereby secured in whole or in part without premium and agrees to pay, as yield maintenance protection and not as a penalty, a "MAKE WHOLE PREMIUM". However, in the event any proceeds from a casualty or Taking of the Premises are applied to reduce the principal balance under the Note, no Make Whole Premium shall be due so long as no Event of Default exists at the time of 25 such application. The Make Whole Premium shall be the greater of one percent (1%) of the principal amount to be prepaid or a premium calculated as follows: (a) Determine the "REINVESTMENT YIELD." The Reinvestment Yield will be equal to the yield on the U.S. Treasury Issue ("PRIMARY ISSUE")* published one week prior to the date of prepayment and converted to an equivalent monthly compounded nominal yield. *At this time there is not a U.S. Treasury Issue for this prepayment period. At the time of prepayment, Lender shall select in its sole and absolute discretion a U.S. Treasury Issue with similar remaining time to the Maturity Date. (b) Calculate the "PRESENT VALUE OF THE LOAN." The Present Value of the Loan is the present value of the payments to be made in accordance with the Note (all installment payments and any remaining payment due on the Maturity Date) discounted at the Reinvestment Yield for the number of months remaining from the date of prepayment to the Maturity Date. In the event of a partial prepayment as a result of the aforementioned application of proceeds, the Present Value of the Loan shall be calculated in accordance with the preceding sentence multiplied by the fraction which results from dividing the amount of the prepaid proceeds by the principal balance immediately prior to prepayment. (c) Subtract the amount of the prepaid proceeds from the Present Value of the Loan as of the date of prepayment. Any resulting positive differential shall be the premium. Notwithstanding anything herein to the contrary, during the last 90 days prior to the Maturity Date, the Make Whole Premium shall not be subject to the one percent (1%) minimum and shall be calculated only as provided in (a) through (c) above. 12. Upon the occurrence of any Event of Default, in addition to any other rights or remedies granted or available to Lender hereunder or under the other Loan Documents, at law, in equity or otherwise, Lender may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and this Deed of Trust shall remain in force; and said Trustee or its successor or successors as hereinafter provided for, at the request of the legal holder of the aforesaid Note, may proceed to sell the Premises hereinbefore conveyed, or any part thereof, at public vendue or outcry at the place then customarily employed for that purpose in the county where the Premises are located (or, if located in the City of St. Louis, then the said City) to the highest bidder for cash, first giving the public notice as required by law of the time, terms and place of sale and description of the property to be sold, by advertisement 26 published as is provided by the laws of the State of Missouri then in effect, and on such sale Trustee shall receive the proceeds thereof and shall execute a deed or deeds, in fee simple to the property sold, to the purchaser or purchasers thereof, and any deed made by Trustee in pursuance of the power herein granted and all recitals therein contained shall be conclusive proof of the facts therein set forth. At such sale, Lender shall be entitled to bid for or purchase the mortgaged Premises, the same as any third person might do. Trustee shall pay out the proceeds of such sale, first, the cost and expense of executing this trust, including attorneys fees of the Trustee and lawful compensation to the Trustee for its services as provided by statute, next, it shall repay any money advanced for taxes, insurance or other advances or charges with interest thereon, as above provided, next, the amount unpaid on said Note together with the interest accrued thereon and all overdue payments and charges provided for herein and all other sums or amounts due under the terms of any of the Loan Documents, and, the remainder, if any, shall be paid to such parties as may legally be entitled thereto. 13. Notwithstanding anything to the contrary in paragraph 12 or any other provision hereof, all rights of the Lender or any other legal holder of the Note, including without limitation, to commence a lawsuit for payment of the Note, to foreclose this Deed of Trust by judicial action or to take any other legal action to enforce this Deed of Trust by judicial action or to take any other legal action to enforce payment of said Indebtedness, by court proceedings for legal or equitable relief, or otherwise, shall remain intact and may be pursued by Lender or such other legal holder at its option and in its sole discretion. 14. (a) In the event of such a sale of the Premises or any part thereof and the execution of a deed or deeds therefor under these trusts, any recital therein of the occurrence of an Event of Default or of the giving or recording of any notice or demand by Trustee or Lender regarding such sale shall be conclusive proof thereof, and the receipt of the purchase money recited therein shall fully discharge the purchaser from any obligation for the proper application of the proceeds of sale in accordance with these trusts. (b) No Trustee shall be disqualified from acting as Trustee hereunder, or from performing any of the duties as Trustee or from exercising the rights, powers, and remedies herein granted by reason of the fact such Trustee is an officer, employer or stockholder of the Lender, or is interested, directly or indirectly, as the holder of the Note hereby secured, Borrower hereby expressly consenting to Trustee acting as such Trustee irrespective of the fact that Trustee might otherwise be disqualified for any of the foregoing reasons, and that any interest which such Trustee or any successor shall have or may acquire in the debt hereby secured, or the Premises hereby conveyed, shall neither interfere with nor prevent their acting as Trustee or from purchasing the Premises at the sale, and all parties waive any 27 objection to Trustee or from purchasing the Premises at the sale, and all parties waive any objection to Trustee having acquiring any such interest in the debt or property aforesaid and continuing to act as such Trustee. 15. Following the occurrence of an Event of Default, unless the same has been specifically waived in writing, Borrower shall forthwith upon demand of Trustee or Lender surrender to Lender possession of the Premises, and Lender shall be entitled to take actual possession of the Premises or any part thereof personally or by its agents or attorneys, and Lender in its discretion may, with or without force and with or without process of law, enter upon and take and maintain possession of all or any part of the Premises together with all documents, books, records, papers and accounts of the Borrower or the then owner of the Premises relating thereto, and may exclude Borrower, its agents or assigns wholly therefrom, and may as attorney-in-fact or agent of the Borrower, or in its own name as Lender and under the powers herein granted: (a) hold, operate, maintain, repair, rebuild, replace, alter, improve, manage or control the Premises as it deems judicious, insure and reinsure the same and any risks related to Lender's possession, operation and management thereof and receive all Rents, either personally or by its agents, and with full power to use such measures, legal or equitable, as in its discretion it deems proper or necessary to enforce the payment or security of the Rents, including actions for the recovery of Rent, actions in forcible detainer and actions in distress for Rents, hereby granting full power and authority to exercise each and every of the rights, privileges and powers herein granted at any and all times hereafter, without notice to Borrower; and (b) conduct leasing activity pursuant to the provisions of the Assignment of Leases. Neither Trustee nor Lender shall be obligated to perform or discharge, nor does either hereby undertake to perform or discharge, any obligation, duty or liability under any Lease. Except to the extent that the same is caused solely by Lender's gross negligence or willful misconduct, should Trustee or Lender incur any liability, loss or damage under any Leases, or under or by reason of the Assignment of Leases, or in the defense of any claims or demands whatsoever which may be asserted against Lender or Trustee by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants or agreements in any Lease, the amount thereof, including costs, expenses and reasonable attorneys' fees and costs, including reasonable attorneys' fees and costs on appeal, shall be added to the Indebtedness and secured hereby. 16. Upon the occurrence of an Event of Default, Trustee and Lender in the exercise of the rights and powers conferred upon them shall have the full power to use and 28 apply the Rents, less costs and expenses of collection to the payment of or on account of the items listed in (a) - (c) below, at the election of Lender and in such order as Lender may determine as follows: (a) to the payment of (i) the expenses of operating and maintaining the Premises, including, but not limited to the cost of management, leasing (which shall include reasonable compensation to Trustee, Lender and their respective agent or agents if management and/or leasing is delegated to an agent or agents), repairing, rebuilding, replacing, altering and improving the Premises, (ii) premiums on insurance as hereinabove authorized, (iii) taxes and special assessments now due or which may hereafter become due on the Premises, and (iv) expenses of placing the Premises in such condition as will, in the sole judgment of Lender, make it readily rentable; (b) to the payment of any principal, interest or any other Indebtedness secured hereby or any deficiency which may result from any foreclosure sale; (c) to the payment of established claims for damages, if any, reasonable attorneys' fees and costs and reasonable attorneys' fees and costs on appeal. The manner of the application of Rents, the reasonableness of the costs and charges to which such Rents are applied and the item or items which shall be credited thereby shall be within the sole and unlimited discretion of Lender. To the extent that the costs and expenses in (a) and (c) above exceed the amounts collected, the excess shall be added to the Indebtedness and secured hereby. 17. Upon the occurrence of any Event of Default, unless the same has been as specifically waived in writing, Lender may apply to any court having jurisdiction for the appointment of a receiver of the Premises. Such appointment may be made either before or after sale, without notice, without regard to the solvency or insolvency of Borrower at the time of application for such receiver and without regard to the then value of the Premises or the adequacy of Lender's security. Lender may be appointed as such receiver. The receiver shall have power to collect the Rents during the pendency of any foreclosure proceedings and, in case of a sale, during the full statutory period of redemption, if any, as well as during any further times when Borrower, except for the intervention of such receiver, would be entitled to collect such Rents. In addition, the receiver shall have all other powers which shall be necessary or are usual in such cases for the protection, possession, control, management and operation of the Premises during the whole of said period. The court from time to time may authorize the receiver to apply the net income in its possession at Lender's election and in such order Lender may determine in payment in full or in part of those items listed in paragraph 16. 29 18. (a) Borrower agrees that all reasonable costs, charges and expenses, including but not limited to, reasonable attorneys' fees and costs, incurred or expended by Trustee or Lender arising out of or in connection with any action, proceeding or hearing, legal, equitable or quasi-legal, including the preparation therefor and any appeal therefrom, in any way affecting or pertaining to the Loan Documents, the Environmental Indemnity, or the Premises, shall be promptly paid by Borrower. All such sums not promptly paid by Borrower shall be added to the Indebtedness secured hereby and shall bear interest at the Default Rate from the date of such advance and shall be due and payable on demand. (b) Borrower hereby agrees that upon the occurrence of an Event of Default and the acceleration of the principal sum secured hereby pursuant to this Deed of Trust, to the full extent that such rights can be lawfully waived, Borrower hereby waives and agrees not to insist upon, plead, or in any manner take advantage of, any notice of acceleration, any stay, extension, exemption, homestead, marshaling or moratorium law or any law providing for the valuation or appraisement of all or any part of the Premises prior to any sale or sales thereof under any provision of this Deed of Trust or before or after any decree, judgment or order of any court or confirmation thereof, or claim or exercise any right to redeem all or any part of the Premises so sold and hereby expressly waives to the full extent permitted by applicable law on behalf of itself and each and every person or entity acquiring any right, title or interest in or to all or any part of the Premises, all benefit and advantage of any such laws which would otherwise be available to Borrower or any such person or entity, and agrees that neither Borrower nor any such person or entity will invoke or utilize any such law to otherwise hinder, delay or impede the exercise of any remedy granted or delegated to Lender herein but will permit the exercise of such remedy as though any such laws had not been enacted. Borrower hereby further expressly waives to the full extent permitted by applicable law on behalf of itself and each and every person or entity acquiring any right, title or interest in or to all or any part of the Premises any and all rights of redemption from any sale or any order or decree of foreclosure obtained pursuant to provisions of this Deed of Trust. 19. In accordance with and subject to the terms and conditions of the Assignment of Leases, Borrower hereby assigns to Lender directly and absolutely, and not merely collaterally, the interest of Borrower as lessor under the Leases of the Premises and the Rents payable under any Lease and/or with respect to the use of the Premises, or portion thereof, including any oil, gas or mineral lease, or any installments of money payable pursuant to any agreement or any sale of the Premises or any part thereof, subject only to a license, if any, granted by Lender to 30 Borrower with respect thereto prior to the occurrence of an Event of Default. Borrower has executed and delivered the Assignment of Leases which grants to Lender specific rights and remedies in respect of said Leases and governs the collection of Rents thereunder and from the use of the Premises, and such rights and remedies so granted shall be cumulative of those granted herein. The collection of such Rents and the application thereof as aforesaid shall not cure or waive any Event of Default or notice of default hereunder or invalidate any act done pursuant to such notice, except to the extent any such Event of Default is fully cured. Failure or discontinuance of Lender at any time, or from time to time, to collect any such moneys shall not impair in any manner the subsequent enforcement by Lender of the right, power and authority herein conferred on Lender. Nothing contained herein, including the exercise of any right, power or authority herein granted to Lender, shall be, or be construed to be, an affirmation by Lender of any tenancy, Lease or option, or an assumption of liability under, or the subordination of the lien or charge of this Deed of Trust to any such tenancy, Lease or option. Borrower hereby agrees that, in the event Lender exercises its rights as provided for in this paragraph or in the Assignment of Leases, Borrower waives any right to compensation for the use of Borrower's furniture, furnishings or equipment in the Premises for the period such assignment of rents or receivership is in effect, it being understood that the Rents derived from the use of any such items shall be applied to Borrower's obligations hereunder as above provided. 20. All rights and remedies granted to Trustee or Lender in the Loan Documents shall be in addition to and not in limitation of any rights and remedies to which it is entitled in equity, at law or by statute, and the invalidity of any right or remedy herein provided by reason of its conflict with applicable law or statute shall not affect any other valid right or remedy afforded to Trustee or Lender. No waiver of any default or Event of Default under any of the Loan Documents shall at any time thereafter be held to be a waiver of any rights of the Trustee or Lender hereunder, nor shall any waiver of a prior Event of Default or default operate to waive any subsequent Event of Default or default. All remedies provided for in the Loan Documents are cumulative and may, at the election of Lender, be exercised alternatively, successively or concurrently. No act of Trustee or Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision or to proceed against one portion of the Premises to the exclusion of any other portion. Time is of the essence under this Deed of Trust and the Loan Documents. 21. By accepting payment of any sum secured hereby after its due date, Lender does not waive its right either to require prompt payment when due of all other sums or installments so secured or to declare a default for failure to pay such other sums or installments. 31 22. The usury provisions of paragraph 6 of the Note and the limitation of recourse liability provisions of paragraph 9 of the Note are fully incorporated herein by reference as if the same were specifically stated here. 23. In the event one or more provisions of the Loan Documents shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and the Loan Documents shall be construed as if any such provision had never been contained herein. 24. If the payment of the Indebtedness secured hereby or of any part thereof shall be extended or varied, or if any part of the security be released, all persons now or at any time hereafter liable therefor, or interested in said Premises, shall be held to assent to such extension, variation or release, and their liability and the lien and all provisions hereof shall continue in full force, the right of recourse against all such persons being expressly reserved by Lender notwithstanding such variation or release. 25. Upon payment in full of the principal sum, interest and other Indebtedness secured by the Loan Documents, these presents shall be null and void, and Trustee shall release this Deed of Trust and the lien hereof by proper instrument executed in recordable form. 26. (a) Borrower hereby grants to Lender and its respective agents, attorneys, employees, consultants, contractors and assigns an irrevocable license and authorization to enter upon and inspect the Premises and all facilities located thereon at reasonable times, subject to the inspection rights provisions afforded to Borrower under the Leases. Lender shall make reasonable efforts to ensure that the operations of the tenants are not disrupted. (b) In connection with any sale or conveyance of this Deed of Trust, Borrower grants to Lender and its respective agents, attorneys, employees, consultants, contractors and assigns an irrevocable license and authorization to conduct, at Lender's expense, a Phase I environmental audit of the Premises, subject to the inspection rights provisions afforded to Borrower under the Leases. (c) In the event there has been an Event of Default or in the event Lender has formed a reasonable belief, based on its inspection of the Premises or other factors known to it, that Hazardous Materials may be present on the Premises, then Borrower grants to Lender and its respective agents, attorneys, employees, consultants, contractors and assigns an irrevocable 32 license and authorization to conduct, at Borrower's expense using Trileaf or the firm of Borrower's choice, subject to Lender's reasonable approval, environmental tests of the Premises, including without limitation, a Phase I environmental audit, subsurface testing, soil and ground water testing, and other tests which may physically invade the Premises or facilities (the "TESTS"). The scope of the Tests shall be such as Lender, in its sole discretion, determines is necessary to (i) investigate the condition of the Premises, (ii) protect the security interests created under this Deed of Trust, or (iii) determine compliance with Environmental Laws, the provisions of the Loan Documents and the Environmental Indemnity and other matters relating thereto. Lender shall make reasonable efforts to ensure that the operations of the tenants are not disrupted. (d) Provided no Event of Default has occurred, Lender will provide Borrower with reasonable notice of Lender's intent to enter, inspect and conduct the Tests provided for in this paragraph. In addition, Lender shall conduct such inspections and Tests during normal business hours and use reasonable efforts to minimize disruption of the lessees' business operations. The foregoing licenses and authorizations are intended to be a means of protection of Lender's security interest in the Premises and not as participation in the management of the Premises. 27. Within 15 days after any written request by any party to this Deed of Trust, the requested party shall certify, by a written statement duly acknowledged, the amount of principal, interest and other Indebtedness then owing on the Note, the terms of payment, Maturity Date and the date to which interest has been paid. Borrower shall further certify whether any defaults, offsets or defenses exist against the Indebtedness secured hereby. Borrower shall also furnish to Lender, within 30 days of its request therefor, tenant estoppel letters from such tenants of the Premises as Lender may reasonably require; which Lender shall not request more than one (1) time per annum. 28. (a) Borrower shall furnish to Lender within 90 days after the end of each fiscal year of Borrower, a detailed and analytical financial report prepared in accordance with generally accepted accounting principles consistently applied, certified in a manner and otherwise in form acceptable to Lender covering the full and complete operation of the Premises, including without limitation: (i) income and expense statements, and (ii) a report of the leasing status of the Premises as of the end of such period, identifying the lessee, square footage leased, rental amount, base rental increases, rental concessions and/or rental deferments, if any, and commencement and expiration dates under each Lease of the Premises and a listing of sales volumes attained by lessees of the Premises under 33 percentage leases for the immediately preceding year, and (iii) within 15 days after written request by Lender, an aged accounts receivable report and an annual budget. Such reports shall be prepared by an accountant who may be an employee of Borrower, or of an affiliate of Borrower, acceptable to Lender. In addition to the reports referred to herein, Borrower shall promptly supply any additional information or records relating to the Premises or its operation as Lender may from time to time reasonably request. (b) Within 15 days after any written request by Lender, Borrower shall furnish to Lender, for the most recently completed fiscal quarter of Borrower, the reports specified in (i) and (ii) above. (c) Within 15 days after any written request by Lender, Borrower shall furnish to Lender, for the most recently completed fiscal year, a combined or consolidated federal income tax return filed by IWRRET. Said information shall be subject to Lender's review. 29. Each notice, consent, request, report or other communication under this Deed of Trust or any other Loan Document (each, a "NOTICE"), which any party hereto may desire or be required to give to the other shall be deemed to be an adequate and sufficient notice if given in writing and service is made by either (i) registered or certified mail, postage prepaid, in which case notice shall be deemed to have beer received three (3) business days following deposit to U.S. mail; or (ii) nationally recognized overnight air courier, next day delivery, prepaid, in which case such notice shall be deemed to have been received one (1) business day following delivery to such nationally recognized overnight air courier. All Notices shall be addressed to Borrower at its address given on the first page hereof, or to Lender at c/o Principal Real Estate Investors, LLC, 801 Grand Avenue, Des Moines, Iowa 50392-1450, Attn: Commercial Real Estate Servicing, Loan No. 754044, or to such other place as any party may by written notice to the other parties designate as a place for service of notice, Borrower shall not be permitted to designate more than one place for service of Notice concurrently. 30. Lender, from time to time, may substitute another Trustee in place of the Trustee named herein, to execute the trusts hereby created; and upon such appointment, and without conveyance to the successor trustee, the successor trustee shall be vested with all the title, interest, powers, duties and trusts in the Premises hereby vested in or conferred upon Trustee herein named. Each such appointment and substitution shall be made by written instrument executed by the Lender containing reference to this Deed of Trust sufficient to identify it, which instrument, when recorded in the office of the County Recorder of the county or counties (or, in the case of the City of St. Louis, the Recorder of Deeds for such city) in which the Premises is situated, shall be conclusive proof of proper appointment of the successor trustee. The recital or statement, in any instrument 34 executed by Trustee in pursuance of any of said trusts, of the due authorization of any agent of the Trustee executing the same shall for all purposes be conclusive proof of such authorization. In the event any foreclosure advertisement is running or has run at the time of an appointment of a substitute Trustee, the substitute Trustee may to the extent permitted by applicable law, consummate the advertised sale without the necessity of republishing such advertisement. 31. Trustee at any time, at Trustee's option, may commence and maintain suit in any court of competent jurisdiction and obtain the aid and direction of said court in the execution by it of the trusts or any of them, herein expressed or contained, and, in such suit, may obtain the orders or decrees, interlocutory or final of said court directing the execution of said trusts, and confirming and approving Trustee's acts, or any of them, or any sales or conveyances made by Trustee, and adjudging the validity thereof, and directing that the purchasers of the property sold and conveyed be let into immediate possession thereof, and providing for orders of court or other process requiring the Sheriff of the county in which said property is situated to place and maintain said purchasers in quiet and peaceable possession of the property so purchased by them, and the whole thereof. 32. Borrower has had the opportunity to fully negotiate the terms hereof and modify the draftsmanship of the Loan Documents and the Environmental Indemnity. Therefore, the terms of the Loan Documents and the Environmental Indemnity shall be construed and interpreted without any presumption, inference, or rule requiring construction or interpretation of any provision of the Loan Documents and the Environmental Indemnity against the interest of the party causing the Loan Documents and the Environmental Indemnity or any portion of it to be drafted. Borrower is entering into the Loan Documents and the Environmental Indemnity freely and voluntarily without any duress, economic or otherwise. 33. Borrower, forthwith upon request, at any and all times hereafter, at the expense of Borrower, will cause to be made, executed, acknowledged and delivered to Trustee, any and every deed or assurance in law which Trustee or counsel of Trustee shall reasonably advise or require for the more sure, effectual and satisfactory granting and confirming of said Premises unto Trustee. 34. The Trustee may resign at any time upon giving written notice to Borrower and Lender. Trustee shall not be liable or responsible for its acts or omissions hereunder, except for Trustee's own gross negligence or willful default, or be liable or responsible for any acts or omissions of any agent, attorneys or employee by him employed hereunder, if selected with reasonable care. 35. Trustee accepts this trust, when this Deed of Trust executed and acknowledged is made a public record as provided by law. Trustee is not obligated to notify any party hereto of pending sale under any other deed of trust or of any action or 35 proceeding in which Borrower, Lender, or Trustee shall be a party unless brought by Trustee. Trustee hereby lets the Premises to Borrower and assigns until this Deed of Trust is released and satisfied or until default is made under the covenants and agreements hereof, on the following terms: Borrower and all persons claiming or possessing the Premises or any part thereof shall pay rent therefore during the term at one cent (1 CENTS) per month payable upon demand, and shall and will surrender peaceful possession of the Premises, and every part thereof, to Trustee immediately on such default and without notice or demand therefore, and thereupon Trustee shall be entitled to the Rents, revenues, incomes and profits therefrom as hereinabove provided; provided nothing in this Deed of Trust shall be construed to prevent Lender from having and taking every legal means to enforce payment of the Note, and each installment thereof, without having first enforced this Deed of Trust. 36. This Deed of Trust and all provisions hereof shall inure to the benefit of the heirs, successors and assigns of Lender and shall bind the heirs and permitted successors and assigns of Borrower. 37. This Deed of Trust shall be governed by, and construed in accordance with, the laws of the state of Missouri, without regard to its conflicts of law principles. 38. As used herein, the term "DEFAULT RATE" means a rate equal to the lesser of (i) four percent (4%) per annum above the then applicable interest rate payable under the Note or (ii) the maximum rate allowed by applicable law. 39. BORROWER AND LENDER EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTIONS BROUGHT BY BORROWER, TRUSTEE OR LENDER IN CONNECTION WITH THIS DEED OF TRUST, ANY OF THE LOAN DOCUMENTS, THE INDEBTEDNESS SECURED HEREBY, OR ANY OTHER STATEMENTS OR ACTIONS OF LENDER. 40. This Deed of Trust and the Indebtedness secured hereby is for the sole purpose of conducting or acquiring a lawful business, professional or commercial activity or for the acquisition or management of real or personal property as a commercial investment, and all proceeds of such Indebtedness shall be used for said business or commercial investment purpose. Such proceeds will not be used for the purchase of any security within the meaning of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including without limitation, Regulations U, T and X of the Board of Governors of the Federal Reserve System. This is not a purchase money deed of trust where a seller is providing financing to a buyer for the payment of all or any portion of the 36 purchase price and the Premises secured hereby is not a residence or homestead or used for mining, grazing, agriculture, timber or farming purposes. 41. Unless Lender shall otherwise direct in writing, Borrower shall appear in and defend all actions or proceedings purporting to affect the security hereunder, or any right or power of the Lender, excluding any Federal regulatory proceedings against Lender that are not instituted because of any act or omission by Borrower, any Interest Owner or which result from the Premises. The Lender shall have the right to appear in such actions or proceedings. Borrower shall save Lender harmless from all reasonable costs and expenses, including but not limited to, reasonable attorneys' fees and costs and costs of a title search, continuation of abstract and preparation of survey incurred by reason of any action, suit, proceeding, hearing, motion or application before any court or administrative body in and to which Lender may be or become a party by reason hereof, excluding any Federal regulatory proceedings against Lender that are not instituted because of any act or omission by Borrower, any Interest Owner or which result from the Premises. Such proceedings shall include but not be limited to condemnation, bankruptcy, probate and administration proceedings, as well as any other action, suit, proceeding, right, motion or application wherein proof of claim is by law required to be filed or in which it becomes necessary to defend or uphold the terms of this Deed of Trust or the Loan Documents or otherwise purporting to affect the security hereof or the rights or powers of Lender. All money paid or expended by Lender in that regard, together with interest thereon from date of such payment at the Default Rate shall be additional Indebtedness secured hereby and shall be immediately due and payable by Borrower without notice. 42. Upon the occurrence of an Event of Default, unless the same has been specifically waived in writing, all Rents collected or received by Borrower shall be accepted and held for Lender in trust and shall not be commingled with the funds and property of Borrower, but shall be promptly paid over to Lender. 43. If more than one, all obligations and agreements of Borrower are joint and several. 44. This Deed of Trust may be executed in counterparts, each of which shall be deemed an original; and such counterparts when taken together shall constitute but one agreement. 37 45. THE FOLLOWING NOTICE IS INCLUDED IN COMPLIANCE WITH MO. REV. STAT. SECTION 432.045: ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND LENDER FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY SUCH PARTIES COVERING SUCH MATTERS ARE CONTAINED IN THE LOAN DOCUMENTS, WHICH COLLECTIVELY ARE THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES HERETO, EXCEPT AS THEY MAY LATER AGREE IN WRITING TO MODIFY SUCH DOCUMENTS. REMAINDER OF PAGE INTENTIONALLY BLANK (Signatures on next page) 38 IN WITNESS WHEREOF, Borrower has caused this Deed of Trust, Security Agreement and Assignment of Rents to be duly executed and delivered as of the date first hereinabove written. INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, Member By: ----------------------------- Name: ------------------------ Title: ----------------------- STATE OF ILLINOIS ) ) COUNTY OF ________ ) On this ________ day of __________, in the year 2004, before me, ________________, a Notary Public in and for said state, personally appeared _____________________, ___________________ of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, Member of Inland Western Town And Country Manchester, L.L.C., a Delaware limited liability company, known to me to be the person who executed the within Deed of Trust on behalf of said corporation as Member of Inland Western Town and Country Manchester, L.L.C., and acknowledged to me that he/she executed the same for the purposes therein stated. ---------------------------------------------- Notary Public in and for said County and State My Commission Expires: ---------------------------------------------- - ------------------------ Typed or Printed Name of Notary Public RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: THOMPSON & KNIGHT L.L.P. 1700 PACIFIC AVENUE, SUITE 3300 DALLAS, TEXAS 75201 ATTENTION: JEANNE M. BURTON 39 EXHIBIT A (Legal Description) Address: 13861 and 13961 Manchester Road, Town and Country, Missouri Tax Parcel (Locator) No. 22P-14-0064: TRACT I: Adjusted Parcel One (1) of Boundary Adjustment Plat of Tracts of Land in U.S. Survey 128 and Fractional Section 32, Township 45 North, Range 5 East, City of Town and Country, St. Louis County, Missouri, according to the plat thereof recorded in Plat Book 346, Pages 563 and 564 of the St. Louis County Records. TRACT II: Easement estate appurtenant to Tract I for the purpose of effecting repair and maintenance work with respect to that portion of the west bank of the creek, stream or drainway created by Warranty Deed recorded in Book 10666, Page 1902, Records of St. Louis County, Missouri, covering and affecting the real property more particularly described therein. TRACT III: Easement estate appurtenant to Tract I created in Amended and Restated Declaration of Covenants, Conditions, Easements and Restrictions for Manchester Meadows dated March 31, 1995, recorded in Book 10462, Page 1004, in the Recorder's Office for the County of St. Louis, Missouri, covering and affecting the real property more particularly described therein. 1 EXHIBIT B Permitted Encumbrances 1. Taxes for the year 2004 and subsequent years. 2. Rights of tenants, as tenants only, under recorded tenant leases more particularly described in Exhibit B to the Assignment of Leases and Rents of even date herewith executed by Borrower in favor of Lender. 3. Unrecorded Lease to The Sports Authority, Inc., for a term of 20 years, commencing upon the "date of occupancy", upon the terms and at the rentals as more fully set forth in said Lease, a notice of which is given by the Memorandum of Lease dated April 7, 1994 and filed June 14, 1994 in Book 10228 at Page 2406. Contains options to renew. 4. Memorandum of Lease executed by Manchester Meadows Limited Partnership, Landlord, to Boston Chicken, Inc., Tenant, filed April 4, 1995 in Book 10464 at Page 459. Assignment of Lease executed by Boston Chicken, Inc., a Delaware corporation, to Golden Restaurant Operations, Inc., a Delaware corporation, filed in Book 12639 at page 359. 5. Memorandum of Lease executed by Manchester Meadows Limited Partnership, Landlord, to Cybertel Cellular Telephone Company, Tenant, filed April 13, 1995 in Book 10472 at Page 666. 6. Notice of Lease to Payless Shoesource, Inc., according to Memorandum of Lease dated June 26, 1995 and filed in Book 10774 at Page 784, for a term of 10 years commencing as provided in said Lease, with one additional option of 5 years to extend the original terms thereof, upon the terms and conditions, and rental as more particularly described in said instrument. 7. Lease executed by Manchester-Mason Limited Partnership, Lessor, to United States Postal Service, Lessee, filed in Book 11173 at Page 1348, for a term beginning May 1, 1997 and ending April 30, 2002, for a total of 5 years with renewal options for 2 additional periods of 5 years each, upon the terms and conditions, and rental as more particularly described in said instrument. 8. Notice of Lease executed by Manchester Meadows Limited Partnership, a Missouri partnership, Lessor, to Builders Square, Inc., a Delaware corporation, Lessee, dated August 17, 1993 and filed in Book 11648 at Page 1748, for a term of 25 years upon the terms and conditions, and rental as more fully set forth in said Lease. By the instrument filed in Book 11648 at Page 1759, the above Lease was assigned to Kmart Corporation. 1 By the instrument filed in Book 11648 at Page 1767, the above Lease was assigned to Home Depot U.S.A. 9. Notice of Lease executed by Manchester Meadows Limited Partnership, a Missouri limited partnership, Lessor, to PetsMart, Inc., a Delaware corporation, Lessee, dated August 29, 2003 and filed in Book 15633 at Page 567, for a term of 15 years with 5 renewal options of 5 years each, upon the terms and conditions, and rental as more particularly described in said instrument. 10. Maintenance Agreement with The Metropolitan St. Louis Sewer District, according to the instrument filed in Book 10229 at Page 550. 11. Easement(s) according to the plat filed in Plat Book 336 at Page 16, as shown on plat of survey prepared by The Clayton Engineering Company, dated June 16, 1995, Project No. 92057 (last revised October 13, 1995). 12. Easement(s) granted to State of Missouri for maintenance of drainage ditches and channels by instruments filed in Book 1296 at Page 121 and Book 4623 at Page 20. 13. Sewer Dedication to The Metropolitan St. Louis Sewer District, according to the instrument filed in Book 10983 at Page 1383. 14. Building lines, easements, and restrictions according to the plat filed in Plat Book 346 at Pages 563 and 564. 15. Building lines, easements, covenants, conditions, and restrictions according to the instrument(s) filed in Book 11751 at Page 1075. 16. Easement Agreement with Lea Clayton and wife, according to the instrument filed in Book 11751 at Page 1086. 17. Easement Agreement with Mark P. Thompson and wife, according to the instrument filed in Book 11751 at Page 1101. 18. Easement Agreement with Gene Schwach and wife, according to the instrument filed in Book 11751 at Page 1116. 19. Easement Agreement with Lee Hanley and wife, according to the instrument filed in Book 11751 at Page 1132. 20. Easement Agreement with Dale E. Thebeau, Trustee, according to the instrument filed in Book 11751 at Page 1148. 21. Building lines, easements, covenants, conditions, restrictions, terms, and provisions of Final Site Development Plan filed in Plat Book 324 at Pages 11 through 15, Resource 2 Protection Plan filed in Plat Book 324 at Page 16, and Amended Final Site Development Plan filed in Plat Book 330 at Pages 55 through 59. 22. Amended and restated Declaration of Covenants, Conditions, Easements and Restrictions for Manchester Meadows, dated and filed March 31, 1995 in Book 10462 at Page 1004, as assigned by Assignment of Declarant's rights between Manchester Meadows Limited Partnership, as assignor and Manchester-Mason Limited Partnership, as assignee, recorded in the Records of St. Louis County, Missouri, and as further assigned by Assignment of Declarant's Rights between Manchester-Mason Limited Partnership, as assignor, and Inland Western Town and Country Manchester, L.L.C., as assignee, recorded in the records of St. Louis County, Missouri. 23. Agreement as to sewer easements between McGraw-Hill and Fee Fee Trunk Sewer Inc. by instrument recorded in Deed Book 6620, Page 2347. 24. Easement granted to Fee Fee Trunk Sewer Inc., by instrument recorded in Deed Book 6620, Page 2364. 25. Easement for highway traffic control purposes and traffic signal agreement by instrument recorded in Deed Book 6440, Page 484. 26. Easement to the Metropolitan St. Louis Sewer District by instrument recorded in Deed Book 9692, Page 1311. 3 IN WITNESS WHEREOF, Borrower has caused this Deed of Trust, Security Agreement and Assignment of Rents to be duly executed and delivered as of the date first hereinabove written. INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, Member By: /s/ Debra A. Palmer ----------------------------- Name: Debra A. Palmer Title: Assistant Secretary STATE OF ILLINOIS ) ) COUNTY OF DUPAGE ) On this 20th day of August, in the year 2004, before me, Mary V. Cooper, a Notary Public in and for said state, personally appeared Debra A. Palmer, Assistant Secretary of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, Member of Inland Western Town And Country Manchester, L.L.C., a Delaware limited liability company, known to me to be the person who executed the within Deed of Trust on behalf of said corporation as Member of Inland Western Town and Country Manchester, L.L.C., and acknowledged to me that he/she executed the same for the purposes therein stated. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal at my office in Oak Brook, Illinois, the date and year last written above. /s/ Mary V. Cooper ---------------------------------------------- Notary Public in and for said County and State My Commission Expires: MARY V. COOPER 10/18/07 ---------------------------------------------- - ---------------------------- Typed or Printed Name of Notary Public RECORDING REQUESTED BY AND OFFICAL SEAL WHEN RECORDED RETURN TO: MARY V COOPER NOTARY PUBLIC - STATE OF ILLINOIS THOMPSON & KNIGHT L.L.P. MY COMMISSION EXPIRES: 10/18/07 1700 PACIFIC AVENUE, SUITE 3300 DALLAS, TEXAS 75201 ATTENTION: JEANNE M. BURTON 39 EX-10.317 28 a2143310zex-10_317.txt EX-10.317 Exhibit 10.317 GUARANTY LOAN NO. 754044 THIS GUARANTY (as the same may from time to time hereafter be modified, supplemented or amended, the "GUARANTY") is made as of August 24, 2004 by INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, having an office at 2901 Butterfield Road, Oak Brook, Illinois 60523 ("GUARANTOR"), in favor of PRINCIPAL LIFE INSURANCE COMPANY, an Iowa corporation, having a principal place of business and post office address at c/o Principal Real Estate Investors, LLC, 801 Grand Avenue, Des Moines, Iowa 50392-1450 ("LENDER"). RECITALS: Lender has agreed to make a loan (the "LOAN") in the original principal sum of Thirty One Million Sixty Four Thousand Five Hundred Fifty and No/100 Dollars ($31,064,550.00) (the "LOAN AMOUNT") to INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company ("Borrower"); and The Loan is evidenced by Borrower's secured promissory note made payable and delivered to Lender (as the same may from time to time hereafter be modified, amended, supplemented, extended or consolidated in writing, and any note(s) issued in exchange therefor or replacement thereof, the "NOTE") and further evidenced and secured by a "MORTGAGE" (it being agreed that "Mortgage" as hereinafter used shall be construed to mean "mortgage" or "deed of trust" or "trust deed" or "deed to secure debt" as the context so requires) on certain real estate located in St. Louis County, Missouri, together with all existing improvements constructed thereon, said Premises being more particularly described in said Mortgage, and an Assignment of Leases ("ASSIGNMENT OF LEASES"); and In connection with the Loan, the Borrower has also executed that certain Environmental Indemnity ("ENVIRONMENTAL INDEMNITY") for the benefit of Lender (the Note, Environmental Indemnity, Mortgage and Assignment of Leases and all other instruments or agreements by which the Loan is evidenced or secured are hereinafter collectively referred to as the "UNDERLYING INSTRUMENTS"); and It is a condition of Lender's agreement to make the Loan that Guarantor be unconditionally liable for and personally guarantee the payment and performance of certain liabilities and obligations of the Borrower under the Underlying Instruments upon the terms and conditions as are hereinafter set forth; and WHEREAS, Guarantor is financially interested in Borrower and is materially benefited by the consummation of the Loan and has agreed to unconditionally and personally guarantee the payment and performance of certain liabilities and obligations of Borrower under the Underlying Instruments upon the terms and conditions as are hereinafter set forth. 1 NOW, THEREFORE, in order to induce Lender to make the Loan to Borrower, Guarantor intending to be legally bound, hereby makes the following representations and warranties to the Lender and hereby covenants and agrees with the Lender as follows: 1. Guarantor absolutely, irrevocably and unconditionally guarantees to the Lender payment and the full, faithful and timely performance of any and all liabilities and obligations of Borrower whether now existing or hereafter incurred under the Environmental Indemnity and paragraph 9 of the Note, but excluding, specifically, subparagraphs (d) through (j) thereof (all of which payments, liabilities and obligations are hereinafter collectively referred to as the "Guaranteed Obligations"). 2. Guarantor absolutely, irrevocably and unconditionally waives notice of acceptance of this Guaranty and notice of any payment, liability or obligation to which it may apply, and waives presentment, demand of payment, protest, notice of dishonor or nonpayment of such liabilities under this Guaranty or any of the Underlying Instruments creating the Guaranteed Obligations and any suit or taking other action by the Lender against, and any other notice to, any party liable thereon or any property which may be security therefor. 3. The Lender may at any time and from time to time without the consent of, or notice to, Guarantor, without incurring any responsibility to Guarantor and without impairing or releasing any of the obligations of Guarantor hereunder, upon or without any terms or conditions and in whole or in part: (a) renew, alter or change the interest rate, manner, time, place or terms of payment or performance of any of the Guaranteed Obligations, or any liability incurred directly or indirectly in respect thereof, whereupon the guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; (b) sell, exchange, release, surrender, and in any manner and in any order realize upon or otherwise deal with any property at any time directly and absolutely assigned or pledged or mortgaged to secure the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof; (c) exercise or refrain from exercising any rights against Borrower or any other person (including Guarantor) or otherwise act or refrain from acting with regard to the Underlying Instruments, Guaranteed Obligations or this Guaranty; (d) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or subordinate the payment of all or any part thereof to the payment of any liability of Borrower (whether or not then due) to creditors of Borrower other than the Lender and Guarantor; 2 (e) apply any sums in whatever manner paid or realized to any liability or liabilities of Borrower to the Lender regardless of what liability or liabilities of Borrower remain unpaid; (f) consent to or waive any breach of or any act, omission or default under the Underlying Instruments or otherwise amend, modify or supplement any of such instruments or agreements; and/or (g) sell, convey or assign, whether into a securitized transaction or otherwise, all or any part of Lender's interest in this Guaranty and the Underlying Instruments. 4. (a) No invalidity, irregularity or unenforceability of all or any part of the Underlying Instruments, the Guaranteed Obligations or this Guaranty, or of any security therefor, shall affect, impair or constitute a defense to this Guaranty. This Guaranty is a direct and primary obligation of Guarantor, and Guarantor's obligations hereunder are not as a surety. This is a guaranty of payment and performance, and not merely a guaranty of collection. (b) Guarantor acknowledges and agrees that this Guaranty and Guarantor's obligations with respect to payments and performance under the Environmental Indemnity shall remain in full force and effect, notwithstanding the fact that the Note and payments due under the other Underlying Instruments have been paid in full. 5. (a) Notwithstanding any payment or payments made by Guarantor hereunder, Guarantor will not assert or exercise any right of the Lender or of such Guarantor against Borrower to recover the amount of any payment made by such Guarantor to the Lender by way of subrogation, reimbursement, contribution, indemnity or otherwise arising by contract or operation of law, and Guarantor shall not have any right of recourse to or any claim against assets or property of Borrower, whether or not the obligations of Borrower have been satisfied, all of such rights being herein expressly waived by Guarantor. The provisions of this paragraph shall survive the termination of this Guaranty, and any satisfaction and discharge of Borrower by virtue of any payment, court order or any applicable law. (b) Notwithstanding the provisions of Section 5(a), Guarantor shall have and be entitled to all rights of subrogation otherwise provided by applicable law in respect of any payment Guarantor may make or be obligated to make under this Guaranty, and to assert and enforce the same, in each case on and after, but at no time prior to, the date (the "SUBROGATION TRIGGER DATE") which is 91 days after the date on which all obligations under the Underlying Instruments shall have been paid or performed in full, if and only if the existence of Guarantor's rights under this Section 5(b) would not make Guarantor a creditor (as defined in the 3 Bankruptcy Reform Act of 1978, an amended, 11 U.S.C. Sections 101 et seq., and the regulations adopted and promulgated pursuant thereto) of Borrower in any insolvency bankruptcy, reorganization or similar proceeding commenced on or prior to the Subrogation Trigger Date. (c) In the event that Guarantor shall advance or become obligated to pay any sums with respect to any obligation hereby guaranteed or in the event that for any reason whatsoever the Borrower or any subsequent owner of the collateral securing the Loan is now, or shall hereafter become, indebted to Guarantor, Guarantor agrees that the amount of such sums and of such Indebtedness together with all interest thereon, shall at all times be subordinate as to the lien, time of payment and in all other respects, to all sums, including principal, interest and other Indebtedness, at any time owing to the Lender under any of the Underlying Instruments. Nothing herein contained is intended or shall be construed to give to Guarantor any right to participate in any way in the right, title or interest of the Lender in or to the collateral securing the Loan, notwithstanding any payments made by Guarantor under this Guaranty, all such rights of participation being hereby expressly waived and released. 6. Guarantor agrees that to the extent that Borrower makes a payment or payments to Lender, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required, for any of the foregoing reasons or for any other reasons, to be repaid or paid over to a custodian, trustee, receiver or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made. 7. Guarantor makes the following representations and warranties which shall survive the execution and delivery of this Guaranty: (a) Guarantor is and, until the Indebtedness is paid in full, will continue to (i) be a duly organized and validly existing entity in good standing under the laws of the state of its formation, (ii) be duly qualified as a foreign entity in each jurisdiction in which the nature of its business makes such qualification necessary or desirable, (iii) have the requisite power and authority to carry on its business as now being conducted, (iv) have the requisite power to execute, deliver and perform its obligations under this Guaranty, and (v) comply with the provisions of all of its organizational documents, and the Legal Requirements of the state of its formation. (b) The execution, delivery and performance of this Guaranty (i) are within the applicable powers of Guarantor; (ii) have been authorized by all requisite action; (iii) have received all necessary approvals and consents, corporate, governmental 4 or otherwise; (iv) does not and will not violate, conflict with, result in a breach of or constitute (with notice or lapse of time, or both) a default under any provision of law, any order or judgment of any court or governmental authority, the articles of incorporation, by-laws, partnership, operating or trust agreement, or other governing instrument of Guarantor, or any indenture, agreement or other instrument to which Guarantor is a party or by which Guarantor or any of Guarantor's assets is or may be bound or affected; (v) does not and will not result in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of Guarantor's assets; and (vi) does not and will not require any authorization or license from, or any filing with, any governmental authority or other body. (c) This Guaranty constitutes the legal, valid and binding obligations of Guarantor, enforceable against Guarantor in accordance with its terms, except as may be limited by (i) bankruptcy, insolvency, reorganization or other similar laws affecting the rights of creditors generally, and (ii) general principles of equity (regardless of whether considered in a proceeding in equity or at law). 8. Guarantor and Borrower are separate and distinct entities with no identity of interest with respect to any Indebtedness which may become owed or any payments which may be made hereunder. Borrower is not contractually bound to Guarantor with respect to any payments hereafter made under this Guaranty in any manner which would have the effect of imputing the liability of Guarantor hereunder to Borrower. 9. Guarantor is related and/or affiliated with Borrower, has personal knowledge of and is familiar with Borrower's business affairs, books and records and has the ability to influence Borrower's financial decisions. Guarantor represents that Borrower is in sound financial condition as of the date of this Guaranty. 10. Nothing herein contained shall in any manner affect the lien or priority of the Mortgage, and upon the occurrence of an Event of a Default, the Lender may invoke any remedies it may have under the Underlying Instruments, or this Guaranty, either concurrently or successively and the exercise of any one or more of such remedies shall not be deemed an exhaustion of such remedy or remedies or a waiver of any other remedy or remedies and shall not be deemed an election of remedies. Guarantor hereby specifically waives any defense to its performance under this Guaranty based upon an election of remedies by Lender, including but not limited to an election to foreclose by nonjudicial sale under any deed of trust, or security agreement and pursue any other remedy which destroys, lessens or otherwise affects Guarantor's subrogation rights and/or its rights to reimbursement from or to proceed against Borrower or any other person, when resulting from the judicial or nonjudicial foreclosure (under any deed of trust, or security agreement) or the selling or otherwise disposing of or collecting or applying any property, real or personal, securing the Note, or otherwise. The exercise by the Lender of any such remedies shall not release or discharge Guarantor from its obligations hereunder unless and until the full amount of the Indebtedness evidenced by the Note and secured as aforesaid has been fully paid and 5 satisfied, and any such release or discharge shall be subject to the provisions of paragraph 4(b) hereof. 11. This Guaranty shall remain in full force and effect until all obligations of the Borrower under the Underlying Instruments have been satisfied in full and are no longer subject to disgorgement under any applicable state or federal creditor rights or bankruptcy laws. No delay on the part of the Lender in exercising any options, powers or rights, or the partial or single exercise thereof, shall constitute a waiver thereof. No waiver of any rights hereunder, and no modification or amendment of this Guaranty, shall be deemed to be made by the Lender unless the same shall be in writing, duly signed on behalf of the Lender, and each such waiver (if any) shall apply only with respect to the specific instance involved and shall in no way impair the rights of the Lender or the obligations of Guarantor to the Lender in any other respect at any other time. This Guaranty and the rights and obligations of the Lender and of Guarantor hereunder shall be governed and construed in accordance with the laws of the state of Missouri, without regard to its conflicts of law principles and this Guaranty is binding upon Guarantor, Guarantor's heirs, personal representatives and permitted successors or assigns, and shall inure to the benefit of the Lender and its successors or assigns. 12. Guarantor acknowledges that copies of the Underlying Instruments have been made available to Guarantor and that Guarantor is familiar with their contents. Guarantor affirmatively agrees that upon any Permitted Transfer effected in accordance with the provisions of the Underlying Instruments, it shall not be necessary for Guarantor to reaffirm its continuing obligations under this Guaranty, but Guarantor will do so upon request by Lender; provided, however, in the event a Permitted Transfer under items (ii) or (vi) of the Permitted Transfers occurs in compliance with the terms and conditions stated in the Mortgage, then Borrower may provide a substitute guarantor, acceptable to Lender in Lender's sole discretion, to assume the obligations of Guarantor under terms and conditions acceptable to Lender. Lender's approval of the substitute guarantor shall be deemed granted so long as such substitute guarantor is a Qualified Successor. 13. GUARANTOR AND LENDER EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTIONS BROUGHT BY GUARANTOR OR LENDER IN CONNECTION WITH THIS GUARANTY, ANY OF THE LOAN DOCUMENTS, THE INDEBTEDNESS SECURED HEREBY, OR ANY OTHER STATEMENTS OR ACTIONS OF LENDER. 14. Each notice, consent, request or other communication under this Guaranty (each a "Notice") which any party hereto may desire or be required to give to the other shall be deemed to be adequate and sufficient notice if given in writing and service is made by either (i) registered or certified mail, postage prepaid, in which case such notice shall be deemed to have been received three (3) business days following deposit to U.S. mail; or (ii) nationally recognized overnight air courier, next day delivery, prepaid, in which case 6 such notice shall be deemed to have been received one (1) business day following delivery to such nationally recognized overnight air courier. All Notices shall be addressed to Guarantor at its address given on the first page hereof, or to Lender at c/o Principal Real Estate Investors, LLC, 801 Grand Avenue, Des Moines, Iowa 50392-1450, Attn: Commercial Real Estate Servicing, Loan No. 754044, or to such other place as any party may by notice in writing to the other parties designate as a place for service of notice. 15. Each Guarantor (if more than one) whose signature appears below shall be deemed to be bound by the provisions of this Guaranty and the Guaranteed Obligations, whether each signature was affixed at the same or different times, and the term "Guarantor" as used herein shall be deemed to refer to each individually, as well as collectively, and each of the undersigned shall be jointly and severally liable for the Guaranteed Obligations hereunder, both personally and with recourse, irrespective of the recourse or non-recourse nature of the Underlying Instruments. Guarantor agrees that if this Guaranty is placed in the hands of an attorney for enforcement, Guarantor will reimburse Lender all expenses incurred, including attorney's fees. 16. This Guaranty may be executed in counterparts, each of which shall be deemed an original; and such counterparts when taken together shall constitute but one agreement. 17. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underlying Instruments. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and delivered as of the date first set forth above. (REMAINDER OF PAGE INTENTIONALLY BLANK SIGNATURES ON NEXT PAGE) 7 SIGNATURE PAGE OF GUARANTOR TO GUARANTY 42-1579325 (Guarantor's Identification Number) INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation By: /s/ Valerie Medina ------------------------------ Name: Valerie Medina ------------------------- Title: Asst. Secretary ------------------------ 8 EX-10.318 29 a2143310zex-10_318.txt EX-10.318 EXHIBIT 10.318 ESCROW AND GUARANTEE AGREEMENT This ESCROW AND GUARANTEE AGREEMENT is made and entered into as of the _______, day of August, 2004, by and among Manchester-Mason Limited Partnership, a Missouri limited partnership, (hereinafter referred to as "Seller"), Inland Western Town and Country Manchester, L.L.C., a Delaware limited liability company, (hereinafter referred to as "Buyer"), and Chicago Title and Trust Company, (hereinafter referred to as "Escrow Agent") having as its address 171 N. Clark Street, Chicago, Illinois 60601. W I T N E S S E T H: WHEREAS, pursuant to that certain Purchase and Sale Agreement dated as of the 13th day of July, 2004 (the "Contract"), Buyer acquired on and as of the date hereof from Seller certain real property commonly known as Manchester Meadows located in Town and Country, Missouri (the "Property"); and WHEREAS, pursuant to the terms of the Contract, Seller has agreed to deposit with Escrow Agent the sum of Six Hundred Twenty-Five Thousand Six Hundred and Two Dollars ($625,602.00) (the "Escrow Deposit") with respect to Seller's obligation to pay rent and reimbursable expenses to Buyer; and WHEREAS, Escrow Agent is willing to accept the Escrow Deposit and hold and disburse same in accordance with the terms and conditions set forth below. NOW, THEREFORE, for and in consideration of the premises hereto, the covenants and agreements hereinafter made, and for Ten and 00/100 Dollars ($10.00) in hand paid to Escrow Agent, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. ESCROW DEPOSIT. Seller hereby deposits with Escrow Agent, and Escrow Agent hereby acknowledges receipt of the Escrow Deposit. Escrow Agent hereby agrees to deposit the Escrow Deposit into an interest bearing account with a bank, savings and loan institution, money market account, or other depository reasonably satisfactory to Buyer, Seller and Escrow Agent with interest accruing for the benefit of Seller. The federal taxpayer identification of Seller is as follows 43-1724460. 2. ESCROW DISBURSEMENTS. The Escrow Deposit is comprised of three (3) components representing the aggregate of minimum rent, common area maintenance, taxes and insurance payments for a thirty (30) month period computed in accordance with leases with Payless Shoes ("Payless"), 3 Day Blinds ("3 Day") and Hobby Town ("Hobby Town") and allocable as follows: (a) $169,875 allocable to Payless (the "Payless Deposit"); (b) $319,445 allocable to 3 Day (the "3 Day Deposit"); and (c) $136,282 allocable to Hobby Town (the "Hobby Town Deposit"). The Payless Deposit, the 3 Day Deposit and the Hobby Town Deposit are sometimes hereinafter referred to individually as a "Deposit". The Payless Deposit, 3 Day Deposit and Hobby Town Deposit shall be held in escrow by Escrow Agent subject to the terms and conditions of this Agreement and shall be disbursed as hereinafter provided. (a) If either of Payless, 3 Day or Hobby Town renews its respective lease for a period of five (5) years or greater on or before the expiration of the current term thereof at no expense to Buyer, upon terms (i) for Payless and 3 Day at least as favorable as set forth in such lease with respect to its renewal option, and (ii) for Hobby Town, $19.00 per square foot, net, (the "Renewal Terms"), then the portion of the Total Deposit allocable to such tenant shall be disbursed to Seller upon the joint direction of Buyer and Seller delivered to Escrow Agent within ten (10) days of such renewal. (b) In the event that either of Payless, 3 Day or Hobby Town does not renew its lease at such time and upon terms set forth in sub-paragraph (a) above, then upon notice from Buyer, Escrow Agent shall (without the requirement of any direction from Seller) disburse one-thirtieth (1/30) of either or all of the Payless Deposit, the 3 Day Deposit, and/or the Hobby Town Deposit, as applicable, on the first day of each month (with the initial payment being prorated appropriately if made on a day other than the first day of the month) until the earlier of the date the applicable Deposit has been disbursed in full or such time as Buyer notifies Escrow Agent of the occurrence of a Lease Up Event (hereinafter defined) with respect thereto. "Lease Up Event" is defined (with respect to the applicable space) as the date that a replacement tenant reasonably satisfactory to Buyer as to use and financial condition is in occupancy, open for business and paying full minimum rent, common area maintenance, taxes and insurance pursuant to an executed lease with a term of at least five (5) years upon terms at least as favorable as the Renewal Terms applicable with respect to such space, all leasing commissions and tenant improvement costs and expenses have been paid in full by Seller and a Certificate of Occupancy has been issued. Buyer shall notify Escrow Agent within five (5) business days of the occurrence of a Lease Up Event. Upon receipt of such notice, the Escrow Agent shall disburse the balance of either the Payless Deposit, the 3 Day Deposit, or the Hobby Town Deposit, as applicable, to Seller. For the purpose of this sub-paragraph, "reasonably satisfactory" with respect to "use" shall mean a use fitting with and not inconsistent with existing tenants at the Property. 3. LEASING. Seller shall market and lease any space vacated by either of Payless, 3 Day or Hobby Town at no expense to Buyer. Seller shall pay all brokerage commissions, tenant build-out and leasing commissions. Buyer shall execute such leases, provided such leases are in conformity with the terms of this Agreement or have otherwise been approved by Buyer, promptly upon Seller's request. 4. ESCROW ADMINISTRATION. The costs of administration of this Escrow Agreement by Escrow Agent in the sum of Five Hundred and 00/100 Dollars ($500.00) shall be shared equally by Seller and Buyer. This Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, principals, successors and assigns and shall be governed and construed in accordance with the laws of the State of Illinois. No modification, amendment or waiver of the terms hereof shall be valid or effective unless in writing and signed by all of the parties hereto. This Escrow Agreement may be executed in multiple counterpart originals, each of which shall be deemed to be and shall constitute an original. If there is any conflict between the terms of this Escrow Agreement and the terms of the Contract, the terms of this Escrow Agreement shall control. 5. NOTICES. All notices, requests, consents and other communications hereunder shall be sent to each of the following parties and be in writing and shall either be: (i) delivered by facsimile transmission, or (ii) personally delivered, or (iii) sent by Federal Express or other overnight or same day courier service providing a return receipt, (and shall be effective when received, when refused or when the same cannot be delivered, as evidenced on the return receipt) to the following addresses: If to Seller: Manchester-Mason Limited Partnership Attention: Stephen M. Notestine c/o Quadrant Properties, L.L.C. 16253 Swingley Ridge Road, Suite 220 Chesterfield, Missouri 63017 Telephone: (636) 530-6050 Facsimile: (636) 530-6075 With a copy to Christopher M. Blanton Seller's Counsel: The Stolar Partnership LLP 911 Washington Avenue, 7th Floor St. Louis, Missouri 63101 Telephone: (314) 231-2800 Facsimile: (314) 436-8400 With a copy to: NEBF Investments Attention: Jeffrey J. Kanne, Managing Director of Real Estate 1125 15th Street, NW, Suite 401 Washington, DC 20005 Telephone: (202) 496-1267 Facsimile: (202) 467-0903 With a copy to: Potts-Dupre, Difede & Hawkins Attention: James R. Difede 1125 15th Street, NW, Suite 444 Washington, DC 20005 If to Buyer: Inland Real Estate Acquisitions, Inc. Attention: G. Joseph Cosenza 2901 Butterfield Road Oak Brook, Illinois 60523 Telephone: (630) 218-4948 Facsimile: (630) 218-4935 With a copy to: The Inland Real Estate Group, Inc. Attn: Dennis K. Holland, Esq. 2901 Butterfield Road Oak Brook, Illinois 60523 Telephone: (630) 218-8000 Facsimile: (630) 218-4900 With a copy to Chicago Title Insurance Company Escrow Agent: Attention: Nancy Castro 171 North Clark Street Chicago, Illinois 60601 Telephone: (312) 223-3909 Facsimile: (312) 223-2108 6. COUNTERPARTS. This Escrow Agreement may be executed in counterparts and shall constitute an agreement binding on all parties notwithstanding that all parties are not signatories of the original or the same counterpart. Furthermore, the signatures from one counterpart may be attached to another to constitute a fully executed original. The Escrow Agreement may be executed by facsimile. 7. REPORTING. Escrow Agent agrees to deliver to Buyer, on a monthly basis, a copy of the bank statement of account of the Escrow Deposit. Such monthly statements shall be delivered to: Buyer at the above address. (SIGNATURES ON FOLLOWING PAGE) IN WITNESS WHEREOF, each of the parties hereto has caused this Escrow Agreement to be signed and delivered as of the day and year first above written. BUYER: INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., A Maryland corporation, its sole member By: /s/ Debra A Palmer ------------------------------- Name: Debra A Palmer ------------------------------- Title: Asst Secretary ------------------------------- SELLER: MANCHESTER-MASON LIMITED PARTNERSHIP, a Delaware limited partnership By: MANCHESTER MEADOWS LIMITED PARTNERSHIP, a Missouri limited partnership, General Partner By: MIDLAND TC, INC., a Missouri corporation, General Partner By: /s/ Stephen M. Notestine ---------------------------------- Name: STEPHEN M. NOTESTINE ------------------------------------- Title: VICE PRESIDENT ------------------------------------- ESCROW AGENT: CHICAGO TITLE AND TRUST COMPANY By: ----------------------------------- EX-10.319 30 a2143310zex-10_319.txt EX-10.319 Exhibit 10.319 ST. LOUIS PLAYSCAPES ESCROW AND GUARANTEE AGREEMENT This ST. LOUIS PLAYSCAPES ESCROW AND GUARANTEE AGREEMENT is made and entered into as of the _________ day of August, 2004, by and among Manchester Meadows Limited Partnership, a Missouri limited partnership, (hereinafter referred to as "Seller"), Inland Western Town and Country Manchester, L.L.C., a Delaware limited liability company, (hereinafter referred to as "Buyer"), and Chicago Title and Trust Company, (hereinafter referred to as "Escrow Agent") having as its address 171 N. Clark Street, Chicago, Illinois 60601. WITNESSETH WHEREAS, pursuant to that certain Purchase and Sale Agreement dated as of the 13th day of July, 2004 (the "Contract"), Buyer acquired on and as of the date hereof from Seller certain real property commonly known as Manchester Meadows located in Town and Country, Missouri (the "Property"); and WHEREAS, Seller has advised Buyer that St. Louis Playscapes ("Playscapes") desires to relocate from the spaces it leases at the Property; and WHEREAS, Seller has agreed to deposit with Escrow Agent the sum of Six Hundred Thirty-Six Thousand Five Hundred Sixty-Three Dollars ($636,563.00) (the "Escrow Deposit") with respect to Seller's obligation to pay rent and reimbursable expenses to Buyer in connection with spaces at the Property leased to Playscapes (the "Playscapes Space"); and WHEREAS, Escrow Agent is willing to accept the Escrow Deposit and hold and disburse same in accordance with the terms and conditions set forth below. NOW, THEREFORE, for and in consideration of the premises hereto, the covenants and agreements hereinafter made, and for Ten and 00/100 Dollars ($10.00) in hand paid to Escrow Agent, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. ESCROW; DEPOSIT. Seller hereby deposits with Escrow Agent, and Escrow Agent hereby acknowledges receipt of the Escrow Deposit. Escrow Agent hereby agrees to deposit the Escrow Deposit into an interest bearing account with a bank, savings and loan institution, money market account, or other depository reasonably satisfactory to Buyer, Seller and Escrow Agent with interest accruing for the benefit of Seller. The federal taxpayer identification of Seller is as follows 43-1643824. 2. ESCROW DISBURSEMENTS. The Escrow Deposit shall be held in escrow by Escrow Agent subject to the terms and condition of this Agreement and shall be disbursed as hereinafter provided. Commencing on the date that Buyer notifies Escrow Agent that Playscapes has not paid any amounts due pursuant to its lease, and continuing on the first day of each calendar month thereafter for thirty (30) months, Buyer shall be entitled to receive from the Escrow Deposit, an amount equal to one thirtieth (1/30) of the initial balance-of the Escrow Deposit, which monthly payment shall continue until the earlier of (x) the date the Escrow Deposit has been disbursed in full or (y) the date that the Playscapes Space has been leased, all leasing commissions and tenant improvements costs and expenses incurred in connection therewith have been paid in full, the tenant has occupied the space, is open for business, has commenced regularly scheduled monthly rent payments, and a certificate of occupancy has been issued (the "Lease Up Event"). At such time as the Lease Up Event has occurred and Buyer has received all requisite payments due hereunder, the balance of the Escrow Deposit, if any, shall be released to Seller. 3. LEASING. Seller shall market and lease any space vacated by Playscapes at no expense to Buyer. Seller shall pay all brokerage commissions, tenant build-out and leasing commissions. Buyer shall execute such leases, provided such leases are in conformity with the terms of this Agreement or have otherwise been approved by Buyer, promptly upon Seller's request. 4. ESCROW ADMINISTRATION. The costs of administration of this Escrow Agreement by Escrow Agent in the sum of Five Hundred and 00/100 Dollars ($500.00) shall be shared equally by Seller and Buyer. This Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, principals, successors and assigns and shall be governed and construed in accordance with the laws of the State of Illinois. No modification, amendment or waiver of the terms hereof shall be valid or effective unless in writing and signed by all of the parties hereto. This Escrow Agreement may be executed in multiple counterpart originals, each of which shall be deemed to be and shall constitute an original. If there is any conflict between the terms of this Escrow Agreement and the terms of the Contract, the terms of this Escrow Agreement shall control. 5. NOTICES. All notices, requests, consents and other communications hereunder shall be sent to each of the following parties and be in writing and shall either be: (i) delivered by facsimile transmission, or (ii) personally delivered, or (iii) sent by Federal Express or other overnight or same day courier service providing a return receipt, (and shall be effective when received, when refused or when the same cannot be delivered, as evidenced on the return receipt) to the following addresses: If to Seller: Manchester Meadows Limited Partnership Attention: Stephen M. Notestine c/o Quadrant Properties, L.L.C. 16253 Swingley Ridge Road, Suite 220 Chesterfield, Missouri 63017 Telephone: (636) 530-6050 Facsimile: (636) 530-6075 With a copy to Christopher M. Blanton Seller's Counsel: The Stolar Partnership LLP 911 Washington Avenue, 7th Floor St. Louis, Missouri 63101 Telephone: (314) 231-2800 Facsimile: (314) 436-8400 With a copy to: NEBF Investments Attention: Jeffrey J. Kanne, Managing Director of Real Estate 1125 15th Street, NW, Suite 401 Washington, DC 20005 Telephone: (202) 496-1267 Facsimile: (202) 467-0903 With a copy to: Potts-Dupre, Difede & Hawkins Attention: James R. Difede 1125 15th Street, NW, Suite 444 Washington, DC 20005 If to Buyer: Inland Real Estate Acquisitions, Inc. Attention: G. Joseph Cosenza 2901 Butterfield Road Oak Brook, Illinois 60523 Telephone: (630) 218-4948 Facsimile: (630) 218-4935 With a copy to: The Inland Real Estate Group, Inc. Attn: Dennis K. Holland, Esq. 2901 Butterfield Road Oak Brook, Illinois 60523 Telephone: (630) 218-8000 Facsimile: (630) 218-4900 With a copy to Chicago Title Insurance Company Escrow Agent: Attention: Nancy Castro 171 North Clark Street Chicago, Illinois 60601 Telephone: (312) 223-3909 Facsimile: (312) 223-2108 6. COUNTERPARTS. This Escrow Agreement may be executed in counterparts and shall constitute an agreement binding on all parties notwithstanding that all parties are not signatories of the original or the same counterpart. Furthermore, the signatures from one counterpart may be attached to another to constitute a fully executed original. The Escrow Agreement may be executed by facsimile. 7. REPORTING. Escrow Agent agrees to deliver to Buyer, on a monthly basis, a copy of the bank statement of account of the Escrow Deposit. Such monthly statements shall be delivered to: Buyer at the above address. IN WITNESS WHEREOF, each of the parties hereto has caused this Escrow Agreement to be signed and delivered as of the day and year first above written. BUYER: INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., A Maryland corporation, its sole member By: /s/ Debra A Palmer ------------------------------- Name: Debra A Palmer ------------------------------- Title: Asst Secretary ------------------------------- SELLER: MANCHESTER MEADOWS LIMITED PARTNERSHIP, a Missouri limited partnership, By: MIDLAND TC, INC., a Missouri corporation, General Partner By: /s/ Stephen M. Notestine ------------------------------- Name: STEPHEN M. NOTESTINE ------------------------------- Title: V.P. ------------------------------- ESCROW AGENT: CHICAGO TITLE AND TRUST COMPANY By: ----------------------------------- EX-10.320 31 a2143310zex-10_320.txt EX-10.320 Exhibit 10.320 ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT This ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT (this "Assignment") is made and entered into this _____ day of August, 2004 by Inland Real Estate Acquisitions, Inc., an Illinois Corporation, ("Assignor"), and Inland Western Town and Country Manchester, L.L.C., a Delaware limited liability company, ("Assignee"). RECITALS A. Manchester-Mason Limited Partnership ("Seller") and Assignor have previously entered into that certain Purchase and Sale Agreement dated as of July 13, 2004 (the "Purchase Agreement"), relating to the sale of a certain shopping center commonly known as Manchester Meadows located in the City of Town and Country, Missouri. B. Assignor desires to assign its interest in and to the Purchase Agreement to Assignee upon the terms and conditions contained herein. NOW, THEREFORE, in consideration of the receipt of ten and 00/100 Dollars ($10.00) and other good and valuable consideration in hand paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged by Assignor, the parties hereby agree as follows: 1. RECITALS. The foregoing recitals are, by this reference, incorporated into the body of this Assignment as if the same had been set forth in the body hereof in their entirety. 