-----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, JsHPEWTx/NUcOqgTxRdaBi7YtsnG8/HGJTacW5SdEAMPsgIFiqHbe6UV/vm83thQ Eet44gk+qTiJQNQiitE08Q== 0000726728-00-000002.txt : 20000324 0000726728-00-000002.hdr.sgml : 20000324 ACCESSION NUMBER: 0000726728-00-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REALTY INCOME CORP CENTRAL INDEX KEY: 0000726728 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 330580106 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13374 FILM NUMBER: 576288 BUSINESS ADDRESS: STREET 1: 220 W CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 BUSINESS PHONE: 6197412111 MAIL ADDRESS: STREET 1: 220 WEST CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ========= ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 Commission File Number 1-13318 REALTY INCOME CORPORATION ------------------------- (Exact name of registrant as specified in its charter) Maryland 33-0580106 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 220 West Crest Street, Escondido, California 92025 --------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (760)741-2111 ------------- Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange Title of Each Class On Which Registered ---------------------------------------- ----------------------- Common Stock, $1.00 Par Value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 8.25% Monthly Income Senior Notes, due 2008 New York Stock Exchange Class B Preferred Stock, $1.00 Par Value New York Stock Exchange Class C Preferred Stock, $1.00 Par Value New York Stock Exchange ---------------------------------------- ----------------------- Securities registered pursuant to Section 12 (g) of the Act: None ---- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] At March 1, 2000 the aggregate market value of the Registrant's shares of common stock, $1.00 par value, held by non-affiliates of the Registrant was $541,780,000, at the New York Stock Exchange closing price of $20.75. As of March 1, 2000, the number of common shares outstanding was 26,808,370, the number of Class B preferred shares outstanding was 2,745,700 and the number of Class C preferred shares outstanding was 1,380,000. Documents incorporated by reference: Part III, Item 10, 11 and 12 incorporate by reference certain specific portions of the definitive proxy statement for Realty Income Corporation's Annual Meeting to be held on May 3, 2000, to be filed pursuant to Regulation 14A. Only those portions of the proxy statement which are specifically incorporated by reference herein shall constitute a part of this Annual Report. FORWARD-LOOKING STATEMENTS - -------------------------- This annual report on Form 10-K, including documents incorporated by reference, contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this annual report, the words estimated, anticipated and similar expressions are intended to identify forward-looking statements. Forward- looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things: - Our anticipated growth strategies; - Our intention to acquire additional properties; - Anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-tenant retail properties; - Future expenditures for development projects; and - Availability of capital to finance our business. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, some of the factors that could cause actual results to differ materially are: - Our continued qualification as a real estate investment trust; - General business and economic conditions; - Competition; - Interest rates; Page 2 - Accessibility of debt and equity capital markets; and - Other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and illiquidity of real estate investments. Additional factors that may cause risks and uncertainties include those discussed in the sections entitled "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this annual report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this annual report was filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this annual report might not occur. Page 3 REALTY INCOME CORPORATION Index To Form 10-K ================== Page ---- PART I Item 1: Business......................................... 5 Item 2: Properties....................................... 27 Item 3: Legal Proceedings................................ 27 Item 4: Submission of Matters to a Vote of Security Holders......................... 27 PART II Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters........... 28 Item 6: Selected Financial Data.......................... 29 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 31 Item 7A: Quantitative and Qualitative Disclosures about Market Risk...................................... 42 Item 8: Financial Statements and Supplementary Data...... 43 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 69 PART III Item 10: Directors and Executive Officers of the Registrant................................ 69 Item 11: Executive Compensation........................... 69 Item 12: Security Ownership of Certain Beneficial Owners and Management................. 69 Item 13: Certain Relationships and Related Transactions..................................... 69 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 70 SIGNATURES.................................................... 74 EXHIBIT INDEX................................................. 76 Schedule III: Real Estate and Accumulated Depreciation....... F-1
Page 4 PART I ====== ITEM 1: BUSINESS - ----------------- THE COMPANY =========== Realty Income Corporation, "The Monthly Dividend Company", a Maryland corporation ("Realty Income", the "Company", "us", "our" or "we") is organized to operate as an equity real estate investment trust ("REIT"). We are a fully integrated, self-administered real estate company with in- house acquisition, leasing, legal, retail and real estate research, portfolio management and capital markets expertise. As of December 31, 1999, we owned a diversified portfolio of 1,076 retail properties located in 45 states with over 8.6 million square feet of leasable space leased to 72 separate retail chains doing business in 23 separate retail industries. Of the 1,076 properties in the portfolio, 1,069 are single-tenant retail properties with the remainder being multi-tenant properties. As of December 31, 1999, 1,052, or 98.4%, of the 1,069 single-tenant properties were leased with an average remaining lease term (excluding extension options) of approximately 8.7 years. Our primary business objective is to generate dependable monthly dividends from a consistent and predictable level of funds from operations ("FFO") per share. Additionally, we seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. Our portfolio management focus includes: - Contractual rent increases on existing leases; - Rental increases at the termination of existing leases when market conditions permit; and - The active management of our property portfolio, including selective sales of properties. Our acquisition of additional properties adheres to a focused strategy of acquiring primarily: - Freestanding, single-tenant, retail properties; - Properties leased to regional and national retail chains; and - Properties under long-term, net-lease agreements. We typically acquire, then lease back, retail store locations from chain store operators, providing capital to the operators for continued expansion and other corporate purposes. Our acquisitions and investment activities are concentrated in well-defined target markets and focus generally on middle-market retailers providing goods and services that satisfy basic consumer needs. Our net-lease agreements generally: - Are for initial terms of 10 to 20 years; - Require the tenant to pay a minimum monthly rent and property operating expenses (taxes, insurance and maintenance); and Page 5 - Provide for future rent increases (typically subject to ceilings) based on increases in the consumer price index, fixed increases, or additional rent calculated as a percentage of the tenant's gross sales above a specified level. Realty Income was formed on September 9, 1993 in the State of Delaware and reincorporated in Maryland in May 1997. Realty Income commenced operations as a REIT on August 15, 1994 through the merger of 25 public and private real estate limited partnerships with and into the Company. Each of the partnerships was formed between 1970 and 1989 for the purpose of acquiring and managing long-term, net-leased properties. The five senior officers of the Company, who have each managed our properties and operations for between 2 and 14 years, owned 0.6% of the Company's outstanding common stock with a market value of $3.3 million as of March 1, 2000. The directors and five senior officers of the Company, as a group, owned 2.6% of the Company's outstanding common stock with a market value of $14.4 million as of March 1, 2000. Realty Income's common stock is listed on the New York Stock Exchange ("NYSE") under the ticker symbol "O", our central index key ("CIK") number is 726728 and cusip number is 756109-104. Realty Income's 8.25% Monthly Income Senior Notes due 2008, are listed on the NYSE under the ticker symbol "OUI". The cusip number of these notes is 756109-203. Realty Income has 44 employees as of March 1, 2000. RECENT DEVELOPMENTS =================== ACQUISITION OF 110 PROPERTIES DURING 1999. During 1999, we acquired 110 additional properties (the "New Properties"), and selectively sold three properties, increasing the number of properties in the portfolio by 10.9% to 1,076 properties at December 31, 1999 from 970 properties at December 31, 1998. During 1999, we diversified our portfolio with the addition of two new retail industries, Entertainment and Theaters, and eight new retail chains. During 1999, we invested $181.4 million in New Properties and properties under development (excluding estimated unfunded development costs on properties under construction at December 31, 1999 of $15.4 million). The weighted average annual unleveraged return on the $181.4 million invested in 1999 is estimated to be 10.5%, computed as estimated contractual net operating income (which in the case of a net-leased property is equal to the base rent or, in the case of properties under construction, the estimated base rent under the lease) for the first year of each lease, divided by the estimated total costs of each property. Since it is Page 6 possible that a tenant could default on the payment of contractual rent, no assurance can be given that the actual return on the funds invested will not differ from the foregoing percentage. The New Properties are leased to 21 separate retail chains operating in 16 different retail industries, are located in 26 states, will contain approximately 948,000 leasable square feet and are 100% leased under net leases, with an average initial lease term of 17.4 years. Of the New Properties, 102 were occupied as of March 1, 2000 and the remaining properties were pre-leased and under construction pursuant to contracts under which the tenants have agreed to develop the properties (with development costs funded by the Company) and to begin paying rent when the premises open for business. INCREASES IN MONTHLY DISTRIBUTIONS TO COMMON STOCKHOLDERS. In April, July and October 1999, and January 2000, the monthly distributions to common stockholders were increased $0.0025 to $0.1725, $0.1750, $0.1775 and $0.1800 per share, respectively. We are committed to our policy of paying monthly distributions to common stockholders. During 1999, we paid three distributions of $0.1700 per common share, three distributions of $0.1725 per common share, three distributions of $0.1750 per common share, and three distributions of $0.1775 per common share. Common stock distributions for 1999 totaled $2.085 per share. In December 1999, January 2000 and February 2000, we declared distributions of $0.18 per common share, which were paid on January 18, 2000, February 15, 2000 and March 15, 2000, respectively. The monthly distribution of $0.18 per common share represents a current annualized distribution of $2.16 per share, and an annualized distribution yield of approximately 10.4% based on the last reported sale price of our common stock on the NYSE of $20.75 on March 1, 2000. Although we expect to continue our policy of paying monthly distributions, there can be no assurance that the current level of distributions per share will be maintained by the Company, that we will continue our pattern of increasing distributions per share, or as to the actual distribution yield for any future period. UNSECURED REVOLVING CREDIT FACILITIES. In December 1999, we entered into a $200 million, three-year, revolving unsecured acquisition credit facility, which expires in December 2002. Simultaneously with the execution of the $200 million credit facility our $170 million credit facility was cancelled. As of March 1, 2000, we had $70.7 million available for borrowing under the $200 million credit facility. At that time, the outstanding balance was $129.3 million with an effective interest rate of 7.3%. In February 2000, we entered into a $25 million, three-year, revolving credit facility, which expires in February 2003. This credit facility can be used for the acquisition of property and for making capital contributions to subsidiaries for the purpose of acquiring properties. Page 7 STOCK AND SENIOR DEBT REPURCHASE PROGRAM. In January 2000, our Board of Directors authorized the purchase of up to $10 million of our outstanding common and preferred shares and senior debt securities during the next 12 months. We may make periodic purchases on the open market at prevailing prices or in privately negotiated transactions. The purchases will be funded using available working capital which consists primarily of cash flow from operations. FORMATION OF SUBSIDIARY. In January 2000, we formed Crest Net Lease, Inc., of which we own 95% of the common stock, all of which is non-voting, and certain members of management own 5% of the common stock, all of which is voting stock. Crest Net Lease was created to actively buy and sell certain select properties, primarily to buyers using tax-deferred exchanges, under Section 1031 of the Internal Revenue Service Code. PREFERRED STOCK OFFERINGS. In May 1999, we issued 2,760,000 shares of 9 3/8% Class B cumulative redeemable preferred stock (the "Class B Preferred") at a price of $25.00 per share. The Class B Preferred trades on the New York Stock Exchange ("NYSE") under the symbol "OprB" and its cusip number is 756109-302. Dividends on the Class B Preferred are payable quarterly. The net proceeds of $66.5 million were used to pay down bank borrowings. In July 1999, we issued 1,380,000 shares of 9 1/2% Class C cumulative redeemable preferred stock (the "Class C Preferred") at a price of $25.00 per share. The Class C Preferred trades on the NYSE under the symbol "OprC" and its cusip number is 756109-500. Dividends on the Class C Preferred are payable monthly. The net proceeds of $33.2 million were used to pay down bank borrowings. NOTES OFFERING. In January 1999, we issued $20 million of 8.0% unsecured senior notes due 2009 (the "1999 Notes"). The 1999 Notes were sold at 98.757% of par to yield 8.1%. The proceeds from the offering were used to pay down bank borrowings and for other corporate purposes. Currently, there is no formal trading market for the 1999 Notes and we have not listed and do not intend to list the 1999 Notes on any securities exchange. BUSINESS PHILOSOPHY AND STRATEGY ================================ INVESTMENT PHILOSOPHY. We believe that the long-term ownership of an actively managed, diversified portfolio of retail properties under long- term, net-lease agreements produces consistent, predictable income. Under a net-lease agreement, the tenant agrees to pay a minimum monthly rent and property operating expenses (taxes, maintenance, and insurance) plus, typically, future rent increases (generally subject to ceilings) based on increases in the consumer price index, fixed increases or additional rent calculated as a percentage of the tenant's gross sales above a specified level. We believe that long-term leases, coupled with the tenant's Page 8 responsibility for property expenses, generally produce a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income. INVESTMENT STRATEGY. In identifying new properties for acquisition, we focus on providing expansion capital to retail chains by acquiring, then leasing back, their retail store locations. We classify retail tenants into three categories: venture, middle market, and upper market. Venture companies are those which typically offer a new retail concept in one geographic region of the country and operate between five and 50 retail outlets. Middle market retail chains are those which typically have 50 to 500 retail outlets, operations in more than one geographic region, have been successful through one or more economic cycles, and have a proven, replicable concept. The upper market retail chains typically consist of companies with 500 or more stores, operating nationally in a proven mature retail concept. Upper market retail chains generally have strong operating histories and access to several sources of capital. Realty Income primarily focuses on acquiring properties leased to middle market retail chains which we believe are attractive for investment because: - They generally have overcome many of the operational and managerial obstacles that tend to adversely affect venture retailers; - They typically require capital to fund expansion but have more limited financing options; - They generally have provided us with attractive risk- adjusted returns over time since their financial strength has in many cases tended to improve as their businesses have matured; - Their relatively large size allows them to spread corporate expenses across a greater number of stores; and - Middle market retailers typically have the critical mass to survive if a number of locations have to be closed due to underperformance. In 1998, we expanded our investment focus to include upper market retail chains and have made some acquisitions on a selective basis. We believe upper market retail chains can be attractive for investment because: - They typically are of a higher credit quality; - They are usually larger brand name, public and private retailers; - They utilize a larger building ranging in size from 10,000 to 50,000 square feet; and - Their ability to grow because of access to capital facilitates larger transaction sizes. While our investment strategy focuses primarily on acquiring properties leased to middle and upper market retail chains, we also selectively seek incremental investment opportunities with venture market retail chains. Periodically, venture market opportunities arise where we feel that the real estate used by the tenant is of high quality and can be purchased at prices that are favorable in the marketplace. To meet our stringent Page 9 investment standards, however, venture retail companies must have a well- defined retailing concept and strong financial prospects. These opportunities are examined on a case by case basis and we are highly selective in making investments in this area. The Internet has become an important delivery channel for many retail businesses and our investment strategy has positioned us to compete in such an environment. Many research analysts and experts in retail trends believe that bricks and mortar retail businesses will successfully co-exist with Internet retail businesses. We believe that the companies most vulnerable, and possibly subject to the greatest impact from the Internet, are retail chains that sell books, consumer electronics, music, office supplies, and, possibly, pharmaceuticals. Our exposure to these types of retail chains is minimal. We believe retail chains that provide services rather than goods, such as child care centers and auto service stores, as well as those that provide a service with their products, such as restaurants, convenience stores and home improvement stores, have tended to be more stable operators than retailers that only sell goods. Historically, our investment focus has been on retail industries that have a service component because we believe the lease revenue from these types of businesses is more stable. Because of this investment focus, as of January 1, 2000, over 76% of our annualized revenue is derived from retailers with a service component in their business. We believe these service-oriented businesses would be difficult to duplicate over the Internet and, as a result, our property portfolio should be fairly well positioned for competition from Internet businesses. CREDIT STRATEGY. Realty Income principally provides sale leaseback financing primarily to less than investment grade retail chains. Since 1970 and through December 31, 1999, Realty Income has acquired and leased back to regional and national retail chains 1,054 properties (including 36 properties that have been sold) and has collected in excess of 98% of the original contractual rent obligations on those properties. We believe that within this market we can achieve an attractive risk-adjusted return on the financing that we provide to retailers. We believe that the primary financial obligations of most retailers typically include their bank and other debt, payment obligations to suppliers and real estate lease obligations. Because we own the land and buildings on which the tenant conducts its retail business, we believe that the risk of default on the retailers' lease obligations is less than the retailers' unsecured general obligations. It has been our experience that since retailers must retain their profitable retail locations in order to survive in the event of reorganization they are less likely to reject a lease for a profitable location, which would terminate their right to use the property. Thus, as the property owner, we believe we will fare better than unsecured creditors of the same retailer in the event of reorgani- zation. If a property is rejected by the tenant during the reorganization, we still own the property and can either lease it to a new tenant or sell the property. In addition, we believe that the risk of default on the real Page 10 estate leases can be further mitigated by monitoring the performance of the retailers' individual unit locations and selling those units that are weaker performers. In order to qualify for inclusion in our portfolio, new property acquisitions must meet stringent investment and credit requirements. The properties must generate attractive current yields, and the tenant must meet our credit standards. We have established a three-part analysis that examines each potential investment based on: - Industry, company, market conditions and credit profile; - Location profitability, if profitability data is available; and - Overall real estate characteristics, value, and comparative rental rates. Companies that have been approved for acquisitions are generally those with fifty or more retail stores which are located in highly visible areas, with easy access to major thoroughfares and attractive demographics. ACQUISITION STRATEGY. We seek to invest in industries in which several, well-organized, regional and national chains are capturing market share through service, quality control, economies of scale, mass media advertising, and the selection of prime retail locations. We execute our acquisition strategy by acting as a source of capital to regional and national retail chain stores in a variety of industries by acquiring, then leasing back, their retail store locations. We undertake thorough research and analysis to identify appropriate industries, tenants, and property locations for investment. The abundance of information on the Internet adds to our research capabilities and allows us to uncover net-lease opportunities in markets where our real estate financing program adds value. In selecting real estate for potential investment, we generally seek to acquire properties that have the following characteristics: - Freestanding, commercially zoned property with a single tenant; - Properties that are important retail locations for regional and national retail chains; - Properties that are located within attractive demographic areas relative to the business of their tenants, with high visibility and easy access to major thoroughfares; and - Properties that can be purchased with the simultaneous execution or assumption of long-term, net-lease agreements, providing the opportunity for both current income and future rent increases. PORTFOLIO MANAGEMENT STRATEGY. The active management of the property portfolio is an essential component of our long-term strategy. We continually monitor our portfolio for changes that could affect the performance of the industries, tenants, and locations in which we have invested. The portfolio is analyzed on an ongoing basis with a view towards optimizing performance and returns. Realty Income's investment committee meets frequently and is made up of our Chief Executive Officer and two Executive Vice Presidents. Our investment committee reviews Page 11 industry research, tenant research, property due diligence, and significant portfolio management activities. This monitoring typically includes ongoing review and analysis of: - The performance of various retail industries; - The operation, management, business planning, and financial condition of the tenants; and - The health of the individual markets in which we own properties, from both an economic and real estate standpoint. In November 1999, we implemented a plan to sell three of our multi-tenant locations. We anticipate these properties will be sold in 2000. At December 31, 1999, they had a combined carrying value of $29 million. CAPITAL MARKETS STRATEGY. We have a $200 million revolving, unsecured acquisition credit facility that expires in December 2002 and a $25 million revolving, unsecured credit facility that expires in February 2003. As of March 1, 2000, the outstanding balance on the $200 million credit facility was $129.3 million with an effective interest rate of approximately 7.3%. At March 1, 2000, no balance was outstanding on the $25 million credit facility. A commitment fee of 0.225% per annum accrues on the total credit commitment of each credit facility. The $200 million credit facility has been and is expected to be used to acquire additional retail properties leased to regional and national retail chains under long term net lease agreements. The $25 million credit facility can be used for the acquisition of property and for making capital contributions to subsidiaries for the purpose of funding the acquisition of properties. We use our credit facilities as a vehicle for the short-term financing of the acquisition of new properties. When outstanding borrowings under the $200 million credit facility reach a certain level (generally in the range of $75 to $175 million) and capital is available on acceptable terms, we generally seek to refinance those borrowings with the net proceeds of long- term or permanent financing, which may include the issuance of common stock, preferred stock, convertible preferred stock, debt securities or convertible debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing or that market conditions prevailing at the time of refinancing will enable us to issue equity or debt securities upon acceptable terms. We intend to pay off borrowings on our $25 million credit facility with proceeds from the sale of properties acquired by us or our subsidiaries. We believe that we are best served by a conservative capital structure, with a majority of our capital consisting of equity. As of March 1, 2000, our total outstanding credit facility borrowings and outstanding notes were $359.3 million or approximately 35.3% of our total capitalization of $1.0 billion (defined as shares of our common stock outstanding multiplied by the last reported sales price of the common stock on the NYSE on March 1, 2000 of $20.75 per share plus the liquidation value of the Class B Preferred Stock, the Class C Preferred Stock, the outstanding borrowings on the credit facilities and outstanding notes at March 1, 2000). Page 12 We received investment grade credit ratings from Duff & Phelps Credit Rating Company, Moody's Investor Service, Inc., and Standard & Poor's Rating Group in December 1996. Currently, Duff & Phelps has assigned a rating of BBB, Moody's has assigned a rating of Baa3, and Standard & Poor's has assigned a rating of BBB- to our senior debt. These ratings could change based upon, among other things, our results of operations and financial condition. We have also received credit ratings from the same rating agencies on our preferred stock. Duff & Phelps Rating Company has assigned a rating of BBB-, Moody's Investor Service, Inc. has assigned a rating of Ba1, and Standard & Poor's Rating Group has assigned a rating of BB+. These ratings could change based upon, among other things, our results of operations and financial condition. Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and investment grade long-term unsecured debt. We believe that the Company is best served by having the majority of our future issuances of securities be in the form of common stock. The Company will issue common stock when we believe that the share price of our common stock is at a level that allows for the proceeds of any offering to be invested on an accretive basis into additional properties or to pay down any short-term borrowings on our credit facilities. We do not presently view our price per common share as attractive for additional issuances of common stock. We do not anticipate issuing additional shares of common stock until we determine the common stock price has risen to acceptable levels. In addition, we seek to maintain a conservative debt level on our balance sheet, which should result in conservative interest and fixed charge coverage ratios. We do not anticipate issuing significant amounts of additional debt until additional equity can be issued to offset the increase in debt. If the share price levels do not increase and we do not issue additional equity or debt, we will reduce our level of property acquisitions. In these circumstances, we intend to achieve our growth objectives by investing cash flow in excess of distributions and stock repurchases, and by strategically selling properties that have appreciated in value and investing the proceeds in new properties that will generate rental revenue in excess of those generated by the properties that were sold. COMPETITIVE STRATEGY. We believe that, to utilize our investment philosophy and strategy most successfully, we must seek to maintain the following competitive advantages: - - Size and Type of Investment Properties: We believe that smaller ($500,000 to $10,000,000) retail net-leased properties represent an attractive investment opportunity in today's real estate environment. Due to the complexities of acquiring and managing a large portfolio of relatively small assets, we believe that these types of properties have not experienced significant institutional participation or the corresponding yield reduction experienced by larger income producing properties. We believe the less intensive day to day property management required by net-lease agreements, coupled with the active Page 13 management of a large portfolio of smaller properties by us, is an effective investment strategy. The tenants of our freestanding retail properties generally provide goods and services which satisfy basic consumer needs. In order to grow and expand, they generally need capital. Since the acquisition of real estate is typically the single largest capital expenditure of many of these retailers, our method of purchasing the property and then leasing it back under a net-lease arrangement allows the retail chain to free up capital. - - Investment in New Retail Industries: Though we specialize in single- tenant properties, we will seek to further diversify our portfolio among a variety of retail industries. We believe that diversification will allow us to invest in retail industries that are currently growing and have characteristics we find attractive. These characteristics include, but are not limited to, retail industries dominated by local operators where regional and national chain operators can gain market share and dominance through more efficient operations, as well as industries taking advantage of major demographic shifts in the population base. During 1999, we added two new retail industries to our portfolio, Entertainment and Theaters, bringing the total number of retail industries in our portfolio to 23. - - Diversification: Diversification of the portfolio by retail industry type, tenant and geographic location is key to our objective of providing predictable investment results for our stockholders. As we expand we will seek to further diversify our portfolio. During 1999, eight new retail chains were added to our portfolio, bringing the total number of retail chains in our portfolio to 72. These retail chains operate 1,015 of our properties located in 45 states. - - Management Specialization: We believe that our management's specialization in single-tenant retail properties operated under net- lease agreements is important to meeting our objectives. We plan to maintain this specialization and will seek to employ and train high quality professionals in this specialized area of real estate ownership, finance and management. - - Technology: We intend to stay at the forefront of technology in our efforts to efficiently and economically carry out our operations. We maintain a sophisticated information system that allows us to analyze our portfolio's performance and actively manage our investments. We believe that technology and information based systems will play an increasingly important role in our competitiveness as an investment manager and source of capital to a variety of industries and tenants. Page 14 PROPERTIES ========== As of December 31, 1999, we owned a diversified portfolio of 1,076 properties located in 45 states with over 8.6 million square feet of leasable space. At December 31, 1999, 1,052 or 97.8% of the 1,076 properties were under net-lease agreements. Net leases typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. Our net-leased retail properties are primarily leased to regional and national retail chain store operators. The average leasable retail space of the 1,076 properties is approximately 8,000 square feet on approximately 56,000 square feet of land. Generally, buildings are single-story properties with adequate parking on site to accommodate peak retail traffic periods. The properties tend to be on major thoroughfares with relatively high traffic counts and adequate access, egress and proximity to a sufficient population base to constitute a suitable market or trade area for the retailer's business. The table on the next page sets forth certain information regarding our 1,076 properties classified according to the business of the respective tenants (dollars in thousands): Page 15 Annualized Percentage of Total Rent as of Rental Revenue for Number Jan. 1, 2000(1) the Year of ------------------- ------------------- Prop- Rental Percentage Industry erties Revenue of Total 1999 1998 1997 - -------------------- ------ -------- ---------- ------ ------ ------ Apparel Stores 5 $ 3,927 3.4% 3.8% 4.1% 0.7% Automotive Parts 141 9,707 8.3 8.6 7.8 9.1 Automotive Service 105 6,723 5.7 6.6 7.5 6.4 Book Stores 1 450 0.4 0.5 0.6 0.5 Business Services 1 124 0.1 0.1 * -- Child Care 336 28,275 24.2 25.3 29.2 35.9 Consumer Electronics 37 4,659 4.0 4.4 5.4 6.5 Convenience Stores 104 9,759 8.3 7.2 6.1 5.5 Craft and Novelty 2 425 0.4 0.4 * -- Drug Stores 1 235 0.2 0.2 0.1 -- Entertainment 6 2,293 2.0 1.2 -- -- General Merchandise 11 687 0.6 0.6 * -- Grocery Stores 2 719 0.6 0.5 * -- Health and Fitness 7 3,930 3.4 0.6 0.1 -- Home Furnishings 34 6,107 5.2 6.5 7.8 5.6 Home Improvement 34 4,281 3.7 3.6 * -- Office Supplies 8 2,476 2.1 2.6 3.0 1.7 Pet Supplies and Services 8 1,612 1.4 1.1 0.6 0.2 Private Education 6 1,695 1.4 1.2 0.9 -- Restaurants 177 14,355 12.3 13.3 16.2 19.8 Shoe Stores 4 1,234 1.0 1.1 0.8 0.2 Theaters 2 2,406 2.1 0.6 -- -- Video Rental 35 4,510 3.8 4.3 3.8 0.6 Other 9 6,331 5.4 5.7 6.0 7.3 - -------------------- ------ -------- ------ ------ ------ ------ Totals 1,076 $116,920 100.0% 100.0% 100.0% 100.0% ==================== ====== ======== ====== ====== ====== ======
* Less than 0.1% [FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 2000 for each of the properties by 12 and adding the previous twelve month's historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. Page 16 Of the 1,076 properties in the portfolio at January 1, 2000, 1,069 were single-tenant properties with the remaining properties being multi-tenant properties. As of January 1, 2000, 1,052 of the 1,069 single-tenant properties, or 98.4%, were leased with an average remaining lease term (excluding extension options) of approximately 8.7 years. During 1999, 31 of our leases expired. Of these leases, 26 were released to the same tenant, four were leased to different tenants in the same industry and one location is being marketed for lease or sale. The following table sets forth certain information regarding the timing of the initial lease term expirations (excluding extension options) on our 1,052 net leased, single-tenant retail properties as of January 1, 2000 (dollars in thousands). Number of Percent of Leases Annualized Annualized Year Expiring (2) Rent (1) (2) Rent - ------ ------------ -------------- ---------- 2000 38 $ 2,017 1.8% 2001 48 3,958 3.6 2002 84 6,728 6.0 2003 72 5,888 5.3 2004 119 9,926 8.9 2005 82 6,098 5.5 2006 28 2,546 2.3 2007 94 6,494 5.8 2008 67 5,812 5.2 2009 29 3,270 3.0 2010 42 3,371 3.0 2011 35 5,315 4.8 2012 50 5,738 5.1 2013 96 15,580 13.9 2014 40 6,859 6.1 2015 30 3,326 3.0 2016 13 2,011 1.8 2017 11 4,130 3.7 2018 16 1,614 1.4 2019 52 8,755 7.8 2024 2 605 0.5 2033 2 1,118 1.0 2034 2 570 0.5 ------- ---------- ------- Totals 1,052 $111,729 100.0% ======= ========== =======
[FN] (1) Annualized Rent is calculated by multiplying the monthly contractual base rent as of January 1, 2000 for each of the properties by 12 and adding the previous twelve month's historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's Page 17 gross sales above a specified level.) For properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. (2) This table does not include seven multi-tenant properties and 17 vacant unleased single-tenant properties owned by the Company. The lease expirations for properties under construction are based on the estimated date of completion of these properties. The following table sets forth certain state-by-state information regarding Realty Income's portfolio at January 1, 2000 (dollars in thousands). Approximate Percent of Number of Percent Leasable Annualized Annualized State Properties Leased Square Feet Rent (1) Rent - ------------ ---------- ------- ----------- ---------- ---------- Alabama 9 100% 63,300 $ 628 0.5% Arizona 31 99 211,700 3,060 2.6 Arkansas 5 100 36,700 614 0.5 California 61 95 1,031,300 13,741 11.8 Colorado 44 96 280,500 3,809 3.3 Connecticut 10 100 223,800 2,979 2.6 Delaware 1 100 5,400 72 0.1 Florida 87 99 947,800 12,676 10.8 Georgia 59 97 331,000 5,515 4.7 Idaho 11 100 52,000 752 0.6 Illinois 35 100 258,300 3,639 3.1 Indiana 29 100 170,400 2,213 1.9 Iowa 10 100 67,900 692 0.6 Kansas 23 100 240,500 2,629 2.3 Kentucky 13 100 43,500 1,114 1.0 Louisiana 5 100 39,600 501 0.4 Maryland 8 100 48,300 727 0.6 Massachusetts 8 100 57,500 1,069 0.9 Michigan 10 100 68,100 973 0.8 Minnesota 25 100 261,500 2,849 2.4 Mississippi 16 100 152,100 1,282 1.1 Missouri 33 100 204,500 2,600 2.2 Montana 2 100 30,000 289 0.3 Nebraska 10 100 98,700 1,240 1.1 Nevada 7 100 86,400 1,323 1.1 New Hampshire 1 100 6,400 130 0.1 New Jersey 4 75 45,400 586 0.5 New Mexico 5 100 46,000 339 0.3 New York 20 95 253,300 4,723 4.0 North Carolina 33 91 174,200 2,936 2.4 North Dakota 1 100 22,000 65 0.1 Ohio 67 100 341,200 5,400 4.6 (table continued next page) Page 18 (table continued) Approximate Percent of Number of Percent Leasable Annualized Annualized State Properties Leased Square Feet Rent (1) Rent - ------------ ---------- ------- ----------- ---------- ---------- Oklahoma 17 100 102,200 1,284 1.1 Oregon 17 100 92,400 1,225 1.1 Pennsylvania 23 100 168,600 2,296 2.0 South Carolina 48 98 147,000 3,924 3.4 South Dakota 2 100 12,600 170 0.2 Tennessee 25 96 221,300 2,652 2.3 Texas 155 100 1,290,700 13,958 11.9 Utah 8 100 51,700 701 0.6 Virginia 30 93 140,800 2,843 2.4 Washington 43 100 252,600 3,326 2.9 West Virginia 2 100 16,800 156 0.1 Wisconsin 19 100 231,900 2,954 2.5 Wyoming 4 100 20,100 266 0.2 ------ ------ --------- ---------- ------- Totals/Average 1,076 98% 8,648,000 $116,920 100.0% ====== ====== ========= ========== =======
[FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 2000 for each of the properties by 12 and adding the previous twelve month's historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. Page 19 The following table sets forth certain information regarding the properties owned by Realty Income as of January 1, 2000, classified according to the business of the respective tenants (dollars in thousands). Percent of Number of Annualized Annualized Industry Properties Rent (1) Rent - -------- ---------- ---------- ---------- Tenants providing services - -------------------------- Automotive Service 105 $ 6,723 5.7% Child Care 336 28,275 24.2 Entertainment 6 2,293 2.0 Health and Fitness 7 3,930 3.4 Private Education 6 1,695 1.4 Theaters 2 2,406 2.1 Other 9 6,331 5.4 ---------- ---------- ---------- 471 51,653 44.2 ---------- ---------- ---------- Tenants selling goods and services - ---------------------------------- Automotive Parts 60 5,100 4.4 Business Services 1 124 0.1 Convenience Stores 104 9,759 8.3 Home Improvement 21 2,903 2.5 Pet Supplies and Services 6 1,146 1.0 Restaurants 177 14,355 12.3 Video Rental 35 4,510 3.8 ---------- ---------- ---------- 404 37,897 32.4 ---------- ---------- ---------- Tenants selling goods - --------------------- Apparel Stores 5 3,927 3.4 Automotive Parts 81 4,606 3.9 Book Stores 1 450 0.4 Consumer Electronics 37 4,659 4.0 Craft and Novelty 2 425 0.4 Drug Stores 1 235 0.2 General Merchandise 11 687 0.6 Grocery Stores 2 719 0.6 Home Furnishings 34 6,107 5.2 Home Improvement 13 1,378 1.2 Office Supplies 8 2,476 2.1 Pet Supplies 2 467 0.4 Shoe Stores 4 1,234 1.0 ---------- ---------- ---------- 201 27,370 23.4 ---------- ---------- ---------- TOTALS 1,076 $ 116,920 100.0% ========== ========== ==========
Page 20 [FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 2000 for each of the properties by 12 and adding the previous twelve month's historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. DESCRIPTION OF LEASING STRUCTURE. At December 31, 1999, 1,052 or 97.8% of the Company's 1,076 properties were leased pursuant to net leases. In most cases, the leases: - Were for initial terms of from 10 to 20 years and the tenant has an option to extend the initial term; - In general, the leases require the tenant to pay property taxes, insurance, and expenses of maintaining the property; - Generally provide for a minimum base rent plus future increases (typically subject to ceilings) based on increases in the consumer price index, additional rent based upon the tenant's gross sales above a specified level (i.e., percentage rent) or fixed increases. Where leases provide for rent increases based on increases in the consumer price index, generally these increases permanently become part of the base rent. Where leases provide for percentage rent, this additional rent is typically payable only if the tenant's gross sales for a given period (usually one year) exceed a specified level, and then is typically calculated as a percentage of only the amount of gross sales in excess of that level. Matters Pertaining to Certain Properties and Tenants - ---------------------------------------------------- Seventeen of our properties were vacant as of January 1, 2000 (all of which are single-tenant properties) and available for lease. Eight of the vacant properties were previously leased to automotive service facility operators, three to restaurant operators, two to automotive parts store operators, two to child care operators, one to a home furnishings store operator and one to a convenience store operator. As of January 1, 2000, 19 of our properties under lease were vacant and available for sublease by the tenants, all of which were current with their rent and other obligations. Our two largest tenants are Children's World Learning Centers and La Petite Academy, which accounted for approximately 13.8% and 10.3%, respectively, of our rental revenue for the year ended December 31, 1999. No other tenant comprised 10% or more of our rental revenue. In general, a downturn in the industry represented by these tenants, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in this industry, which in turn could materially adversely affect our financial position and results of operations and our ability to make distributions to stockholders and debt service payments. In addition, a Page 21 substantial number of our properties are leased to middle market retail chains which generally have more limited financial and other resources than certain upper market retail chains, and therefore are more likely to be adversely affected by a downturn in their respective business or in the regional or national economy generally. Our tenants in the child care and restaurant industries accounted for approximately 25.3% and 13.3%, respectively, of our rental revenue for the year ended December 31, 1999. A downturn in any of these industries generally, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in those industries, which in turn could materially adversely affect our financial position and results of operations and our ability to make distributions to stockholders and debt service payments. In November 1999, Econo Lube N' Tune filed for reorganization under Chapter 11 of the Federal Bankruptcy Code, and rejected nine of our 34 leases with them. One of the rejected locations was leased to another tenant in December 1999, and we anticipate the remaining eight locations to be leased or sold during the second or third quarter of 2000. Econo Lube N' Tune is currently operating the remaining 25 locations, and we anticipate that they will accept these locations, although we cannot assure you that they will continue to pay rent for the remaining terms of the leases. Development of Certain Properties - --------------------------------- Of the 110 New Properties we acquired in 1999, 102 were occupied as of March 1, 2000 and the remaining 8 were pre-leased and under construction pursuant to contracts under which tenants or developers have agreed to develop the properties (with development costs funded by us) with rent commencing when the premises open for business. In the case of development properties, we either enter into an agreement with a tenant where the tenant retains a contractor to construct the improvements and we fund the costs of that development, or we fund a developer who constructs the improvements. In either case, there is an executed lease and there is a requirement to complete the construction on a timely basis, generally within eight months after we purchase the land. Generally, the tenant or developer is required to pay construction cost overruns to the extent they exceed the construction budget by more than a predetermined amount. We also enter into a lease with the tenant at the time we purchase the land, which generally requires that the tenant begin paying base rent, calculated as a percentage of our acquisition cost for the property, including construction costs and capitalized interest, when the premises open for business. During 1999, we acquired 37 development properties, 29 of which have been completed, were operating and paying rent as of March 1, 2000. We will continue to seek to acquire land for development under similar arrangements. Page 22 DISTRIBUTION POLICY =================== Distributions are paid to our common stockholders and Class C Preferred stockholders on a monthly basis and paid to our Class B Preferred stockholders on a quarterly basis if, as and when declared by our Board of Directors. The Class B Preferred receive cumulative distributions at a rate of 9.375% per annum of the $25 per share liquidation preference (equivalent to $2.344 per annum per share). The Class C Preferred receive cumulative distributions at a rate of 9.5% per annum of the $25 per share liquidation preference (equivalent to $2.375 per annum per share). The March 2000 distribution of $0.18 per common share represents a current annualized distribution of $2.16 per share, and an annualized distribution yield of approximately 10.4% based on the last reported sale price of $20.75 of our common stock, on the NYSE on March 1, 2000. In order to maintain our tax status as a REIT for federal income tax purposes, we are generally required to distribute dividends to our stockholders aggregating annually at least 95% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains). In 1999, our distributions totaled approximately 109.5% of our REIT taxable income. We intend to continue to make distributions to our stockholders that are sufficient to meet this requirement. Future distributions by us will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"), our debt service requirements and other factors as the Board of Directors may deem relevant. In addition, our credit facilities contain financial covenants which could limit the amount of distributions payable by us in the event of a deterioration in the results of operations or financial condition of the Company, and which prohibit the payment of distributions on the common or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facilities. Distributions by us to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income. Distributions in excess of earnings and profits generally will be treated as a non-taxable reduction in the stockholders' basis in its stock to the extent of that basis, and thereafter as a gain from the sale of the stock. Approximately 9.5% of the distributions made or deemed to have been made in 1999 were classified as a return of capital for federal income tax purposes. We are unable to predict the portion of 2000 or future distributions which may be classified as a return of capital since the amount depends on our taxable income for the entire year. Page 23 OTHER ITEMS =========== COMPETITION FOR ACQUISITION OF REAL ESTATE. We face competition in the acquisition, operation and sale of property. We expect competition from: - Businesses; - Individuals; - Fiduciary accounts and plans; and - Other entities engaged in real estate investment. Some of these competitors are larger than we are and have greater financial resources. This competition may result in a higher cost for properties that we wish to purchase. The tenants leasing our properties generally face significant competition from other operators. This competition may adversely impact: - That portion, if any, of the rental stream to be paid to us based on a tenant's revenues; and - The tenants' results of operations or financial condition. ENVIRONMENTAL LIABILITIES. Investments in real property can create a potential for environmental liability. An owner of property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We face such liability regardless of: - Our knowledge of the contamination; - The timing of the contamination; - The cause of the contamination; or - The party responsible for the contamination of the property. We are not aware of any material environmental problems at this time; however, there may be environmental problems associated with our properties that we are unaware of. In that regard, a number of our properties are leased to operators of oil change and tune-up facilities, and convenience stores that sell petroleum-based fuels. These facilities, or other of our properties, use, or may have used in the past, underground tanks for the storage of petroleum-based or waste products which could create a potential for release of hazardous substances. The presence of hazardous substances on a property may adversely affect our ability to sell that property and we may incur substantial remediation costs. Although our leases generally require our tenants to operate in compliance with all applicable federal, state and local laws, ordinances and regulations and to indemnify us against any environmental liabilities arising from the tenant's activities on the property, we could nevertheless be subject to strict liability by virtue of our ownership interest, and there can be no assurance that our tenants would satisfy their indemnification obligations under the leases. Page 24 We believe that our properties comply in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our present properties. Nevertheless, if environmental contamination should exist, we could be subject to strict liability by virtue of our ownership interest. Since December 1996, the Company has maintained an environmental insurance policy on the property portfolio. The limit of the policy is $10 million for each loss and $25 million in the aggregate, with a $100,000 deductible. There is a sublimit on properties with underground storage tanks of $1 million per occurrence and $5 million in the aggregate, with a deductible of $25,000. TAXATION OF THE COMPANY. We believe that we have operated, and we intend to continue to operate, so as to qualify as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 1994. Although we believe that we are in compliance with all REIT qualification rules and we are organized and operate as a REIT, we can not completely assure you that we will continue to be so organized or that we will be able to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the satisfaction of numerous requirements under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations, and the determination of various factual matters and circumstances not entirely within our control. We cannot assure you that legislation, new regulations, administrative interpretations or court decisions will leave unchanged the tax laws with respect to qualification as a REIT or the federal income tax consequences of those qualifications. If we were to fail to qualify as a REIT in any taxable year: - We would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates; - We would not be allowed a deduction in computing our taxable income for amounts distributed to our stockholders; - We would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would substantially reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability for the years involved; and - We would no longer be required to make distributions to stockholders. Page 25 Even if we qualify for and maintain our REIT status, we are subject to certain federal, state and local taxes on our income and property. For example, if we have net income from a prohibited transaction, that income will be subject to a 100% tax. EFFECT OF DISTRIBUTION REQUIREMENTS. To maintain our status as a REIT for federal income tax purposes, we generally are required to distribute to our stockholders at least 95% of our taxable income each year. This taxable income is determined without regard to the dividends paid deduction and by excluding net capital gains. We are also subject to tax at regular corporate rates to the extent that we distribute less than 100% of our taxable income (including net capital gains) each year. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us with respect to any calendar year are less than the sum of 85% of our ordinary income for that calendar year, 95% of our capital gain net income for the calendar year, and any amount of that income that was not distributed in prior years. We intend to continue to make distributions to our stockholders to comply with the distribution requirements of the Code and to reduce exposure to federal income taxes and the nondeductible excise tax. Differences in timing between the receipt of income and the payment of expenses in arriving at taxable income and the effect of required debt amortization 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. DILUTION OF COMMON STOCK. Our future growth will depend in large part upon our ability to raise additional capital. If we were to raise additional capital through the issuance of equity securities, we could dilute the interests of holders of common stock. Likewise, our Board of Directors is authorized to cause us to issue preferred stock of any class or series (with dividend, voting and other rights as determined by the Board of Directors). Accordingly, the Board of Directors may authorize the issuance of preferred stock with voting, dividend and other similar rights that could dilute, or otherwise adversely affect, the interests of holders of Common Stock. REAL ESTATE OWNERSHIP RISKS. We are subject to all of the general risks associated with the ownership of real estate. In particular we face the risk that rental revenue from the properties will be insufficient to cover all corporate operating expenses and debt service payments on indebtedness we incur. Additional real estate ownership risks include: - Adverse changes in general or local economic conditions; - Changes in supply of or demand for similar or competing properties; - Changes in interest rates and operating expenses; - Competition for tenants; Page 26 - Changes in market rental rates; - Inability to lease properties upon termination of existing leases; - Renewal of leases at lower rental rates; - Inability to collect rents from tenants due to financial hardship, including bankruptcy, and sales declines due to the impact from Internet commerce; - Changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate; - Uninsured property liability; - Property damage or casualty losses; - Unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state and local laws; and - Acts of God and other factors beyond the control of our management. DEPENDENCE ON KEY PERSONNEL. We depend on the efforts of our executive officers and key employees. The loss of the services of our executive officers and key employees could have a material adverse effect on our operations. ITEM 2: PROPERTIES - ------------------- Information pertaining to our properties can be found under Item 1. ITEM 3: LEGAL PROCEEDINGS - -------------------------- The Company is subject to certain claims and lawsuits, the outcome of which are not determinable at this time. In the opinion of management, any liability that might be incurred by the Company upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on the Company's consolidated financial statements taken as a whole. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ No matters were submitted to stockholders during the fourth quarter of the fiscal year. Page 27 PART II ======= ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ---------------------------------------------------------- A. The common stock of the Company is traded on the New York Stock Exchange under the ticker symbol "O." The following table shows the high and low sales prices per share for our common stock as reported by the New York Stock Exchange composite tape, and distributions declared per share of common stock by us for the periods indicated. Price Per Share of Common Stock ------------------- Distributions 1999 High Low Declared (1) - ----------------------------------------------------------------- First quarter $24.8750 $20.3750 $0.5125 Second quarter 25.0000 20.8125 0.5200 Third quarter 24.3125 22.3125 0.5275 Fourth quarter 23.6250 20.0000 0.5350 ------- $2.0950 =======
[FN] (1) Common stock distributions currently are declared monthly by us based on financial results for the prior months. At December 31, 1999 a distribution of $0.18 per common share had been declared and was paid on January 18, 2000. Price Per Share of Common Stock ------------------- Distributions 1998 High Low Declared - ----------------------------------------------------------------- First quarter $27.1875 $25.2500 $0.4825 Second quarter 27.2500 25.4375 0.4900 Third quarter 27.3750 23.4375 0.4975 Fourth quarter 25.6875 23.9375 0.5050 ------- $1.9750 ======= B. There were approximately 13,600 holders of record of Realty Income's shares of common stock as of March 1, 2000. Page 28 ITEM 6: SELECTED FINANCIAL DATA - -------------------------------- (not covered by Independent Auditors' Report)
As of or for the years ended December 31, (dollars in thousands, except per share data) -------------------------------------------------- 1999 1998 1997 1996 1995 ========== ========== ========== ========== ========== Total assets (book value) $ 905,404 $ 759,234 $ 577,021 $ 454,097 $ 417,639 Cash and cash equivalents 773 2,533 2,123 1,559 1,650 Lines of credit and notes payable 349,200 294,800 132,600 70,000 18,597 Total liabilities 370,573 309,025 143,706 79,856 36,218 Stockholders' equity 534,831 450,209 433,315 374,241 381,421 Net cash provided by operating activities 72,154 64,645 52,692 48,073 40,312 Net change in cash and cash equivalents (1,760) 410 564 (91) (10,023) Total revenue 104,510 85,132 67,897 56,957 51,555 Income from operations 45,295 41,004 33,688 30,768 25,582 Gain on sales of properties 1,301 526 1,082 1,455 18 Extraordinary item (355) -- -- -- -- Cumulative effect of change in accounting principle -- (226) -- -- -- Net income 46,241 41,304 34,770 32,223 25,600 Preferred stock dividends (5,229) -- -- -- -- Net income available to common stock- holders 41,012 41,304 34,770 32,223 25,600 Distributions paid to common stockholders 55,925 52,301 44,367 48,079 36,710 (table continued on next page) Page 29 (table continued) As of or for the years ended December 31, (dollars in thousands, except per share data) -------------------------------------------------- 1999 1998 1997 1996 1995 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges (1) 2.7x 3.8x 5.1x 13.7x 9.9x Ratio of earnings to combined fixed charges and pre- ferred stock dividends (1) 2.3x 3.8x 5.1x 13.7x 9.9x Basic and diluted net income per common share 1.53 1.55 1.48 1.40 1.27 Distributions paid per common share (2) 2.085 1.965 1.893 2.093 1.825 Distributions declared per common share (2) 2.095 1.975 1.895 1.710 2.215 Basic weighted average number of common shares outstanding 26,822,285 26,629,936 23,568,831 22,976,789 20,230,886 Diluted weighted average number of common shares outstanding 26,826,090 26,638,284 23,572,715 22,977,837 20,230,963