2. ASSIGNMENT AND ASSUMPTION. Assignor hereby assigns, conveys, transfers, and sets over to Assignee all of Assignor's right, title, and interest in and to the Purchase Agreement. Assignee hereby accepts the foregoing Assignment and assumes, and agrees to perform, all duties, obligations, liabilities, indemnities, covenants, and agreements of Assignor set forth in the Purchase Agreement. 3. COUNTERPARTS. This document may be executed in any number of counterparts, each of which may be executed by any one or more of the parties hereto, but all of which must constitute one instrument and shall be binding and effective when all parties hereto have executed at least one counterpart. 4. SUCCESSORS. This Assignment shall be binding upon and for the benefit of the parties hereto and their respective Successors and Assigns. IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed as of the day and year first written above. ASSIGNOR: INLAND REAL ESTATE ACQUISITIONS, INC., An Illinois Corporation By: /s/ G. Joseph Cosenza ------------------------------- Name: G. Joseph Cosenza ----------------------------- Title: President ---------------------------- ASSIGNEE: INLAND WESTERN TOWN AND COUNTRY MANCHESTER, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Debra A Palmer ---------------------------- Name: Debra A Palmer ---------------------------- Title: Asst Secretary ---------------------------- - 2 - EX-10.321 32 a2143310zex-10_321.txt EX-10.321 Exhibit 10.321 PURCHASE AND SALE AGREEMENT (Manchester Meadows) THIS AGREEMENT is made as of the day of the 13th day of July, 2004, between MANCHESTER-MASON LIMITED PARTNERSHIP, a Missouri limited partnership ("Seller"), and INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("Buyer"). BACKGROUND Buyer wishes to purchase a shopping center near the intersection of Manchester Road and Mason Road, in the County of St. Louis, State of Missouri, owned by Seller, known as Manchester Meadows (the "Shopping Center"); Seller wishes to sell the Shopping Center to Buyer. In consideration of the mutual agreements herein, and other good and valuable consideration, including the sum of One Hundred Dollars ($100.00) paid to Seller by Buyer, the receipt of which is hereby acknowledged, Seller agrees to sell to Buyer and Buyer agrees to purchase the Shopping Center from Seller, subject to the following terms and conditions: 1. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: 1.1 AGREEMENT means this Purchase and Sale Agreement, which shall supercede all prior agreements and understandings between Buyer and Seller concerning the sale and purchase of the Property. 1.2 ALLOCATION DATE means the day immediately prior to the Closing Date. 1.3 BROKER means the real estate brokerage firm listed as Broker on Exhibit 1.3 of this Agreement. Participating broker(s), if any, are also identified on Exhibit 1.3. 1.4 BUYER means the person or entity named as Buyer in the introductory paragraph of this Agreement. 1.5 CLOSING means generally the execution and delivery of those documents and funds necessary to effect the sale of the Property by Seller to Buyer. 1.6 CLOSING Date means the date on which the Closing occurs. 1.7 CONTRACTS means all service contracts, agreements and other instruments concerning the ownership, operation and leasing of the Property as set forth in Exhibit 1.7 attached hereto. 1.8 EARNEST MONEY DEPOSIT means the deposit delivered by Buyer to Escrow Agent prior to the Closing under Section 2.2 of this Agreement, together with the earnings thereon, if any. 1.9 EFFECTIVE DATE means the next business day following the date upon which the fully executed Agreement has been received by the Escrow Agent and transmitted by the Escrow Agent to the parties. 1.10 ENVIRONMENTAL LAW means any current legal requirement pertaining to (a) the protection of health, safety, and the indoor or outdoor environment, (b) the conservation, management, protection or use of natural resources and wildlife, (c) the protection or use of source water and groundwater, (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Material or (e) pollution (including any release to air, land, surface water, and groundwater); and includes, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986,42 USC Sections 9601 ET SEQ., Solid Waste Disposal Act, as amended by the Resource Conservation Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 USC Sections 6901 et seq., Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC Sections 1251 ET SEQ., Clean Air Act of 1966, as amended, 42 USC Sections 7401 ET SEQ., Toxic Substances Control Act of 1976, 15 USC Sections 2601 ET SEQ., Hazardous Materials Transportation Act, 49 USC App. Sections 1801, Occupational Safety and Health Act of 1970, as amended, 29 USC Sections 651 ET SEQ., Oil Pollution Act of 1990, 33 USC Sections 2701 et seq., Emergency Planning and Community Right-to-Know Act of 1986, 42 USC App. Sections 11001 ET SEQ., National Environmental Policy Act of 1969,42 USC Sections 4321 ET SEQ., Safe Drinking Water Act of 1974, as amended by 42 USC Sections 300(f) et seq., and any similar, implementing or successor law, any amendment, rule, regulation, order or directive, issued thereunder. 1.11 ESCROW AGENT means the firm identified as the Escrow Agent in Section 12.2 of this Agreement. 1.12 GOVERNMENTAL APPROVAL means any permit, license, variance, certificate, consent, letter, clearance, closure, exemption, decision, action or approval of a governmental authority. 2 1.13 HAZARDOUS MATERIAL means any hazardous or toxic substance as defined in or regulated by any Environmental Law in effect at the pertinent date or dates. 1.14 HAZARDOUS MATERIAL ACTIVITY means any activity, event, or occurrence involving a Hazardous Material, including, without limitation, the manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, release, threatened release, abatement, removal, remediation, handling or corrective or response action to any Hazardous Material. 1.15 IMPROVEMENTS means all buildings, structures or other improvements situated on the Real Property. 1.16 INSPECTION PERIOD means the period of time which begins on the Effective Date and ends at 5:00 PM (CDT) on July 27, 2004. 1.17 LEASES means all leases and other occupancy agreements permitting persons to lease or occupy all or any portion of the Property. 1.18 MATERIALS means the documents listed on Exhibit 1.18 to this Agreement. 1.19 MAJOR TENANTS are the tenants identified on the Schedule of Major Tenants attached as Exhibit 1.19 to this Agreement. 1.20 PERMITTED EXCEPTIONS means only the following interests, liens and encumbrances: (a) Liens for ad valorem taxes not payable on or before Closing; (b) Rights of tenants under Leases; and (c) Other matters determined to be acceptable by Buyer during the title review period, as contemplated by Article 7 of this Agreement. 1.21 PERSONAL PROPERTY means all (a) sprinkler, plumbing, heating, air-conditioning, electric power or lighting, incinerating, ventilating and cooling systems, with each of their respective appurtenant furnaces, boilers, engines, motors, dynamos, radiators, pipes, wiring and other apparatus, equipment and fixtures, elevators, partitions, fire prevention and extinguishing systems located in or on the Improvements, (b) the Materials, (c) other tangible personal property used in connection with the ownership or operation of the Improvements, provided the same are now owned or are acquired by Seller prior to the Closing, and (d) all trade names, franchises, licenses, permits, easements, development rights and approvals, deposits, credits, petroleum and mineral interests and royalties, air and water rights, construction and product warranties, the Leases (including all security deposits and guarantees given with 3 respect thereto), Contracts and Materials, and all other intangibles owned or used by or for the benefit of Seller in connection with the Property. 1.22 PROPERTY means collectively the Real Property, the Improvements and the Personal Property. 1.23 PURCHASE PRICE means the consideration agreed to be paid by Buyer to Seller for the purchase of the Property as set forth in Section 2.1 (subject to prorations and adjustments as provided herein). 1.24 REAL PROPERTY means the lands more particularly described on Exhibit 1.2 of this Agreement, together with all easements, licenses, privileges, rights of way and other appurtenances pertaining to or accruing to the benefit of such lands. 1.25 RENT ROLL means the Leases listed on Exhibit 1.25 of this Agreement, identifying with particularity the space leased by each tenant, the term (including extension options) of each such Lease. 1.26 SELLER means the person or entity named as Seller in the introductory paragraph this Agreement. 1.27 SELLER FINANCIAL STATEMENTS means the unaudited balance sheets and statements of income, cash-flows; and changes in financial position prepared by Seller for the Property, as, of and for the two (2) calendar years next preceding the date of this Agreement and all monthly and quarterly reports of income, expense and cash flow prepared by Seller for the Property, which shall be consistent with past practice, for any such period beginning after the latest of such calendar years, and ending prior to Closing. 1.28 SHOPPING CENTER means the Shopping Center identified on the initial page hereof. 1.29 SURVEY means a map of a stake survey of the Real Property and Improvements prepared by a surveyor acceptable to Buyer, which shall comply with the ALTA/ACSM Survey Requirements 1999 for ALTA/ACSM land title surveys jointly established and adopted in 1999, the American Land Title Association, American Congress on Surveying and Mapping, and the National Society of Professional Engineers, including optional items 1, 2, 3, 4, 6, 7 (a, b and c), 8, 9, 10, 11, 13, 14, 15 and 16 of Table "A" thereof, which meets the accuracy standards (as adopted by ALTA and ACSIVI and in effect on the date of the Survey). The Survey shall be dated not earlier than thirty (30) days prior to the Closing, and shall be certified to Buyer, Seller, and the Title Company. The Survey shall establish a precise legal description for the Real Property and shall locate all wetlands and flood plain areas, including their bounding jurisdictional lines. The surveyor shall certify on the Survey the square footage of the Real Property, measured to the nearest hundredth, the flood and 4 earthquake zone status of the Property, and such other certifications as are required by Buyer's insurer or lender, all in accordance with the form and requirements attached hereto as Exhibit 1.29. 1.30 TENANT ESTOPPEL LETTER means a letter or other certificate from a tenant certifying as to certain matters regarding such tenant's Lease, in substantially the same form as Exhibit 1.30 of this Agreement, or in the case of national or regional "credit" tenants identified as such on the Rent Roll, the form customarily used by such tenant provided the information disclosed therein is acceptable to Buyer. 1.31 TITLE COMPANY means Escrow Agent. 1.32 TITLE DEFECT means any exception in the Title Insurance Commitment or any matter disclosed by the Survey, other than a Permitted Exception. 1.33 TITLE POLICY means an ALTA owners' policy of title insurance with extended coverage in the amount of the Purchase Price insuring marketable fee simple title in Buyer, subject only to the Permitted Exceptions, issued by the Title Company, together with the following endorsements: --3.1 Zoning (long form) with parking and loading docks --Owner's Comprehensive --Survey --Access --P.I.N. --Subdivision --Utility Facility --Contiguity --Removal of creditors' rights exception --Removal of arbitration clause --Environmental lien 1.34 TITLE INSURANCE COMMITMENT means a preliminary title report whereby the Title Company agrees to issue the Title Policy to Buyer, together with copies of all instruments which are exceptions noted therein or conditions to be satisfied. The Title Insurance Commitment shall include the above described endorsements to the Title Policy and shall also note the tax classification and reference number(s) for the Property, and the amount of taxes paid or payable for the most recent tax year. 5 2. PURCHASE PRICE AND PAYMENT 2.1 PURCHASE PRICE: PAYMENT. The total Purchase Price for the Property (subject to adjustment as provided herein) shall be Fifty Six Million Two Hundred Thousand and 00/100 Dollars ($56,200,000.00). The Purchase Price shall be payable by wire transfer of immediately available Federal funds at Closing. 2.2 EARNEST MONEY DEPOSIT. An earnest money deposit in the amount of Seven Hundred Fifty Thousand and 00/100 Dollars ($750,000.00) shall be deposited with Escrow Agent by Buyer within one (1) business day after execution and delivery of this Agreement by all parties. This Agreement may be terminated by Seller by notice to delivered to Escrow Agent by such deadline. The Earnest Money Deposit shall be held as specifically provided in this Agreement and shall be applied to the Purchase Price at Closing. 2.3 PRORATIONS. The following shall be adjusted between Seller and Buyer and shall be prorated on a per diem basis as of midnight on the Allocation Date (so that Buyer has the benefit of all income for the Closing Date and the burden of all expenses for the Closing Date) but shall be adjusted as of midnight of the Closing Date if the Purchase Price is not in the account of the Title Company ready for disbursement as of noon on the Closing Date (so that, in such event, Seller has the benefit of all income for the Closing Date and the burden of the expenses for the Closing Date): (a) Ad valorem taxes and assessments shall be prorated as of midnight on the Allocation Date. If the amount of the Closing tax year's property taxes are not available on the Closing Date, such taxes will be prorated based upon the prior tax year's assessment for the Closing but shall be reprorated when the actual tax bills for the year of Closing shall become available (and this provision shall survive the Closing). (b) To the extent not paid for by tenants under the Leases, water rates and sewer charges or rentals (if not metered). (c) To the extent not paid for by tenants under the Leases, utility charges (including, but not limited to, water rates and sewer charges or rentals if metered) shall not be apportioned, but Seller shall cause all utility meters to be read not more than two (2) days before Closing Date, and Seller agrees to pay promptly after receipt of all utility bills and charges accruing up to and including the day preceding the Closing Date. If utility deposits are assigned to Buyer, Seller shall receive a credit therefor at Closing. (d) Rents and other fixed charges payable pursuant to the Leases. At the Closing, Seller shall furnish to Buyer a complete and correct schedule of all rents and other fixed charges which are then due and payable but which have not been paid. Buyer shall have no obligation to Seller to collect any such unpaid rents or other charges, and all rents and other charges collected post-Closing by Buyer shall be first applied to current rents and charges due, next to rents and charges past due (in 6 reverse order to which they become past due) for the period after the Closing Date through the then current rent period, and lastly to rents and charges past due for the period prior to the Closing Date. To the extent rents and charges for the period after the Closing Date are current, Buyer agrees that all unpaid rents and other charges for the period prior to the Closing Date, if collected by Buyer, shall be held by Buyer as trustee for Seller and shall be remitted by Buyer to Seller. To the extent Seller collects rents and charges for Leases after the Closing Date, Seller agrees to hold all collections in trust, and to promptly turn over such collections to Buyer, and Buyer shall apply such funds between Buyer and Seller in the manner provided herein. Percentage rents, if any, shall be equitably prorated upon receipt based upon the number of days during the applicable lease year which Seller owned the Property and the number of days which Buyer owned the Property. Buyer shall reasonably cooperate with Seller in its efforts, including litigation initiated by Seller at Seller's expense (but not including any action for eviction or similar remedy), to collect past due rents provided that, in Buyer's reasonable discretion such cooperation shall not jeopardize Buyer's relationship with tenant(s) and further provided that Buyer shall not be obligated to incur any expenses in connection herewith. Any recovery by means of litigation shall belong entirely to Seller. With respect to any amounts due under a lease to reimburse the landlord for operating expenses of the Property (other than as payment of base rents or percentage rents) whether due on a monthly, quarterly, semi-annual or annual basis and whether payable as estimated payments or otherwise, including, without limitation, common area maintenance charges, the tenant's pro rata share of ad valorem taxes and assessments, the tenant's pro rata share of insurance premiums, and similar charges (collectively, "Additional Rents"), such amounts due pursuant to the Leases shall be prorated at Closing. At the end of each applicable tenant billing/reconciliation period (whether on a calendar year or other time basis; provided, if payments of Additional Rents are not reconciled for any tenant, then the applicable billing/reconciliation period for such tenant shall be deemed to be the calendar year of Closing), all payments of Additional Rents attributable to such reconciliation/billing period shall be adjusted and prorated between Seller and Buyer as provided below in the next paragraphs. Within sixty (60) days after the Closing Date, Seller agrees to provide Buyer (i) a detailed operating expense statement for the actual costs incurred by Seller for operating expenses and other tenant pass-through items that are reimbursable to the landlord by tenants under the Leases (the "Tenant Reimbursement Expenses") that covers the period from the beginning of the then current tenant billing/reconciliation period through the Closing Date together with copies of supporting invoices and other documentation supporting the expenses; and (ii) a statement showing amounts actually collected by Seller as Additional Rent for the period from the beginning of the then current tenant billing/reconciliation period through the Closing Date. With respect to each tenant, Buyer and Seller agree that they will promptly, at the end of the current billing/reconciliation period in effect as of the Closing Date, reconcile the tenant's payments of Additional Rent with Tenant Reimbursement Expenses attributable to such tenant, and Buyer will bill the applicable tenant promptly for any additional amounts 7 owed by the tenants as Additional Rent to the landlord for payment of Tenant Reimbursement Expenses. In reconciling each tenant's payments of Additional Rent and Tenant Reimbursement Expenses, Buyer and Seller agree (on a per tenant basis) to reallocate between them the total amount actually collected by Buyer and Seller as Additional Rent for the applicable billing/reconciliation period for each applicable tenant based on the proportion that the actual costs incurred by each party for Tenant Reimbursement Expenses attributable to such tenant during the period the tenant was obligated to make payments of Additional Rents bears to the total Tenant Reimbursement Expenses incurred by Buyer and Seller combined for the applicable billing/reconciliation period for which the tenant is obligated to pay Additional Rent. To the extent either party has collected more than its share of tenant payments of Additional Rent for Tenant Reimbursement Expenses as determined by the preceding sentence, such party shall promptly remit such excess amount to the other party; provided, to the extent tenants are due a refund for overpayment of Additional Rent attributable to any such excess amount, Buyer may retain such excess amount for the purpose of reimbursing tenants for overpayments of Additional Rent by tenants. After making the adjustments provided by the previous paragraph, Buyer will promptly remit Seller's pro rata share of any additional amounts actually collected from tenants as the result of reconciliation billing to tenants for Additional Rent due the landlord. In the event any amounts are owing to the tenants, Buyer will notify Seller of its pro rata share of such amounts, with appropriate back-up, and Seller will promptly within forty-five (45) days after receipt of such notice, remit its share of such amounts to Buyer who will then reimburse the tenants' amounts owed by the landlord. In reconciling the tenants' payments of Additional Rent and determining the pro rata share due to or from Seller, with respect to each tenant, the total amount owing to the tenant or the total amount collected from the tenant, as applicable, shall be multiplied by a fraction the numerator of which shall be the actual Tenant Reimbursement Expenses incurred by Seller that are attributable to the applicable tenant billing/reconciliation period during which such tenant was obligated to pay reimbursements of Additional Rent to the landlord and the denominator of which will be the total Tenant Reimbursement Expenses incurred by both Buyer and Seller combined for the applicable tenant billing/reconciliation period for expenses reimbursable by tenants as Additional Rent. All adjustments set forth above shall be calculated on a tenant by tenant basis. In calculating Tenant Reimbursement Expenses, no expenses shall be included within Tenant Reimbursement Expenses unless such expenses are reimbursable under the applicable Tenant Lease without giving effect to any lease provisions creating caps on the total amount of such expenses that are reimbursable to the landlord. Notwithstanding anything herein to the contrary, Seller shall be solely responsible, at Seller's sole cost and expense, for all tenant reimbursements, credits 8 and reconciliations due tenants for years prior to the year of Closing (or for all reconciliation periods prior to the current reconciliation period in which the Date of Closing Date occurs, as applicable) and shall indemnify and defend Buyer from all costs, expenses and credits that may be due and payable to tenants for any period relating to years prior to the year in which the Closing occurs (or for all reconciliation periods which ended prior to the current reconciliation period in which the Date of Closing occurs, as applicable). In the event any tenants are due credits or reimbursements relating to the years prior to the year in which the Closing occurs (or for all reconciliation periods prior to the current reconciliation period in which the Date of Closing occurs, as applicable), Buyer shall receive a credit at Closing against the Purchase Price in the amount of such credits or reimbursements due tenants and Buyer shall be responsible for paying such credits or reimbursements due tenants to the extent, but only to the extent, of the credit given Buyer by Seller hereunder. (e) Seller shall give Buyer credits for (i) the aggregate amount of tenant security deposits held pursuant to the Leases; and (ii) the aggregate amount of any free rents or other rent concessions given to any tenants attributable to the period from and including the date of Closing to the last day of each applicable rent concession. 2.4 CLOSING COSTS. (a) Seller shall pay: (1) The costs, if any, of satisfying any liens, curing title defects and recording any curative title documents; (2) Prepayment or assumption fees on any mortgages; (3) The costs, if any, of early termination of any Contracts; (4) The brokerage commission payable to Broker (including any co-brokerage fees payable by Broker to other participating brokers) incurred in connection with the sale of the Property to Buyer, if and when this transaction closes, in accordance with a separate written agreement between Broker and Seller; (5) One-half of the Escrow Agent's fees; (6) Seller's attorneys fees relating to the sale of the Property; (7) The costs of the Survey; and (8) Any transfer taxes or similar fee or tax. (b) Buyer shall pay: 9 (1) The costs of Buyer's due diligence investigations; (2) The costs of the Phase I environmental site assessment to be obtained by Buyer; (3) The premium for the Title Policy; (4) One-half of the Escrow Agent's fees; (5) The costs of recording the deed; (6) Any fee payable to Buyer's Broker (as defined in Section 11.1 hereof); and (7) Buyer's attorneys' fees. 3. INSPECTION PERIOD AND CLOSING 3.1 INSPECTION PERIOD. Buyer shall have the Inspection Period within which to physically inspect the Property, to conduct its due diligence and to review and inspect the Materials. Seller shall provide copies of the Materials if feasible and if not feasible shall provide Buyer with access to those Materials as to which copying is not feasible. Buyer and Buyer's officers, employees, consultants, attorneys and other authorized representatives shall have the right to reasonable access to the Property and to the records of Seller related thereto (including without limitation title information, property leasing files, maintenance surveys, environmental assessment reports and other information concerning the condition of the Property), at reasonable times during the Inspection Period for the purpose of inspecting the Property, taking soil and ground water samples, conducting Hazardous Materials inspections, tests and assessments, reviewing the books and records of Seller concerning the Property, evaluating the leasing and financial condition of the Property, and otherwise conducting its due diligence review. Buyer hereby agrees to indemnify and hold Seller harmless from any damages, liabilities or claims for property damage or personal injury caused by Buyer and its agents and contractors in the conduct of such inspections and investigations. Seller shall cooperate with and assist Buyer in making such inspections, interviews and reviews. Seller shall make available to Buyer such of the foregoing as may be in Seller's possession in order to facilitate Buyer's due diligence. Seller shall give Buyer the reasonable authorization that may be required by Buyer in order to gain access to records or other information pertaining to the Property or the use thereof maintained by any third party, governmental or quasi-governmental authorities or organizations. 3.2 BUYER'S TERMINATION RIGHT. On or before the last day of the Inspection Period, Buyer may, in its sole discretion, for any reason or for no reason, elect whether or not to go forward with this Agreement to Closing, which election shall be made by notice to Seller given on or before the last day of the Inspection Period. If such notice 10 is timely given, this Agreement shall be terminated and of no force and effect, and the Earnest Money Deposit shall be immediately returned to Buyer without the requirement of further direction from Seller. If such notice is not timely given, Buyer shall be deemed to have waived its right to terminate this Agreement. Buyer shall return to Seller the materials and information furnished to Buyer by Seller promptly after Buyer's receipt of the Earnest Money Deposit. After the conclusion of the Inspection Period the Earnest Money Deposit shall not be refundable except upon terms otherwise expressly set forth herein. 3.3 DELIVERY. Buyer acknowledges that Seller has prior to the Effective Date delivered to Buyer all of the Materials. 3.4 TIME AND PLACE OF CLOSING. The Closing shall take place in escrow through the offices of Escrow Agent on August 5, 2004 at 10:00 A.M., or at such other time and place and in such manner as Seller and Buyer may agree. 4. WARRANTIES, REPRESENTATIONS AND COVENANTS OF SELLER Seller warrants and represents to the best of its knowledge as follows as of the date of this Agreement and as of the Closing and where indicated covenants and agrees as follows: 4.1 ORGANIZATION; AUTHORITY. Seller is duly organized and validly existing under the laws of the State of Missouri. Seller has full power and authority to enter into and perform this Agreement in accordance with its terms. The person executing this Agreement has been duly authorized to do so on behalf of Seller. 4.2 AUTHORIZATION: VALIDITY. Subject to formal approval by the Board of Trustees of a partner in Seller (which approval Seller expects to receive on or before July 9, 2004), the execution and delivery of this Agreement by Seller and Seller's consummation of the transactions contemplated by this Agreement have been duly and validly authorized. Assuming the valid execution and delivery of this Agreement by Buyer and subject to the aforesaid approval by the Board of Trustees of a partner in Seller, this Agreement constitutes a legal, valid and binding agreement of Seller enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally, and the exercise of judicial discretion in accordance with in general principles of equity. 4.3 TITLE. Seller is the owner in fee simple of all of the Property. 4.4 SALE AGREEMENTS. With the exception of the right of first refusal of Boston Market to purchase its leased outparcel should such outparcel be offered for sale independently of the balance of the Shopping Center as set forth in the Lease to Boston Market, the Property is not subject to any outstanding agreement of sale, 11 option, or other right of any third party to acquire any interest therein, except this Agreement. 4.5 LITIGATION. Seller has received no notice indicating that there is any litigation or proceeding pending, or to the best of Seller's knowledge, threatened against Seller relating to the Property except as otherwise stated herein. 4.6 LEASES. There are no Leases affecting the Property, oral or written, except as listed on the Rent Roll. Copies of the Leases, which have been delivered to Buyer or shall be delivered to Buyer within five (5) days from the date hereof, are true, correct and complete copies thereof. Between the date hereof and the Closing Date, Seller will enforce the Leases in accordance with their terms; and Seller will not terminate or modify existing Leases, enter into any new Leases or grant additional renewal rights to any tenant, without the consent of Buyer. Except as may be set forth in a Tenant Estoppel Letter, to the best of Seller's knowledge: (i) all of the Property's Leases are in good standing; (ii) no defaults exist thereunder; (iii) no rent or reimbursement has been paid more than one (1) month in advance; and (iv) no security deposit has been paid; (v) no tenants under the Leases are entitled to interest on any security deposits, except as stated on the Rent Roll; (vi) no tenant under any Lease has or will be promised any inducement, concession or consideration by Seller other than as expressly stated in such Lease; and (vii) except as stated therein there are and will be no side agreements between Seller and any tenant. There are no leasing commissions or other obligations to brokers due or which will become due under any of the Leases which will not have been paid by Seller prior to the Closing. To the best of Seller's knowledge there are no violations of any exclusive or restrictive use clause granted to any tenant under any Lease. 4.7 FINANCIAL STATEMENTS. Each of the Seller Financial Statements delivered or to be delivered to Buyer hereunder has or will have been prepared in accordance with the books and records of Seller and presents fairly in all material respects the financial condition, results of operations and cash flows for the Property as of and for the periods to which they relate. Such Financial Statements are in conformity with generally accepted accounting principles applied on a consistent basis. There has been no material adverse change in the operations of the Property or its prospects since the date of the most recent Seller Financial Statements. Seller covenants to furnish promptly to Buyer copies of the Seller Financial Statements together with unaudited updated monthly reports of cash flow for interim periods beginning after the concluding date(s) of the latest of such Seller Financial Statements, to the Closing Date. Buyer and its independent certified accountants shall be given access to Seller's books and records at any time prior to Closing upon reasonable advance notice in order that they may verify the Seller Financial Statements. 4.8 CONTRACTS. Except for the Leases and the Contracts, there are no management, service, maintenance, utility or other contracts or agreements affecting the Property, oral or written, which extend beyond the Closing Date or which would bind 12 Buyer or encumber the Property more than thirty (30) days after Closing. To the best of Seller's knowledge:. (i) all such Contracts are in full force and effect in accordance with their respective terms; (ii) all obligations of Seller under the Contracts required to be performed to date have been performed in all material respects; (iii) no party to any Contract has asserted any claim of default or offset against Seller with respect thereto; and (iv) no event has occurred or failed to occur, which would in any way affect the validity or enforceability of any such Contract. The copies of the Contracts delivered to Buyer prior to the date hereof are true, correct and complete copies thereof. Between the date hereof and the Closing, Seller covenants to fulfill all of its obligations under all Contracts, and covenants not to terminate or modify any such Contracts or enter into any new contractual obligations relating to the Property without the consent of Buyer (not to be unreasonably withheld) except such obligations as are freely terminable without penalty upon not more than thirty (30) days' written notice. Upon notice from Buyer given prior to the expiration of the Inspection Period without termination of this Agreement by Buyer, Seller will terminate such Contracts as are designated by Buyer, in accordance with the terms of such Contracts, provided such termination is without cost to Seller. 4.9 MAINTENANCE AND OPERATION OF PROPERTY. From and after the date hereof and until the Closing, Seller covenants to keep and maintain and operate the Property substantially in the manner in which it is currently being maintained and operated and covenants not to cause or permit any waste of the Property nor undertake any action with respect to the operation thereof outside the ordinary course of business without Buyer's prior written consent. In connection therewith, Seller covenants to make all necessary repairs and replacements until the Closing so that the Property shall be of substantially the same quality and condition at the time of Closing as on the date hereof. Seller covenants not to remove from the Improvements or the Real Property any article included in the Personal Property. Seller covenants to maintain such casualty and liability insurance on the Property as is presently being maintained. 4.10 PERMITS AND ZONING; COMPLIANCE WITH LAW. To the best knowledge of Seller, the Property is in compliance with all applicable laws, regulations and ordinances, and there are no permits and licenses required to be issued to Seller by any governmental body, agency or department having jurisdiction over the Property which materially affect or could materially affect the ownership or the use thereof which have not been issued. The Property is properly zoned for its present use without variance or grandfathering as a nonconforming use (including without limitation parking and the sale of alcoholic beverages, if applicable). The Property is not subject to any local, regional or state development order. Seller has not received notice that there are any outstanding assessments, impact fees or other charges related to the Property. 4.11 RENT ROLL; TENANT ESTOPPEL LETTERS. The Rent Roll is true and correct in all respects. Seller agrees to use commercially reasonable efforts to obtain current Tenant Estoppel Letters acceptable to Buyer from all Tenants under the Leases, which Tenant 13 Estoppel Letters shall confirm the matters reflected by the Rent Roll as to the particular tenant and shall otherwise be acceptable to Buyer in all material respects. 4.12 CONDEMNATION. Neither the whole nor any portion of the Property, including access thereto or any easement benefiting the Property, is currently subject to temporary requisition of use by any governmental authority or has been condemned, or taken in any proceeding similar to a condemnation proceeding, nor is there now pending or threatened any condemnation, expropriation, requisition or similar proceeding against the Property or any portion thereof. Seller has received no notice nor has any other knowledge that any such proceeding is contemplated. 4.13 GOVERNMENTAL MATTERS. Seller has not entered into any commitments or agreements with any governmental authorities or agencies affecting the Property that have not been disclosed in writing to Buyer and Seller has received no notices from any such governmental authorities or agencies of uncured violations at the Property of building, fire, air pollution or zoning codes, rules, ordinances or regulations, environmental and hazardous substances laws, or other rules, ordinances or regulations relating to the Property. Seller shall be responsible for the remittance of all sales tax for periods occurring prior to the Allocation Date directly to the appropriate state department of revenue and after Closing shall indemnify and hold Buyer harmless therefrom. 4.14 REPAIRS. Seller has received no notice of any requirement or recommendation by any lender, insurance companies, or governmental body or agencies requiring or recommending any repairs or work to be done on the Property which have not already been completed or are not in the process of being repaired. 4.15 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and delivery of this Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will (a) require Seller to file or register with, notify, or obtain any permit, authorization, consent, or approval of, any governmental or regulatory authority; (b) conflict with or breach any provision of the organizational documents of Seller; (c) violate or breach any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which Seller is a party, or by which Seller, the Property or any of Seller's material assets may be bound; or (d) violate any order, writ, injunction, decree, judgment, statute, law or ruling of any court or governmental authority applicable to Seller, the Property or any of Seller's material assets. Notwithstanding the foregoing, the sale contemplated hereby is expressly subject to the consent described in Section 4.2 above. 4.16 ENVIRONMENTAL MATTERS. The Property presently complies with all applicable Environmental Laws. The Property does not now contain and to the best of Seller's knowledge has not contained any underground storage tanks, Hazardous 14 Materials, landfills or hazardous waste management facilities, as defined under any Environmental Law. To the best of Seller's knowledge the Property is not listed on any state or federal environmental remediation priority list. Seller has used no Hazardous Material at the Property nor has Seller permitted any other person to do so. Seller has received no notice from any governmental agency having jurisdiction stating that the Property is affected by the presence and/or harmful effects of any asbestos, toxic, or hazardous substances as defined by applicable federal, state or local laws affecting the Property. Seller has no actual knowledge that any portion of the Property has been used for an on-site dry cleaning facility. 4.17 FOREIGN INVESTMENT AND REAL PROPERTY TAX ACT. Seller is not a "foreign person" within the meaning of Section 1445 of the Internal Revenue Code, or under any comparable state statutes which are applicable to this transaction. At Closing Seller will execute and deliver to Buyer an affidavit regarding such matters. If Seller fails to execute and deliver such affidavit, Buyer may deduct and withhold from the Purchase Price such amounts as Buyer may be required to withhold in order to satisfy any of Buyer's tax withholding obligations under such statutes or regulations promulgated pursuant thereto. 4.18 PROPERTY TAXES. Neither Seller nor any of Seller's predecessors within the past five (5) years has claimed, with respect to any of the Property, the benefit of any law permitting a special use valuation for the purposes of obtaining a lower ad valorem tax rate. 4.19 SPECIAL ASSESSMENTS. Seller has received no notice of any special assessment pending or threatened in respect of the Property, whether or not a lien thereon. There are not any hook-up fees, impact fees and similar charges or assessments that will not be paid in full as of the Closing Date for the improvements existing on the Property. 4.20 NO UNTRUE STATEMENT. Neither this Agreement nor any exhibit nor any written statement or Transaction Document furnished or to be furnished by Seller to Buyer in connection with the transactions contemplated by this Agreement contains or will contain any knowingly untrue statement of material fact or omits or will omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. Seller agrees to furnish to Buyer copies of any notice, claim or demand received by Seller during the pendency of this Agreement which would materially change any representation given by Seller herein. 5. WARRANTIES, REPRESENTATIONS AND COVENANTS OF BUYER Buyer hereby warrants and represents as of the date of this Agreement and as of the Closing and where indicated covenants and agrees as follows: 15 5.1 ORGANIZATION; AUTHORITY. Buyer is a corporation which is duly organized, validly existing and in good standing under the laws of the state of its organization. Buyer is authorized to transact business in the state in which the Property is located. Buyer has full power and authority to enter into and perform this Agreement in accordance with its terms, and the persons executing this Agreement on behalf of Buyer have been duly authorized to do so. 5.2 NO UNTRUE STATEMENT. Neither this Agreement nor any exhibit nor any written statement furnished or to be furnished by Buyer to Seller in connection with the transactions contemplated by this Agreement contains or will contain any untrue statement of material fact or omits or will omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. 5.3 FINANCIAL CONDITION. Buyer is financially capable of entering into and performing its obligations under this Agreement. 6. POSSESSION, RISK OF LOSS 6.1 POSSESSION. Possession of the Property will be transferred to Buyer at the Closing. 6.2 RISK OF LOSS. All risk of loss to the Property shall remain upon Seller until the Closing. If, before Closing, any material portion of the Property is damaged by fire or other casualty, or if any portion of the Property is taken or threatened by eminent domain, or if there is a material obstruction of access by virtue of a taking by eminent domain, Seller shall, within ten (10) days of such damage or taking, notify Buyer thereof and Buyer shall have the option to: (a) terminate this Agreement upon notice to Seller given within ten (10) business days after such notice from Seller, in which case Buyer shall receive a return of the Earnest Money Deposit; or (b) proceed with the purchase of the Property, in which event Seller shall assign to Buyer all Seller's right, title and interest in all amounts due or collected by Seller under the insurance policies or as condemnation awards, less, in either case, the reasonable cost of collection thereof. In such event, the Purchase Price shall be reduced by the amount of any insurance deductible to the extent it reduced the insurance proceeds payable. For the purposes hereof, "material portion of the Property" in the context of damage by fire or other casualty shall mean any damage reasonably estimated by Seller's insurance company to cost more than One Million and 00/100 Dollars ($1,000,000.00) to repair (exclusive of any damage to the stores occupied by Home Depot and Wal- 16 Mart) or any damage which would allow a tenant under any of the Leases to terminate its lease. 7. TITLE MATTERS Within ten (10) days after the full execution hereof, Buyer shall order the Title Insurance Commitment and Seller shall deliver to Buyer copies of any title information, including prior surveys, in its possession. Upon receipt, Seller shall order the Survey from Clayton Engineering Company of St. Louis County, Missouri. Seller also agrees to furnish to Buyer promptly after execution hereof copies of any title information, including prior surveys, in its possession. Buyer will have until the later of the expiration of the Inspection Period or five (5) business days after its receipt of both the Title Insurance Commitment and Survey within which to notify Seller in writing of any conditions, defects, encroachments or other objections to title or survey which are not acceptable to Buyer. Any matter disclosed by the Title Insurance Commitment (other than liens removable by the payment of money) or by the Survey which is not timely specified in Buyer's written notice to Seller shall be deemed a Permitted Exception. Seller shall use reasonable and diligent efforts to cure all objections to title or survey by the end of the Inspection Period. If such Title Defects and/or objections are not cured prior to Closing, Buyer may (i) refuse to purchase the Property, terminate this Agreement and receive a return of the Earnest Money Deposit; or (ii) waive such objection(s) and close the purchase of the Property subject to them. 8. CONDITIONS PRECEDENT 8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The obligations of Buyer under this Agreement are subject to satisfaction or written waiver by Buyer of each of the following conditions or requirements on or before the Closing Date: (a) Seller's warranties and representations under this Agreement shall be true and correct in all material respects, and Seller shall not be in default hereunder. (b) The obligations of Seller contained in this Agreement shall have been performed in all material respects and Seller shall not be in default under any covenant, restriction, right-of-way or easement affecting the Property. (c) The Title Insurance Commitment shall have been issued and "marked down" through Closing, subject only to Permitted Exceptions. (d) The physical and environmental condition of the Property shall not have materially changed from the Effective Date, ordinary wear and tear excepted. (e) There shall have been no material adverse change after the Effective Date in the financial condition of any of the Major Tenants, nor shall any Major Tenant have vacated its store. 17 (f) Buyer shall have received, in form reasonably satisfactory to Buyer, Tenant Estoppel Letters obtained by Seller, which must include those from all Major Tenants and eighty percent (80%) by number of the other tenants who have signed leases for any portion of the Property, without any material exceptions, covenants or changes to the form approved by Buyer and distributed to tenants by Seller, the substance of which Tenant Estoppel Letters must be acceptable to Buyer in all material respects; (g) Estoppel Letters in form and substance reasonably acceptable to Buyer with respect to all reciprocal easement agreements and/or operating and easement agreements effecting the Property (the "REA Estoppels"); (h) The lease to HDC Retail, L.L.C. ("HDC") shall be executed and rent shall commence to be payable thereunder on October 15, 2004; (i) St. Louis Playscapes shall be occupying its premises pursuant to its lease and paying full rent, CAM, taxes and insurance; (j) There shall be no vacancies in excess of one thousand four hundred (1,400) square feet in the Improvements; (k) All vacant space within the Improvements shall be in rentable vanilla box condition ready for a new tenant to occupy immediately in accordance with all applicable laws, codes, ordinances and regulations, including all requirements for the issuance of a certificate of occupancy for such space; (l) There shall be no material default under any of the Leases; and (m) All documents and instruments required to be delivered by Seller pursuant to Section 9 of this Agreement. In the event that all of the foregoing provisions of this Section 8.1 are not satisfied in all material respects unless otherwise waived by Buyer, and Seller does not request an adjournment of the Closing to comply such adjournment not to exceed ten (10) days, and Buyer elects in writing to terminate this Agreement, then the Earnest Money Deposit shall be promptly delivered to Buyer by Escrow Agent and, upon receipt thereof by Buyer, neither party shall have any further claim against the other by reason of this Agreement, except as otherwise specifically provided herein. 8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The obligations of Seller under this Agreement are subject to satisfaction or written waiver by Seller of each of the following conditions or requirements on or before the Closing Date: 18 (a) Buyer's warranties and representations under this Agreement shall be true and correct, and Buyer shall not be in default hereunder. (b) The obligations of Buyer contained in this Agreement shall have been performed in all material respects. (c) Buyer shall have delivered to Seller all amounts, documents and instruments required to be delivered by Buyer pursuant to Section 9 of this Agreement. In the event that all conditions precedent to Buyer's obligation to purchase shall have been satisfied but the foregoing provisions of this Section 8.2 have not, and Seller elects in writing to terminate this Agreement, then the Earnest Money Deposit shall be promptly delivered to Seller by Escrow Agent and, upon the making of such delivery, neither party shall have any further claim against the other by reasons of this Agreement, except as otherwise specifically provided herein. 8.3 REASONABLE EFFORTS. Each of the parties hereto agrees to use reasonable efforts to take or cause to be taken all actions necessary, proper or advisable to consummate the transactions contemplated by this Agreement. 9. CLOSING 9.1 The consummation of the sale and purchase of the Property pursuant to this Agreement shall occur on the Closing Date. The Closing shall take place in escrow through the Escrow Agent. All deliveries provided for below shall be delivered in trust to the Escrow Agent on or before the Closing Date if not otherwise delivered directly to the party entitled to receipt of such items. Upon Closing, the Escrow Agent shall record and disburse only in accordance with the parties' escrow instructions. The items to be delivered are as follows: (a) Seller shall deliver to Buyer or Escrow Agent (as applicable) the following: (1) A special warranty deed, executed and acknowledged by Seller as of the Closing Date, in the form of Exhibit 9.1(a)(1) attached hereto, conveying title in fee simple to the Property, free and clear of any and all liens, encumbrances, conditions, easements, assessments and restrictions except the Permitted Exceptions; (2) An assignment (the "Assignment of Leases"), executed by Seller as of the Closing Date, in the form of Exhibit 9.1(a)(2) attached hereto; (3) A bill of sale, assignment and assumption of contracts (the "Bill of Sale"), executed by Seller as of the Closing Date, in the form of Exhibit 9.1(a)(3) attached hereto; provided, Seller shall cause any management and leasing agreements to be terminated at or prior to Closing and same shall not be assumed by Buyer, and 19 Seller shall cause any other contracts to be terminated at or prior to Closing to the extent Buyer elects not to assume same. (4) A certificate and affidavit of non-foreign status ("FIRPTA Affidavit"), executed by Seller as of the Closing Date; (5) Appropriate resolutions and other evidence reasonably required by Buyer and the Title Company to evidence Seller's authority to execute and deliver the deed and other documents contemplated hereby; (6) A notice letter to tenants (the "Tenant Notice Letter") executed by Seller as of the Closing Date, in the form attached hereto as Exhibit 9.1(a)(6); (7) The original required number of Tenant Estoppel Letters and REA Estoppel Letters; (8) An executed closing statement, in a form reasonably acceptable to Buyer; (9) Such affidavits as the Title Company shall reasonably require in order to issue the Title Policy; (10) 1099-S; (11) An updated Rent Roll certified by Seller as true, complete and correct showing no changes from the Rent Roll attached to this Agreement other than those approved in writing by Buyer; (12) An executed Audit Letter in the form attached hereto as Exhibit 9.1(a)(12); (13) An undertaking of Seller in form approved by Buyer pursuant to which: (a) Seller shall pay to Buyer an amount equal to the rent and CAM which would have been payable had the lease with HDC provided for such payments beginning on the Closing Date through October 15, 2004 as a credit against the Purchase Price; and (b) Seller undertakes to supervise the build out under the lease to HDC and to pay the amounts due from the landlord in connection with such build out as set forth in such lease; (14) All other documents reasonably necessary to effectuate the transaction. (b) Simultaneous with the Closing, and if not previously provided to Buyer, Seller shall make available to Buyer at the Property, or such other place mutually agreeable to the parties, the following: 20 (1) To the extent such exists in Seller's possession or control, copies of all pertinent records and files relating to the operation and maintenance of the Property; and (2) To the extent such exists in Seller's possession or control, any architectural drawings and renderings, building plans and specifications, and any and all municipal, county, state or local permits or licenses held by Seller in connection with the Property. (c) At the Closing, Buyer shall deliver to Seller or the Escrow Agent, as applicable, the following: (1) Upon confirmation that the items indicated in (a) above have been deposited in escrow with the Escrow Agent or delivered to Buyer, as applicable, and the conditions to Buyer's obligations under this Contract having been satisfied, the Purchase Price by wire transfer via the Federal Reserve System (plus or minus the net adjustments computed hereunder), payable to the order of Seller and/or such other order as Seller shall have directed by written notice to Buyer; (2) The Assignment of Leases, executed by Buyer as of the Closing Date; (3) The Assignment of Service Contracts, executed by Buyer as of the Closing Date; (4) The Bill of Sale, executed by Buyer as of the Closing Date; (5) Closing statement in a form reasonably acceptable to Seller. 10. PRE-CLOSING BREACH: REMEDIES 10.1 BREACH BY SELLER. In the event of a breach of Seller's covenants or warranties herein and the failure of Seller to cure such breach within the time provided for Closing or within such reasonable time as may be obtained by adjourning the Closing and having Seller diligently pursue the remedy of such breach, Buyer may, at Buyer's election (i) terminate this Agreement and receive a return of the Earnest Money Deposit, and the parties shall have no further rights or obligations under this Agreement (except as survive termination); (ii) enforce this Agreement by suit for specific performance; or (iii) waive such breach and close the purchase contemplated hereby, notwithstanding such breach. 10.2 BREACH BY BUYER. In the event of a breach of Buyer's covenants or warranties herein and the failure of Buyer to cure such breach within the time provided for Closing, Seller's sole legal and equitable remedy shall be to terminate this 21 Agreement and retain Buyer's Earnest Money Deposit as AGREED LIQUIDATED DAMAGES for such breach, and upon payment in full to Seller of such Earnest Money Deposit, the parties shall have no further rights, claims, liabilities or obligations under this Agreement (except as survive termination). 11. POST CLOSING INDEMNITIES AND COVENANTS 11.1 SELLER'S INDEMNITY. Should this transaction close, Seller, subject to the limitations set forth herein, shall indemnify, defend and hold harmless Buyer from all claims, demands, liabilities, damages, penalties, costs and expenses, including, without limitation, reasonable attorneys' fees and disbursements, which may be imposed upon, asserted against or incurred or paid by Buyer by reason of, or on account of, any material adverse breach by Seller of Seller's warranties, representations and covenants. Buyer's rights and remedies herein against Seller shall be in addition to, and not in lieu of all other rights and remedies of Buyer at law or in equity. 11.2 BUYER'S INDEMNITY. Should this transaction close, Buyer shall indemnify, defend and hold harmless Seller from all claims, demands, liabilities, damages, penalties, costs and expenses, including, without limitation, reasonable attorneys' fees and disbursements, which may be imposed upon, asserted against or incurred or paid by Seller by reason of, or on account of, any material adverse breach by Buyer of Buyer's warranties, representations and covenants. Seller's rights and remedies herein against Buyer shall be in addition to, and not in lieu of all other rights and remedies of Seller at law or in equity. 12. MISCELLANEOUS 12.1 COMMISSIONS. Seller and Buyer represent to each other that neither Seller (in the case of Sellers representation) nor Buyer (in the case of Buyer's representation) has dealt with nor does it have any knowledge of any broker or other person who has or may have any claim against Seller, Buyer or the Property for a brokerage commission, finder's fee or like payment arising out of or in connection with this transaction, other than Broker and any participating broker(s) identified on Exhibit 1.3 attached to this Agreement and The Sansone Group of St. Louis, Missouri ("Buyer's Broker"). Buyer agrees to indemnify and hold Seller harmless from any other such claim arising by, through or under Buyer, and Seller agrees to indemnify and hold Buyer harmless from any other such claim arising by, through or under Seller. 12.2 NOTICES. All notices and demands of any kind which either party may be required or may desire to serve upon the other party in connection with this Agreement shall be in writing, signed by the party or its counsel identified below, and shall be served (as an alternative to personal service) by registered or certified mail, overnight courier service or facsimile transmission (followed promptly by personal service or service of a hard copy by any other means permitted hereunder), at the addresses set forth below: 22 As to Seller: Manchester-Mason Limited Partnership Attention: Stephen M. Notestine c/o Quadrant Properties, L.L.C. 16253 Swingley Ridge Road, Suite 220 Chesterfield, Missouri 63017 Telephone: 636-530-6050 Facsimile: 636-530-6075 With a copy to Christopher M. Blanton Seller's Counsel: The Stolar Partnership LLP 911 Washington Avenue, 7th Floor St. Louis, Missouri 63101 Telephone: 314-231-2800 Facsimile: 314-436-8400 With a copy to: NEBF Investments Attention: Jeffrey J. Kanne, Managing Director of Real estate 1125 15th Street, NW, Suite 401 Washington, DC 20005 Telephone: 202-496-1267 Facsimile: 202-467-0903 With a copy to: Potts-Dupre, Difede & Hawkins Attention: James R. Difede 1125 15th Street, NW, Suite 444 Washington, DC 20005 As to Buyer: Inland Real Estate Acquisitions, Inc. Attention: G. Joseph Cosenza 2901 Butterfield Road Oak Brook, Illinois 60523 Telephone: 630-218-4948 Facsimile: 630-218-4935 With a copy to Inland Real Estate Acquisitions, Inc. Buyers Counsel: Attention: Dennis Holland 2901 Butterfield Road Oak Brook, Illinois 60523 Telephone: 630-218-2861 Facsimile: 630-218-4900 23 With a copy to Chicago Title Insurance Company Escrow Agent: Attention: Nancy Castro (if required) 171 North Clark Street Chicago, Illinois 60601 Telephone: 312-223-3909 Facsimile: 312-223-2108 Any such notice or demand so served, shall constitute proper notice hereunder upon delivery to the United States Postal Service or to such overnight courier, or by confirmation of the facsimile transmission. 12.3 HEADINGS. The titles and headings of the various sections hereof are intended solely for means of reference and are not intended for any purpose whatsoever to modify, explain or place any construction on any of the provisions of this Agreement. 12.4 VALIDITY. If any of the provisions of this Agreement or the application thereof to any persons or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, and every other provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12.5 ATTORNEYS' FEES. In the event of any dispute, litigation or other proceeding between the parties hereto to enforce any of the provisions of this Agreement or any right of either party hereunder, the unsuccessful party to such dispute, litigation or other proceeding shall pay to the successful party all costs and expenses, including reasonable attorneys' fees, incurred at trial, on appeal, and in any arbitration, administrative or other proceedings, all of which may be included in and as a part of the judgment rendered in such litigation. Any indemnity provisions herein shall include indemnification for such costs and fees. This section shall survive the Closing or a prior termination hereof. 12.6 TIME. Time is of the essence of this Agreement, provided that if any date upon which some action, notice or response is required of any party hereunder occurs on a weekend or national holiday, such action, notice or response shall not be required until the next succeeding business day. 12.7 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Missouri. 12.8 GENDER; PLURAL; SINGULAR; TERMS. A reference in this Agreement to any gender, masculine, feminine or neuter, shall be deemed a reference to the other, and the singular shall be deemed to include the plural and vice versa, unless the context otherwise requires. The terms "herein," "hereof," "hereunder," and other words of a similar nature mean and refer to this Agreement as a whole and not merely to the 24 specified section or clause in which the respective word appears unless expressly so stated. 12.9 EXHIBITS. All exhibits attached hereto are incorporated herein by reference to the same extent as though such exhibits were included in the body of this Agreement verbatim. 12.10 COUNTERPARTS, FURTHER INSTRUMENTS, ETC. This Agreement may be executed in counterparts, and when so executed shall be deemed executed as one agreement. Seller and Buyer shall execute any and all documents and perform any and all acts reasonably necessary to fully implement this Agreement. 12.11 NO RECORDING. Neither this Agreement nor any memorandum notice or short form hereof shall be recorded. 12.12 SURVIVAL. The indemnities, representations and warranties of each of Seller and Buyer, and their respective obligations intended to be performed after the Closing, if any, shall survive the Closing. 12.13 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties. No third parties, including any brokers or creditors, shall be beneficiaries hereof or entitled to any rights or benefits hereunder. 12.14 ENTIRE AGREEMENT. This Agreement, together with the exhibits attached hereto, supercedes all prior agreements between the parties as to the Property, if any, and constitutes the entire agreement between the parties with respect to the subject matter hereof. This Agreement may not be modified, amended or otherwise changed in any manner except by a writing executed by Buyer and Seller or their respective counsel identified herein. 12.15 ASSIGNMENT. Buyer may not assign its interest in this Agreement without the prior written consent of Seller, which shall not be unreasonably withheld. [SIGNATURE PAGE FOLLOWS] 25 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BUYER: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: /s/ G. Joseph Cosenza --------------------------------- G. Joseph Cosenza, President Date: 7/12/04 ------------------------------- SELLER: MANCHESTER-MASON LIMITED PARTNERSHIP, a Missouri limited partnership By: MIDLAND TC, INC., a Missouri corporation, General Partner By: /s/ Stephen M. Notestine --------------------------------- Stephen M. Notestine Vice President Date: 7/13/04 ------------------------------- 26 JOINDER OF ESCROW AGENT 1. DUTIES. Escrow Agent joins herein for the purpose of agreeing to comply with the terms hereof insofar as they apply to Escrow Agent. Escrow Agent shall receive and hold the Earnest Money Deposit in trust, to be disposed of in accordance with the provisions of this joinder and the foregoing Agreement. The Earnest Money Deposit shall be invested by Escrow Agent in an interest bearing account at a national bank having assets in excess of ten billion dollars. 2. INDEMNITY. Escrow Agent shall not be liable to any party except for claims resulting from the negligence or willful misconduct of Escrow Agent. If the escrow is the subject of any controversy or litigation, the parties to the Agreement shall jointly and severally indemnify and hold Escrow Agent harmless from and against any and all loss, cost, damage, liability or expense, including costs of reasonable attorneys fees to which Escrow Agent may be put or which Escrow Agent may incur by reason of or in connection with such controversy or litigation, except to the extent it is determined that such controversy or litigation resulted from Escrow Agent's negligence or willful misconduct. If the indemnity amounts payable hereunder result from the fault of Buyer or Seller (or their respective agents), the party at fault shall pay and hold the other party harmless against such amounts. 3. CONFLICTING DEMANDS. If conflicting demands are made upon Escrow Agent or if Escrow Agent is uncertain with respect to the escrow, the parties to the Agreement expressly agree that Escrow Agent shall have the absolute right to do either or both of the following: (i) withhold and stop all proceedings in performance of this escrow and await settlement of the controversy by final appropriate legal proceedings or otherwise as it may require; or (ii) file suit for declaratory relief and/or interpleader and obtain an order from the court requiring the parties to interplead and litigate in such court their several claims and rights between themselves. Upon the filing of any such declaratory relief or interpleader suit and tender of the Earnest Money Deposit to the court, Escrow Agent shall thereupon be fully released and discharged from any and all obligations to further perform the duties or obligations imposed upon it. Buyer and Seller agree to respond promptly in writing to any request by Escrow Agent for clarification, consent or instructions. Any actions proposed to be taken by Escrow Agent for which approval of Buyer and/or Seller is requested shall be considered approved by the particular party if Escrow Agent does not receive written notice of disapproval within ten (10) business days after a written request for approval is received by the party whose approval is being requested. Escrow Agent shall not be required to take any action for which approval of Buyer and/or Seller has been sought unless such approval has been received. No notice by Buyer or Seller to Escrow Agent of disapproval of a proposed action shall affect the right of Escrow Agent to take any action as to which such approval is not required. 27 4. TAX IDENTIFICATION. Seller and Buyer shall provide to Escrow Agent appropriate Federal tax identification numbers. CHICAGO TITLE INSURANCE COMPANY By: ------------------------------ Its Authorized Agent Date: ---------------------------- "ESCROW AGENT" 28 EXHIBIT 1.3 BROKER AND PARTICIPATING BROKERS BROKER: Name: May Center Advisors Address: 2115 York Road, Suite 410, Oak Brook, Illinois 60523 Attn: John J. May Phone Number: 630-990-7979 Fax Number: 630-990-7903 PARTICIPATING BROKER: Name: Quadrant Properties, L.L.C. Address: 16253 Swingley Ridge Road, Suite 220 Chesterfield, Missouri 63017 Phone Number: 636-530-6050 Fax Number: 636-530-6075 29 EXHIBIT 1.7 LIST OF CONTRACTS METRO SWEEPING DATED-FEBRUARY 3, 2004 SYMMETRY LANDSCAPING DATED JANUARY 22, 2004 MIDWEST WASTE DATED NOVEMBER 20, 2003 ENERGY CONSULTING SERVICES PERFORMED BY CARLETON B FOX DATED 1/10/00-CONTRACT IS CANCELLED UPON THE SALE DATE OF THE PROPERTY. CENTRAL DISTRICT ALARM-CONTRACT WAS ORIGINALLY SIGNED IN 1995 WHEN THE CENTER WAS BUILT. CDA AUTOMATICALLY ROLLS OVER EACH YEAR. WE HAVE NO NEW CONTRACT. PRIORITY PROPERTIES-MANAGEMENT AGREEMENT DATED 8/1/99-AUTOMATICALLY RENEWS EACH YEAR-30 DAY NOTICE OF CANCELLATION. 30 EXHIBIT 1.18 MATERIALS LIST LEASE DOCUMENTS 1. Lease between Manchester Meadows Limited Partnership and Habitat Wallpaper & Blinds, Inc. dated April 18, 1994 a. Rider dated April 18, 1994 b. First Amendment to Lease dated November 10, 1994 c. Letter regarding commencement dated June 9, 1995 d. Letter regarding Assignment of Lease dated November 3, 1997 e. Letter regarding sale of business dated December 18, 1998 f. Wavier and Consent Agreement dated February 1999 g. Letter excising option dated August 30, 1999 h. Letter acknowledging option dated September 17, 1999 i. Letter regarding mailing address dated February 26, 2003 2. Lease between Manchester Meadows Limited Partnership and Art & Frame, Inc. dated October 18, 1994 a. Guaranty b. Letter regarding landlord's work dated October 31, 1994 c. Commencement Letter dated November 18, 1994 d. Letter dated December 6, 1994 e. Lease Modification Agreement No. 1 dated October 27, 2000 f. Commencement Letter dated October 28, 2003 g. Lease Modification Agreement No. 2 dated September 15, 2003 3. Ground Lease between Manchester Meadows Limited Partnership and Boston Chicken, Inc. dated January 20, 1995 a. First Addendum to Ground Lease dated January 20, 1995 b. Amendment of Lease dated May 26, 2000 4. Lease between Manchester Meadows Limited Partnership and Consumer Programs Incorporated dated January 6, 1995 a. Commencement Letter dated March 17, 1995 b. Letter excursing option dated December 10, 1999 c. Commencement Letter dated December 22, 1999 5. Letter of Intent for Home Decorators Collection dated May 28, 2004 6. Lease between Manchester Meadows Limited Partnership and Builders Square, Inc. dated August 17, 1993 a. Lease Guaranty Agreement dated September 10, 1993 b. First Amendment of Lease dated November 30, 1993 c. Assignment of Lease dated February 14, 1997 d. Lender's Consent and Release dated April 29, 1998 e. Exhibit H - Form of Landlord-HIC Release dated June 17, 1998 f. Exhibit I - Form of Landlord-Kmart Release dated June 17, 1998 g. Assignment of Lease dated June 18, 1998 31 h. Holdover License Agreement dated June 18, 1998 i. HIC Release - Termination of Subleases and Release dated June 18, 1998 j. Exhibit M - Assumption Agreement dated June 18, 1998 k. Second Amendment of Lease dated June 1, 2000 7. Lease between Manchester-Mason Limited Partnership and Fastrack Fitness, LLC dated February 10, 2004 a. Guaranty b. Commencement Letter dated March 9, 2004 8. Lease between Manchester-Mason Limited Partnership between Memories Unlimited, Inc. dated May 1, 1998 a. Letter accepting the addition of one early termination period dated March 2, 1999 b. Letter exercising renewal option dated March 16, 2001 c. Lease Modification Agreement No. 1 dated February 20, 2004 9. Lease between Manchester-Mason Limited Partnership and Dung Ngo dated January 24, 2002 a. Guaranty b. Commencement Letter dated April 24, 2002 c. Assignment of Lease between Dung Ngo and Ramkumar and Kathayani Vakamudi dated May 17, 2004 10. Lease between Manchester Meadows Limited Partnership and OfficeMax, Inc. dated June 23, 1993 a. Lease Modification Agreement dated November 24, 1993 b. Commencement Letter dated November 28, 1994 c. Letter regarding OfficeMax contact information dated September 11, 2003 d. Letter exercising their option dated May 7, 2004 11. Lease between Manchester Meadows Limited Partnership and Payless Shoesource, Inc. dated June 26, 1995 a. Letter serving to confirm basic agreement between landlord and tenant dated March 30, 1995 b. Addendum dated October 31, 1995 12. Lease between Manchester Meadows Limited Partnership and PETsMART, Inc. dated June 4, 1993 a. Lease Modification Agreement dated February 24, 1994 b. Letter regarding square footage dated December 21, 1994 c. Commencement Date Certificate dated January 4, 1995 d. Letter regarding tenant's insurance dated March 18, 2002 e. Letter dated July 23, 2003 f. Letter dated August 26, 2003 g. Memorandum of Lease dated August 29, 2003 13. Lease between Manchester Meadows Limited Partnership and John Phillips dated October 28, 1994 a. Commencement Letter dated January 18, 1995 b. Lease Modification Agreement No. 1 dated September 10, 1999 32 14. Lease between Manchester-Mason Limited Partnership and RBL Enterprises, Inc. dated May 1, 2001 a. Letter dated July 22, 2003 b. Lease Modification Agreement No. 1 dated January 28, 2004 15. Lease between Manchester Meadows Limited Partnership and Ronan Limited dated December 23, 1994 a. Commencement Letter dated January 16, 1995 b. Lease Modification Agreement No. 1 dated September 18, 2003 16. Lease between Manchester-Mason Limited Partnership and Spectacular Clips, Inc. dated April 8, 1999 a. Commencement Letter dated July 2, 1999 b. Fax renewing option dated January 28, 2004 17. Lease between Manchester-Mason Limited Partnership and St. Louis Playscapes, Inc. dated October 6, 2003 a. Fax regarding notice change dated November 14, 2003 18. Lease between Manchester-Mason Limited Partnership and St. Louis Playscapes, Inc. dated April 30, 2004 19. Lease between Manchester Meadows Limited Partnership and Town & Country L.T., Inc. dated October 19, 1993 a. Lease Modification Agreement dated November 23, 1993 b. Commencement Letter dated January 13, 1995 20. Lease between Manchester-Mason Limited Partnership and Myk Truong and Tam Vu dated March 9, 1995 a. Guaranty b. Commencement Letter dated May 23, 1995 c. Letter regarding name change dated October 18, 1995 d. Sublease between Myk Truong and Tam Vu and Dai Vu and Mai Ngo dated December 1, 1996 e. Sublease between Myk Truong and Anh Thi Nguyen dated May 1, 1999 f. Lease Modification Agreement No. 1 dated April 9, 2001 21. Lease between Manchester Meadows Limited Partnership and The Sports Authority dated August 23, 1993 a. First Amendment dated November 30, 1993 b. Memorandum of Lease dated April 7, 1994 c. Addendum dated February 25, 1995 d. Letter regarding tenant name change dated November 18, 2003 22. Lease between Manchester-Mason Limited Partnership and United States Postal Service dated March 5, 1997 a. Notice to Proceed dated March 5, 1997 b. Exercise of Renewal Option dated November 11, 2000 23. Lease between Manchester Meadows Limited Partnership and Wal-Mart Stores, Inc. dated July 6, 1993 a. Lease Modification Agreement dated November 30, 1993 b. Lease Modification Agreement dated June 6, 1994 c. Lease Modification Agreement dated October 10, 1994 33 d. Fourth Amendment to Lease Agreement dated May 26, 1995 PROPERTY CONDITION/ENVIRONMENTAL REPORTS 24. Re: Phase 1 Environmental Assessment dated February 4, 1993 a. Environmental letter dated May 5, 1993 b. Environmental letter dated June 16, 1993 PROPERTY INFORMATION DOCUMENTS 25. Policy of Title Insurance - Policy No. 5349934 a. First American Title Insurance Company - Exhibit A 26. Survey FINANCIAL INFORMATION DOCUMENTS 27. Real Estate Taxes - 2003, 2002, & 2001 28. Recoveries 2003 a. Detail behind Wal-Mart (1st & 2nd half) b. Detail behind PETsMART 29. CAM Billings - 2003 30. Aging Report dated March 24, 2004 31. Rent Roll 2004 32. Retail Sales Detail Reports a. 2000-2003 b. 2003 - 2004 c. Wal-Mart Sales Report 33. Appraisal Report dated December 31, 2003 34. Statement of Operations - 2004 YTD, 2003, & 2002 35. Budget - 2004 36. Loan Documents a. Loan Application dated July 12, 1995 a. Order to Pay for Loan Funds dated November 21, 1995 b. Promissory Note dated November 20, 1995 c. Guarantee dated November 20, 1995 d. Additional Guarantee dated November 20, 1995 e. NEBF Guarantee of Recourse Obligations dated November 20, 1995 f. Guarantee of Recourse Obligations dated November 20, 1995 g. Deed of Trust and Security Agreement dated November 20, 1995 h. Absolute Assignment of Leases and Rents dated November 20, 1995 i. Uniform Commercial Code - Financing Statement dated j. Environmental Indemnity Agreement dated November 20, 1995 k. Certification of Borrower dated November 13, 1995 l. Letter of Opinion dated November 21, 1995 m. Letter of Opinion dated November 27, 1995 34 37. Mortgage Statement from Northwestern Mutual MISCELLANEOUS Letter of Authorization Dated June 10, 2003 Re: Real Estate Taxes - Deloitte & Touche LLP 35 EXHIBIT 1.19 Schedule of Major Tenants Wal-Mart Home Depot PETsMART Office Max Linens 'n Things Sports Authority HDC Retail, L.L.C. 36 EXHIBIT 1.24 LEGAL DESCRIPTION OF REAL PROPERTY The land referred to in this POLICY is situated in the State of Missouri, County of St. Louis and is described as follows: PARCEL NO. 1 A tract of land being part of Lot 1 of the "Sutton's Estate", as recorded in Plat Book 2, Page 26 of the St. Louis County Records and in U.S. Survey 128, and Section 32, Township 45 North, Range 5 East, St. Louis County, Missouri, and being more particularly described as: Beginning at a point on the North line of Manchester Road - Missouri State Highway 100, said point being Southwest corner of Lot A of "Nolte Subdivision", a subdivision according to the plat thereof recorded in Plat Book 146, page 81 of the St. Louis County Records; thence Westwardly along said North right-of-way line of Manchester Road - Missouri State Highway 100 the following courses and distances: North 81 degrees 37 minutes 03 seconds West, 329.61 feet, along a curve to the left whose radius point bears South 08 degrees 22 minutes 57 seconds West, 2,759.00 feet from the last mentioned point, a distance of 91.49 feet, North 06 degrees 28 minutes 57 seconds East, 5.00 feet, along a curve to the left whose radius point bears South 06 degrees 28 minutes 57 seconds West, 2,506.00 feet from the last mentioned point, a distance of 482.58 feet, North 04 degrees 33 minutes 03 seconds West, 20.00 feet, and along a curve to the left whose radius point bears South 04 degrees 33 minutes 03 seconds East, 2,483.00 feet from the last mentioned point, a distance of 544.62 feet to the Southeast corner of "Regency Park", a subdivision according to the plat thereof recorded in Plat Book 155, Pages 66 and 67 of the St. Louis County Records; thence Northwardly along the East line of said "Regency Park" the following courses and distances: North 23 degrees 22 minutes 36 seconds East, 117.19 feet, North 18 degrees 29 minutes 00 seconds West, 150.00 feet, North 29 degrees 20 minutes 00 seconds West, 190.00 feet, North 08 degrees 10 minutes 00 seconds West, 112.00 feet, North 23 degrees 10 minutes 00 seconds West, 97.00 feet, North 78 degrees 08 minutes 00 seconds West, 43.00 feet, North 11 degrees 40 minutes 00 seconds West, 177.00 feet, North 03 degrees 10 minutes 00 seconds East, 152.00 feet, North 41 degrees 28 minutes 00 seconds West, 72.00 feet, North 57 degrees 19 minutes 00 seconds East, 88.87 feet, North 20 degrees 50 minutes 00 seconds West, 320.00 feet, North 02 degrees 25 minutes 00 seconds East, 172.00 feet, North 19 degrees 34 minutes 00 seconds West, 148.85 feet, North 23 degrees 45 minutes 00 seconds East, 96.00 feet, North 86 degrees 40 minutes 00 seconds West, 98.00 feet, North 00 degrees 13 minutes 00 seconds East, 194.90 feet, and North 27 degrees 55 minutes 00 seconds West, 200.03 feet to the Northeast corner of said "Regency Park", being also a point on the South line of said "Regency Park", being also a point on the South line of property conveyed to St. Louis County, Missouri, by deed recorded in Book 37 6447, page 956 of the St. Louis County Records; thence North 68 degrees 34 minutes 00 seconds East, 286.26 feet to the Northwest corner of property conveyed to Irma Eschenbrenner by deed recorded in Book 6716, Page 1830 of the St. Louis County Records; thence South 29 degrees 03 minutes 31 seconds East, 488.68 feet along the West line of said Eschenbrenner property to the Southwest corner thereof; thence North 83 degrees 44 minutes 00 seconds East, 1,301.55 feet along the South line of said Eschenbrenner property to the Northwest corner of property conveyed to Mark P. Thompson by deed recorded in Book 7406, Page 2466 of the St. Louis County Records; thence South 00 degrees 54 minutes 32 seconds West, 302.71 feet along the West line of said Thompson property to the Southwest corner thereof; thence North 83 degrees 44 minutes 23 seconds East, 249.85 feet along the South line of said Thompson property to the Northwest corner of property conveyed to Mark P. and Barbara Thompson, unrecorded; thence South 03 degrees 33 minutes 55 seconds West, 750.90 feet to the Northwest corner of Lot A of "Mason Green", a subdivision according to the plat thereof recorded in Plat Book 150 Page 69 of the St. Louis County Records; thence South 03 degrees 52 minutes 57 seconds West, 915.29 feet along the West line of said Lot A of "Mason Green", West line of "Mason Green Amended", a subdivision according to the plat thereof recorded in Plat Book 159 Page 61 of the St. Louis County Records and the West line of aforesaid Lot A of "Nolte Subdivision" to the point of beginning and containing 71.846 Acres, more or less. 38 EXHIBIT 1.25 RENT ROLL 39 EXHIBIT 1.29 BUYER'S SURVEY REQUIREMENTS SURVEYOR'S CERTIFICATION I/We hereby certify to ________________, ____________________Chicago Title Insurance Company, and any of each of their successors or assigns that (a) this survey was prepared by me or under my supervision, (b) the legal description of the property as set forth herein, and the location of all improvements, encroachments, fences, easements, roadways, rights of way and setback lines which are either visible or of record in -______________ County, ____________, according to Commitment for Title Insurance Number ______________, last revised _____________ , 2004, are accurately reflected hereon, (c) this survey accurately depicts the state of facts as they appear on the ground, (d) except as shown hereon, there are no improvements, encroachments, fences or roadways on any portion of the property reflected hereon, (e) the property shown hereon has access to a publicly dedicated roadway, (f) the property described hereon {does} {does not} lie in a 100 year flood plain identified by the Secretary of Housing and Urban Development or any other governmental authority under the National Flood Insurance Act of 1968 (24 CFR Section.1909.1), as amended (such determination having been made from a personal review of flood map number ____________, which is the latest available flood map for the property), (g) the title lines and lines of actual possession are the same, (h) all utility services required for the operation of the property either enter the property through adjoining public streets, or this survey shows the point of entry and location of any utilities which pass through or are located on adjoining private land, (i) this survey shows the location and direction of all storm drainage systems for the collection and disposal of all surface drainage, (j) the property surveyed contains _______ acres and _______ parking spaces, (k) any discharge into streams, rivers, or other conveyance systems is shown on the survey. This survey has been made in accordance with "MINIMUM STANDARD DETAIL REQUIREMENTS FOR ALTA/ACSM LAND TITLE SURVEYS" jointly established and adopted by American Land Title Association ("ALTA") and American Congress on Surveying and Mapping ("ACSM") in 1999 and meets the accuracy requirements of an Urban Survey, as defined therein and includes items 1, 3, 4, 6, 7(a, b, and c), 8-11 and 13-16 of Table A thereof. [Surveyor to complete certificate with the appropriate ONE of the following three phrases] - - the Positional Uncertainties resulting from the survey measurements made on the survey do not exceed the allowable Positional Tolerance. - - the survey measurements were made in accordance with the "Minimum Angle, Distance, and Closure Requirements for Survey 40 Measurements Which Control Land Boundaries for ALTA/ACSM Land Title Surveys". - - proper field procedures, instrumentation, and adequate survey personnel were employed in order to achieve results comparable to those outlined in the "Minimum Angle, Distance, and Closure Requirements for Survey Measurements Which Control Land Boundaries for ALTA/ACSM Land Title Surveys". Dated: ______________, 2004 (NAME OF SURVEYOR AND QUALIFICATION) ------------------------------------- Registration No. -------------------- ADDITIONAL SURVEY REQUIREMENTS: The Survey also shall include and depict the following matters: (a) zoning classification of the Real Property and all uses permitted under such zoning classification; (b) all zoning and recorded setback requirements and building height requirements; (c) zoning parking requirements (including handicapped requirements); (d) height and square footage of all buildings located upon the Real Property, as well as the square footage of each leased premise; (e) number and size of parking spaces (including handicapped), all of which must be shown on the plat as striped; (f) metes and bounds legal description of the Real Property and the total acreage thereof; (g) list of all title exceptions referenced in the Preliminary Commitment; (h) all matters referenced in the Preliminary Commitment must be accurately depicted on the plat, or, if not plottable, the surveyor should indicate the same; (i) a statement from the surveyor that the Real Property has access to publicly dedicated roadways, and identifying such roadways by name; (j) a list of any encroachments from the Real Property onto adjacent property, from adjacent property onto the Real Property, and of any building or other structures on the Real Property onto or over any easements that encumber the Real Property or any building/setback lines; (k) a list of all tax parcel identification numbers relating to the Property (together with a statement that such parcel numbers constitute all of the parcel numbers related to the Property and such parcel numbers do not relate to any other property); (l) a statement that the property depicted on the Survey is the same property 41 described in the Preliminary Commitment; (m) the distances from all buildings located upon the Property to all Property lines; (n) the location of all utilities servicing the Property, including, without limitation, sewer, water, gas, electric and telephone, to the point of connection with the public system to the extent visible on the ground or based upon information known or provided to the surveyor; and (o) any other matters required by any lender providing financing for the property. EXHIBIT 1.30 FORM OF ESTOPPEL LETTER ----------------------- (date) _________________ _________________ _________________ _________________ RE: _____________________________ (Name of Shopping Center) Ladies and Gentlemen: The undersigned (Tenant) has been advised you may purchase the above Shopping Center, and we hereby confirm to you that: 1. The undersigned is the Tenant of ___________________, Landlord, in the above Shopping Center, and is currently in possession and paying rent on premises known as Store No._____________________ [or Address: _________________________], and containing approximately ______________ square feet, under the terms of the lease dated ______________, which has (not) been amended by amendment dated _____________________ (the "Lease"). There are no other written or oral agreements between Tenant and Landlord. Tenant neither expects nor has been promised any inducement, concession or consideration for entering into the Lease, except as stated therein, and there are no side agreements or understandings between Landlord and Tenant. 2. The term of the Lease commenced on _________________________, expiring on __________, with options to extend of _______________ (______) years each. 3. As of ___________________, monthly minimum rental is $__________ a month. 42 4. Tenant is required to pay its pro rata share of Common Area Expenses and its pro rata share of the Shopping Center's real property taxes and insurance cost. Current additional monthly payments for expense reimbursement total $______________ per month for common area maintenance, property insurance and real estate taxes. 5. Tenant has given [no security deposit] [a security deposit of $___________________]. 6. No payments by Tenant under the Lease have been made for more than one (1) month in advance, and minimum rents and other charges under the Lease are current. 7. All matters of an inducement nature and all obligations of the Landlord under the Lease concerning the construction of the Tenant's premises and development of the Shopping Center, including without limitation, parking requirements, have been performed by Landlord. 8. The Lease contains no first right of refusal, option to expand, option to terminate, or exclusive business rights, except as follows: 9. Tenant knows of no default by either Landlord or Tenant under the Lease, and knows of no situations which, with notice or the passage of time, or both, would constitute a default. Tenant has no rights to off-set or defense against Landlord as of the date hereof. 10. The undersigned has not entered into any sublease, assignment or any other agreement transferring any of its interest in the Lease or the Premises except as follows: 11. Tenant has not generated, used, stored, spilled, disposed of, or released any hazardous substances at, on or in the Premises. "Hazardous Substances" means any flammable, explosive, toxic, carcinogenic, mutagenic, or corrosive substance or waste, including volatile petroleum products and derivatives and drycleaning solvents. To the best of Tenant's knowledge, no asbestos or polychlorinated biphenyl ("PCB") is located at, on or in the Premises. The term "Hazardous Substances" does not include those materials which are technically within the definition set forth above but which are contained in pre-packaged office supplies, cleaning materials or personal grooming items or other items which are sold for consumer or commercial use and typically used in other similar buildings or space. The undersigned makes this statement for your benefit and protection with the understanding that you intend to rely upon this statement in connection with your intended purchase of the above described Premises from Landlord. The undersigned agrees that it will, upon receipt of written notice from Landlord, commence to pay all rents to you or to any Agent acting on your behalf. Very truly yours, ----------------------------------- ---------------------------(Tenant) Mailing Address: By: ------------------------ ------------------------------- Its: ------------------------ ------------------------------ EXHIBIT 9.1(a)(1) FORM OF SPECIAL WARRANTY DEED SPECIAL WARRANTY DEED This Deed is made and entered into this _____ day of ___________, 200__, by and between _____________ of the _________ of ________, State of ("Grantor"), and ___________________________ of the _______ of _______, State of (Grantee"), having a mailing address of: WITNESSETH, that Grantor, for and in consideration of the sum of Ten Dollars ($10.00) and other valuable consideration paid by Grantee, the receipt of which is hereby acknowledged, does by these presents Bargain and Sell, Convey and Confirm unto Grantee, the real estate, situated in the County of ________________________, and State of Missouri, more particularly described on Exhibit A attached hereto and made a part hereof, subject only to those matters set forth on Exhibit B attached hereto and made a part hereof. To Have and to Hold the same, together with all rights and appurtenances to the same belonging, unto Grantee, and to Grantee's heirs and assigns forever. Grantor hereby covenanting that Grantor and Grantor's heirs, executors and administrators shall and will Warrant and Defend the title to the premises unto Grantee, and to Grantee's heirs and assigns forever, against the lawful claims of all persons claiming by, through or under Grantor but none other, excepting, however, the general taxes for the calendar year 19____ and thereafter, and the special taxes becoming a lien after the date of this deed. IN WITNESS WHEREOF, Grantor has executed these presents the day and year first above written. GRANTOR: --------------------------------- State of _______________ ) ) ss __________ of __________ ) On this ______ day of ________________, 19___, before me appeared to me known to be the person described in and who executed the foregoing instrument, and acknowledged that _______________ executed the same as __________________ free act and deed. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the _________________ and State aforesaid, the day and year first above written. ---------------------------------- Notary Public My term expires: State of _______________ ) ) ss __________ of __________ ) On this ______ day of ________________, 19___, before me appeared to me personally known, who, being by me duly sworn, did say that he/she is the of _____________________, a corporation of the State of ________, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation, by authority of its Board of Directors; and said ____________________ acknowledged said instrument to be the free act and deed of said corporation. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the _____________ and State aforesaid, the day and year first above written. ---------------------------------- Notary Public My term expires: EXHIBIT A TO SPECIAL WARRANTY DEED LEGAL DESCRIPTION OF REAL ESTATE EXHIBIT B TO SPECIAL WARRANTY DEED LIST OF PERMITTED ENCUMBRANCES EXHIBIT 9.1(a)(2) FORM OF ASSIGNMENT OF LEASES ASSIGNMENT AND ASSUMPTION OF LEASES (Property Name and Location) THIS ASSIGNMENT AND ASSUMPTION OF LEASES is made as of the ________ day of ____________, 2004, by and between _______________________________, a ___________________ ("Assignor"), and _______________________________, a _______________________________ ("Assignee"). WITNESSETH: For good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee hereby agree as follows: Assignor hereby sells, transfers, assigns and conveys to Assignee the following: All right, title and interest of Assignor in and to those certain leases described on Exhibit A attached hereto and made a part hereof (the "Tenant Leases"), relating to the leasing of space in those certain improvements located in the County of ______________, State of ______________, as more particularly described on EXHIBIT B attached hereto and made a part hereof ("Real Property") and all of the rights, interests, benefits and privileges of the lessor thereunder, and to the extent Assignee has not received a credit therefor under the Purchase Agreement (as defined below), all prepaid rents and security and other deposits held by Assignor under the Tenant Leases and not credited or returned to tenants, but subject to all terms, conditions, reservations and limitations set forth in the Tenant Leases. This Assignment and Assumption of Leases is given pursuant to that certain Agreement of Purchase and Sale (as amended, the "Purchase Agreement") dated as of __________________, 2004, by and between Assignor and Assignee, providing for, among other things, the assignment of the Tenant Leases. Assignee hereby accepts the assignment of the Tenant Leases and agrees to assume and discharge, in accordance with the terms thereof, all of the obligations thereunder from and after the date hereof. Assignee agrees to indemnify and hold harmless Assignor from any cost, liability, damage or expense (including attorneys' fees) arising out of or relating to Assignee's failure to perform any of the foregoing obligations arising from and accruing on or after the date hereof. Assignor agrees to indemnify and hold harmless Assignee from any cost, liability, damage or expense (including attorneys' fees) arising out of or relating to Assignor's failure to perform any of the obligations of Assignor under the Tenant Leases to the extent accruing prior to the date hereof. This Assignment and Assumption of Leases may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. - 49 - IN WITNESS WHEREOF, the parties hereto have executed this Assignment and Assumption of Leases as of the date first above written. ASSIGNOR: By: ---------------------- Name: Title: ASSIGNEE: INLAND WESTERN __________________, L.L.C, a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: -------------------------- Name: Title: - 50 - STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was ACKNOWLEDGED before me on___________________ 2004, by __________________, the __________________ of _______________________________, a ________________________________, Manager of ________________________, a______________________________, a _________________________, on behalf of ________________________________. -------------------------------------- Notary Public, State of --------------- - 51 - STATE OF ___________ ) ) COUNTY OF __________ ) This instrument was ACKNOWLEDGED before me on ____________________, 2004, by __________________, the _____________________of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, as the sole member of INLAND WESTERN _____________________, L.L.C., a Delaware limited liability company, on behalf of said corporation and said limited liability company. -------------------------------------- Notary Public, State of --------------- Exhibit A Tenant Leases Exhibit B Real Property - 52 - EXHIBIT A TO ASSIGNMENT OF LEASES TENANT LEASES EXHIBIT A - PAGE 1 EXHIBIT B TO ASSIGNMENT OF LEASES REAL PROPERTY DESCRIPTION EXHIBIT B - PAGE 1 EXHIBIT 9.1(a)(3) FORM OF BILL OF SALE BILL OF SALE, ASSIGNMENT AND ASSUMPTION OF CONTRACTS (Property Name and Location) THIS BILL OF SALE, ASSIGNMENT AND ASSUMPTION OF CONTRACTS is made as of the ____ day of __________, 2004, by and between _______________________, a ________________________ ("Assignor"), and __________________________, a ____________________________________ ("Assignee"). WITNESSETH: For good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Assignor and Assignee hereby agree as follows: Assignor hereby sells, transfers, assigns and conveys to Assignee the following: All right, title and interest of Assignor in and to all tangible personal property ("Personalty") set forth in the inventory on Exhibit A attached hereto and made a part hereof, and located on, and used in connection with the management, maintenance or operation of that certain land and improvements located in the County of _______________, State of _______________, as more particularly described in Exhibit B attached hereto and made a part hereof ("Real Property"), but excluding tangible personal property owned or leased by Assignor's contractors under the Contracts (as defined below). All right, title and interest of Assignor in and to those certain contracts set forth on Exhibit C attached hereto and made a part hereof, and all warranties, guaranties, indemnities and claims (including, without limitation, for workmanship, materials and performance) and which exist or may hereafter exist against any contractor, subcontractor, manufacturer or supplier or laborer or other services relating thereto (collectively, the "Contracts"). All right, title and interest of Assignor in and to those agreements set forth on Exhibit D attached hereto and made a part hereof (the "License Agreements"). This Bill of Sale, Assignment and Assumption of Contracts is given pursuant to that certain Agreement of Purchase and Sale (as amended, the "Purchase Agreement") dated as of _________________, 2004, between Assignor and Assignee, providing for, among other things, the conveyance of the Personalty and the Contracts. Assignee hereby accepts the assignment of the Personalty, the Contracts and the License Agreements and agrees to assume and discharge, in accordance with the terms thereof, all of the obligations thereunder from and after the date hereof. Assignee agrees to indemnify and hold harmless Assignor from any cost, liability, damage or expense (including attorneys' fees) arising out of or relating to Assignee's failure to perform any of the foregoing obligations arising from and accruing on or after the date hereof. Assignor agrees to indemnify and hold harmless Assignee from any cost, liability, damage or expense (including attorneys' fees) arising out of or relating to Assignor's failure to perform any of the obligations of Assignor under the Contracts or License Agreements, to the extent accruing prior to the date hereof. - 1 - This Bill of Sale, Assignment and Assumption of Contracts may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Bill of Sale, Assignment and Assumption of Contracts as of the date first above written. ASSIGNOR: By: ---------------------------------------- Name: Title: ASSIGNEE: INLAND WESTERN ______________________, L.L.C. a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: --------------------------- Name: Title: - 2 - STATE OF ___________ ) ) COUNTY OF __________ ) This instrument was ACKNOWLEDGED before me on___________________, 2004, by ____________________, the _______________________ of _____________________________, a _____________________________, _________________________________________________, a _______________________________, _______________________________, a ______________________________, on behalf of _____________________________. -------------------------------------- Notary Public, State of -------------- - 3 - STATE OF ___________ ) ) COUNTY OF __________ ) This instrument was ACKNOWLEDGED before me on ___________________________, 2004, by ________________________, the _______________ of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, as the sole member of INLAND WESTERN __________________, L.L.C., a Delaware limited liability company, on behalf of said corporation and said limited liability company. -------------------------------------- Notary Public, State of -------------- Exhibit A Personalty Exhibit B Real Property Exhibit C Contracts Exhibit D License Agreements - 4 - EXHIBIT A TO BILL OF SALE PERSONALTY EXHIBIT A - Page 1 EXHIBIT B TO BILL OF SALE REAL PROPERTY EXHIBIT B - Page 1 EXHIBIT C TO BILL OF SALE CONTRACTS EXHIBIT C - Page 1 EXHIBIT D TO BILL OF SALE LICENSE AGREEMENT EXHIBIT C - Page 2 EXHIBIT 9.1(a)(6) FORM OF TENANT NOTICE LETTER [PLACE ON SELLER LETTERHEAD) [INSERT DATE] VIA FEDERAL EXPRESS INSERT TENANT NOTICE ADDRESS PER LEASE ALSO NEED TO SEND NOTICE TO ANY GUARANTORS Re: ________________________________________________________ (THE "PROPERTY") Ladies and Gentlemen: The purpose of this letter is to advise you that effective _________, 2004, Inland ______________________, L.L.C. has purchased the Property from __________________________. In connection with such transaction, all of the landlord's right, title and interest in, to and under [INSERT REFERENCE TO TENANT'S LEASE/ GUARANTOR'S GUARANTY BY TITLE AND DATE] (collectively, the "Lease") was assigned and transferred to Inland _________________________, LLC. Effectively immediately, please forward any and all rental and other payments under the Lease to: ----------------------------------- ----------------------------------- ----------------------------------- Also, effectively immediately, any and all notices and other communications to the landlord under the Lease shall be forwarded to the address stated above, but to the attention of JoAnn Armenta. If you have any questions or comment, please feel free to call us. Sincerely, EXHIBIT C - Page 3 , a - ---------------------------------- - ------------------------------------ By: ------------------------ Name: ---------------------------- Title: -------------------------- , a - --------------------------------------- - ----------------------------------- By: ------------------------ Name: ---------------------------- Title: -------------------------- EXHIBIT C - Page 4 EXHIBIT 9.1(a)(12) FORM OF AUDIT LETTER CURRENT DATE KPMG LLP KPMG Plaza 303 East Wacker Drive Chicago, IL 60601 Ladies and Gentlemen: We are writing you, as the owners of THE PROPERTY'S NAME (the "Property") at your request, to confirm our understanding that your audit of the Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of THE PROPERTY'S NAME for the year ended DECEMBER 31, 2003, was made for the purpose of expressing an opinion as to whether the Historical Summary presents fairly, in all material respects, the gross income and direct operating expenses in conformity with the CASH OR ACCRUAL basis of accounting. In connection with your audit, we confirm, to the best of our knowledge and belief, the following representations made to you during the audit: 1. We have made available to you: a) All financial records and related data requested by you. b) All minutes of the meetings of the board of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared 2. There have been no: a) Instances of fraud involving any member of management or employees who have significant roles in internal control. b) Instances of fraud involving others that could have a material effect on the Historical Summary. c) Other instances of fraud perpetuated on or within the Property. d) Communications from regulatory agencies concerning non-compliance with, or deficiencies in, financial reporting practices that could have a material effect on the Historical Summary. EXHIBIT C - Page 5 e) Violations or possible violations of laws or regulations, the effects of which should be considered for disclosure in the Historical Summary or as a basis for recording the loss contingency. 3. There are no: a) Unasserted claims or assessments that out lawyer has advised us are probable of assertion and must be disclosed in accordance with the Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies. b) Material liabilities or gain or loss contingencies (including oral and written guarantees) that are required to be accrued or disclosed by SFAS No. 5. c) Material transactions that have not been properly recorded in the accounting records underlying the Historical Summary. d) Events that have occurred subsequent to the balance sheet date and through the date of this latter that would require adjustment to or disclosure in the Historical Summary. 4. The property has complied with all aspects of the contractual agreements that would have a material effect on the Historical Summary in the event of noncompliance. 5. All income from operating leases is included as gross income in the Historical Summary. No other forms of revenue are included in the Historical Summary. Further, we confirm that we are responsible for the fair presentation in the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003, in conformity with the CASH OR ACCRUAL basis of accounting. Very Truly Yours, - --------------------------------- NAME , Owner - --------------------------------- NAME, Property Accountant EXHIBIT C - Page 6 EXHIBIT 1.25 RENT ROLL 7/08/04 PRIORITY PROPERTIES, LLC 11:31 am User: MANAGER Commercial Rent Roll Page: 1 Property : Manchester Mason, L.P. Report Date From : 7/01/04 To : 7/31/04 St. Louis, MO
PRORATED BASE RENT BASE RENT SQ. FOOT TERM UNIT INFO BASE RENT RENT PER INCREASE INCREASE TENANT UNIT REF NO. OCCUPIED FROM TO BASE RENT ANNUAL SQ FT/YR (DATE) (AMOUNT) - ---------------------------------------------------------------------------------------------------------------------------------- ST. LOUIS PLAYSCAPES, INC. 631-13861 7500 12/06/03 12/31/08 12500.00 150000.00 20.00 1/01/04 12,500.00 Comments: OPTION 1: 1/1/09-12/31/14 1/01/05 13,125.00 1/01/06 13,437.50 RATE: MARKET 1/01/07 13,750.00 1/01/08 14,062.50 TOWN & COUNTRY L.T. Inc. #380 631-13867 34917 12/06/94 1/31/05 28370.08 340440.96 9.75 1/01/95 28,370.08 Comments: RENEWAL TERM 3 5 YEAR TERMS 1ST 5 YEARS 32,007.25 2ND 5 YEARS 34,917.00 3RD 5 YEARS 37,826.75 Hobbytown USA 631-13875 2450 2/01/00 7/31/05 3675.00 44100.00 18.00 1/01/03 3,675.00 Memories Unlimited, Inc. 631-13877 2500 5/01/04 4/30/07 3645.83 43749.96 17.50 5/01/04 3,645.83 5/01/05 3,750.00 5/01/06 3,854.17 OPERATING EXPENSE REAL ESTATE TAX CPI EXPENSE GROSS RENTS TENANT MONTH SQ FT/YR MONTH SQ FT/YR MONTH SQ FT/YR SQ FT/YR TOTAL - ---------------------------------------------------------------------------------------------------------------- ST. LOUIS PLAYSCAPES, INC. 712.50 1.14 1,181.25 1.89 0.00 0.00 23.03 14,393.75 TOWN & COUNTRY L.T. Inc. #380 2,268.40 0.78 0.00 0.00 0.00 0.00 10.53 30,638.48 Hobbytown USA 261.75 1.28 383.00 1.88 0.00 0.00 21.16 4,319.75 Memories Unlimited, Inc. 258.33 1.24 397.92 1.91 0.00 0.00 20.65 4,302.08
Page 1 99 CENT STORE 631-13881 3000 5/01/02 4/30/07 4125.00 49500.00 16.50 6/01/02 4,125.00 Comments: OPTION #1: 5/1/07-4/30/12 5/01/05 4,500.00 RATE: TO BE NEGOTIATED Office Max #210 631-13887 23920 12/01/04 11/30/09 19933.33 239199.96 10.00 7/01/01 19,933.33 Comments: OPTION #1 4-5YEAR TERMS-EXERCISED 1ST OPTION 12/01/04 20,930.00 MONTHLY RATE 20,930.00 Wal Mart, Store # 1177 631-13901 154717 4/26/95 4/25/15 90251.58 1083018.96 7.00 5/01/95 90,251.58 Comments: 6- 5 year options $1,1083,019.00 %RENT BEGINNING WITH THE (8TH)LEASE YR, THE AMOUNT = TO 1/2 % OF THE AMOUNT BY WHICH THE GROSS SALES EXCEED THE (7TH)YR BUT IN NO EVENT EXCEED $1.00 PSF OF THE LEASED BLDG SPACE HOME DECORATING CENTER 631-13913 15000 20625.00 247500.00 16.50 0.00 Comments: HOME DECORATING CENTER LEASE OUT FOR EXECUTION-COMMENCEMENT DATE OF 10/15/04 ANTICIPATED-OPTION 1: YRS 4-6 @ $17.50 PSF OPTION 2: YRS 7-9 @ $19.00 PSF
99 CENT STORE 325.00 1.30 467.50 1.87 0.00 0.00 19.67 4,917.50 Office Max #210 1,636.00 0.82 3,312.66 1.66 0.00 0.00 12.48 24,881.99 Wal Mart, Store # 1177 0.00 0.00 0.00 0.00 0.00 0.00 7.00 90,251.58 HOME DECORATING CENTER 1,550.00 1.24 2,387.50 1.91 0.00 0.00 19.65 24,562.50
7/08/04 PRIORITY PROPERTIES, LLC 11:31 am Page 2 User: MANAGER Commercial Rent Roll Page: 2 Property : Manchester Mason, L.P. Report Date From : 7/01/04 To : 7/31/04 St. Louis, MO
PRORATED BASE RENT BASE RENT SQ. FOOT TERM UNIT INFO BASE RENT RENT PER INCREASE INCREASE TENANT UNIT REF NO. OCCUPIED FROM TO BASE RENT ANNUAL SQ FT/YR (DATE) (AMOUNT) - ---------------------------------------------------------------------------------------------------------------------------------- Payless Shoe Source #2036 631-13921 3000 6/01/95 5/31/05 4600.00 55200.00 18.40 6/01/00 4,600.00 Comments: RENEWAL OPTION: 6/1/05-5/31/10 $5,290.00 Home Depot, Store # 3004 631-13929 111175 11/06/94 11/07/19 69174.00 830088.00 7.47 12/01/94 69,174.00 Comments: 10, 5 year options at same rental rate with 6 months notice Ronan Ltd. T&C Tobacco 631-13933 1400 2/01/04 1/31/07 2216.67 26600.04 19.00 2/01/04 2,216.67 2/01/05 2,333.33 2/01/06 2,450.00 *** VACANT *** 631-13935 1400 0.00 0.00 0.00 0.00 SPECTACULAR CLIPS, INC. 631-13937 1400 5/01/04 4/30/09 2450.00 29400.00 21.00 5/01/04 2,450.00 Comments: EXERCISED OPTION 5/01/05 2,508.33 5/01/06 2,566.67 5/01/07 2,625.00 5/01/08 2,683.33 OPERATING EXPENSE REAL ESTATE TAX CPI EXPENSE GROSS RENTS TENANT MONTH SQ FT/YR MONTH SQ FT/YR MONTH SQ FT/YR SQ FT/YR TOTAL - ---------------------------------------------------------------------------------------------------------------- Payless Shoe Source #2036 183.08 0.73 0.00 0.00 0.00 0.00 19.13 4,783.08 Home Depot, Store # 3004 1,875.86 0.20 0.00 0.00 0.00 0.00 7.67 71,049.86 Ronan Ltd. T&C Tobacco 151.00 1.29 217.00 1.86 0.00 0.00 22.15 2,584.67 *** VACANT *** 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 SPECTACULAR CLIPS, INC. 133.00 1.14 220.50 1.89 0.00 0.00 24.03 2,803.50
Page 3 Chic Nails 631-13939 1400 6/01/01 5/31/06 2333.33 27999.96 20.00 6/01/04 2,333.33 6/01/05 2,391.66 Art & Frame, Inc. 631-13941 1400 12/01/03 11/30/08 2333.33 27999.96 20.00 12/01/03 2,333.33 12/01/04 2,391.67 12/01/05 2,566.67 12/01/07 2,683.33 RBL, Inc. 631-13943 1400 05/01/04 4/30/07 2275.00 27300.00 19.50 5/01/04 2,275.00 Comments: N/A 5/01/06 2,333.33 Consumer Programs Inc. 631-13945 2123 4/01/00 3/31/05 3255.27 39063.24 18.40 4/01/00 3,255.27 United States Post Office 631-13947 3500 5/01/02 4/30/07 5270.39 63244.68 18.07 5/01/02 5,270.39 Comments: EXERCISED OPTION COMMENCING 5/1/02-4/30/07 PER NOTIFICATION DATED 11/20/00 OPTION 2: 5/1/07-4/30/12 RATE: $6110.65/MO
Chic Nails 151.00 1.29 217.00 1.86 0.00 0.00 23.15 2,701.33 Art & Frame, Inc. 151.00 1.29 217.00 1.86 0.00 0.00 23.15 2,701.33 RBL, Inc. 133.00 1.14 220.50 1.89 0.00 0.00 22.53 2,628.50 Consumer Programs Inc. 229.00 1.29 332.00 1.88 0.00 0.00 21.57 3,816.27 United States Post Office 0.00 0.00 0.00 0.00 0.00 0.00 18.07 5,270.39
7/8/04 PRIORITY PROPERTIES, LLC 11:31 am Commercial Rent Roll User: MANAGER Page: 3 Property : Manchester Mason, L.P. Report Date From : 7/01/04 To : 7/31/04 St. Louis, MO Page 4
PRORATED BASE RENT BASE RENT SQ. FOOT TERM UNIT INFO BASE RENT RENT PER INCREASE INCREASE TENANT UNIT REF NO. OCCUPIED FROM TO BASE RENT ANNUAL SQ FT/YR (DATE) (AMOUNT) - ---------------------------------------------------------------------------------------------------------------------------------- FASTRACK FITNESS, LLC 631-13949 3000 3/01/04 2/28/07 4500.00 54000.00 18.00 5/01/04 4,500.00 3/01/05 4,750.00 3/01/06 5,000.00 ST.LOUIS PLAYSCAPES 631-13951 3000 5/01/04 4/30/07 4500.00 54000.00 18.00 7/01/04 4,500.00 5/01/05 4,750.00 5/01/06 5,000.00 Petsmart, Inc. #259 631-13957 27438 3/31/95 3/31/10 20006.88 240082.56 8.75 04/01/95 20,006.88 Comments: OPTION #1 5 YEARS BASED ON CPI 04/01/05 21,150.08 OPTION #2 5 YEARS BASED ON CPI OPTION #3 5 YEARS BASED ON CPI OPTION #4 5 YEARS BASED ON CPI OPTION #5 5 YEARS CPI The Sports Authority 631-13961 40500 11/14/94 11/30/14 27000.00 324000.00 8.00 12/01/94 27,000.00 Comments: Option #1 10-5 year terms at $27000.00/mo Boston Chicken #0784 631-13965 0 9/01/95 8/31/05 6600.00 79200.00 0.00 9/01/00 6,600.00 Comments: #1 $7,260.00 #5 $10,629.37 #2 $7,986.00 #6 $11,692.30 OPERATING EXPENSE REAL ESTATE TAX CPI EXPENSE GROSS RENTS TENANT MONTH SQ FT/YR MONTH SQ FT/YR MONTH SQ FT/YR SQ FT/YR TOTAL - ---------------------------------------------------------------------------------------------------------------- FASTRACK FITNESS, LLC 285.00 1.14 472.50 1.89 0.00 0.00 21.03 5,257.50 ST.LOUIS PLAYSCAPES 310.00 1.24 477.50 1.91 0.00 0.00 21.15 5,287.50 Petsmart, Inc. #259 1,634.49 0.71 0.00 0.00 0.00 0.00 9.46 21,641.37 The Sports Authority 0.00 0.00 0.00 0.00 0.00 0.00 8.00 27,000.00 Boston Chicken #0784 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6,600.00
Page 5 #3 $8,784.60 #7 $12,861.53 #4 $9,663.06 3-DAY BLINDS, STORE # 212 631-13969 4550 4/01/00 3/31/05 8720.83 104649.96 23.00 4/01/00 8,720.83 Comments: OPTION #1 EXERCISED 4/01/05 9,479.17 OPTION #2 5 YEARS 9,479.17 - ---------------------------------------------------------------------------------------------------------------------------------- TOTALS: 450690 348361.52 4180338.24 9.30
3-DAY BLINDS, STORE # 212 434.00 1.14 0.00 0.00 0.00 0.00 24.14 9,154.83 - ----------------------------------------------------------------------------------------------------------------- TOTALS: 12,682.41 0.34 10,503.83 0.28 0.00 0.00 9.89 371,547.76 Total Occupied Square Feet : 449290 Total Vacant Square Feet : 1400
7/08/04 PRIORITY PROPERTIES, LLC 11:31 am User: MANAGER Commercial Rent Roll Page: 4 Property : TOTALS Report Date From : 7/01/04 To : 7/31/04
PRORATED BASE RENT BASE RENT SQ. FOOT TERM UNIT INFO BASE RENT RENT PER INCREASE INCREASE TENANT UNIT REF NO. OCCUPIED FROM TO BASE RENT ANNUAL SQ FT/YR (DATE) (AMOUNT) - --------------------------------------------------------------------------------------------------------------------------------- GRAND TOTALS: 450690 348361.52 4180338.24 9.30 OPERATING EXPENSE REAL ESTATE TAX CPI EXPENSE GROSS RENTS TENANT MONTH SQ FT/YR MONTH SQ FT/YR MONTH SQ FT/YR SQ FT/YR TOTAL - ------------------------------------------------------------------------------------------------------------------ GRAND TOTALS: 12682.41 0.34 10,503.83 0.28 0.00 0.00 9.89 371,547.76
Page 6 Total Occupied Square Feet : 449290 Total Vacant Square Feet : 1400
Page 7 EX-10.322 33 a2143310zex-10_322.txt EX-10.322 Exhibit 10.322 Loan No. 10024998 AMENDED AND RESTATED PROMISSORY NOTE $20,625,000.00 August 17, 2004 FOR VALUE RECEIVED, INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., a Delaware limited liability company, having its principal place of business at 2901 Butterfield Road, Oak Brook, Illinois 60523, as maker hereunder (referred to herein as "BORROWER"), hereby unconditionally promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a national banking association, its successors and assigns, having an address at 911 Main Street, Suite 1500, Kansas City, Missouri 64105 ("LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of TWENTY MILLION SIX HUNDRED TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($20,625,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Interest Rate, and to be paid in accordance with the terms of this Note and that certain Loan Agreement, dated as of the date hereof, between Borrower and Lender (the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1 PAYMENT TERMS Borrower agrees to pay interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. This Note shall be the "Note" as defined in the Loan Agreement. ARTICLE 2 DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE 3 LOAN DOCUMENTS This Note is secured by the Mortgage and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgage and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4 SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the maximum lawful rate or amount, (b) in calculating whether any interest exceeds the lawful maximum, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender, and (c) if through any contingency or event, Lender receives or is deemed to receive interest in excess of the lawful maximum, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender, or if there is no such indebtedness, shall immediately be returned to Borrower. ARTICLE 5 NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6 WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the individuals comprising the partnership, and the term "Borrower," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a limited liability company, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the members comprising the company, and the term "Borrower," as used herein, shall include any alternate or successor company, but any predecessor company and its members shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the shareholders comprising, or the officers and 2 directors relating to, the corporation, and the term "Borrower" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. (Nothing in the foregoing sentence shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such entity which may be set forth in the Loan Agreement, the Mortgage or any other Loan Document.) ARTICLE 7 TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer except as provided in the Loan Agreement, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall from that date forward forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8 EXCULPATION The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference into this Note to the same extent and with the same force as if fully set forth herein. ARTICLE 9 GOVERNING LAW THIS NOTE SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND APPLICABLE FEDERAL LAWS. ARTICLE 10 NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. ARTICLE 11 AMENDMENT AND RESTATEMENT This Note is a consolidation, renewal, amendment and restatement of that certain Promissory Note, dated October 28, 2003, from Borrower, as successor by merger to Kimco Governors Marketplace Ltd., in favor of Wachovia Bank, National Association in the principal sum of $21,500,000.00 (the "EXISTING NOTE") which Existing Note has been endorsed to the 3 order of Lender and is attached hereto. The current outstanding principal blance of the Existing Note is $21,500,000.00. All required documentary stamp tax and intangible tax in connection with the foregoing note was paid upon the recordation of that certain Leasehold Mortgage, Assignment of Rents and Security Agreement, dated October 28, 2003, from Borrower, as successor by merger to Kimco Governors Marketplace Ltd., to Wachovia Bank, National Association, recorded in Official Records Book 2980, Page 1768 of the Official Records of Leon County, Florida, which mortgage has been assigned to Lender pursuant to that certain Assignment of Note and Mortgage of approximately even date herewith. Accordingly, no additional documentary stamp tax pursuant to Chapter 201, Florida Statutes, or intangible tax pursuant to Chapter 199, Florida Statutes, are due in connection with this Note. [NO FURTHER TEXT ON THIS PAGE] 4 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written, BORROWER: INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ---------------------------------- Name: Valerie Medina Title: Asst. Secretary Pay to the order of ___________________________, without recourse. KEYBANK NATIONAL ASSOCIATION, a national banking association By: ------------------------------------------ Print Name: ---------------------------------- Print Title: --------------------------------- STATE OF ILLINOIS COUNTY OF COOK On this 13th day of August, 2004, before me, ANDREW M. VIOLA a Notary Public in and for said state, personally appeared _____________, who being by me duly sworn did say that he/she is the ASST. SEC of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of Inland Western Tallahassee Governor's One, L,L.C., a Delaware limited liability company, and that the within instrument was signed and sealed in behalf of said corporation in behalf of said limited liability company by authority of its board of directors, and acknowledged said instrument to be the free act and deed of said corporation in behalf of said limited liability company for the purposes therein stated. OFFICIAL SEAL ANDREW M. VIOLA NOTARY PUBLIC, STATE OF ILLINOIS MY COMMISSION EXPIRES 6-13-2007 [Notarial Seal] /s/ Andrew M. Viola ---------------------------- Print Name: ANDREW M. VIOLA ---------------- My commission expires: 6-13-07 --------------------- 6 EX-10.323 34 a2143310zex-10_323.txt EX=10.323 Exhibit 10.323 POST-CLOSING AGREEMENT KeyBank National Association 911 Main Street, Suite 1500 Kansas City, Missouri 64105 Re: Loan No. 10024998 made by KeyBank National Association, a national banking association ("Lender"), to Inland Western Tallahassee Governor's One, L.L.C., a Delaware limited liability company ("Borrower") in the amount of $20,625,000.00 (the "Loan") Gentlemen: The above-referenced Loan is scheduled to fund on August 17, 2004. As a condition to funding, Lender has required that this Agreement be executed and delivered to Lender. In connection with the Loan, the undersigned does hereby certify to and agree with the Lender as follows: 1. OUTSTANDING MATTER. Attached hereto as Schedule "A" are specific requirements which must be met by the Delivery Date set forth in said Schedule A. The undersigned acknowledges that the Loan Documents are being executed and the Loan closed and funds disbursed in connection therewith without all the Loan requirements being met but on the express condition that Borrower will comply with the requirements and agreements contained in this Agreement and that the execution of the Loan documents shall not constitute any admission by the Lender that all the Loan requirements have been met. 2. INDEMNITY. Borrower agrees to indemnify, defend and hold harmless Lender for, from and against any and all losses, claims, liabilities, damages, demands, actions, penalties, costs and expenses (including, without limitation, the fees and disbursements of legal counsel) incurred by Lender arising out of the failure of Borrower to perform its obligations under this Agreement. 3. OBLIGATIONS UNDER THIS AGREEMENT. Borrower shall use its best efforts to comply with the provisions of this Agreement. 4. SURVIVAL OF AGREEMENT. This Agreement shall survive any funding of the Loan. 5. BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of Lender, its successor and assigns, including any successive holder of the Loan. 6. ATTORNEY'S FEES. Borrower shall pay any and all costs and expenses, including legal expenses and attorneys' fees, reasonably incurred or paid by Lender in collecting any amount payable hereunder or in enforcing its rights hereunder, whether or not any legal proceeding is commenced hereunder, together with interest thereon at the Default Rate (as defined in the Loan Agreement) from the date paid or incurred by Lender until such expenses are paid by Borrower. Dated this _____ day of August, 2004 BORROWER: INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ---------------------------------- Name: Valerie Medina Title: Asst. Secretary 2 STATE OF ILLINOIS COUNTY OF COOK On this 17 day of August, 2004, before me, the undersigned Notary Public, personally appeared VALERIE MEDINA as ASST SEC of INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, which is the sole member and manager of INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., a Delaware limited liability company, who executed the foregoing instrument, and acknowledged the execution thereof to be his/her free act and deed as such officer on behalf of said corporation in its capacity as general partner of said partnership, in its capacity as sole member and manager of said limited liability company for the use and purposes therein mentioned, and the said instrument is the act and deed of said corporation, limited partnership and limited liability company. OFFICIAL SEAL ANDREW M. VIOLA NOTARY PUBLIC, STATE OF ILLINOIS MY COMMISSION EXPIRES 6-13-2007 [Notarial Seal] /s/ Andrew M. Viola ---------------------------- Print Name: ANDREW M. VIOLA ---------------- My commission expires: 6/13/07 --------------------- 3 SCHEDULE "A" REQUIREMENTS
ITEM DELIVERY DATE ---- ------------- 1. Delivery of Final Certificate of Occupancy for Atlanta Bread November 17, 2004 2. Delivery of Final Certificate of Occupancy for Qdoba November 17, 2004 3. Delivery of Final Certificate of Occupancy for Nextel November 17, 2004 4. Delivery of Final Certificate of Occupancy for Sprint PCS November 17, 2004 5. Delivery of Final Certificate of Occupancy for Alltell November 17, 2004 6. Delivery of Final Certificate of Occupancy for Cingular Wireless. November 17, 2004 7. Delivery of Final Certificate of Occupancy for Ujamma November 17, 2004
4 EX-10.324 35 a2143310zex-10_324.txt EX-10.324 Exhibit 10.324 Loan No. 10024998 LOAN AGREEMENT Dated as of August 17, 2004 Between INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., as Borrower and KEYBANK NATIONAL ASSOCIATION, as Lender TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION....................................1 Section 1.1 Definitions.........................................................1 Section 1.2 Principles of Construction.........................................19 ARTICLE II GENERAL TERMS............................................................19 Section 2.1 Loan Commitment; Disbursement to Borrower..........................19 Section 2.2 Interest; Loan Payments; Late Payment Charge.......................19 Section 2.3 Prepayments........................................................21 Section 2.4 Intentionally Omitted..............................................22 Section 2.5 Release of Property................................................22 Section 2.6 Manner of Making Payments..........................................22 Section 2.7 Amendment and Restatement..........................................23 ARTICLE III CONDITIONS PRECEDENT....................................................23 Section 3.1 Conditions Precedent to Closing....................................23 ARTICLE IV REPRESENTATIONS AND WARRANTIES...........................................27 Section 4.1 Borrower Representations...........................................27 Section 4.2 Survival of Representations........................................38 ARTICLE V BORROWER COVENANTS........................................................39 Section 5.1 Affirmative Covenants..............................................39 Section 5.2 Negative Covenants.................................................47 ARTICLE VI INSURANCE; CASUALTY; CONDEMNATION........................................52 Section 6.1 Insurance..........................................................52 Section 6.2 Casualty...........................................................56 Section 6.3 Condemnation.......................................................56 Section 6.4 Restoration........................................................56 ARTICLE VII RESERVE FUNDS...........................................................61 Section 7.1 Required Repair Funds..............................................61 Section 7.2 Tax and Insurance Escrow Fund......................................62 Section 7.3 Replacements and Replacement Reserve...............................63 Section 7.4 Intentionally Deleted..............................................68 Section 7.5 Intentionally Deleted..............................................68 Section 7.6 Intentionally Deleted..............................................68 Section 7.7 Reserve Funds, Generally...........................................68 ARTICLE VIII DEFAULTS...............................................................69 Section 8.1 Event of Default...................................................69 Section 8.2 Remedies...........................................................71 Section 8.3 Remedies Cumulative; Waivers.......................................72 ARTICLE IX SPECIAL PROVISIONS.......................................................72 Section 9.1 Sale of Notes and Securitization...................................72 Section 9.2 Securitization.....................................................73 Section 9.3 Rating Surveillance................................................73 Section 9.4 Exculpation........................................................73 Section 9.5 Termination of Manager.............................................75 Section 9.6 Servicer...........................................................76
-i- Section 9.7 Splitting the Loan.................................................76 ARTICLE X MISCELLANEOUS.............................................................76 Section 10.1 Survival...........................................................76 Section 10.2 Lender's Discretion................................................77 Section 10.3 Governing Law......................................................77 Section 10.4 Modification, Waiver in Writing....................................77 Section 10.5 Delay Not a Waiver.................................................77 Section 10.6 Notices............................................................77 Section 10.7 Trial by Jury......................................................78 Section 10.8 Headings...........................................................78 Section 10.9 Severability.......................................................79 Section 10.10 Preferences........................................................79 Section 10.11 Waiver of Notice...................................................79 Section 10.12 Remedies of Borrower...............................................79 Section 10.13 Expenses; Indemnity................................................79 Section 10.14 Schedules Incorporated.............................................80 Section 10.15 Offsets, Counterclaims and Defenses................................80 Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries......81 Section 10.17 Publicity..........................................................81 Section 10.18 Waiver of Marshalling of Assets....................................81 Section 10.19 Waiver of Counterclaim.............................................82 Section 10.20 Conflict; Construction of Documents; Reliance......................82 Section 10.21 Brokers and Financial Advisors.....................................82 Section 10.22 Prior Agreements...................................................82 Section 10.23 Transfer of Loan...................................................82
SCHEDULES Schedule I - Intentionally Omitted Schedule II - Rent Roll Schedule III - Required Repairs Schedule IV - Intentionally Omitted Schedule V - Intentionally Omitted Schedule VI - Affiliate Agreements Schedule VII - Intentionally Omitted Schedule VIII - Intentionally Omitted Schedule IX - Intentionally Omitted Schedule X - Other Contract Funds Agreements -ii- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of this ____ day of August, 2004 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "AGREEMENT"), between KEYBANK NATIONAL ASSOCIATION, a national banking association, having an address at 911 Main Street, Suite 1500, Kansas City, Missouri 64105 ("LENDER"), and INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., a Delaware limited liability company, having an address at 2901 Butterfield Road, Oak Brook, Illinois 60523 ("BORROWER"). W I T N E S S E T H: WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "ADDITIONAL INSOLVENCY OPINION" shall mean any subsequent Insolvency Opinion. "AFFILIATE" shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "ALTA" shall mean American Land Title Association, or any successor thereto. "ANNUAL BUDGET" shall mean the operating budget, including all planned capital expenditures, for the Property prepared by Borrower for the applicable Fiscal Year or other period. "ASSIGNMENT OF LEASES" shall mean, with respect to the Property, that certain first priority Assignment of Leases and Rents, dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender all of Borrower's interest in and to the Leases and Rents of the Property as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. 1 "ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean that certain Assignment of Management Agreement and Subordination of Management Fees dated as of the date hereof among Lender, Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "AWARD" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of the Property. "BASIC CARRYING COSTS" shall mean, with respect to the Property, the sum of the following costs associated with the Property for the relevant Fiscal Year or payment period: (i) Taxes and (ii) Insurance Premiums. "BORROWER" shall mean Inland Western Tallahassee Governor's, L.L.C., together with its permitted successors and assigns. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "CAPITAL EXPENDITURES" shall mean, for any period, the amount expended for items capitalized under accounting principles reasonably acceptable to Lender, consistently applied (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "CASH EXPENSES" shall mean, for any period, the operating expenses for the operation of the Property as set forth in an Approved Annual Budget to the extent that such expenses are actually incurred by Borrower minus any payments into the Tax and Insurance Escrow Fund. "CASUALTY" shall have the meaning specified in Section 6.2 hereof. "CASUALTY CONSULTANT" shall have the meaning set forth in Section 6.4(b)(iii) hereof. "CASUALTY RETAINAGE" shall have the meaning set forth in Section 6.4(b)(iv) hereof. "CLOSING DATE" shall mean the date of the funding of the Loan. "CODE" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "CONDEMNATION" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of the Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting the Property or any part thereof. 2 "CONTINGENT AMOUNT" shall mean any contingent payment liabilities required to be paid pursuant to the Purchase Contract as an adjustment to the purchase price of the Property. "DEBT" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including the Prepayment Consideration) due to Lender in respect of the Loan under the Note, this Agreement, the Mortgage or any other Loan Document. "DEBT SERVICE" shall mean, with respect to any particular period of time, scheduled interest payments under the Note. "DEBT SERVICE COVERAGE RATIO" shall mean a ratio for the applicable period in which: (a) the numerator is the Net Operating Income (excluding interest on credit accounts) for such period as set forth in the statements required hereunder, without deduction for (1) actual management fees incurred in connection with the operation of the Property, (ii) amounts paid to the Reserve Funds, less (A) management fees equal to the greater of (1) assumed management fees of five percent (5%) of Gross Income from Operations or (2) the actual management fees incurred; (B) assumed Replacement Reserve Fund contributions equal to $0.15 per square foot of gross leaseable area at the Property; and (C) assumed reserves for tenant improvements and leasing commissions equal to $0.84 per square foot of gross leaseable area of the Property; and (b) the denominator is the aggregate amount of interest due and payable on the Note for such applicable period. "DEFAULT" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) five percent (5%) above the Interest Rate. "DISCLOSURE DOCUMENT" shall have the meaning set forth in Section 9.2 hereof. "ELIGIBLE ACCOUNT" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. 3 "ELIGIBLE INSTITUTION" shall mean a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by Standard & Poor's Ratings Services, P-1 by Moody's Investors Service, Inc., and F-1+ by Fitch, Inc. in the case of accounts in which funds are held for 30 days or less (or, in the case of accounts in which funds are held for more than 30 days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch and S&P and "Aa" by Moody's). "ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental Indemnity Agreement executed by Borrower in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1(a) hereof. "EXCHANGE ACT" shall have the meaning set forth in Section 9.2 hereof. "FISCAL YEAR" shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan. "GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GROSS INCOME FROM OPERATIONS" shall mean all sustainable income as reported on the financial statements delivered by Borrower in accordance with this Agreement, computed in accordance with accounting principles reasonably acceptable to Lender, consistently applied, derived from the ownership and operation of the Property from whatever source, including, but not limited to, (i) Rents from Tenants that are in occupancy, open for business and paying unabated Rent, (ii) utility charges, (iii) escalations, (iv) intentionally omitted; (v) service fees or charges, (vi) license fees, (vii) parking fees, and (viii) other required pass-throughs but excluding (i) sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any Governmental Authority, (ii) refunds and uncollectible accounts, (iii) sales of furniture, fixtures and equipment, (iv) Insurance Proceeds (other than business interruption or other loss of income insurance), (v) Awards, (vi) unforfeited security deposits, (vii) utility and other similar deposits and (viii) any disbursements to Borrower from the Reserve Funds. Gross income shall not be diminished as a result of the Mortgage or the creation of any intervening estate or interest in the Property or any part thereof. "GROUND LEASE" shall mean individually and collectively (a) that certain Indenture of Ground Lease dated October 1, 2000, between Elaine W. Smith Partnership, LLP and The Smith Interests General Partnership, L.L.P., as Lessor and Borrower, as successor by merger to Kimco Governors Marketplace, Ltd., as Lessee and as the same has previously been amended and may be further amended, restated, renewed, substituted or replaced; and (b) that certain Indenture of Ground Lease dated January 1, 2003, between The Smith Interests General 4 Partnership, L.L.P., as Lessor, and Borrower, as successor by merger to Kimco Governors Marketplace, Ltd., as Lessee, and as the same has previously been amended and may be further amended, restated, renewed, substituted or replaced. "GROUND RENTS" shall mean all rents payable by Borrower under the Ground Lease. "IMPROVEMENTS" shall have the meaning set forth in the granting clause of the Mortgage with respect to the Property. "INDEBTEDNESS" of a Person, at a particular date, means the sum (without duplication) at such date of (a) indebtedness or liability for borrowed money; (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss; and (g) obligations secured by any Liens, whether or not the obligations have been assumed. "INDEMNITOR" shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation. "INDEMNITY AGREEMENT" shall mean that certain Indemnity Agreement dated as of the date hereof by and between Borrower and Inland Western Retail Real Estate Trust, Inc., a Maryland corporation in favor of Lender. "INDEPENDENT DIRECTOR" shall mean a director of a corporation or a manager of a limited liability company who is not at the time of initial appointment, or at any time while serving as a director or manager, as the case may be, of such an entity, and has not been at any time during the preceding five (5) years: (a) a stockholder, director (with the exception of serving as the Independent Director), officer, employee, partner, attorney or counsel of the Borrower or any Affiliate of either of them; (b) a customer, supplier or other person who derives any of its purchases or revenues from its activities with the Borrower or any Affiliate of either of them; (c) a Person controlling or under common control with any such stockholder, director, officer, partner, customer, supplier or other Person; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, customer, supplier or other person. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise. "INLAND WESTERN RETAIL REAL ESTATE TRUST, INC." shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation. "INSOLVENCY OPINION" shall have the meaning set forth in Section 3.1.6 hereof. "INSURANCE PREMIUMS" shall have the meaning set forth in Section 6.1(b) hereof. 5 "INSURANCE PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "INTEREST RATE" shall mean 5.185 percent (5.185%) per annum. "LEASE" shall mean any lease, sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in the Property of Borrower, and every modification, amendment or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "LEGAL REQUIREMENTS" shall mean, with respect to the Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting the Property or any part thereof, or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting the Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations, in or to the Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "LENDER" shall mean KeyBank National Association, together with its successors and assigns. "LICENSES" shall have the meaning set forth in Section 4.1.22 hereof. "LIEN" shall mean, with respect to the Property, any mortgage, deed of trust, deed to secure debt, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, the Property, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LOAN" shall mean the loan made by Lender to Borrower pursuant to this Agreement. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the Mortgage, the Assignment of Leases and Rents, the Environmental Indemnity, the Assignment of Management Agreement, the Indemnity Agreement and all other documents executed and/or delivered in connection with the Loan. "MAJOR TENANT" shall mean any tenant (i) leasing more than 10,000 square feet of the Property or (ii) whose Rents comprise 25% or more of the effective gross income (as determined by Lender) of the Property. 6 "MANAGEMENT AGREEMENT" shall mean, with respect to the Property, the management agreement entered into by and between Borrower and the Manager, pursuant to which the Manager is to provide management and other services with respect to the Property. "MANAGER" shall mean Inland Northwest Management Corp., a Delaware corporation. "MATURITY DATE" shall mean September 1, 2009, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise. "MAXIMUM LEGAL RATE" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "MONTHLY DEBT SERVICE PAYMENT AMOUNT" shall mean an amount equal to $89,117.19. "MORTGAGE" shall mean, with respect to the Property, that certain first priority Amended and Restated Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated the date hereof, executed and delivered by Borrower as security for the Loan and encumbering the Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NET CASH FLOW" for any period shall mean the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. "NET CASH FLOW AFTER DEBT SERVICE" for any period shall mean the amount obtained by subtracting Debt Service for such period from Net Cash Flow for such period. "NET CASH FLOW SCHEDULE" shall have the meaning set forth in Section 5.1.11(b) hereof. "NET OPERATING INCOME" shall mean the amount obtained by subtracting from Gross Income from Operations (i) Operating Expenses, and (ii) a vacancy allowance equal to the greater of (x) market vacancy (as reasonably determined by Lender), less actual vacancy, and (y) underwritten vacancy of 8.6%, less actual vacancy. Notwithstanding the foregoing, if actual vacancy exceeds market vacancy and underwritten vacancy, then there shall be no adjustment for a vacancy allowance. "NET PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "NET PROCEEDS DEFICIENCY" shall have the meaning set forth in Section 6.4(b)(vi) hereof. 7 "NET PROCEEDS DEFICIENCY" shall have the meaning set forth in Section 6.4(b)(vi) hereof. "NOTE" shall mean that certain Amended and Restated Promissory Note of even date herewith in the principal amount of TWENTY MILLION SIX HUNDRED TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($20,625,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "OFFICERS' CERTIFICATE" shall mean a certificate delivered to Lender by Borrower which is signed by an authorized senior officer of the sole member of Borrower. "OPERATING EXPENSES" shall mean the total of all expenditures, computed in accordance with accounting principles reasonably acceptable to Lender, consistently applied, of whatever kind relating to the operation, maintenance and management of the Property that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance, insurance, license fees, property taxes and assessments, advertising expenses, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures and contributions to the Reserve Funds. "OTHER CHARGES" shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Property, now or hereafter levied or assessed or imposed against the Property or any part thereof. "OTHER CONTRACT FUNDS" shall mean any payment due to Borrower under any of the agreements described on SCHEDULE X. "PAYMENT DATE" shall mean the first (1st) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately succeeding Business Day. "PERMITTED ENCUMBRANCES" shall mean, with respect to the Property, collectively, (a) the Liens and security interests created by the Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies relating to the Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, and (d) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's reasonable discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrower's ability to repay the Loan. "PERMITTED INVESTMENTS" shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Servicer, the trustee under any Securitization or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior 8 to the first Payment Date following the date of acquiring such investment and meeting one of the appropriate standards set forth below. (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Student Loan Marketing Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread 9 (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; PROVIDED, HOWEVER, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; 10 (viii) units of taxable money market funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds or mutual funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a written confirmation that the designation of such security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency; PROVIDED, HOWEVER, that no obligation of security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. "PERSON" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "PERSONAL PROPERTY" shall have the meaning set forth in the granting clause of the Mortgage with respect to the Property. "PHYSICAL CONDITIONS REPORT" shall mean, with respect to the Property, a report prepared by a company satisfactory to Lender regarding the physical condition of the Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that the Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on the Property. "POLICIES" shall have the meaning specified in Section 6.1(b) hereof. "PREPAYMENT CONSIDERATION" shall have the meaning set forth in Section 2.3.1. "PREPAYMENT RATE" shall mean the bond equivalent yield (in the secondary market) on the United States Treasury Security that as of the Prepayment Rate Determination Date has a remaining term to maturity closest to, but not exceeding, the remaining term to the Maturity Date, as most recently published in the "Treasury Bonds, Notes and Bills" section in The Wall Street Journal as of the date of the related tender of the payment. If more than one issue of United States Treasury Securities has the remaining term to the Maturity Date referred to 11 above, the "Prepayment Rate" shall be the yield on the United States Treasury Security most recently issued as of such date. If the publication of the Prepayment Rate in The Wall Street Journal is discontinued, Lender shall determine the Prepayment Rate on the basis of "Statistical Release H.15(519), Selected Interest Rates," or any successor publication, published by the Board of Governors of the Federal Reserve System, or on the basis of such other publication or statistical guide as Lender may reasonably select. "PREPAYMENT RATE DETERMINATION DATE" shall mean the date which is five (5) Business Days prior to the prepayment date. "PROPERTY" shall mean the parcel of real property, the Improvements thereon and all personal property owned by Borrower or leased by Borrower pursuant to the Ground Lease and encumbered by the Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the Granting Clauses of the Mortgage and referred to therein as the "Property." "PROVIDED INFORMATION" shall have the meaning set forth in Section 9.1(a) hereof. "PURCHASE CONTRACT" shall mean that certain Agreement of Sale dated May 6, 2004, between Inland Real Estate Acquisitions, Inc., and Kimco Governors Marketplace Ltd., as heretofore or hereafter assigned, amended and modified. "QUALIFYING ENTITY" shall have the meaning set forth in Section 5.2.13(b) hereof. "QUALIFYING MANAGER" shall mean either (a) a reputable and experienced management organization reasonably satisfactory to Lender, which organization or its principals possess at least ten (10) years experience in managing properties similar in size, scope and value of the Property and which, on the date Lender determines whether such management organization is a Qualifying Manager, manages at least one million square feet of retail space, provided that Borrower shall have obtained prior written confirmation from the Rating Agency that management of the Property by such entity will not cause a downgrading, withdrawal or qualification of the then current rating of the securities issued pursuant to the Securitization, or (b) the fee owner of the Property, provided that such owner possesses experience in managing and operating properties similar in size, scope and value of the Property. Lender acknowledges that on the date hereof Inland Northwest Management Corp. shall be deemed to be a Qualifying Manager. Lender also acknowledges that a new property management company that is an affiliate of or under common control with Inland Northwest Management Corp. also shall be deemed a Qualifying Manager. "RATING AGENCIES" shall mean each of Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc., Moody's Investors Service, Inc. and Fitch, Inc., or any other nationally-recognized statistical rating agency which has been approved by Lender. "RATING SURVEILLANCE CHARGE" shall have the meaning set forth in Section 9.3 hereof. 12 "RELEVANT LEASING THRESHOLD" shall mean, any Lease for an amount of leaseable square footage equal to or greater than 10,000 square feet. "RELEVANT RESTORATION THRESHOLD" shall mean Three Hundred Fifty Thousand and No/100 dollars ($350,000.00). "REMIC TRUST" shall mean a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code that holds the Note. "RENTS" shall mean, with respect to the Property, all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or its agents or employees from any and all sources arising from or attributable to the Property, and proceeds, if any, from business interruption or other loss of income insurance, including the Other Contract Funds. "REPLACEMENT RESERVE ACCOUNT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE FUND" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE MONTHLY DEPOSIT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENTS" shall have the meaning set forth in Section 7.3.1(a) hereof. "REQUIRED REPAIR ACCOUNT" shall have the meaning set forth in Section 7.1.1 hereof. "REQUIRED REPAIR FUND" shall have the meaning set forth in Section 7.1.1 hereof. "REQUIRED REPAIRS" shall have the meaning set forth in Section 7.1.1 hereof. "RESERVE FUNDS" shall mean the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund (if any), or any other escrow fund established by the Loan Documents. "RESTORATION" shall have the meaning set forth in Section 6.2 hereof. "SECURITIES" shall have the meaning set forth in Section 9.1 hereof. "SECURITIES ACT" shall have the meaning set forth in Section 9.2 hereof. 13 "SECURITIZATION" shall have the meaning set forth in Section 9.1 hereof. "SERVICER" shall have the meaning set forth in Section 9.6 hereof. "SERVICING AGREEMENT" shall have the meaning set forth in Section 9.6 hereof. "SEVERED LOAN DOCUMENTS" shall have the meaning set forth in Section 8.2(c) hereof. "SEVERING DOCUMENTATION" shall have the meaning set forth in Section 9.7 hereof. "SOLE MEMBER" shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of Borrower. "SPECIAL PURPOSE ENTITY" means a corporation, limited partnership, limited liability company, or Delaware statutory trust which at all times on and after the date hereof: (i) is organized solely for the purpose of (A) acquiring, developing, owning, holding, selling, leasing, transferring, exchanging, managing and operating the Property, entering into this Agreement with the Lender, refinancing the Property in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing; or (B) acting as a general partner of the limited partnership that owns the Property, a member of the limited liability company that owns the Property or the beneficiary or trustee of a Delaware statutory trust that owns the Property; (ii) is not engaged and will not engage in any business unrelated to (A) the acquisition, development, ownership, management or operation of the Property, (B) acting as general partner of the limited partnership that owns the Property, (C) acting as a member of the limited liability company that owns the Property, or (D) acting as the beneficiary or trustee of a Delaware statutory trust that owns the Property, as applicable; (iii) does not have and will not have any assets other than those related to the Property or its partnership interest in the limited partnership, the member interest in the limited liability company or the beneficial interest in the Delaware statutory trust that owns the Property or acts as the general partner, managing member or beneficiary or trustee thereof, as applicable; (iv) has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership, membership or beneficial or trustee interests (if such entity is a general partner in a limited partnership, a member in a limited liability company or a beneficiary of a Delaware statutory trust) or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation, operating agreement or trust formation and governance documents (as applicable) with respect to the matters set forth in this definition; 14 (v) if such entity is a limited partnership, has as its only general partners, Special Purpose Entities that are corporations, limited partnerships or limited liability companies; (vi) if such entity is a corporation, has at least one (1) Independent Director, and has not caused or allowed and will not cause or allow the board of directors of such entity to take any action related to a bankruptcy or insolvency proceeding or a voluntary dissolution without the unanimous affirmative vote of 100% of the members of its board of directors, including the Independent Director; (vii) if such entity is a limited liability company and such limited liability company has more than one member, such limited liability company has as its manager a Special Purpose Entity that is a corporation and that owns at least 1.0% (one percent) of the equity of the limited liability company; (viii) if such entity is a limited liability company and such limited liability company has only one member, such limited liability company (a) has been formed under Delaware law and (b) has either a corporation or other person or entity that shall become a member of the limited liability company upon the dissolution or disassociation of the member, and (c) has not less than one (1) Independent Director, and (d) will not cause or allow its board of directors to take any action related to a bankruptcy or insolvency proceeding or a voluntary dissolution without the unanimous affirmative vote of 100% of the members of its board of directors, including the Independent Director; (ix) if such entity is (a) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (b) a limited partnership, has a limited partnership agreement, (c) a corporation, has a certificate of incorporation or articles, or (d) a Delaware statutory trust, has organizational documents that, in each case, provide that such entity will not: (1) dissolve, merge, liquidate, consolidate; (2) except as permitted herein, sell all or substantially all of its assets or the assets of the Borrower (as applicable) except as permitted herein; (3) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the consent of the Lender; or (4) without the affirmative vote of all other directors of the corporation (that is such entity or the general partner or managing or co-managing member or manager of such entity), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest; (x) has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, beneficiaries, shareholders or Affiliates except (A) in the ordinary course of its business and on terms which are intrinsically fair, commercially reasonable and are no less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party and (B) in connection with this Agreement; 15 (xi) is solvent and pays its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same become due, and is maintaining adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (xii) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity; (xiii) will file its own tax returns; provided, however, that Borrower's assets and income may be included in a consolidated tax return of its parent companies if inclusion on such consolidated tax return is in compliance with applicable law; (xiv) has maintained and will maintain its own resolutions and agreements; (xv) (a) has not commingled and will not commingle its funds or assets with those of any other Person and (b) has not participated and will not participate in any cash management system with any other Person, except with respect to a custodial account maintained by the Manager on behalf of Affiliates of Borrower and, with respect to funds in such custodial account, has separately accounted, and will continue to separately account for, each item of income and expense applicable to the Property and Borrower; (xvi) has held and will hold its assets in its own name; (xvii) has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower; (xviii) has maintained and will maintain its balance sheets, operating statements and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required or permitted by accounting principles reasonably acceptable to Lender, consistently applied; PROVIDED, HOWEVER, that (i) any such consolidated financial statement shall contain a note indicating that it maintains separate balance sheets and operating statements for the Borrower and the Property, or (ii) if such Person is controlled by Inland Western Retail Real Estate Trust, Inc., then such Person may be included in the consolidated financial statement of Inland Western Retail Real Estate Trust, Inc. provided such consolidated financial statement contains a note indicating that it maintains separate financial records for each Person controlled by Inland Western Retail Real Estate Trust, Inc.; (xix) has a sufficient number of employees in light of its contemplated business operations, which may be none; (xx) has observed and will observe all partnership, corporate, limited liability company or Delaware business trust formalities, as applicable; (xxi) has and will have no Indebtedness (including loans (whether or not such loans are evidenced by a written agreement) between Borrower and any Affiliates of Borrower and relating to the management of funds in the custodial account maintained by 16 the Manager) other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business relating to the ownership and operation of the Property and the routine administration of Borrower, which liabilities are not more than sixty (60) days past the date incurred (unless disputed in accordance with applicable law), are not evidenced by a note and are paid when due, and which amounts are normal and reasonable under the circumstances, and (iii) such other liabilities that are permitted pursuant to this Agreement; (xxii) has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; (xxiii) has not and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate; (xxiv) has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an affiliate; (xxv) has not maintained or used, and will not maintain or use, invoices and checks bearing the name of any other Person, PROVIDED, HOWEVER, that Manager, on behalf of such Person, may maintain and use invoices and checks bearing Manager's name; (xxvi) has not pledged and will not pledge its assets for the benefit of any other Person except as permitted or required pursuant to this Agreement; (xxvii) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower and not as a division or part of any other Person, except for services rendered by Manager under the Management Agreement, so long as Manager holds itself out as an agent of the Borrower; (xxviii) has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (xxix) has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity); (xxx) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person; (xxxi) has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except (A) in the ordinary course of its business and on terms which are intrinsically fair, 17 commercially reasonable and are no less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party and (B) in connection with this Agreement; (xxxii) does not and will not have any of its obligations guaranteed by any Affiliate except as otherwise required in the Loan Documents; and (xxxiii) has complied and will comply with all of the terms and provisions contained in its organizational documents. The statement of facts contained in its organizational documents are true and correct and will remain true and correct. "STATE" shall mean, with respect to the Property, the State or Commonwealth in which the Property or any part thereof is located. "SURVEY" shall mean a survey of the Property in question prepared by a surveyor licensed in the State and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender. "TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in Section 7.2 hereof regardless of whether the funds held therein are held by Lender for the payment of Taxes or Insurance Premiums or both. "TAXES" shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against the Property or any part thereof. "TENANT" shall mean any person or entity with a possessory right to all or any part of the Property pursuant to a Lease or other written agreement. "TERRORISM INSURANCE GUARANTOR" shall have the meaning set forth in Section 6.1 hereof. "TITLE INSURANCE POLICIES" shall mean, with respect to the Property, one or more ALTA mortgagee title insurance policies in the form (acceptable to Lender) (or, if the Property is in a State which does not permit the issuance of such ALTA policy, such form as shall be permitted in such State and acceptable to Lender) issued with respect to the Property and insuring the lien of the Mortgage encumbering the Property. "TRANSFEREE" shall have the meaning set forth in Section 5.2.13 hereof. "UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect in the applicable State in which the Property is located. "U.S. OBLIGATIONS" shall mean direct non-callable obligations of the United States of America as defined in Section 2(a)(16) of the Investment Company Act as amended (15 USC 80a-1) stated in REMIC Section 1.86 OG-2(a)(8). 