[FN] (1) Ratio of Earnings to Fixed Charges is calculated by dividing earnings by fixed charges. For this purpose, earnings consist of net income before interest expense. Fixed charges are comprised of interest costs (including capitalized interest) and the amortization of debt issuance costs. (2) 1996 distributions paid per common share and 1995 distributions declared per common share include a special distribution of $0.23 per share. Page 30 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ---------------------------------------------------------- GENERAL - ------- Realty Income Corporation, "The Monthly Dividend Company", a Maryland corporation ("Realty Income", the "Company", "us", "we" or "our") is organized to operate as an equity real estate investment trust ("REIT"). We are a fully integrated self-administered real estate company with in- house acquisition, leasing, legal, retail research, real estate research, portfolio management and capital markets expertise. As of December 31, 1999, we owned a diversified portfolio of 1,076 retail properties located in 45 states with over 8.6 million square feet of leasable space. Our primary business objective is to generate dependable monthly dividends from a consistent and predictable level of funds from operations ("FFO") per share. Additionally, we generally will seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. LIQUIDITY AND CAPITAL RESOURCES =============================== Cash Reserves Realty Income is organized for the purpose of operating as an equity REIT which acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of its net cash flow generated from leases on its retail properties. We intend to retain an appropriate amount of cash as a working capital reserve. At December 31, 1999, Realty Income had cash and cash equivalents totaling $773,000. We believe that our cash and cash equivalents on hand, cash provided from operating activities and borrowing capacity are sufficient to meet our liquidity needs for the foreseeable future. We intend, however, to use additional sources of capital to fund property acquisitions and to repay our acquisition credit facility. Capital Funding We have a $200 million, three-year revolving, unsecured acquisition credit facility that expires in December 2002 and a $25 million, three-year revolving, unsecured credit facility that expires in 2003. The credit facilities currently bear interest at 1.225% over the London Interbank Offered Rate, or LIBOR, and offers us other interest rate options. As of March 1, 2000, borrowing capacity of $70.7 million was available to us under the $200 million credit facility and $25 million was available under the $25 million credit facility. At that time, the outstanding Page 31 balances on the $200 million credit facility was $129.3 million with an effective interest rate of 7.33%. These credit facilities have been and are expected to be used to acquire additional retail properties leased to national and regional retail chains under long-term lease agreements. The $25 million credit facility can also be used for making capital contributions to subsidiaries for the purpose of acquiring properties. Any additional borrowings will increase our exposure to interest rate risk. We expect to meet our long-term capital needs for the acquisition of properties through the issuance of public or private debt or equity. In June 1999, we filed a universal shelf registration statement with the Securities and Exchange Commission covering up to $400 million in value of common stock, preferred stock and debt securities. Through March 1, 2000, $34.5 million in value of common stock, preferred stock and debt securities has been issued under the universal shelf registration statement. Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and investment grade long-term unsecured debt. We believe that the Company is best served by having the majority of our future issuances of securities be in the form of common stock. We will issue common stock when we believe that the share price of our common stock is at a level that allows for the proceeds of any offering to be invested on an accretive basis into additional properties or to pay down any short- term borrowings on our credit facilities. We do not presently view our price per share as attractive for additional issuances of common stock. We do not anticipate issuing additional shares of common stock until we determine the common stock price has risen to acceptable levels. In addition, we seek to maintain a conservative debt level on our balance sheet, which should result in conservative interest and fixed charge coverage ratios. We do not anticipate issuing significant amounts of additional debt until additional equity can also be issued to offset the increase in debt. If the share price levels do not increase and we do not issue additional equity or debt, we will reduce our level of property acquisitions. In these circumstances, we intend to achieve our growth objectives by investing cash flow in excess of distributions in additional retail properties and purchases of our outstanding securities, and by strategically selling properties that have appreciated in value and investing the proceeds in new properties that will generate rental revenue in excess of those generated by the properties that were sold. In January 1999, we issued $20 million of 8.0% unsecured senior notes due 2009. The 1999 notes were sold at 98.757% of par to yield 8.1%. The proceeds from the offering were used to pay down bank borrowings. Currently, there is no formal trading market for the 1999 notes and we have not listed and do not intend to list the 1999 notes on any securities exchange. In May 1999, we issued 2,760,000 shares of 9 3/8% Class B cumulative redeemable preferred stock (the "Class B Preferred") at a price of $25.00 per share. The Class B Preferred trades on the New York Stock Exchange, or NYSE, under the symbol "OprB" and its cusip number is 756109-302. Page 32 Dividends on the Class B Preferred are payable quarterly. The net proceeds of $66.5 million were used to repay bank borrowings. In July 1999, we issued 1,380,000 shares of 9 1/2% Class C cumulative redeemable preferred stock (the "Class C Preferred") at a price of $25.00 per share. The Class C Preferred trades on the NYSE under the symbol "OprC" and its cusip number is 756109-500. Dividends on the Class C Preferred are payable monthly. The net proceeds of $33.2 million were used to repay bank borrowings. We received investment grade corporate credit ratings on our senior unsecured debt from Duff & Phelps Rating Company, Moody's Investor Service, Inc., and Standard & Poor's Rating Group in December 1996. Currently, Duff & Phelps has assigned a rating of BBB, Moody's has assigned a rating of Baa3, and Standard & Poor's has assigned a rating of BBB- to our senior debt. These ratings could change based upon, among other things, our results of operations and financial condition. We have also received credit ratings from the same rating agencies on our preferred stock. Duff & Phelps Rating Company has assigned a rating of BBB-, Moody's Investor Service, Inc. has assigned a rating of Ba1, and Standard & Poor's Rating Group has assigned a rating of BB+. These ratings could change based upon, among other things, our results of operations and financial condition. Property Acquisitions During 1999, we acquired 110 additional properties (the "New Properties"), and selectively sold three properties, increasing the number of properties in the portfolio by 10.9% to 1,076 properties at December 31, 1999 from 970 properties at December 31, 1998. During 1999, we diversified our portfolio with the addition of two new industry segments, Entertainment and Theaters, and eight new retail chains. As of December 31, 1999, our portfolio of 1,076 properties consists of 72 separate retail chains doing business in 23 separate retail segments. During 1999, we invested $181.4 million in New Properties and properties under development (including accrued development costs of $9.1 million and excluding estimated unfunded development costs on properties under construction at December 31, 1999 of $15.4 million). During 1999, we also paid $242,000 for lease commissions and $148,000 for building improvements on existing properties in our portfolio. The weighted average annual unleveraged return on the $181.4 million invested in 1999 is estimated to be 10.5%, computed as estimated contractual net operating income (which in the case of a net leased property is equal to the base rent or, in the case of properties under construction, the estimated base rent under the lease) for the first year of each lease, divided by the estimated total costs. Since it is possible that a tenant could default on the payment of contractual rent, we cannot assure you that the actual return on the funds invested will not differ from the foregoing percentage. Page 33 The New Properties are leased to 21 separate tenants operating in 16 different retail industries, are located in 26 states, will contain approximately 948,000 leasable square feet and are 100% leased under net leases, with an average initial lease term of 17.4 years. Of the New Properties, 102 were occupied as of March 1, 2000 and the remaining properties were pre-leased and under construction pursuant to contracts under which the tenants or developers have agreed to develop the properties (with development costs funded by the Company) and with the tenant to begin paying rent when the premises open for business. During 1998, we invested $193.4 million in 149 properties and properties under development (including accrued development costs of $1.3 million and excluding estimated unfunded development costs on properties under construction at December 31, 1998 of $19.7 million). The weighted average annual unleveraged return on the $193.4 million invested in 1998 is estimated to be 10.4%, computed in the same manner as 1999's estimated weighted average annual unleveraged return. These 149 properties are located in 38 states, contain approximately 1.6 million leasable square feet and are 100% leased with an average initial lease term of 14.9 years. Distributions We pay monthly distributions to our common stockholders. We paid cash distributions to our common stockholders of $55.9 million in 1999, $52.3 million in 1998 and $44.4 million in 1997. During 1999, we paid cash distributions of $3.9 million to our Class B Preferred stockholders and $1.4 million to our Class C Preferred stockholders. We pay distributions quarterly on our Class B Preferred and monthly on our Class C Preferred. We paid distributions to our common stockholders of $2.085 in 1999, $1.965 in 1998 and $1.893 in 1997. In 1999, we paid dividends per share of $1.40 to our Class B Preferred stockholders and $0.99 to our Class C Preferred stockholders. In December 1999, January and February 2000, we declared distributions of $0.18 per common share, which were paid on January 18, 2000, February 15, 2000 and March 15, 2000, respectively. The monthly distribution of $0.18 per share represents a current annualized distribution of $2.16 per share, and an annualized distribution yield of approximately 10.4% based on the last reported sale price of the Company's Common Stock on the NYSE of $20.75 on March 1, 2000. Although the Company expects to continue its policy of paying monthly distributions, we cannot assure you that we will maintain the current level of distributions per share, that we will continue our pattern of increasing distributions per share, or as to the actual distribution yield for any future period. Stock and Senior Debt Repurchase Program In January 2000, our Board of Directors authorized the purchase of up to $10 million of our common and preferred shares and senior debt securities during the next 12 months. We may make periodic purchases on the open Page 34 market at prevailing prices or in privately negotiated transactions. The purchases will be funded using available working capital which consists primarily of cash flow from operations. Formation of Subsidiary In January 2000, we formed Crest Net Lease, Inc., of which we own 95% of the common stock, all of which is non-voting, and certain members of management own 5% of the common stock, all of which is voting stock. Crest Net Lease was created to actively buy and sell certain select properties, primarily to buyers using tax-deferred exchanges, under Section 1031 of the Internal Revenue Service Code. FUNDS FROM OPERATIONS ("FFO") ============================= FFO for 1999 increased by $3.12 million or 5% to $65.92 million versus $62.80 million during 1998. FFO during 1997 was $52.35 million. We define FFO as net income available to common stockholders, plus depreciation and amortization, plus provision for impairment losses, plus extraordinary items, less gain on sales of properties. In accordance with the recommendations of the National Association of Real Estate Investment Trusts, or NAREIT, we do not add back amortization of deferred financing costs to net income to calculate FFO. We include amortization of financing costs in interest expense in the consolidated statements of income. The following is a reconciliation of net income to FFO and information regarding distributions paid and the diluted weighted average number of shares outstanding for 1999, 1998 and 1997 (dollars in thousands): 1999 1998 1997 -------- -------- -------- Net income available to common stockholders $ 41,012 $ 41,304 $ 34,770 Plus: Depreciation and amortization 25,952 21,935 18,596 Provision for impairment losses -- -- 165 Extraordinary item 355 -- -- Cumulative effect of change in accounting principle -- 226 -- Less: Depreciation of furniture, fixtures and equipment and amortization of organization costs (101) (140) (96) Gain on sales of properties (1,301) (526) (1,082) -------- -------- -------- Funds From Operations $ 65,917 $ 62,799 $ 52,353 ======== ======== ======== (table continued next page) Page 35 (table continued) 1999 1998 1997 -------- -------- -------- Distributions paid to common stockholders $ 55,925 $ 52,301 $ 44,367 FFO in excess of distributions to common stockholders $ 9,992 $ 10,498 $ 7,986 Diluted weighted average number of shares outstanding 26,826,090 26,638,284 23,572,715
We consider FFO to be an appropriate measure of the performance of an equity REIT. Financial analysts use FFO in evaluating REITs and FFO can be one measure of a REIT's ability to make cash distribution payments. Presentation of this information provides the reader with an additional measure to compare the performance of different REITs, although it should be noted that not all REITs calculate FFO the same way so comparisons with other REITs may not be meaningful. FFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of Realty Income's performance or to cash flows from operating, investing, and financing activities as a measure of our liquidity or ability to make cash distributions or to pay debt service. RESULTS OF OPERATIONS ===================== THE FOLLOWING IS A COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31, 1998. Rental revenue was $104.3 million for 1999 versus $84.9 million for 1998, an increase of $19.4 million, or 18.6%. The increase in rental revenue was primarily due to the acquisition of 110 properties during 1999 and 149 properties during 1998. These properties generated revenue of $26.87 million in 1999 compared to $7.53 million in 1998, an increase of $19.3 million. At January 1, 2000, annualized contractual lease payments on the funds invested in properties acquired in 1999 and 1998 are approximately $37.2 million (excluding estimated rent from eight properties under development and any percentage rents). Of the 1,076 properties in the portfolio as of December 31, 1999, 1,069 are single-tenant properties with the remaining properties being multi-tenant properties. Of the 1,069 single-tenant properties, 1,052, or 98.4%, were net leased with an average remaining lease term (excluding extension options) of approximately 8.7 years. All of our 1,052 leased single-tenant properties were under leases that provide for increases in rents through: - Base rent increases tied to a consumer price index with adjustment ceilings; - Overage rent based on a percentage of the tenants' gross sales; or - Fixed increases. Page 36 Some leases contain more than one of these clauses. Percentage rent, which is included in rental revenue, was $1.7 million during both 1999 and 1998. Same store rents generated on 789 leased properties owned during all of both 1999 and 1998 increased by $618,000 or 0.8%, to $74.34 million from $73.72 million. At December 31, 1999, the Company had 17 properties that were not under lease as compared to five at December 31, 1998 and eight at December 31, 1997. At December 31, 1999, 1,059, or 98.4%, of the 1,076 properties in the portfolio were under lease agreements with third party tenants. In February 2000, we issued letters of intent to lease five vacant locations and letters of intent to sell five other vacant locations. We anticipate these ten locations to be leased or sold during the second or third quarter of 2000. Depreciation and amortization was $26.0 million in 1999 versus $21.9 million in 1998. The increase in 1999 was primarily due to depreciation of the properties acquired in 1998 and 1999. Interest expense in 1999 increased by $10.8 million to $24.5 million, as compared to $13.7 million in 1998. The following is a summary of the five components of interest expense for 1999 and 1998 (dollars in thousands): 1999 1998 Net Change ------- ------- ---------- Interest on outstanding loans and notes $ 24,254 $ 13,666 $ 10,588 Amortization of settlements on treasury lock agreements 756 38 718 Credit facility commitment fees 268 232 36 Amortization of credit facility origination costs and deferred bond financing costs 839 447 392 Interest capitalized (1,644) (660) (984) -------- -------- -------- Interest Expense $ 24,473 $ 13,723 $ 10,750 ======== ======== ======== Credit facility and notes outstanding (dollars in thousands) Years ended, December 31, 1999 1998 Net Change - ---------------------------- -------- -------- ---------- Average outstanding balances $325,564 $184,728 $140,836 Average interest rates 7.45% 7.40%
Interest on outstanding loans and notes was $10.6 million higher in 1999 than in 1998 primarily due to an increase of $140.8 million in the average Page 37 outstanding balances and a higher average interest rate. The higher average interest rate was due to the notes issued in October 1998 and January 1999. General and administrative expenses increased by $288,000 to $7.0 million in 1999 versus $6.7 million in 1998. The increase in general and administrative expenses was primarily due to a one-time charge taken during the fourth quarter that was associated with the retirement of our former President. General and administrative expenses as a percentage of revenue decreased to 6.7% in 1999 as compared to 7.8% in 1998. Property expenses are broken down into costs associated with non-net leased multi-tenant properties, unleased single-tenant properties and general portfolio expenses. Expenses related to the multi-tenant and unleased single-tenant properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections, bad debt expense and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections and title search fees. At December 31, 1999, 17 properties were available for lease as compared to five at December 31, 1998. Property expenses were $1.8 million in 1999 and 1998. Increases in vacant property costs in 1999 were offset by savings on our general portfolio insurance. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We did not take a provision for impairment in 1999 or 1998. During 1999, we sold three properties (a home furnishings store, a home improvement store and a restaurant) for $9.4 million and recognized a gain of $1.3 million. During 1998, we sold five properties (two child care centers, two restaurants and one multi-tenant location) for $2.8 million and recognized a gain of $526,000. In December 1999, our $170 million credit facility was cancelled simultaneously with the execution of our $200 million credit facility. Unamortized fees of $355,000 relating to the $170 million credit facility were charged in 1999 as extraordinary loss on early extinguishment of credit facility. In October 1998, we adopted SOP 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. Prior to October 1998, organization costs were amortized over 60 months. In October 1998, the unamortized balance of organization costs of $226,000 was expensed. This is reported on the statements of income as a cumulative effect of a change in accounting principle. In 1999, our net income increased 11.9%, to $46.2 million versus $41.3 million in 1998. Rental revenue represented $19.4 million of the increase and gain on sale of properties represented $775,000. The increase in rental revenue was due to an increase in rental revenue from properties Page 38 acquired in 1999 and 1998 of $19.3 million. These increases were substantially offset by an increase of $14.8 million in the following expenses: - Depreciation and amortization of $4.0 million; and - Interest expense of $10.8 million. In 1999, we paid preferred stock dividends of $5.2 million. No preferred stock was outstanding prior to 1999. THE FOLLOWING IS A COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31, 1997. Rental revenue was $84.9 million for 1998 versus $67.6 million for 1997, an increase of $17.3 million, or 25.6%. The increase in rental revenue was primarily due to the acquisition of 149 properties during 1998 and 96 properties during 1997. These properties generated revenue of $22.3 million in 1998 compared to $5.3 million in 1997, an increase of $17.0 million. At January 1, 1999, annualized contractual lease payments on the funds invested in properties acquired in 1998 and 1997 were approximately $33.1 million (excluding estimated rent from 19 properties under development and any percentage rents). Of the 970 properties in the portfolio as of December 31, 1998, 963 were single-tenant properties with the remaining properties being multi-tenant properties. Of the 963 single-tenant properties, 958, or 99.5%, were net leased with an average remaining lease term (excluding extension options) of approximately 8.6 years at December 31, 1998. Percentage rent, which is included in rental revenue, was $1.7 million during 1998 and $1.8 million in 1997. Same store rents generated on 707 leased properties owned during all of both 1998 and 1997 increased by $672,000 or 1.1%, to $60.48 million from $59.81 million. At December 31, 1998, the Company had five properties that were not under lease as compared to eight at December 31, 1997. At December 31, 1998, 965, or 99.5%, of the 970 properties in the portfolio were under lease agreements with third party tenants. Depreciation and amortization was $21.9 million in 1998 versus $18.6 million in 1997. The increase in 1998 was due to depreciation of the properties acquired in 1998 and 1997. Interest expense in 1998 increased by $5.5 million to $13.7 million, as compared to $8.2 million in 1997. The following is a summary of the five components of interest expense for 1998 and 1997 (dollars in thousands): Page 39 1998 1997 Net Change ------- ------- ---------- Interest on outstanding loans and notes $ 13,666 $ 8,043 $ 5,623 Amortization of settlements on treasury lock agreements 38 (75) 113 Credit facility commitment fees 232 145 87 Amortization of credit facility origination costs and deferred bond financing costs 447 281 166 Interest capitalized (660) (168) (492) -------- -------- -------- Interest Expense $ 13,723 $ 8,226 $ 5,497 ======== ======== ======== Credit facility and notes outstanding (dollars in thousands) Years ended, December 31, 1998 1997 Net Change - ---------------------------- -------- -------- ---------- Average outstanding balances $184,728 $108,431 $ 76,297 Average interest rates 7.40% 7.42%
Interest on outstanding loans and notes was $5.6 million higher in 1998 than in 1997 due to an increase of $76.3 million in the average outstanding balances. General and administrative expenses increased by $1.2 million to $6.68 million in 1998 versus $5.44 million in 1997. The increase in general and administrative expenses was primarily due to an increase in property acquisition expenses and employee costs. General and administrative expenses as a percentage of revenue decreased to 7.8% in 1998 as compared to 8.0% in 1997. During 1997, we increased our number of employees to 47 from 35. The majority of the new employees were hired in the third quarter of 1997 and work primarily on new property acquisitions. Property expenses were $1.8 million in 1998 and 1997. At December 31, 1998, five properties were available for lease as compared to eight at December 31, 1997. In 1997, we took a $165,000 charge for impairment losses to reduce the net carrying value on three properties because they became held for sale. All of these properties have been sold. We took no provision for impairment in 1998. During 1998, we sold five properties for $2.8 million and recognized a gain of $526,000. During 1997, we sold 10 properties (six restaurants, two child care centers, one automotive parts store and a multi-tenant location) for a total of $4.4 million and recognized a gain of $1.1 million. Page 40 In 1998, Realty Income had net income of $41.3 million versus $34.8 million in 1997. The $6.5 million increase in net income is primarily due to the increase in rental revenue from properties acquired in 1998 and 1997 of $17.0 million, which was partially offset by an increase of $10.1 million in the following expenses: - Depreciation and amortization of $3.34 million; - Interest expense of $5.50 million; and - General and administrative expense of $1.24 million. THE YEAR 2000 ISSUE =================== In connection with the Year 2000 issue, we completed the remediation of our internal computer systems in October 1999. The total cost of remediation associated with our corporate level computer systems was less than $30,000. Through March 1, 2000, we have not experienced any Year 2000 erroneous results or problems. We are not aware of any Year 2000 problems that have affected the operations of our tenants or vendors. Through March 1, 2000, any Year 2000 issues that may have impacted our tenants or vendors has not impacted us. IMPACT OF INFLATION =================== Tenant leases generally provide for limited increases in rent as a result of increases in the tenant's sales volumes, increases in the consumer price index, and/or fixed increases. We expect that inflation will cause these lease provisions to result in increases in rent over time. During times when inflation is greater than increases in rent as provided for in the leases, however, rent increases may not keep up with the rate of inflation. Approximately 97.8% or 1,052 of the properties in the portfolio are leased to tenants under net leases in which the tenant is responsible for property costs and expenses. These features in the leases reduce our exposure to rising property expenses due to inflation. Inflation and increased costs may have an adverse impact on our tenants if increases in our tenant's operating expenses exceed increases in revenue. Page 41 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ==================================================================== We are exposed to interest rate changes primarily as a result of our credit facilities and long-term debt used to maintain liquidity and expand our real estate investment portfolio and operations. Our interest rate risk management objective is 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 and may selectively enter into derivative financial instruments such as interest rate lock agreements, interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We are not a party to any derivative financial instruments at December 31, 1999. We do not enter into any transactions for speculative or trading purposes. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in table in millions). Expected Maturity Data ---------------------- There- Fair 2002 after Total Value (2) ---- ------ ------ --------- Fixed rate debt -- $230.0(1) $230.0 $199.4 Average interest rate 7.99% 7.99% Variable rate debt $119.2 -- $119.2 $119.2 Average interest rate 7.35% -- 7.35% (/TABLE> (1) $110 million matures in 2007, $100 million matures in 2008 and $20 million matures in 2009. (2) We base the fair value of the fixed rate debt at December 31, 1999 on the closing market price or indicative price per each note. The fair value of the variable rate debt approximates its carrying value because its terms are similar to those available in the market place. The table incorporates only those exposures that exist as of December 31, 1999, it does not consider those exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates. Page 42 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------
Table of Contents Page - ----------------- ---- A. Independent Auditors' Report............................. 44 B. Consolidated Balance Sheets, December 31, 1999 and 1998............................. 45 C. Consolidated Statements of Income, Years ended December 31, 1999, 1998 and 1997........... 47 D. Consolidated Statements of Stockholders' Equity, Years ended December 31, 1999, 1998 and 1997........... 49 E. Consolidated Statements of Cash Flows, Years ended December 31, 1999, 1998 and 1997........... 51 F. Notes to Consolidated Financial Statements............... 53 G. Consolidated Quarterly Financial Data, (unaudited) for 1999 and 1998.......................... 68 H. Schedule III Real Estate and Accumulated Depreciation is attached to this report. Reference is made to page F-1 of this report for Schedule III.... F-1
Schedules not Filed: All schedules, other than that indicated in the Table of Contents, have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. Page 43 Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders Realty Income Corporation: We have audited the consolidated financial statements of Realty Income Corporation and subsidiaries as listed in the accompanying table of contents. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule III listed in the accompanying table of contents. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Realty Income Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG LLP San Diego, California January 25, 2000, except as to note 18A, which is as of February 1, 2000 Page 44 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets =========================== December 31, 1999 and 1998 (dollars in thousands, except per share data) 1999 1998 ========= ========= ASSETS Real estate, at cost: Land $ 350,517 $ 283,043 Buildings and improvements 711,962 606,792 --------- --------- 1,062,479 889,835 Less accumulated depreciation and amortization (195,386) (171,555) --------- --------- Net real estate 867,093 718,280 Cash and cash equivalents 773 2,533 Accounts receivable 3,407 2,973 Goodwill, net 19,053 19,977 Other assets 15,078 15,471 --------- --------- Total assets $ 905,404 $ 759,234 ========= ========= (table continued next page) Page 45 (table continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets =========================== December 31, 1999 and 1998 (dollars in thousands, except per share data) 1999 1998 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Distributions payable $ 4,828 $ 4,559 Accounts payable and accrued expenses 12,792 4,036 Other liabilities 3,753 5,630 Lines of credit payable 119,200 84,800 Notes payable 230,000 210,000 --------- --------- Total liabilities 370,573 309,025 --------- --------- Commitments and contingencies Stockholders' equity: Preferred stock and paid in capital, par value $1.00 per share, 20,000,000 shares authorized, 4,140,000 shares issued and outstanding 99,679 -- Common stock and paid in capital, par value $1.00 per share, 100,000,000 shares authorized, 26,822,164 and 26,817,103 shares issued and outstanding in 1999 and 1998, respectively 636,611 636,486 Distributions in excess of net income (201,459) (186,277) --------- --------- Total stockholders' equity 534,831 450,209 --------- --------- Total liabilities and stockholders' equity $ 905,404 $ 759,234 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. Page 46 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Income ================================= Years Ended December 31, 1999, 1998 and 1997 (dollars in thousands, except per share data) 1999 1998 1997 ========== ========== ========== REVENUE Rental $ 104,270 $ 84,876 $ 67,613 Interest and other 240 256 284 ---------- ---------- ---------- 104,510 85,132 67,897 ---------- ---------- ---------- EXPENSES Depreciation and amortization 25,952 21,935 18,596 Interest 24,473 13,723 8,226 General and administrative 6,968 6,680 5,437 Property 1,822 1,790 1,785 Provision for impairment losses -- -- 165 ---------- ---------- ---------- 59,215 44,128 34,209 ---------- ---------- ---------- Income from operations 45,295 41,004 33,688 Gain on sales of properties 1,301 526 1,082 ---------- ---------- ---------- Income before extraordinary item and cumulative effect of change in accounting principle 46,596 41,530 34,770 Extraordinary loss on early extinguishment of credit facility (355) -- -- Cumulative effect of change in accounting principle -- (226) -- ---------- ---------- ---------- Net income 46,241 41,304 34,770 Preferred stock dividends (5,229) -- -- ---------- ---------- ---------- Net income available to common stockholders $ 41,012 $ 41,304 $ 34,770 ========== ========== ========== (table continued next page) Page 47 (table continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Income ================================= Years Ended December 31, 1999, 1998 and 1997 (dollars in thousands, except per share data) 1999 1998 1997 ========== ========== ========== Basic and diluted amounts per common share: Income before extraordinary item and cumulative effect of change in accounting principle $ 1.54 $ 1.56 $ 1.48 Extraordinary item (0.01) -- -- Cumulative effect of change in accounting principle -- (0.01) -- ---------- ---------- ---------- Net income per common share $ 1.53 $ 1.55 $ 1.48 ========== ========== ========== (/TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. Page 48 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity ======================================================== Years Ended December 31, 1999, 1998 and 1997 (dollars in thousands)
Preferred Common Distri- Shares of stock stock butions ---------------------- and and in excess Preferred Common paid in paid in of net Stock Stock capital capital income Totals ========== ========== ======== ======== ========= ======== Balance, December 31, 1996 -- 22,979,537 $ -- $538,984 $(164,743) $374,241 Net income -- -- -- -- 34,770 34,770 Distributions paid and payable -- -- -- -- (44,860) (44,860) Shares issued in stock offering, net of offering costs of $4,193 -- 2,700,000 -- 68,707 -- 68,707 Shares issued -- 22,989 -- 554 -- 554 Shares forfeited -- (4,062) -- (97) -- (97) ---------- ---------- -------- -------- --------- -------- Balance, December 31, 1997 -- 25,698,464 -- 608,148 (174,833) 433,315 Net income -- -- -- -- 41,304 41,304 Distributions paid and payable -- -- -- -- (52,748) (52,748) Shares issued in stock offering, net of offering costs of $122 -- 1,123,267 -- 28,379 -- 28,379 Shares issued -- 15,933 -- 400 -- 400 Shares forfeited -- (20,561) -- (441) -- (441) ---------- ---------- -------- -------- --------- -------- Balance, December 31, 1998 -- 26,817,103 -- 636,486 (186,277) 450,209 (table continued) Page 49 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity ======================================================== Years Ended December 31, 1999, 1998 and 1997 (dollars in thousands) Preferred Common Distri- Shares of stock stock butions ---------------------- and and in excess Preferred Common paid in paid in of net Stock Stock capital capital income Totals ========== ========== ======== ======== ========= ======== Net income -- -- -- -- 46,241 46,241 Distributions paid and payable -- -- -- -- (61,423) (61,423) Shares issued in stock offering, net of offering costs of $3,821 4,140,000 -- 99,679 -- -- 99,679 Shares issued -- 5,600 -- 139 -- 139 Shares forfeited -- (539) -- (14) -- (14) ---------- ---------- -------- -------- --------- -------- Balance, December 31, 1999 4,140,000 26,822,164 $ 99,679 $636,611 $(201,459) $534,831 ========== ========== ======== ======== ========= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. Page 50 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows ===================================== Years Ended December 31, 1999, 1998 and 1997 (dollars in thousands) 1999 1998 1997 ======== ======== ======== CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 46,241 $ 41,304 $ 34,770 Adjustments to net income: Depreciation and amortization 25,952 21,935 18,596 Provision for impairment losses -- -- 165 Gain on sales of properties (1,301) (526) (1,082) Extraordinary item 355 -- -- Cumulative effect of change in accounting principle -- 226 -- Changes in assets and liabilities: Accounts receivable and other assets 25 144 (844) Accounts payable, accrued expenses and other liabilities 882 1,562 1,087 -------- -------- -------- Net cash provided by operating activities 72,154 64,645 52,692 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of properties 9,431 2,770 4,432 Acquisition of and additions to properties (174,056) (192,588) (140,389) Payment of other liabilities (1,713) -- -- -------- -------- -------- Net cash used in investing activities (166,338) (189,818) (135,957) -------- -------- -------- (table continued next page) Page 51 (table continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows ===================================== Years Ended December 31, 1999, 1998 and 1997 (dollars in thousands) 1999 1998 1997 ======== ======== ======== CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from lines of credit 221,200 224,900 117,000 Payments of lines of credit (186,800) (162,700) (164,400) Distributions to common stockholders (55,925) (52,301) (44,367) Distributions to preferred stockholders (5,229) -- -- Proceeds from notes issued, net of costs in 1999, 1998 and 1997 of $501, $12,764 and $848, respectively 19,499 87,236 109,152 Proceeds from preferred stock offerings, net of offering costs 99,679 -- -- Proceeds from common stock offerings, net of offering costs -- 28,379 68,707 Proceeds from other stock issuances -- 69 246 Payments to the defined benefit pension plan -- -- (2,223) Increase in other assets -- -- (286) -------- -------- -------- Net cash provided by financing activities 92,424 125,583 83,829 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (1,760) 410 564 Cash and cash equivalents, beginning of year 2,533 2,123 1,559 -------- -------- -------- Cash and cash equivalents, end of year $ 773 $ 2,533 $ 2,123 ======== ======== ========
For supplemental disclosures, see note 12. The accompanying notes to consolidated financial statements are an integral part of these statements. Page 52 REALTY INCOME CORPORATION AND SUBSIDIARIES Notes To Consolidated Financial Statements ========================================== December 31, 1999, 1998 and 1997 1. Organization and Operation Realty Income Corporation ("Realty Income", the "Company", "we" or "our") is organized as a Maryland corporation. We invest in commercial retail real estate and have elected to be taxed as a real estate investment trust ("REIT"). As of December 31, 1999, we owned 1,076 properties in 45 states containing over 8.6 million leasable square feet. 2. Summary of Significant Accounting Policies and Procedures Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Realty Income and entities we control (subsidiaries) after elimination of all material intercompany balances and transactions. Cash Equivalents - We consider all short-term, highly liquid investments that are readily convertible to cash and have an original maturity of three months or less at the time of purchase to be cash equivalents. Depreciation and Amortization - Depreciation of buildings and improvements, and amortization of goodwill are computed using the straight-line method over an estimated useful life of 25 years. Amortization of goodwill for each of the years ended December 31, 1999, 1998 and 1997 was $924,000. Leases - All leases are accounted for as operating leases. Under this method, lease payments are recognized as revenue over the term of the lease. Federal Income Taxes - We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended ("IRS Code"). We believe Realty Income has qualified and continues to qualify as a REIT and therefore will be permitted to deduct distributions paid to its stockholders, eliminating the federal taxation of income represented by those distributions at the Company's level. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Distributions Paid and Payable - Realty Income pays distributions monthly to our common stockholders. The following is a summary of monthly cash distributions paid per common share for the years ended December 31, 1999, 1998 and 1997. Page 53 2. Summary of Significant Accounting Policies (continued) Month 1999 1998 1997 - ----- ------- ------- ------ January $0.1700 $0.1600 $0.1575 February 0.1700 0.1600 0.1575 March 0.1700 0.1600 0.1575 April 0.1725 0.1625 0.1575 May 0.1725 0.1625 0.1575 June 0.1725 0.1625 0.1575 July 0.1750 0.1650 0.1575 August 0.1750 0.1650 0.1575 September 0.1750 0.1650 0.1575 October 0.1775 0.1675 0.1575 November 0.1775 0.1675 0.1575 December 0.1775 0.1675 0.1600 ------- ------- ------- Totals $2.0850 $1.9650 $1.8925 ======= ======= =======
The following presents the federal income tax characterization of distributions paid or deemed to be paid to common stockholders for the years ended December 31: 1999 1998 1997 ------- ------- ------- Ordinary income $1.8468 $1.8895 $1.7937 Return of capital 0.1986 0.0755 0.0988 Capital gain 0.0396 -- -- ------- ------- ------- Totals $2.0850 $1.9650 $1.8925 ======= ======= =======
In May 1999, we issued 2,760,000 shares of 9 3/8% Class B cumulative redeemable preferred stock (the "Class B Preferred"). Dividends on the Class B Preferred are paid quarterly in arrears. For the year ended December 31, 1999, dividends of $3.86 million were paid on the Class B Preferred. In July 1999, we issued 1,380,000 shares of 9 1/2% Class C cumulative redeemable preferred stock (the "Class C Preferred"). Dividends on the Class C Preferred are paid monthly in arrears. For the year ended December 31, 1999, dividends of $1.37 million were paid on the Class C Preferred. Page 54 2. Summary of Significant Accounting Policies (continued) The following presents the federal income tax characterization of dividends paid or deemed to be paid to Class B Preferred and Class C Preferred stockholders for the year ended December 31, 1999: Class B Class C Preferred Preferred --------- --------- Ordinary income $ 1.3731 $ 0.9707 Capital gain 0.0266 0.0188 --------- --------- Totals $ 1.3997 $ 0.9895 ========= =========
Provision for Impairment Losses - We review long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Generally, a provision is made for impairment loss if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value. If a property is held for sale, it is carried at the lower of cost or estimated fair value, less costs to sell. For the year ended December 31, 1997, a provision for impairment losses of $165,000 was charged to operations to reduce the net carrying value of three properties held for sale in 1997. All of these properties have been sold. No provision for impairment loss was charged in 1998 or 1999. Net Income Per Common Share - Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing the amount of net income available to common stockholders for the period by the number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation, for the years ended December 31, 1999, 1998 and 1997: Page 55 2. Summary of Significant Accounting Policies (continued) 1999 1998 1997 ---------- ---------- ---------- Weighted average shares used for basic net income per share computation 26,822,285 26,629,936 23,568,831 Incremental shares from the assumed conversion of stock options 3,805 8,348 3,884 ---------- ---------- ---------- Adjusted weighted average shares used for diluted net income per share computation 26,826,090 26,638,284 23,572,715 ========== ========== ==========
In 1999 and 1998, 186,181 and 25,000 stock options, respectively, that were anti-dilutive have been excluded in calculating the incremental shares from the assumed conversion of stock options. No stock options were anti- dilutive in 1997. Stock Option Plan - We account for our stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), permits entities to recognize as expense over the vesting period the fair value of all stock- based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value based method defined in SFAS No. 123 had been applied. We have elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Derivative Financial Instrument - In two instances, we used interest rate treasury lock agreements to hedge the effect of interest rate fluctuations. These instruments each met the requirement for hedge accounting, including a high correlation to a specific transaction. Accordingly, the amount received and paid under the terms of the agreements is recognized in income when interest expense related to the hedge item is recognized. Change in Accounting Principle - In October 1998, we adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98- 5"). SOP 98-5 requires that costs incurred during start-up activities, Page 56 2. Summary of Significant Accounting Policies (continued) including organization costs, be expensed as incurred. Prior to October 1998, organization costs were amortized over 60 months. In October 1998, the unamortized balances of organization costs were written off. Pro forma amounts assuming the adoption of SOP 98-5 was applied as of January 1, 1997: 1998 1997 ------- ------- Net income available to common stockholders (in thousands) $41,569 $34,505 Basic and diluted net income per common share 1.56 1.46
Use of Estimates - The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain of the 1998 and 1997 balances have been reclassified to conform to the 1999 presentation. 3. Credit Facility Available for Acquisitions In December 1999, we entered into a $200 million, three-year, revolving, unsecured acquisition credit facility, which expires in December 2002. The $200 million credit facility is from The Bank of New York, as administrative agent, and several U.S. and non-U.S. banks. As of December 31, 1999 and 1998, the outstanding balances on the credit facilities were $119.2 million and $84.8 million, respectively, with an effective interest rate of approximately 7.35% and 6.27%, respectively. Our $170 million credit facility was cancelled simultaneously with the execution of the $200 million credit facility. Unamortized fees of $355,000 relating to the $170 million credit facility were charged in 1999 as an extraordinary loss on early extinguishment of the credit facility. The $200 million credit facility currently bears interest at 1.225% over the London Interbank Offered Rate ("LIBOR") and offers us other interest rate options. A facility fee of 0.225%, per annum, accrues on the total commitment of the credit facility. The $200 million credit facility is and the $170 million credit facility was subject to various leverage and interest coverage ratio limitations. The Company is and has been in compliance with these limitations. Page 57 3. Credit Facility Available for Acquisitions (continued) In 1999, 1998 and 1997, interest of $1.6 million, $660,000 and $168,000, respectively, was capitalized on properties under development. 4. Notes Payable In January 1999, we issued $20 million of 8.0% senior notes due 2009 (the "1999 Notes"). The 1999 Notes are unsecured and were sold at 98.757% of par to yield 8.1%. The proceeds from 1999 Notes were used to pay down bank borrowings. Interest on the 1999 Notes is payable semiannually. In October 1998, we issued $100 million of 8.25% Monthly Income Senior Notes due 2008 (the "1998 Notes"). The 1998 Notes are unsecured and were sold at par ($25.00). After taking into effect the results of a treasury interest rate lock agreement (see note 5), the effective rate to us on the 1998 Notes is 9.12%. Interest on the 1998 Notes is payable monthly. In May 1997, we issued $110 million of 7.75% senior notes due 2007 (the "1997 Notes"). The 1997 Notes are unsecured and were sold at 99.929% of par to yield 7.76%. After taking into effect results of a treasury interest rate lock agreement (see note 5), the effective interest rate to us on the 1997 Notes is 7.62%. Interest on the 1997 Notes is payable semiannually. Interest incurred on the 1999 Notes, 1998 Notes and 1997 Notes collectively for the years ended December 31, 1999, 1998 and 1997 were $18.3 million, $10.0 million and $5.6 million, respectively. 5. Derivative Financial Instruments In May 1998, we entered into a treasury interest rate lock agreement to protect against the possibility of rising interest rates applicable to the 1998 Notes (see note 4). Under the interest rate lock agreement, we were to receive or make a payment based on the differential between a specified interest rate, (5.726%), and the actual 10-year treasury interest rate on a notional principal amount of $100 million, at the end of six months. Based on the 10-year treasury interest rate at October 23, 1998 (the interest rate pricing date), we made a payment of $8.7 million in settlement of the agreement in October 1998. The payment on the agreement is being amortized over 10 years (the life of the 1998 Notes) as a yield adjustment to interest expense. In December 1996, we entered into a treasury interest rate lock agreement to hedge against rising interest rates applicable to the 1997 Notes (see note 4). Under the terms of the interest rate lock agreement, we were to receive or make a payment based on the differential between a specified interest rate (6.537%) and the actual 10-year treasury interest rate on a notional principal amount of $90 million, at the end of six months. Based on the 10-year treasury interest rate at May 1, 1997 (the interest rate Page 58 5. Derivative Financial Instruments (continued) pricing date), we received $1.1 million in settlement of the agreement in June 1997. The payment received on the agreement is being amortized over 10 years (the life of the 1997 Notes) as a yield adjustment to interest expense. Our only involvement with derivative financial instruments was the two aforementioned treasury interest rate lock agreements and we have not used derivative financial instruments for trading purposes. 6. Common Stock Offerings A. In March 1998, we issued 372,093 shares of common stock to a unit investment trust at a net price to us of $25.531 per share, based on a 5% discount to the then market price of $26.875 per share. The net proceeds of $9.5 million were used to repay bank borrowings of $7.9 million and to acquire additional properties. B. In February 1998, we issued 751,174 shares of common stock to a unit investment trust at a net price to us of $25.295 per share, based on a 5% discount to the then market price of $26.625 per share. The net proceeds of $18.9 million were to be used to repay bank borrowings. C. In October 1997, we issued 2.7 million shares of common stock at a price of $27.00 per share. The net proceeds of $68.7 million were used to repay bank borrowings of $62.6 million and to acquire properties. 7. Preferred Stock Offerings A. In May 1999, we issued 2,760,000 shares of Class B Preferred at a price of $25.00 per share. The net proceeds of $66.5 million were used to repay bank borrowings. B. In July 1999, we issued 1,380,000 shares of Class C Preferred stock at a price of $25.00 per share. The net proceeds of $33.2 million were used to repay bank borrowings. 8. Operating Leases A. General - At December 31, 1999, we owned 1,076 properties in 45 states. Of these 1,076 properties, 1,069 are single-tenant and the remainder are multi-tenant. At December 31, 1999, 17 properties were vacant and available for lease or sale. Substantially all leases are net leases whereby the tenant pays property taxes and assessments, maintains the interior and exterior of the building, and carries insurance coverage for public liability, property damage, fire, and extended coverage. Percentage rent for 1999, 1998 and 1997 was $1.7 million, $1.7 million and $1.8 million, respectively. Page 59 8. Operating Leases (continued) At December 31, 1999, minimum annual rents to be received on the operating leases are as follows (dollars in thousands): Minimum annual rents for the years ending December 31, ====================================================== 2000 $ 111,546 2001 109,133 2002 104,429 2003 97,865 2004 90,959 Thereafter 700,245 ---------- TOTAL $1,214,177 ==========
B. Major Tenants - The following schedule presents rental revenue, including percentage rents, from tenants representing more than 10% of our total revenue for the years ended December 31, 1999, 1998 or 1997 (dollars in thousands): Tenants 1999 1998 1997 ========================= ======= ======= ======= Children's World Learning Centers, Inc. $14,371 $14,111 $13,809 La Petite Academy, Inc. 10,730 9,445 9,311 Golden Corral Corporation N/A(1) N/A(1) 6,899
[FN] (1) Rental revenue from Golden Corral Corporation represents less than 10% of our total revenue for 1999 and 1998. 9. Property Acquisitions During 1999 we invested $181.4 million in 110 new retail properties and properties under development with an average initial contractual lease rate of 10.5%. During 1998 we invested $193.4 million in 149 new retail properties and properties under development with an average initial contractual lease rate of 10.4%. Page 60 10. Gain on Sales of Properties In 1999, we sold three properties (a home furnishings store, home improvement store and restaurant) for $9.4 million and recognized a gain of $1.3 million. In 1998, we sold five properties (two child care centers, two restaurants and a multi-tenant location) for a total of $2.8 million and recognized a gain of $526,000. In 1997, we sold ten properties (six restaurants, two child care centers, one automotive parts store and a multi-tenant location) for a total of $4.4 million and recognized a gain of $1.1 million. In November 1999, we approved a plan to sell three of our multi-tenant locations. The carrying value of the three properties at December 31, 1999 was approximately $29.0 million and contributed $2.1 million, $1.7 million and $1.4 million to income from operations in 1999, 1998 and 1997, respectively. We anticipate the properties will be sold during 2000. These properties are included in the other non-reportable segment in note 16. 11. Fair Value of Financial Instruments We believe that the carrying values reflected in the consolidated balance sheets at December 31, 1999 and 1998 reasonably approximate the fair values for cash and cash equivalents, accounts receivable, and all liabilities except the lines of credit payable and notes payable. In making these assessments, we used estimates. The fair value of the lines of credit payable approximates its carrying value because its terms are similar to those available in the market place. The fair value of the notes payable at December 31, 1999 and 1998 is estimated to be $199.4 million and $203.9 million, respectively, based upon the closing market price per note or indicative price per each note at December 31, 1999 and 1998, respectively. 12. Supplemental Disclosures of Cash Flow Information Interest paid during 1999, 1998 and 1997 was $22.4 million, $12.5 million and $6.9 million, respectively. The following non-cash investing and financing activities are included in the accompanying consolidated financial statements: A. In 1999 and 1998, the acquisition of properties resulted in the following non-cash changes (dollars in thousands): 1999 1998 ------ ------ Increases in: Building $9,057 $1,347 Other liabilities 9,057 1,347
Page 61 12. Supplemental Disclosure of Cash Flow Information (continued) B. In 1998, the former shareholders of the R.I.C. Advisor, Inc., or the Advisor, returned 20,279 shares to the Company. This fulfilled the obligation of the Advisor's shareholders to the Company under an indemnification agreement entered into by these parties. This transaction resulted in the following non-cash changes in 1998 (dollars in thousands): Decrease in: Due from affiliates $ 350 Common stock 20 Paid in capital in excess of par value 413 Increase in: Interest revenue $ 83
13. Employee Benefit Plan A. We have a 401(k) plan covering substantially all of our employees. Under our 401(k) plan, employees may elect to make contributions to the plan up to a maximum of 15% of their compensation, subject to limits established by the IRS Code. We match 50% of the participants' contributions up to a maximum of six percent of a participant's annual compensation. Our aggregate matching contributions each year have been immaterial to our results of operations. B. As a result of the merger with the Advisor in 1995, the Company assumed a defined benefit pension plan (the "Plan") covering substantially all of its employees. The Plan was terminated on January 2, 1996 and final disbursement of the Plan's assets occurred on February 24, 1997. 14. Stock Incentive Plan In September 1993, our board of directors approved a stock incentive plan (the "Stock Plan") designed to attract and retain directors, officers and employees of the Company by enabling those individuals to participate in the ownership of the Company. The Stock Plan authorizes the issuance in each calendar year of up to 3% of the total shares outstanding at the end of such year. At no time may the total number of shares granted under the Stock Plan exceed 1,950,308. The Stock Plan provides for the award (subject to ownership limitations) of a broad variety of stock-based compensation alternatives such as nonqualified stock options, incentive stock options, restricted stock and performance awards. Stock options are granted with an exercise price equal to the underlying stock's fair market value at the date of grant. Stock options expire 10 years from the date they are granted and vest over service periods of one, three, four and five years. Prior to December 31, 1999, 661,270 stock options and 29,517 restricted shares of common stock had been granted and not cancelled under the Stock Plan. Page 62 14. Stock Incentive Plan (continued) The following table summarizes our stock option activity for the years ended December 31, 1999, 1998 and 1997: 1999 1998 ----------------------- ----------------------- Weighted Weighted Average Average Number Exercise Number Exercise of shares Price of Shares Price - ----------------------------------------------------------------------- Outstanding, beginning of year 438,604 $24.77 139,500 $23.09 Options granted 220,371 24.67 305,413 25.54 Options exercised -- -- (2,933) 23.62 Options canceled (11,127) 25.16 (3,376) 25.44 --------- ------- --------- ------- Outstanding, end of year 647,848 $24.73 438,604 $24.77 ========= ======= ========= ======= Options exercisable, end of year 380,064 196,397 Weighted average fair value of each option granted during the year $2.23 $2.58 (table continued on next page) Page 63 14. Stock Incentive Plan (continued) (table continued) 1997 ----------------------- Weighted Average Options Number Exercise Outstanding of shares Price - ----------------------------------------- Outstanding, beginning of year 73,000 $21.64 Options granted 116,700 24.29 Options exercised (10,489) 23.47 Options canceled (39,711) 23.85 ------ ------ Outstanding, end of year 139,500 $23.09 ======= ====== Options exercisable, end of year 56,300 Weighted average fair value of each option granted during the year $2.29
At December 31, 1999, the options exercisable under the Stock Plan had exercise prices ranging from $20.00 to $26.06 with a weighted average price of $24.57, and expiration dates ranging from August 2004 to December 2008 with a weighted average remaining term of 7.6 years. The fair value of each stock option grant was estimated at the date of grant using the binomial option-pricing model with the following assumptions: 1999 1998 1997 ------------- -------- -------- Expected dividend yield 7.66% 8.86% 9.71% Risk-free interest rate 5.04% 5.75% 6.70% Volatility 15.20% 17.90% 17.40% Expected life of options 10 years 10 years 10 years