18 Section 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. ARTICLE II GENERAL TERMS Section 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER. 2.1.1 THE LOAN. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. 2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 THE NOTE, MORTGAGE AND LOAN DOCUMENTS. The Loan shall be evidenced by the Note and secured by the Mortgage, the Assignment of Leases and the other Loan Documents. 2.1.4 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan to (a) repay and discharge any existing loans relating to the Property, (b) pay all past-due Basic Carrying Costs, if any, in respect of the Property, (c) make deposits into the Reserve Funds on the Closing Date in the amounts provided herein, (d) pay costs and expenses incurred in connection with the Closing of the Loan, as approved by Lender, (e) fund any working capital requirements of the Property, and (f) distribute the balance, if any, to Borrower. Section 2.2 INTEREST; LOAN PAYMENTS; LATE PAYMENT CHARGE. 2.2.1 INTEREST GENERALLY. Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to but excluding the Maturity Date at the Interest Rate. 2.2.2 INTEREST CALCULATION. Interest on the outstanding principal balance of the Loan shall be calculated on the basis of a three hundred sixty (360) day year comprised of twelve (12) months of thirty (30) days each, except that interest due and payable for a period of less than a full month shall be calculated by multiplying the actual number of days elapsed in the period for which the calculation is being made by a daily rate based on a three hundred sixty (360) day year. 2.2.3 PAYMENTS GENERALLY. Borrower shall pay to Lender (a) on the Closing Date, an amount equal to interest only on the outstanding principal balance of the Loan from the 19 Closing Date up to but not including the first Payment Date following the Closing Date, and (b) on October 1, 2004 and each Payment Date thereafter up to but not including the Maturity Date, the Monthly Debt Service Payment Amount which is an amount equal to the interest on the outstanding principal amount of the Loan for the prior calendar month, calculated as set forth herein, which payments shall be applied to accrued and unpaid interest at the Interest Rate. 2.2.4 INTENTIONALLY DELETED. 2.2.5 PAYMENT ON MATURITY DATE. Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Mortgage and other the Loan Documents. 2.2.6 PAYMENTS AFTER DEFAULT. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest and other amounts due in respect of the Loan, shall accrue at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (i) the cure of such Event of Default in a manner reasonably satisfactory to Lender or (ii) the actual receipt and collection of the Debt (or that portion thereof that is then due). To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Mortgage. This paragraph shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default and Lender retains its rights under the Note and this Agreement to accelerate and to continue to demand payment of the Debt upon the happening and continuance of any Event of Default. 2.2.7 LATE PAYMENT CHARGE. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower on or prior to the date which is five (5) days after the date it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgage and the other Loan Documents to the extent permitted by applicable law. The foregoing late payment charge shall not apply to the payment of all outstanding principal, interest and other sums due on the Maturity Date. 2.2.8 USURY SAVINGS. This Agreement and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of 20 the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. Section 2.3 PREPAYMENTS. 2.3.1 VOLUNTARY PREPAYMENTS. (a) Except as otherwise provided herein, Borrower shall not have the right to prepay the Loan in whole or in part. Borrower may, provided it has given Lender prior written notice in accordance with the terms of this Agreement, prepay the unpaid principal balance of the Loan in whole, but not in part, by paying, together with the amount to be prepaid, (i) interest accrued and unpaid on the portion of the principal balance of the Loan being prepaid to and including the date of prepayment, (ii) unless prepayment is tendered on a Payment Date, an amount equal to the interest that would have accrued on the amount being prepaid after the date of prepayment through and including the next Payment Date had the prepayment not been made (which amount shall constitute additional consideration for the prepayment), (iii) all other sums then due under this Agreement, the Note, the Mortgage and the other Loan Documents, and (iv) a prepayment consideration (the "PREPAYMENT CONSIDERATION") equal to the greater of (A) one percent (1%) of the principal balance of the Loan being prepaid or (B) the excess, if any, of (1) the sum of the present values of all then-scheduled payments of principal and interest under this Agreement including, but not limited to, principal and interest on the Maturity Date (with each such payment discounted to its present value at the date of prepayment at the rate which, when, compounded monthly, is equivalent to the Prepayment Rate), over (2) the principal amount of the Loan being prepaid. Lender shall notify Borrower of the amount and the basis of determination of the required prepayment consideration. (b) On the Payment Date that is three months prior to the Maturity Date, and on each day thereafter through the Maturity Date, Borrower may, at its option, prepay the Debt without payment of any Prepayment Consideration; PROVIDED, HOWEVER, if such prepayment is not paid on a regularly scheduled Payment Date, the Debt shall include interest that would have accrued on such prepayment through and including the day immediately preceding the next regularly scheduled Payment Date. Borrower's right to prepay any portion of the principal balance of the Loan shall be subject to (i) Borrower's submission of a notice to Lender setting forth the amount to be prepaid and the projected date of prepayment, which date shall be no less than thirty (30) days from the date of such notice, and (ii) Borrower's actual payment to Lender of the amount to be prepaid as set forth in such notice on the projected date set forth in such notice or any day following such projected date occurring in the same calendar month as such projected date. 2.3.2 MANDATORY PREPAYMENTS. On the next occurring Payment Date following the date on which Borrower actually receives any Net Proceeds, if Lender is not obligated to make such Net Proceeds available to Borrower pursuant to this Agreement for the restoration of the Property, Borrower shall, at Lender's option, prepay the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Proceeds. No Prepayment 21 Consideration shall be due in connection with any prepayment made pursuant to this Section 2.3.2. Any partial prepayment under this Section shall be applied to the last payments of principal due under the Loan. 2.3.3 PREPAYMENTS AFTER DEFAULT. Following an Event of Default, if Borrower or anyone on Borrower's behalf makes a tender of payment of all or any portion of the Debt at any time prior to a foreclosure sale (including a sale under the power of sale under the Mortgage), or during any redemption period after foreclosure, (i) the tender of payment shall constitute an evasion of Borrower's obligation to pay any Prepayment Consideration due under this Agreement and such payment shall, therefore, to the maximum extent permitted by law, include a premium equal to the Prepayment Consideration that would have been payable on the date of such tender had the Loan not been so accelerated, or (ii) if at the time of such tender a prepayment of the principal amount of the Loan would have been prohibited under this Agreement had the principal amount of the Loan not been so accelerated, the tender of payment shall constitute an evasion of such prepayment prohibition and shall, therefore, to the maximum extent permitted by law, include an amount equal to the greater of (i) 1% of the then principal amount of the Loan (or the relevant portion thereof being prepaid) and (ii) an amount equal to the excess of (A) the sum of the present values of a series of payments payable at the times and in the amounts equal to the payments of principal and interest (including, but not limited to the principal and interest payable on the Maturity Date) which would have been scheduled to be payable after the date of such tender under this Agreement had the Loan (or the relevant portion thereof) not been accelerated, with each such payment discounted to its present value at the date of such tender at the rate which when compounded monthly is equivalent to the Prepayment Rate, over (B) the then principal amount of the Loan. Section 2.4 INTENTIONALLY OMITTED. Section 2.5 RELEASE OF PROPERTY. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of any Lien of the Mortgage on the Property. If Borrower has elected to prepay the entire amount of the Loan pursuant to Section 2.3.1 and the requirements of this Section 2.5 have been satisfied, the Property shall be released from the Lien of the Mortgage. 2.5.1 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Loan Agreement, release the Lien of the Mortgage on the Property not theretofore released. Section 2.6 MANNER OF MAKING PAYMENTS. 2.6.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 1:00 p.m., New York City time, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. "Whenever any payment hereunder or under the Note shall be stated 22 to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day. 2.6.2 NO DEDUCTIONS, ETC. All payments made by Borrower hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims. Section 2.7 AMENDMENT AND RESTATEMENT. Borrower hereby requests that Lender accept from Wachovia Bank, National Association an assignment of (i) that certain promissory note dated October 28, 2003 from Borrower, as successor by merger to Kimco Governors Marketplace, Ltd., payable to Wachovia Bank, National Association, in the principal sum of $21,500,000.00 (as modified, endorsed and assigned, "EXISTING NOTE"), and (ii) that certain Leasehold Mortgage, Assignment of Rents and Security Agreement dated October 28, 2003, from Borrower, as successor by merger to Kimco Governors Marketplace, Ltd., to Wachovia Bank, National Association, which was recorded in Official Records Book 2980, Page 1768 of the Official Records of Leon County, Florida (as modified and assigned, the "EXISTING MORTGAGE"), and Lender and Borrower hereby agree that the Existing Note shall be amended and restated by the Note and the Existing Mortgage shall be amended and restated by the Mortgage. ARTICLE III CONDITIONS PRECEDENT Section 3.1 CONDITIONS PRECEDENT TO CLOSING. The obligation of Lender to make the Loan hereunder is subject to the fulfillment by Borrower or waiver by Lender of the following conditions precedent no later than the Closing Date: 3.1.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH CONDITIONS. The representations and warranties of Borrower contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date, and no Default or an Event of Default shall have occurred and be continuing; and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on its part to be observed or performed. 3.1.2 LOAN AGREEMENT AND NOTE. Lender shall have received a copy of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrower. 3.1.3 DELIVERY OF LOAN DOCUMENTS: TITLE INSURANCE; REPORTS; LEASES, ETC. (a) MORTGAGE, ASSIGNMENT OF LEASES AND OTHER LOAN DOCUMENTS. Lender shall have received from Borrower fully executed and acknowledged counterparts of the Mortgage and the Assignment of Leases and evidence that counterparts of the Mortgage and Assignment of Leases have been delivered to the title company for recording, in the reasonable judgment of Lender, so as to effectively create upon such recording valid and enforceable Liens upon the Property, of the requisite priority, in favor of Lender (or such trustee as may be required 23 under local law), subject only to the Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents. Lender shall have also received from Borrower fully executed counterparts of the Assignment of Management Agreement and the other Loan Documents. (b) TITLE INSURANCE. Lender shall have received a Title Insurance Policy issued by a title company acceptable to Lender and dated as of the Closing Date. Such Title Insurance Policy shall (i) provide coverage in an amount equal to the principal amount of the Loan together with, if applicable, a "tie-in" or similar endorsement, (ii) insure Lender that the Mortgage creates a valid lien on the Property encumbered thereby of the requisite priority, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (iii) contain such endorsements and affirmative coverages as Lender may reasonably request, and (iv) name Lender, its successors and assigns, as the insured. The Title Insurance Policy shall be assignable without cost to Lender. Lender also shall have received evidence that all premiums in respect of such Title Insurance Policy have been paid. (c) SURVEY. Lender shall have received a title survey for the Property, certified to the title company and Lender and their successors and assigns, in form and content satisfactory to Lender and prepared by a professional and properly licensed land surveyor satisfactory to Lender in accordance with the most recent Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys. The following additional items from the list of "Optional Survey Responsibilities and Specifications" (Table A) should be added to each survey: 2, 3, 4, 6, 8, 9, 10, 11 and 13. The survey shall reflect the same legal description contained in the Title Insurance Policy relating to the Property referred to in clause (ii) above and shall include, among other things, a legal description of the real property comprising part of such Property reasonably satisfactory to Lender. The surveyor's seal shall be affixed to each survey and the surveyor shall provide a certification for each survey in form and substance acceptable to Lender. (d) INSURANCE. Lender shall have received valid certificates of insurance for the policies of insurance required hereunder, satisfactory to Lender in its sole discretion, and evidence of the payment of all premiums payable for the existing policy period. (e) ENVIRONMENTAL REPORTS. Lender shall have received an environmental report in respect of the Property, in each case reasonably satisfactory to Lender. (f) ZONING. With respect to the Property, Lender shall have received, at Lender's option, (i) letters, if available, or other evidence with respect to the Property from the appropriate municipal authorities (or other Persons) concerning applicable zoning and building laws, (ii) an ALTA 3.1 zoning endorsement for the Title Insurance Policy or (iii) other evidence of zoning compliance, in each case in substance reasonably satisfactory to Lender. (g) ENCUMBRANCES. Borrower shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first Lien on the Property as of the Closing Date with respect to the Mortgage on the Property, subject only to applicable 24 Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof. 3.1.4 RELATED DOCUMENTS. Each additional document not specifically referenced herein, but relating to the transactions contemplated herein, shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies thereof. 3.1.5 DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or before the Closing Date, Borrower shall deliver or cause to be delivered to Lender copies certified by Borrower of all organizational documentation related to Borrower and/or the formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Lender. 3.1.6 OPINIONS OF BORROWER'S COUNSEL. Lender shall have received opinions of Borrower's counsel with respect to (a) non-consolidation issues ("INSOLVENCY OPINION") and (b) due execution, authority, enforceability of the Loan Documents and such other matters as Lender may reasonably require, all such opinions in form, scope and substance reasonably satisfactory to Lender and Lender's counsel in their reasonable discretion. 3.1.7 BUDGET. Borrower shall have delivered, and Lender shall have approved, the Annual Budget for the current Fiscal Year. 3.1.8 BASIC CARRYING COSTS. Borrower shall have paid all Basic Carrying Costs relating to the Property which are in arrears, including without limitation, (a) accrued but unpaid insurance premiums relating to the Property, (b) currently due and payable Taxes (including any in arrears) relating to the Property, and (c) currently due Other Charges relating to the Property, which amounts shall be funded with proceeds of the Loan. 3.1.9 COMPLETION OF PROCEEDINGS. All organizational proceedings taken or to be taken in connection with the transactions contemplated by this Agreement and other Loan Documents and all documents incidental thereto shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all such counterpart originals or certified copies of such documents as Lender may reasonably request. 3.1.10 PAYMENTS. All payments, deposits or escrows required to be made or established by Borrower under this Agreement, the Note and the other Loan Documents on or before the Closing Date shall have been paid. 3.1.11 TENANT ESTOPPELS. (a) Lender shall have received an executed tenant estoppel letter, which shall be in form and substance satisfactory to Lender, from each Major Tenant, and (b) Borrower shall exercise reasonable commercial efforts to deliver estoppel letters from Tenants occupying not less than seventy percent (70%), disregarding the area leased by Major Tenants of the remaining gross leasable area of the Property; provided, however, that, in the event that Borrower is unable to deliver some or all of the estoppels described in clause (b) of this Section 3.1.11, Lender agrees that the requirement to deliver such letters to Lender shall be 25 waived by Lender as a condition precedent to the closing of the Loan so long as Borrower delivers on or before the Closing Date, a certificate executed by Borrower with respect to all applicable leases which shall be in substantially the same form and contain the same terms as set forth in Lender's standard form of estoppel certificate. 3.1.12 TRANSACTION COSTS. Borrower shall have paid or reimbursed Lender for all title insurance premiums, recording and filing fees, costs of environmental reports, Physical Conditions Reports, appraisals and other reports, the fees and costs of Lender's counsel and all other third party out-of-pocket expenses incurred in connection with the origination of the Loan. 3.1.13 MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the financial condition or business condition of Borrower, any Major Tenant or the Property since the date of the most recent financial statements delivered to Lender. The income and expenses of the Property, the occupancy leases thereof, and all other features of the transaction shall be as represented to Lender without material adverse change. Neither Borrower nor any of its constituent Persons nor any Major Tenant shall be the subject of any bankruptcy, reorganization, or insolvency proceeding. 3.1.14 LEASES AND RENT ROLL. Lender shall have received copies of all tenant leases, certified copies of any tenant leases as requested by Lender and certified copies of all ground leases affecting the Property. Lender shall have received a current certified rent roll of the Property, reasonably satisfactory in form and substance to Lender. 3.1.15 SUBORDINATION AND ATTORNMENT. Lender shall have received appropriate instruments acceptable to Lender in its commercially reasonable discretion subordinating the Leases of each of the Major Tenants and other Leases of record prior to the Mortgage and including an agreement by such Tenants to attorn to Lender in the event of a foreclosure or delivery of a deed in lieu thereof. 3.1.16 TAX LOT. Lender shall have received evidence that the Property constitutes one (1) or more separate tax lots, which evidence shall be reasonably satisfactory in form and substance to Lender. 3.1.17 PHYSICAL CONDITIONS REPORTS. Lender shall have received Physical Conditions Reports with respect to the Property, which reports shall be reasonably satisfactory in form and substance to Lender. 3.1.18 MANAGEMENT AGREEMENT. Lender shall have received a certified copy of the Management Agreement with respect to the Property which shall be satisfactory in form and substance to Lender. 3.1.19 APPRAISAL. Lender shall have received an appraisal of the Property, which shall be satisfactory in form and substance to Lender. 3.1.20 FINANCIAL STATEMENTS. Lender shall have received (a) a balance sheet with respect to the Property for the two most recent Fiscal Years and statements of income and statements of cash flows with respect to the Property for the three most recent Fiscal Years, each in form and substance reasonably satisfactory to Lender or (b) such other financial statements 26 relating to the ownership and operation of the Property, in form and substance reasonably satisfactory to Lender. 3.1.21 FURTHER DOCUMENTS. Lender or its counsel shall have received such other and further approvals, opinions, documents and information as Lender or its counsel may have reasonably requested including the Loan Documents in form and substance reasonably satisfactory to Lender and its counsel. 3.1.22 ENVIRONMENTAL INSURANCE. If required by Lender, Borrower shall have obtained a secured creditor environmental insurance policy with respect to the Property, which shall be in form and substance satisfactory to Lender. Any such policy shall have a term not less than the term of the Loan. Borrower shall have provided to Lender evidence that the premiums for such policy has been paid in full. 3.1.23 GROUND LESSOR ESTOPPELS. Borrower shall have delivered, or cause to be delivered, to Lender ground lessor estoppels and agreements from the ground lessors in form and substance acceptable to Lender. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 BORROWER REPRESENTATIONS. Borrower represents and warrants as of the date hereof and as of the Closing Date that: 4.1.1 ORGANIZATION. Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own the Property and to transact the businesses in which it is now engaged. Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with the Property, businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own the Property and to transact the businesses in which it is now engaged, and the sole business of Borrower is the ownership, management and operation of the Property. 4.1.2 PROCEEDINGS. Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and such other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 NO CONFLICTS. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the 27 property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower or any of Borrower's properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any court or any such regulatory authority or other governmental agency or body required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect. 4.1.4 LITIGATION. To Borrower's knowledge, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting Borrower or the Property, which actions, suits or proceedings, if determined against Borrower or the Property, might materially adversely affect the condition (financial or otherwise) or business of Borrower or the condition or ownership of the Property. 4.1.5 AGREEMENTS. Except such instruments and agreements set forth as Permitted Encumbrances in the Title Insurance Policy, Borrower is not a party to any agreement or instrument or subject to any restriction which might materially and adversely affect Borrower or the Property, or Borrower's business, properties or assets, operations or condition, financial or otherwise. To Borrower's knowledge, Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower or the Property are bound. Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower is a party or by which Borrower or the Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Property and (b) obligations under the Loan Documents. 4.1.6 TITLE. Borrower has good, marketable and insurable leasehold estate in and to the real property comprising part of the Property and good title to the balance of the Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. The Mortgage, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (a) a valid, perfected lien on the Property, subject only to Permitted Encumbrances and the Liens created by the Loan Documents and (b) perfected security interests in and to, and perfected collateral assignment of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. There are no claims for payment for work, labor or materials affecting the Property which are due and unpaid under the contracts pursuant to which such work or labor was performed or materials provided which are or may become a lien prior to, or of equal priority with, the Liens created by the Loan Documents. 28 4.1.7 SOLVENCY; NO BANKRUPTCY FILING. Borrower (a) has not entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) received reasonably equivalent value in exchange for its obligations under such Loan Documents. Giving effect to the Loan, the fair saleable value of Borrower's assets exceeds and will, immediately following the making of the Loan, exceed Borrower's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. The fair saleable value of Borrower's assets is and will, immediately following the making of the Loan, be greater than Borrower's probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured. Borrower's assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debt and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debt and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and the amounts to be payable on or in respect of obligations of Borrower). Except as expressly disclosed to Lender in writing, no petition in bankruptcy has been filed against Borrower, or to the best of Borrower's knowledge, any constituent Person in the last seven (7) years, and neither Borrower, nor to the best of Borrower's knowledge, any constituent Person in the last seven (7) years has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. Neither Borrower nor any of its constituent Persons are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of Borrower's assets or property, and Borrower has no knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.8 FULL AND ACCURATE DISCLOSURE. To Borrower's knowledge, no statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein, not misleading. There is no material fact presently known to Borrower which has not been disclosed to Lender which adversely affects, nor as far as Borrower can foresee, might adversely affect, the Property or the business, operations or condition (financial or otherwise) of Borrower. 4.1.9 NO PLAN ASSETS. Borrower is not an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of Borrower constitutes or will constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) Borrower is not a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower are not subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Loan Agreement. 4.1.10 COMPLIANCE. To Borrower's knowledge, Borrower and the Property and the use thereof comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority. There 29 has not been committed by Borrower or, to Borrower's knowledge, any other Person in occupancy of or involved with the operation or use of the Property any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. 4.1.11 FINANCIAL INFORMATION. All financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of the Property (i) are to the best of Borrower's knowledge, true, complete and correct in all material respects, (ii) accurately represent the financial condition of the Property as of the date of such reports, and (iii) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with accounting principles reasonably acceptable to Lender, consistently applied throughout the periods covered, except as disclosed therein; PROVIDED, HOWEVER, that if any financial data is delivered to Lender by any Person other than Borrower, Indemnitor or any of their Affiliates, or if such financial data has been prepared by or at the direction of any Person other than Borrower, Indemnitor or any of their Affiliates, then the foregoing representations with respect to such financial data shall be to the best of Borrower's knowledge, after due inquiry. Borrower does not have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and reasonably likely to have a materially adverse effect on the Property or the operation thereof as retail shopping centers, except as referred to or reflected in said financial statements. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower from that set forth in said financial statements. 4.1.12 CONDEMNATION. No Condemnation or other proceeding has been commenced or, to Borrower's knowledge, is contemplated with respect to all or any portion of the Property or for the relocation of roadways providing access to the Property. 4.1.13 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 4.1.14 UTILITIES AND PUBLIC ACCESS. The Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service the Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of the Property are located either in the public right-of-way abutting the Property (which are connected so as to serve the Property without passing over other property) or in recorded easements serving the Property and such easements are set forth in and insured by the Title Insurance Policies. All roads necessary for the use of the Property for their current respective purposes have been completed and dedicated to public use and accepted by all Governmental Authorities. 30 4.1.15 NOT A FOREIGN PERSON. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. 4.1.16 SEPARATE LOTS. The Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of the Property. 4.1.17 ASSESSMENTS. There are no pending, or to Borrower's knowledge, proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments. 4.1.18 ENFORCEABILITY. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable, and Borrower has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 4.1.19 NO PRIOR ASSIGNMENT. There is no prior assignment of the Leases or any portion of the Rents by Borrower or any of its predecessors in interest, given as collateral security which is presently outstanding. 4.1.20 INSURANCE. Borrower has obtained and has delivered to Lender certified copies of all insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. To the best of Borrower's knowledge, no claims have been made under any such policy, and no Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any such policy. 4.1.21 USE OF PROPERTY. The Property is used exclusively for retail purposes and other appurtenant and related uses. 4.1.22 CERTIFICATE OF OCCUPANCY; LICENSES. All certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits required to be obtained by Borrower for the legal use, occupancy and operation of the Property as a retail shopping center have been obtained and are in full force and effect, and to the best of Borrower's knowledge, after due inquiry, all certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits required to be obtained by any Person other than Borrower for the legal use, occupancy and operation of the Property as a retail shopping center, have been obtained and are in full force and effect (all of the foregoing certifications, permits, licenses and approvals are collectively referred to as the "LICENSES"). Borrower shall and shall cause all other Persons to, keep and maintain all Licenses necessary for the operation of the Property as a retail shopping center. To Borrower's knowledge, the use being made of the Property is in conformity with all certificates of occupancy issued for the Property. 4.1.23 FLOOD ZONE. To the best of Borrower's knowledge, after due inquiry, none of the Improvements on the Property are located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards. 31 4.1.24 PHYSICAL CONDITION. Except as disclosed in the Physical Conditions Reports delivered to Lender in connecting with this Loan, to Borrower's knowledge, the Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; there exists no structural or other material defects or damages in the Property, whether latent or otherwise, and Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in the Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. 4.1.25 BOUNDARIES. To the best of Borrower's knowledge, after due inquiry, all of the improvements which were included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvements on adjoining properties encroach upon the Property, and no easements or other encumbrances upon the Property encroach upon any of the improvements, so as to affect the value or marketability of the Property except those which are insured against by title insurance. 4.1.26 LEASES. The Property is not subject to any Leases other than the Leases described on the Rent Roll attached as SCHEDULE II hereto and made a part hereof. To the best of Borrower's knowledge, no Person has any possessory interest in the Property or right to occupy the same except under and pursuant to the provisions of the Leases. The current Leases are in full force and effect and to Borrower's knowledge, there are no defaults thereunder by either party and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults thereunder. To the best of Borrower's knowledge, no Rent (including security deposits) has been paid more than one (1) month in advance of its due date. To the best of Borrower's knowledge, all work to be performed by Borrower under each Lease has been performed as required and has been accepted by the applicable tenant, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Borrower to any tenant has already been received by such tenant. To the best of Borrower's knowledge, there has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is outstanding. To Borrower's knowledge, no tenant listed on SCHEDULE II has assigned its Lease or sublet all or any portion of the premises demised thereby, no such tenant holds its leased premises under assignment or sublease, nor does anyone except such tenant and its employees occupy such leased premises. No tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the leased premises or the building of which the leased premises are a part. Except as set forth in SCHEDULE II, no tenant under any Lease has any right or option for additional space in the Improvements except as set forth in SCHEDULE II. To Borrower's actual knowledge based on the Environmental Report delivered to Lender in connection herewith, no hazardous wastes or toxic substances, as defined by applicable federal, state or local statutes, rules and regulations, have been disposed, stored or treated by any tenant under any Lease on or about the leased premises nor does Borrower have any knowledge of any tenant's intention to use its leased premises for any activity which, directly or indirectly, involves the use, generation, treatment, storage, disposal or transportation of any petroleum product or any toxic or hazardous 32 chemical, material, substance or waste, except in either event, in compliance with applicable federal, state or local statues, rules and regulations. 4.1.27 SURVEY. The Survey for the Property delivered to Lender in connection with this Agreement has been prepared in accordance with the provisions of Section 3.1.3(c) hereof, and does not fail to reflect any material matter affecting the Property or the title thereto. 4.1.28 LOAN TO VALUE. The maximum principal amount of the Loan does not exceed one hundred twenty-five percent (125%) of the fair market value of the Property as set forth on the appraisals of the Property delivered to Lender. 4.1.29 FILING AND RECORDING TAXES. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Property to Borrower have been paid or are simultaneously being paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Mortgage, have been paid, and, under current Legal Requirements, the Mortgage is enforceable in accordance with its terms by Lender (or any subsequent holder thereof). 4.1.30 SPECIAL PURPOSE ENTITY/SEPARATENESS. (a) Until the Debt has been paid in full, Borrower hereby represents, warrants and covenants that the Borrower is, shall be and shall continue to be a Special Purpose Entity. If Borrower consists of more than one Person, each such Person shall be a Special Purpose Entity. (b) The representations, warranties and covenants set forth in Section 4.1.30(a) shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document. (c) Any and all of the assumptions made in any Insolvency Opinion, including, but not limited to, any exhibits attached thereto, will have been and shall be true and correct in all respects, and Borrower will have complied and will comply with all of the assumptions made with respect to it in any Insolvency Opinion. Each entity other than Borrower with respect to which an assumption is made in any Insolvency Opinion will have complied and will comply with all of the assumptions made with respect to it in any such Insolvency Opinion. 4.1.31 MANAGEMENT AGREEMENT. The Management Agreement is in full force and effect and, to Borrower's knowledge, there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. 4.1.32 ILLEGAL ACTIVITY. To Borrower's knowledge, no portion of the Property has been or will be purchased with proceeds of any illegal activity. 33 4.1.33 NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE. All information submitted by Borrower to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower in this Agreement or in any other Loan Document, are accurate, complete and correct in all material respects, provided, however, that if such information was provided to Borrower by non-affiliated third parties, Borrower represents that such information is, to the best of its knowledge after due inquiry, accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or might materially and adversely affect the Property or the business operations or the financial condition of Borrower. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. 4.1.34 GROUND LEASE. (a) Borrower will comply in all material respect with the terms and conditions of the Ground Lease. Borrower will not do or permit anything to be done, the doing of which, or refrain from doing anything, the omission of which, will impair or tend to impair the security of the Property under the Ground Lease or will be grounds for declaring a forfeiture of the Ground Lease. (b) Borrower shall enforce the Ground Lease and will not terminate, modify, cancel, change, supplement, alter or amend the Ground Lease, or waive, excuse, condone or in any way release or discharge the lessors under each Ground Lease (individually and collectively, the "GROUND LESSOR") of or from any of the material covenants and conditions to be performed or observed by the lessors under each Ground Lease. Borrower hereby expressly covenants with Lender not to cancel, surrender, amend, modify or alter in any way the terms of the Ground Lease. Borrower hereby assigns to Lender, as further security for the payment of the Debt and for the performance and observance of the terms, covenants and conditions of the Mortgage, all of the rights, privileges and prerogatives of Borrower as tenant under the Ground Lease to surrender the leasehold estate created by the Ground Lease or to terminate, cancel, modify, change, supplement, alter or amend the Ground Lease, and any such surrender of the leasehold estate created by the Ground Lease or termination, cancellation, modification, change, supplement, alteration or amendment of the Ground Lease without the prior consent of Lender shall be void and of no force and effect. (c) Borrower will give Lender prompt (and in all events within three (3) days) notice of any default under the Ground Lease of which it has knowledge or of the receipt by Borrower of any notice of default from Ground Lessor. Borrower will promptly (and in all events within three (3) days) furnish to Lender copies of all information furnished to Ground Lessor by the terms of the Ground Lease or the provisions of this Section. Borrower will deliver to Lender an exact copy of any notice, communication, plan, specification or other instrument or document received or given by Borrower in any way relating to or affecting the Ground Lease which may concern or affect the estate of Ground Lessor or Borrower thereunder in or under the Ground Lease or in the real estate thereby demised. 34 (d) Lender shall have the right, but not the obligation, to perform any obligations of Borrower under the terms of the Ground Lease during the continuance of a default thereunder. All costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) so incurred, shall be treated as an advance secured by the Mortgage, shall bear interest thereon at the Default Rate from the date of payment by Lender until paid in full and shall be paid by Borrower to Lender during the continuance of a default within five (5) days after the demand. No performance by Lender of any obligations of Borrower shall constitute a waver of any default arising by reason of Borrower's failure to perform the same. If Lender shall make any payment or perform any act or take action in accordance with this provision, Lender will notify Borrower of the making of any such payment, the performance of any such act, or the taking of any such action. In any such event, Lender and any person designated by Lender shall have, and are hereby granted, the right to enter upon the Property at any time and from time to time for the purpose of taking any such action. (e) To the extent permitted by law, the price payable by Borrower or any other person or entity in the exercise of any right or redemption following foreclosure of the Property shall include all rents paid and other sums advanced by Lender, together with interest thereon at the Default Rate as ground lessee under the Ground Lease, on behalf of Borrower on account of the Property. (f) Unless Lender shall otherwise consent, the fee title and the leasehold estate in the Property shall not merge but shall always be kept separate and distinct, notwithstanding the union of said estates either in Ground Lessor or in Borrower, or in a third party, by purchase or otherwise. (g) Upon acquisition by Borrower of the fee title or any other estate, title or interests in the Property, the Mortgage shall, automatically and without the necessity of execution of any other documents, attach to and cover and be a lien upon such other estate so acquired, and such other estate shall be considered as mortgaged, assigned and conveyed to Lender an the lien hereof spread to cover such estate with the same force and effect as though specifically herein mortgaged, assigned and conveyed. The provisions of this subsection (g) shall not apply if Lender acquires fee title to the Property unless Lender shall so elect. (h) Intentionally Omitted. (i) Borrower shall exercise each individual option, if any, to extend or renew the term of the Ground Lease promptly (and in all events within five (5) days) after demand by Lender made at any time within one (1) year prior to the last day upon which any such option may be exercised, and Borrower hereby expressly authorizes and appoints Lender its attorney-in-fact to exercise any such option in the name of and upon behalf of Borrower to exercise such option if Borrower fails to exercise as herein required, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. (j) Each Lease hereafter made and each renewal of any existing Lease affecting the Property shall provide that, (i) in the event of the termination of the Ground Lease, the Lease shall not terminate or be terminable by the lessee; (ii) in the event of any action for the foreclosure of the Mortgage, the Lease shall not terminate or be terminable by the lessee by 35 reason of the termination of the Ground Lease unless the lessee is specifically named and joined in any such action and unless a judgment is obtained therein against the lessee; and (iii) in the event that the Ground Lease is terminated as aforesaid, the lessee under the Lease shall attorn to the lessor under the Ground Lease or to the purchaser at the sale of the Property on such foreclosure, as the case may be. (k) Borrower hereby assigns, transfers and sets over to Lender all of Borrower's claims and rights to the payment of damages arising from any rejection by the Ground Lessor of the Ground Lease under the Bankruptcy Code. Borrower shall notify Lender promptly (and in any event within five (5) days) of any claim, suit action or proceeding relating to the rejection of the Ground Lease. Lender is hereby irrevocably appointed as Borrower's attorney-in-fact, coupled with an interest, with exclusive power to file and prosecute, to the exclusion of Borrower, any proofs of claim, complaints, motions, applications, notices and other documents, in any case in respect of the Ground Lessor under the Bankruptcy Code during the continuance of any default. Borrower may make any compromise or settlement in connection with such proceedings (subject to Lender's approval); provided, however, that Lender shall be authorized and entitled to compromise or settle any such proceeding if such compromise or settlement is made after the occurrence of an Event of Default. Borrower shall promptly execute and deliver to Lender any and all instruments reasonably required in connection with any such proceeding after request therefor by Lender. Except as set forth above, Borrower shall not adjust, compromise, settle or enter into any agreement with respect to such proceedings without the prior written consent of Lender. (l) Borrower shall not, without Lender's prior written consent, elect to treat the Ground Lease as terminated under Section 356(h)(1) of the Bankruptcy Code. Any such election made without Lender's prior written consent shall be void. (m) If pursuant to Section 365(h)(2) of the Bankruptcy Code, Borrower seeks to offset against the rent reserved in the Ground Lease the amount of any damages caused by the non-performance by the Ground Lessor of any of the Ground Lessor's obligations under the Ground Lease after the rejection by the Ground Lessor of the Ground Lease under the Bankruptcy Code, Borrower shall, prior to effecting such offset, notify Lender of its intention to do so, setting forth the amounts proposed to be so offset and the basis therefor. If Lender has failed to object as aforesaid within ten (10) days after notice from Borrower in accordance with the first sentence of this subsection (m), Borrower may proceed to effect such offset in the amounts set forth in Borrower's notice. Neither Lender's failure to object as aforesaid nor any objection or other communication between Lender and Borrower relating to such offset shall constitute an approval of any such offset by Lender. Borrower shall indemnify and save Lender harmless from and against any and all claims, demands, actions, suits, proceedings, damages, losses, costs and expenses of every nature whatsoever (including, without limitation, reasonable attorneys' fees and disbursements) arising from or relating to any such offset by Borrower against the rent reserved in the Ground Lease. (n) If any action, proceeding, motion or notice shall be commenced or filed in respect of Borrower or, following an Event of Default, the Property in connection with any case under the Bankruptcy Code, Lender shall have the option, to the exclusion of Borrower, exercisable upon notice from Lender to Borrower, to conduct and control any such litigation with 36 counsel of Lender's choice. Lender may proceed in its own name or in the name of Borrower in connection with any such litigation, and Borrower agrees to execute any and all powers, authorizations, consents and other documents required by Lender in connection therewith. Borrower shall pay to Lender al costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) paid or incurred by Lender in connection with the prosecution or conduct of any such proceedings within five (5) days after notice form Lender setting forth such costs and expenses in reasonable detail. Any such costs or expenses not paid by Borrower as aforesaid shall be secured by the lien of the Mortgage, shall be added to the principal amount of the Debt and shall bear interest at the Default Rate. Borrower shall not commence any action, suit, proceeding or case, or file any application or make any motion, in respect to the Ground Lease in any such case under the Bankruptcy Code without the prior written consent of Lender. (o) Borrower shall immediately, after obtaining knowledge thereof, notify Lender of any filing by or against the Ground Lessor of a petition under the Bankruptcy Code. Borrower shall thereafter forthwith give written notice of such filing to Lender, setting forth any information available to Borrower as to the date of such filing, the court in which such petition was filed, and the relief sought therein. Borrower shall promptly deliver to Lender following receipt any and all notices, summonses, pleadings, applications and other documents received by Borrower in connection with any such petition and any proceedings relating thereto. (p) If there shall be filed by or against Borrower a petition under the Bankruptcy Code, and Borrower, as the tenant under the Ground Lease, shall determine to reject the Ground Lease pursuant to Section 365(a) of the Bankruptcy Code, then Borrower shall give Lender not less than ten (10) days' prior written notice of the date on which Borrower shall apply to the bankruptcy court for authority to reject the Ground Lease. Lender shall have the right, but not the obligation, to serve upon Borrower within such 10-day period a notice stating that (i) Lender demands that Borrower assume and assign the Ground Lease to Lender pursuant to Section 365 of the Bankruptcy Code and (ii) Lender covenants to cure or provide adequate assurance of prompt cure of all defaults and provide adequate assurance of further performance under the Ground Lease. If Lender serves upon Borrower the notice described in the preceding sentence, Borrower shall not seek to reject the Ground Lease and shall comply with the demand provided for in clause (i) of the preceding sentence within thirty (30) days after the notice shall have been given, subject to the performance by Lender of the covenant provided for in clause (ii) of the preceding sentence. (q) Effective upon the entry of an order for relief in respect of Borrower under the Bankruptcy Code, Borrower hereby assigns and transfers to Lender a non-exclusive right to apply to the Bankruptcy Court under Section 365(d)(4) of the Bankruptcy Code for an order extending the period during which the Ground Lease may be rejected or assumed. (r) Borrower represents and warrants that (i) the Ground Lease may be assigned form time to time without the consent of Ground Lessor (or if such consent is required, it has properly been obtained); (ii) Borrower has the right under the Ground Lease to mortgage the Ground Lease and the leasehold estate thereby created without the prior consent of Ground Lessor of such if consent is required, it has properly been obtained; (iii) if any default by Borrower shall occur under the Ground Lease, Lender is entitled under the Ground Lease to receive notice of such default from Ground Lessor and an opportunity to cure any such default 37 which is susceptible of cure by Lender; (iv) if the Ground Lease is terminated by reason of a default by Borrower, Lender or its designee is entitled under the Ground Lease to enter into a new lease (the "NEW LEASE") with Ground Lessor for the remainder of the term of the Ground Lease upon the same base rent and additional rent and other terms, covenants, conditions and agreements as are contained in the Ground Lease; (v) the Ground Lease or a supplemental agreement requires the Ground Lessor to give copies of all notices of default which are given under the Ground Lease to Borrower contemporaneously to Lender; (vi) the Ground Lease represents the entire agreement between the parties thereto and is in full force and effect and has not been modified or supplemented; (vii) the Ground Lease cannot be canceled solely by Ground Lessor and requires Borrower's consent for all material modifications; (viii) all rents (including additional rents and other charges) reserved for in the Ground Lease and payable prior to the date thereof have been paid; (ix) no party to the Ground Lease is in default of any obligation such party has thereunder and no event has occurred which, with the giving of notice or the lapse of time, or both, would constitute such a default; and (x) no notice or other written or oral communication has been provided to any party under the Ground Lease which alleges that, as of the date hereof, either a default exists or with the passage of time will exist under the provisions of such Ground Lease. 4.1.35 PRINCIPAL PLACE OF BUSINESS AND ORGANIZATION. Borrower shall not change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Lender thirty (30) days prior written notice. Borrower shall not change the place of its organization as set forth in the introductory paragraph of this Agreement without the consent of Lender, which consent shall not be unreasonably withheld, conditioned or delayed. Upon Lender's request, Borrower shall execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender's security interest in the Property as a result of such change of principal place of business or place of organization. 4.1.36 INVESTMENT COMPANY ACT. Borrower is not (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. 4.1.37 FICTITIOUS NAME STATUTE. Borrower, if applicable, has duly complied with all requirements of the Florida Fictitious Name Statute. 4.2 SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf 38 ARTICLE V BORROWER COVENANTS Section 5.1 AFFIRMATIVE COVENANTS. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgage encumbering the Property (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS; INSURANCE. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises and comply with all Legal Requirements applicable to it and the Property. There shall never be committed by Borrower or any other Person in occupancy of or involved with the operation or use of the Property any act or omission affording the federal government or any state or local government the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall at all times maintain, preserve and protect all its franchises and trade names and preserve all the remainder, of its property used or useful in the conduct of its business and shall keep the Property in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgage. Borrower shall keep the Property insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. Borrower shall operate, or cause the tenant to operate, any Property that is the subject of an O&M Agreement (if any) in accordance with the terms and provisions thereof in all material respects. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower or the Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) intentionally omitted; (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iv) the Property or any part thereof or interest therein will not be in danger of being sold, forfeited, terminated, concealed or lost; (v) Borrower shall promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (vi) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower or the Property; and (vii) Borrower shall furnish such security as may be required in the proceeding, or as may be requested by Lender, to insure compliance with such Legal Requirement, together, with all interest and penalties payable in connection therewith. Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Lender, the validity, applicability or violation of such Legal Requirement 39 is finally established or the Property (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 5.1.2 TAXES AND OTHER CHARGES. Borrower shall pay or caused to be paid all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Property or any part thereof as the same become due and payable; provided, however, Borrower's obligation to directly pay to the appropriate taxing authority Taxes shall be suspended for so long as Borrower complies with the terms and provisions of Section 7.2 hereof. Borrower will deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent no later than ten (10) days prior to the date on which the Taxes and/or Other Charges would otherwise be delinquent if not paid (PROVIDED, HOWEVER, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Lender pursuant to Section 7.2 hereof). If Borrower pays or causes to be paid all Taxes and Other Charges and provides a copy of the receipt evidencing the payment thereof to Lender, then Lender shall reimburse Borrower, provided that there are then sufficient proceeds in the Tax and Insurance Escrow Fund and provided that the Taxes are being paid pursuant to Section 7.2. Upon written request of Borrower, if Lender has paid such Taxes pursuant to Section 7.2 hereof, Lender shall provide Borrower with evidence that such Taxes have been paid. Borrower shall not suffer and shall promptly cause to be paid and discharged any Lien or charge whatsoever which may be or become a Lien or charge against the Property, and shall promptly pay for all utility services provided to the Property. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (i) Borrower is permitted to do so under the provisions of any mortgage or deed of trust superior in lien to the Mortgage; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iii) the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the Property; and (vi) Borrower shall furnish such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established. 5.1.3 LITIGATION. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower which might materially adversely affect Borrower's condition (financial or otherwise) or business or the Property. 5.1.4 ACCESS TO PROPERTY. Borrower shall permit agents, representatives and employees of Lender to inspect the Property or any part thereof at reasonable hours upon reasonable advance notice, subject to the rights of Tenants under their respective Leases. 40 5.1.5 NOTICE OF DEFAULT. Borrower shall promptly advise Lender of any material adverse change in Borrower's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge. 5.1.6 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. 5.1.7 PERFORM LOAN DOCUMENTS. Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, Borrower. 5.1.8 INSURANCE BENEFITS. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Insurance Proceeds lawfully or equitably payable in connection with the Property, and Lender shall be reimbursed for any expenses incurred in connection therewith (including reasonable attorneys' fees and disbursements, and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of a fire or other casualty affecting the Property or any part thereof) out of such Insurance Proceeds. 5.1.9 FURTHER ASSURANCES. Borrower shall, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.10 INTENTIONALLY OMITTED. 5.1.11 FINANCIAL REPORTING. (a) Borrower will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with the requirements for a Special Purpose Entity set forth above, proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense in connection with the operation on an individual 41 basis of the Property. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence and during the continuance of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Property, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender's interest. (b) Borrower will furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Borrower, either (i) a complete copy of Borrower's annual financial statements audited by a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender in accordance with the requirements for a Special Purpose Entity set forth above, or (ii) a consolidated and annotated financial statement of Borrower and Sole Member, audited by a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender in accordance with the requirements for a Special Purpose Entity set forth above, together with unaudited financial statements relating to the Borrower and the Property. Such financial statements for the Property for such Fiscal Year and shall contain statements of profit and loss for Borrower and the Property and a balance sheet for Borrower. Such statements shall set forth the financial condition and the results of operations for the Property for such Fiscal Year, and shall include, but not be limited to, amounts representing annual Net Cash Flow, Net Operating Income, Gross Income from Operations and Operating Expenses. Borrower's annual financial statements shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior Fiscal Year, (ii) a certificate executed by the chief financial officer of Borrower or Sole Member, as applicable, stating that each such annual financial statement presents fairly the financial condition and the results of operations of Borrower and the Property being reported upon and has been prepared in accordance with accounting principles reasonably acceptable to Lender, consistently applied, (iii) with respect to any consolidated financial statement of Borrower and Sole Member, an unqualified opinion of a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender, (iv) a certified rent roll containing current rent, lease expiration dates and the square footage occupied by each tenant; (v) a schedule audited by such independent certified public accountant reconciling Net Operating Income to Net Cash Flow (the "NET CASH FLOW SCHEDULE"), which shall itemize all adjustments made to Net Operating Income to arrive at Net Cash Flow deemed material by such independent certified public accountant. Together with Borrower's annual financial statements, Borrower shall furnish to Lender an Officer's Certificate certifying as of the date thereof whether there exists an event or circumstance which constitutes a Default or Event of Default under the Loan Documents executed and delivered by, or applicable to, Borrower, and if such Default or Event of Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy the same. (c) Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) days after the end of each calendar quarter the following items, accompanied by a certificate of the chief financial officer of Borrower or the member of Borrower, as applicable, stating that such items are true, correct, accurate, and complete and fairly present the financial condition and results of the operations of Borrower and the Property (subject to normal year-end adjustments) as applicable: (i) a rent roll for the subject period accompanied by an Officer's 42 Certificate with respect thereto; (ii) quarterly and year-to-date operating statements (including Capital Expenditures) prepared for each calendar quarter, noting Net Operating Income, Gross Income from Operations, and Operating Expenses (not including any contributions to the Replacement Reserve Fund, and other information necessary and sufficient to fairly represent the financial position and results of operation of the Property during such calendar month, and containing a comparison of budgeted income and expenses and the actual income and expenses together with a detailed explanation of any variances of five percent (5%) or more between budgeted and actual amounts for such periods, all in form satisfactory to Lender; (iii) a calculation reflecting the annual Debt Service Coverage Ratio for the immediately preceding twelve (12) month period as of the last day of such period accompanied by an Officer's Certificate with respect thereto; and (iv) a Net Cash Flow Schedule (such Net Cash Flow for the Borrower may be unaudited if it is certified by an officer of the Borrower). In addition, such certificate shall also be accompanied by a certificate of the chief financial officer of Borrower or the member of Borrower stating that the representations and warranties of Borrower set forth in Section 4.1.30(a) are true and correct as of the date of such certificate. Provided, further, that during the twelve (12) month period commencing on the date hereof, Borrower will furnish a current rent roll and monthly and year-to-date operating statements within twenty (20) days of Lender's written request. (d) For the partial year period commencing on the date hereof, and for each Fiscal Year thereafter, Borrower shall submit to Lender an Annual Budget not later than thirty (30) days after the commencement of such period or Fiscal Year in form reasonably satisfactory to Lender. (e) Borrower shall furnish to Lender, within ten (10) Business Days after request (or as soon thereafter as may be reasonably possible), such further detailed information with respect to the operation of the Property and the financial affairs of Borrower as may be reasonably requested by Lender. (f) Borrower shall furnish to Lender, within ten (10) Business Days after Lender's request (or as soon thereafter as may be reasonably possible), financial and sales information from each Major Tenant and such other tenants designated by Lender (to the extent such financial and sales information is required to be provided under applicable leases and same is received by Borrower after request therefor). (g) Borrower will cause Indemnitor to furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Indemnitor, financial statements audited by an independent certified public accountant, which shall include an annual balance sheet and profit and loss statement of Indemnitor, in the form reasonably required by Lender. (h) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) on a diskette, and (iii) if requested by Lender and within the capabilities of Borrower's data systems without change or modification thereto, in electronic form and prepared using a Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). 43 5.1.12 BUSINESS AND OPERATIONS. Borrower will continue to engage in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Property. Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Property. 5.1.13 TITLE TO THE PROPERTY. Borrower will warrant and defend (a) the title to the Property and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) and (b) the validity and priority of the Liens of the Mortgage and the Assignment of Leases on the Property, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever. Borrower shall reimburse Lender for any losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by Lender if an interest in the Property, other than as permitted hereunder, is claimed by another Person. 5.1.14 COSTS OF ENFORCEMENT. In the event (a) that the Mortgage encumbering the Property is foreclosed in whole or in part or that the Mortgage is put into the hands of an attorney for collection, suit, action or foreclosure, (b) of the foreclosure of any mortgage prior to or subsequent to the Mortgage encumbering the Property in which proceeding Lender is made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or any of its constituent Persons or an assignment by Borrower or any of its constituent Persons for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys' fees and costs, incurred by Lender or Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.15 ESTOPPEL STATEMENT. (a) After request by Lender, Borrower shall within ten (10) days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the Interest Rate of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Mortgage and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (b) Borrower shall use commercially reasonable efforts to deliver to Lender upon request, tenant estoppel certificates from each commercial tenant leasing space at the Property in form and substance reasonably satisfactory to Lender provided that Borrower shall not be required to deliver such certificates more frequently than one (1) time in any calendar year. (c) Within thirty (30) days of request by Borrower, Lender shall deliver to Borrower a statement setting forth the items described at (a)(i), (ii), (iii) and (iv) of this Section 5.1.15. 44 5.1.16 LOAN PROCEEDS. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. 5.1.17 PERFORMANCE BY BORROWER. Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior written consent of Lender. 5.1.18 CONFIRMATION OF REPRESENTATIONS. Borrower shall deliver, in connection with any Securitization, (a) one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of such Securitization, and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower and its member as of the date of the Securitization. 5.1.19 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the joint assessment of the Property (a) with any other real property constituting a tax lot separate from the Property, and (b) which constitutes real property with any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Property. 5.1.20 LEASING MATTERS. Any Leases with respect to the Property written after the date hereof, for more than the Relevant Leasing Threshold square footage, shall be subject to the prior written approval of Lender, which approval may be given or withheld in the sole discretion of Lender. Lender shall approve or disapprove any such Lease within ten (10) Business Days of Lender's receipt of a final execution draft of such Lease (including all exhibits, schedules, supplements, addenda or other agreements relating thereto) and a written notice from Borrower requesting Lender's approval to such Lease, and such Lease shall be deemed approved, if Lender does not disapprove such Lease within said ten (10) Business Day period PROVIDED such written notice conspicuously states, in large bold type, that "PURSUANT TO SECTION 5.1.20 OF THE LOAN AGREEMENT, THE LEASE SHALL BE DEEMED APPROVED IF LENDER DOES NOT RESPOND TO THE CONTRARY WITHIN TEN (10) BUSINESS DAYS OF LENDER'S RECEIPT OF SUCH LEASE AND WRITTEN NOTICE." Borrower shall furnish Lender with executed copies of all Leases. All renewals of Leases and all proposed Leases shall provide for rental rates comparable to existing local market rates (unless such rental rates are otherwise set forth in the Leases executed prior to the date hereof). All proposed Leases shall be on commercially reasonable terms and shall not contain any terms which would materially affect Lender's rights under the Loan Documents. All Leases executed after the date hereof shall provide that they are subordinate to the Mortgage encumbering the Property and that the tenant thereunder agrees to attorn to Lender or any purchaser at a sale by foreclosure or power of sale. Borrower (i) shall observe and perform the obligations imposed upon the lessor under the Leases in a commercially reasonable manner; (ii) shall enforce the terms, covenants and conditions contained in the Leases upon the part of the tenant thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair 45 the value of the Property involved except that no termination by Borrower or acceptance of surrender by a tenant of any Lease shall be permitted unless by reason of a tenant default and then only in a commercially reasonable manner to preserve and protect the Property PROVIDED, HOWEVER, that no such termination or surrender of any Lease covering more than the Relevant Leasing Threshold will be permitted without the written consent of Lender which consent may be withheld in the sole discretion of Lender; (iii) shall not collect any of the rents more than one (1) month in advance (other than security deposits); (iv) shall not execute any other assignment of lessor's interest in the Leases or the Rents (except as contemplated by the Loan Documents); (v) shall not alter, modify or change the terms of the Leases in a manner inconsistent with the provisions of the Loan Documents without the prior written consent of Lender, which consent may be withheld in the sole discretion of Lender; and (vi) shall execute and deliver at the request of Lender all such further assurances, confirmations and assignment in connection with the Leases as Lender shall from time to time reasonably require. Notwithstanding the foregoing, Borrower may, without the prior written consent of Lender, terminate any Lease which demises less than the Relevant Leasing Threshold under any of the following circumstances: (i) the tenant under said Lease is in default beyond any applicable grace and cure period, and Borrower has the right to terminate such Lease; (ii) such termination is permitted by the terms of the Lease in question and Borrower has secured an obligation from a third party to lease the space under the Lease to be terminated at a rental equal to or higher than the rental due under the Lease to be terminated; and (iii) if the tenant under the Lease to be terminated has executed a right under said Lease to terminate its lease upon payment of a termination fee to Borrower, and has in fact terminated its lease and paid said fee, Borrower may accept said termination. 5.1.21 ALTERATIONS. Subject to the rights of tenants to make alterations pursuant to the terms of their respective Leases, Borrower shall obtain Lender's prior written consent to any alterations to any Improvements, which consent shall not be unreasonably withheld or delayed except with respect to alterations that may have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income. Notwithstanding the foregoing, Lender's consent shall not be required in connection with any alterations that will not have a material adverse effect on Borrower's financial condition the value of the Property or the Net Operating Income, provided that such alterations are made in connection with (a) tenant improvement work performed pursuant to the terms of any Lease executed on or before the date hereof, (b) tenant improvement work performed pursuant to the terms and provisions of a Lease and not adversely affecting any structural component of any Improvements, any utility or HVAC system contained in any Improvements or the exterior of any building constituting a part of any Improvements, (c) alterations performed in connection with the restoration of the Property after the occurrence of a casualty in accordance with the terms and provisions of this Agreement or (d) any structural alteration which costs less than $50,000,00 in the aggregate for all components thereof which constitute such alteration or any non-structural alteration which costs less than $100,000.00 in the aggregate for all components thereof which constitute such alteration. If the total unpaid amounts due and payable with respect to alterations to the Improvements at the Property (other than such amounts to be paid or reimbursed by tenants under the Leases) shall at any time equal or exceed $350,000.00 (the "THRESHOLD AMOUNT"), Borrower shall promptly deliver to Lender as security for the payment of such amounts and as additional security for Borrower's obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, 46 withdrawal or qualification of the initial, or, if higher, then current ratings assigned in connection with any Securitization, or (D) a completion bond or letter of credit issued by a financial institution having a rating by Standard & Poor's Ratings Group of not less than A-1+ if the term of such bond or letter of credit is no longer than three (3) months or, if such term is in excess of three (3) months, issued by a financial institution having a rating that is acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the initial, or, if higher, then current ratings assigned in connection with any Securitization. Such security shall be in an amount equal to the excess of the total unpaid amounts with respect to alterations to the Improvements on the Property (other than such amounts to be paid or reimbursed by tenants under the Leases) over the Threshold Amount and, if cash, may be applied from time to time, at the option of Borrower, to pay for such alterations. At the option of Lender, following the occurrence and during the continuance of an Event of Default, Lender may terminate any of the alterations and use the deposit to restore the Property to the extent necessary to prevent any material adverse effect on the value of the Property. 5.1.22 PRINCIPAL PLACE OF BUSINESS. Borrower shall not change its principal place of business set forth on the first page of this Agreement without first giving Lender thirty (30) days prior written notice. 5.1.23 GROUND LEASE. Borrower shall timely pay all Ground Rents and other sums due under the Ground Lease and shall timely perform all of its obligations under the Ground Lease. Section 5.2 NEGATIVE COVENANTS. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgage encumbering the Property in accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 OPERATION OF PROPERTY. Borrower shall not, without the prior consent of Lender, terminate the Management Agreement or otherwise replace the Manager or enter into any other management agreement with respect to the Property unless the Manager is in default thereunder beyond any applicable grace or cure period, in which event no consent by Lender shall be required. Lender agrees that its consent will not be unreasonably withheld, delayed or conditioned provided that the Person chosen by Borrower as the replacement Manager is a Qualifying Manager and provided further that Borrower shall deliver an acceptable non-consolidation opinion covering such replacement Manager if any such opinion was delivered at the closing of the Loan and such Person was not covered by that opinion. 5.2.2 LIENS. Borrower shall not, without the prior written consent of Lender, create, incur, assume or suffer to exist any Lien on any portion of the Property or permit any such action to be taken, except: (i) Permitted Encumbrances; (ii) Liens created by or permitted pursuant to the Loan Documents; and 47 (iii) Liens for Taxes or Other Charges not yet due. 5.23 DISSOLUTION. Borrower shall not (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) engage in any business activity not related to the ownership and operation of the Property, (c) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower except to the extent permitted by the Loan Documents, (d) modify, amend, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (e) cause the Sole Member to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which the Sole Member would be dissolved, wound up or liquidated in whole or in part, or (ii) amend, modify, waive or terminate the certificate of limited partnership or partnership agreement of the Sole Member, in each case, without obtaining the prior written consent of Lender or Lender's designee. 5.2.4 CHANGE IN BUSINESS. Borrower shall not enter into any line of business other than the ownership and operation of the Property, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. 5.2.5 DEBT CANCELLATION. Borrower shall not cancel or otherwise forgive or release any claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. 5.2.6 AFFILIATE TRANSACTIONS. Borrower shall not enter into, or be a party to, any transaction with an Affiliate of Borrower or any of the partners of Borrower except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party. Lender hereby acknowledges disclosure of the agreements described on SCHEDULE VI between Borrower and an Affiliate of Borrower. 5.2.7 ZONING. Borrower shall not initiate or consent to any zoning reclassification of any portion of the Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of the Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Lender. 5.2.8 ASSETS. Borrower shall not purchase or own any properties other than the Property. 5.2.9 DEBT. Borrower shall not create, incur or assume any Indebtedness other than the Debt except to the extent expressly permitted hereby. 5.2.10 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the joint assessment of the Property with (a) any other real property constituting a tax lot separate from the Property, or (b) any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the Lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to the Property. 48 5.2.11 INTENTIONALLY DELETED. 5.2.12 ERISA. (a) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, that (A) Borrower is not and does not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: (i) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-10l(b)(2); (ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (iii) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). 5.2.13 TRANSFERS. Unless such action is permitted by the provisions of this Section 5.2.13, Borrower will not (i) sell, assign, convey, transfer or otherwise dispose of its interests in the Property or any part thereof, (ii) permit any owner, directly or indirectly, of an ownership interest in the Property, to transfer such interest, whether by transfer of stock or other interest in Borrower or any entity, or otherwise, (iii) incur Indebtedness, (iv) mortgage, hypothecate or otherwise encumber or grant a security interest in the Property or any part thereof, (v) sell, assign, convey, transfer, mortgage, encumber, grant a security interest in, or otherwise dispose of any direct or indirect ownership interest in Borrower, or permit any owner of an interest in Borrower to do the same, or (vi) file a declaration of condominium with respect to the Property (any of the foregoing transactions, a "TRANSFER"). For purposes hereof, a "Transfer" shall not include any issuance, sale or transfer of interests in Inland Western Retail Real Estate Trust, Inc. (a) On and after the date that is the later of (i) twelve (12) months following the Closing Date, or (ii) the date of any payment of the Contingent Amount pursuant to the Purchase Contract, but in no event later than the date that is twenty four (24) months following the Closing Date, Lender shall not withhold its consent to a Transfer of the Property, provided that the following conditions are satisfied: (1) the transferree of the Property shall be a Special Purpose Entity (the "TRANSFEREE") which at the time of such transfer will be in compliance 49 with the covenants contained in Section 5.1.1 and the representations contained in 4.1.30 hereof and which shall have assumed in writing (subject to the terms of Section 9.4 hereof) and agreed to comply with all the terms, covenants and conditions set forth in this Loan Agreement and the other Loan Documents, expressly including the covenants contained in Section 5.1.1 and the representations contained in 4.1.30 hereof; (2) if requested by Lender, Borrower shall deliver confirmation in writing from the Rating Agencies that such proposed Transfer will not cause a downgrading, withdrawal or qualification of the then current rating of any securities issued pursuant to such Securitization; (3) if Manager does not act as manager of the transferred Property then the manager of the Property must be a Qualifying Manager; (4) no Event of Default shall have occurred and be continuing; (5) if required or requested by any of the Rating Agencies, Borrower shall deliver an Additional Insolvency Opinion, and if required by a Rating Agency, a fraudulent conveyance opinion with respect to Transferee, which opinion shall be acceptable to Lender in its reasonable discretion; (6) Borrower shall have paid (A) an assumption fee equal to one percent (1.0%) of the then outstanding principal balance of the Loan, and (B) the reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer; PROVIDED, HOWEVER, no assumption fee shall be required for a Transfer of the Property to a Transferee acceptable to Lender in connection with a joint venture between Inland Western Retail Real Estate Trust, Inc. and an institution acceptable to Lender provided Inland Western Retail Real Estate Trust, Inc., or an Affiliate wholly-owned (directly or indirectly) by Inland Western Retail Real Estate Trust, Inc., owns at least twenty percent (20%) of the ownership interests in such Transferee and for which Inland Western Retail Real Estate Trust, Inc., or an Affiliate wholly-owned (directly or indirectly) by Inland Western Retail Real Estate Trust, Inc., is the managing entity and otherwise maintains operational and managerial control of such Transferee, provided that Borrower shall pay all of Lender's reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer and a processing fee of $5,000. Lender shall notify Borrower of its approval or disapproval of a proposed Transfer pursuant to this Section 5.2.13(a) within thirty (30) days after receiving from Borrower a written request therefor. 50 (b) On and after the date that is twelve (12) months following the Closing Date, Lender shall not withhold its consent to, and shall not charge an assumption fee in connection with, (1) a Transfer of up to, in the aggregate, forty-nine percent (49%) of the ownership interests in Borrower; or (2) a Transfer of greater than forty-nine percent (49%) of the ownership interest in Borrower, PROVIDED that (A) such transfer is to a Qualified Entity (as defined below), and (B) Borrower shall pay all of Lender's reasonable and customary third-party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer and a processing fee of $5,000. For purposes of this Agreement, a "QUALIFIED ENTITY" shall mean an entity (x) with a net worth of $200,000,000 or more, (y) with sufficient experience (determined by Lender in its reasonable discretion) in the ownership and management of properties similar to the Property, and (z) which owns or manages retail properties containing at least 500,000 square feet of gross leasable area. (c) Notwithstanding anything in this Section 5.2.13 to the contrary, Borrower shall be permitted to Transfer the entire Property to a newly-formed Special Purpose Entity which shall be wholly-owned subsidiary of Inland Western Retail Real Estate Trust, Inc. or affiliate thereof ("PERMITTED AFFILIATE TRANSFEREE") which shall be approved by Lender by the Closing Date ("PERMITTED AFFILIATE TRANSFER"), provided (1) no Event of Default shall have occurred and be continuing, (2) the creditworthiness of Inland Western Retail Real Estate Trust, Inc., as applicable, has not deteriorated, in the sole discretion of Lender, from the Closing Date to the date of the proposed Transfer, and (3) Borrower shall have paid all reasonable and customary third party expenses (including reasonable attorneys' fees and disbursements) actually incurred by Lender in connection with such Transfer (but not any assumption or processing fee). (d) Borrower, without the consent of Lender, may grant easements, restrictions, covenants, reservations and rights of way in the ordinary course of business for access, parking, water and sewer lines, telephone and telegraph lines, electric lines and other utilities or for other similar purposes, provided that no transfer, conveyance or encumbrance shall materially impair the utility and operation of the Property or materially adversely affect the value of the Property or the Net Operating Income of the Property. If Borrower shall receive any consideration in connection with any of said described transfers or conveyances, Borrower shall have the right to use any such proceeds in connection with any alterations performed in connection therewith, or required thereby. In connection with any transfer, conveyance or encumbrance permitted above, the Lender shall execute and deliver any instrument reasonably necessary or appropriate to evidence its consent to said action or to subordinate the Lien of the Mortgage to such easements, restrictions, covenants, reservations and rights of way or other similar grants upon receipt by the Lender of: (A) a copy of the instrument of transfer; and (B) an Officer's Certificate stating with respect to any transfer described above, that such transfer does not materially impair the utility and operation of the Property or materially reduce the value of the Property or the Net Operating Income of the Property. 51 ARTICLE VI INSURANCE; CASUALTY; CONDEMNATION Section 6.1 INSURANCE. (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for Borrower and the Property providing at least the following coverages: (i) comprehensive all risk insurance on the Improvements and the Personal Property, including contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each case (A) in an amount equal to one hundred percent (100%) of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation, but the amount shall in no event be less than the outstanding principal balance of the Loan; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing for no deductible in excess of Ten Thousand and No/100 Dollars ($10,000) for all such insurance coverage; and (D) containing an "Ordinance or Law Coverage" or "Enforcement" endorsement if any of the Improvements or the use of the Property shall at any time constitute legal non-conforming structures or uses. In addition, Borrower shall obtain: (y) if any portion of the Improvements is currently or at any time in the future located in a federally designated "special flood hazard area," flood hazard insurance in an amount equal to the lesser of (1) the outstanding principal balance of the Note or (2) the maximum amount of such insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended or such greater amount as Lender shall require; and (z) earthquake insurance in amounts and in form and substance satisfactory to Lender in the event the Property is located in an area with a high degree of seismic activity, provided that the insurance pursuant to clauses (y) and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this subsection (i). (ii) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, such insurance (A) to be on the so-called "occurrence" form with a combined limit, including umbrella coverage, of not less than Two Million and No/100 Dollars ($2,000,000.00) in the aggregate and One Million and No/100 Dollars ($1,000,000.00) per occurrence; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all legal contracts; and (5) contractual liability covering the indemnities contained in Article 9 of the Mortgage to the extent the same is available; (iii) business income insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in subsection (i) above; (C) 52 covering rental losses or business interruption, as may be applicable, for a period of at least twelve (12) months after the date of the casualty and containing any extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of six (6) months from the date that the Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) in an annual amount equal to 100% of the rents or estimated gross revenues from the operation of the Property (as reduced to reflect expenses not incurred during Restoration). The amount of such business income insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from the Property for the succeeding twelve (12) month period. All proceeds payable to Lender pursuant to this subsection shall be held by Lender and shall be applied to the obligations secured by the Loan Documents from time to time due and payable hereunder and under the Note; PROVIDED, HOWEVER, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured by the Loan Documents on the respective dates of payment provided for in the Note and the other Loan Documents except to the extent such amounts are actually paid out of the proceeds of such business income insurance; (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements, and only if the Property coverage form does not otherwise apply, (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in subsection (i) above written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to subsection (i) above, (3) including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) workers' compensation, subject to the statutory limits of the State; (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial property insurance policy required under subsection (i) above; (vii) umbrella liability insurance in an amount not less than Five Million and No/100 Dollars ($5,000,000.00) per occurrence on terms consistent with the commercial general liability insurance policy required under subsection (ii) above; (viii) if any of the policies of insurance covering the risks required to be covered under subsections (i) through (vii) above contains an exclusion from coverage for acts of terrorism, Borrower shall obtain and maintain a separate policy providing such coverages in the event of any act of terrorism, provided such coverage is commercially available for properties similar to the Property and located in or around the region in which the Property is located. Notwithstanding the foregoing, Borrower shall not be required to 53 obtain such a policy, provided (I) Borrower confirms to Lender, in writing, that it shall protect and hold Lender harmless from any losses associated with such risks by, among other things, either (A) depositing with Lender sums sufficient to pay for all uninsured costs related to a Restoration of the Property following any act of terrorism (which sum shall be treated as a Net Proceeds Deficiency) and any remaining balance following a Restoration shall be remitted by Lender to Borrower in accordance with Section 6.4(b)(vii) hereof), or (B) at the option of Borrower prepaying the Loan in accordance with the terms hereof, including, without limitation, the payment of any Prepayment Consideration due in connection therewith; (II) Inland Western Retail Real Estate Trust, Inc. ("TERRORISM INSURANCE GUARANTOR") executes a guaranty, in form and substance satisfactory to Lender, guaranteeing in the event of any act of terrorism, payment to Lender of any sums that Borrower is obligated to pay to Lender under clause (I) above (which shall be applied in accordance with Section 6.4 hereof), and (III) Terrorism Insurance Guarantor maintains a net worth of at least $300,000,000 (as determined by such entity's most recent audited financial statements), such entity maintains a direct or indirect ownership interest in Borrower, and the aggregate loan-to-value ratio (as determined by Lender) ("LTV") for all properties on which such entity has a direct or indirect ownership interest shall not exceed 55%, however, Terrorism Insurance Guarantor may exceed the 55% LTV for a period not to exceed six (6) months out of any twelve (12) month period either 1) during the time period when Terrorism Insurance Guarantor is offering securities to the public, or 2) when in the business judgement of Terrorism Insurance Guarantor, exceeding an LTV of 55% is necessary given existing circumstances of the credit environment, but in no event shall the LTV exceed 65% if Terrorism Insurance Guarantor maintains a net worth greater than or equal to $300,000,000, but less than $400,000,000, or 70% if Terrorism Insurance Guarantor maintains a net worth of at least $400,000,000. (ix) upon sixty (60) days' written notice, such other reasonable insurance and in such reasonable amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located. (b) All insurance provided for in Section 6.1(a) shall be obtained under valid and enforceable policies (collectively, the "POLICIES" or in the singular, the "POLICY"), and shall be subject to the approval of Lender as to insurance companies, amounts, deductibles, loss payees and insureds. The Policies shall be issued by financially sound and responsible insurance companies authorized to do business in the State and having a rating of "A:X" or better in the current Best's Insurance Reports and a claims paying ability rating of "AA" or better by at least two (2) of the Rating Agencies including, (i) Standard & Poor's Ratings Group, and (ii) Moody's Investors Services, Inc. if Moody's Investors Service, Inc. is rating the Securities. The Policies described in Section 6.1 (other than those strictly limited to liability protection) shall designate Lender as loss payee. Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to Lender, certificates of insurance evidencing the Policies accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "INSURANCE PREMIUMS"), shall be delivered by Borrower to Lender. 54 (c) Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Section 6.1(a). (d) All Policies of insurance provided for or contemplated by Section 6.1(a), except for the Policy referenced in Section 6.l(a)(v), shall name Borrower, or the Tenant, as the insured and Lender as the additional insured, as its interests may appear, and in the case of property damage, boiler and machinery, flood and earthquake insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies of insurance provided for in Section 6.l(a) shall contain clauses or endorsements to the effect that; (i) no act or negligence of Borrower, or anyone acting for Borrower, or of any Tenant or other occupant, or failure to comply with the provisions of any Policy, which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or canceled without at least thirty (30) days' written notice to Lender and any other party named therein as an additional insured; (iii) the issuers thereof shall give written notice to Lender if the Policy has not been renewed fifteen (15) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, after ten (10) Business Days written notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and, until paid, shall be secured by the Mortgage and shall bear interest at the Default Rate. If Borrower fails in so insuring the Property or in so assigning and delivering the Policies, Lender may, at its option, obtain such insurance using such carriers and agencies as Lender shall elect from year to year and pay the premiums therefor, and Borrower will reimburse Lender for any premium so paid, with interest thereon as stated in the Note from the time of payment, on demand, and the amount so owing to Lender shall be secured by the Mortgage. The insurance obtained by Lender may, but need not, protect Borrower's interest and the coverage that Lender purchases may not pay any claim that Borrower makes or any claim, that is made against Borrower in connection with the Property. 55 Section 6.2 CASUALTY. If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"). Borrower (a) shall give to Lender prompt notice of such damage reasonably estimated by Borrower to cost more than One Hundred Thousand Dollars ($100,000.00) to repair, and (b) shall promptly commence and diligently prosecute the completion of the repair and restoration of the Property as nearly as possible to the condition the Property was in immediately prior to such fire or other casualty, with such alterations as may be reasonably approved by Lender (a "RESTORATION") and otherwise in accordance with Section 6.4. Borrower shall pay all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by Borrower. Section 6.3 CONDEMNATION. Borrower shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of the Property and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If the Property or any portion thereof is taken by a condemning authority, Borrower shall promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the provisions of Section 6.4. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt. Section 6.4 RESTORATION. The following provisions shall apply in connection with the Restoration of the Property: (a) If the Net Proceeds shall be less than Relevant Restoration Threshold and the costs of completing the Restoration shall be less than the Relevant Restoration Threshold, the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all of the conditions set forth in clauses (A), (E), (F), (G), (H), (J) and (L) of Section 6.4(b)(i) below are met and Borrower delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Agreement. (b) If the Net Proceeds are equal to or greater than the Relevant Restoration Threshold or the costs of completing the Restoration is equal to or greater than the Relevant Restoration Threshold, then in either case, Lender shall make the Net Proceeds available for the 56 Restoration in accordance with the provisions of this Section 6.4(b). The term "NET PROCEEDS" for purposes of this Section 6.4 shall mean: (x) the net amount of all insurance proceeds received by Lender pursuant to Section 6.1 (a)(i), (iv), (vi) and (viii) as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("INSURANCE PROCEEDS"), or (y) the net amount of the Award, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("CONDEMNATION PROCEEDS"), whichever the case may be. (i) The Net Proceeds shall be made available to Borrower for Restoration provided that each of the following conditions are met: (A) no Event of Default shall have occurred and be continuing; (B) (1) in the event the Net Proceeds are Insurance Proceeds, and (x) less than twenty-five percent (25%) of the total floor area of the Improvements on the Property has been damaged, destroyed or rendered unusable as a result of such fire or other casualty, or (y) Borrower is required under a Lease exceeding the Relevant Leasing Threshold to use the Net Proceeds for the restoration of the Property, or (2) in the event the Net Proceeds are Condemnation Proceeds, and (x) less than ten percent (10%) of the land constituting the Property is taken, and such land is located along the perimeter or periphery of the Property, and no portion of the Improvements is located on such land, or (y) Borrower is required under a Lease exceeding the Relevant Leasing Threshold to use the Net Proceeds for the restoration of the Property; (C) Leases demising in the aggregate a percentage amount equal to or greater than the Rentable Space Percentage of the total rentable space in the Property which has been demised under executed and delivered Leases in effect as of the date of the occurrence of such fire or other casualty or taking, whichever the case may be, shall remain in full force and effect during and after the completion of the Restoration, notwithstanding the occurrence of any such fire or other casualty or taking, whichever the case may be, and will make all necessary repairs and restorations thereto at their sole cost and expense. The term "RENTABLE SPACE PERCENTAGE" shall mean (x) in the event the Net Proceeds are Insurance Proceeds, a percentage amount equal to fifty percent (50%) and (y) in the event the Net Proceeds are Condemnation Proceeds, a percentage amount equal to fifty percent (50%); (D) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than ninety (90) days after such damage or destruction or taking, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion; (E) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note, which will be incurred with respect to the Property as a result of the occurrence of any such fire 57 or other casualty or taking, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Section 6.1(a)(iii), if applicable, or (3) by other funds of Borrower; (F) Lender shall be satisfied that the Restoration will be completed on or before the earliest to occur of (1) the Maturity Date, (2) the earliest date required for such completion under the terms of any Leases, (3) such time as may be required under applicable zoning law, ordinance, rule or regulation in order to repair and restore the Property to the condition it was in immediately prior to such fire or other casualty or to as nearly as possible the condition it was in immediately prior to such taking, as applicable or (4) the expiration of the insurance coverage referred to in Section 6.1(a)(iii); (G) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable zoning laws, ordinances, rules and regulations provided, however, that compliance with such zoning laws, ordinances, rules and regulations (including, without limitation, parking requirements) will not require restoration of the Improvements or the Property to a size, condition, or configuration materially different than that which existed immediately prior to such Casualty or taking; (H) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable governmental laws, rules and regulations (including, without limitation, all applicable environmental laws); (I) such fire or other casualty or taking, as applicable, does not result in the loss of access to the Property or the related Improvements; (J) the Debt Service Coverage Ratio, after giving effect to the Restoration, shall be equal to or greater than 2.1:1; (K) Borrower shall deliver or cause to be delivered to Lender a signed detailed budget approved in writing by Borrower's architect or engineer stating the entire cost of completing the Restoration, which budget should be consistent with restoration budgets of similar retail properties then owned and operated by nationally recognized owners and operators of retail properties located in the areas in which the Property is located; and (L) the Net Proceeds together with any cash or cash equivalent deposited by Borrower with Lender are sufficient in Lender's discretion to cover the cost of the Restoration. (ii) The Net Proceeds shall be held by Lender in an interest bearing account and, until disbursed in accordance with the provisions of this Section 6.4(b), shall constitute additional security for the Debt and other obligations under the Loan Documents. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of 58 evidence satisfactory to Lender that (A) all materials installed and work and labor performed to be paid for out of the requested disbursement in connection with the Restoration have been performed, and (B) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company issuing the Title Insurance Policy. (iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "CASUALTY CONSULTANT"), such review and acceptance not to be unreasonably withheld or delayed. Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Casualty Consultant, such review and acceptance not to be unreasonably withheld or delayed. All costs and expenses incurred by Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty Consultant's fees, shall be paid by Borrower. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Casualty Consultant, MINUS the Casualty Retainage. The term "CASUALTY RETAINAGE" shall mean an amount equal to ten percent (10%) of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until the Restoration has been completed. The Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Section 6.4(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b) and that all approvals necessary for the re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage; PROVIDED, HOWEVER, that Lender will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Casualty Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company issuing the Title Insurance Policy, and Lender receives an endorsement 59 to the Title Insurance Policy insuring the continued priority of the lien of the Mortgage and evidence of payment of any premium payable for such endorsement. If required by Lender, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender in consultation with the Casualty Consultant, be sufficient to pay in full the balance of the costs which are estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "NET PROCEEDS DEFICIENCY") with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Section 6.4(b) shall constitute additional security for the Debt and other obligations under the Loan Documents. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Agreement or any of the other Loan Documents. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Section 6.4(b)(vii) may be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its sole discretion shall deem proper (provided no Event of Default exists, such Borrower shall not be required to pay any Prepayment Consideration in connection with such payment), or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall designate, in its discretion. (d) In the event of foreclosure of the Mortgage with respect to the Property, or other transfer of title to the Property in extinguishment in whole or in part of the Debt all right, title and interest of Borrower in and to the Policies that are not blanket Policies then in force concerning the Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title. 60 (e) Notwithstanding any provision herein to the contrary, in the event of any conflict between the provisions of this Agreement and the provisions of the Ground Lease with respect to Restoration, the provisions of the Ground Lease shall govern. (f) Lender shall with reasonable promptness following any Casualty or Condemnation notify Borrower whether or not Net Proceeds are required to be made available to Borrower for restoration pursuant to this Section 6.4. ARTICLE VII RESERVE FUNDS Section 7.1 REQUIRED REPAIR FUNDS. 7.1.1 DEPOSITS. Borrower shall perform the repairs at the Property, if any, as more particularly set forth on SCHEDULE III hereto within six (6) months from the date of funding (such repairs hereinafter referred to as "REQUIRED REPAIRS"). Borrower shall complete the Required Repairs on or before the required deadline for each repair as set forth on SCHEDULE III. It shall be an Event of Default under this Agreement if (i) Borrower does not complete the Required Repairs at the Property by the required deadline for each repair as set forth on SCHEDULE III, and (ii) Borrower does not satisfy each condition contained in Section 7.1.2 hereof. Upon the occurrence of such an Event of Default, Lender, at its option, may withdraw all Required Repair Funds from the Required Repair Account and Lender may apply such funds either to completion of the Required Repairs at the Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply Required Repair Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. On the Closing Date, Borrower shall deposit with Lender the amount for the Property set forth on such SCHEDULE III hereto, if any, to perform the Required Repairs for the Property. Amounts so deposited with Lender, if any, shall be held by Lender in an interest bearing account. Amounts so deposited, if any, shall hereinafter be referred to as Borrower's "REQUIRED REPAIR FUND" and the account, if any, in which such amounts are held shall hereinafter be referred to as Borrower's "REQUIRED REPAIR ACCOUNT." 7.1.2 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse to Borrower the Required Repair Funds from the Required Repair Account from time to time upon satisfaction by Borrower of each of the following conditions: (i) Borrower shall submit a written request for payment to Lender at least fifteen (15) days prior to the date on which Borrower requests such payment be made and specifies the Required Repairs to be paid, (ii) on the date such request is received by Lender and on the date such payment is to be made, no Default or Event of Default shall exist and remain uncured, (iii) Lender shall have received a certificate from Borrower (A) stating that all Required Repairs at the Property to be funded by the requested disbursement have been completed in good and workmanlike manner and in accordance with all applicable federal, state and local laws, rules and regulations, such certificate to be accompanied by a copy of any license, permit or other approval by any Governmental Authority required to commence and/or complete the Required Repairs, (B) identifying each Person that supplied materials or labor in connection with the Required Repairs performed at the Property to be funded by the requested 61 disbursement under a contract in excess of $50,000, and (C) stating that each Person who has supplied materials or labor in connection with the Required Repairs to be funded by the requested disbursement has been paid in full or will be paid in full upon such disbursement, such certificate to be accompanied by lien waivers or other evidence of payment satisfactory to Lender, (iv) at Lender's option, a title search for the Property indicating that the Property is free from all liens, claims and other encumbrances not previously approved by Lender, and (v) Lender shall have received such other evidence as Lender shall reasonably request that the Required Repairs at the Property to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement to Borrower. Lender shall not be required to make disbursements from the Required Repair Account with respect to the Property more than once each calendar month and such disbursement shall be made only upon satisfaction of each condition contained in this Section 7.1.2. Section 7.2 TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates and (b) one-twelfth of the Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies, (said amounts in (a) and (b) above are hereinafter called the "TAX AND INSURANCE ESCROW FUND"). The Tax and Insurance Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to this Agreement and under the Mortgage. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums) or from Borrower without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof, provided, however, Lender shall use reasonable efforts to pay such real property taxes sufficiently early to obtain the benefit of any available discounts of which it has knowledge. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. The Tax and Insurance Escrow Fund shall be held by Lender in an interest-bearing account and shall at Lender's option be held in Eligible Account at an Eligible Institution. Any interest earned on said account shall be held in said account and credited toward future deposits to the Tax and Insurance Escrow Fund. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall be returned to Borrower. In allocating such excess. Lender may deal with the Person shown on the records of Lender to be the owner of the Property. If at any time Lender reasonably determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes or Insurance Premiums by the dates set forth above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes or Insurance Premiums. Notwithstanding anything to the contrary hereinbefore contained, in the event that Borrower provides (1) evidence satisfactory to 62 Lender that the Property is insured under a "blanket" policy which is acceptable to Lender and which otherwise satisfies the requirements of this Agreement and (2) evidence satisfactory to Lender that the Taxes for the Property have been paid in accordance with the requirements set forth in this Agreement, Lender will waive the requirement set forth herein for Borrower to make deposits into the Tax and Insurance Escrow Fund for the payment of Insurance Premiums due on such "blanket" policy of insurance and for payment of such Taxes, provided, however, Lender expressly reserves the right to require Borrower to make deposits to the Tax and Insurance Escrow Fund for the payment of Insurance Premiums if at any time the Property is not insured under a "blanket" insurance policy which satisfies the requirements of this Agreement or Taxes are not paid in accordance with the requirements of this Agreement. Section 7.3 REPLACEMENTS AND REPLACEMENT RESERVE. 7.3.1 REPLACEMENT RESERVE FUND. Borrower shall pay to Lender on the date hereof and on each Payment Date one twelfth of the amount (the "REPLACEMENT RESERVE MONTHLY DEPOSIT") reasonably estimated by Lender in its sole discretion to be due for replacements and repairs required to be made to the Property during the calendar year (collectively, the "REPLACEMENTS"), which Replacement Reserve Monthly Deposit shall be in an amount equal to no less than $0.15 per year per square foot of gross leasable area. Amounts so deposited shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE FUND" and the account in which such amounts are held shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE ACCOUNT." Lender may reassess its estimate of the amount necessary for the Replacement Reserve Fund from time to time, and may increase the monthly amounts required to be deposited into the Replacement Reserve Fund upon thirty (30) days notice to Borrower if Lender determines in its reasonable discretion that an increase is necessary to maintain the proper maintenance and operation of the Property. Any amount held in the Replacement Reserve Account and allocated for the Property shall be retained by Lender in an interest bearing account, or, at the option of Lender, in an Eligible Account at an Eligible Institution; PROVIDED, HOWEVER, that, any interest accrued on the amounts on deposit in the Replacement Reserve Fund shall be disbursed to Borrower no more than once per calendar year upon the written request of Borrower. Notwithstanding anything to the contrary in this Section 7.3, Borrower shall not be required to make Replacement Reserve Monthly Deposits, provided that: (i) no Event of Default shall have occurred; and (ii) Borrower makes all necessary Replacements and otherwise maintains the Property to Lender's satisfaction. Upon notice from Lender following: (a) an Event of Default; or (b) the failure of Borrower to make necessary Replacements or otherwise maintain the Property to Lender's satisfaction, Borrower shall begin to deposit the Replacement Reserve Monthly Deposit into the Replacement Reserve Fund beginning on the Payment Date (as defined herein) immediately following the date of such notice. 7.3.2 DISBURSEMENTS FROM REPLACEMENT RESERVE ACCOUNT. (a) Lender shall make disbursements from the Replacement Reserve Account to pay Borrower only for the costs of the Replacements. Lender shall not be obligated to make disbursements from the Replacement Reserve Account to reimburse Borrower for the costs of routine maintenance to the Property or for costs which are to be reimbursed from the Required Repair Fund (if any). 63 (b) Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in this Section 7.3.2, disburse to Borrower amounts from the Replacement Reserve Account necessary to pay for the actual approved costs of Replacements or to reimburse Borrower therefor, upon completion of such Replacements (or, upon partial completion in the case of Replacements made pursuant to Section 7.3.2(f)) as determined by Lender. In no event shall Lender be obligated to disburse funds from the Replacement Reserve Account if a Default or an Event of Default exists. (c) Each request for disbursement from the Replacement Reserve Account shall be in a form specified or approved by Lender and shall specify (i) the specific Replacements for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Replacement other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Replacement for which such request for disbursement is made. With each request Borrower shall certify that all Replacements have been made in accordance with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the Property to which the Replacements are being provided and, unless Lender has agreed to issue joint checks as described below, each request shall include evidence of payment of all such amounts. Each request for disbursement shall include copies of invoices for all items or materials purchased and all contracted labor or services provided. Except as provided in Section 7.3.2(e), each request for disbursement from the Replacement Reserve Account shall be made only after completion of the Replacement for which disbursement is requested. Borrower shall provide Lender evidence of completion satisfactory to Lender in its reasonable judgment. (d) Borrower shall pay all invoices in connection with the Replacements with respect to which a disbursement is requested prior to submitting such request for disbursement from the Replacement Reserve Account or, at the request of Borrower, Lender will issue joint checks, payable to Borrower and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with a Replacement. In the case of payments made by joint check, Lender may require a waiver of lien from each Person receiving payment prior to Lender's disbursement from the Replacement Reserve Account. In addition, as a condition to any disbursement, Lender may require Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or subcontractor who receives payment in an amount equal to or greater than $100,000 for completion of its work or delivery of its materials. Any lien waiver delivered hereunder shall conform to the requirements of applicable law and shall cover all work performed and materials supplied (including equipment and fixtures) for the Property by that contractor, supplier, subcontractor, mechanic or materialman through the date covered by the current reimbursement request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or materialmen is to be made by a joint check, the release of lien shall be effective through the date covered by the previous release of funds request). (e) If (i) the cost of a Replacement exceeds $100,000, (ii) the contractor performing such Replacement requires periodic payments pursuant to terms of a written contract, and (iii) Lender has approved in writing in advance such periodic payments, a request for reimbursement from the Replacement Reserve Account may be made after completion of a portion of the work under such contract, provided (A) such contract requires payment upon 64 completion of such portion of the work, (B) the materials for which the request is made are on site at the Property and are properly secured or have been installed in the Property, (C) all other conditions in this Agreement for disbursement have been satisfied, (D) funds remaining in the Replacement Reserve Account are, in Lender's judgment, sufficient to complete such Replacement and other Replacements when required, and (E) if required by Lender, each contractor or subcontractor receiving payments under such contract shall provide a waiver of lien with respect to amounts which have been paid to that contractor or subcontractor. (f) Borrower shall not make a request for disbursement from the Replacement Reserve Account more frequently than once in any calendar month and (except in connection with the final disbursement) the total cost of all Replacements in any request shall not be less than $5,000.00. 7.3.3 PERFORMANCE OF REPLACEMENTS. (a) Borrower shall make Replacements when required in order to keep the Property in condition and repair consistent with other first class, full service retail properties in the same market segment in the metropolitan area in which the Property is located, and to keep the Property or any portion thereof from deteriorating. Borrower shall complete all Replacements in a good and workmanlike manner as soon as practicable following the commencement of making each such Replacement. (b) Lender reserves the right, at its option, to approve all contracts or work orders with materialmen, mechanics, suppliers, subcontractors, contractors or other parties providing labor or materials under contracts for an amount in excess of $100,000 in connection with the Replacements. Upon Lender's request, Borrower shall assign any contract or subcontract to Lender. (c) In the event Lender determines in its reasonable discretion that any Replacement is not being performed in a workmanlike or timely manner or that any Replacement has not been completed in a workmanlike or timely manner, and such failure continues to exist for more than thirty (30) days after notice from Lender to Borrower, Lender shall have the option to withhold disbursement for such unsatisfactory Replacement and to proceed under existing contracts or to contract with third parties to complete such Replacement and to apply the Replacement Reserve Fund toward the labor and materials necessary to complete such Replacement, without providing any prior notice to Borrower and to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (d) In order to facilitate Lender's completion or making of the Replacements pursuant to Section 7.3.3(c) above, Borrower grants Lender the right to enter onto the Property and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect the Property from damage. All sums so expended by Lender, to the extent not from the Replacement Reserve Fund, shall be deemed to have been advanced under the Loan to Borrower and secured by the Mortgage. For this purpose Borrower constitutes and appoints Lender its true and lawful attorney-in-fact with full power of substitution to complete or undertake the Replacements in the name of Borrower. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked but shall only be effective 65 following an Event of Default. Borrower empowers said attorney-in-fact as follows: (i) to use any funds in the Replacement Reserve Account for the purpose of making or completing the Replacements; (ii) to make such additions, changes and corrections to the Replacements as shall be necessary or desirable to complete the Replacements; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against the Property, or as may be necessary or desirable for the completion of the Replacements, or for clearance of title; (v) to execute all applications and certificates in the name of Borrower which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with the Property or the rehabilitation and repair of the Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of this Agreement. (e) Nothing in this Section 7.3.3 shall; (i) make Lender responsible for making or completing the Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund to make or complete any Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement. (f) Borrower shall permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties making Replacements pursuant to this Section 7.3.3 to enter onto the Property during normal business hours (subject to the rights of tenants under their Leases) to inspect the progress of any Replacements and all materials being used in connection therewith, to examine all plans and shop drawings relating to such Replacements which are or may be kept at the Property, and to complete any Replacements made pursuant to this Section 7.3.3. Borrower shall cause all contractors and subcontractors to cooperate with Lender or Lender's representatives or such other persons described above in connection with inspections described in this Section 7.3.3(f) or the completion of Replacements pursuant to this Section 7.3.3. (g) Lender may require an inspection of the Property at Borrower's expense prior to making a monthly disbursement in excess of $10,000 from the Replacement Reserve Account in order to verify completion of the Replacements for which reimbursement is sought. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower shall pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (h) The Replacements and all materials, equipment, fixtures, or any other item comprising a part of any Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialman's or other liens (except for those Liens existing on the date of this Agreement which have been approved in writing by Lender). (i) Before each disbursement from the Replacement Reserve Account, Lender may require Borrower to provide Lender with a search of title to the Property effective to the 66 date of the disbursement, which search shows that no mechanic's or materialmen's liens or other liens of any nature have been placed against the Property since the date of recordation of the Mortgage and that title to the Property is free and clear of all Liens (other than the lien of the Mortgage and any other Liens previously approved in writing by Lender, if any). (j) All Replacements shall comply with all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (k) In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workmen's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under applicable law in connection with a particular Replacement. All such policies shall be in form and amount reasonably satisfactory to Lender. All such policies which can be endorsed with standard mortgagee clauses making loss payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be delivered to Lender. 7.3.4 FAILURE TO MAKE REPLACEMENTS. (a) It shall be an Event of Default under this Agreement if Borrower fails to comply with any provision of this Section 7.3 and such failure is not cured within thirty (30) days after notice from Lender; PROVIDED, HOWEVER, if such failure is not capable of being cured within said thirty (30) day period, then provided that Borrower commences action to complete such cure and thereafter diligently proceeds to complete such cure, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrower, in the exercise of due diligence, to cure such failure, but such additional period of time shall not exceed sixty (60) days. Upon the occurrence of such an Event of Default, Lender may use the Replacement Reserve Fund (or any portion thereof) for any purpose, including but not limited to completion of the Replacements as provided in Section 7.3.3, or for any other repair or replacement to the Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply the Replacement Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. (b) Nothing in this Agreement shall obligate Lender to apply all or any portion of the Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any specific order or priority. 7.3.5 BALANCE IN THE REPLACEMENT RESERVE ACCOUNT. The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. 7.3.6 INDEMNIFICATION. Borrower shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations and costs and expenses (including litigation costs and reasonable attorneys fees and expenses) arising from or in any way connected with the performance of the 67 Replacements unless the same are solely due to gross negligence or willful misconduct of Lender. Borrower shall assign to Lender all rights and claims Borrower may have against all persons or entities supplying labor or materials in connection with the Replacements; PROVIDED, HOWEVER, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured. Section 7.4 GROUND RENT RESERVE. If Borrower fails timely to pay the Ground Rents, Lender may, in its sole and absolute discretion, require Borrower to escrow with Lender such sums as are sufficient, as determined by Lender in its sole discretion, for Lender to pay the Ground Rents. Section 7.5 INTENTIONALLY DELETED. Section 7.6 INTENTIONALLY DELETED. Section 7.7 RESERVE FUNDS. GENERALLY. 7.7.1 Borrower grants to Lender a first-priority perfected security interest in each of the Reserve Funds and any and all monies now or hereafter deposited in each Reserve Fund as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds shall constitute additional security for the Debt. 7.7.2 Upon the occurrence of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the payment of the Debt in any order in its sole discretion. 7.7.3 The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender. 7.7.4 The Reserve Funds shall be held in interest bearing accounts. All earnings or interest on the Reserve Funds shall be added to and become a part of such Tax and Insurance Escrow Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Funds. 7.7.5 Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. 7.7.6 Lender shall not be liable for any loss sustained on the investment of any funds constituting the Reserve Funds unless occasioned by the gross negligence or willful misconduct of Lender. 7.7.7 Upon payment in full of the Debt and performance of all other obligations under this Agreement and the other Loan Documents, Lender shall disburse to Borrower all remaining Reserve Funds. 68 ARTICLE VIII DEFAULTS Section 8.1 EVENT OF DEFAULT. (a) Each of the following events shall constitute an event of default hereunder (an "EVENT OF DEFAULT"): (i) if any portion of the Debt is not paid within five (5) days of the applicable due date; (ii) if any of the Taxes or Other Charges are not paid prior to the date when the same become delinquent, except to the extent that there are sufficient funds in the Tax and Insurance Escrow Fund to pay such Taxes or Other Charges and Lender fails to or refuses to release the same from the Tax and Insurance Escrow Fund; (iii) if the Policies are not kept in full force and effect, or if certified copies of the Policies are not delivered to Lender within ten (10) days of request; (iv) if Borrower transfers or encumbers any portion of the Property without Lender's prior written consent (to extent such consent is required) or otherwise violates the provisions of Section 5.2.13 of this Loan Agreement; (v) if any material representation or warranty made by Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if Borrower or indemnitor or any guarantor under any guaranty or indemnity issued in connection with the Loan shall make an assignment for the benefit of creditors; (vii) if a receiver, liquidator or trustee shall be appointed for Borrower or any guarantor or indemnitor under any guarantee or indemnity issued in connection with the Loan or if Borrower or such guarantor or indemnitor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or such guarantor or indemnitor, or if any proceeding for the dissolution or liquidation of Borrower or such guarantor or indemnitor shall be instituted; PROVIDED, HOWEVER, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or such guarantor or indemnitor, upon the same not being discharged, stayed or dismissed within one hundred eighty (180) days; 69 (viii) if Borrower attempts to assign its rights under this Agreement or any of the Other Loan Documents or any interest herein or therein in contravention of the Loan Documents; (ix) if Borrower breaches any of its respective negative covenants contained in Section 5.2 or any covenant contained in Section 4.1.30 hereof; (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xi) if any of the assumptions contained in any Insolvency Opinion or Additional Insolvency Opinion are or shall become untrue in any material respect; (xii) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (i) to (xi) above, for ten (10) days after notice to Borrower from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; PROVIDED, HOWEVER, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower shall have commenced to cure such Default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed one hundred eighty (180) days; (xiii) if there shall be default under any of the other Loan Documents beyond any applicable cure periods contained in such documents, whether as to Borrower or the Property, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt; (xiv) if Borrower shall be in default under the Ground Lease beyond any applicable cure periods contained therein; or (xv) if any Contingent Amount required to be paid pursuant to the Purchase Contract is not timely paid in accordance with the Purchase Contract. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vi), (vii) or (viii) above) and at any time thereafter Lender may, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in the Property, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and the Property, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi), (vii) or (viii) above, the 70 Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. Section 8.2 REMEDIES. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Property. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) Lender is not subject to any "one action" or "election of remedies" law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Property and the Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. Without limited the generality of the foregoing, it is expressly agreed that upon any Event of Default described in clause (xv) above, in addition to all other remedies available to Lender, Lender shall have the right to enforce Indemnitor's guaranty of the payment of the Contingent Amount, as set forth in the Indemnity Agreement, without first resorting to or exhausting any security or collateral or without first having recourse to any Loan Document or any of the Property through foreclosure proceedings or otherwise. (b) Lender shall have the right from time to time to partially foreclose the Mortgage in any manner and for any amounts secured by the Mortgage then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Lender may foreclose the Mortgage to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose the Mortgage to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by the Mortgage as Lender may elect. Notwithstanding one or more partial foreclosures, the Property shall remain subject to the Mortgage to secure payment of sums secured by the Mortgage and not previously recovered. (c) Lender shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, mortgages and other security documents (the "SEVERED LOAN DOCUMENTS") in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. 71 Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender following the occurrence of an Event of Default as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; PROVIDED, HOWEVER, Lender shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Lender of Lender's intent to exercise its rights under such power. Borrower shall not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents, and the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. (d) As used in this Section 8.2, a "foreclosure" shall include any sale by power of sale. Section 8.3 REMEDIES CUMULATIVE; WAIVERS. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. ARTICLE IX SPECIAL PROVISIONS Section 9.1 SALE OF NOTES AND SECURITIZATION. At the request of the holder of the Note and, to the extent not already required to be provided by Borrower under this Agreement, Borrower shall cooperate with Lender to allow Lender to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with the sale of the Note or participations therein or the first successful securitization (such sale and/or securitization, the "SECURITIZATION") of rated single or multi-class securities (the "SECURITIES") secured by or evidencing ownership interests in the Note and the Mortgage. In this regard Borrower shall: (a) (i) provide such financial and other information with respect to the Property, Borrower and the Manager, (ii) provide budgets relating to the Property and (iii) to 72 perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Property, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be necessary or appropriate in connection with the Securitization (the "PROVIDED INFORMATION"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies; (b) cause counsel to render opinions, which may be relied upon by the holder of the Note, the Rating Agencies and their respective counsel, agents and representatives, as to non-consolidation, fraudulent conveyance, and true sale and/or lease or any other opinion customary in Securitization transactions, which counsel and opinions shall be reasonably satisfactory to the holder of the Note and the Rating Agencies; (c) make such representations and warranties as of the closing date of the Securitization with respect to the Property, Borrower, and the Loan Documents as are consistent with the representations and warranties made in the Loan Documents; and (d) execute such amendments to the Loan Documents and organizational documents as may be reasonably requested by the holder of the Note or the Rating Agencies or otherwise to effect the Securitization; PROVIDED, HOWEVER, that Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, or (ii) modify or amend any other material economic term of the Loan. All material out-of-pocket third party costs and expenses incurred by Borrower in connection with complying with requests made under this Section 9.1 shall be paid by Lender. Section 9.2 SECURITIZATION. Borrower understands that certain of the Provided Information may be included in disclosure documents in connection with the Securitization, including, without limitation, a prospectus, prospectus supplement or private placement memorandum (each, a "DISCLOSURE DOCUMENT") and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. Section 9.3 RATING SURVEILLANCE. Lender, at its option, may retain the Rating Agencies to provide rating surveillance services on any certificates issued in a Securitization. Such rating surveillance will be at the expense of Lender (the "RATING SURVEILLANCE CHARGE"). Section 9.4 EXCULPATION. Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained 73 in the Note, this Agreement, the Mortgage or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Mortgage and the other Loan Documents, or in the Property, the Rents following an Event of Default, or any other collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents following an Event of Default and in any other collateral given to Lender, and Lender, by accepting the Note, this Agreement, the Mortgage and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under or by reason of or under or in connection with the Note, this Agreement, the Mortgage or the other Loan Documents. The provisions of this section shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under any of the Mortgage; (c) affect the validity or enforceability of or any guaranty made in connection with the Loan or any of the rights and remedies of Lender thereunder; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of any of the Assignment of Leases following an Event of Default; (f) constitute a prohibition against Lender commencing any other appropriate action or proceeding in order for Lender to exercise its remedies against the Property; or (g) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys' fees and costs reasonably incurred) arising out of or in connection with the following: (i) fraud or intentional misrepresentation by Borrower or any guarantor in connection with the Loan; (ii) the gross negligence or willful misconduct of Borrower; (iii) material physical waste of the Property; (iv) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity or in the Mortgage concerning environmental laws, hazardous substances and asbestos and any indemnification of Lender with respect thereto in either document; (v) the removal or disposal of any portion of the Property after an Event of Default; (vi) the misapplication or conversion by Borrower of (A) any insurance proceeds paid by reason of any loss, damage or destruction to the Property which are not applied by Borrower in accordance with this Agreement, (B) any awards or other amounts received in connection with the condemnation of all or a portion of the Property which are not applied by Borrower in accordance with this Agreement, or (C) any Rents following an Event of Default; 74 (vii) failure to pay charges for labor or materials or other charges that can create liens on any portion of the Property; (viii) any security deposits, advance deposits or any other deposits collected with respect to the Property which are not delivered to Lender upon a foreclosure of the Property or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof; or (ix) the breach of Borrower's indemnification obligation pursuant to Section 10.13(b) hereof with respect to payment of the Contingent Amount. Notwithstanding anything to the contrary in this Agreement, the Note or any of the Loan Documents, (A) the Debt shall be fully recourse to the Borrower and (B) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Mortgage or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents in the event that the (I) first full monthly payment under the Note is not paid within five (5) days of notice that such payment is late (provided, however, that such grace period relates only to the recourse trigger described in this paragraph), or (II) failure of Borrower to permit on-site inspections of the Property subject to the rights of the Major Tenants under their respective Leases and any applicable cure period set forth in the Loan Documents, to provide financial information as required under the Loan Documents subject to any applicable cure period (except for financial information required to be delivered by the Major Tenants pursuant to their respective Leases that has not been delivered to Borrower, provided Borrower has requested such financial information from the Major Tenants, or to comply with Section 4.1.30 hereof, or (III) failure of Borrower to obtain Lender's prior written consent to any subordinate financing or other voluntary lien encumbering the Property, or (IV) failure of Borrower to obtain Lender's prior written consent to any assignment, transfer or conveyance of the Property, or any portion thereof, or any interest therein as required by this Agreement, or to any material amendment or modification of the Ground Lease, or (IV) Borrower has failed to materially comply with the provisions relating to its organization as a Special Purpose Entity since its formation or by virtue of its merger with Kimco Governors Marketplace Ltd. Notwithstanding the provision set forth in clause (III) of this paragraph, a voluntary lien OTHER THAN a lien securing an extension of credit filed against the Property shall not constitute a recourse trigger for purposes of this paragraph provided such lien (A) is fully bonded to the satisfaction of Lender and discharged of record within ninety (90) days of filing, or (B) within such ninety (90) day period, Lender receives affirmative title insurance from the title insurance company insuring the lien of the Mortgage that such lien is subject and subordinate to the lien of the Mortgage and no enforcement action is commenced by the applicable lien holder. Section 9.5 TERMINATION OF MANAGER. If (a) the amounts evidenced by the Note have been accelerated pursuant to Section 8.1(b) hereof, (b) the Manager shall become insolvent, (c) the Manager is in default under the terms of the Management Agreement beyond any applicable grace or cure period, or (d) Manager is not managing the Property in accordance with the management practices of nationally recognized management companies managing similar 75 properties in locations comparable to those of the Property, then, in the case of (a), (b), (c) or (d), Borrower shall, at the request of Lender, terminate the Management Agreement and replace the Manager with a manager reasonably approved by Lender on terms and conditions reasonably satisfactory to Lender, it being understood and agreed that the management fee for such replacement manager shall not exceed then prevailing market rates. In addition and without limiting the rights of Lender hereunder or under any of the other Loan Documents, in the event that (i) the Management Agreement is terminated, (ii) the Manager no longer manages the Property, or (iii) a receiver, liquidator or trustee shall be appointed for Manager or if Manager shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Manager, or if any proceeding for the dissolution or liquidation of Manager shall be instituted, then Borrower (at Borrower's sole cost and expense) shall immediately, in its name, establish new deposit accounts separate from any other Person with a depository satisfactory to Lender into which all Rents and other income from the Property shall be deposited and shall grant Lender a first priority security interest in such account pursuant to documentation satisfactory in form and substance to Lender. Section 9.6 SERVICER. At the option of Lender, the Loan may be serviced by a servicer/trustee (the "SERVICER") selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "SERVICING AGREEMENT") between Lender and Servicer. Lender shall be responsible for any set-up fees or any other costs relating to or arising under the Servicing Agreement. Section 9.7 SPLITTING THE LOAN. At the election of Lender in its sole discretion, the Loan shall be split and severed into two or more loans which shall not be cross-collateralized or cross-defaulted with each other. Borrower hereby agrees to deliver to Lender to effectuate such severing of the Loan as reasonably requested by Lender, (a) additional executed documents, or amendments and modifications to the Loan Documents, (b) new opinions or updates to the opinions delivered to Lender in connection with the closing of the Loan, (c) endorsements and/or updates to the title insurance policies delivered to Lender in connection with the closing of the Loan, and (d) any other certificates, instruments and documentation reasonably determined by Lender as necessary or appropriate to such severance (the items described in subsections (a) through (d) collectively hereinafter shall be referred to as "SEVERING DOCUMENTATION"), which Severing Documentation shall be acceptable to Lender in form and substance in its reasonable discretion. Lender hereby agrees to be responsible for all reasonable third-party expenses incurred in connection with the preparation and delivery of the Severing Documentation and the effectuation of the uncrossing of the Loan from the additional Loans. Borrower hereby acknowledges and agrees that upon such severing of the Loan, Lender may effect, in its sole discretion, one or more Securitizations of which the severed loans may be a part. ARTICLE X MISCELLANEOUS Section 10.1 SURVIVAL. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall 76 survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender. Section 10.2 LENDER'S DISCRETION. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Section 10.3 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND APPLICABLE FEDERAL LAWS. Section 10.4 MODIFICATION, WAIVER IN WRITING. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Section 10.5 DELAY NOT A WAIVER. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Section 10.6 NOTICES. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if band delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as 77 shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section): If to Lender: KeyBank National Association 911 Main Street, Suite 1500 Kansas City, Missouri 64105 Attention: Loan Servicing If to Borrower: Inland Western Tallahassee Governor's, L.L.C. c/o Inland Real Estate Corporation 2901 Butterfield Road Oak Brook, IL 60523 Attention: Roberta Matlin With a copy to: Inland Western Retail Real Estate Trust, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attention: Robert H. Baum, Esq. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day. Section 10.7 TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND LENDER. Section 10.8 HEADINGS. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 78 Section 10.9 SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 10.10 PREFERENCES. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. Section 10.11 WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrower. Section 10.12 REMEDIES OF BORROWER. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Section 10.13 EXPENSES; INDEMNITY. (a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender upon receipt of written notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Property); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and 79 insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (iv) except as otherwise provided in this Agreement, the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters reasonably requested by Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Property, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Property or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. (b) Borrower shall indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, (ii) the use or intended use of the proceeds of the Loan, or (iii) any obligation to pay the Contingent Amount (collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that Borrower shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. Section 10.14 SCHEDULES INCORPORATED. The Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. Section 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such 80 unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. Section 10.16 NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY BENEFICIARIES. (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant Lender any interest in the Property other than that of mortgagee, beneficiary or lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. Section 10.17 PUBLICITY. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Lender, or any of its Affiliates shall be subject to the prior written approval of Lender. All news releases, publicity or advertising by Lender through any media intended to reach the general public which refers solely to the Borrower or to the Loan made by the Lender to the Borrower shall be subject to the prior written approval of Borrower, provided however, the foregoing shall not apply to Provided Information included in disclosure documents in connection with a Securitization. Section 10.18 WAIVER OF MARSHALLING OF ASSETS. To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's partners and others with interests in Borrower, and of the Property, or to a sale in inverse order of alienation in the event of foreclosure of the Mortgage or sale of the Property by power of sale, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Property for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Property in preference to every other claimant whatsoever. 81 Section 10.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents. Section 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE. In the event of any conflict between the provisions of this Loan Agreement and any of the other Loan Documents, the provisions of this Loan Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. Section 10.21 BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement other than Inland Mortgage Corp. Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Lender's reasonable attorneys' fees and expenses) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower or Lender in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the payment of the Debt. Section 10.22 PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements or understandings among or between such parties, whether oral or written, including, without limitation, the Commitment Letter dated August 3, 2004 between Borrower and Lender are superseded by the terms of this Agreement and the other Loan Documents and unless specifically set forth in a writing contemporaneous herewith the terms, conditions and provisions of such prior agreement do not survive execution of this Agreement. Section 10.23 TRANSFER OF LOAN. In the event that Lender transfers the Loan, Borrower shall continue to make payments at the place set forth in the Note until such time that Borrower is notified in writing by Lender that payments are to be made at another place. [THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 82 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. BORROWER: INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member By: /s/ Valerie Medina ----------------------------------- Name: Valerie Medina Title: Asst. Secretary KEYBANK NATIONAL ASSOCIATION, a national banking association By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- 83 ACKNOWLEDGMENT STATE OF ILLINOIS ) )ss COUNTY OF COOK ) On this 13th day of August, 2004, before me, ANDREW M. VIOLA, a Notary Public in and for said state, personally appeared ________________________, who being by me duly sworn did say that he/she is the ASST. SEC. of Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, the sole member of Inland Western Tallahassee Governor's One, L.L.C., a Delaware limited liability company, and that the within instrument was signed and sealed in behalf of said corporation in behalf of said limited liability company by authority of its board of directors, and acknowledged said instrument to be the free act and deed of said corporation in behalf of said limited liability company for the purposes therein stated. OFFICIAL SEAL ANDREW M. VIOLA NOTARY PUBLIC, STATE OF ILLINOIS MY COMMISSION EXPIRES 6-13-2007 [Notarial Seal] /s/ Andrew M. Viola -------------------------------- Print Name: ANDREW M. VIOLA --------------------- My commission expires: 6-13-07 ------------------ 84 SCHEDULE I Intentionally Omitted SCH. X-1 SCHEDULE II RENT ROLL (next page) SCH. X-2 KIMCO GOVERNORS MARKETPLACE LTD. RENT ROLL AS OF MAY 3, 2004
RENT LEASE LEASE COMMENCEMENT RENT ANNUAL TENANT SF START DATE END DATE DATE PER SF RENT - ---------------------------- --------- ---------- ---------- ------------ ------ --------------- Bed Bath & Beyond 35,000 7/28/2000 1/31/2017 6/9/2001 10.50 $ 367,500 Sports Authority 34,775 8/2/2003 8/31/2008 1/29/2004 11.91 414,170 Marshall's 30,000 5/24/2001 5/31/2011 5/24/2001 7.75 232,500 Michaels 23,965 5/26/2001 2/28/2011 7/25/2001 10.50 251,633 Old Navy 20,000 9/25/2001 9/30/2006 9/25/2001 11.50 230,000 Pelco 13,750 5/26/2003 5/31/2013 5/26/2003 15.42 212,025 Famous Footwear 10,070 6/4/2001 7/31/2006 7/19/2001 15.50 156,085 David's Bridal 9,000 3/11/2003 5/31/2013 5/19/2003 14.80 133,200 Bombay Company 8,500 6/30/2003 8/31/2013 9/8/2003 24.50 208,250 Lifeway Christian 6,324 7/15/2001 9/30/2011 9/29/2001 21.00 132,804 Sprint PCS 4,206 12/13/2002 12/31/2007 12/23/2002 18.00 75,708 Atlanta Bread Company 4.000 10/5/2001 11/30/2011 11/9/2001 24.10 96,390 Boston Market 3,800 12/1/2002 11/30/2012 12/1/2002 15.79 60,000 Student Body 3,721 7/13/2001 8/31/2006 8/4/2001 21.85 81,321 Clark's Maytag 3,466 3/28/2002 5/31/2007 5/27/2002 20.02 69,389 Nextel 1,443 7/2/2003 8/31/2008 9/23/2003 26.00 37,518 Life Uniform 1,217 4/1/2002 6/30/2007 6/3/2002 22.00 26,774 Cingular Wireless 1,200 3/28/2002 6/30/2007 6/26/2002 26.52 31,824 Cargo Kids 5,465 7/15/2004 8/31/2014 8/29/2004(4) 22.80 124,602 ALLTEL 2,000 3/1/2004 4/30/2009 4/30/2004(4) 24.00 48,000 Odoba 2,000 2/1/2004 7/31/2014 7/10/2004(4) 21.00 42,000 Ujamaa 1,600 5/15/2004 10/31/2009 10/12/2004(4) 22.88 36,608 -------- --------------- 225,502 $ 3,068,301 ======== =============== MONTHLY MONTHLY MONTHLY INSURANCE SECURITY MONTHLY CAM TAX ESCROW MGMT.FEE DEPOSIT TENANT RENT ESCROW ESCROW (3) (2) (1) - --------------------- --------------- --------------- --------------- --------------- -------- --------------- Bed Bath & Beyond $ 30,625.00 $ 5,833.33 $ - $ - 0.00% $ - Sports Authority 34,514.19 3,767.25 - - 0.00% - Marshall's 19,375.00 2,500.00 - - 0.00% - Michaels 20,969.38 1,997.08 - 399.00 0.00% - Old Navy 19,166.67 1,666.67 2,666.67 333.00 0.00% - Pelco 17,668.75 1,489.58 - - 0.00% - Famous Footwear 13,007.08 839.17 1,510.50 210.00 0.00% - David's Bridal 11,100.00 1,200.00 1,200.00 - 0.00% - Bombay Company 17,354.17 1,133.33 1,133.33 - 0.00% - Lifeway Christian 11,067.00 527.00 843.17 148.00 0.00% - Sprint PCS 6,309.00 560.83 560.83 - 0.00% - Atlanta Bread Company 8,032.50 403.33 533.33 100.00 2.00% - Boston Market 4,999.98 - - - 0.00% - Student Body 6,776.75 310.08 496.17 87.00 3.00% 14,201.81 Clark's Maytag 5,782.44 375.50 462.17 - 4.00% 6,267.68 Nextel 3,126.50 192.42 192.42 - 4.00% - Life Uniform 2,231.17 162.25 162.25 - 0.00% - Cingular Wireless 2,652.00 155.00 155.00 - 4.00% - Cargo Kids 10,383.50 - - - 0.00% - ALLTEL 4,000.00 - - - 0.00% - Odoba 3,500.00 - - - 0.00% - Ujamaa 3,050.67 - - - 4.00% 7,562.26 --------------- --------------- --------------- --------------- --------------- $ 255,691.73 $ 23,112.83 $ 9,915.83 $ 1,277.00 $ 28,031.75 =============== =============== =============== =============== ===============