Page 64 14. Stock Incentive Plan (continued) We apply APB Opinion No. 25 in accounting for our Stock Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had we determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, our net income and diluted net income per common share would have been as follows: 1999 1998 1997 -------- -------- -------- Net income available to common stockholders (dollars in thousands) As reported $ 41,012 $ 41,304 $ 34,770 Pro forma 40,536 40,914 34,722 Diluted net income per common share As reported $ 1.53 $ 1.55 $ 1.48 Pro forma 1.51 1.54 1.47
15. Stockholder Rights Plan In June 1998, our board of directors adopted a Stockholder Rights Plan (the "Rights Plan") that will expire in July 2008. The Rights Plan assigns one right (a "Right") to purchase one one-hundredth (1/100th) of a share of our Class A Junior Participating Preferred Stock, par value $1.00 per share (the "Preferred Stock"), for each share of common stock owned on or issued after July 1, 1998. Initially, the Rights will not be exercisable and will not trade separately from our common stock. Under certain circumstances, stockholders will be able to exercise their Rights if a person or group initiates an unsolicited takeover of the Company by acquiring 15% of our common stock or by making a tender offer to acquire 15% or more of our common stock. If an unsolicited acquirer gains control of the Company, stockholders other than the acquirer would be able to purchase either our common stock or the acquirer's stock at a 50% discount. The dividend, liquidation, and voting rights, and the non-redemption feature of the Preferred Stock are designed so that the value of the one one-hundredth interest in a share of the new Preferred Stock that can be purchased with each Right will approximate what our board of directors believes to be the long-term value of one share of our common stock. Page 65 16. Segment Information We evaluate performance and make resource allocation decisions on a property by property basis. For financial reporting purposes, we have grouped our operating segments into eight reportable segments. Our segments combine properties into groups based upon the business of our tenants. All of the properties have been acquired separately and are incorporated into one of the applicable segments. Revenue is the only component of segment profit and loss we measure. Since our revenue is primarily from net leases, expenditures for additions to long-lived assets were to acquire additional properties. The accounting policies of the segments are the same as those described in note 2. The following tables set forth certain information regarding the properties owned by us as of December 31, 1999 classified according the business of the respective tenants (dollars in thousands): Revenue ---------------------------------- For the years ended December 31, 1999 1998 1997 -------- -------- -------- Segment rental revenue: Automotive parts $ 8,944 $ 6,593 $ 6,384 Automotive service 6,869 6,333 4,090 Child care 26,428 24,765 24,284 Consumer electronics 4,594 4,616 4,388 Convenience stores 7,557 5,175 3,738 Home furnishings 6,737 6,008 3,108 Restaurants 13,834 13,768 13,414 Video rental 4,444 3,185 373 Other non-reportable segments 24,863 14,433 7,834 Reconciling items -interest and other 240 256 284 -------- -------- -------- Total revenue $104,510 $ 85,132 $ 67,897 ======== ======== ======== Page 66 16. Segment Information (continued) Assets --------------------- As of December 31, 1999 1998 -------- -------- Segment net real estate: Automotive parts $ 77,075 $ 65,847 Automotive service 50,499 46,731 Child care 156,617 138,875 Consumer electronics 39,243 40,447 Convenience stores 83,228 43,986 Home furnishings 64,408 71,366 Restaurants 86,903 87,682 Video rental 40,712 39,650 Other non-reportable segments 268,408 183,696 ------- ------- Total segment net real estate 867,093 718,280 Reconciling items 38,311 40,954 -------- -------- Total assets $905,404 $759,234 ======== ========
17. Commitments and Contingencies In the ordinary course of our business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated statements taken as a whole. 18. Subsequent Event A. In February 2000, we entered into a $25 million, three-year, revolving credit agreement with the Bank of Montreal, which expires in February 2003. The credit facility currently bears interest at 1.225% over LIBOR and offers us other interest rate options. A facility fee of 0.225%, per annum, accrues on the total commitment of the credit facility. This credit facility can be used for the acquisition of property and for making capital contributions to subsidiaries for the purpose of acquiring properties. B. In January 2000, we formed Crest Net Lease, Inc., of which we own 95% of the common stock, all of which is non-voting, and certain members of management own 5% of the common stock, all of which is voting stock. Crest Net Lease was created to actively buy and sell certain select properties, primarily to buyers using tax-deferred exchanges, under Section 1031 of the IRS Code. Page 67 REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED QUARTERLY FINANCIAL DATA (dollars in thousands, except per share data) (not covered by Independent Auditors' Report) First Second Third Fourth Quarter Quarter Quarter Quarter Year ======= ======= ======= ======= ======= 1999 ==== Total revenue $23,986 $24,902 $26,900 $28,722 $104,510 Depreciation and amortization expense 6,090 6,237 6,660 6,965 25,952 Interest expense 5,880 6,045 6,100 6,448 24,473 Other expenses 2,087 2,192 2,232 2,279 8,790 Income from operations 9,929 10,428 11,908 13,030 45,295 Extraordinary item -- -- -- (355) (355) Net income 9,929 10,428 13,144 12,740 46,241 Net income available to common stock- holders 9,929 9,799 10,981 10,303 41,012 Basic and diluted net income per common share 0.37 0.37 0.41 0.38 1.53 Dividends paid per common share 0.5100 0.5175 0.5250 0.5325 2.0850 1998 ==== Total revenue $19,222 $20,367 $21,969 $23,574 $ 85,132 Depreciation and amortization expense 5,084 5,369 5,630 5,852 21,935 Interest expense 2,491 2,864 3,682 4,686 13,723 Other expenses 1,938 2,137 2,164 2,231 8,470 Income from operations 9,709 9,997 10,493 10,805 41,004 Cumulative effect of change in accounting principle -- -- -- (226) (226) Net income 9,924 10,308 10,493 10,579 41,304 Basic and diluted net income per common share 0.38 0.38 0.39 0.40 1.55 Dividends paid per common share 0.4800 0.4875 0.4950 0.5025 1.9650
Page 68 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - --------------------------------------------------------- We have had no disagreements with our independent auditors' on accountancy or financial disclosure. PART III ======== ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information set forth under the captions "Director Nominees" and "Officers Of The Company" and "Compliance With Federal Securities Laws" in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 3, 2000, to be filed pursuant to Regulation 14A. ITEM 11: EXECUTIVE COMPENSATION - -------------------------------- The information set forth under the caption "Executive Compensation" in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 3, 2000, to be filed pursuant to Regulation 14A. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------- The information set forth under the caption "Security Ownership of Certain Beneficial Owners And Management" in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 3, 2000, to be filed pursuant to Regulation 14A. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information set forth under the caption "Certain Transactions" in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 3, 2000, to be filed pursuant to Regulation 14A. Page 69 PART IV ======= ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ---------------------------------------------------------------- A. The following documents are filed as part of this report. 1. Financial Statements (see Item 8) a. Independent Auditors' Report b. Consolidated Balance Sheets, December 31, 1999 and 1998 c. Consolidated Statements of Income, Years ended December 31, 1999, 1998 and 1997 d. Consolidated Statements of Stockholders' Equity, Years ended December 31, 1999, 1998 and 1997 e. Consolidated Statements of Cash Flows, Years ended December 31, 1999, 1998 and 1997 f. Notes to Consolidated Financial Statements g. Consolidated Quarterly Financial Data, (unaudited) for 1999 and 1998 2. Financial Statement Schedule is attached to this report. Reference is made to page F-1 of this report for Schedule III Real Estate and Accumulated Depreciation. Schedules not Filed: All schedules, other than those indicated in the Table of Contents, have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 3. Exhibits 2.1 Agreement and Plan of Merger dated as of May 15, 1997 between Realty Income Corporation, a Delaware corporation, and Realty Income Maryland, Inc., a Maryland corporation (incorporated by reference to the Company's Form 8-B12B dated July 29, 1997 ("Form 8-B") and incorporated herein by reference). 3.1 Articles of Incorporation of the Company (filed as Appendix B to the Company's Proxy Statement dated March 28, 1997 ("1997 Proxy Statement") and incorporated herein by reference). 3.2 Bylaws of the Company (filed as Appendix C to the Company's 1997 Proxy Statement and incorporated herein by reference). Page 70 3.3 Articles Supplementary of the Class A Junior Participating Preferred Stock of Realty Income Corporation (filed as an exhibit to Realty Income's registration statement on Form 8-A, dated June 26, 1998, and incorporated herein by reference). 3.4 Articles Supplementary to the Articles of Incorporation of Realty Income Corporation classifying and designating the Class B Preferred Stock (filed as exhibit 4.1 to the Company's Form 8-K dated May 24, 1999 and incorporated herein by reference). 3.5 Articles Supplementary to the Articles of Incorporation of Realty Income Corporation classifying and designating the Class C Preferred Stock (filed as exhibit 4.1 to the Company's Form 8-K dated July 29, 1999 and incorporated herein by reference). 4.1 Pricing Committee Resolutions and Form of 7.75% Notes due 2007 (filed as Exhibit 4.2 to the Company's Form 8-K dated May 5, 1997 and incorporated herein by reference). 4.2 Indenture dated as of May 6, 1997 between the Company and The Bank of New York (filed as Exhibit 4.1 to the Company's Form 8-K dated May 5, 1997 and incorporated herein by reference). 4.3 First Supplemental Indenture dated as of May 28, 1997, between the Company and The Bank of New York (filed as Exhibit 4.3 to the Company's Form 8-B and incorporated herein by reference). 4.4 Rights Agreement, dated as of June 25, 1998, between Realty Income Corporation and The Bank of New York (filed as an exhibit to the Company's registration statement on Form 8-A, dated June 26, 1998, and incorporated herein by reference). 4.5 Pricing Committee Resolutions (filed as an exhibit to Realty Income's Form 8-K, dated October 27, 1998 and incorporated herein by reference). 4.6 Form of 8.25% Notes due 2008 (filed as an exhibit to Realty Income's Form 8-K, dated October 27, 1998 and incorporated herein by reference). 4.7 Indenture dated as of October 28, 1998 between Realty Income and The Bank of New York (filed) as an exhibit to Realty Income's Form 8-K, dated October 27, 1998 and incorporated herein by reference). Page 71 4.8 Pricing Committee Resolutions and Form of 8% Notes due 2009 (filed as exhibit 4.2 to Realty Income's Form 8-K, dated January 21, 1999 and incorporated herein by reference). 10.1 $200 million Revolving Credit Agreement dated December 14, 1999 (filed herein). 10.2 First Amendment dated January 21, 2000 to the $200 million Revolving Credit Agreement dated December 14, 1999 (filed herein). 10.3 $25 million Revolving Credit Agreement dated February 1, 2000 (filed herein). 10.4 1994 Stock Option and Incentive Plan (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (registration number 33-95708) and incorporated herein by reference). 10.5 First Amendment to the 1994 Stock Option and Incentive Plan, dated June 12, 1997 (filed as Exhibit 10.9 to the Company's Form 8-B and incorporated herein by reference). 10.6 Second Amendment to the 1994 Stock Option and Incentive Plan, dated December 16, 1997, (filed as Exhibit 10.9 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). 10.7 Management Incentive Plan, filed as Exhibit 10.10 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). 10.8 Form of Nonqualified Stock Option Agreement for Independent Directors, (filed as Exhibit 10.11 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). 10.9 Form of Indemnification Agreement entered into between the Company and the executive officers of the Company (filed as Exhibit 10.1 to the Company's Form 8-K dated November 21, 1997 and incorporated herein by reference). 10.10 Form of Indemnification Agreement entered into between the Company and each director on the board of directors of the Company (filed as Exhibit 10.2 to the Company's Form 8-K dated November 21, 1997 and incorporated herein by reference). Page 72 10.11 Form of Employment Agreement between the Company and its Executive Officers (incorporated by reference to the Company's Form 8-B12B dated July 29, 1997 and incorporated herein by reference). 12.1 Statement re computation of ratios, filed herein. 21.1 Subsidiaries of the Company as of January 1, 2000, filed herein. 23.1 Consent of KPMG LLP, filed herein. 27 Financial Data Schedule, filed herein. B. The Registrant filed no reports on Form 8-K during the last quarter of the period covered by this report. Page 73 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REALTY INCOME CORPORATION By: /s/THOMAS A. LEWIS ------------------------------------ Thomas A. Lewis Vice Chairman of the Board of Directors, Chief Executive Officer and President Date: March 22, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/WILLIAM E. CLARK ------------------------------------ William E. Clark Chairman of the Board of Directors Date: March 22, 2000 By: /s/THOMAS A. LEWIS ------------------------------------ Thomas A. Lewis Vice Chairman of the Board of Directors, Chief Executive Officer and President (Principal Executive Officer) Date: March 22, 2000 By: /s/DONALD R. CAMERON ------------------------------------ Donald R. Cameron Director Date: March 22, 2000 Page 74 SIGNATURES (continued) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ROGER P. KUPPINGER ------------------------------------ Roger P. Kuppinger Director Date: March 22, 2000 By: /s/MICHAEL D. MCKEE ------------------------------------ Michael D. McKee Director Date: March 22, 2000 By: /s/WILLARD H. SMITH JR ------------------------------------ Willard H. Smith Jr Director Date: March 22, 2000 By: /s/KATHLEEN R. ALLEN, PH.D. ------------------------------------ Kathleen R. Allen, Ph.D. Director Date: March 22, 2000 By: /s/GARY MALINO ------------------------------------ Gary Malino Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: March 22, 2000 Page 75 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/GREGORY J. FAHEY ------------------------------------ Gregory J. Fahey Vice President, Controller Date: March 22, 2000 EXHIBIT INDEX ============= Exhibit No. Description - ----------- ----------- 10.1 $200 million Revolving Credit Agreement dated December 14, 1999 10.2 First Amendment, dated January 21, 2000, to the $200 million Revolving Credit Agreement dated December 14, 1999 10.3 $25 million Revolving Credit Agreement dated February 1, 2000 12.1 Statement re computation of ratios 21.1 Subsidiaries of the Company as of January 1, 2000 23.1 Consent of KPMG LLP 27 Financial Data Schedule Page 76 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Apparel Stores - -------------- Danbury CT 1,083,296 6,217,688 None None Manchester CT 771,660 3,653,539 None None Manchester CT 1,250,464 5,917,037 None None Staten Island NY 4,202,093 3,385,021 None None Westbury NY 6,333,590 3,952,773 None None Automotive Parts - ---------------- Millbrook AL 108,000 517,941 None None Montgomery AL 254,465 502,350 None None Wynne AR 70,000 547,547 None None Blytheville AR 137,913 509,447 None None Osceola AR 88,759 520,047 None None Phoenix AZ 231,000 513,057 None None Phoenix AZ 71,750 159,359 None None Phoenix AZ 222,950 495,178 None None Tucson AZ 194,250 431,434 None None Tucson AZ 178,297 396,004 None None Yuma AZ 120,750 268,190 None None Fullerton CA 47,325 66,522 3,591 -- Grass Valley CA 325,000 384,955 None None Jackson CA 300,000 390,849 None None Sacramento CA 210,000 466,419 None None Turlock CA 222,250 493,627 None None Arvada CO 301,489 8,104 None None Aurora CO 221,691 492,382 None None Canon City CO 66,500 147,699 None None Colorado Springs CO 280,193 622,317 None None Colorado Springs CO 192,988 433,542 None None Denver CO 141,400 314,056 None None Denver CO 315,000 699,623 None None Denver CO 283,500 629,666 None None Littleton CO 252,925 561,758 None None Smyrna DE 232,273 472,855 None None Lakeland FL 500,000 645,402 None None Tampa FL 427,395 472,030 None None Council Bluffs IA 194,355 431,668 None None Page F-1 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Apparel Stores - -------------- Danbury CT 1,083,296 6,217,688 7,300,984 Manchester CT 771,660 3,653,539 4,425,199 Manchester CT 1,250,464 5,917,037 7,167,501 Staten Island NY 4,202,093 3,385,021 7,587,114 Westbury NY 6,333,590 3,952,773 10,286,363 Automotive Parts - ---------------- Millbrook AL 108,000 517,941 625,941 Montgomery AL 254,465 502,350 756,815 Wynne AR 70,000 547,547 617,547 Blytheville AR 137,913 509,447 647,360 Osceola AR 88,759 520,047 608,806 Phoenix AZ 231,000 513,057 744,057 Phoenix AZ 71,750 159,359 231,109 Phoenix AZ 222,950 495,178 718,128 Tucson AZ 194,250 431,434 625,684 Tucson AZ 178,297 396,004 574,301 Yuma AZ 120,750 268,190 388,940 Fullerton CA 47,325 70,113 117,438 Grass Valley CA 325,000 384,955 709,955 Jackson CA 300,000 390,849 690,849 Sacramento CA 210,000 466,419 676,419 Turlock CA 222,250 493,627 715,877 Arvada CO 301,489 8,104 309,593 Aurora CO 221,691 492,382 714,073 Canon City CO 66,500 147,699 214,199 Colorado Springs CO 280,193 622,317 902,510 Colorado Springs CO 192,988 433,542 626,530 Denver CO 141,400 314,056 455,456 Denver CO 315,000 699,623 1,014,623 Denver CO 283,500 629,666 913,166 Littleton CO 252,925 561,758 814,683 Smyrna DE 232,273 472,855 705,128 Lakeland FL 500,000 645,402 1,145,402 Tampa FL 427,395 472,030 899,425 Council Bluffs IA 194,355 431,668 626,023 Page F-2 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Apparel Stores - -------------- Danbury CT 567,365 09/29/97 300 Manchester CT 260,711 03/26/98 300 Manchester CT 422,478 03/26/98 300 Staten Island NY 240,920 03/26/98 300 Westbury NY 359,421 09/29/97 300 Automotive Parts - ---------------- Millbrook AL 19,735 12/10/98 01/29/99 300 Montgomery AL 30,946 06/30/98 300 Wynne AR 18,921 11/10/98 02/26/99 300 Blytheville AR 31,388 06/30/98 300 Osceola AR 32,041 06/30/98 300 Phoenix AZ 227,361 11/09/87 300 Phoenix AZ 70,619 11/19/87 300 Phoenix AZ 187,144 11/02/89 300 Tucson AZ 192,447 10/30/87 300 Tucson AZ 145,752 01/19/90 300 Yuma AZ 98,709 01/23/90 300 Fullerton CA 66,522 08/21/72 234 Grass Valley CA 162,162 05/20/88 300 Jackson CA 161,081 05/17/88 300 Sacramento CA 206,692 11/25/87 300 Turlock CA 217,310 12/30/87 300 Arvada CO -- Aurora CO 181,224 01/29/90 300 Canon City CO 65,453 11/12/87 300 Colorado Springs CO 229,047 01/23/90 300 Colorado Springs CO 118,553 05/20/93 300 Denver CO 139,172 11/18/87 300 Denver CO 297,819 05/16/88 300 Denver CO 268,039 05/27/88 300 Littleton CO 244,031 02/12/88 300 Smyrna DE 25,994 07/31/98 300 Lakeland FL 32,937 06/04/98 12/30/97 300 Tampa FL 24,025 06/10/98 12/03/97 300 Council Bluffs IA 183,755 05/19/88 300 Page F-3 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Parts - ---------------- Boise ID 158,400 351,812 None None Boise ID 190,080 422,172 None None Coeur D'Alene ID 165,900 368,468 None None Lewiston ID 138,950 308,612 None None Moscow ID 117,250 260,417 None None Nampa ID 183,743 408,101 None None Twin Falls ID 190,080 422,172 None None Brazil IN 183,952 453,831 None None Princeton IN 134,209 560,113 None None Vincennes IN 185,312 489,779 None None Kansas City KS 185,955 413,014 None None Kansas City KS 222,000 455,881 None None Alma MI 155,000 600,282 None None Lansing MI 265,000 574,931 None None Sturgis MI 109,558 550,274 None None Eagan MN 902,443 845,536 None None Blue Springs MO 222,569 494,333 None None Grandview MO 347,150 711,024 None None Independence MO 210,643 467,844 None None Kansas City MO 210,070 466,571 None None Kansas City MO 168,350 373,910 None None Kansas City MO 248,500 551,927 None None Jackson MS 248,483 572,485 None None Richland MS 243,565 558,608 None None Batesville MS 190,124 485,670 None None Horn Lakes MS 142,702 514,779 None None Missoula MT 163,100 362,249 None None Kearney NE 173,950 344,393 None None Omaha NE 196,000 435,321 None None Omaha NE 199,100 412,042 None None Omaha NE 253,128 812,403 None None Cherry Hill NJ 1,074,640 1,032,304 None None Albuquerque NM 80,500 178,794 None None Rio Rancho NM 211,577 469,923 None None Sante Fe NM 70,000 155,473 None None Las Vegas NV 161,000 357,585 None None Page F-4 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Parts - ---------------- Boise ID 158,400 351,812 510,212 Boise ID 190,080 422,172 612,252 Coeur D'Alene ID 165,900 368,468 534,368 Lewiston ID 138,950 308,612 447,562 Moscow ID 117,250 260,417 377,667 Nampa ID 183,743 408,101 591,844 Twin Falls ID 190,080 422,172 612,252 Brazil IN 183,952 453,831 637,783 Princeton IN 134,209 560,113 694,322 Vincennes IN 185,312 489,779 675,091 Kansas City KS 185,955 413,014 598,969 Kansas City KS 222,000 455,881 677,881 Alma MI 155,000 600,282 755,282 Lansing MI 265,000 547,931 839,931 Sturgis MI 109,558 550,274 659,832 Eagan MN 902,443 845,536 1,747,979 Blue Springs MO 222,569 494,333 716,902 Grandview MO 347,150 711,024 1,058,174 Independence MO 210,643 467,844 678,487 Kansas City MO 210,070 466,571 676,641 Kansas City MO 168,350 373,910 542,260 Kansas City MO 248,500 551,927 800,427 Jackson MS 248,483 572,485 820,968 Richland MS 243,565 558,608 802,173 Batesville MS 190,124 485,670 675,794 Horn Lakes MS 142,702 514,779 657,481 Missoula MT 163,100 362,249 525,349 Kearney NE 173,950 344,393 518,343 Omaha NE 196,000 435,321 631,321 Omaha NE 199,100 412,042 611,142 Omaha NE 253,128 812,403 1,065,531 Cherry Hill NJ 1,074,640 1,032,304 2,106,944 Albuquerque NM 80,500 178,794 259,294 Rio Rancho NM 211,577 469,923 681,500 Sante Fe NM 70,000 155,473 225,473 Las Vegas NV 161,000 357,585 518,585 Page F-5 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Parts - ---------------- Boise ID 149,762 05/06/88 300 Boise ID 179,712 05/06/88 300 Coeur D'Alene ID 165,437 09/21/87 300 Lewiston ID 138,562 09/16/87 300 Moscow ID 116,923 09/14/87 300 Nampa ID 173,723 05/06/88 300 Twin Falls ID 179,712 05/06/88 300 Brazil IN 14,358 03/31/99 300 Princeton IN 17,724 03/31/99 300 Vincennes IN 15,497 03/31/99 300 Kansas City KS 175,815 05/13/88 300 Kansas City KS 193,981 05/16/88 300 Alma MI 14,778 04/29/99 02/23/99 300 Lansing MI 19,787 04/30/99 12/03/98 300 Sturgis MI 22,825 12/29/98 300 Eagan MN 46,081 02/02/98 300 Blue Springs MO 190,447 07/31/89 300 Grandview MO 36,480 08/20/98 02/20/98 300 Independence MO 180,241 07/31/89 300 Kansas City MO 198,613 05/13/88 300 Kansas City MO 159,168 05/26/88 300 Kansas City MO 226,611 10/25/88 300 Jackson MS 2,858 12/21/99 300 Richland MS 929 Batesville MS 28,304 07/21/98 300 Horn Lakes MS 31,716 06/30/98 300 Missoula MT 161,587 10/30/87 300 Kearney NE 122,818 05/01/90 300 Omaha NE 185,310 05/26/88 300 Omaha NE 173,733 05/27/88 300 Omaha NE 9,421 07/22/99 03/31/99 300 Cherry Hill NJ 180,653 01/26/95 300 Albuquerque NM 79,754 10/29/87 300 Rio Rancho NM 204,136 02/26/88 300 Sante Fe NM 69,352 10/29/87 300 Las Vegas NV 159,507 10/29/87 300 Page F-6 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Parts - ---------------- Reno NV 456,000 562,344 None None Canton OH 396,560 597,553 None None Hamilton OH 183,000 519,321 None None Hubbard OH 147,043 481,217 None None Oklahoma City OK 509,370 752,691 None None Oklahoma City OK 404,815 771,625 None None Albany OR 152,250 338,153 None None Beaverton OR 210,000 466,419 None None Corvallis OR 152,250 338,153 None None Eugene OR 194,880 432,837 None None Oak Grove OR 180,250 400,336 None None Portland OR 190,750 423,664 None None Portland OR 147,000 326,493 None None Portland OR 210,000 466,412 None None Salem OR 136,500 303,170 None None Tigard OR 164,500 365,361 None None Hanover PA 132,500 725,463 None None Butler PA 339,929 633,078 None None Dover PA 265,112 593,341 None None Enola PA 220,228 546,026 None None Harrisburg PA 327,781 608,291 None None Harrisburg PA 283,417 352,473 None None Lancaster PA 199,899 774,838 None None New Castle PA 180,009 525,774 None None Reading PA 379,000 658,693 None None Sioux Falls SD 332,979 498,108 None None Columbia TN 273,120 431,716 None None Memphis TN 197,708 507,647 None None Amarillo TX 140,000 419,734 None None Austin TX 185,454 411,899 None None Dallas TX 191,267 424,811 None None El Paso TX 66,150 146,922 None None El Paso TX 56,350 125,156 None None Garland TX 242,887 539,461 None None Harlingen TX 134,599 298,948 None None Houston TX 151,018 335,417 None None Page F-7 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Parts - ---------------- Reno NV 456,000 562,344 1,018,344 Canton OH 396,560 597,553 994,113 Hamilton OH 183,000 519,321 702,321 Hubbard OH 147,043 481,217 628,260 Oklahoma City OK 509,370 752,691 1,262,061 Oklahoma City OK 404,815 771,625 1,176,440 Albany OR 152,250 338,153 490,403 Beaverton OR 210,000 466,419 676,419 Corvallis OR 152,250 338,153 490,403 Eugene OR 194,880 432,837 627,717 Oak Grove OR 180,250 400,336 580,586 Portland OR 190,750 423,664 614,414 Portland OR 147,000 326,493 473,493 Portland OR 210,000 466,412 676,412 Salem OR 136,500 303,170 439,670 Tigard OR 164,500 365,361 529,861 Hanover PA 132,500 725,463 857,963 Butler PA 339,929 633,078 973,007 Dover PA 265,112 593,341 858,453 Enola PA 220,228 546,026 766,254 Harrisburg PA 327,781 608,291 936,072 Harrisburg PA 283,417 352,473 635,890 Lancaster PA 199,899 774,838 974,737 New Castle PA 180,009 525,774 705,783 Reading PA 379,000 658,693 1,037,693 Sioux Falls SD 332,979 498,108 831,087 Columbia TN 273,120 431,716 704,836 Memphis TN 197,708 507,647 705,355 Amarillo TX 140,000 419,734 559,734 Austin TX 185,454 411,899 597,353 Dallas TX 191,267 424,811 616,078 El Paso TX 66,150 146,922 213,072 El Paso TX 56,350 125,156 181,506 Garland TX 242,887 539,461 782,348 Harlingen TX 134,599 298,948 433,547 Houston TX 151,018 335,417 486,435 Page F-8 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Parts - ---------------- Reno NV 239,273 05/26/88 300 Canton OH 32,848 08/14/98 300 Hamilton OH 14,447 04/07/99 12/01/98 300 Hubbard OH 29,654 06/30/98 300 Oklahoma City OK 16,189 04/14/99 09/24/98 300 Oklahoma City OK 16,613 04/09/99 10/02/98 300 Albany OR 152,815 08/24/87 300 Beaverton OR 210,780 08/26/87 300 Corvallis OR 152,815 08/12/87 300 Eugene OR 188,027 02/10/88 300 Oak Grove OR 180,916 08/06/87 300 Portland OR 191,459 08/12/87 300 Portland OR 147,546 08/26/87 300 Portland OR 209,414 09/01/87 300 Salem OR 137,005 08/20/87 300 Tigard OR 165,111 08/26/87 300 Hanover PA 10,661 08/06/99 05/14/99 300 Butler PA 34,800 08/07/98 300 Dover PA 36,575 06/30/98 300 Enola PA 24,550 10/16/98 300 Harrisburg PA 37,486 06/30/98 300 Harrisburg PA 18,178 09/30/98 300 Lancaster PA 42,603 08/07/98 300 New Castle PA 32,401 06/30/98 300 Reading PA 14,006 06/09/99 12/03/98 300 Sioux Falls SD 27,161 06/01/99 02/23/98 300 Columbia TN 9,346 07/19/99 300 Memphis TN 26,201 09/30/98 300 Amarillo TX 173,534 09/12/88 300 Austin TX 150,424 02/06/90 300 Dallas TX 156,354 01/26/90 300 El Paso TX 65,537 10/27/87 300 El Paso TX 55,827 10/27/87 300 Garland TX 198,551 01/19/90 300 Harlingen TX 110,030 01/17/90 300 Houston TX 123,452 01/25/90 300 Page F-9 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Parts - ---------------- Leon Valley TX 178,221 395,834 None None Lubbock TX 42,000 93,284 None None Lubbock TX 49,000 108,831 None None Midland TX 45,500 101,058 None None Odessa TX 50,750 112,718 None None Pasadena TX 107,391 238,519 None None Plano TX 187,564 417,157 700 None San Antonio TX 245,164 544,518 None None Bountiful UT 183,750 408,115 None None Provo UT 125,395 278,507 None None Bellevue WA 185,500 411,997 None None Bellingham WA 168,000 373,133 None None Bothell WA 199,500 443,098 None None Everett WA 367,500 816,227 None None Hazel Dell WA 168,000 373,135 None None Kennewick WA 161,350 358,365 None None Kent WA 199,500 443,091 None None Lacey WA 171,150 380,125 None None Marysville WA 168,000 373,135 None None Moses Lake WA 138,600 307,831 None None Pasco WA 161,700 359,142 None None Puyallup WA 173,250 384,795 None None Redmond WA 196,000 435,317 None None Renton WA 185,500 412,003 None None Richland WA 161,700 359,142 None None Seattle WA 162,400 360,697 None None Silverdale WA 183,808 419,777 None None Spanaway WA 189,000 419,777 None None Spokane WA 66,150 146,921 None None Tacoma WA 191,800 425,996 None None Tacoma WA 196,000 435,324 None None Tacoma WA 187,111 415,579 None None Vancouver WA 180,250 400,343 None None Walla Walla WA 170,100 377,793 None None Wenatchee WA 148,400 329,602 None None Woodinville WA 171,500 380,908 None None Page F-10 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Parts - ---------------- Leon Valley TX 178,221 395,834 574,055 Lubbock TX 42,000 93,284 135,284 Lubbock TX 49,000 108,831 157,831 Midland TX 45,500 101,058 146,558 Odessa TX 50,750 112,718 163,468 Pasadena TX 107,391 238,519 345,910 Plano TX 187,564 417,857 605,421 San Antonio TX 245,164 544,518 789,682 Bountiful UT 183,750 408,115 591,865 Provo UT 125,395 278,507 403,902 Bellevue WA 185,500 411,997 597,497 Bellingham WA 168,000 373,133 541,133 Bothell WA 199,500 443,098 642,598 Everett WA 367,500 816,227 1,183,727 Hazel Dell WA 168,000 373,135 541,135 Kennewick WA 161,350 358,365 519,715 Kent WA 199,500 443,091 642,591 Lacey WA 171,150 380,125 551,275 Marysville WA 168,000 373,135 541,135 Moses Lake WA 138,600 307,831 446,431 Pasco WA 161,700 359,142 520,842 Puyallup WA 173,250 384,795 558,045 Redmond WA 196,000 435,317 631,317 Renton WA 185,500 412,003 597,503 Richland WA 161,700 359,142 520,842 Seattle WA 162,400 360,697 523,097 Silverdale WA 183,808 419,777 603,585 Spanaway WA 189,000 419,777 608,777 Spokane WA 66,150 146,921 213,071 Tacoma WA 191,800 425,996 617,796 Tacoma WA 196,000 435,324 631,324 Tacoma WA 187,111 415,579 602,690 Vancouver WA 180,250 400,343 580,593 Walla Walla WA 170,100 377,793 547,893 Wenatchee WA 148,400 329,602 478,002 Woodinville WA 171,500 380,908 552,408 Page F-11 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Parts - ---------------- Leon Valley TX 145,689 01/17/90 300 Lubbock TX 41,610 10/26/87 300 Lubbock TX 48,546 10/29/87 300 Midland TX 45,078 10/27/87 300 Odessa TX 50,278 10/26/87 300 Pasadena TX 87,788 01/24/90 300 Plano TX 153,327 01/18/90 300 San Antonio TX 198,855 02/14/90 300 Bountiful UT 150,209 01/30/90 300 Provo UT 102,506 01/25/90 300 Bellevue WA 186,185 08/06/87 300 Bellingham WA 168,621 08/20/87 300 Bothell WA 200,242 08/20/87 300 Everett WA 361,708 11/17/87 300 Hazel Dell WA 155,100 05/23/88 300 Kennewick WA 161,950 08/26/87 300 Kent WA 200,237 08/06/87 300 Lacey WA 171,781 08/13/87 300 Marysville WA 168,625 08/20/87 300 Moses Lake WA 139,112 08/12/87 300 Pasco WA 162,300 08/18/87 300 Puyallup WA 172,769 09/15/87 300 Redmond WA 195,453 09/17/87 300 Renton WA 184,983 09/15/87 300 Richland WA 162,300 08/13/87 300 Seattle WA 163,004 08/20/87 300 Silverdale WA 188,474 09/16/87 300 Spanaway WA 189,701 08/25/87 300 Spokane WA 65,107 11/18/87 300 Tacoma WA 192,512 08/18/87 300 Tacoma WA 194,183 10/15/87 300 Tacoma WA 152,956 01/25/90 300 Vancouver WA 180,919 08/20/87 300 Walla Walla WA 170,728 08/06/87 300 Wenatchee WA 148,952 08/25/87 300 Woodinville WA 172,136 08/20/87 300 Page F-12 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Parts - ---------------- Brown Deer WI 257,408 802,141 None None Delafield WI 324,574 758,921 None None Madison WI 452,630 811,977 None None Oak Creek WI 420,465 852,408 None None Automotive Service - ------------------ Flagstaff AZ 144,821 417,485 None None Chula Vista CA 313,293 409,654 None None Arvada CO 201,565 339,038 None None Arvada CO 241,044 344,753 None 57 Broomfield CO 154,930 503,626 None None Denver CO 79,717 369,587 None None Denver CO 341,726 433,341 None 22 Thornton CO 276,084 415,464 None None Hartford CT 248,540 482,460 None None Southington CT 225,882 672,910 None None Ft. Lauderdale FL 254,090 465,890 None 775 Jacksonville FL 76,585 355,066 None None Lauderdale Lakes FL 65,987 305,931 None None Seminole FL 68,000 315,266 None None Sunrise FL 80,253 372,070 None None Tampa FL 70,000 324,538 None None Tampa FL 67,000 310,629 None None Tampa FL 86,502 401,041 None None Atlanta GA 55,840 258,889 None None Atlanta GA 78,646 364,625 None None Bogart GA 66,807 309,733 None None Duluth GA 222,275 316,925 None None Gainesville GA 53,589 248,452 None None Marietta GA 60,900 293,461 None None Marietta GA 69,561 346,024 None None Riverdale GA 58,444 270,961 None None Rome GA 56,454 261,733 None None Anderson IN 232,170 385,661 None None Indianapolis IN 231,384 428,307 None None Olathe KS 217,995 367,055 None None Page F-13 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Parts - ---------------- Brown Deer WI 257,408 802,141 1,059,549 Delafield WI 324,574 758,921 1,083,495 Madison WI 452,630 811,977 1,264,607 Oak Creek WI 420,465 852,408 1,272,873 Automotive Service - ------------------ Flagstaff AZ 144,821 417,485 526,306 Chula Vista CA 313,293 409,654 722,947 Arvada CO 201,565 339,038 540,603 Arvada CO 241,044 344,810 585,854 Broomfield CO 154,930 503,626 658,556 Denver CO 79,717 369,587 449,304 Denver CO 341,726 433,363 775,089 Thornton CO 276,084 415,464 691,548 Hartford CT 248,540 482,460 731,000 Southington CT 225,882 672,910 898,792 Ft. Lauderdale FL 254,090 466,665 720,755 Jacksonville FL 76,585 355,066 431,651 Lauderdale Lakes FL 65,987 305,931 371,918 Seminole FL 68,000 315,266 383,266 Sunrise FL 80,253 372,070 452,323 Tampa FL 70,000 324,538 394,538 Tampa FL 67,000 310,629 377,629 Tampa FL 86,502 401,041 487,543 Atlanta GA 55,840 258,889 314,729 Atlanta GA 78,646 364,625 443,271 Bogart GA 66,807 309,733 376,540 Duluth GA 222,275 316,925 539,200 Gainesville GA 53,589 248,452 302,041 Marietta GA 60,900 293,461 354,361 Marietta GA 69,561 346,024 415,585 Riverdale GA 58,444 270,961 329,405 Rome GA 56,454 261,733 318,187 Anderson IN 232,170 385,661 617,831 Indianapolis IN 231,384 428,307 659,691 Olathe KS 217,995 367,055 585,050 Page F-14 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Parts - ---------------- Brown Deer WI 33,258 12/15/98 07/06/98 300 Delafield WI 8,297 03/11/99 300 Madison WI 38,972 10/20/98 03/31/98 300 Oak Creek WI 40,912 08/07/98 03/12/98 300 Automotive Service - ------------------ Flagstaff AZ 22,202 09/30/98 08/29/97 300 Chula Vista CA 59,400 05/01/96 12/22/95 300 Arvada CO 45,770 08/28/96 03/15/96 300 Arvada CO 40,407 01/03/97 07/01/96 300 Broomfield CO 67,990 08/22/96 03/06/96 300 Denver CO 240,139 10/08/85 300 Denver CO 37,829 09/25/97 06/09/97 300 Thornton CO 49,004 12/31/96 10/04/96 300 Hartford CT 63,524 09/27/96 300 Southington CT 67,895 05/30/97 300 Ft. Lauderdale FL 28,432 05/13/98 12/24/97 300 Jacksonville FL 226,895 12/23/85 300 Lauderdale Lakes FL 193,123 02/19/86 300 Seminole FL 201,461 12/23/85 300 Sunrise FL 235,999 02/14/86 300 Tampa FL 207,386 12/27/85 300 Tampa FL 198,498 12/27/85 300 Tampa FL 245,346 07/23/86 300 Atlanta GA 166,438 11/27/85 300 Atlanta GA 233,003 12/18/85 300 Bogart GA 197,926 12/20/85 300 Duluth GA 24,943 10/24/97 06/20/97 300 Gainesville GA 158,764 12/19/85 300 Marietta GA 187,526 12/26/85 300 Marietta GA 214,098 06/03/86 300 Riverdale GA 172,099 01/15/86 300 Rome GA 167,251 12/19/85 300 Anderson IN 31,326 12/19/97 300 Indianapolis IN 56,394 09/27/96 300 Olathe KS 38,525 04/22/97 10/31/96 300 Page F-15 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Service - ------------------ Louisville KY 56,054 259,881 None None Newport KY 323,511 289,017 None None Lenox MA 287,769 535,273 None None Billerica MA 399,043 462,240 None None Clinton MD 70,880 328,620 None None Minneapolis MN 58,000 268,903 None None Independence MO 297,641 233,152 None None Concord NC 237,688 357,976 None 414 Durham NC 55,074 255,336 None None Durham NC 354,676 361,203 None None Fayetteville NC 224,326 257,733 None None Garner NC 218,294 319,334 None 414 Greensboro NC 287,474 316,108 None None Matthews NC 295,580 338,472 None 414 Pineville NC 254,460 355,630 None None Raleigh NC 89,145 413,301 None None Raleigh NC 398,694 263,621 None None Albion NY 170,589 317,424 None None Dansville NY 181,664 337,991 None None East Amherst NY 260,708 484,788 None None East Syracuse NY 250,609 466,264 None None Johnson City NY 242,863 451,877 None None Wellsville NY 161,331 300,231 None None West Amherst NY 268,692 499,619 None None Akron OH 139,126 460,334 None None Beaver Creek OH 205,000 492,538 None None Centerville OH 305,000 420,448 None None Cincinnati OH 293,005 201,340 None None Columbus OH 71,098 329,627 None None Columbus OH 75,761 351,247 None None Columbus OH 245,036 470,468 None None Dayton OH 70,000 324,538 None None Eastlake OH 321,347 459,774 None None Fairfield OH 323,408 235,024 None None Findlay OH 283,515 397,004 None None Hamilton OH 252,608 413,279 None None Page F-16 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Service - ------------------ Louisville KY 56,054 259,881 315,935 Newport KY 323,511 289,017 612,528 Lenox MA 287,769 535,273 823,042 Billerica MA 399,043 462,240 861,283 Clinton MD 70,880 328,620 399,500 Minneapolis MN 58,000 268,903 326,903 Independence MO 297,641 233,152 530,793 Concord NC 237,688 358,390 596,078 Durham NC 55,074 255,336 310,410 Durham NC 354,676 361,203 715,879 Fayetteville NC 224,326 257,733 482,059 Garner NC 218,294 319,748 538,042 Greensboro NC 287,474 316,108 603,582 Matthews NC 295,580 338,886 634,466 Pineville NC 254,460 355,630 610,090 Raleigh NC 89,145 413,301 502,446 Raleigh NC 398,694 263,621 662,315 Albion NY 170,589 317,424 488,013 Dansville NY 181,664 337,991 519,655 East Amherst NY 260,708 484,788 745,496 East Syracuse NY 250,609 466,264 716,873 Johnson City NY 242,863 451,877 694,740 Wellsville NY 161,331 300,231 461,562 West Amherst NY 268,692 499,619 768,311 Akron OH 139,126 460,334 599,460 Beaver Creek OH 205,000 492,538 697,538 Centerville OH 305,000 420,448 725,448 Cincinnati OH 293,005 201,340 494,345 Columbus OH 71,098 329,627 400,725 Columbus OH 75,761 351,247 427,008 Columbus OH 245,036 470,468 715,504 Dayton OH 70,000 324,538 394,538 Eastlake OH 321,347 459,774 781,121 Fairfield OH 323,408 235,024 558,432 Findlay OH 283,515 397,004 680,519 Hamilton OH 252,608 413,279 665,887 Page F-17 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Service - ------------------ Louisville KY 166,069 12/17/85 300 Newport KY 26,166 09/17/97 300 Lenox MA 16,923 03/31/99 300 Billerica MA 49,714 03/31/97 300 Clinton MD 212,254 11/15/85 300 Minneapolis MN 171,835 12/18/85 300 Independence MO 28,367 12/20/96 300 Concord NC 20,625 05/27/98 11/05/97 300 Durham NC 164,922 11/13/85 300 Durham NC 32,786 08/29/97 03/26/97 300 Fayetteville NC 20,710 12/01/97 300 Garner NC 25,163 01/05/98 06/20/97 300 Greensboro NC 31,861 06/09/97 01/29/97 300 Matthews NC 16,140 08/28/98 02/27/98 300 Pineville NC 32,297 08/28/97 04/04/97 300 Raleigh NC 267,306 10/28/85 300 Raleigh NC 22,892 10/01/97 300 Albion NY 10,032 03/31/99 300 Dansville NY 10,684 03/31/99 300 East Amherst NY 15,332 03/31/99 300 East Syracuse NY 14,738 03/31/99 300 Johnson City NY 14,283 03/31/99 300 Wellsville NY 9,488 03/31/99 300 West Amherst NY 15,802 03/31/99 300 Akron OH 41,903 09/17/97 300 Beaver Creek OH 54,998 02/13/97 09/03/96 300 Centerville OH 58,162 07/24/96 06/27/96 300 Cincinnati OH 18,039 09/17/97 300 Columbus OH 214,175 10/02/85 300 Columbus OH 227,172 10/24/85 300 Columbus OH 76,059 12/21/95 300 Dayton OH 209,897 10/31/85 300 Eastlake OH 74,330 12/22/95 300 Fairfield OH 21,176 09/17/97 300 Findlay OH 32,250 12/24/97 300 Hamilton OH 42,002 03/31/97 09/30/96 300 Page F-18 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Service - ------------------ Huber Heights OH 282,000 449,381 None None Miamisburg OH 63,996 296,701 None None Milford OH 353,324 269,997 None None Mt. Vernon OH 216,115 375,357 None None Northwood OH 65,978 263,912 None None Norwalk OH 200,205 366,000 None None Sandusky OH 264,708 404,011 None None Springboro OH 191,911 522,902 None None Toledo OH 91,655 366,621 None None Toledo OH 73,408 293,632 None None Midwest City OK 106,312 333,551 None None The Village OK 143,655 295,422 None None Bethel Park PA 299,595 331,264 None None Bethlehem PA 275,328 389,067 None None Bethlehem PA 229,162 310,526 None None Philadelphia PA 858,500 877,744 None None Springfield Twp. PA 82,740 383,601 None None York PA 249,436 347,424 None None Charleston SC 217,250 294,079 None None Columbia SC 343,785 295,001 None None Columbia SC 267,622 298,594 None None Greenville SC 221,946 315,163 None None Lexington SC 241,534 342,182 None 295 North Charleston SC 174,980 341,466 None None Brentwood TN 305,546 505,728 None None Nashville TN 342,960 227,440 None None Dallas TX 234,604 325,951 None None Houston TX 285,000 369,697 None None Houston TX 233,406 411,197 None None Houston TX 195,000 424,651 None None Lewisville TX 199,942 324,736 None None San Antonio TX 198,828 437,422 None None Richmond VA 149,780 399,415 None 411 Roanoke VA 349,628 322,545 None None Virginia Beach VA 287,675 382,125 None 402 Bremerton WA 261,172 373,080 None None Page F-19 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Service - ------------------ Huber Heights OH 282,000 449,381 731,381 Miamisburg OH 63,996 296,701 360,697 Milford OH 353,324 269,997 623,321 Mt. Vernon OH 216,115 375,357 591,472 Northwood OH 65,978 263,912 329,890 Norwalk OH 200,205 366,000 566,205 Sandusky OH 264,708 404,011 668,719 Springboro OH 191,911 522,902 714,813 Toledo OH 91,655 366,621 458,276 Toledo OH 73,408 293,632 367,040 Midwest City OK 106,312 333,551 439,863 The Village OK 143,655 295,422 439,077 Bethel Park PA 299,595 331,264 630,859 Bethlehem PA 275,328 389,067 664,395 Bethlehem PA 229,162 310,526 539,688 Philadelphia PA 858,500 877,744 1,736,244 Springfield Twp. PA 82,740 383,601 466,341 York PA 249,436 347,424 596,860 Charleston SC 217,250 294,079 511,329 Columbia SC 343,785 295,001 638,786 Columbia SC 267,622 298,594 566,216 Greenville SC 221,946 315,163 537,109 Lexington SC 241,534 342,477 584,011 North Charleston SC 174,980 341,466 516,446 Brentwood TN 305,546 505,728 811,274 Nashville TN 342,960 227,440 570,400 Dallas TX 234,604 325,951 560,555 Houston TX 285,000 369,697 654,697 Houston TX 233,406 411,197 644,603 Houston TX 195,000 424,651 619,651 Lewisville TX 199,942 324,736 524,678 San Antonio TX 198,828 437,422 636,250 Richmond VA 149,780 399,826 549,606 Roanoke VA 349,628 322,545 672,173 Virginia Beach VA 287,675 382,527 670,202 Bremerton WA 261,172 373,080 634,252 Page F-20 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Service - ------------------ Huber Heights OH 53,174 12/03/96 07/10/96 300 Miamisburg OH 192,782 10/08/85 300 Milford OH 24,402 09/18/97 300 Mt. Vernon OH 30,485 12/30/97 300 Northwood OH 234,405 09/12/86 180 Norwalk OH 29,727 12/19/97 300 Sandusky OH 32,827 12/19/97 300 Springboro OH 57,861 02/07/97 300 Toledo OH 325,631 09/12/86 180 Toledo OH 260,802 09/12/86 180 Midwest City OK 18,146 08/06/98 07/29/97 300 The Village OK 19,941 03/06/98 06/30/97 300 Bethel Park PA 26,914 12/19/97 300 Bethlehem PA 31,646 12/19/97 300 Bethlehem PA 25,193 12/23/97 300 Philadelphia PA 267,091 05/19/95 12/05/94 300 Springfield Twp. PA 242,154 02/28/86 300 York PA 28,205 12/24/97 300 Charleston SC 27,635 07/14/97 03/11/97 300 Columbia SC 29,551 05/27/97 01/31/97 300 Columbia SC 20,091 03/31/98 10/24/97 300 Greenville SC 27,569 09/05/97 03/31/97 300 Lexington SC 9,543 02/03/99 09/24/98 300 North Charleston SC 18,512 08/06/98 03/04/98 300 Brentwood TN 39,148 03/13/98 04/16/97 300 Nashville TN 20,503 09/17/97 300 Dallas TX 44,003 08/09/96 02/14/96 300 Houston TX 32,231 08/08/97 08/08/97 300 Houston TX 2,029 09/07/99 03/23/98 300 Houston TX 2,098 10/01/99 05/28/98 300 Lewisville TX 43,839 08/02/96 01/19/96 300 San Antonio TX 75,091 09/01/95 300 Richmond VA 48,595 12/20/96 300 Roanoke VA 26,173 12/19/97 300 Virginia Beach VA 44,956 01/07/97 09/27/96 300 Bremerton WA 46,243 03/19/97 07/18/96 300 Page F-21 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Service - ------------------ Milwaukee WI 173,005 499,244 None None Milwaukee WI 152,509 475,480 None None New Berlin WI 188,491 466,268 None None Book Stores - ----------- Tampa FL 998,250 3,696,707 None None Business Services - ----------------- Jackson MI 550,162 571,590 None None Child Care - ---------- Birmingham AL 63,800 295,791 None None Huntsville AL 28,600 197,165 None 277 Mobile AL 78,400 237,671 None 277 Mobile AL 63,000 292,084 None 277 Mesa AZ 308,951 1,025,561 None None Avondale AZ 242,723 1,129,103 None None Chandler AZ 144,083 668,079 None None Chandler AZ 291,720 647,923 None None Chandler AZ 271,695 603,446 None None Glendale AZ 115,000 285,172 None 76 Mesa AZ 297,500 660,755 None None Mesa AZ 276,770 590,417 None None Peoria AZ 281,750 625,779 None None Phoenix AZ 318,500 707,397 None None Phoenix AZ 264,504 587,471 None None Phoenix AZ 260,719 516,181 None None Scottsdale AZ 291,993 648,529 None None Tempe AZ 292,200 648,989 None None Tempe AZ 294,000 638,977 None None Tucson AZ 304,500 676,303 None None Tucson AZ 283,500 546,878 None None Calabasas CA 156,430 725,248 None None Carmichael CA 131,035 607,507 None None Chino CA 155,000 634,071 None None Chula Vista CA 350,563 778,614 None None Page F-22 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Service - ------------------ Milwaukee WI 173,005 499,244 672,249 Milwaukee WI 152,509 475,480 627,989 New Berlin WI 188,491 466,268 654,759 Book Stores - ----------- Tampa FL 998,250 3,696,707 4,694,957 Business Services - ----------------- Jackson MI 550,162 571,590 1,121,752 Child Care - ---------- Birmingham AL 63,800 295,791 359,591 Huntsville AL 28,600 197,442 226,042 Mobile AL 78,400 237,948 316,348 Mobile AL 63,000 292,361 355,361 Mesa AZ 308,951 1,025,561 1,334,512 Avondale AZ 242,723 1,129,103 1,371,826 Chandler AZ 144,083 668,079 812,162 Chandler AZ 291,720 647,923 939,643 Chandler AZ 271,695 603,446 875,141 Glendale AZ 115,000 285,248 400,248 Mesa AZ 297,500 660,755 958,255 Mesa AZ 276,770 590,417 867,187 Peoria AZ 281,750 625,779 907,529 Phoenix AZ 318,500 707,397 1,025,897 Phoenix AZ 264,504 587,471 851,975 Phoenix AZ 260,719 516,181 776,900 Scottsdale AZ 291,993 648,529 940,522 Tempe AZ 292,200 648,989 941,189 Tempe AZ 294,000 638,977 932,977 Tucson AZ 304,500 676,303 980,803 Tucson AZ 283,500 546,878 830,378 Calabasas CA 156,430 725,248 881,678 Carmichael CA 131,035 607,507 738,542 Chino CA 155,000 634,071 789,071 Chula Vista CA 350,563 778,614 1,129,177 Page F-23 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Service - ------------------ Milwaukee WI 80,711 12/22/95 300 Milwaukee WI 62,603 09/27/96 300 New Berlin WI 75,380 12/22/95 300 Book Stores - ----------- Tampa FL 412,444 03/07/97 300 Business Services - ----------------- Jackson MI 19,798 01/15/99 09/24/98 300 Child Care - ---------- Birmingham AL 210,702 10/31/84 300 Huntsville AL 197,234 06/15/82 180 Mobile AL 237,740 10/15/82 180 Mobile AL 199,474 04/25/85 300 Mesa AZ 11,895 07/26/99 01/13/99 300 Avondale AZ 24,386 04/20/99 07/27/98 300 Chandler AZ 395,616 12/17/86 300 Chandler AZ 285,193 12/11/87 300 Chandler AZ 265,698 12/14/87 300 Glendale AZ 285,191 02/08/84 180 Mesa AZ 273,613 09/29/88 300 Mesa AZ 244,489 09/29/88 300 Peoria AZ 270,021 03/30/88 300 Phoenix AZ 292,927 09/29/88 300 Phoenix AZ 207,829 06/29/90 300 Phoenix AZ 173,788 12/26/90 300 Scottsdale AZ 285,502 12/14/87 300 Tempe AZ 280,037 03/10/88 300 Tempe AZ 226,739 09/27/90 300 Tucson AZ 280,052 09/28/88 300 Tucson AZ 226,458 09/29/88 300 Calabasas CA 471,858 09/26/85 300 Carmichael CA 369,282 08/22/86 300 Chino CA 634,071 10/06/83 180 Chula Vista CA 347,313 10/30/87 300 Page F-24 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Corona CA 144,856 671,584 None None El Cajon CA 157,804 731,621 None None Encinitas CA 320,000 710,729 None None Escondido CA 276,286 613,638 None None Folsom CA 281,563 625,363 None None Mission Viejo CA 353,891 744,367 None None Moreno Valley CA 304,489 676,214 None None Oceanside CA 145,568 674,889 None None Palmdale CA 249,490 554,125 None None Rancho Cordova CA 276,328 613,733 None None Rancho Cucamonga CA 471,733 1,047,739 None None Roseville CA 297,343 660,411 None None Sacramento CA 290,734 645,732 None None Santee CA 248,418 551,748 None None Simi Valley CA 208,585 967,055 None None Valencia CA 301,295 669,185 None None Walnut CA 217,365 1,007,753 None None Aurora CO 141,811 657,497 None None Aurora CO 287,000 637,440 None None Aurora CO 301,455 655,610 None None Broomfield CO 107,000 403,080 None None Broomfield CO 155,306 344,941 None None Colorado Springs CO 58,400 271,217 None None Colorado Springs CO 92,570 241,413 None None Colorado Springs CO 115,542 535,700 None None Englewood CO 131,216 608,372 None None Englewood CO 158,651 735,572 None None Fort Collins CO 55,200 256,356 None 3,600 Fort Collins CO 117,105 542,950 None None Fort Collins CO 137,734 638,593 None None Greeley CO 58,400 270,755 None 227 Littleton CO 161,617 358,956 None None Littleton CO 287,000 637,435 None None Littleton CO 299,250 664,642 None None Longmont CO 115,592 535,931 None None Louisville CO 58,089 269,313 None None Page F-25 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Corona CA 144,856 671,584 816,440 El Cajon CA 157,804 731,621 889,425 Encinitas CA 320,000 710,729 1,030,729 Escondido CA 276,286 613,638 889,924 Folsom CA 281,563 625,363 906,926 Mission Viejo CA 353,891 744,367 1,098,258 Moreno Valley CA 304,489 676,214 980,703 Oceanside CA 145,568 674,889 820,457 Palmdale CA 249,490 554,125 803,615 Rancho Cordova CA 276,328 613,733 890,061 Rancho Cucamonga CA 471,733 1,047,739 1,519,472 Roseville CA 297,343 660,411 957,754 Sacramento CA 290,734 645,732 936,466 Santee CA 248,418 551,748 800,166 Simi Valley CA 208,585 967,055 1,175,640 Valencia CA 301,295 669,185 970,480 Walnut CA 217,365 1,007,753 1,225,118 Aurora CO 141,811 657,497 799,308 Aurora CO 287,000 637,440 924,440 Aurora CO 301,455 655,610 957,065 Broomfield CO 107,000 403,080 510,080 Broomfield CO 155,306 344,941 500,247 Colorado Springs CO 58,400 271,217 329,617 Colorado Springs CO 92,570 241,413 333,983 Colorado Springs CO 115,542 535,700 651,242 Englewood CO 131,216 608,372 739,588 Englewood CO 158,651 735,572 894,223 Fort Collins CO 55,200 259,956 315,156 Fort Collins CO 117,105 542,950 660,055 Fort Collins CO 137,734 638,593 776,327 Greeley CO 58,400 270,982 329,382 Littleton CO 161,617 358,956 520,573 Littleton CO 287,000 637,435 924,435 Littleton CO 299,250 664,642 963,892 Longmont CO 115,592 535,931 651,523 Louisville CO 58,089 269,313 327,402 Page F-26 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Corona CA 472,942 12/19/84 300 El Cajon CA 467,518 12/19/85 300 Encinitas CA 312,885 12/29/87 300 Escondido CA 270,140 12/31/87 300 Folsom CA 280,130 10/23/87 300 Mission Viejo CA 214,121 06/24/93 300 Moreno Valley CA 317,491 02/11/87 300 Oceanside CA 431,265 12/23/85 300 Palmdale CA 229,458 09/14/88 300 Rancho Cordova CA 243,510 03/22/89 300 Rancho Cucamonga CA 461,247 12/30/87 300 Roseville CA 295,821 10/21/87 300 Sacramento CA 288,038 10/05/87 300 Santee CA 250,956 07/23/87 300 Simi Valley CA 617,968 12/20/85 300 Valencia CA 282,921 06/23/88 300 Walnut CA 612,578 08/22/86 300 Aurora CO 412,496 03/25/86 300 Aurora CO 280,620 12/31/87 300 Aurora CO 294,948 09/27/89 300 Broomfield CO 403,080 01/12/83 180 Broomfield CO 148,841 03/15/88 300 Colorado Springs CO 271,217 12/22/82 180 Colorado Springs CO 241,413 08/31/83 180 Colorado Springs CO 318,881 12/04/86 300 Englewood CO 362,140 12/05/86 300 Englewood CO 435,583 12/29/86 300 Fort Collins CO 257,076 12/22/82 180 Fort Collins CO 340,631 03/25/86 300 Fort Collins CO 400,636 03/25/86 300 Greeley CO 191,813 11/21/84 300 Littleton CO 158,020 12/10/87 300 Littleton CO 263,956 09/29/88 300 Littleton CO 275,223 09/29/88 300 Longmont CO 336,229 03/25/86 300 Louisville CO 196,018 06/22/84 300 Page F-27 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Parker CO 153,551 341,042 None None Westminster CO 306,387 695,737 None None Bradenton FL 160,060 355,501 None None Clearwater FL 42,223 269,380 None None Jacksonville FL 38,500 228,481 None None Jacksonville FL 48,000 243,060 None None Jacksonville FL 184,800 410,447 None None Jupiter FL 78,000 360,088 None None Margate FL 66,686 309,183 None None Melbourne FL 256,439 549,345 None None Niceville FL 73,696 341,688 None None Orlando FL 68,001 313,922 None None Orlando FL 159,177 353,538 None None Orlando FL 245,249 544,704 None None Orlando FL 190,050 422,107 None None Oviedo FL 166,409 369,598 None None Panama City FL 69,500 244,314 None 283 Pensacola FL 147,000 326,492 None None Royal Palm Beach FL 194,193 431,309 None None Spring Hill FL 146,939 326,356 None None St. Augustine FL 44,800 213,040 None None Sunrise FL 69,400 246,671 None None Sunrise FL 245,000 533,280 None None Tallahassee FL 66,000 232,010 None 283 Tampa FL 53,385 199,846 None None Duluth GA 310,000 1,039,972 None None Douglasville GA 54,000 250,356 None None Dunwoody GA 318,500 707,399 None None Ellenwood GA 119,678 275,414 None None Fayetteville GA 148,400 329,601 None None Lawrenceville GA 141,449 314,161 None None Lilburn GA 116,350 539,488 None None Lithia Springs GA 187,444 363,358 None None Lithonia GA 239,715 524,459 None None Marietta GA 231,000 513,061 None None Marietta GA 273,000 619,076 None None Page F-28 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Parker CO 153,551 341,042 494,593 Westminster CO 306,387 695,737 1,002,124 Bradenton FL 160,060 355,501 515,561 Clearwater FL 42,223 269,380 311,603 Jacksonville FL 38,500 228,481 266,981 Jacksonville FL 48,000 243,060 291,060 Jacksonville FL 184,800 410,447 595,247 Jupiter FL 78,000 360,088 438,088 Margate FL 66,686 309,183 375,869 Melbourne FL 256,439 549,345 805,784 Niceville FL 73,696 341,688 415,384 Orlando FL 68,001 313,922 381,923 Orlando FL 159,177 353,538 512,715 Orlando FL 245,249 544,704 789,953 Orlando FL 190,050 422,107 612,157 Oviedo FL 166,409 369,598 536,007 Panama City FL 69,500 244,597 314,097 Pensacola FL 147,000 326,492 473,492 Royal Palm Beach FL 194,193 431,309 625,502 Spring Hill FL 146,939 326,356 473,295 St. Augustine FL 44,800 213,040 257,840 Sunrise FL 69,400 246,671 316,071 Sunrise FL 245,000 533,280 778,280 Tallahassee FL 66,000 232,293 298,293 Tampa FL 53,385 199,846 253,231 Duluth GA 310,000 1,039,972 1,349,972 Douglasville GA 54,000 251,976 305,976 Dunwoody GA 318,500 707,399 1,025,899 Ellenwood GA 119,678 275,414 395,092 Fayetteville GA 148,400 329,601 478,001 Lawrenceville GA 141,449 314,161 455,610 Lilburn GA 116,350 539,488 655,838 Lithia Springs GA 187,444 363,358 550,802 Lithonia GA 239,715 524,459 764,174 Marietta GA 231,000 513,061 744,061 Marietta GA 273,000 619,076 892,076 Page F-29 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Parker CO 152,764 10/19/87 300 Westminster CO 289,344 09/27/89 300 Bradenton FL 151,332 05/05/88 300 Clearwater FL 269,380 12/22/81 180 Jacksonville FL 228,481 12/22/81 180 Jacksonville FL 243,060 12/22/81 180 Jacksonville FL 162,853 03/30/89 300 Jupiter FL 235,325 09/11/85 300 Margate FL 183,090 12/16/86 300 Melbourne FL 160,046 04/16/93 300 Niceville FL 203,387 12/03/86 300 Orlando FL 205,154 09/04/85 300 Orlando FL 160,801 07/02/87 300 Orlando FL 239,793 12/10/87 300 Orlando FL 167,479 03/30/89 300 Oviedo FL 163,780 11/20/87 300 Panama City FL 244,314 06/15/82 180 Pensacola FL 129,542 03/28/89 300 Royal Palm Beach FL 176,108 11/15/88 300 Spring Hill FL 144,617 11/24/87 300 St. Augustine FL 213,040 12/22/81 180 Sunrise FL 246,671 06/15/82 180 Sunrise FL 212,817 05/25/89 300 Tallahassee FL 232,222 06/15/82 180 Tampa FL 199,846 12/22/81 180 Duluth GA 8,624 08/25/99 06/17/99 300 Douglasville GA 178,349 10/23/84 300 Dunwoody GA 288,838 11/16/88 300 Ellenwood GA 112,454 11/16/88 300 Fayetteville GA 130,776 03/29/89 300 Lawrenceville GA 131,911 07/07/88 300 Lilburn GA 319,468 12/23/86 300 Lithia Springs GA 140,759 12/28/89 300 Lithonia GA 194,418 08/20/91 300 Marietta GA 221,384 03/18/88 300 Marietta GA 265,329 04/26/88 300 Page F-30 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Marietta GA 148,620 330,090 None None Marietta GA 292,250 649,095 None None Marietta GA 295,750 596,299 None None Marietta GA 301,000 668,529 None None Martinez GA 141,153 313,504 None None Smyrna GA 274,750 610,229 None None Stockbridge GA 168,700 374,688 None None Stone Mountain GA 65,000 301,357 None None Stone Mountain GA 316,750 703,512 None None Valdosta GA 73,561 341,059 None None Cedar Rapids IA 194,950 427,085 None None Iowa City IA 186,900 408,910 None None Johnston IA 186,996 347,278 None None Addison IL 125,780 583,146 None None Algonquin IL 241,500 509,629 None None Aurora IL 468,000 1,259,890 None None Aurora IL 165,679 398,738 None None Bartlett IL 120,824 560,166 None None Bolingbrook IL 60,000 409,024 None None Carol Stream IL 122,831 586,416 None None Crystal Lake IL 400,000 1,259,388 None None Elk Grove VillageIL 126,860 588,175 None None Elk Grove VillageIL 214,845 477,181 None None Glendale Heights IL 318,500 707,399 None None Hoffman Estates IL 318,500 707,399 None None Hoffman Estates IL 211,082 468,818 None None Lake in the HillsIL 375,000 1,127,635 None None Lockport IL 189,477 442,018 None None Naperville IL 425,000 1,229,493 None None O'Fallon IL 141,250 313,722 None None Orland Park IL 218,499 485,296 None None Oswego IL 380,000 1,165,782 None None Palatine IL 121,911 565,232 None None Roselle IL 297,541 561,037 None None Schaumburg IL 218,798 485,955 None None Vernon Hills IL 132,523 614,430 None None Page F-31 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Marietta GA 148,620 330,090 478,710 Marietta GA 292,250 649,095 941,345 Marietta GA 295,750 596,299 892,049 Marietta GA 301,000 668,529 969,529 Martinez GA 141,153 313,504 454,657 Smyrna GA 274,750 610,229 884,979 Stockbridge GA 168,700 374,688 543,388 Stone Mountain GA 65,000 301,357 366,357 Stone Mountain GA 316,750 703,512 1,020,262 Valdosta GA 73,561 341,059 414,620 Cedar Rapids IA 194,950 427,085 622,035 Iowa City IA 186,900 408,910 595,810 Johnston IA 186,996 347,278 534,274 Addison IL 125,780 583,146 708,926 Algonquin IL 241,500 509,629 751,129 Aurora IL 468,000 1,259,890 1,727,890 Aurora IL 165,679 398,738 564,417 Bartlett IL 120,824 560,166 680,990 Bolingbrook IL 60,000 409,024 469,024 Carol Stream IL 122,831 586,416 709,247 Crystal Lake IL 400,000 1,259,388 1,659,388 Elk Grove VillageIL 126,860 588,175 715,035 Elk Grove VillageIL 214,845 477,181 692,026 Glendale Heights IL 318,500 707,399 1,025,899 Hoffman Estates IL 318,500 707,399 1,025,899 Hoffman Estates IL 211,082 468,818 679,900 Lake in the HillsIL 375,000 1,127,635 1,502,635 Lockport IL 189,477 442,018 631,495 Naperville IL 425,000 1,229,493 1,654,493 O'Fallon IL 141,250 313,722 454,972 Orland Park IL 218,499 485,296 703,795 Oswego IL 380,000 1,165,782 1,545,782 Palatine IL 121,911 565,232 687,143 Roselle IL 297,541 561,037 858,578 Schaumburg IL 218,798 485,955 704,753 Vernon Hills IL 132,523 614,430 746,953 Page F-32 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Marietta GA 136,792 09/16/88 300 Marietta GA 263,156 12/02/88 300 Marietta GA 241,753 12/30/88 300 Marietta GA 271,035 12/30/88 300 Martinez GA 138,011 12/31/87 300 Smyrna GA 249,162 11/15/88 300 Stockbridge GA 148,665 03/28/89 300 Stone Mountain GA 199,547 06/19/85 300 Stone Mountain GA 287,251 11/16/88 300 Valdosta GA 203,010 12/03/86 300 Cedar Rapids IA 139,944 09/24/92 300 Iowa City IA 135,985 09/24/92 300 Johnston IA 109,039 08/19/91 300 Addison IL 365,851 03/25/86 300 Algonquin IL 181,901 07/10/90 300 Aurora IL 2,091 10/26/99 06/29/99 300 Aurora IL 161,655 12/21/88 300 Bartlett IL 351,432 03/25/86 300 Bolingbrook IL 409,024 10/18/82 180 Carol Stream IL 367,902 03/25/86 300 Crystal Lake IL 6,266 09/28/99 05/14/99 300 Elk Grove VillageIL 369,006 03/26/86 300 Elk Grove VillageIL 204,515 04/08/88 300 Glendale Heights IL 288,838 11/16/88 300 Hoffman Estates IL 280,673 03/31/89 300 Hoffman Estates IL 173,892 12/08/89 300 Lake in the HillsIL 5,608 09/03/99 05/19/99 300 Lockport IL 197,160 10/29/87 300 Naperville IL 2,040 10/06/99 05/28/99 300 O'Fallon IL 139,931 10/30/87 300 Orland Park IL 216,465 10/28/87 300 Oswego IL 9,669 08/18/99 06/30/99 300 Palatine IL 354,611 03/25/86 300 Roselle IL 227,457 12/30/88 300 Schaumburg IL 213,930 12/17/87 300 Vernon Hills IL 385,476 03/25/86 300 Page F-33 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Westmont IL 124,742 578,330 None None Carmel IN 217,565 430,742 None None Fishers IN 212,118 419,958 None None Highland IN 220,460 436,476 None None Indianapolis IN 245,000 544,153 None None Noblesville IN 60,000 278,175 None None Zionsville IN 127,568 319,770 None None Lenexa KS 318,500 707,399 None None Olathe KS 304,500 676,308 None None Overland Park KS 357,500 1,115,135 None None Overland Park KS 305,691 707,397 None None Shawnee KS 315,000 699,629 None None Shawnee KS 288,246 935,839 None None Topeka KS 58,000 268,903 None None Wichita KS 108,569 401,829 None None Wichita KS 209,890 415,549 None None Lexington KY 210,427 420,883 None None Acton MA 315,533 700,813 None None Marlborough MA 352,765 776,488 None None Westborough MA 359,412 773,877 