(1) REPRESENTS SECURITY DEPOSITS PER THE LEASE. (2) ANNUAL/MONTHLY RENT INCLUDES MANAGEMENT FEES NOTED. (3) REPRESENTS LEASES WITH SEPARATE INSURANCE ESCROW PAYMENTS OTHERWISE INCLUDED IN CAM. (4) ESTIMATED RENT COMMENCEMENT DATE. SCHEDULE III REQUIRED REPAIRS [NONE] SCH. X-3 SCHEDULE IV Intentionally omitted SCH. X-4 SCHEDULE V Intentionally omitted SCH. X-5 SCHEDULE VI AFFILIATE AGREEMENTS MANAGEMENT AGREEMENT SCH. X-6 Loan No. 10024998 LOAN AGREEMENT Dated as of August 17, 2004 Between INLAND WESTERN TALLAHASSEE GOVERNOR'S ONE, L.L.C., as Borrower and KEYBANK NATIONAL ASSOCIATION, as Lender EX-10.325 36 a2143310zex-10_325.txt EX-10.325 Exhibit 10.325 MASTER LEASE ESCROW AGREEMENT THIS MASTER LEASE ESCROW AGREEMENT (this "AGREEMENT") is made this 23rd day of August, 2004, by and among INLAND WESTERN NEW PORT RICHEY MITCHELL, L.L.C., a Delaware limited liability company ("BUYER"), AIG BAKER MRP, L.L.C., a Delaware limited liability company ("SELLER"), and CHICAGO TITLE INSURANCE COMPANY ("ESCROW AGENT"). WHEREAS, pursuant to that certain Agreement of Purchase and Sale, dated July 20, 2004, between Buyer and Seller ("PURCHASE AGREEMENT"), Seller agreed to sell to Buyer certain real property and improvements located thereon located in Pasco County, Florida and more particularly described therein (the "PROPERTY"); WHEREAS, as of the date hereof, certain spaces within the Property are vacant with no tenant paying rent which such spaces are set forth on EXHIBIT A attached hereto (the "VACANT SPACES"); WHEREAS, Seller agreed to establish an escrow at Closing from the proceeds of the Purchase Price in the amount of: (a) rent and additional charges for the Vacant Spaces for the periods specified on EXHIBIT A, and (b) estimated brokerage commissions in the amount of $3.00 per square foot and estimated tenant improvement allowances in the amount of $15.00 per square foot with respect to the Vacant Spaces. WHEREAS, Escrow Agent has agreed to act as Escrow Agent according to the terms and subject to the limitations set forth herein. NOW, THEREFORE, the parties hereto agree as follows; 1. All capitalized terms which are not defined herein shall have the meanings assigned to such terms in the Purchase Agreement. 2. The Escrow Agent hereby acknowledges that it is holding, from the proceeds of the Purchase Price, immediately available funds in the amount of Six Hundred Eight Thousand Six Hundred Fifty Four and 47/100 Dollars ($608,654.47) (the "ESCROW FUNDS"). The Escrow Agent agrees to hold, invest, distribute and disburse the Escrow Funds, together with interest earned and accruing thereon, in strict accordance with the terms, provisions and conditions contained in this Agreement. 3. The Escrow Agent shall invest the Escrow Funds in an interest-bearing account with a federally-insured banking institution reasonably acceptable to Seller and Buyer. All interest earned, paid or accrued on the Escrow Funds shall be added to and become a part of the Escrow Funds. 4. Buyer shall have the right to draw from the Escrow Funds, on the first day of each month, an amount sufficient to pay the monthly rental amounts set forth in EXHIBIT A for the Vacant Spaces together with estimated common area maintenance charges ("CAM"), insurance and Real Estate Taxes with respect thereto. The estimated payments for CAM, insurance and Real Estate Taxes withdrawn monthly by Buyer shall be reconciled by Buyer and Seller within sixty (60) days after the end of each calendar year during the term of this Agreement or the end of this Agreement (whichever occurs first) to the actual charges for CAM, insurance and Real Estate Taxes. Upon reconciliation, if one party owes the other party a refund or payment, respectively, then such party shall pay the other party within thirty (30) days after its receipt of the reconciliation statement. Seller's obligations in respect thereof for any Vacant Space, as the case may be, shall terminate on the date that is the earlier to occur of (i) the date that a tenant, reasonably acceptable to both Seller and Buyer, begins the payment of rent and additional charges in an amount equal to or greater than the amount shown in EXHIBIT A with respect to such space, or (ii) two (2) years following the date hereof as to the MIN B space, and four (4) months as to the Panera Bread space. The Escrow Funds allocated to brokerage commissions and tenant improvements as set forth on EXHIBIT A shall be disbursed to Buyer from time-to-time, with Seller's prior, written approval, which approval shall not be unreasonably withheld, delayed or conditioned and shall be given if Seller shall not have provided notice to the contrary within five (5) Business Days from Buyer's disbursement request, in order for Buyer to pay such brokerage commissions or tenant improvement costs as are due under any Lease entered into by Buyer for a Vacant Space, as demonstrated by applicable invoices and appropriate lien waivers or releases. Buyer and Seller shall both use reasonable efforts to lease the Vacant Spaces. Buyer shall not unreasonably withhold its consent to any New Lease for a Vacant Space procured by Seller so long as (a) such tenant will be paying, at a minimum, the rental amounts set forth in EXHIBIT A. (b) the tenant and proposed lease meet the leasing guidelines set forth on EXHIBIT B attached hereto, and (c) the brokerage fee and tenant improvement allowance do not exceed the amounts set forth in EXHIBIT A; PROVIDED, HOWEVER, in the event the brokerage fee and/or tenant improvement allowance for any proposed lease do exceed the amount set forth in EXHIBIT A. Buyer shall not unreasonably withhold its consent to such proposed lease if Seller agrees to pay all excess costs above the costs shown on EXHIBIT A. In the event any Tenant of a Vacant Space fails to begin the payment of rent or additional charges as required pursuant to the terms of such Tenant's Lease as a result of a default by Buyer, as landlord under the Tenant's Lease, Seller's obligations to pay such rent and additional charges for such Vacant Space shall terminate as of the date of Buyer's default. On the date that is two (2) years from the Closing Date, any remaining Escrow Funds shall be disbursed to the Buyer and all interest accrued thereon shall be disbursed to Seller, and Seller shall have no further liability with respect to any matters set forth in this Agreement. Notwithstanding any provision herein to the contrary, Buyer acknowledges that the vacant space shown on Exhibit A as "MIN B" (10,000 square feet) is being divided into three (3) spaces of 6,000 square feet, 1,400 square feet, and 1,800 square feet, and the Seller is negotiating leases for such spaces. At such time as all of such leases for such subdivided spaces have been leased, all remaining Escrow Funds will be released to the Buyer and no escrow will be retained for the 800 square foot of space remaining from such division. Furthermore, Buyer hereby approves the following tenants for such spaces each at a rent of not less than $15.00 psf: Hollywood Video (6,000 square foot space); McKinnon Family Jewelers (1,400 square foot space); and J&R Carpets (1,800 square foot space). 5. The Escrow Agent shall have full power and authority to liquidate any and all investments held by it under this Escrow Agreement for the purpose of paying any amount 2 required to be paid hereunder and shall be required to liquidate such securities to the extent necessary to enable it to make such payments. The Escrow Agent shall have no responsibility or liability for any losses resulting from liquidation of the Escrow Funds (such as liquidation prior to maturity). 6. Seller and Buyer acknowledge and agree that the Escrow Agent (i) shall not be responsible for any of the agreements referred to herein but shall be obligated only for the performance of such duties as are specifically set forth in this Escrow Agreement; (ii) shall not be obligated to take any legal or other action hereunder which might in its judgment involve expense or liability unless it shall have been furnished with indemnity acceptable to it; (iii) may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction (including, without limitation, wire transfer instructions, whether incorporated herein or provided in a separate written instruction), instrument, statement, request or document furnished to it hereunder and reasonably believed by it to be genuine and to have been signed or presented by the proper person, and shall have no responsibility for determining the accuracy thereof; and (iv) may consult counsel satisfactory to it, including house counsel, and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice or opinion of such counsel. 7. Neither the Escrow Agent nor any of its directors, officers or employees shall be liable to anyone for any action taken or omitted to be taken by it or any of its directors, officers or employees hereunder except in the case of gross negligence, bad faith or willful misconduct. Seller and Buyer, jointly and severally, covenant and agree to indemnify the Escrow Agent and hold it harmless without limitation from and against any loss, liability or expense of any nature incurred by the Escrow Agent arising out of or in connection with this Escrow Agreement or with the administration of its duties hereunder, including, but not limited to, legal fees and expenses and other costs and expenses of defending or preparing to defend against any claim of liability in respect hereof, unless such loss, liability or expense shall be caused by the Escrow Agent's gross negligence, bad faith or willful misconduct. In no event shall the Escrow Agent be liable for indirect, punitive, special or consequential damages. 8. Any notices or other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed first class certified mail, postage prepaid, addressed as follows: To Buyer: c/o Inland Real Estate Acquisitions, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attn: Louis Quilici Telephone No.: (630)218-4925 Facsimile No.: (630)218-4935 with a copy to: The Inland Real Estate Group, Inc. Law Department Attn: Robin Rash, Esq. 2901 Butterfield Road Oak Brook, Illinois 60523 3 Phone: 630/218-8000 ext. 2854 Fax: 630/218-4900 To Seller: AIG Baker MRP, L.L.C. c/o AIG Baker Shopping Center Properties, L.L.C. 1701 Lee Branch Lane Birmingham, AL 35242 Attn: Ronald L. Carlson Telephone No.: (205)969-1000 Facsimile No.: (205)969-1051 with copies to: AIG Baker Shopping Center Properties, L.L.C. 1701 Lee Branch Lane Birmingham, AL 35242 Attn: Nick C. Whitehead, Esq. Telephone No.: (205)969-1000 Facsimile No.: (205)969-9467 and AIG Global Real Estate Investment Corp. One Chase Manhattan Plaza 57th Floor New York, NY 10005 Attn: Kevin P. Fitzpatrick Telephone No.: (212)504-5200 Facsimile No.: (212)514-5228 and Burr & Forman LLP 420 North 20th Street Suite 3100 Birmingham, Alabama 35203 Attn: Gail Livingston Mills, Esq. Telephone No.: (205)458-5300 Facsimile No.: (205)458-5100 To Escrow Agent: Chicago Title Insurance Company [ILLEGIBLE] 171 N. Clark St. ML:0302 Chicago, IL 60601 Telephone No.: (312)223-2708 Facsimile No.: (312)228-2108 10. In the event of any dispute between the parties regarding the payment or distribution of the Escrow Funds, Escrow Agent shall have the right, upon notice to the other parties, to file an action in a court of competent jurisdiction in Pasco County, Florida, and to interplead the Escrow Funds, or any part or portion thereof, with said court, and upon doing so, Escrow Agent shall be relieved of all further responsibilities and liability with respect to the Escrow Funds so interpled. Escrow Agent shall not be liable to either Seller or Buyer with respect to any acts or omissions hereunder, unless such acts or omissions are contrary to the terms, provisions and conditions set forth in this Agreement, or shall otherwise result from the 4 gross negligence, bad faith or willful misconduct of Escrow Agent, and Seller and Buyer, and each of them, hereby release Escrow Agent therefrom. 11. This Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns, but shall not be assignable by any of the parties hereto without the written consent of all of the other parties hereto. 12. This Escrow Agreement may be executed in any number of counterparts, each of which shall be an original, but which together constitute one and the same instrument. 13. This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 14. The parties hereto agree that, for lax reporting purposes, all interest or other income earned from the investment of the Escrow Funds shall be allocable to Seller. 15. Seller agrees to provide the Escrow Agent with a certified tax identification number by signing and returning a Form W-9 (or Form W-8, in the case of non-U.S. persons) to the Escrow Agent within thirty (30) days from the date hereof. The parties hereto understand that, in the event Seller's tax identification number is not certified to the Escrow Agent, the Internal Revenue Code may require withholding a portion of any interest or other income earned on the investment of the Escrow Funds, in accordance with the Internal Revenue Code, as amended from time to time. 16. This Escrow Agreement may not be altered or modified without the consent of the parties hereto, which consent shall not constitute a waiver of any of the terms or conditions of this Escrow Agreement, unless such waiver is specified in writing, and then only to the extent so specified. A waiver of any of the terms and conditions of this Escrow Agreement on one occasion shall not constitute a waiver of the other terms and conditions of this Escrow Agreement, or of such terms and conditions on any other occasion. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. [SIGNATURES FOLLOW ON REMAINING PAGES] 5 [SIGNATURE PAGE TO MASTER LEASE ESCROW AGREEMENT BETWEEN AIG BAKER MRP, L.L.C. AND INLAND WESTERN NEW PORT RICHEY MITCHELL. L.L.C.] AIG BAKER MRP, L.L.C., A Delaware limited liability company WITNESSES: BY: AIG BAKER SHOPPING CENTER PROPERTIES, L.L.C., a Delaware /s/ Joy Bean limited liability company - ------------------------------- Its Sole Member Print name: Joy Bean -------------------- /s/ Cristine K. Byrd BY: /s/ Alex D. Baker - ------------------------------- ------------------------ Print Name: Cristine K. Byrd Alex D. Baker -------------------- Its President 6 [SIGNATURE PAGE TO MASTER LEASE ESCROW AGREEMENT BETWEEN AIG BAKER MRP, L.L.C. AND INLAND WESTERN NEW PORT RICHEY MITCHELL, L.L.C.] WITNESSES: INLAND WESTERN NEW PORT RICHEY MITCHELL, L.L.C., a Delaware limited liability company /s/ Laura Erickson BY: Inland Western Retail Real Estate Trust, - ------------------------------- Inc., a Maryland corporation, Print Name: Laura Erickson Its Sole Member -------------------- /s/ Carolyn Lundgren By: /s/ Debra A Palmer - ------------------------------- ----------------------------- Print Name: Carolyn Lundgren Name: Debra A Palmer -------------------- ----------------------------- Title: Asst Secretary ----------------------------- 7 [SIGNATURE PAGE TO MASTER LEASE ESCROW AGREEMENT BETWEEN AIG BAKER MRP, L.L.C. AND INLAND WESTERN NEW PORT RICHEY MITCHELL, L.L.C.] ESCROW AGENT: CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Name: [ILLEGIBLE] ------------------------------ Title: Escrow Administrator ------------------------------ EXHIBIT A LEASE ESCROW:
TENANT RENT CAM TAXES INS TI LC ------ --------- -------- -------- ------- --------- -------- MIN B $ 150,000 x2 $ 25,000 x2 $ 20,300 x2 $ 2,000 x2 $ 150,000 $ 30,000 --------- -------- -------- ------- --------- -------- $ 300,000 $ 50,000 $ 40,600 $ 4,000 $ 150,000 $ 30,000 --------- -------- -------- ------- --------- --------
TOTAL MIN B SPACE: $ 574,600.00 LESS 9 DAYS CREDIT GIVEN ON CLOSING STATEMENT: (4,773.39) ------------- MIN B ESCROW: $ 569,826.61
TENANT RENT CAM ------ ----------- ---------- Panera Bread $ 9,250.83 x4 $ 1215.81 x4 0 (month) (month) ----------- ---------- $ 37,003.32 $ 4,863.24 ----------- ----------
TOTAL PANERA BREAD: $ 41,866.56 LESS 9 DAYS CREDIT GIVEN ON CLOSING STATEMENT: (3,038.70) ------------ PANERA BREAD ESCROW $ 38,827.86 TOTAL ESCROW $ 608,654.47
A-1 EXHIBIT B LEASING GUIDELINES 1. The proposed tenant has successful retail and/or business operating experience of three (3) years in the type of business to be operated in the leased premises; 2. The proposed use is a use typically found in retail centers similar to the Property; 3. The proposed use does not violate any exclusives or prohibits uses existing in any other Tenant's lease or covenants existing in any document of record; 4. No concessions shall be provided to the tenant which would be at Buyer's expense; 5. Such proposed lease does not contain any lease terms which are materially different from the Leases for the Tenants of the Property; and 6. The net worth of the proposed tenant shall be such that Buyer can be reasonably satisfied that the proposed tenant shall be able to meet the monetary obligations contained within its lease. B-1 EX-10.326 37 a2143310zex-10_326.txt EX-10.326 Exhibit 10.326 AGREEMENT OF PURCHASE AND SALE BY AND BETWEEN AIG BAKER MRP, L.L.C., AS SELLER AND INLAND REAL ESTATE ACQUISITIONS, INC. AS BUYER July 20, 2004 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS......................................................................4 SECTION 1.2 TERMS GENERALLY..................................................................9 ARTICLE II PURCHASE AND SALE OF PROPERTY SECTION 2.1 SALE.............................................................................9 SECTION 2.2 PURCHASE PRICE..................................................................10 SECTION 2.3 DUE DILIGENCE PERIOD............................................................11 ARTICLE III CONDITIONS PRECEDENT SECTION 3.1 CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE....................................12 SECTION 3.2 CONDITIONS TO SELLER'S OBLIGATIONS TO SELL......................................13 SECTION 3.3 TERMINATION.....................................................................13 SECTION 3.4 WAIVER BY BUYER.................................................................13 ARTICLE IV REPRESENTATIONS AND WARRANTIES; BUYER'S EXAMINATION OF THE PROPERTY SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF SELLER........................................14 SECTION 4.2 ESTOPPELS.......................................................................16 SECTION 4.3 LIMITATION ON CLAIMS; SURVIVAL OF REPRESENTATIONS AND WARRANTIES................16 SECTION 4.4 REPRESENTATIONS AND WARRANTIES OF BUYER.........................................17 SECTION 4.5 BUYER'S INDEPENDENT INVESTIGATION...............................................18 SECTION 4.6 ENTRY AND INDEMNITY; LIMITS ON GOVERNMENT CONTACTS..............................21 SECTION 4.7 RELEASE.........................................................................22 ARTICLE V TITLE AND SURVEY MATTERS SECTION 5.1 DELIVERY; OBJECTION.............................................................22 SECTION 5.2 EVIDENCE OF TITLE...............................................................23 ARTICLE VI BROKERS AND EXPENSES SECTION 6.1 BROKERS.........................................................................23
i SECTION 6.2 EXPENSES........................................................................23 ARTICLE VII INTERIM OPERATION OF THE PROPERTY SECTION 7.1 INTERIM OPERATION OF THE PROPERTY...............................................23 SECTION 7.2 LEASING COSTS...................................................................25 SECTION 7.3 SELLER'S MAINTENANCE OF THE PROPERTY............................................26 SECTION 7.4 LEASE ENFORCEMENT...............................................................26 SECTION 7.5 LEASE TERMINATION PRIOR TO CLOSING..............................................26 SECTION 7.6 TENANT NOTICES..................................................................26 SECTION 7.7 RISK OF LOSS AND INSURANCE PROCEEDS.............................................27 SECTION 7.8 NOTIFICATIONS...................................................................27 ARTICLE VIII CLOSING AND ESCROW SECTION 8.1 ESCROW INSTRUCTIONS.............................................................28 SECTION 8.2 CLOSING.........................................................................28 SECTION 8.3 DEPOSIT OF DOCUMENTS............................................................28 SECTION 8.4 ESTOPPEL CERTIFICATES...........................................................29 SECTION 8.5 PRORATIONS......................................................................30 SECTION 8.6 TAX CERTIORARI PROCEEDINGS......................................................32 ARTICLE IX MISCELLANEOUS SECTION 9.1 NOTICES.........................................................................33 SECTION 9.2 ENTIRE AGREEMENT................................................................35 SECTION 9.3 TIME............................................................................35 SECTION 9.4 ATTORNEYS' FEES.................................................................35 SECTION 9.5 NO MERGER.......................................................................35 SECTION 9.6 ASSIGNMENT......................................................................35 SECTION 9.7 COUNTERPARTS....................................................................35 SECTION 9.8 GOVERNING LAW; JURISDICTION AND VENUE...........................................35 SECTION 9.9 WAIVER OF TRIAL BY JURY.........................................................36 SECTION 9.10 CONFIDENTIALITY AND RETURN OF DOCUMENTS........................................36 SECTION 9.11 INTERPRETATION OF AGREEMENT....................................................38 SECTION 9.12 AMENDMENTS.....................................................................38 SECTION 9.13 NO RECORDING...................................................................38 SECTION 9.14 NO THIRD PARTY BENEFICIARY.....................................................38 SECTION 9.15 SEVERABILITY...................................................................38 SECTION 9.16 DRAFTS NOT AN OFFER TO ENTER INTO A LEGALLY BINDING CONTRACT...................38 SECTION 9.17 FURTHER ASSURANCES.............................................................38 SECTION 9.18 SIGNATURES.....................................................................38
ii EXHIBITS EXHIBIT A LIMITED WARRANTY DEED EXHIBIT B BILL OF SALE EXHIBIT C ASSIGNMENT OF LEASES EXHIBIT D ASSIGNMENT OF CONTRACTS, WARRANTIES AND GUARANTIES AND OTHER INTANGIBLE PROPERTY EXHIBIT E SELLER'S AFFIDAVIT EXHIBIT F TENANT ESTOPPEL CERTIFICATE EXHIBIT G SELLER'S CERTIFICATE SCHEDULES SCHEDULE 2.1.1 PROPERTY DESCRIPTION SCHEDULE 2.1.2 SITE PLAN OF THE SHOPPING CENTER SCHEDULE 4.1.1 EXISTING LEASES SCHEDULE 4.1.2 CONTRACTS SCHEDULE 4.1.3 RENT ROLL SCHEDULE 4.1.4 TENANT DEFAULTS SCHEDULE 4.1.5 NON-TERMINABLE CONTRACTS SCHEDULE 4.1.6 PENDING LITIGATION SCHEDULE 7.2.1 LEASING COSTS iii MITCHELL RANCH PLAZA NEW PORT RICHEY, FLORIDA AGREEMENT OF PURCHASE AND SALE THIS AGREEMENT OF PURCHASE AND SALE (this "AGREEMENT"), is dated as of July 20, 2004 (this "AGREEMENT"), by and between AIG BAKER MRP, L.L.C., a Delaware limited liability company ("SELLER"), and INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("BUYER"). ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below, which meanings shall be applicable equally to the singular and plural of the terms defined: "AFFILIATE" shall mean with respect to any Person (i) any other Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with such Person, (ii) any other Person owning or controlling ten percent (10%) or more of the outstanding voting securities of or other ownership interests in such Person, (iii) any officer, director or partner of such Person or (iv) if such Person is an officer, director or partner, any other company for which such Person acts in any such capacity. "AGREEMENT" shall have the meaning set forth in the first paragraph of this Agreement of Purchase and Sale. "ANCHOR TENANT" shall mean the following tenants: Carl J. Serpe d/b/a Carlucci's Leaning Tower Italian Restaurant; Electronic Boutiques of America, Inc.; Suncoast Clips, Inc., d/b/a Great Clips; Deb's Shops II, Inc., d/b/a Hallmark Gold Crown; Mattress Firm, Inc.; Marshalls of MA, Inc.; Panera, LLC; Payless ShoeSource, Inc.; PETsMART, Inc.; Pier 1 Imports (U.S.), Inc.; Publix Super Markets, Inc.; Ross Dress for Less, L.C.; Sally Beauty Company, Inc.; and Starbucks Corporation "ASSIGNMENT OF CONTRACTS" shall have the meaning set forth in SECTION 8.3(a)(iv). "ASSIGNMENT OF LEASES" shall have the meaning set forth in SECTION 8.3(a)(iii). "BILL OF SALE" shall have the meaning set forth in SECTION 8.3(a)(ii). "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday, or a federal holiday recognized by the Federal Reserve Bank of New York. "BUYER" shall have the meaning set forth in the first paragraph of this Agreement and shall include any assignee of Buyer (including, without limitation, any Permitted Assignee). 4 "BUYER PARTY" or "BUYER PARTIES" shall have the meaning set forth in SECTION 4.6(a). "CLAIM NOTICE" shall mean a written notice delivered by Buyer or a Permitted Assignee to Seller setting forth (i) a reasonably detailed description of the claimed breach or inaccuracy of a representation or warranty, including reasonably detailed information as to the adverse effect on the value of the Property, (ii) the specific provision of this Agreement under which such breach is claimed and (iii) complete and detailed evidence of the satisfaction of the conditions to Buyer's or a Permitted Assignee's recovery set forth in SECTION 4.3. "CLAIMS" shall have the meaning set forth in SECTION 4.3(a). "CLOSING" shall have the meaning set forth in SECTION 2.2(b)(ii). "CLOSING DATE" shall have the meaning set forth in SECTION 8.2. "CLOSING DOCUMENTS" shall have the meaning set forth in SECTION 4.3(a). "CLOSING MONTH" shall have the meaning set forth in SECTION 8.5(a). "CODE" shall mean the Internal Revenue Code of 1986, as amended, or any corresponding provision(s) of any succeeding law. "CONTRACTS" shall have the meaning set forth in SECTION 2.1(d). "DEED" shall have the meaning set forth in SECTION 8.3(a)(i). "DELINQUENT RENTS" shall have the meaning set forth in SECTION 8.5(a). "DEPOSIT" shall have the meaning set forth in SECTION 2.2(b)(i). "DUE DILIGENCE MATERIALS" shall mean all of the documents and other materials delivered by or on behalf of Seller to Buyer, its Permitted Assignee and their representatives during the Due Diligence Period. "DUE DILIGENCE PERIOD" shall mean the period commencing on the date hereof and ending at 5:00 P.M. (Central Time) on Friday, August 13, 2004, during which period Buyer shall conduct the due diligence activities contemplated by SECTION 4.5 of this Agreement. "EVALUATION MATERIAL" shall have the meaning set forth in SECTION 9.10(a)(i). "EFFECTIVE DATE" shall mean the date of this Agreement. "ESCROW AGENT" shall have the meaning set forth in SECTION 2.2(b)(i). 5 "EXISTING LEASES" shall mean those leases, license agreements and occupancy agreements identified in SCHEDULE 4.1.1, as the same may be amended or modified from time to time in accordance with the terms of this Agreement. "EXPIRATION DATE" shall have the meaning set forth in SECTION 4.3(b). "FEE PARCEL" shall have the meaning set forth in SECTION 2.1(a). "GOVERNMENTAL AUTHORITY" shall mean any federal, state, county or municipal government, or political subdivision thereof, any governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court or administrative tribunal. "HAZARDOUS MATERIALS" shall mean materials, wastes or substances that are (A) included within the definition of any one or more of the terms "hazardous substances", "hazardous materials, "toxic substances, "toxic pollutants," and "hazardous waste" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, ET SEQ.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, ET SEQ.), the Clean Water Act (33 U.S.C. Section 1251, ET SEQ.), the Safe Drinking Water Act (14 U.S.C. Section 1401, ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, ET SEQ.), and the Toxic Substance Control Act (15 U.S.C. Section 2601, ET SEQ.) and the regulations promulgated pursuant to such laws, (B) regulated, or classified as hazardous or toxic, under federal, state or local environmental laws or regulations, (C) petroleum, (D) asbestos or asbestos-containing materials, (E) polychlorinated biphenyls, (F) flammable explosives or (G) radioactive materials. "IMPROVEMENTS" shall have the meaning set forth in SECTION 2.1(a). "INDEMNIFIED PARTY" shall have the meaning set forth in SECTION 6.1. "INTANGIBLE PROPERTY" shall have the meaning set forth in SECTION 2.1(g). "LEASES" shall mean all Existing Leases and New Leases, collectively. "LEASING COSTS" shall have the meaning set forth in SECTION 7.3(a). "LICENSES AND PERMITS" shall have the meaning set forth in SECTION 2.1(g). "MASTER LEASE ESCROW" shall have the meaning set forth in SECTION 7.2. "MISSING TENANTS" shall have the meaning set forth in SECTION 3.1(f). "NEW LEASES" shall mean those leases, license agreements and occupancy agreements encumbering the Property which are entered into after the Effective Date in accordance with the terms of this Agreement, as the same may be amended or modified from time to time in accordance with the terms of this Agreement. 6 "NON-ANCHOR TENANT" shall mean any Tenant other than an Anchor Tenant. "NON-TERMINABLE CONTRACTS" shall have the meaning set forth in SECTION 4.1(h). "ORDER" shall mean an order or decree of any Governmental Authority. "PERMITTED ASSIGNEE" shall have the meaning set forth in SECTION 9.6. "PERMITTED EXCEPTIONS" shall have the meaning set forth in SECTION 5.1(b). "PERSON" shall mean any individual, partnership, joint venture, corporation, trust, limited liability company, unincorporated association, any other entity and any government or any department or agency thereof, whether acting in an individual, fiduciary or other capacity. "PERSONAL PROPERTY" shall have the meaning set forth in SECTION 2.1(b). "PRESCRIBED FORM" shall have the meaning set forth in SECTION 8.4. "PRIME RATE" shall mean the prime (or base) rate of interest publicly announced by Citibank, N.A. or its successors from time to time. "PROPERTY" shall have the meaning set forth in SECTION 2.1. "PURCHASE PRICE" shall have the meaning set forth in SECTION 2.2(a). "REAL ESTATE TAXES" shall have the meaning set forth in SECTION 4.5(b)(iv). "REAL PROPERTY" shall have the meaning set forth in SECTION 2.1.(a). "RECORDS AND PLANS" shall have the meaning set forth in SECTION 2.1(f). "REIMBURSEMENT EXPENSES" shall have the meaning set forth in SECTION 8.5(c). "RELEASE" shall have the meaning set forth in SECTION 9.10(b). "RENT ROLL" shall have the meaning set forth in SECTION 4.1(g). "RENTS" shall have the meaning set forth in SECTION 8.5(a). "REPRESENTATIVES" shall have the meaning set forth in SECTION 9.10(a)(i). "REQUIRED DELETION ITEMS" shall have the meaning set forth in SECTION 5.1(c). "REQUIRED TENANTS" shall have the meaning set forth in SECTION 3.1(f). 7 "RETAINED PARCELS" shall have the meaning set forth in SECTION 2.1. "RETAINED PARCELS REA" shall have the meaning set forth in SECTION 8.3(a)(viii). "SCHEDULE OF CONTRACTS" shall have the meaning set forth in SECTION 4.1(f). "SCHEDULE OF LEASES" shall have the meaning set forth in SECTION 4.1(f). "SCHEDULE OF LEASING COSTS" shall have the meaning set forth in SECTION 7.2(a). "SCHEDULE OF NON-TERMINABLE CONTRACTS" shall have the meaning set forth in SECTION 4.1(h). "SCHEDULE OF PENDING LITIGATION" shall have the meaning set forth in SECTION 4.1(j). "SCHEDULE OF TENANT DEFAULTS" shall have the meaning set forth in SECTION 4.1(g). "SELLER" shall have the meaning set forth in the first paragraph of this Agreement. "SELLER PARTY" or "SELLER PARTIES" shall have the meaning set forth in SECTION 4.7(a). "SELLER'S AFFIDAVIT" shall have the meaning set forth in SECTION 8.3(a)(vi). "SHOPPING CENTER" shall have the meaning set forth in SECTION 2.1(a). "SURVEY" shall have the meaning set forth in SECTION 5.1(a). "TENANT" shall mean the tenant, occupier or licensee under any Lease encumbering any Real Property. "TERMINATION NOTICE" shall have the meaning set forth in SECTION 2.3. "THRESHOLD AMOUNT" shall have the meaning set forth in SECTION 4.3(a). "TITLE COMMITMENT" shall have the meaning set forth in SECTION 3.1(c). "TITLE COMPANY" shall mean Chicago Title Insurance Company, 171 North Clark, Chicago, Illinois 60601, Attn: Nancy Castro (312) 223-2709 (castrona@ctt.com). "TITLE POLICY" shall have the meaning set forth in SECTION 5.2. "VACANT SPACES" shall have the meaning set forth in SECTION 7.2. "VACANT SPACES LEASE-UP COSTS" shall have the meaning set forth in SECTION 7.2. 8 "WARRANTIES" shall have the meaning set forth in SECTION 2.1(e). "2003 RECONCILIATION PAYMENTS" shall have the meaning set forth in SECTION 8.5(a). SECTION 1.2 TERMS GENERALLY. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (b) the words "INCLUDING" and "INCLUDE" and other words of similar import shall be deemed to be followed by the phrase "WITHOUT LIMITATION"; and (c) any consent, determination, election or approval required to be obtained, or permitted to be given, by or of any party hereunder, shall be granted, withheld or made (as the case may be) by such party in the exercise of such party's reasonable discretion. ARTICLE II PURCHASE AND SALE OF PROPERTY SECTION 2.1 SALE. Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject only to the Permitted Exceptions and to all other terms, covenants and conditions set forth herein, all of Seller's right, title and interest in and to the following: (a) the parcel of land described in SCHEDULE 2.1.1 attached hereto (the "FEE PARCEL") and being a portion of the certain shopping center known as the MITCHELL RANCH PLAZA SHOPPING CENTER (the "SHOPPING CENTER") and as more particularly shown on SCHEDULE 2.1.2 attached hereto, together with any and all rights, privileges and casements appurtenant thereto owned by Seller, together with all buildings, improvements and fixtures (other than fixtures owned or removable by any Tenant or third party) located thereon (collectively, the "IMPROVEMENTS"; the Fee Parcel, together with the Improvements thereon, the "REAL PROPERTY") [Buyer acknowledges that the Real Property does NOT include either Outparcel No. 6, which is under contract to be sold to Steak N' Shake, OR that certain approximately 3.3 acre tract of land shown on the Site Plan attached hereto as "Future Development," which such parcels are being retained by the Seller (collectively, the "RETAINED PARCELS")]; (b) all tangible personal property not owned or removable by any Tenant or third party, if any, located on the Real Property and owned by Seller and used in the operation or maintenance of the Real Property (the "PERSONAL PROPERTY"); (c) (i) Seller's interest, as landlord, owner or licensor, in each of the Existing Leases, (ii) Seller's interest, as landlord, owner or licensor, in any New Leases and (iii) to the extent assignable, Seller's rights under any guarantees, letters of credit or other instruments that secure or guarantee the performance of the obligations of each Tenant; (d) to the extent assignable, all service contracts, maintenance contracts, operating contracts, warranties, guarantees, listing agreements, parking contracts and like contracts and agreements relating to the Real Property, and commission agreements, equipment leases, contracts, subcontracts and agreements relating to the construction of any unfinished tenant improvements (collectively, the "CONTRACTS"); (e) to the extent assignable, all warranties and guaranties made by or received from any third party with respect to any building, building component, structure, fixture, machinery, equipment or material situated on the Real Property, or 9 contained in any or comprising a part of any Improvement (collectively, the "WARRANTIES"); (f) to the extent Seller currently has such items in its possession, all (i) preliminary, final and proposed building plans and specifications (including "as-built" floor plans and drawings) and tenant improvement plans and specifications for the Improvements and any leasehold improvements made by any Tenant and (ii) surveys, grading plans, topographical maps, architectural and structural drawings and engineering, environmental, soils, seismic, geologic and architectural reports, studies and tests relating to the Real Property ((f)(i) and (f)(ii) collectively, the "RECORDS AND PLANS"); and (g) to the extent transferable, any intangible personal property now or hereafter owned by Seller and used in the ownership, use or operation of the Real Property and/or the Personal Property, including the name "Mitchell Ranch Plaza," but EXCLUDING the names "A.B.," "AIG," "Baker," "A.L.," "American International," or any portion, combination, or permutation of any one or more of the foregoing, and any related names and proprietary computer equipment, software and systems, BUT INCLUDING all (i) transferable licenses, permits, building inspection approvals, certificates of occupancy, approvals, subdivision maps and entitlements issued, approved or granted by Governmental Authorities in connection with the Real Property, (ii) all recorded and unrecorded (but only to the extent first approved by the Buyer) covenants, conditions and restrictions, reciprocal easement agreements, area easement agreements and other common or planned development agreements or documents affecting the Real Property and (iii) licenses, consents, easements, rights of way and approvals obtained from private parties to make use of utilities and to ensure vehicular and pedestrian ingress and egress for the Real Property ((g)(i), (g)(ii) and (g)(iii) collectively, the "LICENSES AND PERMITS") or other rights relating to the ownership, use or operation of the Real Property or the Personal Property (collectively, the "INTANGIBLE PROPERTY"). The Real Property, together with the Personal Property, the Leases, the Contracts, the Warranties, the Records and Plans and the Intangible Property relating thereto, are hereinafter collectively referred to as the "PROPERTY." SECTION 2.2 PURCHASE PRICE. (a) The purchase price for the Property is Thirty-Four Million and No/100 Dollars ($34,000,000.00) (the "PURCHASE PRICE"), subject to prorations, credits and adjustments as set forth herein. (b) The Purchase Price shall be paid by Buyer as follows: (i) Within three (3) Business Days of execution of this Agreement, Buyer will deposit the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00) (the "DEPOSIT"), with Chicago Title Insurance Company, 171 North Clark, Chicago, Illinois 60601, Attn: Nancy Castro (312) 223-2709 (castrona@ctt.com) (in such capacity, the "ESCROW AGENT"). (ii) If the sale of the Property as contemplated hereunder is consummated, then the Deposit shall be returned to Buyer at the consummation of the purchase and sale of the Property (the "CLOSING"), or at Buyer's option, applied to the Purchase Price. (iii) The Purchase Price, as adjusted pursuant to the terms of this Agreement, shall be deposited by Buyer, in immediately available funds, with the Escrow Agent and paid to Seller at the Closing. 10 (c) (i) IF THE SALE OF THE PROPERTY IS NOT CONSUMMATED DUE TO THE FAILURE OF ANY CONDITION TO BUYER'S OBLIGATION TO PURCHASE OR SELLER'S INABILITY TO PERFORM OR SELLER'S DEFAULT HEREUNDER, THEN THE DEPOSIT SHALL BE RETURNED TO BUYER, AND BUYER'S SOLE REMEDY, AT LAW OR IN EQUITY, SHALL BE THE RETURN OF THE DEPOSIT, PROVIDED, THAT IF THE SALE OF THE PROPERTY IS NOT CONSUMMATED BECAUSE OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF SELLER, BUYER MAY EITHER (A) TERMINATE THIS AGREEMENT BY WRITTEN NOTICE OF TERMINATION TO SELLER ON THE CLOSING DATE, WHEREUPON THE DEPOSIT SHALL BE IMMEDIATELY RETURNED TO BUYER OR (B) CONTINUE THIS AGREEMENT PENDING BUYER'S ACTION FOR SPECIFIC PERFORMANCE (IN THE EVENT THAT BUYER PREVAILS IN SUCH SPECIFIC PERFORMANCE ACTION, BUYER SHALL BE ENTITLED TO ALL REASONABLE FEES AND EXPENSES INCURRED BY BUYER IN SUCH ACTION, INCLUDING REASONABLE ATTORNEYS FEES AND COURT COSTS). (ii) IF THE SALE OF THE PROPERTY IS NOT CONSUMMATED AS A RESULT OF A DEFAULT BY BUYER HEREUNDER, THEN, AS ITS SOLE AND EXCLUSIVE REMEDY, SELLER SHALL HAVE THE RIGHT TO OBTAIN THE DEPOSIT FROM THE TITLE COMPANY AND TO RETAIN THE SAME AS LIQUIDATED DAMAGES. THE PARTIES HAVE AGREED THAT SELLER'S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE TO CONSUMMATE THIS SALE DUE TO BUYER'S DEFAULT, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. BY PLACING ITS INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE FOREGOING IS NOT INTENDED TO LIMIT BUYER'S INDEMNITY OBLIGATIONS UNDER SECTIONS 4.6(a), 6.1, 9.4 AND 9.10(a). INITIALS: SELLER ___________ BUYER ___________ SECTION 2.3 DUE DILIGENCE PERIOD. At any time prior to the expiration of the Due Diligence Period, Buyer shall be free, in its sole and absolute discretion, to terminate this Agreement by written notice to Seller (the "TERMINATION NOTICE") delivered on or prior to the expiration date of the Due Diligence Period. If the Termination Notice is not delivered on or prior to the expiration date of the Due Diligence Period, Buyer shall be deemed to have reviewed, accepted and approved (and all representations and warranties of Seller made herein shall be subject to and qualified by) all of the Due Diligence Materials. Notwithstanding anything to the contrary herein, Seller shall have no liability whatsoever to Buyer with respect to any matter disclosed to or discovered by Buyer or its agents prior to the Closing Date. 11 ARTICLE III CONDITIONS PRECEDENT SECTION 3.1 CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE. Buyer's obligation to purchase the Property is conditioned upon the satisfaction (or Buyer's written waiver) on or prior to the Closing Date of the following conditions: (a) There shall exist on the Closing Date no pending Order prohibiting, enjoining or restraining Seller from consummating the transactions contemplated hereby. (b) All consents required to be obtained from, or filings required to be made with, any Governmental Authority or third party in connection with the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby shall have been obtained or made. (c) The Title Company shall have issued or shall have committed to issue, upon payment of the applicable premium therefor, an ALTA Form B Owner's Policy of Title Insurance, with respect to the Real Property in the form of the title insurance commitment or preliminary title report issued by the Title Company and delivered to and approved by Buyer pursuant to the terms of SECTION 5.1 hereof (the "TITLE COMMITMENT"), showing title to the Real Property vested in Seller, subject only to the Permitted Exceptions. It shall not be a condition to Closing that Buyer obtain any endorsements or coverages not set forth in the Title Commitment. (d) Each of the documents required to be delivered by Seller pursuant to SECTION 8.3 shall have been delivered as provided therein and Seller shall not otherwise be in material default of its material obligations hereunder, and all of Seller's representations and warranties contained herein shall be true and correct in all material respects as of the Closing Date. (e) Buyer shall not have previously terminated this Agreement pursuant to and in accordance with SECTION 7.7. (f) On the Closing Date, not less than ninety-five percent (95%) of the Improvements (or 190,383.80 square feet) shall be leased and the Tenants thereunder shall be open and operating their respective demised premises and paying full Rents and other Reimbursable Expenses, and have not filed for bankruptcy or other relief from creditors (the "REQUIRED TENANTS"). Notwithstanding the foregoing, if, on the Closing Date, one or more of the Required Tenants does not meet the requirements of the preceding sentence (the "MISSING TENANTS"), the requirements of the preceding sentence will be deemed satisfied if all of the following requirements are met: (a) the Missing Tenants do not exceed 10,000 square feet individually or 30,360 square feet in the aggregate; and (b) on the Closing Date, Seller deposits into the Master Lease Escrow (as defined in SECTION 7.2 hereof) for each such Missing Tenant an amount equal to: (i) twenty four (24) months Rents and Reimbursable Expenses in the amounts specified in the Rent Roll (as hereinafter defined); and (ii) estimated brokerage commissions in the amount of $3.00 per square foot and estimated tenant improvement allowances in the amount of $5.00 per square foot (if the premises are already in a vanilla box condition) or $15.00 per square foot (if the premises are not in a vanilla box condition), 12 with such amounts to be administered pursuant to the terms of the Master Lease Escrow described in Section 7.2. (g) Seller shall have obtained and delivered to Buyer the tenant estoppel certificates and REA estoppel certificates described in Section 8.4. SECTION 3.2 CONDITIONS TO SELLER'S OBLIGATIONS TO SELL. Seller's obligation to sell the Property is conditioned upon the satisfaction (or Seller's written waiver) on or prior to the Closing Date of the following conditions: (a) There shall exist on the Closing Date no pending Order prohibiting, enjoining or restraining Buyer from consummating the transactions contemplated hereby. (b) All consents required to be obtained from, or filings required to be made with, any Governmental Authority or third party in connection with the execution and delivery of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated hereby shall have been obtained or made. (c) Buyer shall have deposited with the Title Company the entirety of the Purchase Price, subject to the prorations set forth herein, any permitted deductions and credit for the Deposit. (d) Buyer shall not otherwise be in default of its obligations hereunder, it being understood and agreed that a failure of Buyer to purchase the Property shall be deemed a material breach by Buyer of this Agreement, excusing performance by Seller. (e) Each of the documents required to be delivered by Buyer pursuant to SECTION 8.3 shall have been delivered as provided therein, and all of Buyer's representations and warranties contained herein shall be true and correct in all material respects as of the Closing Date. SECTION 3.3 TERMINATION. In the event that any condition set forth in SECTION 3.1 or SECTION 3.2 is not satisfied on or prior to the Closing Date, then the party to this Agreement whose obligations are conditioned upon the satisfaction of such condition may in its sole and absolute discretion terminate this Agreement, subject to Section 2.2(c), by written notice delivered to the other party at or prior to the occurrence of the Closing. Upon any termination of this Agreement pursuant to this SECTION 3.3, neither party shall have any further rights nor obligations hereunder, except as provided in SECTIONS 2.2(c), 4.6(a), 6.1. 9.4 and 9.10(a). SECTION 3.4 WAIVER BY BUYER. If Buyer and/or its Permitted Assignee, with knowledge of (i) a default in any of the covenants, agreements or obligations to be performed by Seller under this Agreement and/or (ii) any breach of or inaccuracy in any representation or warranty of Seller made in this Agreement, nonetheless elects to proceed to Closing, then, upon the consummation of the Closing, Buyer and/or its Permitted Assignee shall be deemed to have waived any such default and/or breach or inaccuracy and shall have no claim against Seller with respect thereto. 13 ARTICLE IV REPRESENTATIONS AND WARRANTIES; BUYER'S EXAMINATION OF THE PROPERTY SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Subject to (i) the provisions of SECTIONS 2.3, 4.2 and 4.3 and (ii) with respect to each of the representations and warranties set forth below, except for those in clauses (a), (b), (c) and (d) of this SECTION 4.1, to the information disclosed in the Due Diligence Materials, Seller hereby makes the following representations and warranties: (a) Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller's creditors, (iii) suffered the appointment of a receiver to take possession of the Property or all, or substantially all, of Seller's other assets, (iv) suffered the attachment or other judicial seizure of any of the Property or all, or substantially all, of Seller's other assets, (v) admitted in writing its inability to pay its debts as they come due or (vi) made an offer of settlement, extension or composition to its creditors generally. (b) Seller is not a "foreign person" as defined in Section 1445 of the Code and any related regulations. (c) Seller is duly organized and validly existing and in good standing under the laws of its state of formation. Seller further represents and warrants that this Agreement and all documents executed by Seller that are to be delivered to Buyer at Closing (i) are, or at the time of Closing will be, duly authorized, executed and delivered by Seller, (ii) do not, and at the time of Closing will not, violate any provision of any agreement or judicial order to which Seller is a party or to which Seller or the Property is subject and (iii) constitute (or in the case of Closing documents will constitute) a valid and legally binding obligation of Seller, enforceable in accordance with its terms. (d) Seller has full and complete power and authority to enter into this Agreement and to perform its obligations hereunder. (e) Seller is not aware of any consents required for the performance of Seller's obligations hereunder. (f) The Due Diligence Materials contain true, correct and complete copies of all Existing Leases, all material Contracts and all material environmental and structural reports in the possession of Seller. All Existing Leases, in effect on the Effective Date, are identified in SCHEDULE 4.1.1 (the "SCHEDULE OF LEASES") and all Contracts, in effect on the Effective Date, are identified in SCHEDULE 4.1.2 (the "SCHEDULE OF CONTRACTS"). This representation shall not be deemed breached by virtue of any Leases or Contracts entered into after the Effective Date in accordance with SECTION 7.1. (g) Except as included in the Due Diligence Materials (including the rent roll attached hereto as SCHEDULE 4.1.3 attached hereto (the "RENT ROLL")), there are, to Seller's knowledge, 14 (i) no leases, license agreements or occupying agreements (or any amendments or supplements thereto) encumbering, or in force with respect to, the Property (except for any New Leases entered into after the Effective Date in accordance with SECTION 7.1) and (ii) no material defaults by any Tenants under the Existing Leases, except as set forth in SCHEDULE 4.1.4 (the "SCHEDULE OF TENANT DEFAULTS"). (h) To Seller's knowledge, the only Contracts and amendments thereto that will be in effect on the Closing Date that are not terminable without cause or penalty within sixty (60) days (the "NON-TERMINABLE CONTRACTS") are as set forth in SCHEDULE 4.1.5 (the "SCHEDULE OF NON-TERMINABLE CONTRACTS") or as entered into in accordance with SECTION 7.1. (i) As of the Effective Date, Seller has not received any written notice of any pending or threatened condemnation of all or any portion of the Property. (j) Seller has not received written notice of any litigation that is pending or threatened with respect to the Property, except (i) litigation fully covered by insurance policies (subject to customary deductibles) or (ii) litigation set forth in SCHEDULE 4.1.6 (the "SCHEDULE OF PENDING LITIGATION"). (k) As of the Effective Date, except as set forth in the Due Diligence Materials, Seller has not received any written notice from any Governmental Authority that all or any portion of the Property is in material violation of any applicable building codes or any applicable environmental law (relating to clean-up or abatement), zoning law or land use law, or any other applicable local, state or federal law or regulation relating to the Property, which material violation has not been cured or remedied prior to the Effective Date. Seller will advise Purchaser in the event that Seller receives any written notice from any Governmental Authority that all or any portion of the Property is in material violation of any applicable building codes or any applicable environmental law (relating to clean-up or abatement), zoning law or land use law, or any other applicable local, state or federal law or regulation relating to the Property between the Effective Date and the Closing Date. (l) Except as set forth in the Existing Leases, Seller has not granted any option or right of first refusal or first opportunity to any party to acquire any fee interest in any portion of the Property. Each of the representations and warranties of Seller contained in this SECTION 4.1: (1) is made as of the Effective Date (subject to the information disclosed in the Due Diligence Materials); (2) other than clauses (i) and (k) above (which, in the case of clause (i) above, the parties acknowledge shall be governed by SECTION 7.7 with respect to events occurring after the Effective Date) shall be deemed remade by Seller, and shall be true in all material respects, as of the Closing Date, subject to (A) the information disclosed in the Due Diligence Materials, (B) litigation that is not reasonably likely to have a material adverse effect on the Property, and (C) other matters expressly permitted in this Agreement or otherwise specifically approved in writing by Buyer; and (3) shall survive the Closing only as and to the extent expressly provided in SECTION 4.2 and SECTION 4.3. If prior to the expiration of the Due Diligence Period, Buyer discovers the existence of any option or right of first refusal or first opportunity to acquire any fee interest in any portion of the 15 Property, Buyer shall promptly provide Seller written notice thereof so that the same may be disclosed to the Title Company in Seller's Affidavit. SECTION 4.2 ESTOPPELS. The representations and warranties of Seller regarding Leases in SECTION 4.1(f) or 4.1(g) shall cease to survive the Closing to the extent specifically confirmed by a tenant estoppel certificate delivered by a Tenant. SECTION 4.3 LIMITATION ON CLAIMS; SURVIVAL OF REPRESENTATIONS AND WARRANTIES. (a) Notwithstanding any provision to the contrary herein or in any document or instrument (including, without limitation, any deeds or assignments) executed by Seller and delivered to Buyer or its Permitted Assignee at or in connection with the Closing (collectively, "CLOSING DOCUMENTS"), Seller shall have no liability whatsoever with respect to any suits, actions, proceedings, investigations, demands, claims, liabilities, fines, penalties, liens, judgments, losses, injuries, damages, expenses or costs, including, without limitation, attorneys' and experts' fees and costs and investigation, and remediation costs (collectively, "CLAIMS") under any of the representations and warranties contained in this Agreement or in any Closing Document, except to the extent (and only to the extent) that the amount of such Claims exceeds Ten Thousand and No/100 Dollars ($10,000.00) (the "THRESHOLD AMOUNT") (and, in such case, such Claims shall only be valid (and Seller shall only be liable) for the portion that exceeds the Threshold Amount; PROVIDED, HOWEVER, notwithstanding any provision to the contrary herein or in any Closing Document, the total aggregate liability of Seller for any or all Claims with respect to the entirety of the Property shall not exceed the sum of Five Hundred Thousand and No/100 Dollars ($500,000.00). Further notwithstanding any provision to the contrary herein or in any Closing Document, Seller shall have no liability with respect to any Claim under any of the representations and warranties contained in this Agreement or in any Closing Document, which Claim relates to or arises in connection with (1) any Hazardous Materials (except solely to the extent that Seller has breached its representation in SECTION 4.1(k)), (2) the physical condition of the Property (except solely to the extent that Seller has breached its representation in SECTION 4.1(k)) or (3) any other matter not expressly set forth in Seller's representations and warranties in SECTION 4.1. Buyer shall not make any Claim or deliver any Claim Notice unless it in good faith believes the Claims would exceed the Threshold Amount provided in this SECTION 4.3(a). (b) Except as otherwise specifically set forth in this Agreement, the representations and warranties of Seller contained herein or in any Closing Document shall survive only until the date that is one (1) year following the Closing Date (the "EXPIRATION DATE"). Any Claim that Buyer may have at any time against Seller for a breach of any such representation or warranty, whether known or unknown, with respect to which a Claim Notice HAS NOT been delivered to Seller on or prior to the Expiration Date shall not be valid or effective. For the avoidance of doubt, on the Expiration Date, Seller shall be fully discharged and released (without the need for separate releases or other documentation) from any liability or obligation to Buyer, its Permitted Assignee and/or their successors and assigns with respect to any Claims or any other matter relating to this Agreement, any Closing Document or the Property, except solely for those matters that are then the subject of a pending Claim Notice delivered by Buyer to Seller. Any Claim that Buyer may have at any time against Seller for a breach of any such representation or warranty, whether known or 16 unknown, with respect to which a Claim Notice HAS been delivered to Seller on or prior to the Expiration Date may be the subject of subsequent litigation brought by Buyer against Seller, PROVIDED that such litigation is commenced against Seller on or prior to the date that is sixty (60) days following the Expiration Date. For the avoidance of doubt, on the date that is sixty (60) days following the Expiration Date, Seller shall be fully discharged and released (without the need for separate releases or other documentation) from any liability or obligation to Buyer and/or its successors and assigns with respect to any Claims or any other matter relating to this Agreement, any Closing Document or the Property, except solely for those matters that are the subject of litigation by Buyer against Seller that is pending on the date that is sixty (60) days following the Expiration Date. (c) This SECTION 4.3 shall survive the Closing. SECTION 4.4 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby makes the following representations and warranties: (a) Buyer is a corporation duly organized and validly existing and in good standing under the laws of the State of Illinois. Buyer further represents and warrants to Seller that this Agreement and all documents executed by Buyer that are to be delivered to Seller at Closing (i) are, or at the time of Closing will be, duly authorized, executed and delivered by Buyer, (ii) do not, and at the time of Closing will not, violate any provision of any agreement or Order to which Buyer is a party or to which Buyer or the Property owned by Buyer is subject and (iii) constitutes (or in the case of Closing documents will constitute) a valid and legally binding obligation of Buyer, enforceable in accordance with its terms. (b) Buyer has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing, of any involuntary petition by Buyer's creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Buyer's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Buyer's assets, (v) admitted in writing its inability to pay its debts as they come due or (vi) made an offer of settlement, extension or composition to its creditors generally. As of the Closing Date, Buyer will have sufficient funds to pay the Purchase Price and consummate the transactions contemplated by this Agreement. (c) Buyer has full and complete power and authority to enter into this Agreement and to perform its obligations hereunder. (d) Buyer (i) is a sophisticated investor, (ii) is represented by competent counsel and (iii) understands the assumptions of risk and liability set forth in this Agreement. (e) No consents are required to be obtained from, and no filings are required to be made with, any Governmental Authority or third party in connection with the execution and delivery of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated hereby. Each of the representations and warranties of Buyer contained in this Section (i) is made on the Effective Date; (ii) shall be deemed remade by Buyer and/or its assignee(s), as 17 applicable and appropriate, and shall be true in all material respects, as of the Closing Date; and (iii) shall survive the Closing. Except as otherwise specifically set forth in this Agreement, the representations and warranties of Buyer contained herein or in any Closing Document shall survive only until the date that is one (1) year following the Closing Date (the "EXPIRATION DATE"). SECTION 4.5 BUYER'S INDEPENDENT INVESTIGATION. (a) Buyer, for itself and any successors or assigns (including any Permitted Assignee), acknowledges and agrees that it is being given the full opportunity during the Due Diligence Period to inspect and investigate each and every aspect of the Property, either independently or through agents, representatives or experts of Buyer's choosing, as Buyer considers necessary or appropriate, and the failure of Buyer to terminate this Agreement prior to the expiration of the Due Diligence Period will conclusively evidence Buyer's complete satisfaction with such independent investigation (but will not constitute a waiver of any breach of representation or warranty set forth in SECTION 4.1 unless such breach is disclosed in the Due Diligence Materials or is otherwise known by Buyer and/or any Permitted Assignee before the Closing Date and Buyer and/or such Permitted Assignee(s) elect to proceed with the Closing). Such independent investigation by Buyer may include, without limitation: (i) all matters relating to title to the Property; (ii) all matters relating to governmental and other legal requirements with respect to the Property, such as taxes, assessments, zoning, use permit requirements and building codes; (iii) all zoning, land use, building, environmental and other statutes, rules or regulations applicable to the Property; (iv) the physical condition of the Property, including, without limitation, the interior, the exterior, the square footage of the Improvements and of each tenant space therein, the structure, the roof, the paving, the utilities and all other physical and functional aspects of the Property, including the presence or absence of Hazardous Materials; (v) any easements and/or access rights affecting the Property; (vi) the Leases with respect to the Property and all matters in connection therewith, including, without limitation, the ability of the Tenants thereto to pay the rent; (vii) the Contracts and any other documents or agreements of significance affecting the Property; (viii) all matters that would be revealed by an ALTA as-built survey, a physical inspection or an environmental site assessment of the Property; 18 (ix) all matters relating to the income and operating or capital expenses of the Property and all other financial matters; and (x) all other matters of significance affecting, or otherwise deemed relevant by Buyer with respect to, the Property. (b) The Due Diligence Materials heretofore delivered (or to be delivered within five (5) Business Days following the Effective Date) by Seller to Buyer for its review and approval include: (i) the existing Leases (including all amendments thereto) and Contracts; (ii) to the extent the following are in Seller's possession for the Property: (1) current financial statements of Tenants and guarantors, if any; (2) architectural drawings, plans and specifications; and (3) existing survey. (iii) existing owner's title policy for the Property; and (iv) the bills issued for the most recent year for the Property for all real estate taxes ("REAL ESTATE TAXES"). (c) Buyer acknowledges and agrees that (i) on or prior to the expiration of the Due Diligence Period it will have completed its independent investigation of the Property and the Due Diligence Materials, (ii) it is acquiring the Property based on such independent investigation and subject to all information disclosed in the Due Diligence Materials (and also in reliance on Seller's representations and warranties contained herein), and (iii) shall have no right after the expiration of the Due Diligence Period to terminate this Agreement based on any further investigations of the Property or the Due Diligence Materials. The failure of Buyer to send a Termination Notice prior to the expiration of the Due Diligence Period shall conclusively constitute Buyer's approval of each and every aspect of the Property. The preceding sentence is not intended to relieve, and shall not relieve, Seller from any of its obligations under SECTION 4.1, if any. (d) BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT (i) SELLER SHALL SELL AND BUYER SHALL PURCHASE THE PROPERTY "AS IS, WHERE IS AND WITH ALL FAULTS" AND (ii) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 4.1, BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, FROM SELLER, NOR ANY PARTNER, OFFICER, EMPLOYEE, ATTORNEY, AGENT OR BROKER OF SELLER, AS TO ANY MATTER, CONCERNING THE PROPERTY, OR SET FORTH, CONTAINED OR ADDRESSED IN THE DUE DILIGENCE MATERIALS (INCLUDING WITHOUT LIMITATION, THE COMPLETENESS THEREOF), INCLUDING 19 WITHOUT LIMITATION: (i) the quality, nature, habitability, merchantability, use, operation, value, marketability, adequacy or physical condition of the Property or any aspect or portion thereof, including, without limitation, structural elements, foundation, roof, appurtenances, access, landscaping, parking facilities, electrical, mechanical, HVAC, plumbing, sewage, and utility systems, facilities and appliances, soils, geology and groundwater, (ii) the dimensions or lot size of the Real Property or the square footage of the Improvements thereon or of any tenant space therein, (iii) the development or income potential, or rights of or relating to, the Real Property, or the Real Property's use, habitability, merchantability, or fitness, or the suitability, value or adequacy of the Real Property for any particular purpose, (iv) the zoning or other legal status of the Real Property or any other public or private restrictions on the use of the Real Property, (v) the compliance of the Real Property or its operation with any applicable codes, laws, regulations, statutes, ordinances, covenants, conditions and restrictions of any Governmental Authority or of any other person or entity (including, without limitation, the Americans with Disabilities Act), (vi) the ability of Buyer to obtain any necessary governmental approvals, licenses or permits for Buyer's intended use or development of the Real Property, (vii) the presence or absence of Hazardous Materials on, in, under, above or about the Real Property or any adjoining or neighboring property, (viii) the quality of any labor and materials used in any Improvements, (ix) the condition of title to the Real Property, (x) the Leases, Contracts or any other agreements affecting the Real Property or the intentions of any party with respect to the negotiation and/or execution of any lease or contract with respect to the Real Property, (xi) Seller's ownership of the Property or any portion thereof or (xii) the economics of, or the income and expenses, revenue or expense projections or other financial matters, relating to, the operation of the Real Property. Without limiting the generality of the foregoing, Buyer expressly acknowledges and agrees that Buyer is not relying on any representation or warranty of Seller, nor any partner, officer, employee, attorney, agent or broker of Seller, whether implied, presumed or expressly provided at law or otherwise, arising by virtue of any statute, common law or other legally binding right or remedy in favor of Buyer. Buyer further acknowledges and agrees that Seller is under no duty to make any inquiry regarding any matter that may or may not be known to Seller or any partner, officer, employee, attorney, agent or broker of Seller. This SECTION 4.5(d) shall survive the Closing, or, if the Closing does not occur, beyond the termination of this Agreement. As a condition to Closing, and subject to the provisions of SECTION 3.1(f) and SECTION 7.2, all unleased space shall be constructed to vanilla shell finish; provided, however, that at Seller's option, Seller may escrow with the Escrow Agent at Closing an amount necessary to complete such vanilla shell finish, and Seller shall complete such work when the spaced is leased; upon completion of such construction and delivery to Buyer of lien waivers from applicable contractors confirming that all work has been paid, the escrowed funds will be released to the Seller. (e) ANY REPORTS, REPAIRS OR WORK REQUIRED BY BUYER ARE THE SOLE RESPONSIBILITY OF BUYER, AND BUYER AGREES THAT THERE IS NO OBLIGATION ON THE PART OF SELLER TO MAKE ANY CHANGES, ALTERATIONS OR REPAIRS TO THE PROPERTY OR TO CURE ANY VIOLATIONS OF LAW OR TO COMPLY WITH THE REQUIREMENTS OF ANY INSURER. BUYER IS SOLELY RESPONSIBLE FOR OBTAINING ANY CERTIFICATE OF OCCUPANCY OR ANY OTHER APPROVAL OR PERMIT NECESSARY FOR TRANSFER OR OCCUPANCY OF THE PROPERTY AND FOR ANY 20 REPAIRS OR ALTERATIONS NECESSARY TO OBTAIN THE SAME, ALL AT BUYER'S SOLE COST AND EXPENSE. SECTION 4.6 ENTRY AND INDEMNITY; LIMITS ON GOVERNMENT CONTACTS. (a) In connection with any entry by Buyer, its Permitted Assignee(s) or any of their agents, employees or contractors (each a "BUYER PARTY", and collectively, the "BUYER PARTIES") onto the Real Property, Buyer shall give Seller reasonable advance notice of such entry and shall conduct such entry and any inspections in connection therewith so as to minimize, to the greatest extent possible, interference with Seller's business and the business of the Tenants and otherwise in a manner reasonably acceptable to Seller. Without limiting the foregoing, prior to any entry to perform any necessary on-site testing, Buyer shall give Seller written notice thereof, including the identity of the company or persons who will perform such testing and the proposed scope of the testing and the party performing the testing. Seller shall approve or disapprove any proposed testing and the party performing the same within three (3) Business Days after receipt of such notice. If a Buyer Party takes any sample from the Real Property in connection with any such approved testing, Buyer shall provide to Seller a portion of such sample being tested to allow Seller, if it so chooses, to perform its own testing. Seller or its representative may be present to observe any testing, or other inspection performed on the Real Property. Buyer shall promptly deliver to Seller copies of any reports relating to any testing or other inspection of the Real Property performed by or on behalf of any Buyer Party in the event that (i) Buyer requests any action on the part of Seller as a result of such testing or (ii) Buyer subsequently terminates this Agreement as a result of the information contained in any such report. Buyer shall maintain, and shall ensure that its contractors maintain, public liability and property damage insurance insuring the Buyer Parties against any liability arising out of any entry or inspections of the Real Property pursuant to the provisions hereof. Such insurance maintained by Buyer shall be in the amount of Two Million and No/100 Dollars ($2,000,000.00) combined single limit for injury to or death of one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence. The policy maintained by Buyer shall insure the contractual liability of Buyer covering the indemnities herein and shall (i) name Seller (and its respective successors, assigns and Affiliates) as additional insureds, (ii) contain a cross-liability provision, and (iii) contain a provision that "the insurance provided by Buyer hereunder shall be primary and noncontributing with any other insurance available to Seller." Buyer shall provide Seller with evidence of such insurance coverage prior to any entry or inspection of the Real Property. Buyer shall indemnify and hold the Seller Parties harmless from and against any Claims arising out of or relating to any entry on any Real Property by any Buyer Party, in the course of performing any inspections, testings or inquiries. The foregoing indemnity shall survive the Closing, or, if the Closing does not occur, beyond the termination of this Agreement. (b) Notwithstanding any provision in this Agreement to the contrary, neither Buyer nor any other Buyer Party shall contact any Governmental Authority regarding any Hazardous Materials on or the environmental condition of the Real Property without Seller's prior written consent thereto, unless required to do so by applicable law (and in such case, Buyer shall provide Seller written notice prior to such notification). Buyer may contact applicable Governmental Authorities and review public records for customary information to obtain an environmental audit of the Property. In addition, if Seller's consent is obtained by Buyer, Seller shall be entitled to receive 21 at least five (5) Business Days' prior written notice of the intended contact and to have a representative present when Buyer has any such contact with any governmental official or representative. SECTION 4.7 RELEASE. (a) Without limiting the provisions of SECTION 4.5, Buyer, for itself and any successors and assigns of Buyer (including, without limitation, any Permitted Assignee), waives its right to recover from, and forever releases and discharges, and covenants not to sue, Seller, Seller's Affiliates, Seller's property and asset managers, any lender to Seller, the partners, trustees, shareholders, controlling persons, directors, officers, attorneys, employees and agents of each of them, and their respective heirs, successors, personal representatives and assigns (each a "SELLER PARTY", and collectively, the "SELLER PARTIES") with respect to any and all Claims, whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way he connected with the Property including, without limitation, the physical, environmental and structural condition of the Real Property or any law or regulation applicable thereto, including, without limitation, any Claim or matter relating to the use, presence, discharge or release of Hazardous Materials on, under, in, above or about the Real Property; PROVIDED, HOWEVER, Buyer does not waive its rights, if any, to recover from, and does not release or discharge or covenant not to sue Seller for (i) any breach of Seller's representations or warranties set forth in SECTION 4.1, subject to the limitations and conditions provided herein, (ii) any breach of Seller's obligations set forth in this Agreement, (iii) Claims covered by Seller's policies of insurance, (iv) litigation actually commenced against Seller by one or more third-parties prior to Closing, and (v) warranties and representations contained in any Closing Documents. (b) This SECTION 4.7 shall survive the Closing indefinitely. ARTICLE V TITLE AND SURVEY MATTERS SECTION 5.1 DELIVERY; OBJECTION. (a) Buyer acknowledges receipt from Seller of an ALTA survey last revised June 30, 2004 (the "SURVEY") of the Property prepared by Florida Design Group, Inc., and a title insurance commitment prepared by Hobby & Hobby P.A., together with copies of all Schedule B title exceptions noted therein. Buyer will, within five (5) days after the Effective Date, order a Title Commitment from Title Company (the "TITLE COMMITMENT"). Buyer shall have until July 23,2004 to review the Survey and Title Commitment and to deliver in writing to Seller such objections as Buyer may have to anything contained in the Survey or the Title Commitment. Any such item to which Purchaser shall not object shall be deemed a "PERMITTED EXCEPTION." Seller shall have a period of five (5) days after receipt of Buyer's notice of title objections to advise Buyer is Seller is willing to cure such objections (but Seller shall be under no obligation to do so). In the event that Seller elects not to cure any title objections raised by the Buyer, Buyer's sole remedies shall be to waive such objection and proceed to Closing, or terminate this Agreement and receive a refund of the Deposit, in which case this Agreement shall terminate and neither party shall have further rights or obligations 22 hereunder. Nothing contained herein shall require Seller to bring any action or proceeding or otherwise to incur any expense to correct, discharge or otherwise remove title exceptions or defects with respect to the Property or to remove, remedy or comply with any other grounds for Buyer's refusing to approve title, PROVIDED that Seller, at Seller's sole cost and expense, shall be obligated to remove or discharge, or otherwise cause the Title Company to omit as an exception to title or to insure against collection thereof from or against the Property any mortgages created by Seller, any mechanics' liens or judgment liens that are the obligation of Seller (as opposed to any Tenant or other third party) and any liens and encumbrances voluntarily created by Seller in violation of SECTION 7.3 (collectively, the "REQUIRED DELETION ITEMS"). If on the Closing Date there are any Required Deletion Items, Seller may use any portion of the Purchase Price payable pursuant to SECTION 2.2(b) to satisfy same, PROVIDED the Title Company shall omit such lien or encumbrance as an exception to title. SECTION 5.2 EVIDENCE OF TITLE. Delivery of title in accordance with the foregoing shall be evidenced by the Title Company issuing, or to committing to issue, at Closing, upon payment by Seller of the applicable premium therefor, an ALTA Extended Form Owner's Policy of Title Insurance in the amount of the Purchase Price showing title to the Property vested in Buyer or its Permitted Assignee or designee, subject only to the Permitted Exceptions (the "TITLE POLICY"). ARTICLE VI BROKERS AND EXPENSES SECTION 6.1 BROKERS. Seller and Buyer represent and warrant to each other that no broker or finder was instrumental in arranging or bringing about this transaction and that there are no claims or rights for brokerage commissions or finders' fees in connection with the transactions contemplated hereby by any person or entity. If any person brings a claim for a commission or finder's fee based upon any contact, dealings or communication with Buyer or Seller, then the party through whom such person makes its claim shall defend the other party (the "INDEMNIFIED PARTY") from such claim, and shall indemnify the Indemnified Party and hold the Indemnified Party harmless from any and all costs, damages, claims, liabilities or expenses (including without limitation, reasonable attorneys' fees and disbursements) incurred by the Indemnified Party in defending against the claim. The provisions of this SECTION 6.1 shall survive the Closing or, if the Closing does not occur, any termination of this Agreement. SECTION 6.2 EXPENSES. Except as provided in SECTION 8.5(d), each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. ARTICLE VII INTERIM OPERATION OF THE PROPERTY SECTION 7.1 INTERIM OPERATION OF THE PROPERTY. (a) Except as otherwise contemplated or permitted by this Agreement or approved by Buyer in writing, from the Effective Date to the Closing Date, Seller agrees that it will carry on 23 the business of Seller with respect to the Property in the manner in which it has heretofore conducted such business. (b) In the event Seller enters into any new Contract or Lease, or amends any existing Contract or Lease, prior to the expiration of the Due Diligence Period, Seller shall provide Buyer a copy of the same within three (3) Business Days after entering into any such new or amended Contract or Lease, and Buyer shall have until the expiration of the Due Diligence Period to review any such new or amended Contract or Lease, PROVIDED in no event shall Buyer have less than five (5) days prior to the expiration of the Due Diligence Period to complete such review (and the Due Diligence Period shall be extended as necessary). (c) Following the expiration of the Due Diligence Period, Seller shall first obtain Buyer's reasonable approval prior to entering into any new Contract or Lease, or amending any existing Contract or Lease. Any such approval, by Buyer shall not be unreasonably withheld or delayed and shall be deemed granted if Buyer does not respond in writing to Seller's request for approval within three (3) Business Days from its receipt thereof. SECTION 7.2 VACANT SPACES. As of the Effective Date of this Agreement, certain spaces within the Property are vacant with no tenant paying rent (the "VACANT SPACES"). A schedule of the Vacant Spaces is attached hereto as SCHEDULE 7.2.1. At Closing, Seller agrees to establish an escrow (the "MASTER LEASE ESCROW") with the Escrow Agent from the proceeds of the Purchase Price in the amount of: (i) rent and additional charges for the Vacant Spaces for a period of twenty four (24) months following the Closing Date, subject to the limitations set forth hereinbelow in this Section; and (ii) estimated brokerage commissions in the amount of $3.00 per square foot and estimated tenant improvement allowances in the amount of $5.00 per square foot for vanilla box finish ($15.00 if not vanilla box finish) with respect to each of the Vacant Spaces (such estimated brokerage commissions and tenant improvement allowances being hereinafter collectively referred to as the "VACANT SPACES LEASE-UP COSTS"). Notwithstanding, Buyer acknowledges that the space shown on the rent roll as "MIN B" (10,000 square feet) is being divided into three (3) spaces of 6,000 square feet, 1,400 square feet, and 1,600 square feet, and the Seller is negotiating leases for such space; NO MASTER LEASE WILL BE REQUIRED FOR THE 800 SQUARE FOOT BALANCE OF SUCH DIVIDED SPACE. Buyer and Seller agree that if any portion of the Vacant Spaces is leased in accordance with the terms of this Agreement between now and the Closing Date, the actual amount to be placed into such escrow shall be recalculated as of the Closing Date to reflect such leased space and the terms of the applicable leases. The Master Lease Escrow shall be invested by the Escrow Agent in an interest-bearing account with a federally-insured banking institution reasonably acceptable to Seller and Buyer pursuant to an escrow agreement approved by the parties and the Escrow Agent. Buyer shall have the right to draw from the Master Lease Escrow, on the first day of each month, an amount sufficient to pay the monthly rental amounts set forth in SCHEDULE 7.2.1 for the Vacant Spaces, together with estimated common area maintenance charges ("CAM"), insurance and Real Estate Taxes with respect thereto. 