None None Ellicott City MD 219,368 630,839 None None Frederick MD 203,352 1,017,109 None None Olney MD 342,500 760,701 None None Waldorf MD 130,430 604,702 None None Waldorf MD 237,207 526,844 None None Canton MI 55,000 378,848 None None Apple Valley MN 113,523 526,319 None None Bloomington MN 124,113 575,416 None None Brooklyn Park MN 118,111 547,587 None None Brooklyn Park MN 112,823 523,073 None None Eagan MN 112,127 519,845 None None Eden Prairie MN 124,286 576,243 None None Maple Grove MN 111,691 517,822 None None Maple Grove MN 313,250 660,149 None None Minnetonka MN 146,847 680,842 None None Plymouth MN 134,221 622,350 None None Page F-34 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Westmont IL 124,742 578,330 703,072 Carmel IN 217,565 430,742 648,307 Fishers IN 212,118 419,958 632,076 Highland IN 220,460 436,476 656,936 Indianapolis IN 245,000 544,153 789,153 Noblesville IN 60,000 278,175 338,175 Zionsville IN 127,568 319,770 447,338 Lenexa KS 318,500 707,399 1,025,899 Olathe KS 304,500 676,308 980,808 Overland Park KS 357,500 1,115,135 1,472,635 Overland Park KS 305,691 707,397 1,013,088 Shawnee KS 315,000 699,629 1,014,629 Shawnee KS 288,246 935,839 1,224,085 Topeka KS 58,000 268,903 326,903 Wichita KS 108,569 401,829 510,398 Wichita KS 209,890 415,549 625,439 Lexington KY 210,427 420,883 631,310 Acton MA 315,533 700,813 1,016,346 Marlborough MA 352,765 776,488 1,129,253 Westborough MA 359,412 773,877 1,133,289 Ellicott City MD 219,368 630,839 850,207 Frederick MD 203,352 1,017,109 1,220,461 Olney MD 342,500 760,701 1,103,201 Waldorf MD 130,430 604,702 735,132 Waldorf MD 237,207 526,844 764,051 Canton MI 55,000 378,848 433,848 Apple Valley MN 113,523 526,319 639,842 Bloomington MN 124,113 575,416 699,529 Brooklyn Park MN 118,111 547,587 665,698 Brooklyn Park MN 112,823 523,073 635,896 Eagan MN 112,127 519,845 631,972 Eden Prairie MN 124,286 576,243 700,529 Maple Grove MN 111,691 517,822 629,513 Maple Grove MN 313,250 660,149 973,399 Minnetonka MN 146,847 680,842 827,689 Plymouth MN 134,221 622,350 756,571 Page F-35 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Westmont IL 362,828 03/25/86 300 Carmel IN 145,022 12/27/90 300 Fishers IN 141,392 12/27/90 300 Highland IN 146,952 12/26/90 300 Indianapolis IN 192,504 06/29/90 300 Noblesville IN 189,975 04/30/85 300 Zionsville IN 142,629 10/28/87 300 Lenexa KS 280,673 03/31/89 300 Olathe KS 280,054 09/28/88 300 Overland Park KS 12,943 07/23/99 05/19/99 300 Overland Park KS 292,927 09/28/88 300 Shawnee KS 287,686 10/27/88 300 Shawnee KS 32,614 12/29/98 08/21/98 300 Topeka KS 183,643 04/16/85 300 Wichita KS 221,366 12/16/86 300 Wichita KS 139,907 12/26/90 300 Lexington KY 149,596 08/20/91 300 Acton MA 290,201 09/30/88 300 Marlborough MA 317,046 11/04/88 300 Westborough MA 315,978 11/01/88 300 Ellicott City MD 255,754 12/19/88 300 Frederick MD 59,311 06/30/98 300 Olney MD 334,883 12/18/87 300 Waldorf MD 433,104 09/26/84 300 Waldorf MD 231,930 12/31/87 300 Canton MI 378,848 10/06/82 180 Apple Valley MN 330,199 03/26/86 300 Bloomington MN 361,001 03/27/86 300 Brooklyn Park MN 343,540 03/26/86 300 Brooklyn Park MN 328,162 03/27/86 300 Eagan MN 326,136 03/31/86 300 Eden Prairie MN 361,520 03/27/86 300 Maple Grove MN 324,868 03/26/86 300 Maple Grove MN 236,449 07/11/90 300 Minnetonka MN 405,278 12/12/86 300 Plymouth MN 370,459 12/12/86 300 Page F-36 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- W. Bloomington MN 40,000 468,484 None None White Bear Lake MN 260,750 579,133 None None White Bear Lake MN 242,165 537,856 None None Florissant MO 181,300 402,672 None None Florissant MO 318,500 707,399 None None Gladstone MO 294,000 652,987 None None Lee's Summit MO 313,740 939,331 None None Lee's Summit MO 330,000 993,751 None None Lee's Summit MO 239,627 532,220 None None Liberty MO 65,400 303,211 None None Manchester MO 287,000 637,435 None None North Kansas CityMO 307,784 898,137 None None St. Charles MO 259,000 575,246 None None Pearl MS 121,801 270,524 None None Cary NC 75,200 262,973 None 228 Chapel Hill NC 77,000 356,992 None 228 Charlotte NC 27,551 247,000 None 228 Charlotte NC 134,582 268,222 None None Concord NC 32,441 190,859 None None Durham NC 220,728 429,380 None None Durham NC 238,000 471,201 None None Hendersonville NC 32,748 186,152 None 228 Kernersville NC 162,216 316,300 None None Morrisville NC 175,700 390,234 None None Bellevue NE 60,568 280,819 None None Omaha NE 60,500 280,491 None None Omaha NE 53,000 245,720 None None Omaha NE 142,867 317,315 None None Londonderry NH 335,467 745,082 None None Clementon NJ 279,851 554,060 None None Henderson NV 82,000 380,173 None None Las Vegas NV 201,250 446,983 None None Sparks NV 244,752 543,605 None None Beavercreek OH 179,552 398,786 None None Centerville OH 174,519 387,613 None None Cincinnati OH 165,910 368,486 None None Page F-37 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- W. Bloomington MN 40,000 468,484 508,484 White Bear Lake MN 260,750 579,133 839,883 White Bear Lake MN 242,165 537,856 780,021 Florissant MO 181,300 402,672 583,972 Florissant MO 318,500 707,399 1,025,899 Gladstone MO 294,000 652,987 946,987 Lee's Summit MO 313,740 939,331 1,253,071 Lee's Summit MO 330,000 993,751 1,323,751 Lee's Summit MO 239,627 532,220 771,847 Liberty MO 65,400 303,211 368,611 Manchester MO 287,000 637,435 924,435 North Kansas CityMO 307,784 898,137 1,205,921 St. Charles MO 259,000 575,246 834,246 Pearl MS 121,801 270,524 392,325 Cary NC 75,200 263,201 338,401 Chapel Hill NC 77,000 357,220 434,220 Charlotte NC 27,551 247,228 274,779 Charlotte NC 134,582 268,222 402,804 Concord NC 32,441 190,859 223,300 Durham NC 220,728 429,380 650,108 Durham NC 238,000 471,201 709,201 Hendersonville NC 32,748 186,380 219,128 Kernersville NC 162,216 316,300 478,516 Morrisville NC 175,700 390,234 565,934 Bellevue NE 60,568 280,819 341,387 Omaha NE 60,500 280,491 340,991 Omaha NE 53,000 245,720 298,720 Omaha NE 142,867 317,315 460,182 Londonderry NH 335,467 745,082 1,080,549 Clementon NJ 279,851 554,060 833,911 Henderson NV 82,000 380,173 462,173 Las Vegas NV 201,250 446,983 648,233 Sparks NV 244,752 543,605 788,357 Beavercreek OH 179,552 398,786 578,338 Centerville OH 174,519 387,613 562,132 Cincinnati OH 165,910 368,486 534,396 Page F-38 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- W. Bloomington MN 468,484 06/18/82 180 White Bear Lake MN 254,951 12/23/87 300 White Bear Lake MN 187,209 08/30/90 300 Florissant MO 159,767 03/29/89 300 Florissant MO 280,673 03/30/89 300 Gladstone MO 270,397 09/29/88 300 Lee's Summit MO 7,787 09/08/99 06/30/99 300 Lee's Summit MO 11,539 07/26/99 06/29/99 300 Lee's Summit MO 200,922 09/27/89 300 Liberty MO 200,773 06/18/85 300 Manchester MO 280,618 12/22/87 300 North Kansas CityMO 37,271 09/28/99 08/21/98 300 St. Charles MO 253,241 12/23/87 300 Pearl MS 110,605 11/15/88 300 Cary NC 263,007 01/25/84 180 Chapel Hill NC 243,801 04/17/85 300 Charlotte NC 247,000 12/23/81 180 Charlotte NC 109,516 11/16/88 300 Concord NC 190,859 12/23/81 180 Durham NC 169,978 12/29/89 300 Durham NC 147,949 08/20/91 300 Hendersonville NC 186,186 12/23/81 180 Kernersville NC 126,784 12/14/89 300 Morrisville NC 154,832 03/29/89 300 Bellevue NE 166,293 12/16/86 300 Omaha NE 203,070 08/01/84 300 Omaha NE 175,786 10/11/84 300 Omaha NE 139,689 12/09/87 300 Londonderry NH 284,910 08/18/89 300 Clementon NJ 172,397 09/09/91 300 Henderson NV 259,632 04/17/85 300 Las Vegas NV 158,128 06/29/90 300 Sparks NV 237,727 01/29/88 300 Beavercreek OH 182,551 06/30/87 300 Centerville OH 176,301 07/23/87 300 Cincinnati OH 170,843 04/29/87 300 Page F-39 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Dublin OH 84,000 389,446 None None Englewood OH 74,000 343,083 None None Forest Park OH 170,778 379,305 None None Gahanna OH 86,000 398,718 None None Huber Heights OH 245,000 544,153 None None Loveland OH 206,136 457,829 None None Maineville OH 173,105 384,468 None None Pickerington OH 87,580 406,055 None None Westerville OH 82,000 380,173 None None Westerville OH 294,350 646,557 None None Broken Arrow OK 78,705 220,434 None 279 Midwest City OK 67,800 314,338 None 279 Oklahoma City OK 50,800 214,474 None None Oklahoma City OK 79,000 366,261 None 279 Yukon OK 61,000 282,812 None None Beaverton OR 135,148 626,647 None None Beaverton OR 115,232 534,301 None None Charleston SC 125,593 278,947 None None Charleston SC 140,700 312,498 None None Columbia SC 58,160 269,643 None 1,042 Elgin SC 160,831 313,600 None None Goose Creek SC 61,635 192,905 None 292 Ladson SC 31,543 177,457 None 292 Lexington SC 55,869 274,742 None 741 Mt. Pleasant SC 40,700 180,400 None None Summerville SC 44,400 174,500 None None Sumter SC 56,010 268,903 None 134 Memphis TN 238,263 504,897 None None Memphis TN 238,000 528,608 None None Memphis TN 221,501 491,962 None None Nashville TN 274,298 609,223 None None Atascocita TX 278,915 1,034,796 None None Colleyville TX 250,000 1,070,310 None None Corinth TX 285,000 1,040,521 None None Flower Mound TX 281,735 1,099,589 None None Sugarland TX 339,310 1,000,840 None None Page F-40 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Dublin OH 84,000 389,446 473,446 Englewood OH 74,000 343,083 417,083 Forest Park OH 170,778 379,305 550,083 Gahanna OH 86,000 398,718 484,718 Huber Heights OH 245,000 544,153 789,153 Loveland OH 206,136 457,829 663,965 Maineville OH 173,105 384,468 557,573 Pickerington OH 87,580 406,055 493,635 Westerville OH 82,000 380,173 462,173 Westerville OH 294,350 646,557 940,907 Broken Arrow OK 78,705 220,713 299,418 Midwest City OK 67,800 314,617 382,417 Oklahoma City OK 50,800 214,474 265,274 Oklahoma City OK 79,000 366,540 445,540 Yukon OK 61,000 282,812 343,812 Beaverton OR 135,148 626,647 761,795 Beaverton OR 115,232 534,301 649,533 Charleston SC 125,593 278,947 404,540 Charleston SC 140,700 312,498 453,198 Columbia SC 58,160 270,685 328,845 Elgin SC 160,831 313,600 474,431 Goose Creek SC 61,635 193,197 254,832 Ladson SC 31,543 177,749 209,292 Lexington SC 55,869 275,483 331,352 Mt. Pleasant SC 40,700 180,400 221,100 Summerville SC 44,400 174,500 218,900 Sumter SC 56,010 269,037 325,047 Memphis TN 238,263 504,897 743,160 Memphis TN 238,000 528,608 766,608 Memphis TN 221,501 491,962 713,463 Nashville TN 274,298 609,223 883,521 Atascocita TX 278,915 1,034,796 1,313,711 Colleyville TX 250,000 1,070,310 1,320,310 Corinth TX 285,000 1,040,521 1,325,521 Flower Mound TX 281,735 1,099,589 1,381,324 Sugarland TX 339,310 1,000,840 1,340,150 Page F-41 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Dublin OH 253,041 10/08/85 300 Englewood OH 221,891 10/23/85 300 Forest Park OH 171,231 09/28/87 300 Gahanna OH 256,332 11/26/85 300 Huber Heights OH 187,850 09/27/90 300 Loveland OH 213,609 03/20/87 300 Maineville OH 179,382 03/06/87 300 Pickerington OH 241,700 12/11/86 300 Westerville OH 247,017 10/08/85 300 Westerville OH 228,744 09/26/90 300 Broken Arrow OK 220,503 01/27/83 180 Midwest City OK 206,934 08/14/85 300 Oklahoma City OK 214,474 06/15/82 180 Oklahoma City OK 260,598 11/14/84 300 Yukon OK 192,022 05/02/85 300 Beaverton OR 371,080 12/17/86 300 Beaverton OR 316,397 12/22/86 300 Charleston SC 118,743 05/26/88 300 Charleston SC 123,990 03/28/89 300 Columbia SC 191,851 11/14/84 300 Elgin SC 125,702 12/14/89 300 Goose Creek SC 192,905 12/22/81 180 Ladson SC 177,530 12/22/81 180 Lexington SC 195,479 11/13/84 300 Mt. Pleasant SC 180,400 12/22/81 180 Summerville SC 174,500 12/22/81 180 Sumter SC 178,058 06/18/85 300 Memphis TN 209,072 09/29/88 300 Memphis TN 218,893 09/30/88 300 Memphis TN 171,235 08/31/90 300 Nashville TN 241,720 03/30/89 300 Atascocita TX 12,013 07/19/99 05/14/99 300 Colleyville TX 8,880 08/17/99 05/14/99 300 Corinth TX 15,536 06/04/99 05/28/99 300 Flower Mound TX 23,700 04/23/99 01/19/99 300 Sugarland TX 18,256 05/30/99 01/21/99 300 Page F-42 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Allen TX 177,637 394,538 None None Arlington TX 82,109 380,677 None None Arlington TX 70,000 324,538 None None Arlington TX 238,000 528,604 None None Arlington TX 241,500 550,559 None None Arlington TX 195,650 387,355 None None Austin TX 103,600 230,532 None 75 Austin TX 88,872 222,684 None 75 Austin TX 134,383 623,103 None None Austin TX 188,144 417,872 None None Austin TX 236,733 528,608 None None Austin TX 191,636 425,629 None None Austin TX 224,878 499,460 None None Austin TX 238,000 528,604 None None Austin TX 217,878 483,913 None None Bedford TX 241,500 550,559 None None Carrollton TX 277,850 617,113 None None Cedar Park TX 168,857 375,036 None None Colleyville TX 68,000 315,266 None None Converse TX 217,000 481,963 None None Coppell TX 139,224 645,550 None None Coppell TX 208,641 463,398 None None Desoto TX 86,000 398,715 None 2,027 Duncanville TX 93,000 431,172 None None Euless TX 234,111 519,962 None None Flower Mound TX 202,773 442,845 None None Fort Worth TX 85,518 396,495 None None Fort Worth TX 238,000 528,608 None None Fort Worth TX 210,007 444,460 None None Fort Worth TX 216,160 427,962 None None Garland TX 211,050 468,749 None None Grand Prairie TX 167,164 371,276 None None Houston TX 58,000 268,901 None 155 Houston TX 60,000 278,175 None 135 Houston TX 102,000 472,898 None 155 Houston TX 139,125 308,997 None 155 Page F-43 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Allen TX 177,637 394,538 572,175 Arlington TX 82,109 380,677 462,786 Arlington TX 70,000 324,538 394,538 Arlington TX 238,000 528,604 766,604 Arlington TX 241,500 550,559 792,059 Arlington TX 195,650 387,355 583,005 Austin TX 103,600 230,607 334,207 Austin TX 88,872 222,759 311,631 Austin TX 134,383 623,103 757,486 Austin TX 188,144 417,872 606,016 Austin TX 236,733 528,608 765,341 Austin TX 191,636 425,629 617,265 Austin TX 224,878 499,460 724,338 Austin TX 238,000 528,604 766,604 Austin TX 217,878 483,913 701,791 Bedford TX 241,500 550,559 792,059 Carrollton TX 277,850 617,113 894,963 Cedar Park TX 168,857 375,036 543,893 Colleyville TX 68,000 315,266 383,266 Converse TX 217,000 481,963 698,963 Coppell TX 139,224 645,550 784,774 Coppell TX 208,641 463,398 672,039 Desoto TX 86,000 400,742 486,742 Duncanville TX 93,000 431,172 524,172 Euless TX 234,111 519,962 754,073 Flower Mound TX 202,773 442,845 645,618 Fort Worth TX 85,518 396,495 482,013 Fort Worth TX 238,000 528,608 766,608 Fort Worth TX 210,007 444,460 654,467 Fort Worth TX 216,160 427,962 644,122 Garland TX 211,050 468,749 679,799 Grand Prairie TX 167,164 371,276 538,440 Houston TX 58,000 269,056 327,056 Houston TX 60,000 278,310 338,310 Houston TX 102,000 473,053 575,053 Houston TX 139,125 309,152 448,277 Page F-44 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Allen TX 161,088 11/21/88 300 Arlington TX 269,372 12/13/84 300 Arlington TX 220,352 05/08/85 300 Arlington TX 218,890 09/26/88 300 Arlington TX 272,272 09/22/89 300 Arlington TX 128,213 02/07/91 300 Austin TX 230,551 10/29/82 180 Austin TX 222,695 01/12/83 180 Austin TX 368,983 12/23/86 300 Austin TX 177,882 05/11/88 300 Austin TX 218,893 09/27/88 300 Austin TX 172,557 12/22/88 300 Austin TX 201,051 01/03/89 300 Austin TX 208,211 04/06/89 300 Austin TX 187,823 06/22/89 300 Bedford TX 272,272 09/22/89 300 Carrollton TX 271,672 12/11/87 300 Cedar Park TX 153,125 11/21/88 300 Colleyville TX 214,057 05/01/85 300 Converse TX 199,577 09/28/88 300 Coppell TX 382,275 12/17/86 300 Coppell TX 204,002 12/11/87 300 Desoto TX 284,019 10/24/84 300 Duncanville TX 292,753 05/08/85 300 Euless TX 239,547 05/08/87 300 Flower Mound TX 205,317 04/20/87 300 Fort Worth TX 236,010 12/03/86 300 Fort Worth TX 218,893 09/26/88 300 Fort Worth TX 164,994 02/01/90 300 Fort Worth TX 141,654 02/07/91 300 Garland TX 173,868 12/12/89 300 Grand Prairie TX 150,521 12/13/88 300 Houston TX 192,370 10/11/84 300 Houston TX 188,873 05/01/85 300 Houston TX 321,083 05/01/85 300 Houston TX 142,354 05/22/87 300 Page F-45 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Houston TX 139,125 308,997 None 135 Houston TX 141,296 313,824 None None Houston TX 219,100 486,631 None None Houston TX 219,100 486,628 None None Houston TX 149,109 323,314 None None Houston TX 294,582 919,261 None None Katy TX 309,898 982,998 None None Lewisville TX 79,000 366,264 None None Lewisville TX 192,777 428,121 None None Lewisville TX 192,218 426,922 None None Mansfield TX 181,375 402,839 None None Mesquite TX 85,000 394,079 None 107 Mesquite TX 139,466 326,525 None None Missouri City TX 221,025 437,593 None None N. Richland HillsTX 238,000 528,608 None None Pasadena TX 60,000 278,173 None 155 Plano TX 261,912 581,658 None None Plano TX 250,514 556,399 None None Plano TX 259,000 575,246 None None Round Rock TX 80,525 373,347 None None Round Rock TX 186,380 413,957 None None San Antonio TX 130,833 606,596 None None San Antonio TX 102,512 475,288 None None San Antonio TX 81,530 378,007 None None San Antonio TX 139,125 308,997 None None San Antonio TX 181,412 402,923 None None San Antonio TX 162,161 360,166 None None San Antonio TX 234,500 520,831 None None San Antonio TX 217,000 481,967 None None San Antonio TX 182,868 406,155 None None San Antonio TX 220,500 447,108 None None Southlake TX 228,279 511,750 None None Sugarland TX 193,800 430,437 None None The Woodlands TX 193,801 430,440 None None Watauga TX 165,914 368,502 None None Layton UT 136,574 269,008 None None Page F-46 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Houston TX 139,125 309,132 448,257 Houston TX 141,296 313,824 455,120 Houston TX 219,100 486,631 705,731 Houston TX 219,100 486,628 705,728 Houston TX 149,109 323,314 472,423 Houston TX 294,582 919,261 1,213,843 Katy TX 309,898 982,998 1,292,896 Lewisville TX 79,000 366,264 445,264 Lewisville TX 192,777 428,121 620,898 Lewisville TX 192,218 426,922 619,140 Mansfield TX 181,375 402,839 584,214 Mesquite TX 85,000 394,186 479,186 Mesquite TX 139,466 326,525 465,991 Missouri City TX 221,025 437,593 658,618 N. Richland HillsTX 238,000 528,608 766,608 Pasadena TX 60,000 278,328 338,328 Plano TX 261,912 581,658 843,570 Plano TX 250,514 556,399 806,913 Plano TX 259,000 575,246 834,246 Round Rock TX 80,525 373,347 453,872 Round Rock TX 186,380 413,957 600,337 San Antonio TX 130,833 606,596 737,429 San Antonio TX 102,512 475,288 577,800 San Antonio TX 81,530 378,007 459,537 San Antonio TX 139,125 308,997 448,122 San Antonio TX 181,412 402,923 584,335 San Antonio TX 162,161 360,166 522,327 San Antonio TX 234,500 520,831 755,331 San Antonio TX 217,000 481,967 698,967 San Antonio TX 182,868 406,155 589,023 San Antonio TX 220,500 447,108 667,608 Southlake TX 228,279 511,750 740,029 Sugarland TX 193,800 430,437 624,237 The Woodlands TX 193,801 430,440 624,241 Watauga TX 165,914 368,502 534,416 Layton UT 136,574 269,008 405,582 Page F-47 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Houston TX 142,354 05/22/87 300 Houston TX 142,740 07/24/87 300 Houston TX 201,511 09/30/88 300 Houston TX 198,695 11/16/88 300 Houston TX 139,528 06/26/89 300 Houston TX 28,991 01/11/99 08/14/98 300 Katy TX 37,540 11/30/98 08/14/98 300 Lewisville TX 242,526 06/26/85 300 Lewisville TX 201,828 01/07/87 300 Lewisville TX 173,083 12/29/88 300 Mansfield TX 149,421 12/20/89 300 Mesquite TX 280,715 10/24/84 300 Mesquite TX 127,563 10/08/92 300 Missouri City TX 147,329 12/13/90 300 N. Richland HillsTX 218,893 09/26/88 300 Pasadena TX 198,152 10/23/84 300 Plano TX 274,807 01/06/87 300 Plano TX 244,943 12/10/87 300 Plano TX 238,205 09/27/88 300 Round Rock TX 221,085 12/16/86 300 Round Rock TX 163,053 04/19/89 300 San Antonio TX 380,562 03/24/86 300 San Antonio TX 282,913 12/03/86 300 San Antonio TX 225,005 12/11/86 300 San Antonio TX 142,354 05/22/87 300 San Antonio TX 183,264 07/07/87 300 San Antonio TX 163,818 07/07/87 300 San Antonio TX 229,285 12/29/87 300 San Antonio TX 198,185 10/14/88 300 San Antonio TX 164,663 12/06/88 300 San Antonio TX 177,399 03/30/89 300 Southlake TX 168,206 03/10/93 300 Sugarland TX 195,779 07/31/87 300 The Woodlands TX 194,521 08/11/87 300 Watauga TX 167,608 07/07/87 300 Layton UT 107,017 02/01/90 300 Page F-48 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Sandy UT 168,089 373,330 None None Centreville VA 371,000 824,003 None None Chesapeake VA 190,050 422,107 None None Glen Allen VA 74,643 346,060 None None Portsmouth VA 171,575 381,073 None None Richmond VA 71,001 327,771 None 322 Richmond VA 269,500 598,567 None None Virginia Beach VA 69,080 320,270 None 322 Virginia Beach VA 124,988 579,496 None None Woodbridge VA 358,050 795,239 None None Everett WA 120,000 540,363 None None Federal Way WA 150,785 699,101 None None Federal Way WA 261,943 581,782 None None Kent WA 128,300 539,141 None None Kent WA 140,763 678,809 None None Kirkland WA 301,000 668,534 None None Puyallup WA 195,552 434,327 None None Redmond WA 279,830 621,513 None None Renton WA 111,183 515,490 None None Appleton WI 196,000 424,038 None None Brookfield WI 233,100 461,500 None None Waukesha WI 215,950 427,546 None None Cheyenne WY 59,856 277,506 None None Consumer Electronics - -------------------- Oxford AL 323,085 406,655 None None Tuscaloosa AL 204,790 585,115 None None Thousand Oaks CA 2,703,726 6,125,829 None 68 Bradenton FL 174,948 240,928 None None MaryEsther FL 149,696 363,263 None None Melbourne FL 269,697 522,414 None None Merritt Island FL 309,652 482,459 None None Ocala FL 339,690 543,504 None None Pensacola FL 419,842 1,899,287 None None Tallahassee FL 319,807 502,697 None 283 Titusville FL 176,459 579,793 None None Page F-49 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Sandy UT 168,089 373,330 541,419 Centreville VA 371,000 824,003 1,195,003 Chesapeake VA 190,050 422,107 612,157 Glen Allen VA 74,643 346,060 420,703 Portsmouth VA 171,575 381,073 552,648 Richmond VA 71,001 328,093 399,094 Richmond VA 269,500 598,567 868,067 Virginia Beach VA 69,080 320,592 389,672 Virginia Beach VA 124,988 579,496 704,484 Woodbridge VA 358,050 795,239 1,153,289 Everett WA 120,000 540,363 660,363 Federal Way WA 150,785 699,101 849,886 Federal Way WA 261,943 581,782 843,725 Kent WA 128,300 539,141 667,441 Kent WA 140,763 678,809 819,572 Kirkland WA 301,000 668,534 969,534 Puyallup WA 195,552 434,327 629,879 Redmond WA 279,830 621,513 901,343 Renton WA 111,183 515,490 626,673 Appleton WI 196,000 424,038 620,038 Brookfield WI 233,100 461,500 694,600 Waukesha WI 215,950 427,546 643,496 Cheyenne WY 59,856 277,733 337,589 Consumer Electronics - -------------------- Oxford AL 323,085 406,655 729,740 Tuscaloosa AL 204,790 585,115 789,905 Thousand Oaks CA 2,703,726 6,125,897 8,829,623 Bradenton FL 174,948 240,928 415,876 MaryEsther FL 149,696 363,263 512,959 Melbourne FL 269,697 522,414 792,111 Merritt Island FL 309,652 482,459 792,111 Ocala FL 339,690 543,504 883,194 Pensacola FL 419,842 1,899,287 2,319,129 Tallahassee FL 319,807 502,980 822,787 Titusville FL 176,459 579,793 756,252 Page F-50 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Sandy UT 136,338 02/01/90 300 Centreville VA 312,724 09/29/89 300 Chesapeake VA 167,479 03/28/89 300 Glen Allen VA 251,876 06/20/84 300 Portsmouth VA 154,494 12/21/88 300 Richmond VA 214,206 09/04/85 300 Richmond VA 237,492 03/28/89 300 Virginia Beach VA 227,875 11/15/84 300 Virginia Beach VA 363,561 03/25/86 300 Woodbridge VA 329,302 09/29/88 300 Everett WA 540,363 11/22/82 180 Federal Way WA 413,987 12/17/86 300 Federal Way WA 237,541 11/21/88 300 Kent WA 539,141 06/03/83 180 Kent WA 401,971 12/17/86 300 Kirkland WA 288,470 03/31/88 300 Puyallup WA 176,083 12/06/88 300 Redmond WA 282,688 07/27/87 300 Renton WA 323,404 03/24/86 300 Appleton WI 152,547 07/10/90 300 Brookfield WI 155,377 12/13/90 300 Waukesha WI 143,946 12/13/90 300 Cheyenne WY 196,595 11/20/84 300 Consumer Electronics - -------------------- Oxford AL 50,832 11/26/96 300 Tuscaloosa AL 73,139 11/26/96 300 Thousand Oaks CA 806,563 09/09/96 300 Bradenton FL 30,116 11/26/96 300 MaryEsther FL 45,408 11/26/96 300 Melbourne FL 65,302 11/26/96 300 Merritt Island FL 60,307 11/26/96 300 Ocala FL 67,938 11/26/96 300 Pensacola FL 237,411 11/26/96 300 Tallahassee FL 62,837 11/26/96 300 Titusville FL 72,474 11/26/96 300 Page F-51 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Consumer Electronics - -------------------- Venice FL 259,686 362,562 None None Rome GA 254,902 486,812 None None Smyrna GA 1,094,058 3,090,236 None None Council Bluffs IA 255,217 117,792 None None Des Moines IA 188,520 367,614 None None Peoria IL 193,868 387,737 None None Rockford IL 159,587 618,398 None None Springfield IL 219,859 630,595 None None Anderson IN 180,628 653,162 None None Muncie IN 148,901 645,235 None None Richmond IN 93,999 193,753 None None Topeka KS 974,960 3,472,226 None None Columbus MS 144,908 463,707 None None Greenville MS 144,588 433,764 None None Gulfport MS 299,464 502,326 None None Hattiesburg MS 198,659 457,379 None None Jackson MS 405,360 656,296 None None Meridian MS 181,156 515,598 None None Tupelo MS 121,697 637,691 None None Vicksburg MS 494,532 174,541 None None Lakewood NY 144,859 526,301 None None Defiance OH 97,978 601,863 None None Kettering OH 229,246 488,393 None None Bristol TN 344,365 468,719 None None Clarksville TN 290,775 395,870 None None Vienna WV 324,797 526,670 None None Convenience Stores - ------------------ Fullerton CA 29,170 41,003 2,214 11,934 Manchester CT 118,262 305,510 None None Vernon CT 179,646 319,372 None None Westbrook CT 98,247 373,340 None None Archer FL 296,238 578,145 None None Gainesville FL 515,834 873,187 None None Gainesville FL 480,318 600,633 None None Gainesville FL 347,310 694,859 None None Page F-52 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Consumer Electronics - -------------------- Venice FL 259,686 362,562 622,248 Rome GA 254,902 486,812 741,714 Smyrna GA 1,094,058 3,090,236 4,184,294 Council Bluffs IA 255,217 117,792 373,009 Des Moines IA 188,520 367,614 556,134 Peoria IL 193,868 387,737 581,605 Rockford IL 159,587 618,398 777,985 Springfield IL 219,859 630,595 850,454 Anderson IN 180,628 653,162 833,790 Muncie IN 148,901 645,235 794,136 Richmond IN 93,999 193,753 287,752 Topeka KS 974,960 3,472,226 4,447,186 Columbus MS 144,908 463,707 608,615 Greenville MS 144,588 433,764 578,352 Gulfport MS 299,464 502,326 801,790 Hattiesburg MS 198,659 457,379 656,038 Jackson MS 405,360 656,296 1,061,656 Meridian MS 181,156 515,598 696,754 Tupelo MS 121,697 637,691 759,388 Vicksburg MS 494,532 174,541 669,073 Lakewood NY 144,859 526,301 671,160 Defiance OH 97,978 601,863 699,841 Kettering OH 229,246 488,393 717,639 Bristol TN 344,365 468,719 813,084 Clarksville TN 290,775 395,870 686,645 Vienna WV 324,797 526,670 851,467 Convenience Stores - ------------------ Fullerton CA 29,170 55,151 84,321 Manchester CT 118,262 305,510 423,772 Vernon CT 179,646 319,372 499,018 Westbrook CT 98,247 373,340 471,587 Archer FL 296,238 578,145 874,383 Gainesville FL 515,834 873,187 1,389,021 Gainesville FL 480,318 600,633 1,080,951 Gainesville FL 347,310 694,859 1,042,169 Page F-53 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Consumer Electronics - -------------------- Venice FL 45,320 11/26/96 300 Rome GA 60,852 11/26/96 300 Smyrna GA 313,464 06/09/97 300 Council Bluffs IA 14,724 11/26/96 300 Des Moines IA 45,952 11/26/96 300 Peoria IL 48,467 11/26/96 300 Rockford IL 77,300 11/26/96 300 Springfield IL 78,824 11/26/96 300 Anderson IN 81,630 11/11/96 300 Muncie IN 80,654 11/26/96 300 Richmond IN 24,219 11/26/96 300 Topeka KS 422,454 12/26/96 300 Columbus MS 57,963 11/26/96 300 Greenville MS 54,221 11/26/96 300 Gulfport MS 62,791 11/26/96 300 Hattiesburg MS 57,172 11/26/96 300 Jackson MS 82,037 11/26/96 300 Meridian MS 64,450 11/26/96 300 Tupelo MS 79,711 11/26/96 300 Vicksburg MS 21,818 11/26/96 300 Lakewood NY 65,788 11/26/96 300 Defiance OH 75,233 11/26/96 300 Kettering OH 61,049 11/26/96 300 Bristol TN 58,590 11/26/96 300 Clarksville TN 49,484 11/26/96 300 Vienna WV 65,834 11/26/96 300 Convenience Stores - ------------------ Fullerton CA 49,356 11/08/72 234 Manchester CT 58,556 03/03/95 300 Vernon CT 61,213 03/09/95 300 Westbrook CT 71,557 03/09/95 300 Archer FL 14,448 05/07/99 300 Gainesville FL 21,824 05/07/99 300 Gainesville FL 15,010 05/07/99 300 Gainesville FL 17,366 05/07/99 300 Page F-54 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Convenience Stores - ------------------ Gainesville FL 339,263 658,807 None None Gainesville FL 351,921 552,557 None None Gainesville FL 500,032 850,291 None None Jacksonville Bch FL 522,188 371,885 None None Orange Park FL 425,820 416,154 None None Augusta GA 320,000 382,323 None None Augusta GA 620,000 383,232 None None Augusta GA 540,000 337,853 None None Augusta GA 510,000 392,929 None None Augusta GA 180,000 422,020 None None Augusta GA 260,000 392,171 None None Hephzibah GA 580,000 523,535 None None Martinez GA 450,000 402,777 None None Dunwoody GA 545,462 724,254 None None Lithonia GA 386,784 776,436 None None Mabelton GA 491,069 355,957 None None Norcross GA 384,162 651,273 None None Stone Mountain GA 529,383 532,429 None None Godfrey IL 374,586 733,190 None None Granite City IL 362,287 737,255 None None Madison IL 173,812 625,030 None None New Albany IN 181,459 289,353 None None New Albany IN 262,465 331,796 None None Berea KY 252,077 360,815 None None Elizabethtown KY 286,106 286,106 None None Henderson KY 225,000 515,000 None None Lebanon KY 158,052 316,105 None None Louisville KY 198,926 368,014 None None Louisville KY 216,849 605,697 None None Mt. Washington KY 327,245 479,593 None None Owensboro KY 360,000 590,000 None None Seekonk MA 298,354 268,518 None None Flint MI 194,492 476,504 None None Greensboro NC 700,000 655,000 None None Cary NC 450,000 825,000 None None Greenville NC 330,000 515,000 None None Page F-55 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Convenience Stores - ------------------ Gainesville FL 339,263 658,807 998,070 Gainesville FL 351,921 552,557 904,478 Gainesville FL 500,032 850,291 1,350,323 Jacksonville Bch FL 522,188 371,885 894,073 Orange Park FL 425,820 416,154 841,974 Augusta GA 320,000 382,323 702,323 Augusta GA 620,000 383,232 1,003,232 Augusta GA 540,000 337,853 877,853 Augusta GA 510,000 392,929 902,929 Augusta GA 180,000 422,020 602,020 Augusta GA 260,000 392,171 652,171 Hephzibah GA 580,000 523,535 1,103,535 Martinez GA 450,000 402,777 852,777 Dunwoody GA 545,462 724,254 1,269,716 Lithonia GA 386,784 776,436 1,163,220 Mabelton GA 491,069 355,957 847,026 Norcross GA 384,162 651,273 1,035,435 Stone Mountain GA 529,383 532,429 1,061,812 Godfrey IL 374,586 733,190 1,107,776 Granite City IL 362,287 737,255 1,099,542 Madison IL 173,812 625,030 798,842 New Albany IN 181,459 289,353 470,812 New Albany IN 262,465 331,796 594,261 Berea KY 252,077 360,815 612,892 Elizabethtown KY 286,106 286,106 572,212 Henderson KY 225,000 515,000 740,000 Lebanon KY 158,052 316,105 474,157 Louisville KY 198,926 368,014 566,940 Louisville KY 216,849 605,697 822,546 Mt. Washington KY 327,245 479,593 806,838 Owensboro KY 360,000 590,000 950,000 Seekonk MA 298,354 268,518 566,872 Flint MI 194,492 476,504 670,996 Greensboro NC 700,000 655,000 1,355,000 Cary NC 450,000 825,000 1,275,000 Greenville NC 330,000 515,000 845,000 Page F-56 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Convenience Stores - ------------------ Gainesville FL 16,464 05/07/99 300 Gainesville FL 13,808 05/07/99 300 Gainesville FL 21,251 05/07/99 300 Jacksonville Bch FL 9,291 05/13/99 300 Orange Park FL 10,398 05/14/99 300 Augusta GA 7,002 07/22/99 300 Augusta GA 7,017 07/22/99 300 Augusta GA 6,186 07/22/99 300 Augusta GA 7,195 07/22/99 300 Augusta GA 7,730 07/22/99 300 Augusta GA 7,183 07/22/99 300 Hephzibah GA 9,589 07/22/99 300 Martinez GA 7,376 07/22/99 300 Dunwoody GA 73,280 06/27/97 300 Lithonia GA 78,646 06/27/97 300 Mabelton GA 35,946 06/27/97 300 Norcross GA 65,908 06/27/97 300 Stone Mountain GA 53,821 06/27/97 300 Godfrey IL 74,213 06/27/97 300 Granite City IL 74,634 06/25/97 300 Madison IL 63,321 06/27/97 300 New Albany IN 55,459 03/03/95 300 New Albany IN 63,594 03/06/95 300 Berea KY 69,156 03/08/95 300 Elizabethtown KY 54,837 03/03/95 300 Henderson KY 90,125 07/06/95 300 Lebanon KY 60,587 03/03/95 300 Louisville KY 70,536 03/03/95 300 Louisville KY 85,668 06/18/96 09/15/95 300 Mt. Washington KY 59,973 10/28/96 04/09/96 300 Owensboro KY 103,250 08/25/95 300 Seekonk MA 51,466 03/03/95 300 Flint MI 77,035 12/13/95 300 Greensboro NC 5,458 11/16/99 300 Cary NC 144,375 08/25/95 300 Greenville NC 90,125 08/25/95 300 Page F-57 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Convenience Stores - ------------------ Greenville NC 225,000 405,000 None None Jacksonville NC 150,000 530,000 None None Kinston NC 550,000 1,057,833 None None Kingston NY 257,763 456,042 None None Atwater OH 118,555 266,748 None None Columbus OH 147,296 304,411 None None Columbus OH 273,085 471,693 None None Cuyahoga Falls OH 297,982 357,579 None None Galion OH 138,981 327,597 None None Groveport OH 277,198 445,497 None None Perrysburg OH 211,678 390,680 None None Streetsboro OH 402,988 485,031 None None Tipp City OH 355,009 588,111 None None Triffin OH 117,017 273,040 None None Wadsworth OH 266,507 496,917 None None Tulsa OK 126,545 508,266 None None Aiken SC 320,000 432,527 None None Aiken SC 330,000 472,679 None None Aiken SC 560,000 543,588 None None Aiken SC 360,000 542,982 None None Aiken SC 540,000 388,058 None None Aiken SC 250,000 251,770 None None Belvedere SC 490,000 463,080 None None Greenville SC 390,000 462,847 None None Greenville SC 300,000 402,392 None None Greenville SC 370,000 432,695 None None Greenville SC 620,000 483,604 None None Greenville SC 720,000 534,059 None None Greenville SC 680,000 423,604 None None Greer SC 400,000 502,879 None None Jackson SC 170,000 632,626 None None Lexington SC 640,000 563,891 None None Lexington SC 540,000 563,588 None None Lexington SC 360,000 843,891 None None Mauldin SC 490,000 412,879 None None North Augusta SC 400,000 452,777 None None Page F-58 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Convenience Stores - ------------------ Greenville NC 225,000 405,000 630,000 Jacksonville NC 150,000 530,000 680,000 Kinston NC 550,000 1,057,833 1,607,833 Kingston NY 257,763 456,042 713,805 Atwater OH 118,555 266,748 385,303 Columbus OH 147,296 304,411 451,707 Columbus OH 273,085 471,693 744,778 Cuyahoga Falls OH 297,982 357,579 655,561 Galion OH 138,981 327,597 466,578 Groveport OH 277,198 445,497 722,695 Perrysburg OH 211,678 390,680 602,358 Streetsboro OH 402,988 485,031 888,019 Tipp City OH 355,009 588,111 943,120 Triffin OH 117,017 273,040 390,057 Wadsworth OH 266,507 496,917 763,424 Tulsa OK 126,545 508,266 634,811 Aiken SC 320,000 432,527 752,527 Aiken SC 330,000 472,679 802,679 Aiken SC 560,000 543,588 1,103,588 Aiken SC 360,000 542,982 902,982 Aiken SC 540,000 388,058 928,058 Aiken SC 250,000 251,770 501,770 Belvedere SC 490,000 463,080 953,080 Greenville SC 390,000 462,847 852,847 Greenville SC 300,000 402,392 702,392 Greenville SC 370,000 432,695 802,695 Greenville SC 620,000 483,604 1,103,604 Greenville SC 720,000 534,059 1,254,059 Greenville SC 680,000 423,604 1,103,604 Greer SC 400,000 502,879 902,879 Jackson SC 170,000 632,626 802,626 Lexington SC 640,000 563,891 1,203,891 Lexington SC 540,000 563,588 1,103,588 Lexington SC 360,000 843,891 1,203,891 Mauldin SC 490,000 412,879 902,879 North Augusta SC 400,000 452,777 852,777 Page F-59 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Convenience Stores - ------------------ Greenville NC 70,875 08/25/95 300 Jacksonville NC 92,750 08/25/95 300 Kinston NC 92,750 10/01/97 300 Kingston NY 85,888 04/06/95 300 Atwater OH 51,127 03/03/95 300 Columbus OH 58,346 03/03/95 300 Columbus OH 76,257 12/21/95 300 Cuyahoga Falls OH 68,536 03/03/95 300 Galion OH 62,789 03/06/95 300 Groveport OH 72,022 12/21/95 300 Perrysburg OH 47,872 01/10/96 08/25/95 300 Streetsboro OH 37,363 01/27/97 07/24/96 300 Tipp City OH 46,028 01/31/97 05/31/96 300 Triffin OH 52,333 03/07/95 300 Wadsworth OH 45,675 11/26/96 06/28/96 300 Tulsa OK 51,462 06/27/97 300 Aiken SC 7,921 07/22/99 300 Aiken SC 8,657 07/22/99 300 Aiken SC 9,956 07/22/99 300 Aiken SC 9,945 07/22/99 300 Aiken SC 7,105 07/22/99 300 Aiken SC 4,609 07/22/99 300 Belvedere SC 8,481 07/22/99 300 Greenville SC 8,476 07/22/99 300 Greenville SC 7,369 07/22/99 300 Greenville SC 7,924 07/22/99 300 Greenville SC 8,856 07/22/99 300 Greenville SC 9,780 07/22/99 300 Greenville SC 7,756 07/22/99 300 Greer SC 9,212 07/22/99 300 Jackson SC 11,590 07/22/99 300 Lexington SC 10,327 07/22/99 300 Lexington SC 10,322 07/22/99 300 Lexington SC 15,461 07/22/99 300 Mauldin SC 7,562 07/22/99 300 North Augusta SC 8,293 07/22/99 300 Page F-60 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Convenience Stores - ------------------ North Augusta SC 350,000 352,323 None None Simpsonville SC 530,000 573,485 None None Spartanburg SC 470,000 432,879 None None W. Columbia SC 410,000 693,574 None None West Aiken SC 400,000 402,665 None None Columbia SC 150,000 450,000 None None John's Isle SC 170,000 350,000 None None Lexington SC 255,000 545,000 None None Myrtle Beach SC 140,000 590,000 None None N. Charleston SC 400,000 650,000 None None Summerville SC 115,000 515,000 None None La Vergne TN 340,000 650,000 None None Shelbyville TN 200,000 465,000 None None Hampton VA 433,985 459,108 None None Midlothian VA 325,000 302,872 None None Newport News VA 490,616 205,304 None None Richmond VA 700,000 400,740 None None Richmond VA 700,000 440,965 None None Richmond VA 400,000 250,875 None None Richmond VA 1,000,000 740 None None Richmond VA 700,000 100,695 None None Stafford VA 271,865 601,997 None None Warrenton VA 515,971 649,125 None None Yorktown VA 309,435 447,144 None None Craft and Novelty - ----------------- Cutler Ridge FL 743,498 657,485 None 820 Stony Brook NY 980,000 1,801,586 None None Drug Stores - ----------- Casselberry FL -- 1,664,284 None None Entertainment - ------------- Vista CA 2,300,000 22 None None Dania FL 8,272,080 1,713 None None Roswell GA 3,383,780 1,126 None None Page F-61 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Convenience Stores - ------------------ North Augusta SC 350,000 352,323 702,323 Simpsonville SC 530,000 573,485 1,103,485 Spartanburg SC 470,000 432,879 902,879 W. Columbia SC 410,000 693,574 1,103,574 West Aiken SC 400,000 402,665 802,665 Columbia SC 150,000 450,000 600,000 John's Isle SC 170,000 350,000 520,000 Lexington SC 255,000 545,000 800,000 Myrtle Beach SC 140,000 590,000 730,000 N. Charleston SC 400,000 650,000 1,050,000 Summerville SC 115,000 515,000 630,000 La Vergne TN 340,000 650,000 990,000 Shelbyville TN 200,000 465,000 665,000 Hampton VA 433,985 459,108 893,093 Midlothian VA 325,000 302,872 627,872 Newport News VA 490,616 205,304 695,920 Richmond VA 700,000 400,740 1,100,740 Richmond VA 700,000 440,965 1,140,965 Richmond VA 400,000 250,875 650,875 Richmond VA 1,000,000 740 1,000,740 Richmond VA 700,000 100,695 800,695 Stafford VA 271,865 601,997 873,862 Warrenton VA 515,971 649,125 1,165,096 Yorktown VA 309,435 447,144 756,579 Craft and Novelty - ----------------- Cutler Ridge FL 743,498 658,305 1,401,803 Stony Brook NY 980,000 1,801,586 2,781,586 Drug Stores - ----------- Casselberry FL -- 1,664,284 1,664,284 Entertainment - ------------- Vista CA 2,300,000 22 2,300,022 Dania FL 8,272,080 1,713 8,273,793 Roswell GA 3,383,780 1,126 3,384,906 Page F-62 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Convenience Stores - ------------------ North Augusta SC 6,452 07/22/99 300 Simpsonville SC 10,506 07/23/99 300 Spartanburg SC 7,929 07/23/99 300 W. Columbia SC 12,706 07/22/99 300 West Aiken SC 7,374 07/22/99 300 Columbia SC 78,750 08/25/95 300 John's Isle SC 61,250 08/25/95 300 Lexington SC 95,375 08/25/95 300 Myrtle Beach SC 103,250 08/25/95 300 N. Charleston SC 113,750 08/25/95 300 Summerville SC 90,125 08/25/95 300 La Vergne TN 113,750 08/25/95 300 Shelbyville TN 81,375 08/25/95 300 Hampton VA 31,298 04/17/98 300 Midlothian VA 28,500 08/08/97 300 Newport News VA 13,966 04/17/98 300 Richmond VA 27,333 04/07/98 300 Richmond VA 30,067 04/17/98 300 Richmond VA 17,083 04/17/98 300 Richmond VA -- 04/17/98 300 Richmond VA 6,833 04/17/98 300 Stafford VA 73,242 12/20/96 300 Warrenton VA 78,977 11/26/96 300 Yorktown VA 30,447 04/17/98 300 Craft and Novelty - ----------------- Cutler Ridge FL 27,358 12/30/98 300 Stony Brook NY 69,040 12/31/98 300 Drug Stores - ----------- Casselberry FL 85,773 09/30/98 300 Entertainment - ------------- Vista CA -- 04/02/99 300 Dania FL -- 05/07/99 300 Roswell GA -- 06/30/99 300 Page F-63 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Entertainment - ------------- Flanders NJ 2,222,205 890 None None Brookhaven NY 1,500,000 745 None None Riverhead NY 3,800,000 744 None None General Merchandise - ------------------- Monte Vista CO 47,652 582,159 None None Groveland FL 101,782 189,258 None None Garnett KS 59,690 518,121 None None Caledonia MN 89,723 559,300 None None Long Prairie MN 88,892 553,997 None None Paynesville MN 49,483 525,406 None None Spring Valley MN 69,785 579,238 None None Warroad MN 70,000 580,000 None None Mayville ND 59,333 565,562 None None Bloomfield NM 59,559 616,252 None None Colorado City TX 92,535 505,276 None None Grocery - ------- Boulder CO 426,675 1,199,508 18,000 91,455 Sheboygan WI 1,513,216 4,339,469 None None Health and Fitness - ------------------ Diamond Bar CA 3,038,879 4,296,300 None None Norco CA 1,247,243 2,603,321 None None Paramount CA 86,400 278,827 None None Coral Springs FL 891,496 2,798,204 None None Pembroke Pines FL 1,714,388 357,703 None None West Kendall FL 3,115,101 2,031,834 None None Fort Worth TX 1,445,901 2,931,162 None None Home Furnishings - ---------------- Cathedral City CA 1,006,923 2,293,077 None 3,600 Danbury CT 630,171 3,621,163 None None Brandon FL 430,000 1,020,608 None None Tampa FL 685,000 885,624 None None Winter Park FL 2,404,598 3,382,402 None 376 Page F-64 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Entertainment - ------------- Flanders NJ 2,222,205 890 2,223,095 Brookhaven NY 1,500,000 745 1,500,745 Riverhead NY 3,800,000 744 3,800,744 General Merchandise - ------------------- Monte Vista CO 47,652 582,159 629,811 Groveland FL 101,782 189,258 291,040 Garnett KS 59,690 518,121 577,811 Caledonia MN 89,723 559,300 649,023 Long Prairie MN 88,892 553,997 642,889 Paynesville MN 49,483 525,406 574,889 Spring Valley MN 69,785 579,238 649,023 Warroad MN 70,000 580,000 650,000 Mayville ND 59,333 565,562 624,895 Bloomfield NM 59,559 616,252 675,811 Colorado City TX 92,535 505,276 597,811 Grocery - ------- Boulder CO 426,675 1,308,963 1,735,638 Sheboygan WI 1,513,216 4,339,469 5,852,685 Health and Fitness - ------------------ Diamond Bar CA 3,038,879 4,296,300 7,335,179 Norco CA 1,247,243 2,603,321 3,850,564 Paramount CA 86,400 278,827 365,227 Coral Springs FL 891,496 2,798,204 3,689,700 Pembroke Pines FL 1,714,388 357,703 2,072,091 West Kendall FL 3,115,101 2,031,834 5,146,935 Fort Worth TX 1,445,901 2,931,162 4,377,063 Home Furnishings - ---------------- Cathedral City CA 1,006,923 2,296,677 3,303,600 Danbury CT 630,171 3,621,163 4,251,334 Brandon FL 430,000 1,020,608 1,450,608 Tampa FL 685,000 885,624 1,570,624 Winter Park FL 2,404,598 3,382,778 5,787,376 Page F-65 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Entertainment - ------------- Flanders NJ -- 06/30/99 300 Brookhaven NY -- 10/01/99 300 Riverhead NY -- 08/24/99 300 General Merchandise - ------------------- Monte Vista CO 24,223 12/23/98 300 Groveland FL 5,986 03/31/99 300 Garnett KS 21,555 12/23/98 300 Caledonia MN 23,262 12/23/98 300 Long Prairie MN 23,046 12/23/98 300 Paynesville MN 21,855 12/18/98 300 Spring Valley MN 24,092 12/23/98 300 Warroad MN 24,167 12/23/98 300 Mayville ND 23,486 12/23/98 300 Bloomfield NM 25,643 12/23/98 300 Colorado City TX 21,019 12/23/98 300 Grocery - ------- Boulder CO 866,509 01/05/84 180 Sheboygan WI 64,433 06/03/99 08/24/98 300 Health and Fitness - ------------------ Diamond Bar CA 35,158 09/25/99 09/29/98 300 Norco CA -- In Process 06/30/99 300 Paramount CA 278,827 11/22/83 180 Coral Springs FL 132,789 11/03/98 03/30/98 300 Pembroke Pines FL -- In Process 11/08/99 300 West Kendall FL -- In Process 06/14/99 300 Fort Worth TX -- In Process 07/01/99 300 Home Furnishings - ---------------- Cathedral City CA 424,219 05/26/95 300 Danbury CT 330,045 09/30/97 300 Brandon FL 62,900 06/26/98 300 Tampa FL 54,575 06/26/98 300 Winter Park FL 625,744 05/31/95 300 Page F-66 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Home Furnishings - ---------------- Davenport IA 270,000 930,689 None None Joilet IL 440,000 910,689 None None Wichita KS 430,000 740,725 None None Alexandria LA 400,000 810,608 None None Monroe LA 450,000 835,608 None None Shreveport LA 525,000 725,642 None None Battle Creek MI 485,000 895,689 None None Eden Prairie MN 500,502 1,055,244 None None Hattiesburg MS 300,000 660,608 None None Ridgeland MS 281,867 769,890 None None Omaha NE 1,956,296 3,949,402 None None Henderson NV 1,268,655 3,109,995 None None Staten Island NY 3,190,883 2,569,802 None None Lancaster OH 250,000 830,689 None None Altoona PA 455,000 745,694 None None Erie PA 510,000 900,689 None None Muncy PA 315,000 835,648 None None Whitehall PA 515,525 1,146,868 None None Columbia SC 600,000 900,725 None None Jackson TN 380,000 750,608 None None Memphis TN 804,262 1,432,520 None None Abilene TX 400,000 680,616 None None Arlington TX 475,069 1,374,167 None None Cedar Park TX 253,591 827,237 None None Houston TX 867,767 687,042 None None Spring TX 1,794,872 1,810,069 None None Webster TX 283,604 538,002 None None Eau Claire WI 260,000 820,689 None None La Crosse WI 372,883 877,812 None None Home Improvement - ---------------- Mesa AZ 619,035 867,013 None None Lawndale CA 667,007 1,238,841 None None Los Angeles CA 902,494 1,676,204 None None Los Angeles CA 163,668 304,097 None None Van Nuys CA 750,293 1,393,545 None None Page F-67 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Home Furnishings - ---------------- Davenport IA 270,000 930,689 1,200,689 Joilet IL 440,000 910,689 1,350,689 Wichita KS 430,000 740,725 1,170,725 Alexandria LA 400,000 810,608 1,210,608 Monroe LA 450,000 835,608 1,285,608 Shreveport LA 525,000 725,642 1,250,642 Battle Creek MI 485,000 895,689 1,380,689 Eden Prairie MN 500,502 1,055,244 1,555,746 Hattiesburg MS 300,000 660,608 960,608 Ridgeland MS 281,867 769,890 1,051,757 Omaha NE 1,956,296 3,949,402 5,905,698 Henderson NV 1,268,655 3,109,995 4,378,650 Staten Island NY 3,190,883 2,569,802 5,760,685 Lancaster OH 250,000 830,689 1,080,689 Altoona PA 455,000 745,694 1,200,694 Erie PA 510,000 900,689 1,410,689 Muncy PA 315,000 835,648 1,150,648 Whitehall PA 515,525 1,146,868 1,662,393 Columbia SC 600,000 900,725 1,500,725 Jackson TN 380,000 750,608 1,130,608 Memphis TN 804,262 1,432,520 2,236,782 Abilene TX 400,000 680,616 1,080,616 Arlington TX 475,069 1,374,167 1,849,236 Cedar Park TX 253,591 827,237 1,080,828 Houston TX 867,767 687,042 1,554,809 Spring TX 1,794,872 1,810,069 3,604,941 Webster TX 283,604 538,002 821,606 Eau Claire WI 260,000 820,689 1,080,689 La Crosse WI 372,883 877,812 1,250,695 Home Improvement - ---------------- Mesa AZ 619,035 867,013 1,486,048 Lawndale CA 667,007 1,238,841 1,905,848 Los Angeles CA 902,494 1,676,204 2,578,698 Los Angeles CA 163,668 304,097 467,765 Van Nuys CA 750,293 1,393,545 2,143,838 Page F-68 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Home Furnishings - ---------------- Davenport IA 57,350 06/26/98 300 Joilet IL 56,117 06/26/98 300 Wichita KS 45,633 06/26/98 300 Alexandria LA 49,950 06/26/98 300 Monroe LA 51,492 06/26/98 300 Shreveport LA 44,708 06/26/98 300 Battle Creek MI 55,192 06/26/98 300 Eden Prairie MN 36,857 03/04/99 300 Hattiesburg MS 40,700 06/26/98 300 Ridgeland MS 77,840 06/27/97 300 Omaha NE 427,059 04/02/97 300 Henderson NV 283,465 09/18/97 300 Staten Island NY 182,944 03/26/98 300 Lancaster OH 51,183 06/26/98 300 Altoona PA 45,942 06/26/98 300 Erie PA 55,500 06/26/98 300 Muncy PA 51,492 06/26/98 300 Whitehall PA 70,680 06/30/98 300 Columbia SC 55,500 06/26/98 300 Jackson TN 46,250 06/26/98 300 Memphis TN 144,950 06/27/97 300 Abilene TX 41,933 06/12/98 300 Arlington TX 152,967 03/10/97 300 Cedar Park TX 92,088 03/13/97 300 Houston TX 76,264 03/07/97 300 Spring TX 164,530 09/26/97 300 Webster TX 54,417 06/12/97 300 Eau Claire WI 50,567 06/26/98 300 La Crosse WI 54,089 06/26/98 300 Home Improvement - ---------------- Mesa AZ 30,333 02/24/99 300 Lawndale CA 51,614 12/31/98 300 Los Angeles CA 69,836 12/31/98 300 Los Angeles CA 12,665 12/31/98 300 Van Nuys CA 58,058 12/31/98 300 Page F-69 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Home Improvement - ---------------- West Covina CA 311,040 577,733 None None Arvada CO 800,000 115,119 None None Boca Raton FL 355,000 864,636 None None Clearwater FL 476,179 725,023 None None Deerfield Beach FL 475,000 868,890 None None Jacksonville FL 478,314 618,348 None None Port Orange FL 500,000 1,209,769 None None Seminole FL 593,304 767,184 None None Tampa FL 494,763 767,737 None None Tampa FL 347,794 905,117 None None West Palm Beach FL 698,664 1,223,504 None None West Palm Beach FL 347,651 706,081 None None Des Moines IA 225,771 682,604 None None Broadview IL 345,166 641,739 None None Indianapolis IN 350,000 671,381 None None Baltimore MD 171,320 318,882 None None Huntersville NC 530,000 1,018,907 None None Matthews NC 768,222 843,401 None None Pineville NC 567,864 840,284 None None Albuquerque NM 684,036 874,914 None None Rochester NY 158,168 294,456 None None Reading PA 201,569 375,056 None None Pasadena TX 147,535 274,521 None None Plano TX 363,851 676,249 None None San Antonio TX 367,890 683,750 None None San Antonio TX 432,389 816,532 None None San Antonio TX 323,451 637,991 None None Riverdale UT 346,861 694,612 None None Chesapeake VA 144,014 649,869 None 11,754 Office Supplies - --------------- Lakewood CA 1,398,387 3,098,607 None None Riverside CA 1,410,177 1,659,850 None None Hutchinson KS 269,964 1,704,013 None None Salina KS 240,423 1,829,837 None None Helena MT 564,241 1,503,118 None None Page F-70 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Home Improvement - ---------------- West Covina CA 311,040 577,733 888,773 Arvada CO 800,000 115,119 915,119 Boca Raton FL 355,000 864,636 1,219,636 Clearwater FL 476,179 725,023 1,201,202 Deerfield Beach FL 475,000 868,890 1,343,890 Jacksonville FL 478,314 618,348 1,096,662 Port Orange FL 500,000 1,209,769 1,709,769 Seminole FL 593,304 767,184 1,360,488 Tampa FL 494,763 767,737 1,262,500 Tampa FL 347,794 905,117 1,252,911 West Palm Beach FL 698,664 1,223,504 1,922,168 West Palm Beach FL 347,651 706,081 1,053,732 Des Moines IA 225,771 682,604 908,375 Broadview IL 345,166 641,739 986,905 Indianapolis IN 350,000 671,381 1,021,381 Baltimore MD 171,320 318,882 490,202 Huntersville NC 530,000 1,018,907 1,548,907 Matthews NC 768,222 843,401 1,611,623 Pineville NC 567,864 840,284 1,408,148 Albuquerque NM 684,036 874,914 1,558,950 Rochester NY 158,168 294,456 452,624 Reading PA 201,569 375,056 576,625 Pasadena TX 147,535 274,521 422,056 Plano TX 363,851 676,249 1,040,100 San Antonio TX 367,890 683,750 1,051,640 San Antonio TX 432,389 816,532 1,248,921 San Antonio TX 323,451 637,991 961,442 Riverdale UT 346,861 694,612 1,041,473 Chesapeake VA 144,014 661,623 805,637 Office Supplies - --------------- Lakewood CA 1,398,387 3,098,607 4,496,994 Riverside CA 1,410,177 1,659,850 3,070,027 Hutchinson KS 269,964 1,704,013 1,973,977 Salina KS 240,423 1,829,837 2,070,260 Helena MT 564,241 1,503,118 2,067,359 Page F-71 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Home Improvement - ---------------- West Covina CA 24,069 12/31/98 300 Arvada CO -- In Process 06/30/99 300 Boca Raton FL 8,958 09/01/99 01/29/99 300 Clearwater FL 30,175 12/31/98 300 Deerfield Beach FL 26,404 02/25/99 01/29/99 300 Jacksonville FL 25,743 12/31/98 300 Port Orange FL 26,234 05/11/99 01/29/99 300 Seminole FL 31,931 12/31/98 300 Tampa FL 31,953 12/31/98 300 Tampa FL 37,678 12/31/98 300 West Palm Beach FL 50,944 12/31/98 300 West Palm Beach FL 29,385 12/31/98 300 Des Moines IA 26,152 02/11/99 300 Broadview IL 26,709 12/31/98 300 Indianapolis IN 16,662 03/29/99 02/10/99 300 Baltimore MD 13,257 12/31/98 300 Huntersville NC 18,648 12/18/98 01/29/99 300 Matthews NC 35,107 12/31/98 300 Pineville NC 34,977 12/31/98 300 Albuquerque NM 36,407 12/31/98 300 Rochester NY 12,239 12/31/98 300 Reading PA 15,598 12/31/98 300 Pasadena TX 11,416 12/31/98 300 Plano TX 28,155 12/31/98 300 San Antonio TX 28,468 12/31/98 300 San Antonio TX 33,985 12/31/98 300 San Antonio TX 26,546 12/31/98 300 Riverdale UT 28,905 12/31/98 300 Chesapeake VA 397,491 12/22/86 300 Office Supplies - --------------- Lakewood CA 366,411 12/27/96 300 Riverside CA 151,554 09/05/97 300 Hutchinson KS 172,810 06/25/97 300 Salina KS 185,563 06/20/97 300 Helena MT 152,141 06/06/97 300 Page F-72 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Office Supplies - --------------- Asheboro NC 465,557 2,176,416 None None Westbury NY 3,808,076 2,377,932 None None New Philadelphia OH 726,636 1,650,672 None None Pet Supplies and Services - ------------------------- Duluth GA 254,100 1,121,270 None None Marrietta GA 350,000 1,069,043 None None Indianapolis IN 427,000 764,514 None None Sudbury MA 385,000 1,594,430 None None Tyngsborough MA 312,204 1,222,522 None None Matthews NC 610,177 1,394,743 None None North Plainfield NJ -- 1,038,855 None None Dickson City PA 659,790 1,880,722 None None Private Education - ----------------- Coconut Creek FL 310,111 1,243,682 None None North Lauderdale FL 1,050,000 2,567,811 None None Las Vegas NV 1,080,444 3,346,772 None None Springfield VA 300,000 213,116 None None Centerville VA 688,917 2,339,597 None None University Place WA 255,000 718,614 53,612 24,142 Restaurants - ----------- Siloam Springs AR 190,000 352,808 None None Douglas AZ 75,000 347,719 None None Glendale AZ 624,761 895,976 None 76 Tucson AZ 107,393 497,904 None None Yuma AZ 236,121 541,651 None None Barstow CA 689,842 690,204 None None Chino CA 79,984 154,303 None 3,000 Diamond Bar CA 76,117 183,052 None 25,858 Fullerton CA 36,296 51,020 None 14,628 Hemet CA 106,164 199,179 11,922 7 Livermore CA 662,161 823,242 None None Rancho Cucamonga CA 230,733 481,225 None None Rancho Cucamonga CA 95,192 441,334 None None Page F-73 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Office Supplies - --------------- Asheboro NC 465,557 2,176,416 2,641,973 Westbury NY 3,808,076 2,377,932 6,186,008 New Philadelphia OH 726,636 1,650,672 2,377,308 Pet Supplies and Services - ------------------------- Duluth GA 254,100 1,121,270 1,375,370 Marrietta GA 350,000 1,069,043 1,419,043 Indianapolis IN 427,000 764,514 1,191,514 Sudbury MA 385,000 1,594,430 1,979,430 Tyngsborough MA 312,204 1,222,522 1,534,726 Matthews NC 610,177 1,394,743 2,004,920 North Plainfield NJ -- 1,038,855 1,038,855 Dickson City PA 659,790 1,880,722 2,540,512 Private Education - ----------------- Coconut Creek FL 310,111 1,243,682 1,553,793 North Lauderdale FL 1,050,000 2,567,811 3,617,811 Las Vegas NV 1,080,444 3,346,772 4,427,216 Springfield VA 300,000 213,116 513,116 Centerville VA 688,917 2,339,597 3,028,514 University Place WA 255,000 796,368 1,051,368 Restaurants - ----------- Siloam Springs AR 190,000 352,808 542,808 Douglas AZ 75,000 347,719 422,719 Glendale AZ 624,761 896,052 1,520,813 Tucson AZ 107,393 497,904 605,297 Yuma AZ 236,121 541,651 777,772 Barstow CA 689,842 690,204 1,380,046 Chino CA 79,984 157,303 237,287 Diamond Bar CA 76,117 208,910 285,027 Fullerton CA 36,296 65,648 101,944 Hemet CA 106,164 211,108 317,272 Livermore CA 662,161 823,242 1,485,403 Rancho Cucamonga CA 230,733 481,225 711,958 Rancho Cucamonga CA 95,192 441,334 536,526 Page F-74 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Office Supplies - --------------- Asheboro NC 155,394 03/27/98 300 Westbury NY 216,093 09/29/97 300 New Philadelphia OH 172,836 05/28/97 300 Pet Supplies and Services - ------------------------- Duluth GA 34,954 01/27/99 09/29/98 300 Marrietta GA 17,105 05/28/99 09/29/98 300 Indianapolis IN -- In Process 01/29/99 300 Sudbury MA -- In Process 09/29/98 300 Tyngsborough MA 75,260 06/12/98 300 Matthews NC 81,207 07/16/98 300 North Plainfield NJ 53,183 09/24/98 300 Dickson City PA 190,056 06/12/97 300 Private Education - ----------------- Coconut Creek FL 18,529 08/02/99 11/23/98 300 North Lauderdale FL 183,467 03/27/98 300 Las Vegas NV 239,335 02/27/98 300 Springfield VA -- In Process 11/18/99 300 Centerville VA 50,445 05/07/99 09/30/98 300 University Place WA 521,747 11/06/84 300 Restaurants - ----------- Siloam Springs AR 29,750 11/14/97 300 Douglas AZ 223,545 11/27/85 300 Glendale AZ 135,890 02/19/96 300 Tucson AZ 318,421 01/17/86 300 Yuma AZ 35,172 04/23/98 300 Barstow CA 35,642 09/23/98 300 Chino CA 154,504 06/23/75 300 Diamond Bar CA 181,395 09/25/78 300 Fullerton CA 59,309 11/08/72 234 Hemet CA 191,353 04/15/77 300 Livermore CA 42,505 09/21/98 300 Rancho Cucamonga CA 481,225 04/03/81 180 Rancho Cucamonga CA 282,020 12/20/85 300 Page F-75 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Red Bluff CA 136,740 633,984 None None Riverside CA 90,000 170,394 None None Sacramento CA 386,793 417,290 None None San Dimas CA 240,562 445,521 None None San Ramon CA 406,000 1,126,930 None None Colorado Springs CO 152,000 704,736 None None Colorado Springs CO 313,250 695,730 None None Montrose CO 217,595 483,284 None None Sterling CO 95,320 441,928 None None Westminster CO 338,940 1,571,401 20,000 13,440 Oviedo FL 204,200 659,585 None None Casselberry FL 403,900 897,075 None None Green Cove Sprgs FL 86,240 399,828 None None Jacksonville FL 150,210 693,445 None None Jacksonville FL 143,299 664,373 None None Orlando FL 230,000 1,066,339 None None Orlando FL 209,800 972,679 None None Orlando FL 339,500 746,333 None None Orlando FL 600,000 949,489 None None Palm Bay FL 330,000 556,668 None None Garden City GA 197,225 438,043 None None Hinesville GA 89,220 413,644 None None Hinesville GA 172,611 383,376 None None Lithonia GA 89,220 413,647 None None Savannah GA 143,993 345,548 None None Savannah GA 165,409 367,380 None None Statesboro GA 201,250 446,983 None None Stone Mountain GA 215,940 1,001,188 None None Ankeny IA 100,000 349,218 None None Boone IA 76,000 386,170 None None Boise ID 190,894 423,981 None None Boise ID 161,352 334,041 None None Nampa ID 74,156 343,820 None None Rexburg ID 90,760 420,787 None None Alton IL 225,785 419,315 None None Dixon IL 230,090 511,036 None None Page F-76 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Red Bluff CA 136,740 633,984 770,724 Riverside CA 90,000 170,394 260,394 Sacramento CA 386,793 417,290 804,083 San Dimas CA 240,562 445,521 686,083 San Ramon CA 406,000 1,126,930 1,532,930 Colorado Springs CO 152,000 704,736 856,736 Colorado Springs CO 313,250 695,730 1,008,980 Montrose CO 217,595 483,284 700,879 Sterling CO 95,320 441,928 537,248 Westminster CO 338,940 1,604,841 1,943,781 Oviedo FL 204,200 659,585 863,785 Casselberry FL 403,900 897,075 1,300,975 Green Cove Sprgs FL 86,240 399,828 486,068 Jacksonville FL 150,210 693,445 843,655 Jacksonville FL 143,299 664,373 807,672 Orlando FL 230,000 1,066,339 1,296,339 Orlando FL 209,800 972,679 1,182,479 Orlando FL 339,500 746,333 1,085,833 Orlando FL 600,000 949,489 1,549,489 Palm Bay FL 330,000 556,668 886,668 Garden City GA 197,225 438,043 635,268 Hinesville GA 89,220 413,644 502,864 Hinesville GA 172,611 383,376 555,987 Lithonia GA 89,220 413,647 502,867 Savannah GA 143,993 345,548 489,541 Savannah GA 165,409 367,380 532,789 Statesboro GA 201,250 446,983 648,233 Stone Mountain GA 215,940 1,001,188 1,217,128 Ankeny IA 100,000 349,218 449,218 Boone IA 76,000 386,170 462,170 Boise ID 190,894 423,981 614,875 Boise ID 161,352 334,041 495,393 Nampa ID 74,156 343,820 417,976 Rexburg ID 90,760 420,787 511,547 Alton IL 225,785 419,315 645,100 Dixon IL 230,090 511,036 741,126 Page F-77 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Red Bluff CA 375,428 12/18/86 300 Riverside CA 164,892 12/09/76 300 Sacramento CA 24,321 07/29/98 300 San Dimas CA 445,521 03/12/81 180 San Ramon CA 1,126,930 12/08/83 180 Colorado Springs CO 425,622 09/30/86 300 Colorado Springs CO 324,608 03/10/87 300 Montrose CO 212,755 12/17/87 300 Sterling CO 311,353 12/27/84 300 Westminster CO 1,175,748 06/28/84 300 Oveido FL -- 10/27/99 300 Casselberry FL 325,934 12/29/89 300 Green Cove Sprgs FL 281,693 12/19/84 300 Jacksonville FL 453,184 09/13/85 300 Jacksonville FL 426,546 12/13/85 300 Orlando FL 685,539 11/18/85 300 Orlando FL 594,238 08/15/86 300 Orlando FL 324,211 02/03/88 300 Orlando FL 23,532 05/27/99 12/18/98 300 Palm Bay FL 17,441 02/17/99 12/29/98 300 Garden City GA 172,540 04/20/89 300 Hinesville GA 291,424 12/20/84 300 Hinesville GA 168,774 12/22/87 300 Lithonia GA 291,083 01/04/85 300 Savannah GA 152,121 12/22/87 300 Savannah GA 161,732 12/22/87 300 Statesboro GA 167,075 11/14/89 300 Stone Mountain GA 600,739 10/30/86 300 Ankeny IA 349,218 07/28/83 180 Boone IA 386,170 12/27/83 180 Boise ID 180,483 05/17/88 300 Boise ID 137,357 10/07/88 300 Nampa ID 203,601 12/31/86 300 Rexburg ID 270,521 11/25/85 300 Alton IL 172,422 10/18/88 300 Dixon IL 224,957 12/28/87 300 Page F-78 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Salem IL 213,815 474,892 None None Anderson IN 197,523 438,706 None None Bedford IN 311,815 692,543 None None Decatur IN 181,020 385,618 None None Goshen IN 115,000 533,165 None None Muncie IN 136,400 632,380 8,000 13,335 Muncie IN 67,156 149,157 None None New Castle IN 246,192 320,572 None None Shelbyville IN 128,820 597,263 None None South Bend IN 133,200 617,545 None 19,211 Westfield IN 213,341 477,300 None None Derby KS 96,060 445,359 None None El Dorado KS 87,400 405,206 None None Great Bend KS 95,800 444,154 None None Wichita KS 98,000 454,350 None None Lexington KY 122,200 490,200 None None Alexandria LA 143,000 662,985 None 15,000 Jennings LA 107,120 496,636 None None La Plata MD 120,140 557,000 None None Flint MI 827,853 -- None None Sturgis MI 210,560 467,659 None None Albert Lea MN 213,150 473,412 None None Red Wing MN 248,325 551,541 None None Roseville MN 281,600 1,305,560 