24 The estimated payments for CAM, insurance and Real Estate Taxes withdrawn monthly by Buyer shall be reconciled by Buyer and Seller within sixty (60) days after the end of each calendar year during the Master Lease Escrow or the end of the Master Lease Escrow (whichever occurs first) to the actual charges for CAM, insurance and Real Estate Taxes. Upon reconciliation, if one party owes the other party a refund or payment, respectively, then such party shall pay the other party within thirty (30) days after its receipt of the reconciliation statement. Seller's obligations in respect thereof for any Vacant Space, as the case may be, shall terminate on the date that is the earlier to occur of (i) the date that a tenant, reasonably acceptable to both Seller and Buyer, begins the payment of rent and additional charges in an amount equal to or greater than the amount shown in SCHEDULE 7.2.1 with respect to such space, or (ii) one (1) year following the Closing Date. The Vacant Spaces Lease-Up Costs shall be disbursed to Buyer from time-to-time, with Seller's prior, written approval, which approval shall not be unreasonably withheld, delayed or conditioned and shall be given if Seller shall not have provided notice to the contrary within five (5) Business Days from Buyer's disbursement request, in order for Buyer to pay such brokerage commissions or tenant improvement costs as are due under any Lease entered into by Buyer for a Vacant Space after the Closing Date, as demonstrated by applicable invoices and appropriate lien waivers or releases. Buyer and Seller shall both use reasonable efforts to lease the Vacant Spaces. Buyer shall not unreasonably withhold its consent to any New Lease for a Vacant Space procured by Seller so long as (a) such tenant will be paying, at a minimum, the rental amounts set forth in SCHEDULE 7.2.1, and (b) the brokerage fee and tenant improvement allowance do not exceed the amounts set forth in SCHEDULE 7.2.1; PROVIDED, HOWEVER, in the event the brokerage fee and/or tenant improvement allowance for any proposed lease do exceed the amount set forth in SCHEDULE 7.2.1, Buyer shall not unreasonably withhold its consent to such proposed lease if Seller agrees to pay all excess costs above the Vacant Space Lease-Up Costs shown on SCHEDULE 7.2.1. In the event any Tenant of a Vacant Space fails to begin the payment of rent or additional charges as required pursuant to the terms of such Tenant's Lease as a result of a default by Buyer, as landlord under the Tenant's Lease, Seller's obligations to pay such rent and additional charges for such Vacant Space shall terminate as of the date of Buyer's default. Amounts in the Master Lease Escrow applicable to a Vacant Space (exclusive of the Vacant Spaces Lease-Up Costs for executed leases, to the extent such Vacant Space Lease-Up Costs have not been paid to the applicable Tenant) shall be released to the Seller once an executed Lease is obtained for the applicable Vacant Space, and any balance remaining in the Master Lease Escrow (exclusive of the Vacant Spaces Lease-Up Costs for executed leases, to the extent such Vacant Space Lease-Up Costs have not been paid to the applicable Tenant) shall be released to the Seller in all events on the date that is twenty four (24) months following the Closing and Seller shall have no further liability with respect to any matters set forth in this SECTION 7.2(a). SECTION 7.3 LEASING COSTS. (a) In the event that there are any unpaid costs for tenant improvement work or allowances, third-party leasing commissions, or other leasing costs (collectively, "LEASING COSTS") with respect to any Lease as of the Closing Date, then at Closing, Buyer shall receive a credit towards the Purchase Price for any unpaid Leasing Costs. A schedule of all unpaid Leasing Costs, as of the Effective Date of this Agreement, is attached hereto as SCHEDULE 7.3.1 (the "SCHEDULE OF LEASING COSTS"). 25 (b) If the Closing occurs, Buyer shall be responsible and shall pay for any Leasing Costs relating to or arising from (i) those Leases or modifications of Leases entered into by Buyer on or after the Closing Date and for those Leases listed in SCHEDULE 7.3.1 that were entered into prior to the Closing Date for which Buyer shall receive a credit towards the Purchase Price at Closing, and (ii) the exercise by a Tenant of a renewal, expansion or extension option contained in any Lease, which renewal or extension period commences, or which expansion space such Tenant first has the right to occupy, on or after the Closing Date. (c) The provisions of this SECTION 7.3 shall survive the Closing. SECTION 7.4 SELLER'S MAINTENANCE OF THE PROPERTY. Between the Effective Date and the Closing Date, Seller shall (a) maintain the Property in substantially the same manner as prior hereto pursuant to Seller's normal course of business, subject to reasonable wear and tear and further subject to the occurrence of any damage or destruction thereto by casualty or other causes or events beyond the control of Seller; PROVIDED, HOWEVER, that Seller's maintenance obligations under this SECTION 7.4 shall not include any obligation to make capital expenditures not incurred in Seller's normal course of business or any other expenditures not incurred in Seller's normal course of business; (b) continue to maintain its existing insurance coverage; and (c) not grant any voluntary liens or encumbrances affecting the Property other than Permitted Exceptions of the type described in clauses (i) and (x) of SECTION 5.1(b). SECTION 7.5 LEASE ENFORCEMENT. Subject to the provisions of SECTION 7.1, prior to the Closing Date, Seller shall have the right, but not the obligation, to enforce the rights and remedies of the landlord under any Lease or New Lease, by summary proceedings or otherwise, and to apply all or any portion of any security deposits then held by Seller toward any loss or damage incurred by Seller by reason of any defaults by any Tenant, PROVIDED, that (i) with respect to delinquent rents, Seller may apply Tenant security deposits held by Seller only to rents that are thirty (30) days or more past due and (ii) with respect to any application by Seller of Tenant security deposits held by Seller, Seller will deliver, in connection with any such application, written notice to the affected Tenant(s) indicating that their security deposits have been or are being so applied. SECTION 7.5 LEASE TERMINATION PRIOR TO CLOSING. Except as otherwise expressly provided in SECTION 3.1(f), the bankruptcy or default of any Non-Anchor Tenant or the termination of any Lease of a Non-Anchor Tenant or New Lease or the removal of any Non-Anchor Tenant by reason of a default by such Tenant (by summary proceedings or otherwise) or by operation of the terms of such Lease or New Lease shall not affect the obligations of Buyer under this Agreement in any manner or entitle Buyer to a reduction in, or credit or allowance against, the Purchase Price or give rise to any other claim on the part of Buyer. SECTION 7.7 TENANT NOTICES. At the Closing, Seller shall furnish Buyer with a signed notice to be given to each Tenant. Such notice shall disclose that the Property has been sold to Buyer and that, after the Closing, all rents should be paid to Buyer. 26 SECTION 7.8 RISK OF LOSS AND INSURANCE PROCEEDS. Buyer shall be bound to purchase the Property for the full Purchase Price as required by the terms hereof, without regard to the occurrence or effect of any damage to the related Real Property or destruction of any improvements thereon or condemnation of any portion of the Property, PROVIDED THAT upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible or any uninsured amount or retention, less any sums reasonably expended by Seller prior to the Closing for the restoration or repair of the Property or in collecting such insurance proceeds or condemnation awards. Seller shall provide Buyer with a certificate of insurance for Seller's property insurance policy so that Buyer can confirm its satisfaction with such policy. Seller agrees that it will maintain such policy in full force and effect until the Closing. If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer, except to the extent needed to reimburse Seller for sums it reasonably expended prior to the Closing for the restoration or repair of the Property or in collecting such insurance proceeds or condemnation awards. Notwithstanding the foregoing, (i) Seller shall not settle, compromise or otherwise stipulate any award or recovery in connection with any damage, destruction or condemnation, in each case if such damage, destruction or condemnation impairs the value of the Property by at least One Hundred Thousand and No/100 Dollars ($100,000.00) and occurs after the expiration of the Due Diligence Period, without the prior written approval of Buyer, which approval shall not be unreasonably withheld, (ii) following the expiration of the Due Diligence Period, Buyer shall have the right to participate in any such settlement or other proceedings, and (iii) if the amount of the damage or destruction as described in this SECTION 7.7 exceeds Two Hundred Fifty Thousand and No/100 Dollars ($250,000), then Buyer may, at its option to be exercised within five (5) Business Days of Seller's written notice of the occurrence of the damage or destruction, either terminate this Agreement or consummate the purchase for the full Purchase Price as required by the terms hereof. If Buyer elects to terminate this Agreement, then the Deposit shall be immediately returned to Buyer and neither party shall have any further rights or obligations hereunder except to the extent set forth in SECTIONS 4.6(a), 6.1, 9.4 and 9.10(a). If Buyer elects to proceed with the purchase, then upon the Closing, Buyer shall be entitled to a credit against the Purchase Price and shall receive an assignment of any uncollected proceeds or awards, all as set forth in this SECTION 7.8 above. The provisions of this SECTION 7.8 shall survive the Closing. SECTION 7.9 NOTIFICATIONS. Between the Effective Date and the Closing, Seller shall promptly notify Buyer of any condemnation, environmental, zoning or other land-use regulation proceedings relating to the Property of which Seller obtains knowledge, any notices of violations of any legal requirements relating to the Property received by Seller, any litigation of which Seller obtains knowledge that arises out of the ownership of the Property unless covered by insurance usual, reasonable and customary for such risks (subject to customary deductibles), and any other matters that would materially affect Seller's representations and warranties hereunder. 27 ARTICLE VIII CLOSING AND ESCROW SECTION 8.1 ESCROW INSTRUCTIONS. Upon execution of this Agreement, the parties hereto shall deposit an executed counterpart of this Agreement with the Escrow Agent, and this instrument shall serve as the instructions to the Escrow Agent as the escrow holder for consummation of the purchase and sale contemplated hereby. Seller and Buyer agree to execute such reasonable additional and supplementary escrow instructions as may be appropriate to enable the Escrow Agent to comply with the terms of this Agreement; PROVIDED, HOWEVER, that in the event of any conflict between the provisions of this Agreement and any supplementary escrow instructions, the terms of this Agreement shall control, unless a contrary intent is expressly indicated in such supplementary instructions. SECTION 8.2 CLOSING. The Closing hereunder shall be held and delivery of all items to be made at the Closing under the terms of this Agreement shall be made at the local office of the Title Company at 10:00 A.M. (Eastern Time) on a date designated by Buyer in writing, not later than five (5) business days after the expiration of the Inspection Period (the "CLOSING DATE"), with time being of the essence. Except as otherwise permitted under this Agreement, such date and time may not be extended without the prior written approval of both Seller and Buyer. SECTION 8.3 DEPOSIT OF DOCUMENTS. (a) At or before the Closing, Seller shall deposit into escrow the following items: (i) a duly executed and acknowledged Special Warranty Deed in the form attached hereto as EXHIBIT A (the "DEED"); (ii) a duly executed Bill of Sale for the Property in the form attached hereto as EXHIBIT B (the "BILL OF SALE"); (iii) a duly executed counterpart of an Assignment and Assumption of Leases for the Property in the form attached hereto as EXHIBIT C (the "ASSIGNMENT OF LEASES"); (iv) a duly executed counterpart of an Assignment and Assumption of Contracts, Warranties and Guaranties and Other Intangible Property for the Property in the form attached hereto as EXHIBIT D (the "ASSIGNMENT OF CONTRACTS"); (v) a duly executed counterpart of such disclosures and reports (including withholding certificates) as are required by applicable state and local law in connection with the conveyance of the Property; (vi) Seller's affidavit to the Title Company, in the form of EXHIBIT E attached hereto (the "SELLER'S AFFIDAVIT"); and 28 (vii) an affidavit pursuant to Section 1445(b)(2) of the Code, and on which Buyer is entitled to rely, that Seller is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code; and (viii) a Reciprocal Easement Agreement in form and content acceptable to the Seller and Buyer with respect to the Seller Retained Land which is to be finalized during the Due Diligence Period (the "RETAINED PARCEL REA"); (b) At or before Closing, Buyer shall deposit into escrow the following items: (i) the Purchase Price; (ii) a duly executed counterpart of the Assignment of Leases; (iii) a duly executed counterpart of the Assignment of Contracts; and (iv) a duly executed counterpart of the Retained Parcel REA; and (v) a duly executed counterpart of such disclosures and reports as are required by applicable state and local law in connection with the conveyance of the Property. (c) Buyer and Seller shall endeavor in good faith to agree on the final, execution form of all of the documents referred to above on or before the last day of the Due Diligence Period. Buyer and Seller shall each deposit such other instruments as are reasonably required by the Title Company or otherwise required to close the escrow and consummate the purchase and sale of the Property in accordance with the terms hereof; PROVIDED, that Seller shall not be required to provide any indemnities or affidavits or to escrow any funds other than Seller's Affidavit. (d) Seller shall deliver to Buyer originals of the Leases (or, if originals are not available, copies), copies of the tenant correspondence files of the Real Property in Seller's possession, a set of keys to the Real Property and originals (or copies, if originals are not available) of any other items in Seller's possession relating to the use, ownership, operation, maintenance, leasing, repair, alteration, management or development of the Real Property, all within five (5) Business Days after the Closing Date. Following the Closing, Buyer shall make all Leases, Contracts, other documents, books, records and any other materials in its possession, to the extent the same relate to the period of Seller's ownership of the Property, available to Seller or its representatives for inspection and/or copying at reasonable times and upon reasonable notice. SECTION 8.4 ESTOPPEL CERTIFICATES. (a) Seller shall use its reasonable efforts (without incurring any additional expense) to obtain and deliver to Buyer not later than five (5) days prior to the Closing Date tenant estoppel certificates, in substantially the form attached hereto as EXHIBIT F, from (a) each of the Anchor Tenants, and (b) eighty percent (80%) of the square footage leased by Non-Anchor Tenants. Notwithstanding anything contained herein to the contrary, if a form of estoppel certificate is 29 attached to or otherwise prescribed in a particular lease document or if it is the policy of any Tenant that a particular form of estoppel certificate be used, that form (the "PRESCRIBED FORM") shall be deemed to be acceptable to Buyer. Each tenant estoppel certificate shall bear an effective date not earlier than a date within thirty (30) days preceding the Closing Date. In the event that an estoppel certificate is not obtained from any Tenant, Seller shall provide a certificate to Buyer in the form attached hereto as EXHIBIT G. Seller's representations and warranties in the certificate shall survive the Closing, PROVIDED THAT (i) Buyer must give Seller a Claim Notice with respect to any claim it may have against Seller for a breach of any such representation and warranty and must commence litigation (if any) relating to such Claim Notice by the times set forth in SECTION 4.3(b) (and any claim that Buyer may have that is not so asserted, or litigation by Buyer that is not so commenced, shall not be valid or effective and Seller shall have no liability whatsoever with respect thereto), and (ii) any certificate delivered by Seller pursuant to this SECTION 8.4 shall cease to survive the Closing to the extent specifically confirmed by a tenant estoppel certificate delivered by a Tenant. (b) Seller shall use its reasonable efforts (without incurring any additional expense) to obtain and deliver to Buyer not later than five (5) days prior to the Closing Date an estoppel certificate (an "REA Estoppel Certificate") from each party to any reciprocal easement agreement, declaration of covenants, operating agreement or similar agreement ("REA") affecting the Property indicating that the REA is in full force and effect, and to the best of such party's knowledge, neither Seller nor any other party to such REA is in default of its obligations thereunder. SECTION 8.5 PRORATIONS. The following shall be adjusted between Seller and Buyer and shall be prorated as of 12:01 A.M. (Eastern Time) on the Closing Date with Buyer deemed the owner of the Property on the entire Closing Date: (a) Rents, common area charges, escalations and other tenant reimbursements (other than security deposits and real property taxes reimburseable by tenants on any annual basis) payable under the Existing Leases and New Leases (collectively, the "RENTS") for the Property or portions thereof shall be prorated as of the Closing Date on an accrual basis. If any Rents are delinquent as of the Closing Date (hereinafter called the "DELINQUENT RENTS"), then all Rents collected by Purchaser after the Closing shall be applied first to current Rents and then to Delinquent Rents, provided further that any Delinquent Rents paid by Tenants therefor and specifically identified as such by the Tenant shall be treated as a reimbursement of such charges regardless of the order of priority otherwise set forth in this SECTION 8.5(a). Buyer shall use reasonable efforts until December 31, 2004 to collect any Delinquent Rents, including any unpaid amounts previously billed for common area maintenance charges, Real Estate Taxes and insurance for the year ending December 31, 2003 (the "2003 RECONCILIATION PAYMENTS") that accrued prior to the Closing Date. Seller agrees to forward any Rents received by it after the Closing Date to Buyer for application in accordance with the provisions hereof. The amount of any security deposits that are required to be returned to Tenants under Leases shall be credited against the Purchase Price (and Seller shall be entitled to retain such security deposits). Seller may not pursue litigation against any tenant for Delinquent Rents or 2003 Reconciliation Payments. 30 (b) Real Estate Taxes for the then current year relating to the Property shall be prorated as of the Closing Date. If the Closing shall occur before the tax rate is fixed for the then current year, the apportionment of taxes shall be made on the basis of the tax rate for the immediately preceding year applied to the latest assessed valuation of the Property, provided that, if the taxes actually due for the current year are more or less than the taxes for the preceding year, then within thirty (30) days after the issuance of the then current year's tax bill, Seller and Buyer shall adjust the proration of such taxes and Seller or Buyer, as the case may be, shall pay to the other any amount required as a result of such adjustment; this covenant shall not merge with the Deed delivered hereunder but shall survive the Closing. All special taxes or assessments assessed prior to the Closing Date shall be paid by Seller, and those assessed after the Closing Date shall be paid by Buyer. Tax reimbursements from Tenants shall, upon receipt, be equitably prorated and reimbursed to Seller. Buyer shall make reasonable efforts to promptly collect all tax reimbursements from the Tenants. (c) All other income from, and expenses of, the Property, including but not limited to public utility charges, interest, maintenance charges and service charges, shall be prorated as of the Closing Date, except as set forth hereinbelow. To the extent that information for any such proration is not available at the Closing, the parties shall effect such proration within ninety (90) days after Closing. If, however, the proration of percentage rental from any Tenant or any other item of income or expense cannot be made within ninety (90) days after the Closing, then the proration of such item for each such Tenant shall be made within ten (10) days after the information relating to such item becomes available. Percentage rents for each Tenant Lease shall be prorated on the basis of the number of days lapsed during the Tenant's percentage rent period as of the Closing Date and not on the basis of the amount of the Tenant's sales which accrued during such percentage rent period as of the Closing Date. Within ninety (90) days after the Closing Date, Seller agrees to provide Buyer (i) a detailed operating expense statement for the actual costs incurred by Seller for operating expenses and other pass-through items that are reimbursable to Seller, as landlord, by Tenants under the Leases (collectively, the "REIMBURSEMENT EXPENSES") that covers the period from the beginning of the then current billing/reconciliation period for such party through the Closing Date together with copies of supporting invoices and other documentation supporting the expenses; and (ii) a statement showing amounts actually collected by Seller as estimated payments or otherwise from the Tenants for the Reimbursement Expenses that covers the period from the beginning of the then current tenant billing/reconciliation period through the Closing Date. Buyer and Seller agree that they will promptly, at the end of the calendar year of the year in which the Closing occurs (or, if the current billing/reconciliation period ends on other than the end of the calendar year, the end of the current applicable billing/reconciliation period), reconcile the Tenants' payments of the Reimbursement Expenses, and Buyer will bill the Tenants promptly for any amounts owed by the Tenants to landlord for payment of the Reimbursement Expenses. In reconciling the Tenants' payments of the Reimbursement Expenses, Buyer and Seller agree to reallocate between them the total amount actually collected by Buyer and Seller for the Reimbursements Expenses for the calendar year (or other applicable billing/reconciliation period corresponding to the applicable period for reconciling the Reimbursement Expenses under the Leases) in which the Closing occurs based on the proportion that the actual costs incurred by each party for the Reimbursement Expenses bears to the total of the 31 Reimbursement Expenses incurred by the parties combined. To the extent either party has collected more than its share of the Tenants' payment for the Reimbursement Expenses as determined by the preceding sentence, such party shall promptly remit such excess amount to the other party; PROVIDED, to the extent the Tenants are due a refund for overpayment of the Reimbursement Expenses attributable to any such excess amount, Buyer may retain such excess amount for the purpose of reimbursing amounts due to Tenants in reconciling the such party's payment of the Reimbursement Expenses. After making the adjustments provided by the previous two sentences, Buyer will promptly remit Seller's pro rata share of any additional amounts actually collected from the Tenants as the result of reconciliation billing to the Tenants for the Reimbursement Expenses due landlord. In the event any amounts are owing to the Tenants, Buyer will notify Seller of its pro rata share of such amounts, with appropriate back-up, and Seller will promptly within thirty (30) days after receipt remit its share of such amounts to Buyer who will then reimburse the Tenants for any amounts owed by landlord. In reconciling the Tenants' payments and determining the pro rate share due to or from Seller, the total amount owing to the Tenants or the total amount collected from the Tenants, shall be multiplied by a fraction the numerator of which shall be the actual expenses incurred by Seller for the Reimbursement Expenses for the applicable billing/reconciliation period and the denominator of which will be the total of the Reimbursement Expenses incurred by both Buyer and Seller combined for the applicable tenant billing/reconciliation period for such expenses. (d) Seller shall calculate the prorations contemplated by this SECTION 8.5 for Closing for Buyer's review and approval. Buyer and its representatives and auditors shall be afforded the opportunity to review all underlying financial records and work papers pertaining to the preparation of Seller's proration statements, and Seller will provide Buyer such backup information as is reasonably requested to verify Seller's proposed prorations. (e) At the Closing, Buyer shall pay the deed and/or other recordation fees and the cost of obtaining a Phase One or other environmental audit/engineering reports. Seller shall pay the documentary stamp tax on the transfer, deed stamp or other similar taxes or fees, the premium for the issuance by the Title Company of the Title Policy (except that the cost of any endorsements requested by Buyer's lender, shall be at Buyer's sole cost and expense) and all title search, underwriting, and other related fees and expenses charged by the Title Company and the cost of obtaining the Survey. (f) Notwithstanding anything to the contrary herein, to the extent set forth in SECTION 8.6, Seller reserves the right to protest any Real Estate Taxes relating to the period prior to the Closing Date and to receive and retain any refunds on account of such Real Estate Taxes. (g) The obligations of Seller and Buyer under this SECTION 8.5 shall survive for one (1) year from the Closing Date. SECTION 8.6 TAX CERTIORARI PROCEEDINGS. Seller is hereby authorized, but not obligated, to (a) commence (prior to the Closing Date) or continue (after the Effective Date and after the Closing Date) any proceeding for the reduction of the assessed valuation of the Property for any tax year which, in accordance with the laws and regulations applicable to the Property, requires that, to preserve the right to bring a tax certiorari proceeding with respect to such tax year, such proceeding 32 be commenced prior to the Closing Date and (b) endeavor to settle any such proceeding in Seller's discretion. After the Closing, with respect to the Property, (i) Seller shall retain all rights (subject to any rights of Tenants under their Leases) with respect to any tax year ending prior to the tax year (and all refunds relating thereto) in which the Closing Date occurs, and shall have the sole right to participate in and settle any proceeding relating thereto (PROVIDED, that such settlement does not affect the assessed tax value for any subsequent tax year), and (ii) Buyer shall have all rights (subject to any rights of Tenants under their Leases) with respect to any tax year (and all refunds relating thereto) which ends after the Closing Date; PROVIDED, HOWEVER, that if the proceeding is for a tax year in which the Closing Date occurs, such settlement shall not be made without Buyer's prior consent, which consent shall not be unreasonably withheld or delayed. With respect to any such proceeding for a tax year in which the Closing Date occurs (whether commenced by Seller or Buyer), any refund or credit of taxes for such tax year shall be applied first to the unreimbursed out-of-pocket expenses, including reasonable attorneys' fees, necessarily incurred in obtaining such refund or credit, and second, to any Tenant entitled to same, and the balance shall be apportioned between Seller and Buyer as of the Closing Date in accordance with the proportion of the applicable tax year occurring before and after the Closing Date. In each case, the party which prosecuted the proceeding shall deliver to the other copies of receipted tax bills and any decision or settlement agreement evidencing the reduction in taxes. If any refund shall be received by Seller which is for the account of Buyer as provided in this SECTION 8.6, then Seller shall hold Buyer's share thereof in trust for Buyer and, promptly upon receipt thereof, pay such share to Buyer or any other party entitled to the same as provided above. If any refund shall be received by Buyer which is for the account of Seller as provided in this SECTION 8.6, then Buyer shall hold Seller's share thereof in trust for Seller and, promptly upon receipt thereof, pay such share to Seller or any other party entitled to the same as provided above. Each party shall execute any and all consents or other documents as may be reasonably necessary to be executed by such party so as to permit the other party to commence or continue any tax certiorari proceeding which such other party is authorized to commence or continue pursuant to the terms of this SECTION 8.6, or to collect any refund or credit with respect to any such tax proceeding. The provisions of this SECTION 8.6 shall survive the Closing. ARTICLE IX MISCELLANEOUS SECTION 9.1 NOTICES. Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested, (c) by a commercial overnight courier that guarantees next day delivery and provides a receipt or (d) by legible facsimile (followed by hard copy delivered in accordance with the preceding subsections (a)-(c)), and such notices shall be addressed as follows: To Buyer: Inland Real Estate Acquisitions, Inc. 2901 Butterfield Road Oak Brook, IL 60523 Attn: Louis Quilici Telephone No.: (630)218-4925 Facsimile No.: (630)218-4935 33 with a copy to: The Inland Real Estate Group, Inc. Law Department Attn: Robin Rash, Esq. 2901 Butterfield Road Oak Brook, Illinois 60523 Phone: 630/218-8000 ext. 2854 Fax: 630/218-4900 To Seller: AIG Baker MRP, L.L.C. c/o AIG Baker Shopping Center Properties, L.L.C. 1701 Lee Branch Lane Birmingham, AL 35242 Attn: Ronald L. Carlson Telephone No.: (205)969-1000 Facsimile No.: (205)969-1051 with copies to: AIG Baker Shopping Center Properties, L.L.C. 1701 Lee Branch Lane Birmingham, AL 35242 Attn: Nick C. Whitehead, Esq. Telephone No.: (205)969-1000 Facsimile No.: (205)969-9467 and AIG Global Real Estate Investment Corp. One Chase Manhattan Plaza 57th Floor New York, NY 10005 Attn: Kevin P. Fitzpatrick Telephone No.: (212)504-5200 Facsimile No.: (212)514-5228 and Burr & Forman LLP 420 North 20th Street Suite 3100 Birmingham, Alabama 35203 Attn: Gail Livingston Mills, Esq. Telephone No.: (205) 458-5300 Facsimile No.: (205) 458-5100 or to such other address as either party may from time to time specify in writing to the other party. Any notice shall be effective only upon receipt (or refusal by the intended recipient to accept delivery). 34 SECTION 9.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits and Schedules hereto, contains all representations, warranties and covenants made by Buyer and Seller and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. Any correspondence, memoranda or agreements between the parties, including, without limitation, any oral or written statements made by Seller, its Affiliates, employees or agents, are not binding on or enforceable against any party, and are superseded and replaced in total by this Agreement together with the Exhibits and Schedules hereto. SECTION 9.3 TIME. Time is of the essence in the performance of each of the parties' respective obligations contained herein. SECTION 9.4 ATTORNEYS' FEES. If either party hereto fails to perform any of its obligations under this Agreement or if any dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Agreement, then the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs (including costs of any trial or appeal therefrom) and reasonable attorneys' fees and disbursements. SECTION 9.5 NO MERGER. The obligations contained herein, the performance of which is contemplated after the Closing, shall not merge with the transfer of title to the Property but shall remain in effect until fulfilled. SECTION 9.6 ASSIGNMENT. Buyer's rights and obligations hereunder shall not be assignable, directly or indirectly, without the prior written consent of Seller; PROVIDED, THAT Buyer may, by written notice delivered to Seller not less than five (5) Business Days prior to the Closing, assign its rights under this Agreement any entity sponsored by Inland Retail Real Estate Trust, Inc., Inc., Inland Western Retail Real Estate Trust, Inc., or to any Affiliate of the Inland Group, Inc. (a "PERMITTED ASSIGNEE") and Seller shall convey the Property at Closing (on behalf of Buyer) in accordance with such written instructions. Nothing contained in the preceding sentence shall be deemed to diminish or otherwise affect the obligations of Buyer hereunder, including the obligations to pay the Purchase Price at Closing and to indemnify Seller and the other Seller Parties in accordance with the terms hereof. Subject to the limitations described herein, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. SECTION 9.7 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. SECTION 9.8 GOVERNING LAW; JURISDICTION AND VENUE. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA. 35 (b) For the purposes of any suit, action or proceeding involving this Agreement, Buyer and Seller hereby expressly submit to the jurisdiction of all federal and state courts sitting in the State of Florida and consent that any order, process, notice of motion or other application to or by any such court or a judge thereof may be served within or without such court's jurisdiction by registered mail or by personal service, provided that a reasonable time for appearance is allowed, and Buyer and Seller agree that such courts shall have the exclusive jurisdiction over any such suit, action or proceeding commenced by any party. In furtherance of such agreement, Buyer and Seller agree upon the request of the other to discontinue (or agree to the discontinuance of) any such suit, action or proceeding pending in any other jurisdiction. (c) Buyer and Seller hereby irrevocably waive any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any federal or state court sitting in the State of Florida and hereby further irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 9.9 WAIVER OF TRIAL BY JURY. EACH PARTY HEREBY WAIVES, IRREVOCABLY AND UNCONDITIONALLY, TRIAL BY JURY IN ANY ACTION BROUGHT ON, UNDER OR BY VIRTUE OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY OF THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH, THE PROPERTY, OR ANY CLAIMS, DEFENSES, RIGHTS OF SET-OFF OR OTHER ACTIONS PERTAINING HERETO OR TO ANY OF THE FOREGOING. SECTION 9.10 CONFIDENTIALITY AND RETURN OF DOCUMENTS. (a) As a condition to Seller's agreement to furnish and/or disclose Evaluation Material (as defined below) to Buyer, any Permitted Assignee(s) and their Affiliates and representatives for review and inspection, Buyer (on behalf of itself, any Permitted Assignee(s), and their respective Affiliates and representatives) hereby agrees to be bound by the terms set forth in this Section 9.10(a). (i) "EVALUATION MATERIAL" shall include all documents, and other written or oral information, as well as diskettes and other forms of electronically transmitted data, furnished to Buyer, a Permitted Assignee, or their respective officers, directors, employees, agents, advisors, Affiliates or representatives (collectively, "REPRESENTATIVES") by Seller or its Affiliates relating to the Property, as well as written memoranda, notes, analyses, reports, compilations, or studies prepared by Buyer or its Representatives (in whatever form of medium) that contain, or are derived from, such information provided by Seller. Notwithstanding the foregoing, information provided by Seller shall not constitute "Evaluation Material" if such information (i) is or becomes generally available to the public other than as a result of a disclosure by or through Buyer or its Representatives in contravention of this SECTION 9.10(a) or (ii) is or becomes available to Buyer from a source (other than Seller) not bound, to the knowledge of Buyer, by any legal or contractual obligation prohibiting the disclosure of Evaluation Material by such source to Buyer. 36 (ii) Buyer agrees that it and its Representatives will use the Evaluation Material exclusively for the purpose of evaluating the merits of a possible purchase of the Property as contemplated by this Agreement and not for any other purpose whatsoever. Buyer (on behalf of itself and its Representatives) further agrees that it will not disclose any Evaluation Material or use it to the detriment of Seller or its Affiliates; PROVIDED, HOWEVER, that Buyer may without liability disclose Evaluation Material (x) to any Representative of Buyer who needs to know such Evaluation Material for the purpose of evaluating the transactions described in this Agreement involving Seller and the Property and Buyer or its Permitted Assignee(s) (it being understood and agreed that Buyer shall be fully responsible for any disclosures by any such Person) and (y) pursuant to administrative order or as otherwise required by law. (iii) In the event that Buyer desires to disclose Evaluation Material under the circumstances contemplated by clause (y) of the preceding paragraph, Buyer will (x) provide Seller with prompt notice thereof, (y) consult with Seller on the advisability of taking steps to resist or narrow such disclosure, and (z) cooperate with Seller (at Seller's cost) in any attempt that Seller may make to obtain an order or other reliable assurance that confidential treatment will be accorded to designated portions of the Evaluation Material. (iv) Buyer agrees that, in the event this Agreement is terminated prior to the consummation of the purchase and sale contemplated hereunder, all written Evaluation Material and all copies thereof will be promptly returned to Seller. All analysis, compilations, studies or other documents prepared by or for Buyer and reflecting Evaluation Material or otherwise based thereon will be (at Buyer's option) either (x) destroyed or (y) retained by Buyer in accordance with the confidentiality restrictions set forth in this SECTION 9.10(a). (v) Buyer acknowledges that significant portions of the Evaluation Material are proprietary in nature and that Seller and its Affiliates would suffer significant and irreparable harm in the event of the misuse or disclosure of the Evaluation Material. Without affecting any other rights or remedies that either party may have, Buyer acknowledges and agrees that Seller shall be entitled to seek the remedies of injunction, specific performance and other equitable relief for any breach, threatened breach or anticipatory breach of the provisions of this agreement by Buyer or its Representatives. (vi) Buyer agrees to indemnify and hold harmless Seller from and against all loss, liability, claim, damage and expense arising out of any breach of this Section 9.10(a) by Buyer or any of its Representatives. (vii) This SECTION 9.10(a) shall survive, if the Closing does not occur, any termination of this Agreement, but shall terminate upon the Closing. (b) Seller and Buyer hereby covenant that prior to the Closing it shall not issue any press release or public statement (a "RELEASE") with respect to the transactions contemplated by this Agreement without the prior consent of all parties to this Agreement, except to the extent required by law or the regulations of the Securities and Exchange Commission. If Buyer is required by law to issue a Release prior to the Closing Date, Buyer shall, at least five (5) Business Days prior 37 to the issuance of the same, deliver a copy of the proposed Release to Seller for its review and approval. SECTION 9.11 INTERPRETATION OF AGREEMENT. The article, section and other headings of this Agreement are for convenience of reference only and shall not be construed to affect the meaning of any provision contained herein. Where the context so requires, the use of the singular shall include the plural and vice versa and the use of the masculine shall include the feminine and the neuter. SECTION 9.12 AMENDMENTS. This Agreement may be amended or modified only by a written instrument signed by both Buyer and Seller. SECTION 9.13 NO RECORDING. Neither this Agreement nor any memorandum or short form thereof may be recorded by Buyer. SECTION 9.14 NO THIRD PARTY BENEFICIARY. The provisions of this Agreement are not intended to benefit any third parties. SECTION 9.15 SEVERABILITY. If any provision of this Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect. SECTION 9.16 DRAFTS NOT AN OFFER TO ENTER INTO A LEGALLY BINDING CONTRACT. The parties hereto agree that the submission of a draft of this Agreement by one party to another is not intended by either party to be an offer to enter into a legally binding contract with respect to the purchase and sale of the Property. The parties shall be legally bound with respect to the purchase and sale of the Property pursuant to the terms of this Agreement only if and when the parties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable to each of the parties in their respective sole discretion, including, without limitation, all of the Exhibits and Schedules hereto, and each of Seller and Buyer have fully executed and delivered to each other a counterpart of this Agreement, including, without limitation, all Exhibits and Schedules hereto. SECTION 9.17 FURTHER ASSURANCES. Each party shall, whenever and as often as it shall be requested to do so by the other party, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all such other documents and do any and all other acts as may be necessary to carry out the intent and purpose of this Agreement. SECTION 9.18 SIGNATURES. Signatures to this Agreement transmitted by telecopy shall be valid and effective to bind the party so signing. Each party agrees to promptly deliver an execution original to this Agreement with its actual signature to the other party, but a failure to do so shall not affect the enforceability of this Agreement, it being expressly agreed that each party to this Agreement shall be bound by its own telecopied signature and shall accept the telecopied signature of the other party to this Agreement. 38 SECTION 9.19 LIKE-KIND EXCHANGE. Seller and Buyer may both utilize the provisions of 28 U.S.C. Section 1031 to effect a like-kind exchange. Both Seller and Buyer agree to execute any necessary documents that will effect such a transaction by the requesting party, or that facilitate such an exchange, and take such action including the appropriate escrow of proceeds, and to otherwise conduct this transaction so that either party can receive the benefits of such provisions, if so elected; provided however that the non-requesting party shall not bear any additional expense in the transaction due to such accommodation, nor shall the terms herein otherwise be affected. IN WITNESS WHEREOF, Buyer has executed this Agreement as of the date first written above. BUYER: INLAND REAL ESTATE ACQUISITIONS, INC. an Illinois corporation By: /s/ Lou Quilici -------------------------------- Print Name: Lou Quilici ------------------------- Title: Senior Vice President ------------------------------ (SIGNATURES CONTINUED ON THE NEXT PAGE) 39 IN WITNESS WHEREOF, Seller has executed this Agreement as of the date first written above. SELLER: AIG BAKER MRP, L.L.C., a Delaware limited liability company By: AIG BAKER SHOPPING CENTER PROPERTIES, L.L.C., a Delaware limited liability company, its sole member By: /s/ Alex D. Baker ------------------------------------ Alex D. Baker, President 40 EXHIBIT A RECORDING REQUESTED BY SEND TAX NOTICES TO: AND WHEN RECORDED MAIL TO: HOBBY & HOBBY, P.A. Inland Real Estate Acquisitions, Inc. 5709 TIDAL WAVE DRIVE _____________________________________ NEW PORT RICHEY, FL 34652 _____________________________________ STATE OF FLORIDA ) COUNTY OF PASCO ) SPECIAL WARRANTY DEED KNOW ALL MEN BY THESE PRESENTS, that for and in consideration of the sum of TEN DOLLARS ($10.00) in hand paid to AIG BAKER MRP, L.L.C., a Delaware limited liability company (the "GRANTOR"), whose address is 1701 Lee Branch Lane, Birmingham, AL 35242 by INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation (the "GRANTEE"), whose address is 2901 Butterfield Road, Oak Brook, Illinois 60523, the receipt whereof is hereby acknowledged, the Grantor has granted, bargained, sold, and conveyed, and by these presents does hereby grant, bargain, sell, and convey unto Grantee and its successors and assigns forever, all those pieces, parcels, or tracts of real estate more fully described in EXHIBIT A attached hereto (the "REAL ESTATE"), together with all and singular rights, privileges, hereditaments, and appurtenances to the Real Estate belonging or in any wise incident or appertaining thereto (collectively, the "PREMISES"). The Premises are being conveyed subject to the lien of the current and subsequent years taxes, the easements and other title exceptions set forth in EXHIBIT B attached hereto (the "PERMITTED ENCUMBRANCES"). TO HAVE AND TO HOLD all and singular the Premises before mentioned unto Grantee, its successors and assigns, forever. Grantor hereby covenants and agrees that it will warrant and forever defend the right and title to the Premises unto the Grantee and its successors and assigns against the claims of Grantor and all others claiming by, through, or under Grantor, but not otherwise, subject, however to the Permitted Encumbrances. 41 IN WITNESS WHEREOF, the undersigned has caused this Deed to be properly executed on this the _____ day of ________________, 2004. GRANTOR: WITNESSES: AIG BAKER MRP, L.L.C. a Delaware limited liability company - -------------------------------- Print Name: BY: AIG BAKER SHOPPING CENTER --------------------- PROPERTIES, L.L.C., a Delaware limited liability company its Sole Member - -------------------------------- Print Name: BY: --------------------- --------------------------- Alex D. Baker President STATE OF ALABAMA ) : COUNTY OF SHELBY ) The foregoing conveyance was acknowledged before me this ____ day of ___________, 2004, by Alex D. Baker as President of AIG Baker Shopping Center Properties, L.L.C., a Delaware limited liability company, as Sole Member of AIG Baker MRP, L.L.C., a Delaware limited liability company. He is personally known to me or has produced a driver's license as identification. -------------------------------------- Print Name: --------------------------- Notary Public [NOTARY STAMP OR SEAL] [SEAL] EXHIBIT A LEGAL DESCRIPTION EXHIBIT B PERMITTED EXCEPTIONS 42 EXHIBIT B BILL OF SALE KNOW ALL MEN BY THESE PRESENTS, that AIG BAKER MRP, L.L.C., a Delaware limited liability company ("SELLER"), for and in consideration of Ten and No/100 Dollars ($10.00) and other valuable consideration, to it in hand paid by INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("BUYER"), the receipt and sufficiency of which are hereby acknowledged, by these presents does bargain and sell unto Buyer all right, title, and interest of Seller in and to all fixtures, machinery, equipment, and other tangible personal property of every kind and description owned by Seller and located on, attached to, or used in connection with the management, operation, maintenance and repair of the premises described on EXHIBIT A attached hereto (the "PROPERTY"), but not including property of any tenant occupying space in the Premises (including supplemental air conditioning units), moveable personal property, or property of public utilities. TO HAVE AND TO HOLD THE SAME, unto Buyer, its successors and assigns forever. This Bill of Sale is made without any warranty or representation, express or implied, except as expressly set forth in the Purchase Agreement. IN WITNESS WHEREOF, Seller has set its hand this _____ day of ______________, 2004. SELLER: AIG BAKER MRP, L.L.C. a Delaware limited liability company BY: AIG BAKER SHOPPING CENTER PROPERTIES, L.L.C., a Delaware limited liability company its Sole Member BY: ---------------------------- Alex D. Baker President EXHIBIT A LEGAL DESCRIPTION 1 EXHIBIT C ASSIGNMENT AND ASSUMPTION OF LEASES THIS ASSIGNMENT AND ASSUMPTION OF LEASES (this "ASSIGNMENT") made as of the_____day of August, 2004, by and between AIG BAKER MRP, L.L.C., a Delaware limited liability company ("ASSIGNOR") and INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("ASSIGNEE"). For Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Assignor hereby assigns to Assignee the entire right, title and interest of Assignor (including the right to collect rent) in, to and under the leases, license agreements and occupancy agreements affecting the real property (the "PROPERTY") described in EXHIBIT A attached hereto, including, without limitation, those leases which are more particularly described on EXHIBIT B attached hereto (collectively, the "LEASES"). Security deposits under the Leases and any rental and other payments under the Leases shall be prorated between the parties as provided in the Agreement of Purchase and Sale by and between Assignor and Assignee dated as of___________ ____, 2004 (the "PURCHASE AGREEMENT"). 2. Assignee hereby assumes and agrees to perform and observe all of the terms, covenants, conditions and agreements as landlord under the Leases with respect to all matters arising or accruing on or after the date hereof, and Assignee shall indemnify, defend and hold harmless Assignor, its agents and employees, and their respective direct and indirect partners, members, shareholders, officers and directors from and against any and all claims, demands, actions, proceedings, costs and expenses (including, without limitation, reasonable attorneys' fees, expenses and court costs, if any), losses, damages, obligations, charges, liabilities, penalties, orders and judgments which may be imposed upon, incurred by or asserted against Assignor by reason of any failure by Assignee to perform any of the aforesaid terms, covenants, conditions and agreements after the date hereof. 3. Assignor shall indemnify, defend and hold harmless Assignee, its agents and employees, and their respective direct and indirect partners, members, shareholders, officers and directors from and against any and all claims, demands, actions, proceedings, costs and expenses (including, without limitation, reasonable attorneys' fees, expenses and court costs, if any), losses, damages, obligations, charges, liabilities, penalties, orders and judgments which may be imposed upon, incurred by or asserted against Assignee by reason, of any failure by Assignor to perform any of the aforesaid terms, covenants, conditions and agreements under the Leases prior to the date hereof. 4. This Assignment is made without recourse and without any express or implied representation or warranty of any kind, except as expressly set forth in the Purchase Agreement. 5. This Assignment shall be binding upon and inure to the benefit of Assignor and Assignee and their respective successors and assigns. 1 6. This Agreement is delivered pursuant to the Purchase Agreement and Assignee acknowledges and affirms the provisions thereof. 7. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, Assignor and Assignee have caused this Agreement to be duly executed on the day and year first above written: ASSIGNOR: WITNESSES: AIG BAKER MRP, L.L.C. a Delaware limited liability company - ------------------------------------ Print Name: BY: AIG BAKER SHOPPING CENTER ------------------------- PROPERTIES, L.L.C., a Delaware limited liability company its Sole Member - ------------------------------------ Print Name: BY: ------------------------- ----------------------------- Alex D. Baker President ASSIGNEE: WITNESSES: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation By: - ------------------------------------ ------------------------------ Print Name: Name: ------------------------- ------------------------------ Title: ------------------------------ - ------------------------------------ Print Name: ------------------------- STATE OF ALABAMA ) : COUNTY OF SHELBY ) The foregoing Assignment was acknowledged before me this____day of August, 2004, by Alex D. Baker as President of AIG Baker Shopping Center Properties, L.L.C., a Delaware limited liability company, as Sole Member of AIG Baker MRP, L.L.C., a Delaware limited liability company. He is personally known to me or has produced a driver's license as identification. ------------------------------ Print Name: ------------------- 2 Notary Public [NOTARY STAMP OR SEAL] [SEAL] STATE OF____________ ) : COUNTY OF___________ ) The foregoing Assignment was acknowledged before me this____day of______, 2004, by ____________ as____________of Inland Real Estate Acquisitions, Inc., an Illinois corporation. He is personally known to me or has produced a driver's license as identification. ------------------------------------- Print Name: -------------------------- Notary Public [NOTARY STAMP OR SEAL] [SEAL] EXHIBIT A LEGAL DESCRIPTION EXHIBIT B LEASES 3 EXHIBIT D ASSIGNMENT OF CONTRACTS, WARRANTIES AND GUARANTIES AND OTHER INTANGIBLE PROPERTY THIS ASSIGNMENT OF CONTRACTS, WARRANTIES AND GUARANTIES AND OTHER INTANGIBLE PROPERTY (this "ASSIGNMENT"), is made and entered into as of this _______ day of August, 2004, by and between AIG BAKER MRP, L.L.C., a Delaware limited liability company ("ASSIGNOR") and INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation ("ASSIGNEE"). FOR GOOD AND VALUABLE CONSIDERATION, the receipt of which is hereby acknowledged, effective as of the date hereof, Assignor hereby assigns and transfers unto Assignee all of its right, title, claim and interest in and under: (A) to the extent assignable, all warranties and guaranties made by or received from any third party with respect to any building, building component, structure, fixture, machinery, equipment, or material situated on, contained in any building or other improvement situated on, or comprising a part of any building or other improvement situated on, any part of that certain real property described on EXHIBIT A attached hereto (collectively, the "WARRANTIES"); (B) to the extent assignable, all of the service contracts listed in EXHIBIT B attached hereto (the "SERVICE CONTRACTS"); and (C) to the extent assignable, any Intangible Property (as defined in that certain Agreement of Purchase and Sale by and between Assignor and Assignee dated ________ ____, 2004 (the "PURCHASE AGREEMENT"). ASSIGNOR AND ASSIGNEE FURTHER HEREBY AGREE AND COVENANT AS FOLLOWS: 1. Assignee hereby accepts and agrees to perform and observe all of the terms, covenants, conditions and agreements relating to or arising out of the Service Contracts with respect to all matters arising or accruing on or after the date hereof, and Assignee shall indemnify, defend and hold harmless Assignor, its agents and employees, and their respective direct and indirect partners, members, shareholders, officers and directors from and against any and all claims, demands, actions, proceedings, costs and expenses (including, without limitation, reasonable attorneys' fees, expenses and court costs, if any), losses, damages, obligations, charges, liabilities, penalties, orders and judgments which may be imposed upon, incurred by or asserted against Assignor by reason of any failure by Assignee to perform any of the aforesaid terms, covenants, conditions and agreements after the date hereof. 2. Assignor shall indemnify, defend and hold harmless Assignee, its agents and employees, and their respective direct and indirect partners, members, shareholders, officers and directors from and against any and all claims, demands, actions, proceedings, costs and expenses 4 (including, without limitation, reasonable attorneys' fees, expenses and court costs, if any), losses, damages, obligations, charges, liabilities, penalties, orders and judgments which may be imposed upon, incurred by or asserted against Assignee by reason of any failure by Assignor to perform any of the aforesaid terms, covenants, conditions and agreements prior to the date hereof. 3. Assignor shall cooperate with Assignee in facilitating the transfer of any Warranties held by Assignor in favor of Assignee. 4. This Assignment shall be binding on and inure to the benefit of the parties hereto, and their successors in interest and assigns. 5. This Assignment shall not be construed as a representation or warranty by Assignor as to the transferability of the Warranties, the Service Contracts or the Intangible Property (collectively, the "INTERESTS"), and Assignor shall have no liability to Assignee in the event that any or all of the Interests (a) are not transferable to Assignee or (b) are canceled or terminated by reason of this assignment or any acts of Assignee. 6. This Assignment is made without recourse and without any express or implied representation or warranty of any kind, except as expressly set forth in the Purchase Agreement. 7. This Assignment is delivered pursuant to the Purchase Agreement and Assignee expressly acknowledges and affirms the provisions thereof. 8. This Assignment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the day and year first above written. ASSIGNOR: WITNESSES: AIG BAKER MRP, L.L.C. a Delaware limited liability company - ------------------------------------ Print Name: BY: AIG BAKER SHOPPING CENTER ------------------------- PROPERTIES, L.L.C., a Delaware limited liability company its Sole Member - ------------------------------------ Print Name: BY: ------------------------- ----------------------------- Alex D. Baker President 5 ASSIGNEE: WITNESSES: INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation - ------------------------------------ By: Print Name: ------------------------------- ------------------------- Name: ------------------------------- Title: ------------------------------- - ------------------------------------ Print Name: -------------------------- STATE OF ALABAMA ) : COUNTY OF SHELBY ) The foregoing Assignment was acknowledged before me this ___ day of August, 2004, by Alex D. Baker as President of AIG Baker Shopping Center Properties, L.L.C., a Delaware limited liability company, as Sole Member of AIG Baker MRP, L.L.C., a Delaware limited liability company. He is personally known to me or has produced a driver's license as identification. ------------------------------------- Print Name: -------------------------- Notary Public [NOTARY STAMP OR SEAL] [SEAL] STATE OF _________ ) : COUNTY OF _________) The foregoing Assignment was acknowledged before me this ___ day of August, 2004, by __________ as __________ of Inland Real Estate Acquisitions, Inc., an Illinois corporation. He is personally known to me or has produced a driver's license as identification. ------------------------------------- Print Name: -------------------------- Notary Public [NOTARY STAMP OR SEAL] [SEAL] EXHIBIT A LEGAL DESCRIPTION EXHIBIT B LIST OF SERVICE CONTRACTS 6 EXHIBIT E SELLER'S AFFIDAVIT STATE OF ALABAMA COUNTY OF SHELBY PERSONALLY APPEARED BEFORE ME, the undersigned officer, duly authorized to administer oaths, the undersigned party (the "DEPONENT"), who being sworn according to law, deposes and says on oath as follows: That the Deponent is the President of AIG Baker Shopping Center Properties, L.L.C., a Delaware limited liability company, the sole member of AIG Baker MRP, L.L.C., a Delaware limited liability company who is the owner (the "SELLER") of certain real property (the "PROPERTY") described on EXHIBIT A attached hereto and incorporated herein by this reference and as such the Deponent has knowledge of the statements herein. That the Seller has the right to convey fee simple title to the Property, that, to the best of the Deponent's knowledge, there are no unpaid or unsatisfied security deeds, mortgages, claims of lien, special assessments for sewer, water main or street improvements, or taxes which could constitute a lien against the Property and that, to the best of the Deponent's knowledge, the Property is free and clear of any other encumbrances or any security deeds, mortgages, restrictions, easements, claims of casements, encroachments, ways or rights of use, whether existing of record or otherwise, that could in any way affect the title to the Property, or constitute a lien thereon, except for those matters set forth on EXHIBIT B attached hereto and incorporated herein by reference. That, to the best of the Deponent's knowledge, there are no pending suits, proceedings, judgments, bankruptcies, liens, bonds or executions against the Seller in Pasco County, Florida, or in any other county in the State of Florida, or in any other jurisdiction affecting the Property. That no improvements or repairs have been made on the Property by or at the instance of the Seller during the ninety (90) days immediately preceding this date, for which the Seller has not paid for such improvements or repairs or will pay for upon the completion of all work and final inspection by the Seller of such improvements or repairs. That the Seller has been in open, notorious, adverse and peaceful possession of the Property and that the undersigned Deponent knows of no adverse claim to the Seller's title to the Property. That there are no tenants in possession of the Property except as set forth on EXHIBIT C attached hereto. 1 Sworn to and subscribed before me this _____ day of _______________, 2004. (SEAL) - ---------------------------- --------------------------------- Notary Public Alex D. Baker (Affix seal and commission expiration) Dated: ------------------------------- EXHIBIT A LEGAL DESCRIPTION EXHIBIT B PERMITTED EXCEPTIONS EXHIBIT C LIST OF LEASES 2 EXHIBIT F TENANT ESTOPPEL CERTIFICATE To: Inland Real Estate Acquisitions, Inc., and its lender, successors, and assigns 2901 Butterfield Road Oak Brook, IL 60523 RE: Retail Lease Agreement (the "LEASE") dated __________, 200___ for Space ______ consisting of _______ square feet (the "PREMISES") at Mitchell Ranch Plaza Shopping Center (the "SHOPPING CENTER") located in New Port Richey, Florida (the "PROPERTY"), by and between AIG Baker MRP, L.L.C., a Delaware limited liability company ("LANDLORD"), as the current Landlord, and ______________ ("TENANT"), as Tenant. Gentlemen: Tenant understands that Inland Real Estate Acquisitions, Inc., an Illinois corporation, or its assignee ("BUYER") and its lender ("LENDER") is reviewing the possible purchase and finance of the Property from Landlord. In connection therewith, and with the understanding that Buyer and Lender are relying upon the agreements and certifications referenced or contained herein, Tenant agrees and certifies to Buyer, its respective successors and assigns, and to Lender, as follows: 1. Tenant hereby confirms that the leasable square footage of Tenant's Premises is equal to _____________ square feet. The Lease constitutes the entire agreement between Landlord and Tenant with respect to the Premises and the Property, is in full force and effect and has not been amended, modified or assigned except as follows: (If none, state "none".) Except as above provided, there are no other agreements between Landlord and Tenant with respect to the Premises or the Property. 2. The term of the Lease commenced on ____________, 20___, and will terminate on ____________, 20____. Tenant has ______ unexercised renewal options of ______ years each. 3. The rent commencement date under the Lease was ______. The current monthly amount of Base Rent payable by the Tenant is equal to $_______; and current billings for operating expenses, insurance and real estate taxes are $_________ per month. Base Rent has been paid through ________, 2004, and additional rent for operating expenses, insurance premiums and real estate taxes has been paid through ____________, 2004. No rent has been paid more than one month in advance of its due date, except as indicated below: (If none, state "none"). 4. Landlord is holding a security deposit in the amount of $_________ with respect to the Lease, and Tenant is not entitled to interest accrued thereon pursuant to the terms of the Lease. 3 5. To the best of Tenant's knowledge, there are no defaults of Landlord or Tenant under the Lease, and there are no existing circumstances which with the passage of time, or giving of notice, or both, would give rise to a default under the Lease. 6. Construction of all improvements required under the Lease and any other conditions to Tenant's obligations under the Lease, if any, have been satisfactorily completed by Landlord including the payment for any tenant improvement work, if any (any payment still to be paid for tenant improvement work should be indicated below) and Tenant has accepted and is occupying and operating in the Premises: (If none, state "none"). 7. Tenant has no rent concession, charge, lien, claim of set-off, abatement or defense against rents or other charges due or to become due under the Lease or otherwise under any of the terms, conditions, and covenants contained therein, and Tenant is not currently entitled to any concessions, rebates, allowances or other considerations for free or reduced rent. 8. To Tenant's knowledge, there are no attachments, executions, assignments for the benefit of creditors, receiverships, conservatorships, or voluntary or involuntary proceedings in bankruptcy or pursuant to any other laws for relief or debtors contemplated or filed by Tenant or pending against Tenant. 9. Tenant is currently operating its business in all of the Premises. Tenant has not subleased all or any portion of the Premises or assigned any of its rights under the Lease, nor pledged any interest therein, except as follows: (If none, state "none"). 10. Tenant does not have any rights or options to purchase the Property, or any portion thereof. 11. Except as set forth below, Tenant does not have any options (except as stated above), rights of first refusal, rights of first offer or similar rights to other Property space, and such rights, if any, are subject to all pre-existing rights accorded to other tenants: (If none, state "none"). 12. The person whose signature appears below is duly and fully authorized to execute this Certificate and has knowledge of the facts and statements recited herein and acknowledges full and proper execution of the Lease. In Witness Whereof, Tenant has executed and delivered this Certificate this_______ day of _________, 2004. TENANT: By: ------------------------------------- Its: ------------------------------------- 3 EXHIBIT G SELLER'S CERTIFICATE The undersigned is the Landlord under that certain Retail Lease Agreement dated ______________ entered into between Landlord therein and _____________, as Tenant therein (the "LEASE"), covering the premises commonly known as Space _______ (the "PREMISES") located at Mitchell Ranch Plaza, New Port Richey, Florida (the "SHOPPING CENTER"), and hereby confirms to Inland Real Estate Acquisitions, Inc., an Illinois corporation, or its assignee ("BUYER"), and its lender ("LENDER") the following: 1. That the current Tenant is (Legal Name) _____________, hereinafter referred to as "Tenant"; 2. That to the best of the undersigned's knowledge, no material default exists under the Lease on the part of either Landlord or Tenant. As used herein, "material default" shall mean (1) in the case of a default by Landlord, a default giving rise to a right on the part of Tenant to offset any rent or terminate the Lease, and (2) in the case of Tenant, a monetary default or a non-monetary default giving rise to a right on the part of Landlord to terminate the Lease; 3. That to the best of the undersigned's knowledge, there are no actions, suits proceedings or claims pending or threatened with respect to or in any manner affecting the Lease; 4. That to the best of the undersigned's knowledge, Tenant has no defense to enforcement of the Lease in accordance with its terms, nor any right of setoff or counterclaim with respect to the obligations thereunder; 5. That to the best of the undersigned's knowledge, and except as set forth in the Due Diligence Materials, the Lease constitutes the entire Rental Agreement and remains in full force and effect, unmodified and unchanged; 6. That to the best of the undersigned's knowledge, the rental has not been paid more than one month in advance, and that the rental being paid is in accordance with the terms of the Lease and is currently in the amount of $______ per month; 7. That the Lease term is for __________ years and commenced on ________, and terminates on ______________; 8. That the Lease contains an option to renew for _________ successive terms of ____ years each; 9. That the current balance of the security deposit under the Lease is $_________; and 10. That to the best of the undersigned's knowledge, and except to the extent set forth in the Due Diligence Materials, Tenant has no right of first refusal to purchase, option to purchase or 4 other rights to purchase all or part of the Premises, or in the event Tenant has any such rights, Tenant has waived said rights in their entirety. As used herein, the term "DUE DILIGENCE MATERIALS" shall have the meaning set forth in that certain Agreement of Purchase and Sale, dated___________, 2004, between Landlord, as Seller, and Buyer. This Certificate is made with knowledge by the undersigned that reliance is being made upon this Certificate. The representations of this Seller's Certificate shall only be valid until an executed estoppel certificate is obtained from Tenant. Dated this _______ day of ______, 2004. LANDLORD: AIG BAKER MRP, L.L.C., a Delaware limited liability company By: AIG Baker Shopping Center Properties, L.L.C., a Delaware limited liability company, its sole member By: ---------------------------------- Alex D. Baker, President 5 SCHEDULE 2.1.1 PROPERTY DESCRIPTION LEGAL DESCRIPTION: MITCHELL RANCH PLAZA (AlG BAKER) A parcel of land lying within Sections 23, 24, 25 & 26 of Township 26 South, Range 16 East, Pasco County, Florida, being more particularly described as follows: Commencing at the Northwest Corner of Section 25, Township 26 South, Range 16 East, Pasco County Florida; thence N00 DEG. 00'5l"W (BEING THE BASIS OF BEARINGS FOR THIS DESCRIPTION)along the West line of the Southwest 1/4 of Section 24, Township 26 South, Range 16 East, for 142.68 feet; thence S89 DEG. 59'09"W, for 50.01 feet to the POINT OF BEGINNING, same also being the point of intersection with the easterly right-of-way line of Mitchell Boulevard as shown on Pasco County right-of-way maps, Project Number 04325-01000219; thence N00 DEG. 01'12"W along said easterly right-of-way line of Mitchell Boulevard, for 49.22 feet; thence leaving said easterly right-of-way line of Mitchell Boulevard, S75 DEG. 14'17"E, for 16.94 feet; thence N90 DEG. 00'00"E, for 162.14 feet; thence N35 DEG. 30'43"E, for 32.56 feet to a point of curvature of a non-tangent curve; thence 132.18 feet along the arc of a curve to the right, said curve having a radius of 273.00 feet, a central angle of 27 DEG.44'30", and a chord of 130.89 feet which bears N05 DEG. 06'19"W; thence N08 DEG. 45'57"E, for 347.13 feet; thence N40 DEG. 37'02"W, for 30.36 feet; thence S90 DEG. 00'00"W, for 124.85 feet; thence S66 DEG. 00'48"W, for 22.27 feet to the point of intersection with said easterly right-of-way line of Mitchell Boulevard as shown on Pasco County right-of-way maps, Project Number 04325-01000219; thence N08 DEG. 59'06"E along said easterly right-of-way line of Mitchell Boulevard, for 25.31 feet to a point of curvature of a non-tangent curve; thence continue along said easterly right-of-way line of Mitchell Boulevard, 29.08 feet along the arc of a curve to the left, said curve having a radius of 1,233.00 feet, a central angle of 01 DEG. 21'05", and a chord of 29.08 feet which bears N08 DEG. 18'46"E; thence leaving said easterly right-of-way line of Mitchell Boulevard, S74 DEG. 19'41"E, for 13.78 feet; thence N90 DEG. 00'00"E, for 138.89 feet; thence N45 DEG. 18'59"E, for 24.11 feet; thence N08 DEG. 45'57"E, for 151.25 feet to a point of curvature; thence 138.94 feet along the arc of a curve to the right, said curve having a radius of 98.00 feet, a central angle of 81 DEG. 14'03", and a chord of 127.60 feet which bears N49 DEG. 22'59"E; thence N90 DEG. 00'00"E, for 363.74 feet; thence N45 DEG. 00'00"E, for 28.28 feet; thence N00 DEG. 00'00"E, for 165.86 feet; thence N07 DEG. 33'51"W, for 11.83 feet to the point of intersection with the southerly right-of-way line of State Road 54 (Mitchell Road) as shown on the right-of-way map, Florida Department of Transportation District #7, Section 14570-2515, dated July 7, 1994; thence S89 DEG. 32'49"E along said southerly right-of-way line of State Road 54 (Mitchell Road), for 9.08 feet; thence continue along said southerly right-of-way line of State Road 54 (Mitchell Road), N77 DEG. 02'45"E, for 38.00 feet; thence leaving said southerly right-of-way line of State Road 54 (Mitchell Road), S11 DEG. 28'01"W, for 17.88 feet; thence S00 DEG. 00'00"E, for 168.52 feet; thence S45 DEG. 00'00"E, for 28.28 feet; thence N90 DEG. 00'00"E, for 238.00 feet; thence N45 DEG. 00'00"E, for 21.21 feet; thence N00 DEG. 00'00"E, for 182.08 feet; thence N19 DEG. 05'12"W, for 18.31 feet to a point of curvature of a non-tangent curve, same also being a point of intersection with the proposed southerly right-of-way line of State Road 54; thence 61.99 feet along the arc of a curve to the right, same also being said proposed southerly right-of-way line of State Road 54, said curve having a radius of 1 29027.11 feet, a central angle of 0 DEG. 07'20" and a chord of 61.99 feet which bears N89 DEG. 47'45"E; thence leaving said proposed southerly right-of-way line of State Road 54, S00 DEG. 00'00"E, for 169.61 feet to a point of curvature; thence 47.12 feet along the arc of a curve to the left, said curve having a central angle of 90 DEG. 00'00", a radius of 30.00 feet and a chord of 42.43 feet which bears S45 DEG. 00'00"E; thence S90 DEG. 00'00"E, for 8.13 feet; thence S00 DEG. 00'00"W, for 266.00 feet to a point of curvature; thence 149.23 feet along the arc of a curve to the right, said curve having a radius of 95.00 feet, a central angle of 90 DEG. 00'00" and a chord of 134.35 feet which bears S45 DEG. 00'00"W; thence N90 DEG. 00'00"W, for 128.83 feet to a point of curvature; thence 125.66 feet along the arc of a curve to the left, said curve having a radius of 80.00 feet, a central angle of 90 DEG. 00'00" and a chord of 113.14 feet which bears S45 DEG. 00'00"W thence S00 DEG. 00'00"W, for 368.69 feet to a point of curvature; thence 16.55 feet along the arc of a curve to the left, said curve having a radius of 30.00 feet, a central angle of 31 DEG. 36'26", and a chord of 16.34 feet which bears S15 DEG. 48'13"E to a point of reverse curvature; thence 38.62 feet along the arc of a curve to the right, said curve having a radius of 70.00 feet, a central angle of 3l DEG. 36'26", and a chord of 38.13 feet which bears S15 DEG. 48'13"E; thence S00 DEG. 00'00"W, for 142.61 feet to a point of curvature; thence 47.12 feet along the arc of a curve to the left, said curve having a radius of 30.00 feet, a central angle of 90 DEG. 00'00", and a chord of 42.43 feet which bears S45 DEG. 00'00"E; thence S90 DEG. 00'00"E, for 377.81 feet; thence N00 DEG. 01'08"E, for 8.45 feet to a southerly corner of Official Records Book 4979, page 153 of the Public Records of Pasco County, Florida; thence along the southerly line of said Official Records Book 4979, page 153 the following (9) courses: 1) S89 DEG. 45'29"E, 145.93 feet; 2) N70 DEG. 03'21"E, 134.56 feet; 3) S73 DEG. 24'09"E, 101.65 feet; 4) S37 DEG. 52'14"E, 169.61 feet; 5) S44 DEG. 39'05"E, 154.53 feet; 6) S00 DEG. 00'00"E, 159.00 feet; 7) S23 DEG. 44'27"E, for 37.26 feet; 8) S00 DEG. 00'00"E, 2.37 feet; 9) S89 DEG. 59'06"E, 786.00 feet; thence leaving said southerly line of Official Records Book 4979, page 153, S58 DEG. 31'13"W, for 9.29 feet; thence S07 DEG. 44'28"W, for 7.24 feet; thence S15 DEG. 26'38"W, for 99.52 feet; thence S12 DEG. 02'15"W, for 84.00 feet; thence S13 DEG. 13'56"W, for 114.46 feet; thence S09 DEG. 29'24"W, for 76.40 feet; thence S10 DEG. 08'55"W, for 98.58 feet; thence S11 DEG. 15'28"W, for 404.12 feet; thence S15 DEG. 03'19"W, for 376.90 feet; thence S13 DEG. 26'49"W, for 142.29 feet; thence S16 DEG. 40'25"W, for 192.92 feet; thence N79 DEG. 29'25"W, for 84.79 feet; thence N67 DEG. 52'33"W, for 31.55 feet; thence N47 DEG. 56'54"W, for 52.96 feet; thence N22 DEG. 05'00"W, for 91.05 feet; thence N36 DEG. 03'11"W, for 228.03 feet; thence N83 DEG. 48'39"W, for 143.10 feet; thence S83 DEG. 07'41"W, for 71.60 feet; thence S77 DEG. 57'28"W, for 20.44 feet; thence S81 DEG. 08'31"W, for 28.12 feet; thence S85 DEG. 10'24"W, for 25.87 feet to a point of curvature; thence 129.76 feet along the arc of a curve to the left, said curve having a radius of 360.00 feet, a central angle of 20 DEG. 39'06", and a chord of 129.06 feet which bears S74 DEG. 50'51"W; thence S64 DEG. 31'18"W, for 52.94 feet; thence S61 DEG. 44'47"W, for 35.40 feet; thence S55 DEG. 11'27"W, for 37.10 feet; thence S16 DEG. 56'52"W, for 37.02 feet; thence S07 DEG. 25'50"W, for 63.31 feet; thence S02 DEG. 47'18"W, for 61.06 feet; thence S04 DEG. 34'11"E, for 56.28 feet; 2 thence S12 DEG. 29'24"E, for 36.15 feet; thence S03 DEG. 06'02"E, for 91.19 feet; thence N82 DEG. 31'44"W, for 77.99 feet; thence N53 DEG. 12'35"W, for 249.96 feet; thence N36 DEG. 46'10"E, for 80.00 feet; thence N36 DEG. l8'12"E, for 8.72 feet; thence N46 DEG. 02'02"E, for 19.44 feet; thence N49 DEG. 35'25"E, for 32.50 feet; thence N32 DEG. 44'54"E, for 19.45 feet; thence N48 DEG. 40'10"E, for 49.67 feet; thence N42 DEG. 52'54"E, for 46.05 feet; thence N31 DEG. 13'04"E, for 32.92 feet; thence N36 DEG. 34'44"E, for 43.39 feet; thence N28 DEG. 13'26"E, for 37.39 feet; thence N45 DEG. 49'21"E, for 45.28 feet; thence N37 DEG. 33'17"E, for 34.70 feet; thence N31 DEG. 08'28"E, for 41.65 feet; thence N50 DEG. 52'29"E, for 13.38 feet; thence N88 DEG. 27'44"E, for 14.56 feet; thence S80 DEG. 29'21"E, for 33.37 feet; thence S59 DEG. 56'44"E, for 38.53 feet; thence S79 DEG. 20'58"E, for 41.72 feet; thence S78 DEG. 37'18"E, for 43.26 feet; thence S84 DEG. 44'54"E, for 42.70 feet; thence N79 DEG. 51'45"E, for 64.53 feet; thence N53 DEG. 36'19"E, for 57.39 feet; thence N52 DEG. 50'27"E, for 48.38 feet; thence N53 DEG. 15'20"E, for 25.00 feet; thence N36 DEG. 03'11"W, for 1.60 feet; thence N35 DEG. 32'30"E, for 30.01 feet; thence N49 DEG. 32'06"E, for 40.24 feet; thence N25 DEG. 24'39"E, for 44.52 feet; thence N29 DEG. 28'58"E, for 54.45 feet; thence N24 DEG. 2l'46"E, for 58.43 feet; thence N23 DEG. 07'23"E, for 9.89 feet; thence N11 DEG. 19'22"W, for 47.82 feet; thence N16 DEG. 52'50"W, for 50.68 feet; thence N35 DEG. 28'41"W, for 51.69 feet; thence N31 DEG. 56'03"W, for 55.94 feet; thence N70 DEG. 18'15"W, for 33.95 feet; thence N77 DEG. 43'45"W, for 62.52 feet; thence N81 DEG. 41'15" W, for 44.80 feet; thence S81 DEG. 59'17"W, for 67.45 feet; thence S87 DEG. 25'04"W, for 54.38 feet; thence S85 DEG. 57'21"W, for 45.57 feet; thence S71 DEG. 18'17"W, for 35.14 feet to a point of curvature; thence 118.69 feet along the arc of a curve to the right, said curve having a radius of 48.00 feet, a central angle of 140 DEG. 40'19", and a chord of 90.68 feet which bears N37 DEG. 51'34"W; thence N32 DEG. 58'35"E, for 21.47 feet; thence N37 DEG. 36'30"E, for 44.46 feet; thence N21 DEG. 12'56"E, for 56.75 feet; thence N12 DEG. 30'35"E, for 86.41 feet; thence N00 DEG. 55'10"E, for 45.74 feet; thence N07 DEG. 53'53"E, for 60.35 feet; thence N90 DEG. 00'00"E, for 29.46 feet; thence S00 DEG. 00'00"W, for 32.29 feet; thence S90 DEG. 00'00"E, for 276.26 feet; thence N01 DEG. 41'00"W, for 70.29 feet; thence N05 DEG. 06'48"E, for 47.76 feet; thence N14 DEG. 07'12"E, for 66.09 feet; thence N02 DEG. 36'33"E, for 12.12 feet; thence N37 DEG. 12'41"W, for 83.14 feet; thence N89 DEG. 59'20"W, for 20.00 feet; thence N00 DEG. 01'00"E, for 20.00 feet; thence N27 DEG. 25'05"W, for 53.18 feet; thence N00 DEG. 00'00"W, for 193.34 feet to a point of curvature; thence 19.48 feet along the arc of a curve to the left, said curve having a radius of 25.00 feet, a central angle of 44 DEG. 39'05", and a chord of 18.99 feet which bears N22 DEG.19'32"W; thence N44 DEG.39'05"W, for 109.30 feet; thence N66 DEG. 38'03"W, for 36.88 feet; thence S08 DEG. 33'47"E, for 14.27 feet; thence S18 DEG. 48'41"W, for 48.78 feet; thence S27 DEG. 41'12"W, for 46.70 feet; thence S29 DEG. 00'25"W, for 36.23 feet; thence S38 DEG. 36'05"W, for 46.88 feet; thence S54 DEG. 43'47"W, for 29.96 feet; thence S78 DEG. 48'25"W, for 68.06 feet; thence N74 DEG. 53'40"W, for 26.66 feet; thence S15 DEG. 06'20"W, for 13.20 feet; thence S18 DEG. 32'56"W, for 90.54 feet; thence N71 DEG. 27'04"W, for 12.21 feet; thence N84 DEG. 23'47"W, for 97.63 feet; thence S71 DEG. 18'14"W, for 28.68 feet; thence N85 DEG. 09'00"W, for 54.45 feet; thence S00 DEG. 01'08"W, for 25.22 feet to the point of intersection with the southerly line of that certain parcel of land as described in Official Records Book 4588 Page 1475 of the Public Records of Pasco County, Florida; thence along said southerly line of Official Records Book 4588, Page 1475 for the following 38 courses: 1) N85 DEG. 09'00"W, for 8.52 feet; 2) S88 DEG. 13'20"W, for 34.68 feet; 3) S78 DEG. 24'18"W, for 35.45 feet; 4) S66 DEG. 50'15"W, for 50.33 feet; 3 5) S56 DEG. 37'21"W, for 60.84 feet; 6) S36 DEG. 58'43"W, for 42.40 feet; 7) S41 DEG. 10'03"W, for 47.42 feet; 8) S28 DEG. 50'07"W, for 61.42 feet; 9) S16 DEG. 28'54"W, for 27.42 feet; 10) S28 DEG. 58'41"E, for 20.69 feet; 11) S11 DEG. 49'28"E, for 23.82 feet; 12) S01 DEG. 48'41"E, for 88.44 feet; 13) S29 DEG. 47'07"W, for 83.06 feet; 14) S43 DEG. 19'37"W, for 53.24 feet; 15) S65 DEG. 52'57"W, for 69.43 feet; 16) S87 DEG. 55'46"W, for 43.43 feet; 17) N85 DEG. 58'54"W, for 76.42 feet; 18) N68 DEG. 41'57"W, for 62.41 feet; 19) S85 DEG. 07'13"W, for 72.97 feet; 20) N86 DEG. 56'01"W, for 55.64 feet; 21) N82 DEG. 57'18"W, for 30.47 feet; 22) N83 DEG. 11'18"W, for 47.36 feet; 23) S85 DEG. 21'32"W, for 40.34 feet; 24) N80 DEG. 44'32"W, for 43.84 feet; 25) N78 DEG. 47'59"W, for 44.77 feet; 26) N77 DEG. 29'31"W, for 38.14 feet; 27) N78 DEG. 28'24"W, for 36.20 feet; 28) N89 DEG. 12'28"W, for 28.13 feet; 29) N40 DEG. 54'09"W, for 26.05 feet; 30) N73 DEG. 33'40"W, for 38.60 feet; 31) S38 DEG. 34'29"W, for 33.53 feet; 32) S74 DEG. 38'43"W, for 35.03 feet; 33) S78 DEG. 45'07"W, for 30.20 feet; 34) S16 DEG. 21'27"W, for 30.02 feet; 35) N88 DEG. 10'26"W, for 29.64 feet; 36) S24 DEG. 30'04"W, for 34.58 feet; 37) S44 DEG. 11'06"W, for 33.20 feet; 38) S90 DEG. 00'00"W, for 74.88 feet to the point of intersection with the aforesaid easterly right-of-way line of Mitchell Boulevard as shown on Pasco County right-of-way maps, Project Number 04325-01000219, same also being the West line of said Official Records Book 4588, page 1475; thence N00 DEG. 40'08"E along said easterly right-of-way line of Mitchell Boulevard and said West line of Official Records Book 4588, page 1475, for 174.08 feet to a point of intersection with the southerly line of that certain parcel of land as described in official records book 5783, page 278, of the Public Records of Pasco County, Florida; thence along said southerly line of that certain parcel of land as described in official records book 5783, page 278, the following (12) courses; l) thence leaving said easterly right-of-way line of Mitchell Boulevard and said West line of Official Records Book 4588, page 1475, N90 DEG. 00'00"E, for 222.89 feet to a point of curvature; 4 2) thence 38.88 feet along the arc of a curve to the right, said curve having a radius of 200.00 feet, a central angle of 11 DEG. 08'20", and a chord of 38.82 feet which bears S84 DEG. 25'50"E; 3) thence S78 DEG. 51'40"E, for 202.42 feet to a point of curvature; 4) thence 37.89 feet along the arc of a curve to the left, said curve having a radius of 219.50 feet, a central angle of 09 DEG. 53'26", and a chord of 37.84 feet which bears S83 DEG. 48'23"E; 5) thence S88 DEG. 45'06"E, for 211.24 feet to a point of curvature; 6) thence 34.40 feet along the arc of a curve to the right, said curve having a radius of 219.50 feet, a central angle of 08 DEG. 58'50", and a chord of 34.37 feet which bears S84 DEG. 15'42"E; 7) thence S79 DEG. 46'17"E, for 84.28 feet to a point of curvature; 8) thence 209.04 feet along the arc of a curve to the left, said curve having a radius of 119.50 feet, a central angle of 100 DEG. 13'43", and a chord of 183.39 feet which bears N50 DEG. 06'52"E; 9) thence N00 DEG. 00'00"E, for 60.22 feet to a point of curvature; 10) thence 72.85 feet along the arc of a curve to the right, said curve having a radius of 119.50 feet, a central angle of 34 DEG. 55'50" and a chord of 71.73 feet which bears N17 DEG. 27'55"E; 11) thence N34 DEG. 55'50"E, for 79.30 feet; 12) thence N57 DEG. 53'48"W, for 24.54 feet; thence leaving said southerly line of that certain parcel of land as described in official records book 5783, page 278, of the Public Records of Pasco County, Florida, N34 DEG. 55'50"E, for 38.14 feet to a point of curvature; thence 113.65 feet along the arc of a curve to the right, said curve having a radius 212.00 feet, a central angle of 30 DEG. 42'58", and a chord of 112.30 feet which bears N50 DEG. 17'18"E; thence N65 DEG. 38'47"E, for 52.09 feet to a point of curvature; thence 90.54 feet along the arc of a curve to the left, said curve having a radius of 115.00 feet, a central angle of 45 DEG. 06'37", and a chord of 88.22 feet which bears N43 DEG. 05'29"E; thence N00 DEG. 01'08"E, for 108.72 feet; thence N89 DEG. 58'52"W, for 8.00 feet; thence N00 DEG. 01'08"E, for 34.00 feet; thence S89 DEG. 58'52"E, for 8.00 feet; thence N00 DEG. 01'08"E, for 98.30 feet to a point of curvature; thence 47.13 feet along the arc of a curve to the left, said curve having a radius of 30.00 feet, a central angle of 90 DEG. 01'08", and a chord of 42.43 feet which bears N44 DEG. 59'26"W; thence S90 DEG. 00'00"W, for 320.12 feet to a point of curvature; thence 47.13 feet along the arc of a curve to the left, said curve having a radius of 30.00 feet, a central angle of 90 DEG. 00'27", and a chord of 42.43 feet which bears S44 DEG. 59'46"W; thence S00 DEG. 00'27"E, for 116.23 feet to the point of intersection with a non-tangent curve; thence 48.52 feet along the arc of a curve to the left said curve having a radius of 71.00 feet, a central angle of 39 DEG. 09'25", and a chord of 47.59 feet which bears S55 DEG. 03'11"E, to a point of intersection with the northerly line of said certain parcel of land as described in official records book 5783, page 278, of the Public Records of Pasco County, Florida; thence along the northerly line of said certain parcel of land as described in official records book 5783, page 278, the following (8) courses; 1) thence S00 DEG. 00'27"E, for a distance of 77.84 feet; 2) thence S89 DEG. 59'34"W, for a distance of 88.33 feet; 3) thence S00 DEG. 00'26"E, for a distance of 10.00 feet; 4) thence S89 DEG. 59'34"W, for a distance of 245.33 feet; 5) thence S00 DEG. 00'00"E, for 1.91 feet; 6) thence S90 DEG. 00'00"W, for 313.53 feet; 7) thence N00 DEG. 00'00"E, for 39.00 feet; 8) S90 DEG. 00'00"W, for 23.63 feet; thence leaving said northerly line of that certain parcel of land as described in official records book 5783, page 278, N00 DEG. 00'00"E, for 427.50 feet; 5 thence N38 DEG. 39'35"W, for 32.02 feet; thence S90 DEG. 00'00"W, for 175.66 feet; thence S72 DEG. 12'04"W, for 12.76 feet to the POINT OF BEGINNING. Containing 2,416,125 square feet or 55.467 acres, more or less. Error of closure 0.017 feet 6 SCHEDULE 2.1.2 SITE PLAN OF THE SHOPPING CENTER 1 SCHEDULE 4.1.1 EXISTING LEASES 1. Retail Lease Agreement dated November 6, 2002 by and between Seller and AHMED M. MOSTAFA, an individual resident of the State of Florida, d/b/a DR. ADAM MOSTAFA, DMD, a Commencement of Lease Term Agreement dated December 1, 2003, an Assignment of Lease dated January 1, 2004 by and between Ahmed M. Mostafa, AMERICAN FAMILY & COSMETIC DENTISTRY, PA., a Florida corporation and Seller, and a Guaranty of Lease dated January 1, 2004 from AHMED M. MOSTAFA. 