None None Belton MO 89,328 418,187 None None Blue Springs MO 111,440 516,665 None None Carthage MO 85,020 394,175 None None Chillicothe MO 81,080 375,908 None None Fulton MO 210,199 466,861 None None Hannibal MO 266,011 590,822 None None Hazelwood MO 157,117 725,327 None 12,930 Jackson MO 210,199 466,860 None None Mt. Vernon MO 160,000 282,586 None None Nevada MO 222,552 494,296 None None Ozark MO 140,000 292,482 None None Sedalia MO 269,798 599,231 None None Page F-79 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Salem IL 213,815 474,892 688,707 Anderson IN 197,523 438,706 636,229 Bedford IN 311,815 692,543 1,004,358 Decatur IN 181,020 385,618 566,638 Goshen IN 115,000 533,165 648,165 Muncie IN 136,400 653,715 790,115 Muncie IN 67,156 149,157 216,313 New Castle IN 246,192 320,572 566,764 Shelbyville IN 128,820 597,263 726,083 South Bend IN 133,200 636,756 769,956 Westfield IN 213,341 477,300 690,641 Derby KS 96,060 445,359 541,419 El Dorado KS 87,400 405,206 492,606 Great Bend KS 95,800 444,154 539,954 Wichita KS 98,000 454,350 552,350 Lexington KY 122,200 490,200 612,400 Alexandria LA 143,000 677,985 820,985 Jennings LA 107,120 496,636 603,756 La Plata MD 120,140 557,000 677,140 Flint MI 827,853 -- 827,853 Sturgis MI 210,560 467,659 678,219 Albert Lea MN 213,150 473,412 686,562 Red Wing MN 248,325 551,541 799,866 Roseville MN 281,600 1,305,560 1,587,160 Belton MO 89,328 418,187 507,515 Blue Springs MO 111,440 516,665 628,105 Carthage MO 85,020 394,175 479,195 Chillicothe MO 81,080 375,908 456,988 Fulton MO 210,199 466,861 677,060 Hannibal MO 266,011 590,822 856,833 Hazelwood MO 157,117 738,257 895,374 Jackson MO 210,199 466,860 677,059 Mt. Vernon MO 160,000 282,586 442,586 Nevada MO 222,552 494,296 716,848 Ozark MO 140,000 292,482 432,482 Sedalia MO 269,798 599,231 869,029 Page F-80 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Salem IL 211,833 10/30/87 300 Anderson IN 185,478 03/25/88 300 Bedford IN 314,994 07/15/87 300 Decatur IN 179,917 03/31/87 300 Goshen IN 327,807 07/07/86 300 Muncie IN 400,113 03/18/86 300 Muncie IN 64,361 03/30/88 300 New Castle IN 149,443 01/07/87 300 Shelbyville IN 353,682 12/18/86 300 South Bend IN 397,674 04/28/86 300 Westfield IN 175,016 12/21/89 300 Derby KS 288,039 10/29/85 300 El Dorado KS 253,870 04/10/86 300 Great Bend KS 312,919 12/26/84 300 Wichita KS 277,574 08/08/86 300 Lexington KY 291,797 12/03/86 300 Alexandria LA 432,840 01/17/86 300 Jennings LA 321,203 10/17/85 300 La Plata MD 357,610 12/03/85 300 Flint MI -- 04/13/95 300 Sturgis MI 207,241 11/12/87 300 Albert Lea MN 208,424 12/16/87 300 Red Wing MN 242,779 12/30/87 300 Roseville MN 919,807 12/18/84 300 Belton MO 294,627 12/18/84 300 Blue Springs MO 364,007 12/28/84 300 Carthage MO 253,071 12/03/85 300 Chillicothe MO 264,840 12/26/84 300 Fulton MO 212,346 07/30/87 300 Hannibal MO 268,728 07/30/87 300 Hazelwood MO 477,556 08/28/85 300 Jackson MO 212,346 07/30/87 300 Mt. Vernon MO 23,800 11/20/97 300 Nevada MO 224,825 07/30/87 300 Ozark MO 24,650 11/20/97 300 Sedalia MO 234,592 07/31/89 300 Page F-81 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- St. Charles MO 175,413 809,791 None 10,000 St. Charles MO 695,121 1,001,878 None 896 St. Joseph MO 107,648 496,958 None None Sullivan MO 85,500 396,400 None None Clinton MS 100,000 337,371 None None Southaven MS 263,900 582,303 None None Fayetteville NC 116,240 538,919 None None Wilkesboro NC 183,050 406,562 None None Omaha NE 629,592 1,051,244 None 887 Amherst NY 935,355 896,819 None 12 Fulton NY 294,009 653,006 None None Watertown NY 139,199 645,355 None None Akron OH 723,347 17 None None Ashland OH 120,740 559,801 None None Celina OH 207,060 459,841 None None Lebanon OH 210,134 466,717 None None Stow OH 317,546 712,455 None None Troy OH 130,540 605,238 None None Wash. Courthouse OH 123,120 570,836 None None Wilmington OH 119,320 553,217 None None Broken Arrow OK 245,000 369,002 None None Norman OK 734,335 -- None None Oklahoma City OK 759,826 -- None None Owasso OK 247,450 549,597 None None Ponca City OK 234,990 521,923 None None Corvallis OR 172,788 383,766 None None Hermiston OR 85,560 396,675 None None Lake Oswego OR 175,899 815,508 None None Milwaukie OR 179,174 830,689 None None Salem OR 198,540 440,964 None None Connellsville PA 264,670 587,843 None None Waynesburg PA 222,285 493,704 None None Pierre SD 251,790 559,232 None None Memphis TN 405,274 1,060,680 None 1,700 Nashville TN 484,975 1,192,627 20,000 31,098 Allen TX 165,000 306,771 None None Page F-82 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- St. Charles MO 175,413 819,791 995,204 St. Charles MO 695,121 1,002,774 1,697,895 St. Joseph MO 107,648 496,958 604,606 Sullivan MO 85,500 396,400 481,900 Clinton MS 100,000 337,371 437,371 Southaven MS 263,900 582,303 846,203 Fayetteville NC 116,240 538,919 655,159 Wilkesboro NC 183,050 406,562 589,612 Omaha NE 629,592 1,052,131 1,681,723 Amherst NY 935,355 896,831 1,832,186 Fulton NY 294,009 653,006 947,015 Watertown NY 139,199 645,355 784,554 Akron OH 723,347 17 723,364 Ashland OH 120,740 559,801 680,541 Celina OH 207,060 459,841 666,901 Lebanon OH 210,134 466,717 676,851 Stow OH 317,546 712,455 1,030,001 Troy OH 130,540 605,238 735,778 Wash. Courthouse OH 123,120 570,836 693,956 Wilmington OH 119,320 553,217 672,537 Broken Arrow OK 245,000 369,002 614,002 Norman OK 734,335 -- 734,335 Oklahoma City OK 759,826 -- 759,826 Owasso OK 247,450 549,597 797,047 Ponca City OK 234,990 521,923 756,913 Corvallis OR 172,788 383,766 556,554 Hermiston OR 85,560 396,675 482,235 Lake Oswego OR 175,899 815,508 991,407 Milwaukie OR 179,174 830,689 1,009,863 Salem OR 198,540 440,964 639,504 Connellsville PA 264,670 587,843 852,513 Waynesburg PA 222,285 493,704 715,989 Pierre SD 251,790 559,232 811,022 Memphis TN 405,274 1,062,380 1,467,654 Nashville TN 484,975 1,243,725 1,728,700 Allen TX 165,000 306,771 471,771 Page F-83 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- St. Charles MO 534,084 08/28/85 300 St. Charles MO 161,266 12/22/95 03/16/95 300 St. Joseph MO 324,770 09/04/85 300 Sullivan MO 279,275 12/27/84 300 Clinton MS 337,371 07/28/83 180 Southaven MS 268,267 05/11/87 300 Fayetteville NC 379,685 12/20/84 300 Wilkesboro NC 184,920 07/24/87 300 Omaha NE 190,976 06/02/95 02/24/95 300 Amherst NY 146,929 12/21/95 05/31/95 300 Fulton NY 286,606 12/24/87 300 Watertown NY 392,288 08/18/86 300 Akron OH -- 12/22/94 300 Ashland OH 331,497 12/19/86 300 Celina OH 217,254 01/02/87 300 Lebanon OH 212,280 07/31/87 300 Stow OH 312,922 12/31/87 300 Troy OH 360,275 12/05/86 300 Wash. Courthouse OH 338,032 12/19/86 300 Wilmington OH 327,600 12/31/86 300 Broken Arrow OK 29,808 12/10/97 300 Norman OK -- 09/29/95 05/31/95 300 Oklahoma City OK -- 06/05/95 300 Owasso OK 241,950 12/28/87 300 Ponca City OK 229,766 12/30/87 300 Corvallis OR 168,946 12/22/87 300 Hermiston OR 279,469 12/18/84 300 Lake Oswego OR 596,707 05/16/84 300 Milwaukie OR 610,320 05/08/84 300 Salem OR 170,031 05/23/89 300 Connellsville PA 265,653 08/17/87 300 Waynesburg PA 223,110 08/17/87 300 Pierre SD 246,190 12/01/87 300 Memphis TN 189,155 06/30/95 03/17/95 300 Nashville TN 1,227,011 05/20/83 180 Allen TX 5,558 07/09/99 06/07/99 300 Page F-84 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Athens TX 245,245 544,700 None None Bedford TX 919,303 98,231 None None Beeville TX 250,490 556,349 None None Brownwood TX 288,225 640,160 None None Crockett TX 90,780 420,880 None None Dallas TX 242,025 479,170 None None Dallas TX 742,507 -- None None El Campo TX 98,060 454,631 None None Ennis TX 173,250 384,793 None None Fort Worth TX 223,195 492,067 None None Fort Worth TX 423,281 382,059 None None Gainesville TX 89,220 413,644 None None Hewitt TX 120,240 207,216 None None Hillsboro TX 75,992 352,316 None None Houston TX 194,994 386,056 None None Houston TX 184,175 364,636 None None Killeen TX 262,500 583,014 None 14,398 League City TX 126,822 588,000 None 155 Lufkin TX 105,904 490,998 None None Mesquite TX 134,940 625,612 None None Mesquite TX 729,596 120,820 None None Mexia TX 93,620 434,046 None None New Braunfels TX 185,500 411,997 None None Orange TX 93,560 433,768 None None Plainview TX 125,000 350,767 None None Port Lavaca TX 244,759 543,619 None None Porter TX 227,067 333,031 None None Rowlett TX 126,933 585,986 None None Santa Fe TX 304,414 623,331 None None Sealy TX 197,871 391,753 None None Stafford TX 214,024 423,733 None None Temple TX 302,505 291,414 None None Vidor TX 90,618 420,124 None None Waxahachie TX 326,935 726,137 None None Cedar City UT 130,000 296,544 None None Orem UT 516,129 1,004,608 None None Page F-85 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Athens TX 245,245 544,700 789,945 Bedford TX 919,303 98,231 1,017,534 Beeville TX 250,490 556,349 806,839 Brownwood TX 288,225 640,160 928,385 Crockett TX 90,780 420,880 511,660 Dallas TX 242,025 479,170 721,195 Dallas TX 742,507 -- 742,507 El Campo TX 98,060 454,631 552,691 Ennis TX 173,250 384,793 558,043 Fort Worth TX 223,195 492,067 715,262 Fort Worth TX 423,281 382,059 805,340 Gainesville TX 89,220 413,644 502,864 Hewitt TX 120,240 207,216 327,456 Hillsboro TX 75,992 352,316 428,308 Houston TX 194,994 386,056 581,050 Houston TX 184,175 364,636 548,811 Killeen TX 262,500 597,412 859,912 League City TX 126,822 588,155 714,977 Lufkin TX 105,904 490,998 596,902 Mesquite TX 134,940 625,612 760,552 Mesquite TX 729,596 120,820 850,416 Mexia TX 93,620 434,046 527,666 New Braunfels TX 185,500 411,997 597,497 Orange TX 93,560 433,768 527,328 Plainview TX 125,000 350,767 475,767 Port Lavaca TX 244,759 543,619 788,378 Porter TX 227,067 333,031 560,098 Rowlett TX 126,933 585,986 712,919 Santa Fe TX 304,414 623,331 927,745 Sealy TX 197,871 391,753 589,624 Stafford TX 214,024 423,733 637,757 Temple TX 302,505 291,414 593,919 Vidor TX 90,618 420,124 510,742 Waxahachie TX 326,935 726,137 1,053,072 Cedar City UT 130,000 296,544 426,544 Orem UT 516,129 1,004,608 1,520,737 Page F-86 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Athens TX 239,794 12/01/87 300 Bedford TX 98,231 12/27/94 300 Beeville TX 253,049 07/31/87 300 Brownwood TX 281,707 12/28/87 300 Crockett TX 268,952 12/17/85 300 Dallas TX 153,166 06/25/91 300 Dallas TX -- 04/13/95 300 El Campo TX 292,278 11/25/85 300 Ennis TX 169,398 12/28/87 300 Fort Worth TX 166,640 06/26/91 300 Fort Worth TX 74,502 02/10/95 300 Gainesville TX 291,424 12/18/84 300 Hewitt TX 5,170 06/07/99 300 Hillsboro TX 255,071 08/01/84 300 Houston TX 123,402 06/25/91 300 Houston TX 116,555 06/25/91 300 Killeen TX 272,071 05/29/87 300 League City TX 348,195 12/30/86 300 Lufkin TX 319,025 10/08/85 300 Mesquite TX 392,492 03/20/86 300 Mesquite TX 120,820 12/23/94 300 Mexia TX 277,365 12/18/85 300 New Braunfels TX 192,225 03/26/87 300 Orange TX 278,491 12/10/85 300 Plainview TX 350,767 01/24/84 180 Port Lavaca TX 247,259 07/30/87 300 Porter TX 64,941 02/09/95 300 Rowlett TX 382,953 09/06/85 300 Santa Fe TX 44,360 03/20/98 300 Sealy TX 125,223 06/25/91 300 Stafford TX 135,445 06/26/91 300 Temple TX 56,826 02/09/95 300 Vidor TX 304,160 08/01/84 300 Waxahachie TX 319,608 12/29/87 300 Cedar City UT 296,544 08/04/83 180 Orem UT 162,412 11/17/95 300 Page F-87 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Sandy UT 635,945 884,792 None None Norfolk VA 251,207 575,250 None 12,983 Virginia Beach VA 314,790 699,161 None 322 Auburn WA 301,595 669,851 None None Marysville WA 276,273 613,612 None None Oak Harbor WA 275,940 612,874 None None Redmond WA 610,334 1,262,104 None None Spokane WA 479,531 646,719 None None Tacoma WA 198,857 921,947 None 653 Grafton WI 149,778 332,664 None None Monroe WI 193,130 428,947 None None Portage WI 199,605 443,328 None None Shawano WI 205,730 456,932 None None Sturgeon Bay WI 214,865 477,221 None None Oak Hill WV 85,860 398,069 None None Laramie WY 210,000 466,417 None None Riverton WY 216,685 481,267 None None Sheridan WY 117,160 543,184 None None Shoe Stores - ----------- Little Rock AR 1,079,232 2,594,956 None None Maplewood MN 785,023 2,715,629 None None Houston TX 1,096,376 2,300,690 None None Midland TX 544,075 1,322,431 None None Theaters - -------- Jacksonville FL 4,510,272 9,011,426 None None Buchanan WI 1,453,414 7,607,254 None None Video Rental - ------------ Birmingham AL 392,795 865,115 None None Southington CT 399,562 1,009,125 None None Port St. Lucie FL 612,695 701,759 None None Tampa FL 401,874 933,768 None None Atlanta GA 652,551 763,360 None None Brunswick GA 290,369 788,880 None None Page F-88 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Sandy UT 635,945 884,792 1,520,737 Norfolk VA 251,207 588,233 839,440 Virginia Beach VA 314,790 699,483 1,014,273 Auburn WA 301,595 669,851 971,446 Marysville WA 276,273 613,612 889,885 Oak Harbor WA 275,940 612,874 888,814 Redmond WA 610,334 1,262,104 1,872,438 Spokane WA 479,531 646,719 1,126,250 Tacoma WA 198,857 922,600 1,121,457 Grafton WI 149,778 332,664 482,442 Monroe WI 193,130 428,947 622,077 Portage WI 199,605 443,328 642,933 Shawano WI 205,730 456,932 662,662 Sturgeon Bay WI 214,865 477,221 692,086 Oak Hill WV 85,860 398,069 483,929 Laramie WY 210,000 466,417 676,417 Riverton WY 216,685 481,267 697,952 Sheridan WY 117,160 543,184 660,344 Shoe Stores - ----------- Little Rock AR 1,079,232 2,594,956 3,674,188 Maplewood MN 785,023 2,715,629 3,500,652 Houston TX 1,096,376 2,300,690 3,397,066 Midland TX 544,075 1,322,431 1,866,506 Theaters - -------- Jacksonville FL 4,510,272 9,011,426 13,521,698 Buchanan WI 1,453,414 7,607,254 9,060,668 Video Rental - ------------ Birmingham AL 392,795 865,115 1,257,910 Southington CT 399,562 1,009,125 1,408,687 Port St. Lucie FL 612,695 701,759 1,314,454 Tampa FL 401,874 933,768 1,335,642 Atlanta GA 652,551 763,360 1,415,911 Brunswick GA 290,369 788,880 1,079,249 Page F-89 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Sandy UT 143,041 12/22/95 300 Norfolk VA 262,946 10/15/87 300 Virginia Beach VA 313,915 09/03/87 300 Auburn WA 294,888 12/16/87 300 Marysville WA 277,299 08/27/87 300 Oak Harbor WA 278,757 07/16/87 300 Redmond WA 1,262,104 12/10/82 180 Spokane WA 46,065 03/26/98 300 Tacoma WA 674,587 05/29/84 300 Grafton WI 148,390 10/29/87 300 Monroe WI 188,834 12/17/87 300 Portage WI 195,150 12/23/87 300 Shawano WI 201,141 12/17/87 300 Sturgeon Bay WI 210,087 12/01/87 300 Oak Hill WV 280,452 12/28/84 300 Laramie WY 167,544 03/12/90 300 Riverton WY 211,868 12/01/87 300 Sheridan WY 347,106 12/31/85 300 Shoe Stores - ----------- Little Rock AR 151,360 07/17/98 300 Maplewood MN 76,927 05/07/99 300 Houston TX 210,139 09/02/97 300 Midland TX 98,675 01/30/98 300 Theaters - -------- Jacksonville FL 14,943 12/30/99 07/22/99 300 Buchanan WI 139,435 07/22/99 300 Video Rental - ------------ Birmingham AL 78,797 09/30/97 300 Southington CT 42,037 12/23/98 300 Port St. Lucie FL 26,559 12/09/98 08/24/98 300 Tampa FL 75,798 12/19/97 300 Atlanta GA 31,755 12/04/98 300 Brunswick GA 63,989 12/31/97 300 Page F-90 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Video Rental - ------------ Norcross GA 431,284 724,037 None None Plainfield IN 453,645 908,485 None None Topeka KS 285,802 966,286 None None Wichita KS 289,714 797,856 None None Winchester KY 355,474 929,177 None None Warren MI 356,348 903,351 None None Centerville OH 601,408 758,192 None None Dayton OH 401,723 698,872 None None Forest Park OH 328,187 921,232 None None Franklin OH 337,572 777,943 None None Springboro OH 261,916 897,489 None None Oklahoma City OK 307,658 474,096 None None Tulsa OK 318,441 1,004,663 None None Bartlett TN 420,000 612,285 None None Clarksville TN 499,885 840,869 None None Columbia TN 466,469 716,723 None None Hendersonville TN 333,677 938,592 None None Jackson TN 381,076 857,261 None None Memphis TN 381,265 900,580 None None Murfreesboro TN 385,437 782,396 None None Murfreesboro TN 406,056 886,293 None None Smyrna TN 302,372 836,214 None None Austin TX 407,910 885,113 None None Beaumont TX 293,919 832,154 None None Hurst TX 373,084 871,163 None None Lubbock TX 266,805 857,492 None None Woodway TX 372,487 835,198 None None Hampton VA 373,499 836,071 None None Virginia Beach VA 551,588 797,260 None None Other - ----- Mesa AZ 271,754 1,259,911 38,949 20,017 Phoenix AZ 322,708 1,496,144 242,472 10,462 Escondido CA -- -- 13,900 None Fresno CA 428,900 3,434,562 None None San Diego CA 3,745,000 8,885,351 15,693 20,410 Page F-91 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Video Rental - ------------ Norcross GA 431,284 724,037 1,155,321 Plainfield IN 453,645 908,485 1,362,130 Topeka KS 285,802 966,286 1,252,088 Wichita KS 289,714 797,856 1,087,570 Winchester KY 355,474 929,177 1,284,651 Warren MI 356,348 903,351 1,259,699 Centerville OH 601,408 758,192 1,359,600 Dayton OH 401,723 698,872 1,100,595 Forest Park OH 328,187 921,232 1,249,419 Franklin OH 337,572 777,943 1,115,515 Springboro OH 261,916 897,489 1,159,405 Oklahoma City OK 307,658 474,096 781,754 Tulsa OK 318,441 1,004,663 1,323,104 Bartlett TN 420,000 612,285 1,032,285 Clarksville TN 499,885 840,869 1,340,754 Columbia TN 466,469 716,723 1,183,192 Hendersonville TN 333,677 938,592 1,272,269 Jackson TN 381,076 857,261 1,238,337 Memphis TN 381,265 900,580 1,281,845 Murfreesboro TN 385,437 782,396 1,167,833 Murfreesboro TN 406,056 886,293 1,292,349 Smyrna TN 302,372 836,214 1,138,586 Austin TX 407,910 885,113 1,293,023 Beaumont TX 293,919 832,154 1,126,073 Hurst TX 373,084 871,163 1,244,247 Lubbock TX 266,805 857,492 1,124,297 Woodway TX 372,487 835,198 1,207,685 Hampton VA 373,499 836,071 1,209,570 Virginia Beach VA 551,588 797,260 1,348,848 Other - ----- Mesa AZ 271,754 1,318,877 1,590,631 Phoenix AZ 322,708 1,749,078 2,071,786 Escondido CA -- 13,900 13,900 Fresno CA 428,900 3,434,562 3,863,462 San Diego CA 3,745,000 8,921,454 12,666,454 Page F-92 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Video Rental - ------------ Norcross GA 63,318 09/30/97 300 Plainfield IN 70,716 01/09/98 300 Topeka KS 78,579 12/16/97 300 Wichita KS 35,852 11/10/98 300 Winchester KY 57,238 06/30/98 300 Warren MI 70,343 12/31/97 300 Centerville OH 46,698 06/29/98 300 Dayton OH 43,058 06/26/98 300 Forest Park OH 77,859 11/05/97 300 Franklin OH 63,014 12/30/97 300 Springboro OH 46,305 09/08/98 300 Oklahoma City OK 32,213 04/17/98 300 Tulsa OK 91,613 09/26/97 300 Bartlett TN 15,110 05/12/99 02/26/99 300 Clarksville TN 40,605 09/30/98 300 Columbia TN 65,265 09/26/97 300 Hendersonville TN 76,301 12/05/97 300 Jackson TN 78,160 09/26/97 300 Memphis TN 64,211 03/30/98 300 Murfreesboro TN 24,709 03/31/99 300 Murfreesboro TN 80,799 09/26/97 300 Smyrna TN 76,223 08/29/97 300 Austin TX 71,843 11/20/97 300 Beaumont TX 75,888 09/05/97 300 Hurst TX 50,689 07/28/98 300 Lubbock TX 81,018 08/21/97 300 Woodway TX 67,859 12/12/97 300 Hampton VA 67,868 12/19/97 300 Virginia Beach VA 59,356 02/20/98 300 Other - ----- Mesa AZ 793,513 06/30/86 300 Phoenix AZ 961,046 06/30/86 300 Escondido CA 162 Fresno CA 3,434,562 10/29/82 180 San Diego CA 5,395,848 03/08/86 03/25/86 300 Page F-93 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Other - ----- San Diego CA 2,485,160 8,697,822 32,587 14,574 San Diego CA 5,797,411 15,473,497 40,214 19,115 Humble TX 106,000 545,518 10,422 5,990 Plano TX 565,000 6,935,000 None 174,352 Other -- 401,553 None 28,571 ----------- ----------- ------- ------- 350,517,264 710,782,659 532,276 646,931 =========== =========== ======= ======= Page F-94 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Other - ----- San Diego CA 2,485,160 8,744,983 11,230,143 San Diego CA 5,797,411 15,532,826 21,330,237 Humble TX 106,000 561,930 667,930 Plano TX 565,000 7,109,352 7,674,352 Other -- 430,124 430,124 ----------- ----------- ------------- 350,517,264 711,961,866 1,062,479,130 =========== =========== ============= Page F-95 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Other - ----- San Diego CA 3,967,897 01/23/89 09/19/86 300 San Diego CA 6,600,995 01/20/89 08/05/87 300 Humble TX 433,549 03/25/86 300 Plano TX 1,114,949 05/26/95 300 Other 381,290 ----------- 195,386,310 ===========
Page F-96 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Note 1. One thousand seventy-two of the properties are single unit retail outlets. One grocery property located in Sheboygan, WI and three other properties located in San Diego, CA are multi-tenant commercial properties. All properties were acquired on an all cash basis except one; no encumbrances were outstanding for the periods presented. Note 2. The aggregate cost for federal income tax purposes is $998,424,738. Note 3. Reconciliation of total real estate carrying value for the three years ended December 31, 1999 are as follows: 1999 1998 1997 ----------- ----------- ----------- Balance at beginning of period 889,835,701 699,797,446 564,539,993 Additions during period: Acquisitions 181,375,766 193,436,163 142,286,618 Equipment -- 14,685 -- Improvements, etc. 198,565 79,790 16,683 Other (leasing costs) 191,391 168,425 36,266 ------------- ----------- ----------- Total additions 181,765,722 193,699,063 142,339,567 ------------- ----------- ----------- Deductions during period: Cost of real estate sold 9,109,061 3,520,108 6,917,114 Cost of equipment sold -- 58,000 -- Other (fully amortized commissions) 13,232 82,700 -- Other (provision for impairment losses) -- -- 165,000 ------------- ----------- ----------- Total deductions 9,122,293 3,660,808 7,082,114 ------------- ----------- ----------- Balance at close of period: 1,062,479,130 889,835,701 699,797,446 ============= =========== =========== Note 4. Reconciliation of accumulated depreciation for the three years ended December 31, 1999 are as follows: (table continued) Page F-97 (continued) 1999 1998 1997 ----------- ----------- ----------- Balance at beginning of period: 171,555,267 152,206,136 138,307,408 Additions during period - provision for depreciation 23,844,275 20,766,430 17,465,979 Deductions during period: Accumulated depreciation of real estate and equipment sold -- 1,334,599 3,567,251 Other (fully amortized commissions) 13,232 82,700 -- ----------- ----------- ----------- Balance at close of period 195,386,310 171,555,267 152,206,136 =========== =========== ===========
Note 5. In 1997, a provision for impairment loss was made on two vacant properties in Riverside, CA and Irving, TX which was sold in 1998 and a restaurant property in McMinnville, OR which was sold in 1997. Page F-98 EX-10.1 2 EXHIBIT 10.1 EXECUTION COPY REVOLVING CREDIT AGREEMENT dated as of December 14, 1999 among REALTY INCOME CORPORATION THE BANKS NAMED HEREIN, THE BANK OF NEW YORK, as Administrative Agent and as Swing Line Bank, FIRST UNION NATIONAL BANK, as Syndication Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION as Documentation Agent, BANK OF MONTREAL, as Co-Agent AND BNY CAPITAL MARKETS, INC., as Lead Arranger and as Book Manager TABLE OF CONTENTS Page ------ ARTICLE I DEFINITIONS Section 1.01 Definitions........................................ 6 ARTICLE II THE LOANS Section 2.01 The Loans.......................................... 24 Section 2.02 Procedure for Pro Rata Loans....................... 24 Section 2.03 Pro Rata Notes..................................... 26 Section 2.04 Certain Fees....................................... 26 Section 2.05 Cancellation or Reduction of the Commitment........ 27 Section 2.06 Optional Prepayment................................ 27 Section 2.07 Mandatory Prepayment............................... 27 Section 2.08 Procedure for Competitive Loans.................... 28 Section 2.09 Competitive Notes.................................. 32 Section 2.10 Swing Line Advances................................ 32 ARTICLE III INTEREST, METHOD OF PAYMENT, CONVERSION, ETC. Section 3.01 Procedure for Interest Rate Determination.......... 35 Section 3.02 Interest on ABR Loans.............................. 35 Section 3.03 Interest on Eurodollar Loans....................... 36 Section 3.04 Interest on Absolute Rate Competitive Loans........ 37 Section 3.05 Conversion/Continuance............................. 37 Section 3.06 Post Default Interest.............................. 37 Section 3.07 Maximum Interest Rate.............................. 38 ARTICLE IV DISBURSEMENT AND PAYMENT Section 4.01 Pro Rata Treatment................................. 38 Section 4.02 Method of Payment.................................. 38 Section 4.03 Compensation for Losses............................ 39 Section 4.04 Withholding, Reserves and Additional Costs......... 40 Section 4.05 Unavailability..................................... 45 (table continued next page) Page 2 (table continued) TABLE OF CONTENTS (continued) Page ------ ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.01 Representations and Warranties..................... 46 ARTICLE VI CONDITIONS OF LENDING Section 6.01 Conditions to the Availability of the Commitment... 53 Section 6.02 Conditions to All Loans............................ 55 ARTICLE VII COVENANTS Section 7.01 Affirmative Covenants.............................. 56 Section 7.02 Negative Covenants................................. 61 Section 7.03 Financial Covenants................................ 65 ARTICLE VIII EVENTS OF DEFAULT Section 8.01 Events of Default.................................. 66 ARTICLE IX THE ADMINISTRATIVE AGENT AND THE BANKS Section 9.01 The Agency......................................... 69 Section 9.02 The Administrative Agent's Duties.................. 69 Section 9.03 Sharing of Payment and Expenses.................... 70 Section 9.04 The Administrative Agent's Liabilities............. 70 Section 9.05 The Administrative Agent as a Bank................. 71 Section 9.06 Bank Credit Decision............................... 71 Section 9.07 Indemnification.................................... 72 Section 9.08 Successor Administrative Agent..................... 72 ARTICLE X CONSENT TO JURISDICTION Section 10.01 Consent to Jurisdiction............................ 73 (table continued next page) Page 3 (table continued TABLE OF CONTENTS (continued) Page ------ ARTICLE XI MISCELLANEOUS Section 11.01 APPLICABLE LAW..................................... 73 Section 11.02 Set-off............................................ 74 Section 11.03 Expenses........................................... 74 Section 11.04 Amendments......................................... 74 Section 11.05 Cumulative Rights and No Waiver.................... 75 Section 11.06 Notices............................................ 75 Section 11.07 Separability....................................... 76 Section 11.08 Assignments and Participations..................... 76 Section 11.09 WAIVER OF JURY TRIAL............................... 78 Section 11.10 Confidentiality.................................... 78 Section 11.11 Indemnity.......................................... 78 Section 11.12 Extension of Termination Dates; Removal of Banks; Substitutions of Banks............................. 79 Section 11.13 Knowledge of the Company........................... 81 Section 11.14 Execution in Counterparts.......................... 81
Page 4 EXHIBITS AND SCHEDULES ---------------------- EXHIBIT A Form of Conversion/Continuance Request EXHIBIT B Form of Pro Rata Loan Request EXHIBIT C-1 Form of Competitive Loan Request EXHIBIT C-2 Form of Notice to Banks EXHIBIT C-3 Form of Competitive Bid EXHIBIT C-4 Form of Competitive Bid Accept/Reject Notice EXHIBIT D-1 Form of Pro Rata Note EXHIBIT D-2 Form of Competitive Note EXHIBIT D-3 Form of Swing Line Note EXHIBIT E Form of Swing Line Advance Request EXHIBIT F-1 Form of Opinion of Latham & Watkins EXHIBIT F-2 Form of Opinion of Michael R. Pfeiffer, General Counsel of the Company EXHIBIT G Form of Property Management Exception Report EXHIBIT H Form of Real Estate Investment Criteria EXHIBIT I Subsidiary Guarantee SCHEDULE 1 Commitments SCHEDULE 5.01(a) Subsidiaries and Joint Ventures of the Company SCHEDULE 5.01(q) ERISA Liabilities SCHEDULE 5.01(r) Intellectual Property
Page 5 REVOLVING CREDIT AGREEMENT -------------------------- REVOLVING CREDIT AGREEMENT, dated as of December 14, 1999 (this "Agreement"), among Realty Income Corporation, a Maryland corporation (the "Company"), each of the banks identified on the signature pages hereof (each, a "Bank" and, collectively, the "Banks") and The Bank of New York, as Administrative Agent for the Banks (the "Administrative Agent") and as the Swing Line Bank with respect to Swing Line Advances (as defined below). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company has requested the Banks to lend up to $200,000,000 to the Company on a revolving basis for the acquisition of property in the ordinary course of the Company's business, including related costs and expenses and for the payment of fees and expenses incurred in connection with this Agreement and up to $15,000,000 in Swing Line Advances (as defined herein) for the purposes stated above and for working capital. NOW, THEREFORE, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01 Definitions ----------- (a) TERMS GENERALLY. The definitions ascribed to terms in this Section 1.01 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The words "hereby", "herein", "hereof", "hereunder" and words of similar import refer to this Agreement as a whole (including any exhibits and schedules hereto) and not merely to the specific section, paragraph or clause in which such word appears. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all references to "dollars" or "$" shall be deemed references to the lawful money of the United States of America. (b) ACCOUNTING TERMS. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in Page 6 accordance with GAAP, as in effect from time to time; provided, however, that, for purposes of determining compliance with any covenant set forth in Article VII which requires financial computations, such terms shall be construed in accordance with GAAP as in effect on the Effective Date applied on a basis consistent with the construction thereof applied in preparing the Company's audited financial statements referred to in Section 5.01(h). In the event there shall occur a change in GAAP which but for the foregoing proviso would affect the computation used to determine compliance with any covenant set forth in Article VII which requires financial computations, the Company and the Banks agree to negotiate in good faith in an effort to agree upon an amendment to this Agreement that will permit compliance with such covenant to be determined by reference to GAAP as so changed while affording the Banks the protection afforded by such covenant prior to such change (it being understood, however, that such covenant shall remain in full force and effect in accordance with its existing terms pending the execution by the Company and the Banks of any such amendment). (c) OTHER TERMS. The following terms shall have the meanings ascribed to them below or in the Sections of this Agreement indicated below: "ABR Loans" shall mean Loans which bear interest at a rate based upon the Base Rate and in the manner set forth in Section 3.02. "Absolute Rate Competitive Loan" shall mean a Competitive Loan bearing interest at the Competitive Rate in the manner set forth in Section 3.04. "Administrative Agent" shall have the meaning given to such term in the preamble of this Agreement and shall also include any successor agent hereunder. "Adverse Environmental Condition" shall mean any of the matters referred to in clauses (i) or (ii) of the definition of Environmental Claim. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through ownership of stock, by contract or otherwise. Page 7 "Applicable Margin" shall mean the margin set forth in the following chart applicable to the Pricing Level then in effect: Pricing Level Applicable LIBOR Margin ------------- ----------------------- I 0.875% II 1.000% III 1.125% IV 1.225% V 1.450%
"Pricing Level I" shall be applicable for so long as the Company's Debt Rating is better than or equal to A-/A3; "Pricing Level II" shall be applicable for so long as the Company's Debt Rating is lower than A-/A3 but better than or equal to BBB+/Baal; "Pricing Level III" shall be applicable for so long as the Company's Debt Rating is lower than BBB+/Baal but better than or equal to BBB/Baa2; "Pricing Level IV" shall be applicable for so long as the Company's Debt Rating is lower than BBB/Baa2 but better than or equal to BBB-/Baa3; "Pricing Level V" shall be applicable for so long as the Company's Debt Rating is lower than BBB-/Baa3, or if the Company does not have a Debt Rating. Changes in the applicable Pricing Level shall be effective as of the first day of the calendar quarter following a change in the Company's Debt Rating. "Assignee" has the meaning ascribed to such term in Section 11.08(c). "Available Commitment" shall mean (a) on any date prior to the Termination Date, an amount equal to the remainder of (i) the Total Commitment on such date minus (ii) the aggregate outstanding principal amount of Loans and Swing Line Advances on such date and (b) on and after the Termination Date, $0. "Bank" shall have the meaning given to such term in the preamble of this Agreement and shall also include any other financial institution which pursuant to the provisions hereof becomes a party to this Agreement. "Base LIBOR" shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate does Page 8 not appear on such Page 3750 (or any successor or substitute page, or any successor to or substitute for such Service) at such time for any reason, then "Base LIBOR" with respect to such Eurodollar Loan for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Base Rate" shall mean a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall on any day be equal to the higher of: (a) the rate of interest publicly announced by the Administrative Agent from time to time as its prime commercial loan rate in effect on such day; and (b) the sum of (i) 1/2 of 1% per annum and (ii) the Federal Funds Rate. "Borrowing Date" shall mean the date set forth in each Loan Request as the date upon which the Company desires to borrow Loans pursuant to the terms of this Agreement. "Business Day" shall mean (i) with respect to any ABR Loan or any payment of the Facility Fee, any day except a Saturday, Sunday or other day on which commercial banks in New York City or Los Angeles are authorized by law to close and (ii) with respect to any Eurodollar Loan, any day on which commercial banks are open for domestic and international business (including dealings in U.S. dollar deposits) in London, New York City and Los Angeles. "Capital Lease" shall mean, with respect to any Person, any obligation of such Person to pay rent or other amounts under a lease with respect to any property (whether real, personal or mixed) acquired or leased by such Person that is required to be accounted for as a liability on a balance sheet of such Person in accordance with GAAP. "Capital Lease Obligations" shall mean the obligation of any Person to pay rent or other amounts under a Capital Lease. "Change of Control" shall mean any person or group of Persons (within the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) who shall become the beneficial owner(s), directly or indirectly, of capital stock of the Company representing 50% or more of the voting power of the Company or otherwise enabling such Person or group of Persons to exercise effective control over the management of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. Page 9 "Commitment" of any Bank shall mean, in the case of each Bank (i) prior to any such Bank's Termination Date, the amount set forth opposite such Bank's name under the heading "Commitment" on Schedule 1 hereto, or set forth in the assignment agreement executed by such Bank if it is not a Bank on the date hereof, as such amount may be adjusted from time to time pursuant to assignments of such Bank and as such amount may be reduced from time to time pursuant to Section 2.05 and (ii) after such Bank's Termination Date, zero. "Competitive Accept/Reject Notice" has the meaning ascribed to such term in Section 2.08(d). "Competitive Bid" means an offer by a Bank to make a Competitive Loan pursuant to Section 2.08(c). "Competitive Bid Rate" means, with respect to any Competitive Bid, (i) in the case of a Eurodollar Competitive Loan, the sum of the Competitive Margin plus LIBOR, and (ii) in the case of a Absolute Rate Competitive Loan, the fixed rate of interest at which the Bank making the Competitive Bid thereby offers to make a Competitive Loan. "Competitive Loan" has the meaning ascribed to such term in Section 2.01. "Competitive Loan Request" means a request for Competitive Bids made pursuant to Section 2.08(b). "Competitive Margin" means, with respect to any Eurodollar Competitive Loan for any Interest Period, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added to or subtracted from LIBOR, in order to determine the interest rate applicable to such Loan during such Interest Period, as specified in the related Competitive Bid and the Competitive Accept/Reject Notice. "Competitive Notes" means, collectively, promissory notes of the Borrower evidencing Competitive Loans, each substantially in the form of Exhibit D-2. "Competitive Rate" means, with respect to any Absolute Rate Competitive Loan, the fixed rate of interest (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) for such Loan, as specified in the related Competitive Bid and Competitive Accept/Reject Notice. "Compliance Date" shall mean each of the date of this Agreement, each Borrowing Date, each Conversion Date and the date of each delivery by the Company of a certificate requiring the Company to certify as to the accuracy of the representations and warranties contained in Article V. Page 10 "Consolidated Annualized Base Rent" shall mean, in respect of any fiscal quarter, (A) the product of (i) the monthly contractual base rents at the end of such fiscal quarter multiplied by (ii) twelve plus (B) the previous twelve month's historical percentage rents at such time, determined on a consolidated basis for the Company and its Subsidiaries. "Consolidated Depreciation and Amortization" shall mean, at any date of determination, "Depreciation and Amortization" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated statement of income for the Company and its Subsidiaries which has been delivered to the Administrative Agent pursuant to Section 7.01(a). "Consolidated Funds from Operations" shall mean, for any period, Consolidated Net Income, after dividends on preferred stock, excluding gain or loss from debt restructurings or sales of properties, plus provision for impairment losses, plus Consolidated Depreciation and Amortization, and after adjustments for unconsolidated partnerships and joint ventures, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated statement of cash flow for the Company and its Subsidiaries which has been delivered to the Administrative Agent pursuant to Section 7.01(a). "Consolidated Interest Expense" shall mean, for any period, total interest expense (including that attributable to Capital Leases in accordance with GAAP) of the Company and its Subsidiaries, determined on a consolidated basis, in accordance with GAAP with respect to all outstanding Indebtedness of the Company and its Subsidiaries, including, without limitation, paid-in-kind (PIK) interest and all net costs under Interest Rate Protection Agreements. "Consolidated Net Income" shall mean, for any period, "Net Income" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated statement of income for the Company and its Subsidiaries which has been delivered to the Administrative Agent pursuant to Section 7.01(a). "Consolidated Stockholders' Equity" shall mean, for any period, "Total Stockholders' Equity" or the similar item, determined on a consolidated basis for the Company and its subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Administrative Agent pursuant to Section 7.01(a). "Consolidated Tangible Stockholders' Equity" shall mean Consolidated Stockholders' Equity less all intangible assets of the Company and its Subsidiaries. For purposes of the foregoing, "intangible assets" means goodwill, patents, trade names, trademarks, copyrights, Page 11 franchises, organization expenses and any other assets that are properly classified as intangible assets in accordance with GAAP. "Consolidated Total Assets" shall mean, at any date of determination, "Total Assets" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Administrative Agent pursuant to Section 7.01(a). "Consolidated Total Indebtedness" shall mean total Indebtedness, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Administrative Agent pursuant to Section 7.01(a). "Consolidated Total Liabilities" shall mean, at any date of determination, "Total Liabilities" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Administrative Agent pursuant to Section 7.01(a). "Conversion/Continuance Date" shall mean the date on which a conversion of interest rates on outstanding Loans, pursuant to a Conversion/Continuance Request, shall take effect. "Conversion/Continuance Request" shall mean a request by the Company to convert or continue the interest rate on all or portions of outstanding Loans pursuant to the terms hereof, which shall be substantially in the form of Exhibit A and shall specify, with respect to such outstanding Loans, (i) the requested Conversion/Continuance Date, which shall be not less than three Business Days after the date of such Conversion/Continuance Request, (ii) the aggregate amount of the Loans, from and after the Conversion/Continuance Date, which are to bear interest as ABR Loans or Eurodollar Loans and (iii) if any Loans are Eurodollar Loans, the term of the Interest Periods therefor, if any. "Covered Tax" means any Tax that is not an Excluded Tax. "Credit Documents" shall mean this Agreement and the Notes. "Debt Rating" shall mean the highest rating published by at least two of the three Rating Agencies with respect to the senior unsecured long-term debt of the Company, provided, that if no two Rating Agencies have published the same rating with respect to the Company's senior unsecured debt, the Debt Rating shall be the rating that is at the middle of the three published ratings. "Default" shall mean any event or circumstance which, with the giving of notice or the passage of time, or both, would become an Event of Default. Page 12 "Effective Date" shall have the meaning ascribed to such term in Section 6.01. "Environmental Claim" shall mean any notice, request for information, action, claim, order, proceeding, demand or direction (conditional or otherwise) based on, relating to or arising out of (i) any violation of any Environmental Law by the Company, any person acting on behalf of the Company or any subsidiary of the Company, or (ii) any liabilities under any Environmental Law arising out of or otherwise in respect of any act, omission, event, condition or circumstance existing or occurring in connection with the Company and its Subsidiaries, including without limitation liabilities relating to the release of hazardous substances (whether on-site or off-site), any claim by any third party (including, without limitation, tort suits for personal or bodily injury, tangible or intangible property damage, damage to the environment, nuisance and injunctive relief), fines, penalties or restrictions, or the transportation, storage, treatment or disposal of any Hazardous Substances. "Environmental Law" means (i) any applicable federal, state, foreign and local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, legal doctrine, order, judgment, decree, injunction, requirement or agreement with any governmental entity, relating to (x) the protection, preservation or restoration of the environment, (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as now or hereafter in effect. The term Environmental Law includes, without limitation, the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the federal Water Pollution Control Act of 1972, the federal Clean Air Act, the federal Clean Water Act, the federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the federal Solid Waste Disposal Act and the federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Federal Occupational Safety and Health Act of 1970, each as amended and as now or hereafter in effect (collectively, "Environmental Ordinances"), and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Substance. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Page 13 "ERISA Affiliate" shall mean a corporation, partnership or other entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 (b), (c), (m) or (o) of the Code. "Eurodollar Competitive Loan" means a Competitive Loan that bears interest by reference to LIBOR and in the manner set forth in Section 3.03. "Eurodollar Loans" means, collectively, Eurodollar Pro Rata Loans and Eurodollar Competitive Loans. "Eurodollar Pro Rata Loans" shall mean Pro Rata Loans which bear interest at a rate based upon Base LIBOR and in the manner set forth in Section 3.03. "Eurodollar Reserve Percentage" shall mean for any day, that percentage, expressed as a decimal, which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including any marginal, supplemental or emergency reserve requirements) for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars in respect of eurocurrency funding liabilities. LIBOR shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" shall mean any of the events described in Section 8.01. "Excluded Asset Sales" shall mean, in respect of each fiscal year, the sale, lease (not entered into in the ordinary course of business), transfer or disposal during such year of assets, the aggregate proceeds of which, in one or more transactions, are less than $50,000,000. "Excluded Tax" means, in respect of any Bank, Participant, Assignee or the Administrative Agent, as the case may be, any of the following taxes, levies, imposts, duties, deductions, withholdings or charges, and all liabilities with respect thereto: (i) Taxes imposed on the net income of a Bank, the Administrative Agent, Participant or Assignee (including without limitation branch profits taxes, minimum taxes and taxes computed under alternative methods, at least one of which is based on net income (collectively referred to as "net income taxes") by (A) the jurisdiction under the laws of which such Bank, the Administrative Agent, Participant or Assignee is organized or any political subdivision thereof, (B) the jurisdiction of such Bank's, Participant's, Assignee's or the Administrative Agent's applicable lending office or any political subdivision thereof or (C) any jurisdiction in which the Bank, the Administrative Agent, Participant or Assignee is doing business (other than solely as a result of actions contemplated or required by this Agreement); (ii) any Taxes to the extent that they are in effect and would apply to a payment to Page 14 such Bank or the Administrative Agent, as applicable, as of the Closing Date, or as of the date such Person becomes a Bank, in the case of any Participant or Assignee pursuant to Section 11.08; (iii) any Taxes resulting from a failure to take the actions, if any, required by subsection 4.04(a)(iv); (iv) any Taxes to the extent of any credit or other Tax benefit which, in the reasonable good faith judgment of such Bank, Participant, Assignee or the Administrative Agent, as the case may be, is available to such Bank, Participant, Assignee or the Administrative Agent, as applicable, as a result thereof and is allocable to the transactions contemplated by this Agreement; (v) any Taxes imposed on or measured by the overall net income of any Bank by the United States of America or any political subdivision or taxing authority thereof or therein; or (vi) any Taxes that would not have been imposed but for the failure by the Administrative Agent or such Bank, Participant or Assignee as applicable to provide and keep current any certification or other documentation required to qualify for an exemption from or reduced rate of any Tax. "Facility Fee" shall have the meaning ascribed to such term in Section 2.04(a). "Facility Fee Rate" with respect to any Facility Fee payment shall mean the facility fee rate set forth in the following chart applicable to the Pricing Level (determined as set forth under "Applicable Margin" above) in effect on the date on which such Facility Fee payment is due: Pricing Level Facility Fee ------------- ------------ I 0.125% II 0.150% III 0.175% IV 0.225% V 0.300%
"Federal Funds Rate" for any day shall mean the rate on such day for Federal Funds as published by the Board of Governors of the Federal Reserve System in "Statistical Release H. 15 (519), Selected Interest Rates", or any successor publication, under the heading "Federal Funds (Effective)". In the event that such rate or such publication is not published with respect to such day, the Federal Funds Rate on such day shall be the "Federal Funds/Effective Rate" as posted by the Federal Reserve Bank of New York for that day in its publication "Composite Closing Quotations for U.S. Government Securities". The Federal Funds Rate for Saturdays, Sundays and any other day on which the Federal Reserve Bank of New York is closed shall be the Federal Funds Rate as in effect for the next preceding day for which such rates are published or posted, as the case may be. Page 15 "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entities as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Guarantee" by any person shall mean any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings correlative to the foregoing); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Substance" means any substance presently or hereafter listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Ordinance, whether by type or by quantity, including any substance containing any such substance as a component. Hazardous Substance includes, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl. "Indebtedness" of any Person shall mean, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including all obligations, contingent or otherwise, of such Person in connection with letter of credit facilities, bankers' acceptance facilities, Interest Rate Protection Agreements or other similar facilities including currency swaps) other than indebtedness to trade creditors and service providers incurred in the ordinary course of business; (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments; (c) all indebtedness created or arising Page 16 under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (d) all Capital Lease obligations of such Person; (e) that portion of the Indebtedness of any joint venture of which such Person is a joint venturer that bears the same proportion to the total Indebtedness of such joint venture as such Person's equity interest in such joint venture (however denominated) bears to the total equity of such joint venture, expressed as a percentage in the form of a decimal to no more than four decimal places; (f) without duplication of clause (e) above, all Indebtedness of unconsolidated joint venturers in which such Person is a joint venturer to the extent recourse may be had to such Person or its assets; (g) all obligations of such Person in respect of any "forward equity purchase", or other arrangement, however characterized, pursuant to which such Person makes a forward purchase of its own capital stock from a counterparty and which is settled in such capital stock, and having such other terms as may be agreed, and having a value, for purposes hereof, equal to its mark-to-market valuation on any date of determination; (h) all Indebtedness referred to in clauses (a), (b), (c), (d), (e), (f) or (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; (i) all preferred stock issued by such Person which is redeemable, prior to the full satisfaction of the Company's obligations under the Credit Documents (including repayment in full of the Loans and all interest accrued thereon), other than at the option of such Person, valued at the greater of its voluntary or involuntary liquidation preference plus accumulated and unpaid dividends and (j) all Indebtedness of others Guaranteed by such Person. For purposes of this Agreement, the amount of any Indebtedness under clauses (c) and (h) shall be the lesser of (x) the principal amount of such Indebtedness and (y) the value of the property subject to the Lien referred to therein. For purposes of this Agreement tenant security deposits shall not be deemed to be Indebtedness. "Initial Loan" shall mean the first Loan which is made pursuant to the terms hereof. "Interest Period" shall mean each one, two, three or six-month period selected by the Company in a Pro Rata Loan Request or Competitive Loan Request, or, if no Eurodollar Loans are then outstanding, at the time of a Conversion/Continuance Request, or pursuant to Section 3.03 hereof and commencing on the date the relevant loan is made or the last day of the current Interest Period, as the case may be. "Interest Rate Protection Agreements" shall mean any interest rate swap, collar or cap agreement or similar arrangement used by a Person to fix or cap a floating rate of interest on Indebtedness to a negotiated maximum rate or amount. Page 17 "Leverage Ratio" shall mean the ratio of Consolidated Total Indebtedness to Consolidated Tangible Stockholders' Equity. "Lien" shall mean, with respect to any asset, any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset. "LIBOR" shall mean with respect to any Interest Period the rate per annum determined pursuant to the following formula: Base LIBOR --------------------------------- LIBOR = (1-Eurodollar Reserve Percentage) "Loan Request" shall mean either a Pro Rata Loan Request or a Competitive Loan Request. "Loans" shall mean, collectively, Pro Rata Loans and Competitive Loans outstanding hereunder from time to time but shall not include Swing Line Advances. "Material Adverse Change" shall mean a material adverse change in the business, properties, condition (financial or otherwise) or operations of the Company and its Subsidiaries, taken as a whole since December 31, 1998. "Material Adverse Effect" shall mean (i) any material adverse effect on the business, properties, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole, from and after the date of any determination, (ii) any material adverse effect on the ability of the Company to perform its obligations hereunder and under the Credit Documents, or (iii) any adverse effect on the legality, validity, binding effect or enforceability of this Agreement or the Notes. "Maturity Date" means, with respect to a Competitive Loan, the date for repayment of such Competitive Loan, which date shall be not less than seven days after the Borrowing Date and not more than (i) 180 days after the Borrowing Date, in the case of an Absolute Rate Competitive Loan, or (ii) six months after the Borrowing Date, in the case of a Eurodollar Competitive Loan, and in any event shall not be later than the Termination Date to be in effect on the Borrowing Date. "Net Cash Proceeds" shall mean (i) when used in respect of any sale or disposition of assets of the Company or any Subsidiary, the gross cash proceeds received by the Company or the relevant Subsidiary from such sale or disposition, less: (x) the costs of sale, including payment of the outstanding principal amount of, and premium or penalty, if any, and interest on, any Indebtedness which is paid or required to be paid as a result of such sale, all legal, accounting, title and recording tax expenses, commissions and other fees and expenses paid or to be paid in cash solely as a result of such sale, and all other Page 18 federal, state, local and foreign taxes paid or payable in connection therewith; (y) the portion of gross cash proceeds from such sale or disposal which the Company must distribute to its stockholders in order to avoid the imposition of any income or excise tax with respect to a taxable gain (if any) associated with such sale or disposition; and (z) the portion of gross cash proceeds from such sale or disposal by any Subsidiary which are distributed pro rata to stockholders or other equity holders of such Subsidiary other than the Company; (ii) when used with respect to any loss, casualty, fire damage, theft, destruction or condemnation of any capital asset of the Company or any Subsidiary, the gross cash proceeds received by the Company or the relevant Subsidiary under any insurance policy or any award or compensation received, as the case may be, in each case as a result of any such loss, casualty, fire damage, theft, destruction or condemnation, net of all legal, accounting and other fees and expenses paid or to be paid in cash as a result of such loss, casualty, fire damage, theft, destruction or condemnation, and all other federal, state, local and foreign taxes paid or payable in connection therewith, less the portion of gross cash proceeds from such award or compensation which the Company must distribute to its stockholders in order to avoid the imposition of any income or excise tax with respect to a taxable gain (if any) associated with such award or compensation, provided that such award or compensation shall not be deemed to be Net Cash Proceeds if such proceeds have been reinvested in or have been committed to be reinvested in, or in replacement of, the lost, damaged, stolen, destroyed or condemned property within twelve months from the date of such award or compensation, and less the portion of gross cash proceeds from such award or compensation which are distributed pro rata to stockholders or other equity holders of such Subsidiary other than the Company; and (iii) when used in respect of the issuance, assumption or incurrence of Specified Additional Indebtedness by the Company or any of its Subsidiaries, the gross cash proceeds received by the Company or the relevant Subsidiary from such issuance, assumption or incurrence, less the costs of issuance, assumption or incurrence. Net Cash Proceeds shall equal $0 if it would otherwise be a negative number hereunder. "Notes" means the Pro Rata Notes, the Competitive Notes and the Swing Line Note. "Participant" shall have the meaning ascribed to such term in Section 11.08(b). "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Permitted Encumbrances" shall mean (i) Liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for which adequate reserves (in accordance with GAAP) are being maintained, (ii) deposits or pledges to secure obligations under workers' compensation, social security or similar laws, or under unemployment insurance, (iii) deposits or pledges to secure bids, Page 19 tenders, contracts (other than contracts for the payment of money), leases (other than Capital Leases), statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, (iv) mechanics', workers', materialmen's or other like Liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith, (v) minor imperfections of title on real estate, provided such imperfections do not render title unmarketable, (vi) all other Liens existing on the date of this Agreement and disclosed to the Banks in writing prior to the date hereof (including in the notes of the Company's financial statements), (vii) leases or subleases granted to others in the ordinary course of business of the Company and its Subsidiaries, (viii) any interest or title of a lessor in the property subject to any Capital Lease or operating lease, (ix) Liens arising from filing Uniform Commercial Code financing statements regarding leases or sub-leases, (x) any attachment or judgment Lien arising from a judgment or order against the Company or any Subsidiary that does not give rise to a Default or an Event of Default, provided that such Lien is not in place for more than sixty days or has been stayed, (xi) Liens encumbering customary initial deposits and margin deposits, and other Liens securing Indebtedness under Interest Rate Protection Agreements that are within the general parameters customary in the industry and incurred in the ordinary course of business, (xii) any option, contract or other agreement to sell an asset provided such sale is otherwise permitted by this Agreement, (xiii) any statutory right of a lender to which the Company or a Subsidiary may be indebted to offset against, or appropriate and apply to the payment of, such Indebtedness any and all balances, credits, deposits, accounts or monies of the Company or a Subsidiary with or held by such lender, (xiv) any pledge or deposit of cash or property in conjunction with obtaining bonds or letters of credit required to engage in constructing on-site and off-site improvements required by municipalities or other governmental authorities in the ordinary course of business of the Company and its Subsidiaries, (xv) Liens in favor of all of the Banks collectively, and (xvi) purchase money security interests in personal property, with such encumbrances, in the aggregate, not to exceed $3,500,000. "Permitted Subsidiary Indebtedness" shall have the meaning ascribed to such term in Section 7.02(a). "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" shall mean an employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to by the Company or an ERISA Affiliate while such entity is an ERISA Affiliate. Page 20 "Pro Rata Loan Request" shall mean a request by the Company to borrow Pro Rata Loans pursuant to the terms hereof, which shall be substantially in the form of Exhibit B and shall specify, with respect to such requested Loans, (i) the requested Borrowing Date, (ii) the aggregate amount of Pro Rata Loans which the Company desires to borrow on such date, (iii) whether such requested Loans are to bear interest as ABR Loans or Eurodollar Loans, and (iv) if the requested Loans are to bear interest as Eurodollar Loans the requested term of the Interest Period therefor. "Pro Rata Loans" shall have the meaning ascribed to