2. Retail Lease Agreement dated October 29, 2002 by and between Seller and HUNG QUOC HUYNH, an individual resident of the State of Florida d/b/a ASPASIA NAIL. 3. Retail Lease Agreement dated March 6, 2003 by and between Seller and TRINITY BEEF, INC., a Florida corporation, d/b/a BEEF O' BRADY'S, Commencement of Lease Term Agreement dated February 7, 2004, and a Guaranty of Lease dated March 6, 2003 from JOSEPH J. MASSARO. 4. Retail Lease Agreement dated August 6, 2003 by and between Seller and BRAZILIAN TANNING CORPORATION, a Florida corporation, a Commencement of Lease Term Agreement dated January 23, 2004. 5. Retail Lease Agreement dated November 11, 2002 by and between Seller and CARL J. SERPE, a resident of Florida, d/b/a CARLUCCI'S LEANING TOWER ITALIAN RESTAURANT, and a Commencement of Lease Term Agreement dated January 22, 2004. 6. Retail Lease Agreement dated March 4, 2003 by and between Seller and A CELL PHONE GUY, INC., a Florida corporation, d/b/a CHARLES POPE CELLULAR, Commencement of Lease Term Agreement dated April 15, 2004, and a Guaranty of Lease dated March 4, 2003 from CHARLES ALLAN POPE. 7. Retail Lease Agreement dated October 23, 2002 by and between Seller and DE PING CHEN, a resident of Florida, d/b/a CHINA XPRESS, and a Commencement of Lease Term Agreement dated March 9, 2004. 8. Retail Lease Agreement dated April 26, 2004 by and between Seller and AMY M. SHORT, a resident of Florida, d/b/a CHRISTIANS BOUTIQUE & BRIDAL. 9. Retail Lease Agreement dated January 20, 2004 by and between Seller and CELLVENTURES, INC., a New York corporation, and a Commencement of Lease Term Agreement dated April 29, 2004, d/b/a CINGULAR WIRELESS. 10. Retail Lease Agreement dated June 17, 2003 by and between Seller and SUNRAY NURSERY INC., d/b/a COTTAGE FLORIST. 1 11. Retail Lease Agreement dated May 29, 2003 by and between Seller and CRUISE WAREHOUSE INTERNATIONAL, INC., a Guaranty of Lease dated May 29, 2003 from Carl Cestaro, and a Commencement of Lease Term Agreement dated November 3, 2003. 12. Retail Lease Agreement dated June 2, 2003 by and between Seller and TAMMY LYNN LENTINI AND DANIEL O. LENTINI, and a Commencement of Lease Term Agreement dated October 30, 2003, d/b/a CURVES FOR WOMEN. 13. Retail Lease Agreement dated June 30, 2003 by and between Seller and ELECTRONICS BONTIQUE OF AMERICA INC., a Pennsylvania corporation, and a Commencement of Lease Term Agreement dated October 31, 2003, d/b/a EB GAMES. 14. Retail Lease Agreement dated October 24, 2002 by and between Seller and GAMRAK, INC., a Florida corporation, Commencement of Lease Term Agreement dated November 1, 2003, and a Guaranty of Lease dated October 24, 2002 from ARGYRO PAPAPANOS to Seller, d/b/a CHRISTO'S. 15. Retail Lease Agreement dated November 14, 2002 by and between Seller and GEORGE MANGANARO, an individual resident of the State of Florida, d/b/a GEORGE JOSEF SALON, and Commencement of Lease Term Agreement dated October 2, 2003. 16. Retail Lease Agreement dated March 12, 2003 by and between Seller and SUNCOAST CLIPS, INC., a Florida corporation, d/b/a GREAT CLIPS, and a Commencement of Lease Term Agreement dated November 10, 2003, and a Guaranty of Lease dated March 12, 2003 from Kraig Burzlaff. 17. Retail Lease Agreement dated November 18, 2003 by and between Seller and DEB'S SHOPS II, INC., a Florida corporation, d/b/a HALLMARK GOLD CROWN, Commencement of Lease Term Agreement dated February 24, 2004, and a Guaranty of Lease dated November 18, 2003 from Deborah A. Wright. 18. Retail Lease Agreement dated December 17, 2002 by and between Seller and ELENI KAZAKI, an individual resident of Florida, d/b/a LA BEBE' SALON. 19. Limited Warranty Deed with Restrictive Covenants and Reservation of Easements dated June 18, 2003 by and between Seller and MADISON BANK., a Florida banking corporation. 20. Retail Lease Agreement dated November 14, 2002 by and between Seller and PRATIV PATEL, an individual resident of Florida, d/b/a MAJIK TOUCH CLEANERS. 21. Retail Lease Agreement dated August 8, 2003 by and between Seller and MATTRESS FIRM, INC., an Illinois corporation, d/b/a THE MATTRESS FIRM, and a Commencement of Lease Term Agreement dated December 30, 2003. 22. Lease Agreement dated October 2, 2002 by and between Seller and MARSHALLS OF MA, INC., a Massachusetts corporation, a Letter Agreement dated October 21, 2002, a Letter Agreement 2 dated April 14, 2003, a Commencement Date Agreement dated August 8, 2003, and a Letter Agreement dated November 21, 2003. 23. Lease Agreement dated April 30, 2004 by and between Seller and PANERA, LLC, a Delaware limited liability company; and a Memorandum of Lease dated April 30, 2004. 24. Retail Lease Agreement dated July 30, 2003 by and between Seller and PAYLESS SHOESOURCE, INC., a Missouri corporation, a Commencement of Lease Term Agreement dated October 7, 2003, and an Addendum to the Lease dated July 30, 2003. 25. Shopping Center Lease Agreement dated October 15, 2002 by and between Seller and PETSMART, INC., an Illinois corporation, a Memorandum of Lease dated October 15, 2002, a Letter Agreement dated August 15, 2003, a Commencement Date Certificate dated September 9, 2003, and a Letter Agreement dated January 23, 2004. 26. Lease Agreement dated August 19, 2003 by and between Seller and PIER 1 IMPORTS (U.S.), INC., an Illinois corporation, a Notice of Lease dated January 29, 2004, and a Memorandum of Lease dated August 19, 2003 27. Retail Lease Agreement dated June 30, 2003 by and between Seller and TAMMY LANELL LARKINS AND JIMMY FREDRICK LARKINS, residents of the State of Florida, and a Commencement of Lease Term Agreement dated September 29, 2003, d/b/a POCKET CHANGE. 28. Lease Agreement dated June 14, 2002 by and between Seller and PUBLIC SUPER MARKETS, INC., a Florida Corporation, Memorandum of Lease dated June 14, 2002, a First Amendment to Lease Agreement dated September 30, 2002, a Second Amendment to Lease Agreement dated December 11, 2002, a First Amendment to Memorandum of Lease dated December 11, 2002, a Third Amendment to Lease Agreement dated January 30, 2004, a Second Amendment to Memorandum of Lease dated January 30, 2004, a Letter Agreement dated July 17, 2003, a Letter Agreement dated August 25, 2003, and a Letter Agreement dated February 10, 2004. 29. Lease dated November 12, 2002 by and between Seller and ROSS FLORIDA DRESS FOR LESS, L.C., a Florida limited liability company, an Acknowledgement of Commencement dated October 22, 2003, a Memorandum of Lease dated November 12, 2002, a Letter Agreement, not dated, and a Guaranty dated November 12, 2002 from ROSS STORES, INC., an Illinois corporation. 30. Retail Lease Agreement dated June 30, 2003 by and between Seller and SALLY BEAUTY COMPANY, INC., an Illinois corporation, and an Agreement Setting Lease Term dated October 14, 2003. 31. Commercial Lease dated December 11, 2003 by and between Seller and STARBUCKS CORPORATION, a Washington corporation, and a Letter Agreement dated March 25, 2004. 3 32. Retail Lease Agreement dated May 28, 2003 by and between Seller and TAMPA BAY INSURANCE SERVICES, LLC, a Florida limited liability company, a Guaranty of Lease dated May 28, 2003, and a Commencement of Lease Term Agreement dated October 1, 2003. 33. Operation and Easement Agreement dated March 24, 2004 by and between Seller and TARGET CORPORATION, a Minnesota corporation. 34. Retail Lease Agreement dated May 28, 2003 by and between Seller and GATOR LEASING AND FRANCHISE DEVELOPMENT, a Florida corporation, and a Guaranty of Lease dated May 28, 2003, from KENNETH A. GORDON, d/b/a THE UPS STORE 35. Retail Lease Agreement dated June 30, 2003 by and between Seller and TRINITY SPIRITS & WINES, INC., a Florida corporation, a First Amendment to Retail Lease Agreement dated November 17, 2003, and a Zoning Petition Review Report dated October 23, 2003. 36. Land Lease Agreement dated October 22, 1992 by and between JAMES MITCHELL AND K-OUTDOOR, INC., and Seller's interest is further affected by an Agreement Regarding Billboard Leases dated June 14, 2002 by and between Seller and JAMES W. MITCHELL, DOROTHY S. MITCHELL, AND D. DEWEY MITCHELL, AS TRUSTEE, an Assignment of Intangible Assets dated June 3, 2003, and a Bill of Sale dated June 3, 2003. 37. Retail Lease Agreement dated June 23, 2003 by and between Seller and VIP MARTIAL ARTS ACADEMY II, INC., a Florida corporation, a Guaranty of Lease dated June 23, 2003 from Shidoshi Louis Hurtado, and a Commencement of Lease Term Agreement dated February 9, 2004. 38. Retail Lease Agreement dated August 4, 2003 by and between Seller and VITAMIN TREE, INC., a Florida corporation, and a Commencement of Lease Term Agreement dated January 2, 2004. 39. Retail Lease Agreement dated January 23, 2003 by and between Seller and RITCH, INC., a Florida corporation, a Guaranty of Lease dated January 23, 2003 from Rose DeNaro, an Assignment and First Amendment of Lease dated March 8, 2004 by and between Seller, Ritch, Inc., ROSELAND FARMS, INC., and Rose DeNaro, and a Commencement of Lease Term Agreement dated March 12, 2004, d/b/a WORKING COW. 4 SCHEDULE 4.1.2 CONTRACTS 1. Dumpster Service: BFI Contract Dated: ____________ 680 O'Steen Road Contract Period: 8-1-03 to 8-1-04 New Port Richey, Termination: ____ days prior written notice Florida 34653 2. Landscaping Maintenance Contract: Dana Enterprises Contract Dated: ____________ P.O. Box 736 Contract Period: 9-1-03 to 8-31-04 Elfers, FL 34680 Termination: ____ days prior written notice 3. Sweeping Maintenance Contract: Dana Enterprises Contract Dated: ____________ P.O. Box 736 Contract Period: 9-1-03 to 8-31-04 Elfers, FL 34680 Termination: ____ days prior written notice 1 SCHEDULE 4.1.3 RENT ROLL (SEE ATTACHED) 1 SCHEDULE 4.1.4 TENANT DEFAULTS 1 SCHEDULE 4.1.5 NON-TERMINABLE CONTRACTS NONE 1 SCHEDULE 4.1.6 PENDING LITIGATION NONE 1 SCHEDULE 7.2.1 VACANT SPACES ESCROW 1 SCHEDULE 7.3.1 LEASING COSTS 1 Panera Bread $88,766.00 The UPS Store $2,400.00 Trinity Spirits & Wine $2,000.00 1 EX-10.327 38 a2143310zex-10_327.txt EX-10.327 EXHIBIT 10.327 ESCROW AGREEMENT (MASTER LEASE) This ESCROW AGREEMENT (this "Agreement") is made and entered into as of the 24th day of August, 2004, by and among JACKSON PROPERTY ASSOCIATES, GP, a Georgia general partnership (hereinafter referred to as "Seller"), INLAND WESTERN JACKSON COLUMNS, L.L.C., a Delaware limited liability company (hereinafter referred to as "Buyer"), and FIRST AMERICAN TITLE INSURANCE COMPANY (hereinafter referred to as "Escrow Agent") havings as its address attention: Mary Lou Kennedy, 30 N. LaSalle Street, Suite 310, Chicago, Illinois 60602. W I T N E S S E T H: WHEREAS, Buyer and Seller entered into that certain letter agreement having a date of June 22, 2004, as amended August 2, 2004 (the "Contract"), in which Seller agreed to sell and Buyer agreed to purchase that certain real property known as The Columns (the "Center"), located in Jackson, Tennessee (the "Property"); and WHEREAS, in connection with the closing of Buyer's acquisition of the Property, Seller has agreed to deposit into escrow the sum of Two Hundred Sixty-Six Thousand Four Hundred Dollars ($266,400.00) (the "Escrow Deposit") in order to secure certain obligations of Seller in connection with one (1) 2,400 square foot vacant space and three (3) 1,600 square foot vacant spaces in the Center (the "Vacant Spaces" or a "Vacant Space"), pursuant to the terms and conditions of the Contract; and WHEREAS, Buyer and Seller have agreed that the Escrow Deposit is sufficient security to account for the rent, common area maintenance and tax obligations which would have been attributable to the Vacant Space if fully leased (collectively, the "Rent"), and Buyer and Seller have further agreed that notwithstanding Buyer's purchase of the Property, this Agreement shall serve as a master lease of the Vacant Space and that Seller shall be permitted to find a tenant for the Vacant Space subject to the terms and conditions of this Escrow Agreement; and WHEREAS, Escrow Agent is willing to accept the Escrow Deposit and hold and disburse same in accordance with the terms and conditions set forth below. NOW, THEREFORE, for and in consideration of the Property, the covenants and agreements hereinafter made, and for Ten Dollars ($10.00) in hand paid to Escrow Agent, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. At Closing, Seller shall deposit with Escrow Agent, and Escrow Agent hereby acknowledges receipt of the sum of Two Hundred Sixty-Six Thousand Four Hundred Dollars ($266,400.00) as the total Escrow Deposit. Escrow Agent hereby agrees to deposit the Escrow Deposit into an interest bearing account with a bank, savings and loan institution, money market account, or other depository reasonably satisfactory to Buyer, Seller and Escrow Agent with interest accruing for the benefit of Seller. The federal taxpayer identification of Seller is 83-0353077. 2. Subject to the terms and conditions of this Agreement, Escrow Agent shall retain the Escrow Deposit in the account until the earlier of: (ii) two (2) years from the date of closing of Buyer's purchase of the Property from Seller (the "Escrow Term"); or (ii) the date upon which an Acceptable Tenant (as defined hereinbelow) opens for business, is occupying the premises and is paying full rent and expenses and has delivered a certificate of occupancy and tenant estoppel for the leased premises, at which time the prorated portion of Rent attributable to said Vacant Space being held in escrow shall be returned to Seller, less any abated rent not yet payable by the Acceptable Tenant, which shall be disbursed to Buyer. Buyer and Seller jointly direct Escrow Agent to pay to Buyer the monthly installment of Rent which would have been due for each of the Vacant Spaces if Leased calculated based on rent of Sixteen Dollars ($16.00) per square foot per year and CAM, tax and insurance of Two and 50/100 Dollars ($2.50) per square foot per year, or as otherwise directed by Buyer and Seller, on the first business day of each month from and after the Closing under the Contract, commencing on or about, from the Escrow Deposit. Any accrued interest on the Escrow Deposit on the second anniversary of this Agreement or earlier termination thereof shall be disbursed to Seller by Escrow Agent. From and after the second anniversary of this Escrow Agreement, Seller shall have no liability whatsoever to Buyer with respect to any obligations hereunder or in connection with the Vacant Spaces, or any of them. 3. This Agreement shall further serve as a master lease for each of the Vacant Spaces up to and including the expiration of the Escrow Term or earlier termination pursuant to the provisions of this Agreement. Buyer and Seller agree that it is in their best interest to procure an Acceptable Tenant for each of the Vacant Spaces and agree that in connection with those efforts, Buyer and Seller shall cooperate in good faith in the execution of and delivery of documents reasonably satisfactory to Buyer and Seller for the execution and delivery of replacement leases for the Vacant Spaces. Nothing contained herein shall preclude Seller from leasing all of the Vacant Spaces to a single Acceptable Tenant as one space. 4. Notwithstanding the terms and conditions set forth in Section 2 above, and in order to mitigate any obligations of Seller pursuant to the terms and conditions of this Agreement, Buyer hereby consents to Seller negotiating with and procuring an Acceptable Tenant to lease each of the Vacant Spaces during the term of this Escrow Agreement. In connection with the procurement of an Acceptable Tenant, Seller shall be responsible for any reasonable cost associated with leasing the Vacant Spaces as approved by Seller. 5. Seller shall attempt to lease the Vacant Spaces per the "Tenant Guidelines" set forth on EXHIBIT A attached hereto. A prospective tenant meeting the Tenant Guidelines shall be deemed an "Acceptable Tenant", and Buyer may not withhold consent to an Acceptable Tenant. Seller agrees to use its standard form Shopping Center Lease used for other shop space tenants for any Vacant Space, amended as required. 2 6. In the event either party objects to the disbursement of the Escrow Deposit as provided above, the Escrow Agent shall have the right, at its option, either (a) to hold the Escrow Deposit in escrow pending resolution of such objection by mutual agreement of the parties or by judicial resolution of same or (b) to disburse the Escrow Deposit into the Registry of the court having jurisdiction over such objection. After any disbursement of the Escrow Deposit under the terms of this Escrow Agreement, Escrow Agent's duties and obligations hereunder shall cease. In the event of any dispute regarding disbursement of the Escrow Deposit, the party ultimately receiving the Escrow Deposit after resolution of such dispute shall be entitled to receive from the other party all the prevailing party's costs and expenses incurred in connection with the resolution of such dispute including, without limitation, all court costs and reasonable attorney's fees. 7. The reasonable costs of administration of this Escrow Agreement by Escrow Agent shall be paid by Seller. This Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, principals, successors and assigns and shall be governed and construed in accordance with the laws of the State of Illinois. No modification, amendment or waiver of the terms hereof shall be valid or effective unless in writing and signed by all of the parties hereto. This Escrow Agreement may be executed in multiple counterpart originals, each of which shall be deemed to be and shall constitute an original. If there is any conflict between the terms of this Escrow Agreement and the terms of the Contract, the terms of this Escrow Agreement shall control in all events. 8. NOTICES. All notices, requests, consents and other communications hereunder shall be sent to each of the following parties and be in writing and shall be personally delivered, sent by Federal Express or other overnight or same day courier service providing a return receipt, (and shall be effective when received, when refused or when the same cannot be delivered, as evidenced on the return receipt) to the following addresses: If to Seller: c/o GBT Realty Corporation 201 Summit View Drive Suite 110 Brentwood, Tennessee 37027 Attention: George B. Tomlin Telephone: (615) 370-0670 Fax No.: (615) 373-3111 With a copy to: Hartman, Simons, Spielman, Simons, Spielman & Wood, LLP 6400 Powers Ferry Road, N.W. Powers Ferry Landing Suite 224 Atlanta, GA 30339 Attn: Peter Hartman, Esq. 3 If to Buyer: Inland Western Jackson Columns, LLC 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Lou Quilici Telephone: (630) 218-4925 Fax No.: (630) 218-4935 If to Escrow Agent: First American Title Insurance Company National Commercial Services 30 N. LaSalle Street, Suite 310 Chicago, Illinois 60602 Attention: Mary Lou Kennedy Telephone: (312) 917-7202 Fax No.: (312) 553-0480 9. COUNTERPARTS. This Escrow Agreement may be executed in counterparts and shall constitute an agreement binding on all parties notwithstanding that all parties are not signatories of the original or the same counterpart. Furthermore, the signatures from one counterpart may be attached to another to constitute a fully executed original. The Escrow Agreement may be executed by facsimile. 10. TIME OF THE ESSENCE. Time shall be of the essence in the performance by the parties hereto of their respective agreements and obligations hereunder. 11. MODIFICATION. This Agreement shall not be modified or amended except by a written instrument executed by or on behalf of each of the parties to this Agreement. 12. NO ASSIGNMENT. The rights and obligations hereunder shall inure to the benefit of Buyer and Seller. This Agreement may not be assigned by either party. 13. SEVERABILITY. In the event any provisions or portions of this Agreement are held by any court of competent jurisdiction to be invalid or unenforceable, such holding shall not affect the remainder hereof, and the remaining provisions hereof shall continue in full force and effect to the same extent as would have been the case had such invalid or unenforceable provision or portion never been a part hereof. 14. ACCESS TO SPACE. During the term of this Agreement, Seller shall have the keys to the Vacant Spaces and the right to show the Vacant Spaces to prospective tenants. [Signatures Continued on Following Page] 4 IN WITNESS WHEREOF, each of the parties hereto has caused this Escrow Agreement to be signed and delivered as of the day and year first above written. SELLER: JACKSON PROPERTY ASSOCIATES, GP a Georgia general partnership By: Jackson Management Associates, LLC, a Georgia limited liability company, its General Partner By: /s/ George B. Tomlin -------------------------------- Name: George B. Tomlin ------------------------------- Title: Chief Manager ------------------------------ [Signatures Continued on Following Page] 5 [Signatures Continued from Preceding Page] BUYER: INLAND WESTERN JACKSON COLUMNS, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation By: /s/ Lou Quilici --------------------- Name: Lou Quilici -------------------- As Its: AUTHORIZE AGENT ------------------ [Signatures Continued on Following Page] 6 [Signatures Continued from Preceding Page] ESCROW AGENT: FIRST AMERICAN TITLE INSURANCE COMPANY ------------------------------------------ Mary Lou Kennedy 7 EXHIBIT A TENANT CRITERIA A replacement tenant for a Vacant Space shall be deemed to be acceptable to Seller if said tenant meets the following guidelines: 1. TERM. The tenant agrees to enter into a lease for a term of at least three (3) years. 2. PREMISES. The tenant agrees to enter into a lease for at least 1,600 square feet of space. 3. MINIMUM ANNUAL RENT. The tenant pays at least $16.00 per square foot minimum annual rent, unless Seller pays the difference out of escrow or otherwise. 4. SECURITY DEPOSIT. The tenant agrees to pay a security deposit of at least $2,100, unless the tenant is a regional or national tenant, in which case no security deposit shall be required. 5. EXCLUSIVES/USE RESTRICTIONS. The tenant meets all exclusive and restriction rights of any tenants. 6. LEASE FORM. The tenant agrees to enter into the standard lease form used for other shop space tenants. EX-10.328 39 a2143310zex-10_328.txt EX-10.328 Exhibit 10.328 ESCROW AGREEMENT (BEST BUY, MARSHALLS AND BED BATH & BEYOND 2004 REAL ESTATE TAX PAYMENTS) This ESCROW AGREEMENT (this "Agreement") is made and entered into as of the 24th day of August, 2004, by and among JACKSON PROPERTY ASSOCIATES, GP, a Georgia general partnership (hereinafter referred to as "Seller"), INLAND WESTERN JACKSON COLUMNS, L.L.C., a Delaware limited liability company (hereinafter referred to as "Buyer"), and FIRST AMERICAN TITLE INSURANCE COMPANY (hereinafter referred to as "Escrow Agent") having as its address attention: Mary Lou Kennedy, 30 N. LaSalle Street, Suite 310, Chicago, Illinois 60602. WITNESSETH: WHEREAS, Buyer and Seller entered into that certain letter agreement having a date of June 22, 2004, as amended August 2, 2004 (the "Contract"), in which Seller agreed to sell and Buyer agreed to purchase that certain real property known as Phases I and III of The Columns located in Jackson, Tennessee (the "Property"); and WHEREAS, Best Buy Stores, L.P.'s ("Best Buy") lease for a portion of the Property provides that Best Buy pays its prorata share of 2004 taxes the later of (i) ten days prior to the due date and (ii) thirty days after billing from landlord; and WHEREAS, Best Buy's estimated prorata share of 2004 city and county taxes is $27,627.69 ($42,846.33 times 100% divided by 366 days per year times 236 days) (the "Best Buy Tax Proration"); and WHEREAS, Marshalls of MA, Inc.'s ("Marshalls") lease for a portion of the Property provides that Marshalls pays its prorata share of 2004 taxes the later of (i) thirty days after Marshalls' receipt of the tax bill and (ii) fifteen days before the taxes are due; and WHEREAS, Marshalls' estimated prorata share of 2004 city and county taxes is $24,364.25 ($133,058.01 divided by 98,600 times 28,000 divided by 366 days per year times 236 days) (the "Marshalls Tax Proration"); and WHEREAS, Bed Bath & Beyond Inc.'s ("Bed Bath") lease for a portion of the Property provides that Bed Bath pays its prorata share of 2004 taxes thirty days after Bed Bath's receipt of the tax bill but no earlier than twenty days prior to the date the taxes will be delinquent; and WHEREAS, Bed Bath's estimated prorata share of 2004 city and county taxes is $17,403.04 ($133,058.01 divided by 98,600 times 20,000 divided by 366 days per year times 236 days) (the "Bed Bath Tax Proration"); and WHEREAS, Seller has agreed to deposit into escrow the sum of Sixty-Nine Thousand Three Hundred Ninety-Four and 98/100 Dollars ($69,394.98) (the "Escrow Deposit"), which sum represents the Best Buy, Marshalls and Bed Bath Tax Prorations (collectively, the "Tax Prorations"); and WHEREAS, Buyer and Seller have agreed that the Escrow Deposit is sufficient security to account the Tax Prorations not yet due and payable from and not yet collected from the Tenants; and WHEREAS, Escrow Agent is willing to accept the Escrow Deposit and hold and disburse same in accordance with the terms and conditions set forth below. NOW, THEREFORE, for and in consideration of the Property, the covenants and agreements hereinafter made, and for Ten Dollars ($10.00) in hand paid to Escrow Agent, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. At Closing, Seller shall deposit with Escrow Agent, and Escrow Agent hereby acknowledges receipt of the sum of Sixty-Nine Thousand Three Hundred Ninety-Four and 98/100 Dollars ($69,394.98) as the total Escrow Deposit. Escrow Agent hereby agrees to deposit the Escrow Deposit into an interest bearing account with a bank, savings and loan institution, money market account, or other depository reasonably satisfactory to Buyer, Seller and Escrow Agent with interest accruing for the benefit of Seller. The federal taxpayer identification of Seller is 83-0353077. 2. Seller agrees that it shall be responsible for collecting 2004 taxes from the Tenants pursuant to their respective leases. Within ten (10) days of receipt of payment by the Tenants, or any of them, for any Tax Prorations, Buyer shall provide notice to Seller, and the parties shall jointly instruct Escrow Agent to pay such amount from the Escrow Deposit to Seller. 3. In the event that any of the Tenants fails or refuses to pay its respective Tax Proration accrued through August 24, 2004, pursuant to said Tenant's respective lease, then Buyer and Seller shall jointly direct Escrow Agent to pay to Buyer from the Escrow Deposit an amount equal to the respective Tenant's Tax Proration. Notwithstanding the foregoing, in no event shall Buyer be paid more than the Best Buy Tax Proration for any unpaid 2004 tax by Best Buy; more than the Marshalls Tax Proration for any unpaid 2004 tax by Marshalls; nor more than the Bed Bath Tax Proration for any unpaid 2004 tax by Bed Bath. Nothing contained herein shall preclude Seller from seeking to recover from the Tenants, or any of them, any disbursements made to Buyer pursuant to this paragraph. 4. Subject to the terms and conditions of this Agreement, Escrow Agent shall retain the Escrow Deposit in the account until the later of (i) the date on which the Tenants pay their share of 2004 taxes through August 24, 2004 or (ii) March 31, 2005 (city taxes will be delinquent after December 31, 2004 and county taxes will be delinquent after March 1, 2005). 5. In the event either party objects to the disbursement of the Escrow Deposit as provided above, the Escrow Agent shall have the right, at its option, either (a) to hold the Escrow Deposit in escrow pending resolution of such objection by mutual agreement of the parties or by 2 judicial resolution of same or (b) to disburse the Escrow Deposit into the Registry of the court having jurisdiction over such objection. After any disbursement of the Escrow Deposit under the terms of this Escrow Agreement, Escrow Agent's duties and obligations hereunder shall cease. In the event of any dispute regarding disbursement of the Escrow Deposit, the party ultimately receiving the Escrow Deposit after resolution of such dispute shall be entitled to receive from the other party all the prevailing party's costs and expenses incurred in connection with the resolution of such dispute including, without limitation, all court costs and reasonable attorney's fees. 6. The reasonable costs of administration of this Escrow Agreement by Escrow Agent shall be paid by Seller. This Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, principals, successors and assigns and shall be governed and construed in accordance with the laws of the State of Illinois. No modification, amendment or waiver of the terms hereof shall be valid or effective unless in writing and signed by all of the parties hereto. This Escrow Agreement may be executed in multiple counterpart originals, each of which shall be deemed to be and shall constitute an original. If there is any conflict between the terms of this Escrow Agreement and the terms of the Contract, the terms of this Escrow Agreement shall control in all events. 7. NOTICES. All notices, requests, consents and other communications hereunder shall be sent to each of the following parties and be in writing and shall be personally delivered, sent by Federal Express or other overnight or same day courier service providing a return receipt, (and shall be effective when received, when refused or when the same cannot be delivered, as evidenced on the return receipt) to the following addresses: If to Seller: c/o GBT Realty Corporation 201 Summit View Drive Suite 110 Brentwood, Tennessee 37027 Attention: George B. Tomlin Telephone: (615) 370-0670 Fax No.: (615) 373-3111 With a copy to: Hartman, Simons, Spielman, Simons, Spielman & Wood, LLP 6400 Powers Ferry Road, N.W. Powers Ferry Landing Suite 224 Atlanta, GA 30339 Attn: Peter Hartman, Esq. If to Buyer: Inland Western Jackson Columns, LLC 2901 Butterfield Road Oak Brook, Illinois 60523 Attention: Lou Quilici Telephone: (630) 218-4925 Fax No.: (630) 218-4935 3 If to Escrow Agent: First American Title Insurance Company National Commercial Services 30 N. LaSalle Street, Suite 310 Chicago, Illinois 60602 Attention: Mary Lou Kennedy Telephone: (312) 917-7202 Fax No.: (312) 553-0480 8. COUNTERPARTS. This Escrow Agreement may be executed in counterparts and shall constitute an agreement binding on all parties notwithstanding that all parties are not signatories of the original or the same counterpart. Furthermore, the signatures from one counterpart may be attached to another to constitute a fully executed original. The Escrow Agreement, may be executed by facsimile. 9. TIME OF THE ESSENCE. Time shall be of the essence in the performance by the parties hereto of their respective agreements and obligations hereunder. 10. MODIFICATION. This Agreement shall not be modified or amended except by a written instrument executed by or on behalf of each of the parties to this Agreement. 11. NO ASSIGNMENT. The rights and obligations hereunder shall inure to the benefit of Buyer and Seller. This Agreement may not be assigned by either party. 12. SEVERABILITY. In the event any provisions or portions of this Agreement are held by any court of competent jurisdiction to be invalid or unenforceable, such holding shall not affect the remainder hereof and the remaining provisions hereof shall continue in full force and effect to the same extent as would have been the case had such invalid or unenforceable provision or portion never been a part hereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Escrow Agreement to be signed and delivered as of the day and year first above written. SELLER: JACKSON PROPERTY ASSOCIATES, GP a Georgia general partnership By: Jackson Management Associates, LLC, a Georgia limited liability company, its General Partner By: /s/ [ILLEGIBLE] --------------------------- Name: [ILLEGIBLE] ------------------------- Title: [ILLEGIBLE] ------------------------ [Signatures Continued on Following Page] 4 [Signatures Continued from Preceding Page] BUYER: INLAND WESTERN JACKSON COLUMNS, L.L.C., a Delaware limited liability company By: Inland Western Retail Real Estate Trust, Inc., a Maryland corporation By: /s/ Lou Quilici ---------------------- Name: Lou Quilici --------------------- As Its: AUTHORIZED AGENT ------------------- [Signatures Continued on Following Page] 5 [Signatures Continued from Preceding Page] ESCROW AGENT: FIRST AMERICAN TITLE INSURANCE COMPANY ---------------------------------------- Mary Lou Kennedy 6 Jackson Property Associates GP Invoice Pro Rations
MONTHLY EXPENSE: JACKSON: INLAND: COMMENTS: - ------------------------------------------------------------------------------------------------------------------------------------ Bevis Commercial Maintenance Inc. - August bill paid by Jackson Property Sweeping Lawn Mani 2,200.00 1,632.25 567.74 Associates ADS Security - 06/01/04 through 08/31/04 & August & September bill paid by Jackson 09/01/04 through 09/30/04 210.00 - 254.19 Property Associates Spann Insurance, Inc - Best Buy 08/23/04 - Paid by Jackson Property Associates - 09/22/05 - - 7,333.00 Prepaid Best Buy Insurance Spann Insurance, Inc - Umbrella Insurance Paid by Jackson Property Associates - 08/23/04 - 09/22/05 - - 2,000.00 Prepaid Umbrellas Insurance ------------- TO BE REIMBURSED BY INLAND: 10,164.94 =============
CITY OF JACKSON - DEPARTMENTS & SERVICES Mayor/Council Department E-Government Meetings & Events Business About Jackson [LOGO] [LOGO] REVENUE OFFICE 2001 TAX RATES: Revenue Office Topics... Sales Tax 9.75% (6% state, 3.75% local)* City Property Tax Rate $2.22 per $100 assessed value County Property Tax Rate $2.46 per $100 assessed value E-MAIL HOME * Note: the City receives only 0.72% of the local portion. SITEMAP SEARCH GO! OR USE advanced search Job Opportunities Licenses and Permits Public Utilities Taxes Chamber of Commerce Public Rental Facilities Local Demographics Business Resources Guide Mayor/Council|Departments|E-Government|Meetings and Events|Business|About Jackson FROM ASSESSOR OF PROPERTY ASSESSMENT PRESORT MADISON COUNTY CHANGE FIRST-CLASS MAIL 118 E BALTIMORE STE 4 NOTICE U.S. POSTAGE PAID JACKSON TN 38301 JACKSON TN 72 PERMIT NO. 9 MAP AND PARCEL DIST. MAP NO. GP CTL MAP PARCEL S. INT. CITY 05 055 055 00825 000 359 PROPERTY ADDRESS YOUR APPRAISED VALUE FOR VANN DR 1081 Phase I PROPERTY TAX PURPOSES HAS CHANGED. IF YOU WISH TO DISCUSS SUBDIVISION NAME THIS NEW VALUE, YOU MAY CONTACT RUSHMEADE COMMERCIAL THE ASSESSOR'S OFFICE. SEE REVERSE SIDE FOR INFORMATION ABOUT APPEALING YOUR ASSESSMENT. BLOCK LOT NO. DEED ACRES CALC. ACRES 0009 0901 11.47 APPRAISAL AS MADISON COUNTY OF JANUARY 1, 2004 TENNESSEE JACKSON PROPERTY ASSOC GP APPRAISED 201 SUMMIT VIEW DR # 110 VALUE $7,107,800 BRENTWOOD TN 37027 ASSESSED VALUE AT 40% $2,843,120 COMMERCIAL PREVIOUS ASSESSMENT & CLASS SEE REVERSE SIDE County = $2,843,120 DIVIDED BY 100 x $2.46 = $69,940.75 City = $2,843,120 DIVIDED BY 100 x $222 = $63,111.26 FROM ASSESSOR OF PROPERTY ASSESSMENT PRESORT MADISON COUNTY CHANGE FIRST-CLASS MAIL 118 E BALTIMORE STE 4 NOTICE U.S. POSTAGE PAID JACKSON TN 38301 JACKSON TN 71 PERMIT NO. 9 MAP AND PARCEL DIST. MAP NO. GP CTL MAP PARCEL S. INT. CITY 05 055 055 00823 000 359 PROPERTY ADDRESS YOUR APPRAISED VALUE FOR VANN DR 1170 Best Buy PROPERTY TAX PURPOSES HAS CHANGED. IF YOU WISH TO DISCUSS SUBDIVISION NAME THIS NEW VALUE, YOU MAY CONTACT RUSHMEADE COMMERCIAL THE ASSESSOR'S OFFICE. SEE REVERSE SIDE FOR INFORMATION ABOUT APPEALING YOUR ASSESSMENT. BLOCK LOT NO. DEED ACRES CALC. ACRES 0010 1003 3.43 APPRAISAL AS MADISON COUNTY OF JANUARY 1, 2004 TENNESSEE JACKSON PROPERTY ASSOC GP APPRAISED 201 SUMMIT VIEW DR # 110 VALUE $2,288,800 BRENTWOOD TN 37027 ASSESSED VALUE AT 40% $915,520 COMMERCIAL PREVIOUS ASSESSMENT & CLASS SEE REVERSE SIDE County = $915,520 DIVIDED BY 100 x $2.46 = $22,521.79 City = $915,520 DIVIDED BY 100 x $2.22 = $20,324.54 $42,846.33 therefrom, but with all the other rights and obligations attendant thereto, and under the same terms and conditions of this Lease, notwithstanding any amendments hereto which may have been made to effectuate an assignment to or accommodate the defaulting assignee. 25. REAL ESTATE TAXES. If the Premises are separately assessed, Tenant shall pay all real estate taxes and all installments of assessments (collectively, the "Taxes") payable with respect to the Premises during the Lease Term promptly as the same shall become due and before interest or penalty accrues thereon, and provide evidence to Landlord of timely payment. Such payment shall be proportionately adjusted during the first and the last years of the term hereof. Tenant shall not be chargeable with nor be obligated to pay (a) any tax of any other kind whatsoever which may be imposed on Landlord, the rents payable hereunder, or the Premises, or (b) any interest or penalties payable as a result of Landlord's failure to pay any Taxes or assessments prior to delinquency, except the Taxes mentioned in this Article 25 if they are separately billed to Tenant, or (c) any tax attributable to an increase in valuation of the Shopping Center, or any part thereof, resulting from the sale or financing of the Shopping Center or any part thereof. If the Premises are not already separately assessed, Landlord shall upon the execution of this Lease cause the Premises to be separately assessed by the applicable taxing authorities. If Landlord is unable to cause the Premises to be separately assessed by the applicable taxing authorities, Tenant shall pay to Landlord Tenant's proportionate share of the Taxes payable with respect to the Shopping Center during the Lease Term. Tenant's proportionate share shall be equal to a fraction, the numerator of which is the number of leasable square feet in the Premises and the denominator of which is the greater of (i) 30,000 square feet as shown on EXHIBIT B, or (ii) the number of leasable square feet in all buildings (including mezzanines and basement areas, and areas outside of each building if used for outdoor sales, storage or similar use by any tenant(s) of the Shopping Center) of the Shopping Center (and any other buildings included within the tax parcel). Landlord shall submit a bill to Tenant together with photostatic copies of all notices regarding the Taxes, including, but not limited to, any assessments, changes of assessments, tax rates, changes of taxes, and tax bills (the "Tax Bill"). The Tax Bill shall be submitted to Tenant at least ten (10) days before the last date when Tenant must make appeals or take other appropriate legal action in connection with such Taxes on the Premises. Tenant shall pay the Tax Bill to Landlord on or before the later of (i) ten (10) days prior to the due date of the Taxes and (ii) thirty (30) days after billing from Landlord. Tenant shall pay only its proportionate share of Taxes payable with respect to the Shopping Center land until such time as the improvements comprising the Premises are separately assessed, and Tenant shall not pay any Taxes against the buildings comprising the Shopping Center until such time. Tenant shall under no circumstances be liable for increases in real estate taxes due to expansion of or improvements to any adjacent shopping center or other adjacent property or for any Taxes assessed but not payable after the termination of this Lease. Landlord shall furnish Tenant with proof of payment of the Taxes within thirty (30) days of Tenant's payment. Best Buy 21 Tenant shall have the right to contest, in good faith, the validity or the amount of any Taxes levied against the Premises or the Shopping Center, whether the Premises are separately assessed or not, by such appellate or other proceedings as may be appropriate in the jurisdiction and may defer payment of such obligations, pay same under protest or take such other steps as Tenant may deem appropriate. Landlord shall cooperate, at Tenant's expense, with the institution and in prosecution of any such proceedings and will execute and will provide any documents reasonably required therefor. The expense of such proceedings shall be borne by Tenant and any refunds or rebates secured shall belong to Tenant. In the event Landlord contests the validity or the amount of any Taxes levied against the Premises or the Shopping Center and if any refunds or rebates are secured by Landlord as a result of such proceedings, Landlord shall proportionately pass-through to Tenant the amount of any such refunds or rebates, after costs. Further, if Landlord contracts with any outside consultants or for such services for purposes of seeking any refunds or rebates of the Taxes, such contracts will be written on a contingency basis not to exceed, without Tenant's prior consent, one-third (1/3) of the savings. Notwithstanding anything to the contrary contained herein, the definition of Taxes shall not include, and Tenant shall have no obligation to pay, any assessments levied, pending or assessed prior to the Commencement Date or which relate to special assessments for work performed prior to the Commencement Date. Landlord or Tenant shall have the right to contest or seek a reduction in Taxes. In the event of any action to abate or reduce rents, any rebates, refunds or abatements of Taxes, less reasonable out-of-pocket costs paid to independent third parties to obtain the same, shall be refunded to Tenant on a pro-rata basis to the extent previously paid by Tenant within thirty (30) days of receipt by Landlord. Tenant shall at all times be solely responsible for and shall pay before delinquency all municipal, county, state or federal taxes assessed or levied against any leasehold interest hereunder or any personal property of any kind owned, installed or used by Tenant. If at any time during the term of this Lease, a tax or excise on rents or other tax, however described, is levied or assessed against Landlord on account of or measured by, in whole or in part, the rent expressly reserved hereunder (excluding any income, corporate franchise, corporate, estate, inheritance, succession, capital stock, corporate loan, corporate bonus, transfer or profit tax of Landlord) as a substitute, in whole or in part, for taxes assessed or imposed on land and buildings, such tax or excise on rents or other tax shall be included as a part of the real property taxes covered hereby, but only to the extent of the amount thereof which is lawfully assessed or imposed as a direct result of Landlord's ownership of this Lease or of the rentals accruing under this Lease. If any real property tax or assessment levied against the land, buildings or improvements covered hereby or the rents reserved therefrom shall be evidenced by improvement or other bonds or in other form which may be paid in installments, Landlord shall, if permitted, elect such installment payment plan and only the amount paid in any Lease Year shall be included in the taxes for that Lease Year for purposes of this Article. 26. RIGHT OF PROTEST. As long as Tenant provides reasonably adequate protection of Landlord's interest in the real property on which the Premises is constructed in the form of bonds or other similar security to remove liens from Landlord's real property, Tenant may contest any mechanics' or other liens 22 5.2 All minimum rent shall be payable in monthly installments of one-twelfth (1/12) the annual rate thereof then in effect, in advance, upon the first (1st) day of each calendar month included within the term of this lease. All rent and other payments to be made by Tenant to Landlord shall be made payable to Landlord and sent to Landlord at the place to which notices to Landlord are required to be sent, unless Landlord shall direct otherwise by notice to Tenant. Rent for any fraction of a month at the commencement or expiration of the term, or in which the rate thereof changes pursuant hereto, shall be prorated on a per diem basis. TAXES 6.1 Tenant shall pay to Landlord the amount of the real estate taxes allocable to the Demised Premises (determined as below provided) for each tax year included within the term of this lease; for the first and last tax years included in part within the term of this lease, Tenant shall pay to Landlord a pro rata share of such taxes for such tax years, based upon the portions of such tax years included within the term of this lease. The amount of real estate taxes allocable to the Demised Premises shall be equal to the total real estate taxes upon the Shopping Center times a fraction whose numerator is the ground floor area in the Demised Premises and whose denominator is the total gross leaseable area in all buildings within the Shopping Center (such fraction is hereinafter referred to as "Tenant's Fraction"). Landlord warrants and represents that as of the date of this lease, the total gross leaseable area in all buildings within the Shopping Center is approximately one hundred thousand () square feet. Tenant's Fraction shall be adjusted in the event of any increase or decrease in the total gross leasable area in all buildings within the Shopping Center or the ground floor area of the Demised Premises. Notwithstanding the foregoing, if the Demised Premises, or a portion of the Shopping Center including the Demised Premises, is separately assessed, and if the real estate taxes on such separately assessed parcel multiplied by Tenant's Portion (hereinafter defined) is less than the amount determined in the preceding sentence, the amount determined by this sentence shall be the real estate taxes allocable to the Demised Premises. Tenant's Portion is a fraction whose numerator is the ground floor area in the Demised Premises and whose denominator is, the total gross leaseable area in all buildings within such separately assessed parcel. If after the assessment date for the tax year in which the Commencement Date occurs, any new construction shall occur within the Shopping Center, then, to carry out the intent of the parties, an appropriate adjustment shall be made in the amount payable by Tenant under this Article VI with respect to any increase in the real estate taxes upon the Shopping Center attributable thereto provided that a supplemental tax bill from the taxing authority has been issued after the assessment date and a copy thereof delivered to Tenant. The expression "real estate taxes" used herein shall include all ad valorem taxes and general or betterments assessments imposed or assessed upon or against the real estate constituting the Shopping Center by any public authority having jurisdiction except only that (A) if Landlord shall, at any time, have had the right to elect to pay any such assessment in installments the real estate taxes for any tax year shall include only the lowest such installments of such assessment as Landlord shall have had the election to have allocable to said tax year, together with any interest thereon accrued by law as the result of the exercise, in fact, of Landlord's elections to pay in installments, and (B) if for any tax year included within the term of this lease an assessment is assessed on the Shopping Center for an improvement (such as a street or sewer) made prior to the time the Demised Premises opened for business or in connection with the construction of premises in the Shopping Center, such assessment shall not be included in the real estate taxes upon the Shopping Center for such tax year, and (C) if an assessment is assessed on the Shopping Center for an off site improvement, such assessment shall not be included in the real estate taxes upon the Shopping Center. In addition, real estate taxes shall not include any income, excess profits, estate, inheritance, succession, transfer, franchise, capital, personal property or other tax or assessment upon Landlord or upon the rentals payable under this lease, all of which shall be the obligation of Landlord. If the real estate taxes of the Demised Premises for any year which commences after the Commencement Date shall be increased on account of a re-valuation of the Demised Premises because of any "change in ownership," Tenant shall not pay or be charged with any increase in the real estate taxes attributable to or arising from such change and not as the result of a normal re-assessment, Tenant shall not pay or be charged with any increase in the real estate taxes attributable to or arising from such change until the next normal re-assessment (i.e., where the assessed value at that point is equal to what it would have been in the absence of such transfer or change in ownership). The provisions of the immediately preceding sentence shall not be applicable to the first such change in Marshalls 28,000 DIVIDED BY 128,600 = 21.77% 7 ownership during the term hereof or thereafter to the first such change in ownership in any successive five year period during the term of this lease. 6.2 If there shall be more than one taxing authority, the real estate taxes for any period shall be the sum of the real estate taxes for such period attributable to each taxing authority. If the number of square feet of floor area of any building shall change during any tax year, the condition existing upon the day as of which the real estate taxes are assessed for such tax year shall control. The real estate taxes for any tax year shall mean such amounts as shall be finally determined to be the real estate taxes assessed and payable for such tax year less any abatements, refunds or rebates made thereof. For the purpose of determining payments due from Tenant to Landlord in accordance with the provisions of this Article VI, (A) the real estate taxes for any tax year shall be deemed to be the real estate taxes assessed and payable for such tax year until such time as the same may be reduced by abatement, refund or rebate and (B) if any abatement, refund or rebate shall be made for such tax year, the real estate taxes for such tax year shall be deemed to be the real estate taxes as so reduced plus the expenses of obtaining the reduction (excluding any "administration fee" or similar charge which does not reflect actual out-of-pocket expenses incurred in obtaining such reduction), with an appropriate adjustment to be made in the amount payable from or paid by Tenant to Landlord an account of real estate taxes. 6.3 Landlord shall submit to Tenant copies of real estate tax bills for each tax year at least twenty (20) days prior to the expiration of the period by which such taxes may be contested. Tenant shall have such rights to contest the validity or amount of any real estate taxes as permitted to Landlord or Tenant by law, either in its own name or in the name of Landlord. Landlord shall cooperate, at no cost to Landlord, with Tenant in any such contest and, in connection therewith, shall make available to Tenant such information in its files as Tenant may reasonably request. If any abatement, refund or rebate shall be obtained, the expenses of obtaining the same shall be a first charge thereon. Landlord agrees to provide Tenant with notice prior to instituting any contest with respect to the Shopping Center. 6.4 Landlord shall submit to Tenant copies of the paid real estate tax bills for each tax year. Landlord shall bill Tenant for any amount that may be payable by Tenant pursuant to the provisions of this Article VI. Such bill shall be accompanied by (a) copies of all notices concerning assessments, changes of assessment and tax rates and (b) a computation of the amount payable together with supporting documentation reasonably satisfactory to Tenant relating to Landlord's calculation of Tenant's Portion or Tenant's Fraction (as defined above) (including the then current total gross leaseable area in all buildings within the Shopping Center and a breakdown of the leaseable area occupied by each tenant and a current site plan of the Shopping Center). The amount payable by Tenant hereunder for any tax year shall be payable on the later of (a) thirty (30) days following Tenant's receipt of the tax bill and supporting documentation therefor (but if Tenant shall not have received a bill therefor and the supporting documentation referred to above at least thirty (30) days prior to such time for payment, Tenant shall not be required to make payment until thirty (30) days after the receipt of such documentation), and (b) fifteen (15) days prior to the date the taxes are payable to the taxing authority. (If real estate taxes are payable to any taxing authority for any tax year in installments, the amount payable by Tenant hereunder shall be payable in similar installments. If real estate taxes are payable to different taxing authorities for any tax year at different times, an appropriate apportionment shall be made of the amount payable by Tenant for such tax year and the apportioned amounts shall be payable at such times.) Landlord agrees that real estate taxes upon the Shopping Center shall be paid by Landlord prior to the last day that the same may be paid without penalty or interest, or if a discount shall be available for early payment, prior to the last day that such discount shall be available. 6.5 Landlord agrees that neither the Shopping Center nor the construction therefor nor any expansion thereof, shall be financed by or subject to, any so-called "Tax Increment Financing" or similar financing which results in the real estate taxes upon the Shopping Center being increased above the amount of real estate taxes which would have been due with respect to the Shopping Center if such financing had not been obtained. ARTICLE VII 8 hereof, neither Fixed Rent nor Tenant's Pro Rata Share shall be increased by reason thereof. Landlord and Tenant shall each promptly execute and deliver to the other an amendment memorializing any change to the Fixed Rent. Tenant's Pro Rata Share, or any other applicable provisions of this Lease, made pursuant to this Section 3.4. Any dispute between the parties with respect to the Floor Area of the Premises, the square footage of said non-selling space or the Floor Area of the Shopping Center shall be resolved by arbitration in accordance with the provisions of Section 16.3 below. ARTICLE 4 FIXED RENT, TAXES; DETERMINATION AND PAYMENT Section 4.1 FIXED RENT. Commencing on the Rent Commencement Date and continuing throughout the Term. Tenant shall pay to Landlord the Fixed Rent, in equal successive monthly installments, in advance, on the first day of each and every calendar month throughout the Term, except that Fixed Rent payable for any partial calendar month during the Term shall be prorated based on a 365-day year. Fixed Rent shall be paid without abatement, deduction or set-off, except to the extent otherwise expressly provided herein. Section 4.2 PAYMENT OF RENT. All Rent shall be mailed or otherwise delivered to Landlord's Mailing Address above or, upon at least thirty (30) days' prior notice to Tenant, to such other address as Landlord may from time to time designate. Landlord acknowledges and agrees that for administrative purposes, Tenant has designated BBBY Management Corporation, a New York corporation (the "PAYING AGENT"), to make all Rent payments due to Landlord under this Lease. Said designation (which may be revoked by Tenant at any time) is not intended as, and shall not constitute, an assignment of any rights or obligations of Tenant to the Paying Agent, and Tenant shall remain primarily liable for payment of Rent under this Lease. All payments of Rent received by Landlord from the Paying Agent shall be credited to Tenant as if such payments of Rent had been made by Tenant directly to Landlord. Section 4.3 REAL ESTATE AND OTHER TAXES. 4.3.1 Landlord shall pay on or before the due dates thereof all "Taxes" (defined in Subsection 4.3.3 below) other than personal property taxes levied against tenants. Throughout the Term, Landlord shall cause the Shopping Center to be maintained entirely within tax parcels and lots that exclude any property not a part of the Shopping Center. 4.3.2 (a) Tenant shall pay to Landlord Tenant's Pro Rata Share of the Taxes which accrue during the Term, subject to the provisions of this Section 4.3. Any Taxes for a real estate fiscal tax year, only a part of which is included within the Term, shall be adjusted between Landlord and Tenant on the basis of a 365-day year as of the Rent Commencement Date or the date on which the Term expires or earlier terminates, as the case may be, for the purpose of computing Tenant's Pro Rata Share of Taxes. If, by law, any Taxes may, at the option of the taxpayer, be paid in installments (whether or not interest shall accrue on the unpaid balance thereof), Landlord shall exercise such option so as to maximize the number of installments, and Landlord shall pay the same as they come due and before any fine, penalty, interest or cost may be added thereto for nonpayment thereof. This provision shall survive the expiration or sooner termination of this Lease. (b) Landlord shall submit to Tenant a copy of the bill for Taxes issued by the applicable taxing authority, a computation of Tenant's Pro Rata Share of such Taxes and proof of the payment of Taxes for the previous payment period, as well as copies of all notices concerning assessments, tax rates, and changes thereto. Tenant shall pay Landlord in the amount required by this Subsection 4.3.2 within thirty (30) days after receipt of such bill (but in no event earlier than the twentieth (20th) day prior to the date on which such Taxes would become delinquent). 4.3.3 As used herein, "Taxes" shall mean all general, AD VALOREM real estate taxes, and assessments for betterments and improvements that are leveled or assessed by any lawful authority on the Shopping Center (general or special), including any substitution therefor in whole or in part, due to a future change in the method of taxation. Taxes shall be reduced by any deferral, abatement, or other tax-lowering adjustment received by Landlord from the taxing authorities. For purposes of computing Tenant's Pro Rata Share of Taxes, Taxes shall not include any: (1) income, excise, profits, estate, inheritance, succession, gift, transfer, franchise, capital, or other tax or assessment upon Landlord or upon the rentals payable under this Lease; (2) taxes on rents (other than to the extent that such taxes are customarily paid by retail tenants in the state in which the Shopping Center is located), gross receipts or revenues of Landlord from the Premises; (3) fine, penalty, cost or interest for any tax or assessment, or part thereof, which Landlord or its lender failed to timely pay (except it same are caused by an Event of Default); (4) assessment for a public improvement arising from the initial construction or Bed Bath 20,000 DIVIDED BY 128,600 = 15.55% 12 expansion of the Shopping Center or the Premises (it being agreed that all assessments imposed during the Term which are permitted to be included within Taxes hereunder shall, for the purposes of computing Tenant's Pro Rata Share thereof, be deemed to have been paid in the maximum number of installments permitted by the applicable taxing authority); (5) Taxes resulting directly from an increase in the assessment caused by a sale or ground lease of all or any portion of the Shopping Center to an Affiliate of Landlord or more than once every five (5) years; or (6) fees imposed upon Landlord in connection with Landlord's development of the Shopping Center (Including, without limitation, trip generation fees). All Taxes payable by Tenant pursuant to this Section 4.3 shall be determined as if the Shopping Center was the only property owned by Landlord. Landlord represents to Tenant that, as of the Effective Date and, to the best of Landlord's knowledge, as of the anticipated Delivery Date, no portion of the Shopping Center is or will be (i) subject to or the beneficiary of an abatement of Taxes, (ii) subject to any special assessments or similar charges, or (iii) are included in any special improvement district(s) which would result in higher sales taxes or other similar impositions than would exist in the absence of such district(s). 4.3.4 At Tenant's request, Landlord shall contest the amount or validity of any assessed valuation or Taxes, failing which, Tenant shall have the right to contest the assessed valuation or Taxes by appropriate proceedings conducted in good faith, whereupon Landlord shall cooperate with Tenant, execute any and all documents reasonably required in connection therewith and, if required by any governmental authority having jurisdiction, join with Tenant in the prosecution thereof. If, as a result of any contest or otherwise, any rebate or refund of Taxes is received, Tenant shall be entitled to Tenant's Pro Rata Share thereof (after reasonable and customary expenses incurred by Landlord and/or Tenant in connection with such contest are paid to the party which incurred such expense). ARTICLE 5 COMMON AREAS, THEIR USE AND CHARGES Section 5.1 COMMON AREAS: MAINTENANCE. 5.1.1 MAINTENANCE OF COMMON AREAS. Landlord shall operate, maintain, repair and replace the Common Areas as required by this Lease and otherwise to the standard by which Common Areas of first-class shopping centers in the state in which the Shopping Center is located are operated, maintained, repaired and replaced, INCLUDING, WITHOUT LIMITATION, snow, ice, rubbish and debris removal (including installation and maintenance of sidewalk refuse containers), landscaping (including, without limitation, the trimming and pruning of trees to avoid interference with the use or visibility of canopies or signs on the exterior of the Premises, subject to Legal Requirements), adequate lighting, insurance, supervision, use, parking lot paving and striping, drainage, security (as reasonably required), and control of all Common Areas, and Landlord shall comply with all applicable Legal Requirements. 5.1.2 TENANT'S PRO RATA SHARE OF COMMON AREAS CHARGES. (a) During the Term, Tenant shall pay to Landlord Tenant's Pro Rata Share of the reasonable costs (hereinafter referred to as the "COMMON AREAS CHARGES") Incurred by Landlord to operate, maintain, insure and repair the Common Areas. Landlord shall be permitted to include in Common Area Charges (in lieu of any cost(s) or expense(s) relating to the administration and management of the Common Areas) for each calendar year an administrative fee (the "ADMINISTRATIVE FEE") equal to five percent (5%) of the Common Areas Charges for the calendar year in question, but excluding from the computation of such Administrative Fee the cost of any replacement or improvement of a capital nature (if such capital item is a permissible Common Areas Charge hereunder), the cost of electricity and other utilities and "Landlord's Insurance Costs" (defined in Section 10.3.3 below). Tenant's Pro Rata Share of Common Areas Charges shall be paid in equal monthly installments on the first day of each calendar month, in advance, during each calendar year based on Landlord's reasonable budget. (b) Within ninety (90) days after the end of each calendar year, Landlord shall provide to Tenant a statement, in reasonable detail, of Common Areas Charges for such year, which statement shall be prepared in accordance with generally accepted accounting principles consistently applied (the "CAC RECONCILIATION STATEMENT"). The CAC Reconciliation Statement shall be certified by Landlord as being accurate and shall be accompanied by a calculation of Tenant's Pro Rata Share of Common Areas Charges, and payment to Tenant in the amount of any overpayment made by Tenant during the preceding calendar year. If Tenant's Pro Rata Share of the actual Common Areas Charges for a calendar year shall exceed the aggregate monthly installments paid by Tenant during said calendar year, Tenant shall pay to Landlord the deficiency within thirty (30) days after receipt of such notice. Upon Tenant's request, Landlord shall promptly deliver to Tenant copies of relevant backup materials (including, but not limited to, contracts, correspondence and paid invoices) reasonably 13
MONTHLY PAYMENTS OF TENANT SQUARE FEET MONTHLY RENT CAM / TAX / INS Best Buy 30,000 $40,000 -o- / -o- / -o- Marshalls 28,000 $18,107.23 $1,75O flat number Bed Bath and Beyond 20,000 $16,250 $1,666.67 flat number Books-A-Million 12,500 $11,197.92 1,562.50 /1,291.67 / 270.83 Dress Barn 7,762 $8,556.25 776.20 / 646.83 / 194.05 Rack Room Shoes 6,000 $7,125 600 / 500 / 150 Don Panchos Restaurant 4,000 $5,000 4OO / 333.33 / 1OO Wells Fargo 2,400 $3,100 240 / 200 / 60 Spoil Me Rotten 2,000 $2,583.33 200 / 166.67 /50 Quiznos 1,600 $2,400 160 /133.33 / 40 Oreck Vacuums 1,600 $2,066.67 160 /133.33 / 40 Grass Monkey 1,600 $2,000 160 /133.33 / 40 rue21 5,000 $5,000 400 / 333.33 / 100
EX-23.1 40 a2143310zex-23_1.txt EX-23.1 EXHIBIT 23.1 Consent of Independent Registered Public Accounting Firm The Board of Directors Inland Western Retail Real Estate Trust, Inc.: We consent to the use of the following reports incorporated by reference herein: - - our report dated November 10, 2003 related to the historical summary of gross income and direct operating expenses of Shops at Park Place for the year ended December 31, 2002, - - our report dated February 13, 2004 related to the consolidated balance sheet of Inland Western Retail Real Estate Trust, Inc. as of December 31, 2003 and the related consolidated statements of operations, stockholders' equity and cash flows for the period from March 5, 2003 (inception) through December 31, 2003 and related financial statement schedule, - - our report dated December 4, 2003 related to the historical summary of gross income and direct operating expenses of Darien Towne Center for the year ended December 31, 2002, - - our report dated February 24, 2004 related to the historical summary of gross income and direct operating expenses of Properties Acquired from Thomas Enterprises for the year ended December 31, 2003, - - our report dated March 2, 2004 related to the historical summary of gross income and direct operating expenses of Hickory Ridge for the year ended December 31, 2003, - - our report dated March 3, 2004 related to the historical summary of gross income and direct operating expenses of CorWest Plaza for the period from May 29, 2003 through December 31, 2003, - - our report dated March 3, 2004 related to the historical summary of gross income and direct operating expenses of Metro Square Center (SuperValue) for the year ended December 31, 2003, - - our report dated February 26, 2004 related to the historical summary of gross income and direct operating expenses of Larkspur Landing for the year ended December 31, 2003, - - our report dated February 25, 2004 related to the historical summary of gross income and direct operating expenses of North Ranch Pavilion for the year ended December 31, 2003, - - our report dated February 26, 2004 related to the historical summary of gross income and direct operating expenses of La Plaza Del Norte for the year ended December 31, 2003, - - our report dated March 1, 2004 related to the historical summary of gross income and direct operating expenses of MacArthur Crossing for the year ended December 31, 2003, - - our report dated March 5, 2004 related to the historical summary of gross income and direct operating expenses of Promenade at Red Cliff for the year ended December 31, 2003, - - our report dated February 25, 2004 related to the historical summary of gross income and direct operating expenses of Peoria Crossing for the year ended December 31, 2003, - - our report dated February 25, 2004 related to the historical summary of gross income and direct operating expenses of Dorman Centre for the year ended December 31, 2003, - - our report dated March 3, 2004 related to the historical summary of gross income and direct operating expenses of Heritage Towne Crossing for the year ended December 31, 2003, - - our report dated May 21, 2004 related to the historical summary of gross income and direct operating expenses of Paradise Valley Marketplace for the year ended December 31, 2003, - - our report dated June 14, 2004 related to the historical summary of gross income and direct operating expenses of Best on the Boulevard for the year ended December 31, 2003, - - our report dated June 14, 2004 related to the historical summary of gross income and direct operating expenses of Bluebonnet Parc for the year ended December 31, 2003, - - our report dated May 25, 2004 related to the historical summary of gross income and direct operating expenses of North Rivers Town Center for the period of October 1, 2003 (commencement of operations) to December 31, 2003, - - our report dated June 8, 2004 related to the historical summary of gross income and direct operating expenses of Arvada Marketplace and Connection for the year ended December 31, 2003, - - our report dated June 8, 2004 related to the historical summary of gross income and direct operating expenses of Eastwood Town Center for the year ended December 31, 2003, - - our report dated May 28, 2004 related to the historical summary of gross income and direct operating expenses of Watauga Pavilion for the period of August 15, 2003 (commencement of operations) to December 31, 2003, - - our report dated June 7, 2004 related to the historical summary of gross income and direct operating expenses of Northpointe Plaza for the year ended December 31, 2003, - - our report dated May 25, 2004 related to the historical summary of gross income and direct operating expenses of Plaza Santa Fe II for the year ended December 31, 2003, - - our report dated June 7, 2004 related to the historical summary of gross income and direct operating expenses of Pine Ridge Plaza for the year ended December 31, 2003, - - and our report dated June 7, 2004 related to the historical summary of gross income and direct operating expenses of Huebner Oaks Center for the year ended December 31, 2003. We consent to the use of the following reports, all included herein: - - our report dated August 15, 2003 related to the balance sheet of Inland Western Retail Real Estate Trust, Inc. as of June 30, 2003, - - our report dated March 10, 2003 related to the historical summary of gross income and direct operating expenses of Peoria Station for the year ended December 31, 2002, - - our report dated August 13, 2004 related to the historical summary of gross income and direct operating expenses of John's Creek Village for the period from September 21, 2003 (commencement of operations) to December 31, 2003, - - our report dated August 3, 2004 related to the historical summary of gross income and direct operating expenses of Fullerton Metrocenter for the year ended December 31, 2003, - - our report dated August 13, 2004 related to the historical summary of gross income and direct operating expenses of Northgate North for the year ended December 31, 2003, - - our report dated August 18, 2004 related to the historical summary of gross income and direct operating expenses of Gateway Plaza Shopping Center for the year ended December 31, 2003, - - our report dated August 11, 2004 related to the historical summary of gross income and direct operating expenses of Forks Town Center for the year ended December 31, 2003, - - our report dated September 1, 2004 related to the historical summary of gross income and direct operating expenses of Manchester Meadows for the year ended December 31, 2003, - - our report dated September 3, 2004 related to the historical summary of gross income and direct operating expenses of Governor's Marketplace for the year ended December 31, 2003, - - our report dated September 10, 2004 related to the historical summary of gross income and direct operating expenses of The Columns for the period from October 8, 2003 (commencement of operations) to December 31, 2003, - - our report dated July 15, 2004 related to the historical summary of gross income and direct operating expenses of Lakewood Town Center for the year ended December 31, 2003, - - our report dated July 30, 2004 related to the historical summary of gross income and direct operating expenses of Davis Towne Crossing for the period from July 18, 2003 (commencement of operations) to December 31, 2003, - - our report dated August 1, 2004 related to the historical summary of gross income and direct operating expenses of Cranberry Square for the year ended December 31, 2003, - - our report dated August 3, 2004 related to the historical summary of gross income and direct operating expenses of Safeway Plaza at Marysville for the year ended December 31, 2003, - - our report dated August 25, 2004 related to the historical summary of gross income and direct operating expenses of The Shops at Boardwalk for the period from May 30, 2003 (commencement of operations) to December 31, 2003, - - our report dated August 6, 2004 related to the historical summary of gross income and direct operating expenses of the Properties owned by Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC for the year ended December 31, 2003, - - our report dated September 1, 2004 related to the historical summary of gross income and direct operating expenses of Mitchell Ranch Plaza for the period from June 30, 2003 (commencement of operations) to December 31, 2003, - - our report dated September 7, 2004 related to the historical summary of gross income and direct operating expenses of Saucon Valley Square for the year ended December 31, 2003, - - and our report dated September 13, 2004 related to the historical summary of gross income and direct operating expenses of Lincoln Park for the year ended December 31, 2003. We consent to the reference to our firm under the heading "Experts" herein. KPMG LLP Chicago, Illinois September 15, 2004 -----END PRIVACY-ENHANCED MESSAGE-----