such term in Section 2.01. "Pro Rata Notes" shall mean, collectively, the promissory notes of the Company evidencing Pro Rata Loans, each substantially in the form of Exhibit D-1. "Pro Rata Share" shall mean, with respect to any Bank, the proportion of such Bank's Commitment to the Total Commitment of all the Banks or, if the Total Commitment shall have been canceled or reduced to $0 or expired, the proportion of such Bank's then outstanding Loans to the aggregate amount of Loans then outstanding. "Rating Agency" shall mean Moody's Investors Service, Inc., Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc., or Duff & Phelps Credit Rating Co. "Real Estate Development Project" shall mean any real estate development activity not related to current income-producing properties, including, without limitation, the development of undeveloped land. "Real Estate Investment Criteria" shall mean the Real Estate Investment Criteria established by the Company's Board of Directors as amended, restated, supplemented or revised from time to time, the current version (as of the date hereof) of which are attached hereto as Exhibit H. "Reference Amount", with respect to any Bank and Interest Period, shall mean the amount of that Bank's Eurodollar Loan scheduled to be outstanding during that Interest Period (i) without taking into account any reduction in the amount of any Bank's Loan through any assignment or transfer and (ii) rounded up to the nearest integral multiple of $1,000,000. "REIT" shall have the meaning ascribed to such term in Section 5.01(w). "Required Banks" shall mean at any date Banks having at least 60% of the Total Commitment, or if the Total Commitment has been canceled or terminated, holding Notes evidencing at least 60% of the aggregate unpaid principal amount of the Loans, provided that for purposes of Page 21 this definition, the Commitment of any Bank shall be deemed reduced by the principal amount of any Pro Rata Loan which such Bank is obligated to advance pursuant to Section 2.02 hereof but which fails to do so. "SIC Code" shall mean the Standard Industrial Classification Code, published by the United States Office of Management and Budget. "Single-Employer Plan" shall mean any Plan that is a single-employer plan as defined in Section 4001(a)(15) of ERISA which is subject to the provisions of Title IV of ERISA. "Solvent" shall mean, when used with respect to any Person, that: (a) at the date of determination, the present fair salable value of such Person's assets is in excess of the total amount of such Person's liabilities; (b) at the date of determination, such Person is able to pay its debts as they become due; and (c) such Person does not have unreasonably small capital to carry on such Person's business as theretofore operated and all businesses in which such Person then is about to engage. "Specified Additional Indebtedness" of any Person shall mean Indebtedness which is not outstanding as of the date hereof, excluding (i) Indebtedness to the Administrative Agent, the Swing Line Bank, or the Banks hereunder and under the Notes, (ii) Indebtedness incurred in connection with the payment of any dividend necessary for the Company to maintain its qualification as a REIT, (iii) up to $10,000,000 principal amount of additional unsecured Indebtedness that matures and becomes due and payable on a date not more than one year from the date such Indebtedness was incurred by the Company and (iv) Permitted Subsidiary Indebtedness. "Subsidiary" shall mean any Person of which or in which the Company and its other Subsidiaries own directly or indirectly 50% or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity, or a corporation whose capital stock so owned are non-voting, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization; provided, however, that "Subsidiary" shall not include any such entity that the Company does not control. For the purpose of this Page 22 definition, the term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting equity interests, by contract or otherwise. "Subsidiary Guaranty" shall mean a guaranty of a Subsidiary furnished pursuant to Section 7.02(e)(vii), in the form of Exhibit I hereto. "Swing Line Advance" means an advance made by the Swing Line Bank pursuant to Section 2.10. "Swing Line Advance Request" shall have the meaning ascribed to such term in Section 2.10(d) hereof. "Swing Line Bank" means The Bank of New York, or any successor to the duties, obligations and rights of The Bank of New York, in its capacity as the bank making Swing Line Advances hereunder. "Swing Line Borrowing" means a borrowing consisting of a Swing Line Advance made by the Swing Line Bank. "Swing Line Facility" shall have the meaning ascribed to such term in Section 2.10(a) hereof. "Swing Line Note" shall mean the promissory note of the Company in the form of Exhibit D-3. "Tax" means any present or future tax, levy, impost, duty, governmental fee, deduction, withholding or charge, and all liabilities with respect thereto of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed. "Termination Date" shall mean, with respect to any Bank, the earliest to occur of (i) December 30, 2002 or such later date as may be agreed to by such Bank pursuant to Section 11.12, (ii) the date on which the obligations of the Banks to make loans hereunder shall terminate pursuant to Section 8.01 or the Commitments shall be reduced to zero pursuant to Section 2.05, and (iii) the date specified as such Bank's Termination Date pursuant to Section 11.12, or, if in any case (other than clause (ii) above) such day is not a Business Day, the next succeeding Business Day; in all cases, subject to the provisions of Section 11.12(d). "Total Commitment" shall mean the aggregate Commitments of all the Banks. "Unmatured Surviving Obligations" shall mean, as of any date, any obligations under this Agreement which are contingent and unliquidated and not then due and payable on such date and which pursuant to the provisions of this Agreement survive termination of this Agreement. Page 23 "Wholly owned Subsidiary" shall mean any Subsidiary all the equity interests of which (other than directors' qualifying shares, if a corporation) at the time are owned directly or indirectly by the Company and/or one or more Wholly owned Subsidiaries of the Company. "Year 2000 Issue" means failure of computer software, hardware and firmware systems and equipment containing or relying on embedded computer chips to properly receive, transmit, process, manipulate, store, retrieve, retransmit, or in any other way utilize data or information due to the occurrence of the year 2000 or the inclusion of dates on or after January 1, 2000. ARTICLE II THE LOANS Section 2.01 The Loans. ---------- Prior to the Termination Date, and subject to the terms and conditions of this Agreement, upon the request of the Company, and upon the satisfaction by the Company or the waiver by each of the Banks of each of the conditions precedent contained in Section 6.02, each of the Banks, severally and not jointly with the other Banks, agrees to make revolving credit loans (collectively, "Pro Rata Loans") and, to the extent offered by such Bank and accepted by the Company, competitive rate loans (collectively, "Competitive Loans" and, together with the Pro Rata Loans, the "Loans") to the Company from time to time in an aggregate principal amount at any one time outstanding not to exceed its Commitment; provided, however, that the sum of (i) aggregate outstanding Loans and (ii) aggregate outstanding Swing Line Advances may not exceed the Total Commitment. Section 2.02 Procedure for Pro Rata Loans. --------------------------- (a) The Company may borrow Pro Rata Loans by delivering a written Pro Rata Loan Request to the Administrative Agent on or before 5:00 P.M., New York time, one Business Day prior to the requested Borrowing Date therefor, in the case of ABR Loans, or on the date not less than three Business Days prior to the requested Borrowing Date therefor, in the case of Eurodollar Pro Rata Loans. ABR Loans shall be in the minimum aggregate amount of $1,000,000 or in integral multiples of $100,000 in excess thereof. Eurodollar Pro Rata Loans shall be in the minimum aggregate amount of $5,000,000 or in integral multiples of $100,000 in excess thereof; provided, however, that Eurodollar Pro Rata Loans used to pay Swing Line Advances may be in a minimum aggregate amount of $2,500,000 or in integral multiples of $100,000 in excess thereof. Page 24 (b) Upon receipt of any Pro Rata Loan Request from the Company, the Administrative Agent shall forthwith give notice to each Bank of the substance thereof. Not later than 2:00 P.M., New York time, on the Borrowing Date specified in such Pro Rata Loan Request, each Bank shall make available to the Administrative Agent in immediately available funds at the office of the Administrative Agent at its address set forth on the signature pages hereof, such Bank's Pro Rata Share of the requested Pro Rata Loans. (c) Upon receipt by the Administrative Agent of funds and satisfaction by the Company or waiver by each of the Banks of each of the conditions precedent contained in Section 6.02, the Administrative Agent shall disburse to the Company on the requested Borrowing Date the Pro Rata Loans requested in such Pro Rata Loan Request. The Administrative Agent may, but shall not be required to, advance on behalf of any Bank such Bank's Pro Rata Share of the Pro Rata Loans on a Borrowing Date unless such Bank shall have notified the Administrative Agent prior to such Borrowing Date that it does not intend to make available its Pro Rata Share of such Loans on such date (it being understood that no action or inaction by the Administrative Agent regarding such an advance shall affect the rights of the Company with respect to any non-performing Bank). If the Administrative Agent makes such advance, the Administrative Agent shall be entitled to recover such amount on demand from the Bank on whose behalf such advance was made, and if such Bank does not pay the Administrative Agent the amount of such advance on demand, the Company shall promptly repay such amount to the Administrative Agent. Until such amount is repaid to the Administrative Agent by such Bank or the Company, such advance shall be deemed for all purposes to be a Pro Rata Loan made by the Administrative Agent. The Administrative Agent shall be entitled to recover from the Bank or the Company, as the case may be, interest on the amount advanced by it for each day from the Borrowing Date therefor until repaid to the Administrative Agent, at a rate per annum equal to (i) in the case of the Bank, the Federal Funds Rate, for the three-day period beginning on the Borrowing Date, and the applicable rate on the Pro Rata Loans made on the Borrowing Date for the period beginning on the fourth day after the Borrowing Date, and (ii) in the case of the Company, the applicable rate on the Pro Rata Loans made on the Borrowing Date. (d) In lieu of delivering the written notice described above, the Company may give the Administrative Agent telephonic notice of any request for borrowing by the time required under this Section 2.02; provided that such telephonic notice shall be confirmed by delivery of a written notice to the Administrative Agent promptly but in no event later than 4:00 P.M., New York City time, on the date of such telephonic notice. Page 25 Section 2.03 Pro Rata Notes. --------------- The Company's obligation to repay the Pro Rata Loans shall be evidenced by Pro Rata Notes, one such Pro Rata Note payable to the order of each Bank. The Pro Rata Note of each Bank shall (i) be in the principal amount of such Bank's Commitment, (ii) be dated the date of the initial Loan and (iii) be stated to mature on the Termination Date as such date may be extended hereunder and bear interest from its date until maturity on the principal balance (from time to time outstanding thereunder) payable at the rates and in the manner provided herein. Each Bank is authorized to indicate upon the grid attached to its Pro Rata Note all Pro Rata Loans made by it pursuant to this Agreement, interest elections and payments of principal and interest thereon. Such notations shall be presumptive as to the aggregate unpaid principal amount of all Pro Rata Loans made by such Bank, and interest due thereon, but the failure by any Bank to make such notations or the inaccuracy or incompleteness of any such notations shall not affect the obligations of the Company hereunder or under the Pro Rata Notes. Section 2.04 Certain Fees. ------------- (a) The Company shall pay to the Administrative Agent for the accounts of the Banks a fee (the "Facility Fee") equal to the Facility Fee Rate per annum (calculated on the basis of a 360-day year for the actual number of days involved) on the daily average amount of the Total Commitment, regardless of usage (excluding the amount of any canceled or reduced portion of the Commitment for which the Facility Fee was paid in connection with such cancellation or reduction pursuant to Section 2.05 hereof) during the quarter with respect to which such Facility Fee is being paid. Such Facility Fee shall be payable in arrears on the last Business Day of each calendar quarter, commencing on the first such date after the date hereof, on any date that the Total Commitment is canceled or reduced pursuant to Section 2.05 (but only with respect to the amount of such cancellation or reduction) and on the Termination Date. (b) The Company shall pay to the Administrative Agent for its own account such fees as have been or may hereinafter be agreed to between the Administrative Agent and the Company, in the amounts and at the times agreed upon. (c) On the Effective Date the Company shall pay to the Administrative Agent for the account of each of the Banks (other than The Bank of New York) such fees as have been or may hereinafter be agreed to between the Administrative Agent and the Company, in the amounts and at the times agreed upon. Page 26 Section 2.05 Cancellation or Reduction of the Commitment. -------------------------------------------- The Company shall have the right, upon not less than three Business Days' written notice to the Administrative Agent and upon payment of the Facility Fees relating to the amount of the Total Commitment canceled or reduced which have accrued through the date of such cancellation or reduction, with respect to the amount of the cancellation or reduction, to cancel the Total Commitment in full or to reduce the amount thereof; provided, however, that the Total Commitment may not be canceled so long as any Loan or Swing Line Advance remains outstanding; and provided, further, that the amount of any partial reduction in the Total Commitment shall not exceed the remainder of (i) the Total Commitment on such date minus (ii) the aggregate outstanding principal amount of Loans and Swing Line Advances on such date. Partial reductions of the Total Commitment shall be in the amount of $5,000,000 or in integral multiples of $1,000,000 in excess thereof (or, if the aggregate outstanding amount of Loans is less than $5,000,000, then all of such lesser amount). All such cancellations or reductions shall be permanent. Section 2.06 Optional Prepayment. -------------------- The Company shall have the right, on not less than three Business Days' written notice to the Administrative Agent in the case of Eurodollar Pro Rata Loans, and upon such written notice delivered by 11:00 A.M. New York City time the day of the proposed prepayment to the Administrative Agent in the case of ABR Loans or Swing Line Advances, to prepay Pro Rata Loans or Swing Line Advances bearing interest on the same basis and having the same Interest Periods, if any, in whole or in part, without premium or penalty, in the aggregate principal amount of $1,000,000 ($100,000 in the case of Swing Line Advances) or in integral multiples of $100,000 in excess thereof (or, if the outstanding aggregate amount of such Loan or Swing Line Advance is less than $1,000,000 or $100,000, respectively, then all of such lesser amount), together with accrued interest on the principal being prepaid to the date of prepayment and, in the case of Eurodollar Loans, the amounts required by Section 4.03. Subject to the terms and conditions hereof, prepaid Loans may be reborrowed. Section 2.07 Mandatory Prepayment. --------------------- (a) If (i) the Company or any Subsidiary shall sell, lease (other than in the ordinary course of business), assign, transfer or otherwise dispose of any of its assets other than pursuant to Excluded Asset Sales, in an exchange that qualifies under Section 1031 of the Code, or to the extent that the Net Cash Proceeds received therefrom are reinvested in similar assets within 180 days of such disposition of such assets, (ii) the Company or a Subsidiary issues, assumes or Page 27 incurs Specified Additional Indebtedness or (iii) the Company sells or issues equity securities for cash, other than pursuant to the Company's Stock Incentive Plan, the Company shall prepay outstanding Pro Rata Loans and Swing Line Advances with the Net Cash Proceeds therefrom. Notwithstanding the foregoing, if at the time a mandatory prepayment shall be required to be made hereunder, a mandatory prepayment shall also be required to be made under any similar provision of any agreement evidencing Indebtedness permitted by Section 7.02(a), in an aggregate principal amount not exceeding $25,000,000, then the Company may apportion such mandatory prepayment pro rata according to the relative principal amounts outstanding under such Credit Agreement and under this Agreement, and the amount of such mandatory prepayment hereunder shall be reduced accordingly. Any such reduction shall be described in reasonable detail in the officer's certificate required under this Section 2.07(c). (b) Application of Prepayments. All prepayments required to be made pursuant to this Section 2.07 shall be applied in the following order: first, to compensate the Banks for any amounts required by Section 4.03, in the case that such prepayment shall apply to any Eurodollar Pro Rata Loans, second, to accrued interest on the principal amount of Pro Rata Loans being prepaid, third, to the principal of the Pro Rata Loans then outstanding, if any, fourth, to accrued interest on the principal amount of Swing Line Advances being prepaid, and fifth, to the principal of the Swing Line Advances then outstanding, if any; provided that any prepayments shall be applied in a manner to minimize the payments, if any, required by the Company pursuant to Section 4.03 with respect to such prepayment; and provided, further, that the accrued interest on, and the outstanding principal of, Pro Rata Loans to be prepaid shall be applied to prepayment of ABR Loans and Eurodollar Pro Rata Loans in proportion to the outstanding aggregate principal amount of such ABR Loans or Eurodollar Pro Rata Loans, respectively, relative to that of all Pro Rata Loans. (c) Officer's Certificate. Promptly upon receipt of any Net Cash Proceeds, other than pursuant to any Excluded Asset Sales, the Company shall deliver to the Administrative Agent a certificate signed by the chief financial officer of the Company, which shall be in form and substance satisfactory to the Administrative Agent, setting forth the amount of the gross cash proceeds received and the items deducted therefrom in reasonable detail in order to confirm the amount of such Net Cash Proceeds and also setting forth the Company's year-to-date asset sales. Section 2.08 Procedure for Competitive Loans. -------------------------------- (a) Prior to the Termination Date, the Company may request that the Banks make offers to make Competitive Loans in dollars on the terms and conditions hereinafter set forth; provided, however, that (i) the aggregate principal amount of Competitive Loans that may be borrowed Page 28 on any Borrowing Date may not exceed the Available Commitment (after giving effect to any Loans to be repaid or prepaid on such Borrowing Date and any other Loans to be made on such Borrowing Date), (ii) the aggregate amount of Competitive Loans outstanding on any day may not exceed 50% of the Total Commitment (after giving effect, with respect to any day, to any Loans being repaid or prepaid on such day and any other Loans to be made on such day) and (iii) the Company may not request Competitive Loans before the fifth Business Day after the Effective Date. Each Bank may, but shall have no obligation to, make such offers and the Company may, but shall have no obligation to, accept any such offers, in the manner set forth in this Section 2.08. (b) The Company may request Competitive Loans under this Section 2.08 by giving a Competitive Loan Request to the Administrative Agent, by telephone, telex, telecopy or in writing not later than 12:00 Noon, New York time (if not in writing, to be confirmed in writing in substantially the form of Exhibit C-1 not later than 2:00 P.M., New York time, on the same day), on (i) the fourth Business Day prior to the proposed Borrowing Date, in the case of Eurodollar Competitive Loans, and (ii) on the Business Day immediately prior to the proposed Borrowing Date, in the case of Absolute Rate Competitive Loans. The Administrative Agent shall promptly notify each Bank, by a letter in substantially the form of Exhibit C-2, of each such Competitive Loan Request received by it from the Company and of the terms contained therein. (c) Each Bank may, if it elects so to do, irrevocably offer to make a Competitive Loan of the requested type to the Company at a Competitive Bid Rate or Rates, as specified by such Bank in accordance with the related Competitive Loan Request, by submitting a Competitive Bid, in substantially the form of Exhibit C-3 and indicating the maximum and minimum principal amounts of the Competitive Loan which such Bank would be willing to make (which amount may, subject to the proviso to the first sentence of Section 2.08(a), exceed such Bank's Commitment, but shall be in a principal amount equal to $1,000,000 or in integral multiples of $100,000 in excess thereof), the Competitive Rate, or Competitive Margin for the relevant Interest Period, as the case may be, and any other terms and conditions required by such Bank, not later than 9:30 A.M., New York time, on (i) the third Business Day prior to the proposed Borrowing Date, in the case of Eurodollar Competitive Loans or (ii) the proposed Borrowing Date, in the case of Absolute Rate Competitive Loans, to the Administrative Agent (which shall give notice thereof to the Borrower as promptly as practicable and in no event later than 10:00 A.M., New York time); provided that, if the Administrative Agent, at such time (if any) as it is a Bank, shall elect to submit a Competitive Bid, the Administrative Agent shall communicate the substance of its Competitive Bid to the Company not later than 15 minutes prior to the applicable deadline specified above. Banks may submit multiple Competitive Bids. Any Competitive Bid that does not conform substantially with Exhibit C-3 may be rejected by the Administrative Agent, after conferring with the Company, and the Administrative Agent shall notify the Bank that Page 29 submitted such Competitive Bid of such rejection as promptly as practicable. The Administrative Agent shall (i) disclose the Competitive Bids received to the Company as promptly as reasonably practicable after the deadline stated above for the submission of Competitive Bids, (ii) maintain in confidence all Competitive Bids until each of them has been disclosed to the Company and (iii) provide copies of all Competitive Bids (or other written notice containing all of the terms thereof) to the Company as soon as practicable after completion of the bidding process described in this Section 2.08. (d) The Company shall, not later than (i) 12:00 Noon, New York time, on the third Business Day prior to the proposed Borrowing Date, in the case of Eurodollar Competitive Loans or (ii) 12:00 Noon, New York time, on the proposed Borrowing Date, in the case of Absolute Rate Competitive Loans, either (i) cancel the Borrowing Request by giving the Administrative Agent notice to that effect or (ii) accept one or more Competitive Bids, in its sole discretion, by giving notice to the Administrative Agent of the principal amount of each Competitive Loan (which principal amount shall be equal to or greater than the minimum amount offered by the relevant Bank and equal to or less than the maximum amount offered by such Bank for such Competitive Loan pursuant to Section 2.08(c)), to be made by each Bank, and reject any remaining Competitive Bids, by giving the Administrative Agent notice to that effect; provided that the aggregate principal amount of such offers accepted by the Company shall be in a principal amount equal to $1,000,000 or in an integral multiple of $100,000 in excess thereof, each such notice to be in substantially the form of Exhibit C-4 (a "Competitive Accept/Reject Notice"); provided further that (A) the failure by the Company to give such notice in a timely fashion shall be deemed to be a rejection of all the Competitive Bids, (B) the Company shall not accept a Competitive Bid made at a Competitive Bid Rate if such Company has rejected a Competitive Bid made at a lower Competitive Bid Rate, (C) the aggregate principal amount of the Competitive Bids accepted by the Company shall not exceed the principal amount specified in the Competitive Loan Request, (D) if the Company shall accept Competitive Bids made at a particular Competitive Bid Rate but shall be restricted by other conditions hereof from borrowing the principal amount of Competitive Loans specified in such Competitive Loan Request in respect of which Page 30 Competitive Bids at such Competitive Bid Rate have been made or if the Company shall accept Competitive Bids made at a particular Competitive Bid Rate but the aggregate amount of Competitive Bids made at such Competitive Bid Rate shall exceed the amount specified in the Competitive Loan Request, then the Company shall accept a pro rata portion of each Competitive Bid made at such Competitive Bid Rate, aggregating such pro rata portions of Competitive Loans with respect to which Competitive Bids at such Competitive Bid Rate have been received (provided further that if the principal amount of Competitive Loans to be so allocated is not sufficient to enable Competitive Loans to be so allocated to each such Bank in a principal amount equal to $1,000,000 or in an integral multiple of $100,000 in excess thereof, the Company shall select the Banks to be allocated such Competitive Loans in a principal amount equal to not less than $1,000,000 but may round up allocations to the next higher integral multiple of $100,000 if necessary), and (E) except as provided in clause (D) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a principal amount equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (e) If the Company notifies the Administrative Agent that a Borrowing Notice for Competitive Loans is canceled, the Administrative Agent shall give prompt notice thereof to the Banks. (f) If the Company accepts one or more Competitive Bids, the Administrative Agent shall promptly give notice (i) to each Bank of the date and aggregate amount of such Competitive Loan(s), the Competitive Bid Rate therefor and whether or not any Competitive Bid made by such Bank has been accepted by the Company, and (ii) to each Bank whose Competitive Bid, or any portion thereof, has been accepted by the Company, of the principal amount of the Competitive Loan to be made by such Bank and the date for repayment thereof, together with the Competitive Rate or Competitive Margin, as applicable, and any other terms applicable to such Competitive Loan. (g) Following any acceptance by the Company and notification by the Administrative Agent pursuant to Section 2.08(f), and upon satisfaction, or waiver by the Banks, of each of the applicable conditions precedent contained in Article VI, each such Bank shall disburse to the Administrative Agent, by 2:00 P.M. on the specified Borrowing Date, the aggregate principal amount of the Competitive Loans accepted by the Company, whereupon the Administrative Agent shall promptly disburse such funds to the Company in funds immediately available at the Company's office specified in Section 11.06. Page 31 (h) Nothing in this Section 2.08 shall be construed as a right of first offer in favor of the Banks or to otherwise limit the ability of the Company to request and accept credit facilities from any Person (including any Bank). Section 2.09 Competitive Notes. ------------------ The Company's obligation to repay the Competitive Loans shall be evidenced by Competitive Notes, one such Competitive Note payable to the order of each Bank making a Competitive Loan pursuant to Section 2.08. The Competitive Note of each Bank shall (i) be in the principal amount of 50% of the Total Commitment or, if less, the aggregate principal amount outstanding under Competitive Loans made by such Bank, (ii) be dated the date of the initial Competitive Loan made by such Bank and (iii) be stated to mature on the Maturity Date of any Competitive Loan made by such Bank (as such date may be extended hereunder) and bear interest from its date until maturity on the principal balance (from time to time outstanding thereunder) payable at the rates and in the manner provided herein. Each Bank is authorized to indicate upon the grid attached to its Competitive Note all Competitive Loans made by it pursuant to this Agreement, interest elections and payments of principal and interest thereon. Such notations shall be presumptive as to the aggregate unpaid principal amount of all Competitive Loans made by such Bank, and interest due thereon, but the failure by any Bank to make such notations or the inaccuracy or incompleteness of any such notations shall not affect the obligations of the Company hereunder or under the Competitive Notes. Section 2.10 Swing Line Advances. -------------------- (a) Prior to the Termination Date, and subject to the terms and conditions of this Agreement, the Swing Line Bank shall make, on the terms and conditions hereinafter set forth, Swing Line Advances to the Company from time to time on any Business Day in an aggregate amount not to exceed at any time outstanding $15,000,000 (the "Swing Line Facility"); provided, however, that the sum of (i) the aggregate outstanding Loans plus (ii) the aggregate outstanding Swing Line Advances, may not exceed the Total Commitment. Each Swing Line Borrowing shall be in an amount of not less than $100,000 or an integral multiple of $100,000 in excess thereof. Each Bank other than the Swing Line Bank shall be deemed to, and hereby agrees to, have irrevocably and unconditionally purchased from the Swing Line Bank, simultaneously with such Swing Line Advance, a participation in such Swing Line Advance in an amount equal to such Bank's Pro Rata Share of the principal amount thereof. (b) Interest. Each Swing Line Advance shall bear interest at a rate agreed upon by the Company and the Swing Line Bank but in no event Page 32 higher than a rate based upon the Base Rate and in the manner set forth in Section 3.02, as if such Swing Line Advance were an ABR Loan. Such interest shall be payable in arrears at the end of the applicable interest period or as otherwise agreed by the Company and the Swing Line Bank. The interest period for any Swing Line Advance shall not exceed 30 days. (c) Swing Line Note. The Company's obligation to repay its Swing Line Advances shall be evidenced by a Swing Line Note which shall be (i) payable to the Swing Line Bank, (ii) in the principal amount of $15,000,000 or, if less, the principal amount of the Company's Swing Line Advances from time to time outstanding, (iii) dated not later than the date of the Company's first Swing Line Advance and (iv) stated to mature with respect to each Swing Line Advance from time to time outstanding thereunder on the date determined pursuant to this Section 2.10 but in any event not later than the Termination Date. The Swing Line Bank is authorized to indicate upon the grid attached to the Swing Line Note all borrowings thereunder and payments of principal and interest thereon. Such notations shall be presumptively correct as to the aggregate unpaid principal amount of the Swing Line Advance made by the Swing Line Bank, and interest due thereon, but the failure by the Swing Line Bank to make such notations or the inaccuracy or incompleteness of any such notations shall not affect the obligations of the Company hereunder or under the Swing Line Note. (d) Procedure. Each Swing Line Borrowing shall be made on notice, given not later than 12:00 P.M., New York time on the date of the proposed Swing Line Borrowing, by the Company to the Swing Line Bank and the Administrative Agent. Each such notice of a proposed Swing Line Borrowing (a "Swing Line Advance Request") shall be by telephone or telecopier (and if by telecopier, in the form of Exhibit E hereto), and, if by telephone, confirmed immediately in writing, specifying therein the requested (i) date of such borrowing, (ii) amount of such borrowing and (iii) maturity of such borrowing (which maturity shall be no later than the thirtieth day after the requested date of such borrowing subject to successive thirty day extensions thereof, at the Company's option, so long as the total outstanding amount of Swing Line Advances remains less than or equal to $15,000,000). To the extent it is required to do so pursuant to Section 2.10(a) above, the Swing Line Bank will make the amount of the requested Swing Line Advance available to the Administrative Agent in immediately available funds, at the office of the Administrative Agent at its address set forth on the signature pages hereof. After the Administrative Agent's receipt of such funds and upon satisfaction by the Company, or waiver by the Administrative Agent of each of the conditions precedent contained in Article VI applicable thereto, the Administrative Agent will disburse such funds to the Company. (e) Repayment. The Company shall repay to the Administrative Agent for the account of the Swing Line Bank the outstanding principal amount of each Swing Line Advance made to the Company on the earlier Page 33 of the maturity date specified in the applicable Swing Line Advance Request (which maturity shall be no later than the thirtieth day after the requested date of such borrowing subject to successive thirty day extensions thereof, at the Company's option, so long as the total outstanding amount of Swing Line Advances remains less than or equal to $15,000,000) and the Termination Date. (f) Conversion of Swing Line Advances. Subject to Section 4.03, (i) if the aggregate outstanding Swing Line Advances shall at any time exceed $1,000,000 the Company may, at its option, convert such Swing Line Advances to an ABR Loan and if the aggregate outstanding Swing Line Advances shall at any time exceed $2,500,000 the Company may, at its option, convert such Swing Line Advances to a Eurodollar Pro Rata Loan; (ii) if the aggregate outstanding Swing Line Advances shall at any time exceed $7,500,000, Swing Line Advances in excess of such amount shall, on the next date on which interest is payable on any Swing Line Advance, unless converted at the Company's option pursuant to clause (i) above, automatically be converted to an ABR Loan; and (iii) if a Default shall occur and be continuing, the Swing Line Bank may, at its option, convert such Swing Line Advances to an ABR Loan. Upon election of any conversion under clause (i), the Company shall notify the Swing Line Bank in writing of such conversion, whether such Swing Line Advances shall be ABR Loans or Eurodollar Pro Rata Loans and the Business Day on which such conversion is to be effective (which notice in the case of the Eurodollar Pro Rata Loans shall not be less than three days prior to the requested date for conversion) and upon any automatic conversion under clause (ii) or election of conversion under clause (iii), the Swing Line Bank shall immediately notify the Company in writing of such conversion. On the Business Day of any conversion described above, such Swing Line Advances shall constitute an ABR Loan or a Eurodollar Pro Rata Loan and shall bear interest at the rate of interest then applicable to ABR Loans or Eurodollar Pro Rata Loans, as the case may be. Upon written demand by the Swing Line Bank on or before 11:00 A.M., New York time, with a copy of such demand to the Administrative Agent, whether or not an Event of Default shall have occurred, each other Bank shall purchase from the Swing Line Bank, and the Swing Line Bank shall sell to each such other Bank, such other Bank's Pro Rata Share of such outstanding Swing Line Advance as of the date of such demand, by making available to the Administrative Agent for the account of the Swing Line Bank not later than 2:00 P.M., New York time, in immediately available funds, an amount equal to the portion of the outstanding principal amount of such Swing Line Advance to be purchased by such Bank. The Company hereby agrees to each such sale. Each Bank agrees unconditionally and absolutely to purchase its Pro Rata Share of an outstanding Swing Line Advance, whether or not an Event of Default shall have occurred, on (i) the Business Day on which demand therefor is made by the Swing Line Bank, provided that notice of such demand is given not later than 1:00 P.M., New York time, on such Business Day or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. If and to the extent that any Bank shall not Page 34 have so made the amount of such Swing Line Advance available to the Administrative Agent, such Bank agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Swing Line Bank until the date such amount is paid to the Administrative Agent, at a rate per annum equal to (i) the Federal Funds Rate, for the three-day period beginning on the date of such demand, and (ii) the rate of interest then applicable to ABR Loans or Eurodollar Pro Rata Loans, as the case may be, for the period beginning on the fourth day after the date of such demand, changing as and when said rate changes. ARTICLE III INTEREST, METHOD OF PAYMENT, CONVERSION, ETC. Section 3.01 Procedure for Interest Rate Determination. ------------------------------------------ (a) Unless the Company shall request in a Loan Request or in a Conversion/Continuance Request that Pro Rata Loans (or portions thereof) bear interest as Eurodollar Pro Rata Loans, the Pro Rata Loans shall bear interest as ABR Loans. (b) Competitive Rate Loans shall bear interest as Absolute Rate Competitive Loans or Eurodollar Competitive Loans as determined in accordance with Section 2.08. Section 3.02 Interest on ABR Loans. ---------------------- Each ABR Loan shall bear interest from the date of such ABR Loan until maturity thereof or until such Loan is repaid or converted, or the beginning of any relevant Interest Period, as the case may be, payable in arrears on the last day of each calendar quarter of each year, commencing with the first such date after the date hereof, and on the date such ABR Loan is repaid, at a rate per annum (on the basis of a 365- or 366-day year for the actual number of days involved in the case of ABR Loans which accrue interest based upon the Prime Rate and on the basis of a 360-day year for the actual number of days involved in the case of ABR Loans which accrue interest based upon the Federal Funds Rate) equal to the Base Rate in effect from time to time, which rate shall change as and when said Base Rate shall change. If an ABR Loan is outstanding, the Administrative Agent shall notify the Company of the Base Rate when said Base Rate shall change; provided that the failure to give notice shall not affect the Company's obligations with respect to such ABR Loan. Page 35 Section 3.03 Interest on Eurodollar Loans. ----------------------------- (a) Each Eurodollar Loan shall bear interest from the date of such Loan until maturity thereof or until such Loan is repaid, payable in arrears, with respect to Interest Periods of three months or less, on the last day of such Interest Period, and with respect to Interest Periods longer than three months, on the day which is three months after the commencement of such Interest Period and on the last day of such Interest Period, at a rate per annum (on the basis of a 360-day year for the actual number of days involved), determined by the Administrative Agent with respect to each Interest Period with respect to Eurodollar Loans, equal to the sum of (i) the Applicable Margin, in the case of Eurodollar Pro Rata Loans or the Competitive Margin, in the case of Eurodollar Competitive Loans and (ii) LIBOR. (b) The Interest Period for each Eurodollar Loan shall be selected by the Company at least three Business Days prior to the beginning of such Interest Period. If the Company fails to notify the Administrative Agent of the subsequent Interest Period for an outstanding Eurodollar Pro Rata Loan at least three Business Days prior to the last day of the then current Interest Period of such Eurodollar Pro Rata Loan, then such outstanding Eurodollar Pro Rata Loan shall become an ABR Loan at the end of such current Interest Period. (c) Notwithstanding the foregoing: (i) if any Interest Period for a Eurodollar Loan would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iii) no Interest Period for a Eurodollar Loan may extend beyond the Termination Date. (d) Eurodollar Loans shall be made by each Bank from its branch or affiliate identified as its Eurodollar Lending Office on the signature page hereto, or such other branch or affiliate as it may hereafter designate to the Company and the Administrative Agent as its Eurodollar Lending Office. A Bank shall not change its Eurodollar Lending Office designation if it, at the time of the making of such change, increases the amounts that would have been payable by the Company to such Bank under this Agreement in the absence of such a change. Page 36 Section 3.04 Interest on Absolute Rate Competitive Loans. -------------------------------------------- Each Absolute Rate Competitive Loan shall bear interest from the date of such Loan to (but excluding) its Maturity Date, payable in arrears, with respect to maturities of three months or less, on its Maturity Date, and with respect to maturities longer than three months, on the day which is three months after the making of such loan (and each three month anniversary thereafter, if any) and on its Maturity Date, at a rate per annum equal to the applicable Competitive Rate. Section 3.05 Conversion/Continuance. ----------------------- (a) The Company may request, by delivery to the Administrative Agent of a written Conversion/Continuance Request not less than three Business Days prior to a requested Conversion/Continuance Date, that all or portions of the outstanding ABR Loans and Eurodollar Pro Rata Loans, in the aggregate amount of $1,000,000 or in integral multiples of $100,000 in excess thereof (or, if the aggregate amount of outstanding Loans is less than $1,000,000, then all such lesser amount), shall bear interest from and after the Conversion/Continuance Date as either ABR Loans or Eurodollar Pro Rata Loans. (b) Upon receipt of any such Conversion/Continuance Request from the Company, the Administrative Agent shall forthwith give notice to each Bank of the substance thereof. Effective on such Conversion/ Continuance Date and upon payment by the Company of the amounts, if any, required by Section 4.03, the Loans or portions thereof as to which the Conversion/Continuance Request was made shall commence to accrue interest as set forth in this Article III for the interest rate selected by the Company. (c) In lieu of delivering the above-described notice, the Company may give the Administrative Agent telephonic notice hereunder by the required time under this Section 3.05; provided that such telephonic notice shall be confirmed by delivery of a written notice to the Administrative Agent by no later than 4:00 P.M., New York City time, the date of such telephonic notice. Section 3.06 Post Default Interest. ---------------------- Upon the occurrence and during the continuation of an Event of Default, all Loans, Swing Line Advances and any unpaid installment of interest shall bear interest at a rate per annum equal to the sum of (i) 2% and (ii) with respect to ABR Loans and Swing Line Advances, the rate of interest then applicable to ABR Loans, changing as and when said rate shall change, with respect to Eurodollar Loans, the rate of interest applicable to each such Eurodollar Loan, and with respect to Page 37 Absolute Rate Competitive Loans, the Competitive Rate applicable to such Absolute Rate Competitive Loan. Interest payable pursuant to this Section 3.06 shall be payable on demand. Section 3.07 Maximum Interest Rate. ---------------------- (a) Nothing in this Agreement or the Notes shall require the Company to pay interest at a rate exceeding the maximum rate permitted by applicable law. Neither this Section nor Section 11.01 is intended to limit the rate of interest payable for the account of any Bank to the maximum rate permitted by the laws of the State of New York (or any other applicable law) if a higher rate is permitted with respect to such Bank by supervening provisions of U.S. Federal law. (b) If the amount of interest payable for the account of any Bank on any interest payment date in respect of the immediately preceding interest computation period, computed pursuant to this Article III, would exceed the maximum amount permitted by applicable law to be charged by such Bank, the amount of interest payable for its account on such interest payment date shall automatically be reduced to such maximum permissible amount. ARTICLE IV DISBURSEMENT AND PAYMENT Section 4.01 Pro Rata Treatment. ------------------- Each payment of the Facility Fee and each reduction of the Total Commitment shall be apportioned among the Banks in proportion to each Bank's Pro Rata Share. Except as provided in Section 4.04 or 4.05, the ABR Loans and Eurodollar Pro Rata Loans or portions thereof as to which a Conversion/Continuance Request has been made pursuant to Section 3.05 hereof shall at all times bear interest on the same basis respectively (i.e., as ABR Loans and Eurodollar Pro Rata Loans) and the Interest Periods applicable thereto, if any, shall be of the same duration. Section 4.02 Method of Payment. ------------------ (a) All payments by the Company hereunder and under the Notes shall be made without set-off or counterclaim to the Administrative Agent, for its account or for the account of the Bank or Banks entitled thereto, as the case may be, in lawful money of the United States and in immediately available funds at the office of the Administrative Agent on the date when due. Page 38 (b) Any payment hereunder which falls due on a non-Business Day will be carried over to the next Business Day (subject to Section 3.03(c)), and interest at the rate applicable hereunder will continue to run during such extension of time. Section 4.03 Compensation for Losses. ------------------------ (a) Compensation. In the event that (i) the Company makes a prepayment under Section 2.06 on a day other than the last day of the Interest Period for the amount so prepaid, (ii) a Conversion/ Continuance Date selected pursuant to Section 3.05 falls on a day other than the last day of the Interest Period for the amount as to which a conversion is made, (iii) the Company revokes any notice given under Section 2.02 requesting Eurodollar Loans, (iv) the Loans or portions thereof are converted into ABR Loans pursuant to Section 4.05 on a day other than the last day of the Interest Period for the Eurodollar Loans so converted, (v) the Eurodollar Loans shall be declared to be due and payable prior to the scheduled maturity thereof pursuant to Section 8.01 or (vi) Swing Line Advances shall be converted into an ABR Loan on any day other than the maturity date for such Swing Line Advances, the Company shall pay to each Bank or the Swing Line Bank, as the case may be, promptly after its demand an amount which will compensate such Bank or the Swing Line Bank, as the case may be, for any loss, premium or penalty incurred (other than any loss, premium or penalty incurred as a consequence of any Tax, which shall be governed by the provisions of Section 4.04(a)) by such Bank or the Swing Line Bank, as the case may be, as a result of such prepayment, conversion, declaration or revocation of notice in respect of funds deemed (pursuant to the last sentence of this Section 4.03(a)) obtained for the purpose of making or maintaining such Bank's Eurodollar Loans or the Swing Line Bank's Swing Line Advances, or any part thereof (it being understood, however, that the foregoing shall not be construed as covering any amounts paid pursuant to Section 2.10(f) by a Bank to the Swing Line Bank in connection with the conversion of a Swing Line Loan). Such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so paid or prepaid, or not borrowed or converted, for the period from the date of such payment or prepayment or conversion or failure to borrow to the last day of such Interest Period or the maturity date of Swing Line Advances (or, in the case of a failure to borrow, the Interest Period that would have commenced on the date of such failure to borrow) in each case at the applicable rate of interest for such Loan provided for herein (excluding, however, the Applicable Margin included therein) over (ii) the amount of interest (as reasonably determined by such Bank) which would have accrued to such Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the London interbank market. For purposes of calculating amounts payable by the Company to the Banks under this Section, each Eurodollar Loan made by a Bank (and each related reserve, special deposit or similar Page 39 requirement) shall be conclusively deemed to have been funded at Base LIBOR used in determining LIBOR for such Eurodollar Loan by a matching deposit or other borrowing in the London interbank deposits market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan is in fact so funded. (b) Certificate, Etc. Each Bank and the Swing Line Bank, if applicable, shall promptly notify the Company, with a copy to the Administrative Agent, upon becoming aware that the Company may be required to make any payment pursuant to this Section 4.03. When requesting payment pursuant to this Section 4.03, each Bank and the Swing Line Bank, if applicable, shall provide to the Company, with a copy to the Administrative Agent, a certificate, signed by an officer of such Bank or Swing Line Bank, setting forth the amount required to be paid by the Company to such Bank or Swing Line Bank and the computations made by such Bank or Swing Line Bank to determine such amount. In the absence of manifest error, such certificate shall be conclusive and binding on the Company as to the amount so required to be paid by the Company to such Bank. (c) Participants. Subject to Section 11.08(e), each Participant shall be deemed a "Bank" for the purposes of this Section 4.03. Section 4.04 Withholding, Reserves and Additional Costs. -------------------------------------------- (a) Taxes. (i) Withholding. To the extent permitted by law, all payments under this Agreement and under the Notes (including payments of principal and interest) shall be payable to each Bank free and clear of any and all present and future Covered Taxes. If any Taxes are required to be withheld or deducted from any amount payable under this Agreement or any Note, then (1) the Company shall pay any such Tax before the date on which penalties attach thereto, and (2) in the event such Tax is a Covered Tax, the amount payable under this Agreement or such Note shall be increased to the amount which, after deduction from such increased amount of all Covered Taxes required to be withheld or deducted therefrom, will yield to such Bank the amount stated to be payable under this Agreement or such Note. The Company shall execute and deliver to any Bank upon its request such further instruments as may be necessary or desirable to give full force and effect to any such increase, including a new Note of the Company to be issued in exchange for any Note theretofore issued. The Company shall also hold each Bank harmless and indemnify it for any stamp or other taxes with respect to the preparation, execution, delivery, recording, performance or enforcement of the Credit Documents (all of which shall be included Page 40 with "Taxes"). If any Covered Taxes are paid by any Bank, the Company shall, not later than 10 days after demand of such Bank, reimburse such Bank for such payments, together with any interest, penalties and expenses incurred in connection therewith, plus interest thereon at a rate per annum (based on a 360-day year for the actual number of days involved) equal to the interest rate then applicable to ABR Loans, changing as and when such rate shall change, from the date such payment or payments are made by such Bank to the date of reimbursement by the Company. The Company shall deliver to the Administrative Agent certificates or other valid vouchers for all Taxes or other charges deducted from or paid with respect to payments made by the Company hereunder. (ii) Tax Refund. If the Company determines in good faith that, (a) acting in the name of a Bank, Participant, Assignee or the Administrative Agent it is more likely than not to win a contest involving a Covered Tax, or (b) acting in the name of the Company, a reasonable basis exists for contesting a Covered Tax, then the relevant Bank, Participant, Assignee or the Administrative Agent, as applicable, shall cooperate with the Company in challenging such Tax at the Company's expense if requested by the Company (it being understood and agreed that neither the Administrative Agent nor any Bank, Participant or Assignee shall have any obligation to contest, or any responsibility for contesting any Tax). If any Bank, Participant, Assignee or the Administrative Agent, as applicable, receives a refund (whether by way of direct payment or by offset) of any Covered Tax for which a payment has been made pursuant to subsection 4.04(a)(i) which, in the reasonable good faith judgment of such Bank, Participant, Assignee or Administrative Agent, as the case may be, is allocable to such payment made under subsection 4.04(a)(i), the amount of such refund (together with any interest received thereon) shall be paid to the Company to the extent payment has been made in full pursuant to subsection 4.04(a)(i). (iii) U.S. Tax Certificates. Each Bank that is organized under the laws of any jurisdiction other than the United States or any state thereof shall deliver to the Administrative Agent for transmission to the Company, on or prior to the Closing Date (in the case of each Bank listed on the signature pages hereof) or on the date (and as a condition to effectiveness) of an assignment pursuant to which it becomes a Bank (in the case of each other Bank), and at such other times as may be necessary in the determination of the Company or the Administrative Agent (each in the reasonable exercise of its discretion), such certificates, Page 41 documents or other evidence, properly completed and duly executed by such Bank (including, without limitation, Internal Revenue Service Form 1001 or Form 4224 or any other certificate or statement of exemption required by Treasury Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish that such Bank is not subject to deduction or withholding of United States federal income tax under Section 1441 or 1442 of the Code or otherwise (or under any comparable provisions of any successor statute) or is subject to deduction or withholding at a reduced rate under any applicable treaty or otherwise with respect to any Payments to such Bank of principal, interest, fees or other amounts payable under this Agreement or any of the Notes. The Company shall not be required to pay any additional amount to any such Bank under subsection 4.04(a)(i) if such Bank shall have failed to satisfy the requirements of the immediately preceding sentence; provided that if such Bank shall have satisfied such requirements on the Closing Date (in the case of each Bank listed on the signature pages hereof) or on the date of the agreement pursuant to which it became a Bank (in the case of each other Bank), nothing in this subsection 4.04(a)(iii) shall relieve the Company of its obligation to pay any additional amounts pursuant to subsection 4.04(a)(i) in the event that, as a result of any change in applicable law, such Bank is no longer properly entitled to deliver certificates, documents or other evidence at a subsequent date establishing the fact that such Bank is not subject to withholding as described in the immediately preceding sentence. (iv) Mitigation. Each Bank agrees that, as promptly as practicable after the officer of such Bank responsible for administering the Loans under this Agreement becomes aware of the occurrence of an event or the existence of a condition that would require the Company to make payments with respect to such Bank under subsection 4.04(a)(i), it will, to the extent not inconsistent with such Bank's internal policies, use reasonable efforts (1) to make, fund or maintain the Commitments or Loans of such Bank through another lending office of such Bank, or (2) take such other reasonable measures, if as a result the additional amounts that would otherwise be required to be paid by the Company with respect to such Bank pursuant to subsection 4.04(a)(i) would be materially reduced and if, as determined by such Bank in its sole discretion, the making, funding or maintaining of such Commitments or Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or the interests of such Bank. Page 42 (v) Replacement of Bank. If the Company becomes obligated to pay additional amounts described in Section 4.04(a) as a result of any condition described in such section and payment of such amount is demanded by any Bank, then the Company may, on ten business days' prior written notice to the Administrative Agent and such Bank, cause such Bank to (and such Bank shall) assign all of its rights and obligations under this Agreement to a Bank or other entity selected by the Company for a purchase price equal to the outstanding principal amount of such Bank's Loans and all accrued interest, fees, and other amounts owing to such Bank, provided that in no event shall the assigning Bank be required to pay or surrender to such purchasing Bank or other entity any of the fees received by such assigning Bank pursuant to this Agreement. The Company shall remain obligated to pay to such assigning Bank all additional amounts described in Section 4.04(a) arising on or prior to the date of such assignment as a result of any condition described in such section and demanded by any Bank. (b) Additional Costs. (i) If after the date hereof, any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof or the enactment of any law or regulation shall either (1) impose, modify or deem applicable any reserve, special deposit or similar requirement against the Banks' Commitments or the Loans or Swing Line Advances or (2) impose on any Bank any other condition regarding this Agreement, its Commitment or the Loans or Swing Line Advances and the result of any event referred to in clause (1) or (2) of this clause (b) shall be to increase the cost (other than an increase in cost as a consequence of any Tax, which shall be governed by the provisions of Section 4.04(a)) to any Bank of maintaining its Commitment or any Loans or Swing Line Advances (which increase in cost shall be calculated in accordance with each Bank's reasonable averaging and attribution methods) by an amount which any such Bank deems to be material, then, upon receipt by the Company of written notice by such Bank, the Company shall be obligated to pay to such Bank within 10 days of any written demand therefor an amount equal to such increase in cost incurred by such Bank after the date the Company receives such notice; provided that in respect of any Loan or Swing Line Advances such amount shall bear interest, after receipt by the Company of any such demand until payment in full thereof, at a rate per annum (based on a 360-day year, for Page 43 the actual number of days involved) equal to the sum of 2% and the interest rate then applicable to ABR Loans, changing as and when such rate shall change. (ii) If any Bank shall have determined that the adoption of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (including any such adoption or change made prior to the date hereof but not effective until after the date hereof), or compliance by any Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital for any such Bank or any corporation controlling such Bank as a consequence of its obligations under this Agreement to a level below that which such Bank or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy), then upon receipt by the Company of written notice by such Bank, the Company shall be obligated to pay to such Bank upon receipt of written demand from such Bank such additional amount or amounts as will compensate such Bank for such reduction suffered by such Bank after the date the Company receives such notice, plus interest thereon at a rate per annum (based on a 360-day year, for the actual number of days involved) equal to the interest rate then applicable to ABR Loans, changing as and when such rate shall change, from the date of such demand by such Bank to the date of payment by the Company. (iii) Mitigation. Each Bank agrees that, as promptly as practicable after the officer of such Bank responsible for administering the Loans under this Agreement becomes aware of the occurrence of an event or the existence of a condition that would require the Company to make payments with respect to such Bank under subsection 4.04(b)(i) or (ii), it will, to the extent not inconsistent with such Bank's internal policies, use reasonable efforts (1) to make, fund or maintain the Commitments or Loans of such Bank through another lending office of such Bank, or (2) take such other reasonable measures, if as a result the additional amounts that would otherwise be required to be paid by the Company with respect to such Bank pursuant to subsection 4.04(b)(i) or (ii) would be materially reduced and if, as determined by such Bank in its sole discretion, the making, funding or maintaining of such Commitments or Page 44 Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or the interests of such Bank. (iv) Replacement of Bank. If the Company becomes obligated to pay additional amounts described in Section 4.04(b)(i) or (ii) as a result of any condition described in such section and payment of such amount is demanded by any Bank, then the Company may, on ten business days' prior written notice to the Administrative Agent and such Bank, cause such Bank to (and such Bank shall) assign all of its rights and obligations under this Agreement to a Bank or other entity selected by the Company for a purchase price equal to the outstanding principal amount of such Bank's Loans and all interest and facility fees accrued to the date of purchase. The Company shall remain obligated to pay to such assigning Bank all additional amounts described in Section 4.04(b) arising on or prior to the date of such assignment as a result of any condition described in such section and demanded by any Bank. (c) Lending Office Designations. Before giving any notice to the Company pursuant to this Section 4.04, each Bank shall, if possible, designate a different lending office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. (d) Certificate, Etc. Each Bank shall promptly notify the Company, with a copy to the Administrative Agent, upon becoming aware that the Company may be required to make any payment pursuant to this Section 4.04. When requesting payment pursuant to this Section 4.04, each Bank shall provide to the Company, with a copy to the Administrative Agent, a certificate, signed by an officer of such Bank, setting forth the amount required to be paid by the Company to such Bank and the computations made by such Bank to determine such amount. Determinations and allocations by such Bank for purposes of this Section 4.04 shall be conclusive and binding upon the Company, provided that such determinations and allocations are made on a reasonable basis and are mathematically accurate. (e) Participants. Subject to Section 11.08(e), each Participant shall be deemed a "Bank" for the purposes of this Section 4.04. Section 4.05 Unavailability. --------------- If at any time any Bank shall have determined in good faith (which determination shall be conclusive) that (x) the making or maintenance of all or any part of such Bank's Eurodollar Loans has been made impracticable or unlawful because of compliance by such Bank in good Page 45 faith with any law or guideline or any interpretation or administration thereof by any official body charged with the interpretation or administration thereof or with any request or directive of such body (whether or not having the effect of law), or (y) that LIBOR would not accurately reflect the cost to such Bank of making, continuing or converting any Eurodollar Loan by reason of such compliance, or by reason of the unavailability of appropriate quotations, or by reason of the unavailability of U.S. dollar deposits in the appropriate amount and maturity in the London Eurodollar interbank market, then the Administrative Agent, upon notification to it of such determination by such Bank, shall forthwith advise the other Banks and the Company thereof. Upon such date as shall be specified in such notice and until such time as the Administrative Agent, upon notification to it by such Bank, shall notify the Company and the other Banks that the circumstances specified by it in such notice no longer apply, (i) notwithstanding any other provision of this Agreement, such Eurodollar Loans of such Bank shall automatically and without requirement of notice by the Company be converted to ABR Loans and (ii) the obligation of only such Bank to allow borrowing, elections and renewals of Eurodollar Loans shall be suspended, and, if the Company shall request in a Loan Request or Conversion/Continuance Request that such Bank make a Eurodollar Loan, the loan requested to be made by such Bank shall instead be made as an ABR Loan. ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.01 Representations and Warranties. ------------------------------- As of each Compliance Date, the Company represents and warrants to the Banks that: (a) Subsidiaries. At the date hereof, the Company has no Subsidiaries and is a participant in no joint ventures other than as listed on Schedule 5.01(a). (b) Good Standing and Power. The Company is duly organized and validly existing and in good standing under the laws of the State of Maryland; and the Company has the power to own its property and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good standing, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Each of the corporate Subsidiaries of the Company are corporations, each duly organized and validly existing, under the laws of the jurisdiction of its incorporation; Page 46 each other Subsidiary is an entity duly organized and validly existing under the laws of the jurisdiction of its organization; and each Subsidiary has the power to own its property and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so organized, existing, qualified, or to be in good standing, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (c) Corporate Authority. The Company has full corporate power and authority to execute, deliver and perform its obligations under this Agreement, to make the borrowings contemplated hereby, and to execute and deliver the Notes and to incur the obligations provided for herein and therein, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of stockholders is required as a condition to the validity or performance by the Company of its obligations under this Agreement or the Notes. (d) Authorizations. All authorizations, consents, approvals, registrations, notices, exemptions and licenses with or from Governmental Authorities and other Persons which are necessary for the borrowing hereunder, the execution and delivery of the Credit Documents, the performance by the Company of its obligations hereunder and thereunder have been effected or obtained and are in full force and effect. (e) Binding Agreements. This Agreement constitutes, and the Notes, when executed and delivered pursuant hereto for value received will constitute, the valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; and the effect of general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity, and the discretion of the court before which any proceeding therefor may be brought. (f) Litigation. There are no proceedings or investigations, so far as the executive officers of the Company know, pending or threatened before any court or arbitrator or before or by any Governmental Authority which (i) in any one case or in the aggregate, if determined adversely to the interests of the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect, (ii) relates to any Credit Document or the lending transactions contemplated hereby and thereby or (iii) seeks to (or is expected to) rescind, terminate, revoke, cancel, withdraw, suspend, modify or withhold any material license or permit of the Company or any of the Subsidiaries. Page 47 (g) No Conflicts. There is no statute, regulation, rule, order or judgment, and no provision of any material agreement or instrument binding on the Company or any of its Subsidiaries, or affecting their respective properties and no provision of the certificate of incorporation, by-laws, governing partnership agreement or other organizational document of the Company or any of its Subsidiaries, which would prohibit, conflict with or in any way prevent the execution, delivery, or performance of the terms of the Credit Documents or the incurrence of the obligations provided for herein and therein, or result in or require the creation or imposition of any Lien on any of the Company's or its Subsidiaries' properties as a consequence of the execution, delivery and performance of any Credit Document or the lending transactions contemplated hereby and thereby. (h) Financial Condition. (i) (A) The consolidated balance sheet as of December 31, 1998, together with consolidated statements of income, stockholders' equity and cash flows for the fiscal year then ended, audited by KPMG, LLP, included in the Realty Income Corporation 1998 Year End Report and (B) the consolidated balance sheet as of June 30, 1999, together with the consolidated statements of income and cash flows for the 6 months then ended certified by the chief financial officer of the Company, heretofore delivered to the Administrative Agent, fairly present the financial condition of the Company and its consolidated Subsidiaries and the results of their operations as of the dates and for the periods referred to and have been prepared in accordance with GAAP consistently applied throughout the periods involved. As of the date hereof, there are no material liabilities, direct or indirect, fixed or contingent, of the Company and its Subsidiaries as of the dates of such balance sheet which are not reflected therein or in the notes thereto. (ii) Since December 31, 1998 there has been no Material Adverse Change. (i) Taxes. The Company and each of its Subsidiaries has filed or caused to be filed all tax returns which are required to be filed and has paid all taxes required to be shown to be due and payable on said returns or on any assessment made against it or any of its property and all other taxes, assessments, fees, liabilities, penalties or other charges imposed on it or any of its property by any Governmental Authority, except for any taxes not yet delinquent and any taxes, assessments, fees, liabilities, penalties or other charges which are being contested in good faith and for which adequate reserves (in accordance with GAAP) have been established. (j) Use of Proceeds. The proceeds of the Loans and Swing Line Advances will be used by the Company for the purposes described in the Whereas clause hereto. (k) Margin Regulations. No part of the proceeds of any Loan will be used to purchase or carry, or to reduce, retire or refinance any credit incurred to purchase or carry or to extend credit to others for Page 48 the purpose of purchasing or carrying, any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System. (l) No Material Misstatements. All written information relating to the Company and its Subsidiaries heretofore delivered by the Company and its Subsidiaries to the Administrative Agent or any Bank in connection with the Credit Documents is complete and correct in all material respects. (m) Title to Properties; Possession Under Leases. The Company and its Subsidiaries each have good and marketable title to, or valid leasehold interests in, all properties and assets reflected on the consolidated balance sheet of the Company as of June 30, 1999, referred to in Section 5.01(h), except for such properties and assets as have been disposed of in the ordinary course of business and except for minor defects in title that do not, individually or in the aggregate, materially interfere with the ability of the Company or any of such Subsidiaries to conduct its business as now conducted. All such assets and properties are free and clear of all Liens, except Liens permitted pursuant to this Agreement. (n) Leases. (i) To the Company's knowledge, no condition exists which, with the giving of notice or the passage of time, or both, would permit any lessee to cancel its obligations under any lease to which the Company or any Subsidiary is a party that would create, individually or in the aggregate, a Material Adverse Effect; (ii) the Company has received no notice that any lessee or lessees intend to cease operations at any leased property or properties prior to the expiration of the term of the applicable lease (other than temporarily due to casualty, remodeling, renovation or any similar cause) that would create, individually or in the aggregate, a Material Adverse Effect; and (iii) to the Company's knowledge, none of the lessees or their sublessees, if any, under any of the leases to which the Company or any Subsidiary is a party to or is the subject of any bankruptcy, reorganizations, insolvency or similar proceeding that would create, individually or in the aggregate, a Material Adverse Effect. (o) Conduct of Business. At the date hereof, the Company and its Subsidiaries hold all authorizations, consents, approvals, registrations, franchises, licenses and permits, with or from Governmental Authorities and other Persons as are required or necessary for them to own their properties and conduct their business as now conducted unless and to the extent that any failure to hold such authorizations, consents, approvals, registrations, franchises, licenses and permits, individually or in the aggregate, could not have a Material Adverse Effect. (p) Compliance with Laws and Charter Documents. Neither the Company nor any Subsidiary thereof is, or as a result of performing any of its obligations under the Credit Documents will be, in violation of (a) Page 49 any law, statute, rule, regulation or order of any Governmental Authority (including Environmental Laws) applicable to it or its properties or assets, (b) its certificate of incorporation, by-laws, governing partnership agreement or other organizational document or (c) judgments or agreements to which it is a party or by which its assets may be bound unless and to the extent that such violations, individually or in the aggregate, would not have a Material Adverse Effect. (q) ERISA. (i) Neither the Company nor any ERISA Affiliate has engaged in a transaction with respect to any Plan which, assuming the taxable period of such transaction expired as of the Compliance Date, could subject the Company or any ERISA Affiliate to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount that would have a Material Adverse Effect. (ii) Except as set forth on Schedule 5.01(q), neither the Company nor any ERISA Affiliate has incurred any liability since December 31, 1998, under Title IV of ERISA with respect to any Single Employer Plan. No Single-Employer Plan had an accumulated funding deficiency, whether or not waived, as of the last day of the most recent fiscal year of such Plan ended prior to the Compliance Date, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. Neither the Company nor any ERISA Affiliate is (A) required to give security to any Single-Employer Plan pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, or (B) subject to a lien in favor of such a Plan under Section 414(n) of the Code or Section 302(f) of ERISA. (iii) No liability under Section 4062, 4063, 4064 or 4069 of ERISA has been or is expected by the Company to be incurred by the Company or any ERISA Affiliate with respect to any Single-Employer Plan in an amount that could have a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred or expects to incur any withdrawal liability with respect to any Plan which is a multiemployer plan in an amount which would have a Material Adverse Effect. (iv) Under each Single-Employer Plan, as of the last day of the most recent plan year ended prior to the Compliance Date, the actuarially determined present value of all benefit liabilities (as determined on the basis of the actuarial assumptions contained in the Plan's most recent actuarial valuation) did not exceed the fair market value of the asset of such Plan by an amount that would have a Material Adverse Effect. Page 50 (v) Insofar as the representations and warranties of the Company contained in clause (i) above relates to any Plan which is a multiemployer plan, such representations and warranties are made to the best knowledge of the Company and its ERISA Affiliates. As used in this Section, (A) "accumulated funding deficiency" shall have the meaning assigned to such term in Section 412 of the Code and Section 302 of ERISA; (B) "multiemployer plan" and "plan year" shall have the respective meanings assigned to such terms in Section 3 of ERISA; (C) "benefit liabilities" shall have the meaning assigned to such term in Section 4001 of ERISA; (D) "taxable period" shall have the meaning assigned to such term in Section 4975 of the Code; and (E) "withdrawal liability" shall have the meaning assigned to such term in Part 1 of Subtitle E of Title IV of ERISA. (r) Intellectual Property. The Company and each of its Subsidiaries owns, or is licensed to use, all trademarks, trade names, patents and copyrights (the "Intellectual Property") necessary for the conduct of its business as currently conducted, including, without limitation, the Intellectual Property listed on Schedule 5.01(r) hereto. To the knowledge of the Company, no claim has been asserted or is pending by any Person challenging or questioning the use by the Company or any Subsidiary of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Company know of any valid basis for any such claim. To the knowledge of the Company, the use of such Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person, nor, to the knowledge of the Company, are there any uses by other Persons of such Intellectual Property which infringe on the rights of the Company and its Subsidiaries. (s) Not an Investment Company or Public Utility Holding Company. Neither the Company nor any of its Subsidiaries is or, after giving effect to the transactions contemplated hereby will be (i) an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended or (ii) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or any foreign, federal, state or local statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby. (t) Environmental Matters. Except as they would not individually or in the aggregate have a Material Adverse Effect (i) the businesses as presently or formerly engaged in by the Company and its Subsidiaries are and have been conducted in compliance with all applicable Environmental Laws, including, without limitation, having all permits, licenses and other approvals and authorizations, during the time the Company and its Subsidiaries engaged in such businesses, (ii) the properties presently or formerly owned or operated by the Company and its Subsidiaries (including, without limitation, soil, groundwater or Page 51 surface water on, under or adjacent to the properties, and buildings thereon) (the "Properties") do not contain any Hazardous Substance other than in compliance with applicable Environmental Law (provided, however, that with respect to Properties formerly owned or operated by the Company and its Subsidiaries, such representation is limited to the period the Company owned or operated such Properties), (iii) neither the Company or any of its Subsidiaries has received any notices, demand letters or request for information from any Federal, state, local or foreign governmental entity or any third party indicating that the Company or any of its Subsidiaries may be in violation of, or liable under, in any respect, any Environmental Law in connection with the ownership or operation of the Company's businesses, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or threatened against the Company or any of its Subsidiaries with respect to the Company or any of its Subsidiaries or the Properties relating to any violation, or alleged violation, of any Environmental Law, (v) no reports have been filed, or are required to be filed, by the Company or any of its Subsidiaries concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law on or at the Properties, (vi) no Hazardous Substance has been disposed of, transferred, released or transported from any of the Properties during the time such Property was owned or operated by the Company or any of its Subsidiaries, other than in compliance with applicable Environmental Law, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by or which are in the possession of the Company or any of its Subsidiaries relating to the Company or such Subsidiary or the Properties which have not been delivered to the Banks prior to the date hereof, (viii) none of the Properties has been used at any time by the Company or any of its Subsidiaries as a sanitary landfill or hazardous waste disposal site and (ix) neither the Company nor any of its Subsidiaries has incurred, and none of the Properties are presently subject to, any material liabilities (fixed or contingent) relating to any suit, settlement, court order, administrative order, judgment or claim asserted or arising under any Environmental Law. (u) Solvency. On the date of each Loan and Swing Line Advance hereunder, and after the payment of all estimated legal, investment banking, accounting and other fees related hereto, the Company and each of its Subsidiaries will be Solvent. (v) Insurance. The properties (other than properties leased to other Persons) and operations of the Company and its Subsidiaries of a character usually insured by companies of established reputation engaged in the same or a similar business similarly situated are adequately insured, by financially sound and reputable insurers, against loss or damage of the kinds and in amounts customarily insured against by such Persons, and the Company and its Subsidiaries carry, Page 52 with such insurers in customary amounts, such other insurance as is usually carried by companies of established reputation engaged in the same or a similar business similarly situated. (w) REIT Status. The Company qualifies, and will elect or has elected to be treated, as a real estate investment trust under Sections 856 through 860 of the Code and the rules and regulations thereunder (a "REIT") beginning with its taxable year ending December 31, 1993. No fact, event or condition has occurred which could jeopardize the Company's tax status as a REIT. (x) Year 2000 Issue. The Company and its Subsidiaries have reviewed the effect of the Year 2000 Issue on the computer software, hardware and firmware systems and equipment containing embedded microchips owned or operated by or for the Company and its Subsidiaries or used or relied upon in the conduct of their business (including systems and equipment supplied by others or with which such computer systems of the Company and its Subsidiaries interface). The costs to the Company and its Subsidiaries of any reprogramming required as a result of the Year 2000 Issue to permit the proper functioning of such systems and equipment and the proper processing of data, and the testing of such reprogramming, and of the reasonably foreseeable consequences of the Year 2000 Issue to the Company or any of its Subsidiaries (including reprogramming errors and the failure of systems or equipment supplied by others) are not reasonably expected to result in a Default or Event of Default or to have a Material Adverse Effect. ARTICLE VI CONDITIONS OF LENDING Section 6.01 Conditions to the Availability of the Commitment. ------------------------------------------------- The obligations of each Bank hereunder are subject to, and the Banks' Commitment shall not become available until the date (the "Effective Date") on which, each of the following conditions precedent shall have been satisfied or waived in writing by each of the Banks, and upon such satisfaction or waiver each Bank will give a written confirmation of the same to the Company on request: (a) Credit Agreement. The Administrative Agent shall have received this Agreement duly executed and delivered by each of the Banks and the Company. (b) Notes. The Administrative Agent on behalf of each Bank shall have received Pro Rata Notes and Swing Line Notes in the principal amounts set forth in Sections 2.03 and 2.10(c), duly executed and delivered by the Company. Page 53 (c) Good Standing Certificates. The Administrative Agent on behalf of the Banks shall have received from the Company copies of good standing certificates, dated within five (5) days prior to the date hereof, confirming the Company's representation as to good standing in Section 5.01(b). (d) Secretary's Certificate. The Administrative Agent on behalf of the Banks shall have received from the Company a certificate from the Secretary or Assistant Secretary of the Company, dated as of the date hereof, (i) certifying the incumbency of the officers executing the Credit Documents and all related documentation, (ii) attaching and certifying the resolutions of the Board of Directors of the Company relating to the execution, delivery and performance of this Agreement, and (iii) attaching and certifying the Certificate of Incorporation and By-laws of the Company. (e) Authorizations. The Administrative Agent shall have received copies of all authorizations, consents, approvals, registrations, notices, exemptions and licenses with or from Governmental Authorities and other Persons which are necessary for the borrowing hereunder, the execution and delivery of the Credit Documents, the performance by the Company of its obligations hereunder and thereunder. (f) Opinions of Company Counsel. The Administrative Agent shall have received the favorable written opinions, dated the date hereof, of Latham & Watkins, special New York counsel for the Company, in substantially the form of Exhibit F-1 and of Michael R. Pfeiffer, General Counsel of the Company, in substantially the form of Exhibit F-2. (g) Litigation. There shall not be pending or threatened any action or proceeding before any court or administrative agency relating to the lending transactions contemplated by this Agreement or any Note which, in the judgment of the Administrative Agent or any Bank, could materially impair the ability of the Company to perform its obligations hereunder or thereunder. (h) Other Agreements. The Administrative Agent shall have received copies of all tax sharing, management and other similar agreements between the Company and any of its Subsidiaries or Affiliates, which shall be in form and substance satisfactory to the Administrative Agent. (i) Termination of Existing Credit Agreement. The Company shall have paid (whether with the proceeds of the Initial Loans hereunder or otherwise) all amounts due by it under the Credit Agreement among the Company, as Borrower, the Banks named on the signature pages thereof, the Administrative Agent, as Agent and Swing Line Bank, and BNY Capital Markets, as Arranger, dated as of November 29, 1994, as amended and restated as of December 30, 1997, and such Credit Agreement shall have terminated in accordance with its terms. Page 54 (j) Subsidiary Guaranty. The Administrative Agent shall have received one or more duly executed Subsidiary Guaranties, to the extent required by Section 7.02(e). (k) Fees. The Administrative Agent shall have received from the Company the fees set forth in Section 2.04 (for the accounts of the Banks, except as provided in Section 2.04(b)) and fees of Administrative Agent's counsel which are due and payable on the Effective Date. (l) Other Documents. The Administrative Agent shall have received such other certificates and documents as the Administrative Agent and the Banks reasonably may require. Section 6.02 Conditions to All Loans. ------------------------ The obligations of each Bank in connection with each Loan (including the Initial Loan) and the obligations of the Swing Line Bank in connection with each Swing Line Advance (including the first Swing Line Advance) are subject to the conditions precedent that, on the date of each such Loan and after giving effect thereto, each of the following conditions precedent shall have been satisfied or waived in writing by each Bank, and upon such satisfaction or waiver each Bank will give a written confirmation of the same to the Company on request: (a) Requests. For each Loan, the Administrative Agent shall have received either a Pro Rata Loan Request in substantially the form of Exhibit B or a Competitive Loan Request in substantially the form of Exhibit C-1; for each Swing Line Advance, the Administrative Agent and the Swing Line Bank shall have received a Swing Line Advance Request in substantially the form of Exhibit E. (b) No Default. No Default or Event of Default shall have occurred and be continuing, and the Administrative Agent shall have received from the Company a certificate to that effect signed by an authorized officer of the Company. (c) Representations and Warranties; Covenants. The representations and warranties contained in Article V (other than representations and warranties that speak as of a specific date) shall be true and correct with the same effect as though such representations and warranties had been made at the time of such Loan or Swing Line Advance, and the Administrative Agent shall have received from the Company a certificate to that effect signed by an authorized officer of the Company. Page 55 ARTICLE VII COVENANTS Section 7.01 Affirmative Covenants. ---------------------- Until the Termination Date, and thereafter until payment in full of the Notes and performance of all other obligations of the Company hereunder (other than Unmatured Surviving Obligations), the Company will: (a) Financial Statements; Compliance Certificates. Furnish to the Administrative Agent and to each Bank: (i) as soon as available, but in no event more than 60 days following the end of each fiscal quarter, copies of all consolidated quarterly balance sheets, income statements and other financial statements and reports of the Company and its Subsidiaries, prepared in a format and in scope consistent with the financial statements and reports of the Company referenced in Section 5.01(h); (ii) as soon as available, but in no event more than 105 days following the end of each fiscal year, a copy of the annual consolidated audit report and financial statements relating to the Company and its Subsidiaries, certified by KPMG LLP, one of the other major nationally recognized accounting firms or another independent certified public accountant reasonably satisfactory to the Administrative Agent, prepared in a format and in scope consistent with the December 31, 1998 financial statements and reports of the Company referenced in Section 5.01(h); (iii) as soon as available, but in no event later than 105 days following the end of each fiscal year, an annual forecast for the then-current fiscal year, prepared in a manner and in the form of the forecast provided on the date of this Agreement or in such other form as is reasonably acceptable to the Administrative Agent and the Required Banks together with an annual rent roll dated the most- recent December 31; (iv) together with each of the financial statements delivered pursuant to clauses (i) and (ii) of this Section 7.01(a), a certificate of the Chief Financial Officer of the Company stating whether as of the dates of such financial statements any event or circumstance exists which constitutes a Default or Event of Default and, if so, stating the facts with respect thereto, together with calculations, where applicable, which establish in Page 56 reasonable detail the Company's (and where applicable, each of the Company's Subsidiaries') compliance with the provisions of this Agreement; (v) promptly upon receipt thereof, copies of any reports and management letters submitted to the Company or any of its Subsidiaries or their accountants in connection with any annual or interim audit of the books of the Company or its Subsidiaries, together with the responses thereto, if any; and (vi) such additional information, reports or statements as the Administrative Agent and the Banks from time to time may reasonably request including but not limited to the quarterly furnishing to the Administrative Agent of the most recent Property Management Exception Report in a form substantially similar to Exhibit G hereto, a list of the Company's current property portfolio and a list of the Company's past quarter's acquisitions on an acquisition cost basis, an appraised value basis (to the extent available) and a projected annual rent basis. (b) Notification of Defaults and Adverse Developments. Notify the Administrative Agent (i) promptly, and in any event not later than five Business Days after the discovery by any officer of the Company of the occurrence of any Default or Event of Default; (ii) promptly, and in any event not later than five Business Days after the discovery by any officer of the Company of the occurrence of a Material Adverse Change; (iii) promptly, and in any event not later than ten Business Days after the discovery by any officer of the Company of any litigation or proceedings that are (to the knowledge of any executive officer of the Company) instituted or threatened against the Company or its Subsidiaries or any of their respective assets that (a) could reasonably be expected to have a Material Adverse Effect or (b) seeks to (or is expected to) rescind, terminate, revoke, cancel, withdraw, suspend, modify or withhold any material license or permit of the Company or any of the Subsidiaries; (iv) promptly, and in any event not later than five Business Days after the discovery by any officer of the Company of the occurrence of each and every event which would be an Event of Default (or an event which with the giving of notice or lapse of time or both would be an Event of Default) under any Indebtedness of the Company or any of its Subsidiaries in a principal amount in excess of $5,000,000, such notice to include the names and addresses of the holders of such Indebtedness and the amount thereof and (v) promptly, and in any event not later than five days after the end of each calendar quarter in which the Company receives notice of a change in the rating published by any of the Rating Agencies with respect to the Company's senior unsecured debt, notice of such change in rating. Upon receipt of any such notice of Default or adverse development, the Administrative Agent shall forthwith give notice to each Bank of the details thereof. Page 57 (c) Notice of ERISA Events. Within 10 days after the Company or any ERISA Affiliate knows that any of the events described in the succeeding two sentences have occurred, the Company shall furnish to the Administrative Agent a statement signed by a senior officer of the Company describing such event in reasonable detail and the action, if any, proposed to be taken with respect thereto. The events referred to in the preceding sentence are, with respect to any Single Employer Plan: (i) any reportable event described in Section 4043 of ERISA, other than a reportable event for which the 30-day notice requirement has been waived by the PBGC; (ii) the provision to any affected party as such term is defined in Section 4001 of ERISA of a notice of intent to terminate the Plan; (iii) the adoption of or amendment to the Plan if, after giving effect to such amendment, the Plan is a plan described in Section 4021(b) of ERISA; (iv) receipt of notice of an application by the PBGC to institute proceedings to terminate the Plan pursuant to Section 4042 of ERISA; (v) withdrawal from or termination of the Plan during a plan year for which the Company or any ERISA Affiliate is or would be subject to liability under Sections 4063 or 4064 of ERISA; (vi) cessation of operations by the Company or any ERISA Affiliate at a facility under the circumstances described in Section 4062(e) of ERISA; (vii) adoption of an amendment to the Plan which would require security to be given to the Plan pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; and (viii) failure by the Company or any ERISA Affiliate to make any payment to the Plan which would give rise to a lien in favor of the Plan under Section 414(n) of the Code or 302(f) of ERISA. Such events shall also include receipt of notice of withdrawal liability pursuant to Section 4202 of ERISA with respect to a Plan that is a multi-employer plan. (d) Other Reports, Notices and Materials. Furnish to the Administrative Agent (i) as soon as available copies of reports, notices and other materials sent to the Company or any of its Subsidiaries from any Governmental Authority, including the Securities and Exchange Commission, the Internal Revenue Service and PBGC and (ii) within 90 days of adoption by the Company's board of directors, copies of any revisions, supplements, amendments or restatements to the Real Estate Investment Criteria. (e) Environmental Matters. (i) Comply, and cause its Subsidiaries to comply, in all material respects, with all applicable Environmental Laws, (ii) notify the Administrative Agent promptly after receiving notice or becoming aware of any order, notice, claim or proceeding under any Environmental Laws, other than those that are clearly not material, and (iii) promptly forward to Administrative Agent a copy of any Environmental Claim, order, notice, permit, application, or any other communication or report received by Company or any of its Subsidiaries in connection with any such matters as they may affect such premises, if material. (f) Taxes. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges upon it, its income and its properties prior to the date on which Page 58 penalties attach thereto, unless and to the extent that (i) such taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings by the Company or such Subsidiary, as the case may be, (ii) adequate reserves (in accordance with GAAP) are maintained by the Company or such Subsidiary, as the case may be, with respect thereto, and (iii) any failure to pay and discharge such taxes, assessments and governmental charges could not have a Material Adverse Effect. (g) Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible insurance companies against such risks, on such properties and in such amounts as is customarily maintained by similar businesses; and file and cause each of its Subsidiaries to file with the Administrative Agent upon its request or the request of any Bank a detailed list of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. (h) Corporate Existence. Except as permitted by Section 7.02(c), maintain, and cause each of its Subsidiaries to maintain, its existence in good standing and qualify and remain qualified to do business in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business is such that the failure to maintain such existence or to qualify could reasonably be expected to have a Material Adverse Effect. (i) Authorizations. Obtain, make and keep in full force and effect all material authorizations from and registrations with Governmental Authorities. (j) Maintenance of Records. Maintain, and cause each of its Subsidiaries to maintain, complete and accurate books and records in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in its respective business and activities. (k) Inspection. Permit, and cause each of its Subsidiaries to permit, the Administrative Agent and the Banks to have one or more of their officers and employees, or any other Person designated by the Administrative Agent or the Banks, visit and inspect any of the properties of the Company and its Subsidiaries (upon reasonable request and notice and in accordance with the agreement, if any, relating to any such property) and to examine the minute books, books of account and other records of the Company and its Subsidiaries and make copies thereof or extracts therefrom, and discuss its affairs, finances and accounts with its officers and, at the request of the Administrative Agent or the Banks, with the Company's independent accountants, during normal business hours and at such other reasonable times and as often as the Administrative Agent or the Banks reasonably may desire. Page 59 (l) Conduct of Business. (i) Engage in as its principal business investing in real estate in the United States, (ii) preserve, renew and keep in full force and effect all its material contracts, (iii) preserve, renew and maintain in full force and effect all its franchises and licenses material to the normal conduct of its business as now conducted, and (iv) comply with all of the terms of all instruments which evidence, secure or govern the Indebtedness of the Company and its Subsidiaries and all material laws, rules and regulations of all Governmental Authorities. (m) Maintenance of Property, Etc. With only such exceptions that individually or in the aggregate would not have a Material Adverse Effect, (i) Maintain, keep and preserve and cause each of its Subsidiaries to maintain, keep and preserve all of its properties in good repair, working order and condition and from time to time make all necessary and proper repairs, renewals, replacements, and improvements thereto (provided that in the properties subject to sale agreements, to the extent permitted by Section 7.02(c)(iii), compliance with the terms of such agreement shall be deemed to constitute compliance with this Section 7.01(m)(i)), and (ii) maintain, preserve and protect and cause each of its Subsidiaries to maintain, preserve and protect all franchises, licenses, copyrights, patents and trademarks material to its business, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. (n) Insurance on Leased Properties. Use its, and cause its Subsidiaries to use their, commercially reasonable best efforts to ensure that each lessee of a property owned in whole or in part, directly or indirectly, by the Company or any Subsidiary, and each mortgagor of a property on which the Company or any Subsidiary holds a mortgage, has, and until the Termination Date will keep, in place adequate insurance which names the Company or such Subsidiary as a loss payee. For the purposes of the preceding sentence "adequate insurance" shall mean insurance, with financially sound and reputable insurers in such amounts and insuring against such risks as are customarily maintained by similar businesses. (o) Further Assurances. The Company agrees to do all acts and things, as may be required by law or as, in the reasonable judgement of the Administrative Agent, may be necessary or advisable to carry out the intent and purpose of this Agreement. (p) Year 2000. Take all necessary action to complete in all material respects by December 31, 1999, the reprogramming of computer software, hardware and firmware systems and equipment containing embedded microchips owned or operated by or for the Company and its Subsidiaries or used or relied upon in the conduct of their business (including systems and equipment supplied by others or with which such systems of the Company or any of its Subsidiaries interface) required as a result of the Year 2000 Issue to permit the proper functioning of such computer systems and other equipment and the testing of such Page 60 systems and equipment, as so reprogrammed. At the request of the Administrative Agent, the Company shall provide, and shall cause each of its Subsidiaries to provide, to the Administrative Agent, such information as may reasonably be requested relating to its compliance with the preceding sentence. Section 7.02 Negative Covenants. ------------------- Until the Termination Date, and thereafter until payment in full of the Notes and performance of all other obligations of the Company hereunder (other than Unmatured Surviving Obligations), the Company will not: (a) Indebtedness. Create, incur or assume any Indebtedness, except (i) Indebtedness to the Administrative Agent and the Banks hereunder and under the Notes, (ii) Indebtedness incurred to pay dividends enabling the Company to maintain its status as a REIT, (iii) Indebtedness incurred to purchase Interest Rate Protection Agreements and (iv) Indebtedness that would otherwise be permitted under the Credit Documents, provided that, in each of the aforementioned cases, (A) such Indebtedness is unsecured, (B) the maturity of such Indebtedness (including all scheduled payments of principal) is later than the Termination Date (C) such Indebtedness ranks pari passu or subordinate to the Notes and (D) after giving effect to the incurrence of such Indebtedness, the Company's and its Subsidiaries interest coverage ratio on a consolidated basis referred to in Section 7.03(c) herein for the most recent four-quarter period ending on the ending date of the Company's last fiscal quarter would have been greater than 2.00:1.00; provided, that the limitations contained in the foregoing clauses (A) and (B) shall not apply to Indebtedness having an aggregate principal amount at any time less than 5% of Consolidated Total Assets. The Company shall not permit any Subsidiary to create, incur, assume or suffer to exist any Indebtedness except Indebtedness which does not exceed, at any time, 5.0% of Consolidated Total Assets ("Permitted Subsidiary Indebtedness"), provided that if such Permitted Subsidiary Indebtedness is secured, (x) the principal amount thereof shall be applied towards (and shall accordingly limit) the amount of secured Indebtedness which the Company is permitted to incur pursuant to the first sentence of this Section 7.02(a), and (y) such secured Indebtedness shall in addition be permitted by Section 7.02(b). (b) Mortgages and Pledges. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien of any kind upon or in any of its property or assets, whether now owned or hereafter acquired, except that this Section 7.02(b) shall not apply (i) to Permitted Encumbrances and (ii) to other Liens securing Indebtedness permitted by Section 7.02(a), if immediately after giving effect to the incurrence of such Indebtedness and the application of the proceeds therefrom on a pro forma basis, Page 61 the aggregate principal amount of all such Indebtedness of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is not greater than 5% of Consolidated Total Assets. (c) Merger, Acquisition or Sales of Assets. (i) Acquire, or permit any of its Subsidiaries to acquire, all or any substantial portion of the assets of any Person other than (a) the acquisition of property in the ordinary course of the Company's business; or (b) the acquisition of the equity interests of an entity for the purpose of controlling the property of that entity in the ordinary course of the Company's business, provided that the aggregate purchase price paid by the Company in all transactions under this clause (b) and clause (ii)(b) below shall not exceed 10% of Consolidated Total Assets as of June 30, 1999; (ii) enter into any merger or consolidation, or permit any Subsidiary to do so, other than (a) a merger or consolidation of a Wholly Owned Subsidiary with one or more other Wholly Owned Subsidiaries or into the Company, (b) a merger or consolidation of a Subsidiary or the Company with an entity for the purpose of controlling the property of that entity in the ordinary course of the Company's business, provided that the aggregate purchase price paid by the Company in all transactions under this clause (b) and clause (i)(b) above shall not exceed 10% of Consolidated Total Assets as of June 30, 1999, or (c) a merger of the Company into another corporation primarily for the purpose of changing the jurisdiction of incorporation of the Company, provided that the surviving entity shall assume all obligations of the Company hereunder; or (iii) sell, lease or otherwise dispose of any assets of the Company or any of the Subsidiaries other than in the ordinary course of the Company's business for the fair market value thereof. (d) Negative Pledge. Grant any Person a negative pledge on any assets of the Company or of the Subsidiaries, except as may be provided in (i) any Permitted Subsidiary Indebtedness and (ii) Indebtedness permitted by Section 7.02(a) having an aggregate principal amount not exceeding $25,000,000. (e) Loans and Investments. Purchase or acquire the obligations or stock of, or any other interest in, or make loans, advances or capital contributions to, or form any joint ventures or partnerships with, any Person, or permit any Subsidiary so to do, except (i) investments in real estate which satisfy each of the Real Estate Investment Criteria, as determined by the Board of Directors from time to time, (ii) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturites of not more than twelve months from the date of acquisition, (iii) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (x) any Bank, (y) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (z) any bank (or the parent company of such bank) whose short-term commercial paper rating from Standard & Poor's Page 62 Corporation, a division of the McGraw Hill Companies, Inc., ("S&P") is at least A-1 or the equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at least P-1 or the equivalent thereof (any such bank, an "Approved Bank"), in each case with maturities of not more than twelve months from the date of acquisition, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (ii) above entered into with any bank meeting the qualifications specified in clause (iii) above, (v) commercial paper issued by any Bank or Approved Bank or by the parent company of any Bank or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company or by any agency of the Federal Government with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's (any such company, an "Approved Company"), or guaranteed by any industrial company with a long-term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within twelve months after the date of acquisition, (vi) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (ii) through (v) above, (vii) capital contributions to a Subsidiary by the Company or a Subsidiary of the purchase price for acquisitions by such Subsidiary of properties that the Company would be allowed to acquire directly under this Agreement, provided that a Subsidiary Guaranty of the Company's payment obligations under this Agreement, in the form attached hereto as Exhibit I, shall remain in full force and effect; (viii) capital contributions after taking account of any distributions to the Company, including intercompany loans and advances, to any Subsidiary that has not provided a Subsidiary Guaranty, provided that such capital contributions shall not exceed $50,000,000 at any time and (ix) shares of the Company's common stock; provided, that the Company shall not spend more than $25,000,000 in the aggregate during the term of this Agreement in acquiring such shares. (f) Real Estate Development. Purchase or acquire, or agree (pursuant to a binding agreement) to purchase or acquire, the obligations or stock of, or any other interest in, or make loans, advances or capital contributions to, or form any joint ventures or partnerships with, or make any other expenditures with respect to, any Real Estate Development Project, if, in the aggregate, the total project costs required to be made in connection with all such purchases, acquisitions, loans, advances, capital contributions or expenditures would be greater than $100,000,000, at any one time, or permit any Subsidiary so to do. (g) Dividends and Purchase of Stock. Declare any dividends (other than dividends payable in capital stock of the Company) on any shares of any class of its capital stock, or apply any of its property or assets to the purchase, redemption or other retirement of, or set apart any sum for the payment of any dividends on, or for the purchase, redemption or other retirement of, or make any other Page 63 distribution by reduction of capital or otherwise in respect of, any shares of any class of capital stock of the Company, or permit any Subsidiary which is not a Wholly Owned Subsidiary so to do, or permit any Subsidiary to purchase or acquire any shares of any class of capital stock of the Company; provided, however, that so long as an Event of Default pursuant to Section 8.01(a) has not occurred and is not continuing, the Company may, and may permit its Subsidiaries to, pay dividends and other distributions with respect to capital stock, except that this Section 7.02(g) shall not apply to the Company's expenditure of up to $25,000,000 in the aggregate during the term of this Agreement for the purchases of its own common stock. (h) Stock of Subsidiaries. Issue, sell or otherwise dispose of any shares of capital stock of any Subsidiary (except in connection with (A) a merger or consolidation of a Wholly Owned Subsidiary permitted by Section 7.02(c) or with the dissolution of any Subsidiary (provided, that such dissolution shall not be for the purpose of avoiding the provisions of this Section 7.02(h)), (B) investments in Subsidiaries permitted by Section 7.02(e), or (C) the issuance and sale to Persons other than the Company of an amount not greater than 10% of the outstanding shares of such capital stock in connection with the formation and capitalization of the Subsidiary described in Section 7.02(e)(viii), or permit any Subsidiary to issue any additional shares of its capital stock except to its existing stockholders. (i) Terms of Indebtedness. Unless otherwise expressly permitted by this Agreement, amend or modify, or permit to be amended or modified the terms of any Company or Subsidiary Indebtedness for borrowed money or any documents relating thereto in a manner which would (i) increase the principal amount of such Indebtedness, (ii) increase the interest borne by such Indebtedness, (iii) shorten the maturity of such Indebtedness or (iv) elevate, in relation to the Loans and Swing Line Advances, the ranking in terms of payment of such Indebtedness, without prior written consent of the Administrative Agent. (j) Certain Amendments. Amend or modify (i) the Company's certificate of incorporation, (ii) the Real Estate Investment Criteria to a material degree or (iii) without the approval of the independent members of the Company's board of directors, any tax sharing, management or other similar agreement between or among the Company and any of its Subsidiaries. (k) Transactions with Affiliates. Enter into any transactions, including without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate, or permit any Subsidiary so to do, except in the ordinary course of and pursuant to the reasonable requirements of its business and upon the approval of a majority of the disinterested members of the board of directors or a committee of such disinterested members. Page 64 (l) Mortgage Financings. Enter into any mortgage financings, as a borrower thereunder, except that this Section 7.02(l) shall not apply to mortgage financings involving a Lien on any real estate assets of the Company or a Subsidiary to the extent permitted by Section 7.02(b). (m) Significant Properties. Without the prior written consent of the Required Banks (which consent shall not be unreasonably withheld, and which consent the Banks and the Administrative Agent shall use their best efforts to grant or deny within 10 Business Days of receipt by the Administrative Agent of the Company's written request therefor, provided that the failure to grant, deny or explain the inability to make a determination about such consent for 20 Business Days after the Administrative Agent's receipt of the Company's request shall be deemed to constitute a grant of such consent), purchase or acquire an interest in (i) multi-tenant office buildings, (ii) hotels, motels, bowling alleys or mobile home parks or (iii) any individual lot of property the price of which exceeds $25,000,000 or two contiguous lots occupied by more than one tenant, the price of which exceeds $50,000,000. (n) Industry and Tenant Concentration. (i) Permit, at any time, its tenants conducting business in any one industry (determined by the SIC Code) to comprise more than 25% of total Consolidated Annualized Base Rent (measured on a quarterly basis and detailed on the compliance certificate issued in accordance with Section 6.02(c)), provided that in the case of the child care industry, the Company shall not permit, at any time, its tenants conducting business in the child care industry to comprise more than 30% of total Consolidated Annualized Base Rent (measured at the end of each fiscal quarter and detailed on the compliance certificate issued in accordance with Section 6.02(c)) or (ii) permit, at any time, any one of its tenants to comprise more than 15% of total Consolidated Annualized Base Rent (measured at the end of each fiscal quarter and detailed on the compliance certificate issued in accordance with Section 6.02(c)), provided that in the case of Children's World Learning Centers, the Company shall not permit, at any time, Children's World Learning Centers to comprise more than 20% of total Consolidated Annualized Base Rent (measured at the end of each fiscal quarter and detailed on the compliance certificate issued in accordance with Section 6.02(c)). Section 7.03 Financial Covenants. -------------------- Until the Termination Date, and thereafter until payment in full of the Notes and performance of all other obligations of the Company hereunder (other than Unmatured Surviving Obligations), (a) Tangible Stockholders' Equity. The Company will maintain Consolidated Tangible Stockholders' Equity of not less than the sum of Page 65 (i) $400,000,000 plus (ii) 75% of the sum of the net proceeds received by the Company after December 31, 1999 from any offering of its equity securities. (b) Leverage Ratio. The Company will maintain, as measured at the end of each fiscal quarter, a Leverage Ratio of not more than 1.00:1.00. (c) Interest Coverage Ratio. The Company will not permit the ratio of (i) the sum of Consolidated Funds from Operations and Consolidated Interest Expense to (ii) Consolidated Interest Expense for the four quarter period ending on the last day of each fiscal quarter to be less than 2.00:1.00. ARTICLE VIII EVENTS OF DEFAULT Section 8.01 Events of Default. ------------------ If one or more of the following events (each, an "Event of Default") shall occur: (a) Default shall be made in the payment of any installment of principal of any Loan or Swing Line Advance when due and payable, whether at maturity, by notice of intention to prepay or otherwise; or default shall be made in the payment of any installment of interest upon any Loan or Swing Line Advance when due and payable, and such default shall have continued for five days; or (b) Default shall be made in the payment of the Facility Fee or any other fee or amount payable hereunder when due and payable and such default shall have continued for five days; or (c) Default shall be made in the due observance or performance of any term, covenant, or agreement contained in Section 7.01(j) or in Section 7.03; or (d) Default shall be made in the due observance or performance of any other term, covenant or agreement contained in this Agreement, and such default shall have continued unremedied for a period of 30 days after any officer of the Company becomes aware, or should have become aware, of such default; or (e) Any representation or warranty made or deemed made by the Company herein or any statement or representation made in any certificate or report delivered by or on behalf of the Company in connection herewith or in connection with any Note shall prove to have been false or misleading in any material respect when made; or Page 66 (f) Any obligation (other than its obligation hereunder) of the Company or any of its Subsidiaries for the payment of Indebtedness in excess of $1,000,000 is not paid when due or within any grace period for the payment therefor or becomes or is declared to be due and payable prior to the expressed maturity thereof, or there shall have occurred an event which, with the giving of notice or lapse of time, or both, would cause any such obligation to become, or allow any such obligation to be declared to be, due and payable; or (g) An involuntary case or other proceeding shall be commenced against the Company or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any applicable Federal or State bankruptcy, insolvency, reorganization or similar law now or hereafter in effect or seeking the appointment of a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed, or an order or decree approving or ordering any of the foregoing shall be entered and continued unstayed and in effect, in any such event, for a period of 60 days; or (h) The commencement by the Company or any of its Subsidiaries of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by any of them to the entry of a decree or order for relief in respect of the Company or any of its Subsidiaries in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against any of them, or the filing by any of them of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by any of them to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any of its Subsidiaries or any substantial part of their respective property, or the making by any of them of an assignment for the benefit of creditors, or the admission by any of them in writing of inability to pay their debts generally as they become due, or the taking of corporate action by the Company or any of its Subsidiaries in furtherance of any such action; or (i) One or more judgments against the Company or any of its Subsidiaries or attachments against its property, which in the aggregate exceed $1,000,000, or the operation or result of which could be to interfere materially and adversely with the conduct of the business of the Company or any of its Subsidiaries, remain unpaid, unstayed on appeal, undischarged, unbonded, or undismissed for a period of 30 days; or (j) With respect to any Single-Employer Plan, any of the following shall occur: (A) the provision to any affected party as such term is Page 67 defined in Section 4001 of ERISA of a notice of intent to terminate the Plan, the adoption of an amendment to the Plan if, after giving effect thereto, the Plan is a plan described in Section 4021(b) of ERISA, receipt of notice of an application by the PBGC to institute proceedings to terminate the Plan pursuant to Section 4042 of ERISA, or any reportable event described in Section 4043 of ERISA (other than a reportable event for which the 30-day notice requirement has been waived by the PBGC); in each case, if the amount of unfunded benefit liabilities, as such term is defined in Section 4001(a)(18) of ERISA, of the Plan as of the date such event occurs is more than $5,000,000, (B) the Company or any ERISA Affiliate incurs liability under Sections 4062(e), 4063 or 4064 of ERISA in an amount in excess of $5,000,000, (C) an amendment is adopted to the Plan which would require security to be given to the Plan pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA in an amount in excess of $5,000,000, (D) the Company or any ERISA Affiliate fails to make a payment to the Plan which would give rise to a lien in favor of the Plan under Section 412(n) of the Code or Section 302(f) of ERISA in an amount in excess of $5,000,000, or (E) any Person shall engage in any non-exempt "prohibited transaction" (as defined in Section 406 or 407 of ERISA or Section 4975 of the Code) involving any Plan, in an amount in excess of $5,000,000; or (k) With respect to any Plan that is a multi-employer plan within the meaning of Section 4001(a)(3) of ERISA, any of the following shall occur: (A) the Company or any ERISA Affiliate shall be in "default" as defined in Section 4219(c)(5) of ERISA with respect to payments in excess of $5,000,000 owing to such Plan as a result of the Company's or such ERISA Affiliate's complete or partial withdrawal from such Plan within the meaning of Sections 4203 and 4205 of ERISA, respectively, or (B) the Company or any ERISA Affiliate shall be delinquent in making contributions to such Plan in accordance with Section 515 of ERISA in an amount in excess of $5,000,000. (l) Any court or governmental or regulatory authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which prohibits, enjoins or otherwise restricts in a manner that would have a Material Adverse Effect on any of the lending transactions contemplated under the Credit Documents; or (m) The Company shall fail to maintain its status as a "real estate investment trust", as such term is defined in the Code; (n) There shall occur a Change of Control; or (o) Thomas A. Lewis is terminated or resigns and is not replaced, within the twelve-month period following such termination or resignation, with a person having qualifications reasonably acceptable to Required Lenders; Page 68 then (i) upon the happening of any of the foregoing Events of Default, the obligation of the Banks to make any further Loans or the obligation of the Swing Line Bank to make any further Swing Line Advances under this Agreement shall terminate upon declaration to that effect delivered by the Administrative Agent or the Required Banks to the Company and (ii) upon the happening of any of the foregoing Events of Default which shall be continuing, the Notes and the Swing Line Advances shall become and be immediately due and payable upon declaration to that effect delivered by the Administrative Agent or the Required Banks to the Company; provided that upon the happening of any event specified in Section 8.01(g) or (h), the Notes and Swing Line Advances shall become immediately due and payable and the obligation of the Banks to make any further Loans and the obligation of the Swing Line Bank and the other Banks to make any further Swing Line Advances hereunder shall terminate without declaration or other notice to the Company. The Company expressly waives any presentment, demand, protest or other notice of any kind. ARTICLE IX THE ADMINISTRATIVE AGENT AND THE BANKS Section 9.01 The Agency. ----------- Each Bank appoints The Bank of New York as its Administrative Agent hereunder and irrevocably authorizes the Administrative Agent to take such action on its behalf and to exercise such powers hereunder as are specifically delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental hereto, and the Administrative Agent hereby accepts such appointment subject to the terms hereof. The relationship between the Administrative Agent and the Banks shall be that of agent and principal only and nothing herein shall be construed to constitute the Administrative Agent a trustee for any Bank nor to impose on the Administrative Agent duties or obligations other than those expressly provided for herein. Section 9.02 The Administrative Agent's Duties. ---------------------------------- The Administrative Agent shall promptly forward to each Bank copies, or notify each Bank as to the contents, of all notices and other communications received from the Company pursuant to the terms of this Agreement and the Notes and, in the event that the Company fails to pay when due the principal of or interest on any Loan, the Administrative Agent shall promptly give notice thereof to the Banks. As to any other matter not expressly provided for herein or therein, the Administrative Agent shall have no duty to act or refrain from acting with respect to the Company, except upon the instructions of the Required Banks. The Administrative Agent shall not be bound by Page 69 any waiver, amendment, supplement, or modification of this Agreement or any Note which affects its duties hereunder and thereunder, unless it shall have given its prior written consent thereto. The Administrative Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements binding on the Company pursuant to this Agreement or any Note nor shall it be deemed to have knowledge of the occurrence of any Default or Event of Default (other than a failure of the Company to pay when due the principal or interest on any Loan), unless it shall have received written notice from the Company or a Bank specifying such Default or Event of Default and stating that such notice is a "Notice of Default". Section 9.03 Sharing of Payment and Expenses. -------------------------------- All funds for the account of the Banks received by the Administrative Agent in respect of payments made by the Company pursuant to, or from any Person on account of, this Agreement or any Note shall be distributed forthwith by the Administrative Agent among the Banks, in like currency and funds as received, ratably in proportion to their respective interests therein. In the event that any Bank shall receive from the Company or any other source any payment of, on account of, or for or under this Agreement or any Note (whether received pursuant to the exercise of any right of set-off, banker's lien, realization upon any security held for or appropriated to such obligation or otherwise as permitted by law) other than in proportion to its Pro Rata Share, then such Bank shall purchase from each other Bank so much of its interest in obligations of the Company as shall be necessary in order that each Bank shall share such payment with each of the other Banks in proportion to each Bank's Pro Rata Share; provided that no Bank shall purchase any interest of any Bank that does not, to the extent that it may lawfully do so, set-off against the balance of any deposit accounts maintained with it the obligations due to it under this Agreement. In the event that any purchasing Bank shall be required to return any excess payment received by it, the purchase shall be rescinded and the purchase price restored to the extent of such return, but without interest. Section 9.04 The Administrative Agent's Liabilities. --------------------------------------- Each of the Banks and the Company agrees that (i) neither the Administrative Agent in such capacity nor any of its officers or employees shall be liable for any action taken or omitted to be taken by any of them hereunder except for its or their own gross negligence or willful misconduct, (ii) neither the Administrative Agent in such capacity nor any of its officers or employees shall be liable for any action taken or omitted to be taken by any of them in good faith in reliance upon the advice of counsel, independent public accountants or other experts selected by the Administrative Agent, and (iii) the Page 70 Administrative Agent in such capacity shall be entitled to rely upon any notice, consent, certificate, statement or other document (including any telegram, cable, telex, facsimile or telephone transmission) believed by it to be genuine and correct and to have been signed and/or sent by the proper Persons. Section 9.05 The Administrative Agent as a Bank. ----------------------------------- The Administrative Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not the Administrative Agent, and the terms "Bank" or "Banks", unless the context otherwise indicated, include the Administrative Agent in its individual capacity. The Administrative Agent may, without any liability to account, maintain deposits or credit balances for, invest in, lend money to and generally engage in any kind of banking business with the Company or any Subsidiary or affiliate of the Company as if it were any other Bank and without any duty to account therefor to the other Banks. Section 9.06 Bank Credit Decision. --------------------- Neither the Administrative Agent nor any of its officers or employees has any responsibility for, gives any guaranty in respect of, nor makes any representation to the Banks as to, (i) the condition, financial or otherwise, of the Company or any Subsidiary thereof or the truth of any representation or warranty given or made herein or in any other Credit Document, or in connection herewith or therewith or (ii) the validity, execution, sufficiency, effectiveness, construction, adequacy, enforceability or value of this Agreement or any other Credit Document or any other document or instrument related hereto or thereto. Except as specifically provided herein and in the other Credit Documents to which the Administrative Agent is a party, the Administrative Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any credit or other information with respect to the operations, business, property, condition or creditworthiness of the Company or any of its Subsidiaries, whether such information comes into the Administrative Agent's possession on or before the date hereof or at any time thereafter. Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Bank, based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will independently and without reliance upon the Administrative Agent or any other Bank, based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement or any Note. Page 71 Section 9.07 Indemnification. ---------------- Each Bank agrees (which agreement shall survive payment of the Loans and the Notes) to indemnify the Administrative Agent, to the extent not reimbursed by the Company, ratably in accordance with its respective Commitment, from and against any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other Credit Document, or any action taken or omitted to be taken by the Administrative Agent hereunder or thereunder; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent or any of its officers or employees. Without limiting the foregoing, each Bank agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in such capacity in connection with the preparation, execution or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement or any Note or any amendments or supplements hereto or thereto, to the extent that the Administrative Agent is not reimbursed for such expenses by the Company. Section 9.08 Successor Administrative Agent. ------------------------------- The Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Company, and the Administrative Agent may be removed at any time by the Required Banks by giving written notice thereof to the Administrative Agent, the other Banks and the Company at least ten Business Days prior to the effective date of such removal. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the resigning Administrative Agent's giving of notice of resignation, or the Required Banks' giving notice of removal, as the case may be, the resigning Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Any successor Administrative Agent appointed pursuant to this Section 9.08 shall be a Bank hereunder. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of Page 72 the resigned or removed Administrative Agent, and the resigned or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. ARTICLE X CONSENT TO JURISDICTION Section 10.01 Consent to Jurisdiction. ------------------------ The Company hereby irrevocably submits to the non-exclusive jurisdiction of the State and Federal courts located in The City of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and each Note. The Company hereby irrevocably appoints CT Corporation System, with offices on the date hereof at 111 Eighth Avenue, New York, New York 10011, as its authorized agent on whom process may be served in any action which may be instituted against it by the Administrative Agent or the Banks in any state or federal court in the Borough of Manhattan, The City of New York, arising out of or relating to any Loan or this Agreement and each Note. Service of process upon such authorized agent and written notice of such service to the Company shall be deemed in every respect effective service of process upon the Company, and the Company hereby irrevocably consents to the jurisdiction of any such court in any such action and to the laying of venue in the Borough of Manhattan, The City of New York. The Company hereby irrevocably waives any objection to the laying of the venue of any such suit, action or proceeding brought in the aforesaid courts and hereby irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Notwithstanding the foregoing, nothing herein shall in any way affect the right of the Administrative Agent or any Bank to bring any action arising out of or relating to the Loans or this Agreement and each Note in any competent court elsewhere having jurisdiction over the Company or its property. ARTICLE XI MISCELLANEOUS Section 11.01 APPLICABLE LAW. --------------- THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA. Page 73 Section 11.02 Set-off. -------- Each Bank is authorized to set off and apply any and all deposits at any time held by such Bank against obligations of the Company under the Credit Documents. Section 11.03 Expenses. --------- The Company agrees to pay (i) all reasonable out-of-pocket expenses of the Administrative Agent (including, without limitation, all reasonable fees and expenses of Winthrop, Stimson, Putnam & Roberts, as counsel to the Administrative Agent) in connection with the preparation of this Agreement and the other Credit Documents and any amendments, supplements or modifications hereto or thereto, (ii) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Swing Line Bank and any Bank, including fees and expenses of counsel, in connection with the enforcement of, and the protection of their rights under, any provisions of this Agreement, the Notes or any amendment or supplement hereto or thereto, whether or not any loan is made hereunder, and (iii) all reasonable out-of-pocket expenses of the Administrative Agent, including reasonable fees and disbursements of counsel, in connection with the syndication of the Loans. The Company shall pay any transfer taxes, documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement or the Notes incurred up to and including the date of this Agreement. Section 11.04 Amendments. ----------- Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (A) in the case of amendments or waivers relating to Section 7.03(a), (b) or (c), Banks having at least 66 2/3% of the Total Commitment or, if the Total Commitment has been cancelled or terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid principal amount of the Loans and (B) in all other cases, the Company and the Required Banks (and, if the rights or duties of the Administrative Agent or the Swing Line Bank are affected thereby, by the Administrative Agent and the Swing Line Bank, respectively); provided that no such amendment, waiver or modification shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank, subject any Bank to any additional obligation or change the several nature of the obligations of each Bank, (ii) reduce the principal of or rate of interest on any Loan (other than interest payable pursuant to Section 3.06) or any fees hereunder, (iii) except as otherwise provided in Section 11.12, postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for any reduction or termination of any Commitment, (iv) Page 74 except as otherwise may result from actions taken in accordance with Section 11.12, change the percentage of any of the Commitments or of the aggregate unpaid principal amount of the Notes or Swing Line Advances, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, or (v) amend or waive the provisions of Article IV or of this Section 11.04. Section 11.05 Cumulative Rights and No Waiver. -------------------------------- Each and every right granted to the Administrative Agent, the Swing Line Bank and the Banks hereunder or under any other document delivered hereunder or in connection herewith, or allowed them by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Administrative Agent, the Swing Line Bank or any Bank to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by the Administrative Agent, the Swing Line Bank or any Bank of any right preclude any other or future exercise thereof or the exercise of any other right. Section 11.06 Notices. -------- Any communication, demand or notice to be given hereunder or with respect to the Notes will be duly given when delivered in writing or by telecopy to a party at its address as indicated below, except that notices from the Company pursuant to Section 2.02 will not be effective until received by the Administrative Agent. A communication, demand or notice given pursuant to this Section 11.06 shall be addressed: If to the Company, at 220 West Crest Street Escondido, California 92025-1707 Telecopy: (760) 741-8674 Attention: Legal Department If to the Administrative Agent or the Swing Line Bank, at its address as indicated on the signature pages hereof, with a copy to: BNY Capital Markets, Inc. One Wall Street New York, New York 10286 Telecopy: (212) 635-6365 Attention: Agency Function Administration Kalyani Bose If to any Bank, at its address as indicated on the signature pages hereof. Page 75 Unless otherwise provided to the contrary herein, any notice which is required to be given in writing pursuant to the terms of this Agreement may be given by telex, telecopy or facsimile transmission. Section 11.07 Separability. ------------- In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. Section 11.08 Assignments and Participations. ------------------------------- (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Swing Line Bank and the Banks and their respective successors and assigns, except that the Company may not assign any of its rights hereunder without the prior written consent of the Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Company and the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Company and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Company hereunder including the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clauses (i) through (v), inclusive, of Section 11.04 without the consent of the Participant. Subject to Section 11.08(e), the Company agrees that each Participant shall be entitled to the benefits of Sections 4.03, 4.04 and 11.04 with respect to its participating interest. An assignment or other transfer which is not permitted by clause (c) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this clause (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or (except insofar as such assignment relates to Competitive Loans) a proportionate part of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Page 76 instrument executed by such Assignee and such transferor Bank, with (and subject to) the signed consents of the Company and the Administrative Agent and the Swing Line Bank (which consents shall not be unreasonably withheld or delayed); provided, however, any such assignment shall be in the minimum aggregate amount of $10,000,000; provided, further, that the foregoing consent requirement shall not be applicable in the case of, and this subsection (c) shall not restrict, an assignment of all, or (except insofar as such assignment relates to Competitive Loans) a proportionate part of all, of its rights and obligations under this Agreement and the Notes by any Bank to an Affiliate of such Bank or a pledge and assignment of all, or (except insofar as such assignment relates to Competitive Loans) a proportionate part of all, of its rights and obligations under this Agreement and the Notes to a Federal Reserve Bank as collateral; and provided, further, that no consent of the Company shall be required if an Event of Default has occurred and is continuing. Upon (i) execution and delivery of such an instrument, (ii) payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee and (iii) payment by the transferee Bank or transferor Bank to the Administrative Agent of an administrative fee in the amount of $3,500 (except that no such fee shall be payable in connection with a transfer or pledge to an Affiliate of a Bank or to a Federal Reserve Bank referred to in the proviso above), such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank (and the Company as to the transferor Bank) shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Company shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. (d) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 4.03 or 4.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made (i) with the Company's prior written consent, (ii) in the circumstances referred to in the third proviso to the first sentence of the preceding paragraph (c) or (iii) by reason of the provisions of Section 4.04 requiring such Bank to designate a different lending office under certain circumstances or at a time when the circumstances giving rise to such payment did not exist. (e) No Participant of any Bank shall be entitled to receive any greater payment under Section 4.03, Section 4.04 or Section 11.04 than such Bank would have been entitled to receive if it had not granted a participation to such Participant. Page 77 Section 11.09 WAIVER OF JURY TRIAL. --------------------- THE COMPANY, THE ADMINISTRATIVE AGENT AND EACH OF THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY CLAIM (WHETHER SOUNDING IN CONTRACT, TORT, APPLICABLE LAW OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO (AND WHENEVER ARISING) THIS AGREEMENT, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 11.10 Confidentiality. ---------------- Except as may be required to enforce the rights and duties established hereunder, the parties hereto shall preserve in a confidential manner all information received from the other pursuant to this Agreement, the Notes and the transactions contemplated hereunder and thereunder, and shall not disclose such information except to those persons with which a confidential relationship is maintained (including regulators, legal counsel, accountants, or designated agents), or where required by law. Nothing in this paragraph shall prevent the filing of this Agreement with the Securities and Exchange Commission. Section 11.11 Indemnity. ---------- The Company agrees to indemnify the Administrative Agent, the Arranger, the Swing Line Bank and each of the Banks and their respective directors, officers, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages and liabilities of any party other than the Company and related expenses, including reasonable counsel fees and expenses incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any Note or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the transactions and the other transactions contemplated hereby or thereby, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto and notwithstanding that any claim, proceeding, investigation or litigation relating to any such losses, claims, damages, liabilities or expenses is or was brought by a stockholder, creditor, employee or officer of the Company; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of any Indemnitee or from the breach by any Indemnitee of its obligations hereunder or with respect to claims or actions solely between or among Page 78 the Banks relating to this Agreement or the transactions contemplated hereby and provided further, that such Indemnity shall not apply to any loss, claim, damage, or liability or related expense incurred as a consequence of any additional costs (as contemplated by Section 4.04(b)) or any Tax, which shall be governed by the provisions of Section 4.04(b) and (a), respectively. The provisions of this Section 11.11 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the reduction or cancellation of the Commitment, the invalidity or unenforceability of any term or provision of this Agreement or any Note, or any investigation made by or on behalf of the Banks. All amounts due under this Section 11.11 shall be payable in immediately available funds upon written demand therefor. Section 11.12 Extension of Termination Dates; Removal of Banks; Substitutions of Banks. ------------------------------------------------- (a) (i) No earlier than the first anniversary of the Effective Date and no later than 120 days prior to the scheduled Termination Date, the Company may, at its option, request all the Banks then party to this Agreement to extend their scheduled Termination Dates by one calendar year by means of a letter, addressed to each such Bank and the Administrative Agent. If such a request is accepted and the Termination Date is extended pursuant to subsection 11.12(a)(ii), the Company may, at its option, no earlier than the date one year after the first request for extension and no later than 120 days prior to the rescheduled Termination Date, make one further request that all the Banks then party to this Agreement to extend their scheduled Termination Dates by one additional year in the same manner, subject to the provisions of subsection 11.12(a)(ii); provided that in no event shall the Termination Date be extended to a date which is later than the fifth anniversary of the Effective Date. (ii) Each Bank electing (in its sole discretion) so to extend its scheduled Termination Date shall execute and deliver within forty-five (45) days following such request counterparts of such letter to the Company and the Administrative Agent, whereupon (unless Banks with an aggregate percentage of the Total Commitment in excess of 33 1/3% decline to extend their respective scheduled Termination Dates, in which event the Administrative Agent shall notify all the Banks thereof), such Bank's scheduled Termination Date shall be extended to the anniversary date of the year immediately succeeding such Bank's then- Page 79 current scheduled Termination Date. If no such election is received within such forty-five day period from any Bank, such Bank shall be deemed to have elected not to extend its scheduled Termination Date. (b) With respect to any Bank which has declined to extend such Bank's scheduled Termination Date and if Banks with an aggregate percentage of the Total Commitment in excess of 33 1/3% have not declined to extend their respective Termination Dates, the Company may in its discretion, upon not less than 30 days' prior written notice to the Administrative Agent and each Bank, remove such Bank as a party hereto. Each such notice shall specify the date of such removal (which shall be a Business Day), which shall thereupon become the scheduled Termination Date for such Bank. (c) In the event that any Bank does not extend its scheduled Termination Date pursuant to subsection (a) above or is the subject of a notice of removal pursuant to subsection (b) above, then, at any time prior to the Termination Date for such Bank (a "Terminating Bank"), the Company may, at its option, arrange to have one or more other financial institutions acceptable to the Administrative Agent (which may be a Bank or Banks and each of which shall herein be called a "Successor Bank") succeed to all or a percentage of the Terminating Bank's outstanding Loans, if any, and rights under this Agreement and assume all or a like percentage (as the case may be) of such Terminating Bank's Commitment and other obligations hereunder, as if (i) in the case of any Bank electing not to extend its scheduled Termination Date pursuant to subsection (a) above, such Successor Bank had extended its scheduled Termination Date pursuant to such subsection (a) and (ii) in the case of any Bank that is the subject of a notice of removal pursuant to subsection (b) above, no such notice of removal had been given by the Company. Such succession and assumption shall be effected by means of one or more agreements supplemental to this Agreement among the Terminating Bank, the Successor Bank, the Company and the Administrative Agent. On and as of the effective date of each such supplemental agreement, each Successor Bank party thereto shall be and become a Bank for all purposes of this Agreement and to the same extent as any other Bank hereunder and shall be bound by and entitled to the benefits of this Agreement in the same manner as any other Bank. (d) On the originally scheduled Termination Date for any Terminating Bank, such Terminating Bank's Commitment shall terminate and, except to the extent assigned pursuant to subsection (c) above, the Company shall pay in full all of such Terminating Bank's Loans and all other amounts payable to such Bank hereunder, including any amounts payable pursuant to Section 4.03 on account of such payment. (e) To the extent that all or a portion of any Terminating Bank's obligations are not assumed pursuant to subsection (c) above, the Total Commitment shall be reduced on the applicable Termination Date and each Bank's percentage of the reduced Total Commitment shall be revised pro rata to reflect such Terminating Bank's absence. Page 80 Section 11.13 Knowledge of the Company. ------------------------- As used in this Agreement, knowledge of the Company shall mean to the best of any executive officer's knowledge, after a reasonable investigation. Section 11.14 Execution in Counterparts. -------------------------- This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. REALTY INCOME CORPORATION By: -------------------------------- Name: Michael R. Pfeiffer Title: Senior Vice President, General Counsel THE BANK OF NEW YORK, as Administrative Agent for the Banks By: -------------------------------- Name: Elizabeth Ying Title: Vice President Address for Notices: One Wall Street 18th Floor New York, NY 10286 Attn: Kalyani Bose Agency Function Administration Fax: (212) 635-6365 With a copy to: The Bank of New York 10990 Wilshire Boulevard Suite 1125 Los Angeles, CA 90024 Attn: Elizabeth Ying Vice President Fax: (310) 996-8667 Page 81 THE BANK OF NEW YORK, as a Bank and as the Swing Line Bank By: -------------------------------- Name: Elizabeth Ying Title: Vice President Address for Notices: One Wall Street 18th Floor New York, NY 10286 Attn: Kalyani Bose Agency Function Administration Fax: (212) 635-6365 With a copy to: The Bank of New York 10990 Wilshire Boulevard Suite 1125 Los Angeles, CA 90024 Attn: Elizabeth Ying Vice President Fax: (310) 996-8667 Eurodollar Lending Office: One Wall Street 18th Floor New York, NY 10286 Attn: Kalyani Bose Agency Function Administration Fax: (212) 635-6365 Page 82 FIRST UNION NATIONAL BANK By: -------------------------------- Name: Title: Address for Notices: First Union Capital Markets One First Union Center Charlotte, NC 28288 Attn: Joy Auten Fax: (704) 383-7989 Eurodollar Lending Office: First Union Capital Markets One First Union Center Charlotte, NC 28288 Attn: Joy Auten Fax: (704) 383-7989 Page 83 WELLS FARGO BANK, NATIONAL ASSOCIATION By: -------------------------------- Name: Title: Address for Notices: Disbursement Administrator Disbursement & Operations Center 2120 East Park Place #100 El Secundo, CA 90245 Attn: Carla Tittle Fax: (310) 615-1014 Eurodollar Lending Office: Disbursement Administrator Disbursement & Operations Center 2120 East Park Place #100 El Secundo, CA 90245 Attn: Carla Tittle Fax: (310) 615-1014 Page 84 BANK OF MONTREAL By: -------------------------------- Name: Title: Address for Notices: Client Services 115 South LaSalle St., 12 West Chicago, IL 60603 Attn: Josie Nichols Fax: (312) 750-6061 Eurodollar Lending Office: 115 South LaSalle St., 12 West Chicago, IL 60603 Attn: Josie Nichols Fax: (312) 750-6061 Page 85 AMSOUTH BANK By: -------------------------------- Name: Title: Address for Notices: Commercial Real Estate 1900 5th Avenue North Birmingham, AL 35203 Attn: Crystal Cassels Fax: (205) 326-4075 Eurodollar Lending Office: 1900 5th Avenue North Birmingham, AL 35203 Attn: Crystal Cassels Fax: (205) 326-4075 Page 86 SANWA BANK CALIFORNIA, as a Bank By: -------------------------------- Name: Title: Address for Notices: Sanwa Bank California 601 South Figueroa St., 8th Floor Los Angeles, CA 90017 Attn: Yolanda Banuelos Fax : (213) 896-7090 Eurodollar Lending Office: Sanwa Bank California 601 South Figueroa St., 8th Floor Los Angeles, CA 90017 Attn: Yolanda Banuelos Fax: (213) 896-7090 Page 87 CITIZENS BANK OF RHODE ISLAND By: -------------------------------- Name: Title: Address for Notices: One Citizens Plaza, CC-4 Providence, RI 02903-1339 Attn: Benita Petres Syndication Administration Manger Fax: (401) 282-4485 Eurodollar Lending Office: One Citizens Plaza, CC-4 Providence, RI 02903-1339 Attn: Craig Schermerhorn Vice President Fax: (401) 282-4485 Page 88 Schedule 1 COMMITMENTS BANK COMMITMENT - ---- ---------- The Bank of New York (Administrative Agent) $40,000,000 First Union National Bank (Syndication Agent) $35,000,000 Wells Fargo Bank, N.A. (Documentation Agent) $35,000,000 Bank of Montreal (Co-Agent) $25,000,000 AmSouth Bank $22,500,000 Sanwa Bank California $22,500,000 Citizens Bank of Rhode Island $20,000,000 ----------- Total - All Banks $200,000,000 Page 89 EXHIBIT A FORM OF CONVERSION/CONTINUANCE REQUEST -------------------------------------- [Dated as provided in Section 3.05] The Bank of New York One Wall Street, 18th Floor New York, New York 10286 Attn: Kalyani Bose Realty Income Corporation (the "Company") hereby gives notice of its intention to [convert/continue] [$ Principal Amount] [the entire outstanding amount] of its [ABR Loans] [Eurodollar Pro Rata Loans] with an Interest Period of days and ending on , ] [to/as] [ABR Loans] [Eurodollar Pro Rata Loans], pursuant to the Revolving Credit Agreement, dated as of December , 1999, among the Company, the Banks and The Bank of New York, as Administrative Agent and as Swing Line Bank (as amended, supplemented or otherwise modified from time to time, the "Agreement"), such [conversion/continuance to be effective as of , ]. [The Interest Period for the Eurodollar Pro Rata Loans shall be days, with a Scheduled Maturity on .] Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. REALTY INCOME CORPORATION By: ------------------------------- Name: Title: Page 90 EXHIBIT B FORM OF PRO RATA LOAN REQUEST ----------------------------- [Dated as provided in Section 2.02] The Bank of New York One Wall Street, 18th Floor New York, New York 10286 Attn: Kalyani Bose Realty Income Corporation (the "Company") hereby gives notice of its intention to borrow $ of Loans on , pursuant to the Revolving Credit Agreement, dated as of December , 1999, among the Company, the Banks and The Bank of New York, as Administrative Agent and as Swing Line Bank (as amended, supplemented or otherwise modified from time to time, the "Agreement"). [The Company hereby requests that such Loan constitute a Eurodollar Pro Rata Loans with a scheduled maturity of 20 and an Interest Period of days.] The Company hereby confirms that the amounts of Loans outstanding on the date hereof is as follows: Total Commitment............................ $200,000 Outstanding Pro Rata Loans.................. $ Outstanding Competitive Loans............... $ Availability................................ $ The Company also hereby confirms that each of the representations and warranties (other than the representations and warranties that speak as of a specific date) contained in Article V of the Agreement is true and correct on the date hereof and, after giving effect to this borrowing, will be true and correct on the proposed borrowing date as though such representation or warranty had originally been made on such dates. No Default or Event of Default has occurred and is continuing, nor will any such event occur as a result of this borrowing. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. REALTY INCOME CORPORATION By: ------------------------------- Name: Title: Page 91 EXHIBIT C-1 Form of Competitive Loan Request -------------------------------- [Date] The Bank of New York, as Administrative Agent One Wall Street New York, New York 10286 Attention: Kalyani Bose Agency Function Administration Re: Request for Competitive Bids ---------------------------- Reference is made to the Revolving Credit Agreement, dated as of December , 1999, (as amended, modified or supplemented from time to time, the "Credit Agreement"), among Realty Income Corporation (the "Company"), the banks from time to time parties thereto and The Bank of New York, as Administrative Agent and as Swing Line Bank. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. The Company hereby gives you notice, pursuant to Section 2.08 of the Credit Agreement, that it requests the Lenders to make offers to make Competitive Loans under the Credit Agreement, and in that connection sets forth below the terms on which such Competitive Loans are requested to be made: (A) Borrowing Date (1) --------------------------- (B) Principal Amount of Competitive Loan (2) --------------------------- (C) Maturity Date (3) --------------------------- (D) Interest rate basis [Absolute Rate][Eurodollar] --------------------------- (E) Interest Period, if any (4) --------------------------- Very truly yours, REALTY INCOME CORPORATION By: --------------------------- Title: Page 92 [FN] (1) Must be a Business Day. (2) Must be a principal amount equal to $1,000,000 or in integral multiples of $100,000 in excess thereof. (3) At least seven days after the Borrowing Date and not more than (i) 180 days after the Borrowing Date, in the case of Absolute Rate Competitive Loans, or (ii) six months after the Borrowing Date, in the case of Eurodollar Competitive Loans. (4) One, two, three or six months with respect to Eurodollar Competitive Loans. Not applicable to Absolute Rate Competitive Loans. Page 93 EXHIBIT C-2 Form of Notice to Banks ----------------------- [Date] [Name of Bank] [Address] Attention: Re: Notice of a Request for Competitive Bids ---------------------------------------- Reference is made to the Revolving Credit Agreement, dated as of December , 1999 (as amended, modified or supplemented from time to time, the "Credit Agreement"), among Realty Income Corporation (the "Company"), the banks from time to time parties thereto and The Bank of New York, as Administrative Agent and as Swing Line Bank. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company delivered to the Agent a Competitive Loan Request on , , pursuant to Section 2.08 of the Credit Agreement, and in that connection you are invited to submit a Bid to make a Competitive Loan to the Company by [TIME], on , . Your Bid must comply with Section 2.08 of the Credit Agreement and the terms set forth below on which the Competitive Loan Request was made: (A) Proposed Borrowing Date -------------------------- (B) Principal amount of Competitive Loan -------------------------- (C) Interest rate basis [Absolute Rate][Eurodollar] --------------------------- (E) Interest Period and the last day thereof --------------------- Very truly yours, THE BANK OF NEW YORK, as Agent By: ------------------------------ Title: Page 94 EXHIBIT C-3 Form of Competitive Bid ----------------------- [Date] The Bank of New York, as Agent One Wall Street New York, New York 10286 Attention: Kalyani Bose Agency Function Administration Re: Competitive Bid --------------- Reference is made to the Revolving Credit Agreement, dated as of December , 1999 (as amended, modified or supplemented from time to time, the "Credit Agreement"), among Realty Income Corporation (the "Company"), the lenders from time to time parties thereto and The Bank of New York, as Administrative Agent and as Swing Line Bank. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. [NAME OF BANK] hereby submits a Competitive Bid to make an [Absolute Rate] [Eurodollar] Competitive Loan pursuant to Section 2.08 of the Credit Agreement, in response to the Borrowing Request made by the Company on , , and in that connection sets forth below the terms on which such Competitive Bid is made: (A) Principal Amount (1) -------------------------- (B) Competitive Bid -------------------------- (C) Competitive Bid [Rate][Margin] (2) -------------------------- The undersigned hereby confirms that it will, subject only to the conditions set forth in the Credit Agreement, extend credit to the Borrower upon acceptance by the Borrower of this Competitive Bid in accordance with Section 2.08 of the Credit Agreement. Very truly yours, [NAME OF BANK] By: -------------------------- Title: Page 95 [FN] (1) Principal amount must be at least $1,000,000, or an integral multiple of $100,000 in excess thereof, and not greater than the requested Competitive Loan. Multiple bids may be accepted by the Agent. (2) In the case of Absolute Rate Competitive Loans, %; in the case of Eurodollar Competitive Loans, a margin (+/- % over LIBOR. Page 96 EXHIBIT C-4 Form of Competitive Bid Accept/Reject Notice -------------------------------------------- [Date] The Bank of New York, as Agent One Wall Street New York, New York 10286 Attention: Kalyani Bose Agency Function Administration Re: Competitive Bid Acceptance/Reject Letter ---------------------------------------- Realty Income Corporation (the "Company") refers to the Revolving Credit Agreement, dated as of December , 1999 (as amended, modified or supplemented or extended from time to time, the "Credit Agreement"), among the Company, the banks from time to time parties thereto (the "Banks") and The Bank of New York, as Administrative Agent and as Swing Line Bank. In accordance with Section 2.08 of the Credit Agreement, we have received a summary of bids in connection with our Competitive Loan Request, dated , , and in accordance with Section 2.08 of the Credit Agreement, we hereby accept the following Competitive Bids for Competitive Loans to be made on , , with a Maturity Date of , : Competitive Principal Amount Rate Margin Bank - ---------------- ----------- ---- %/+/-. % We hereby reject the following Competitive Bids: Competitive Principal Amount Rate Margin Bank - ---------------- ----------- ---- %/+/-. % Very truly yours, REALTY INCOME CORPORATION By: ---------------------------- Title: Page 97 EXHIBIT D-1 FORM OF PRO RATA NOTE --------------------- $ December , 1999 Realty Income Corporation, a Maryland corporation (the "Company"), for value received, hereby promises to pay on the Termination Date to the order of (the "Bank"), at the office of The Bank of New York, as Administrative Agent, at One Wall Street, New York, New York 10286, in lawful money of the United States, the principal sum of $ or if less, the aggregate unpaid principal amount of all Pro Rata Loans made by the Bank to the Company pursuant to that certain Revolving Credit Agreement, dated as of December , 1999 (as amended, supplemented or otherwise modified from time to time, the "Agreement") among the Company, each of the banks party thereto, and The Bank of New York, as Administrative Agent and as Swing Line Bank. This Note shall bear interest, and such interest shall be payable, as set forth in the Agreement for ABR Loans and Eurodollar Pro Rata Loans. Upon the occurrence and during the continuation of an Event of Default, this Note shall bear interest at the default rate pursuant to Section 3.06 of the Agreement. Except as otherwise provided in the Agreement, with respect to Eurodollar Pro Rata Loans, if interest or principal on the Loan evidenced by this Note becomes due and payable on a day which is not a Business Day, then the maturity thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon at the rate herein specified during such extension. Page 98 This Note is one of the Pro Rata Notes referred to in the Agreement, and is subject to prepayment in whole or in part and its maturity is subject to acceleration upon the terms provided in the Agreement. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. Presentment, demand, protest, notice of dishonor, notice of intent to accelerate and other notice of any kind are hereby waived by the undersigned. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. All Pro Rata Loans made by the Bank to the Company pursuant to the Agreement and all payments of principal hereof and interest thereon may be indicated by the Bank upon the grid attached hereto which is a part of this Note. Such notations shall be presumptive as to the aggregate unpaid principal amount of and interest on all Pro Rata Loans made by the Bank pursuant to the Agreement. REALTY INCOME CORPORATION By: ------------------------------- Name: Title: Page 99 Loan and Payments of Principal and Interest ------------------------------------------- Name Interest Interest of Method Period Amount Amount Person Amount (ABR or if Euro- of Unpaid of Making of Euro- dollar Principal Principal Interest Nota- Date Loan dollar Loan Paid Balance Paid tion - ---- ------ ------ -------- --------- --------- -------- ------
Page 100 EXHIBIT D-2 FORM OF COMPETITIVE NOTE ------------------------ $[ ] [ DATE ] Realty Income Corporation, a Maryland corporation (the "Company"), for value received, hereby promises to pay on to the order of (the "Bank"), at the office of The Bank of New York, as Agent, at One Wall Street, New York, New York 10286, in lawful money of the United States, the principal sum of $[ ] or if less, the aggregate unpaid principal amount of all Competitive Loans made by the Bank to the Company pursuant to that certain Revolving Credit Agreement, dated as of December , 1999 (as amended, supplemented or otherwise modified from time to time, the "Agreement") among the Company, each of the banks party thereto, and The Bank of New York, as Administrative Agent and as Swing Line Bank. This Note shall bear interest, and such interest shall be payable, as set forth in the Agreement for Absolute Rate Competitive Loans and Eurodollar Competitive Loans. Upon the occurrence and during the continuation of an Event of Default, this Note shall bear interest at the default rate pursuant to Section 3.06 of the Agreement. Except as otherwise provided in the Agreement, with respect to Eurodollar Competitive Loans, if interest or principal on the Loan evidenced by this Note becomes due and payable on a day which is not a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon at the rate herein specified during such extension. Page 101 This Note is one of the Competitive Notes referred to in the Agreement, and is subject to prepayment in whole or in part and its maturity is subject to acceleration upon the terms provided in the Agreement. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. Presentment, demand, protest, notice of dishonor, notice of intent to accelerate and other notice of any kind are hereby waived by the undersigned. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. All Competitive Loans made by the Bank to the Company pursuant to the Agreement and all payments of principal hereof and interest thereon may be indicated by the Bank upon the grid attached hereto which is a part of this Note. Such notations shall be presumptive as to the aggregate unpaid principal amount of and interest on all Competitive Loans made by the Bank pursuant to the Agreement. REALTY INCOME CORPORATION By: ------------------------------ Name: Title: Page 102 Loan and Payments of Principal and Interest ------------------------------------------- Name Interest Interest of Method Period Amount Amount Person Amount (ABR or if Euro- of Unpaid of Making of Euro- dollar Principal Principal Interest Nota- Date Loan dollar Loan Paid Balance Paid tion - ---- ------ ------ -------- --------- --------- -------- ------
Page 103 EXHIBIT D-3 FORM OF SWING LINE NOTE ----------------------- $15,000,000 [Date] Realty Income Corporation, a Maryland corporation (the "Company"), for value received, hereby promises to pay to the order of The Bank of New York (the "Bank"), on the maturity date thereof, the principal amount of each Swing Line Advance made by the Bank pursuant to that certain Revolving Credit Agreement, dated as of December , 1999 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Company, each of the banks party thereto, and The Bank of New York, as Administrative Agent and as Swing Line Bank. The Company also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rate or rates per annum, on the date or dates and in the manner specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in immediately available funds to the Swing Line Bank, in the manner specified in the Credit Agreement. This Note is the Swing Line Note referred to in the Credit Agreement, which among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. Page 104 Unless otherwise defined herein, capitalized terms used herein have the respective meanings specified in the Credit Agreement. Presentment, demand, protest, notice of dishonor, notice of intent to accelerate and other notice of any kind are hereby waived by the undersigned. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. The Bank is authorized to indicate upon the grid attached to this Note all borrowings hereunder and payments of principal and interest hereon. Such notations shall be presumptive as to the aggregate unpaid principal amount of and interest on all Swing Line Advances made by the Bank pursuant to the Agreement. REALTY INCOME CORPORATION By: ------------------------------ Name: Title: Page 105 - ---------------------------------------------------------------------- SWING LINE ADVANCES AND PRINCIPAL PAYMENTS - ---------------------------------------------------------------------- Amount of Amount of Line Advances Principal Made Repaid Swing Line Interest Swing Line Date Advance Maturity Rate Advance - ---- ------------- -------- -------- ---------- (table continued next page) Page 106 (table continued) Amount of Unpaid Principal Balance Swing Line Advance Total Notation Made by - ----------------- ----- ----------------
Page 107 EXHIBIT E FORM OF SWING LINE ADVANCE REQUEST ---------------------------------- [Dated as provided in Section 2.10] The Bank of New York One Wall Street, 18th Floor New York, New York 10286 Attn: Kalyani Bose Realty Income Corporation (the "Company") hereby gives notice of its intention to borrow $ in a Swing Line Advance on , pursuant to the Revolving Credit Agreement, dated as of December , 1999, among the Company, the Banks listed on the signature pages thereto and The Bank of New York, as Administrative Agent and as Swing Line Bank (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). The Company hereby confirms that the amounts of Loans and Swing Line Advances outstanding on the date hereof are as follows: Total Commitment....................... $200,000,000 Outstanding Loans...................... $ Commitment Availability................ $ Swing Line Facility.................... $15,000,000 Outstanding Swing Line Advances........ $ Swing Line Availability................ $ The Company also hereby confirms that each of the representations and warranties (other than the representations and warranties that speak as of a specific date) contained in Article V of the Agreement is true and correct on the date hereof and, after giving effect to this borrowing, will be true and correct on the proposed borrowing date as though such representation or warranty had originally been made on such dates. No Default or Event of Default has occurred and is continuing, nor will any such event occur as a result of this borrowing. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. REALTY INCOME CORPORATION By: ------------------------------ Name: Title: Page 108 December , 1999 EXHIBIT F-I FORM OF OPINION OF LATHAM & WATKINS ----------------------------------- The Bank of New York, as Agent for the Banks One Wall Street, Twenty-Second Floor New York, New York 10286 The Banks Signatory to the Credit Agreement Referred to Below Re: Revolving Credit Agreement, dated as of December , 1999, among Realty Income Corporation, the Banks named therein and The Bank of New York, as Administrative Agent and as Swing Line Bank ------------------------------------------------------ Ladies/Gentlemen: We have acted as special counsel for Realty Income Corporation, a Maryland corporation (the "Company"), in connection with the Revolving Credit Agreement (the "Credit Agreement") dated as of December , 1999, among the Company, each of the banks identified on the signature pages thereof (the "Banks") and The Bank of New York, as Administrative Agent for the Banks and as Swing Line Bank (the "Administrative Agent"). This opinion is rendered to you pursuant to Section 6.01(f) of the Credit Agreement. Capitalized terms defined in the Credit Agreement are used herein as therein defined. In our capacity as such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of rendering the opinions expressed below. We have examined among other things, the following: (a) The Credit Agreement; (b) The Subsidiary Guaranty (the "Subsidiary Guaranty"), dated as of December , 1999 by and (the "Guarantors"); (c) The following promissory notes of the Company dated December , 1999 (collectively, the "Notes", and together with the Credit Agreement, and the Subsidiary Guaranty, the "Loan Documents"): (i) note in the original principal amount of $40,000,000 payable to The Bank of New York; (ii) note in the original principal amount of $35,000,000 payable to First Union National Bank; (iii) note in the original principal amount of $35,000,000 payable to Wells Fargo Bank, Page 109 National Association; (iv) note in the original principal amount of $25,000,000 payable to Bank of Montreal; (v) note in the original principal amount of $22,500,000 payable to AmSouth Bank; (vi) note in the original principal amount of $22,500,000 payable to Sanwa Bank California; and (vii) note in the original principal amount of $20,000,000 payable to Citizens Bank of Rhode Island; (d) The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Company; and (e) Such other documents and agreements as we deem necessary for purposes of rendering the opinions expressed below. In our examination, we have assumed the genuineness of all signatures (other than those of officers of the Company on the Loan Documents as to which we have relied on a certificate of incumbency), the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We have been furnished with, and with your consent have relied upon, certificates of officers of the Company with respect to certain factual matters. In addition, we have obtained and relied upon such certificates and assurances from public officials as we have deemed necessary. We are opining herein as to the effect on the subject transaction only of the federal laws of the United States and the internal laws of the State of New York, as applicable, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. Our opinions set forth in paragraph 1 below are based upon our consideration of only those statutes, rules and regulations which, in our experience, are normally applicable to bank credit transactions. Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof: 1. None of the execution and delivery of the Loan Documents by the Company, the borrowing of the funds pursuant to the Loan Documents by the Company and the payment of the indebtedness of the Company evidenced by the Notes: (a) violate any federal or New York statute, rule, or regulation applicable to the Company (including, without limitation, Regulations T, U, or X of the Board of Governors of the Federal Reserve System), or (b) require any consents, approvals, authorizations, registrations, declarations, or filings by the Company under any applicable federal or New York statute, rule or regulation. Page 110 2. Each of the Loan Documents has been duly executed and delivered by the Company or the Guarantors, as the case may be, and constitutes a legally valid and binding obligation of the Company or the Guarantors, as the case may be, enforceable against the Company or the Guarantors, as the case may be, in accordance with its terms. 3. The Company is not an "investment company" as such term is defined in the Investment Company Act of 1940, as amended from time to time. The opinions set forth in paragraph 2 above are subject to the following limitations, qualifications and exceptions: (a) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; (b) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; (c) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy; (d) the unenforceability of any provision requiring the payment of attorney's fees, except to the extent that a court determines such fees to be reasonable; and (e) we express no opinion with respect to the enforceability of Section 10.01 of the Credit Agreement by a federal court. To the extent that the obligations of the Company may be dependent upon such matters, we assume for purposes of this opinion that: all parties to the Loan Documents other than the Company are duly incorporated, validly existing and in good standing under the laws of their respective jurisdictions of incorporation; all parties to the Loan Documents other than the Company have the requisite corporate power and authority to execute and deliver the Loan Documents and to perform their respective obligations under the Loan Documents to which they are a party; and the Loan Documents to which such parties other than the Company are a party have been duly authorized, executed and delivered by such parties and constitute their legally valid and binding obligations, enforceable against them in accordance with their terms. We express no opinion as to compliance by any parties to the Loan Documents with any state or federal laws or regulations applicable to the subject transactions because of the nature of their business. Page 111 This opinion is rendered only to you and is solely for your benefit in connection with the transactions covered hereby. This opinion may not be relied upon by you for any other purpose, or furnished to, quoted to or relied upon by any other person, firm or corporation for any purpose, without our prior written consent. Very truly yours, Page 112 December , 1999 EXHIBIT F-2 FORM OF OPINION OF MICHAEL R. PFEIFFER, ESQ. -------------------------------------------- The Bank of New York, as Agent for the Banks One Wall Street 22nd Floor New York, New York 10286 The Banks Signatory to the Credit Agreement Referred to Below Re: Revolving Credit Agreement, dated as of December , 1999, among Realty Income Corporation, the Banks listed on the signature pages thereto and The Bank of New York, as Administrative Agent and as Swing Line Bank -------------------------------------------------------- Ladies/Gentlemen: I am general counsel of Realty Income Corporation, a Maryland corporation (the "Company"). This opinion is rendered to you pursuant to Section 6.01(f) of the Revolving Credit Agreement (the "Credit Agreement"), dated as of December , 1999, among the Company, each of the banks identified on the signature pages thereof (the "Banks") and The Bank of New York, as Administrative Agent for the Banks and as Swing Line Bank (the "Administrative Agent"). Capitalized terms defined in the Credit Agreement are used herein as therein defined. In my capacity as general counsel, I have examined such matters of fact and questions of law as I have considered appropriate for purposes of rendering the opinions expressed below, except where a statement is qualified as to knowledge or awareness, in which case I have made no or limited inquiry as specified below. I have examined, among other things, the following: (a) The Credit Agreement; (b) The following promissory notes of the Company dated , 1999 (collectively, the "Notes", and together with the Credit Agreement and the Subsidiary Guaranty, the "Loan Documents"): (i) note in the original principal amount of $40,000,000 payable to The Bank of New York; (ii) note in the original principal amount of $35,000,000 payable to First Union National Bank; (iii) note in the original principal amount of $35,000,000 payable to Wells Fargo Bank, National Association; (iv) note in the original principal amount of $25,000,000 payable to Bank of Montreal; (v) note in the Page 113 original principal amount of $ 22,500,000 payable to AmSouth Bank; (vi) note in the original principal amount of $22,500,000 payable to Sanwa Bank California; and (vii) note in the original principal amount of $ 20,000,000 payable to Citizens Bank of Rhode Island; (c) The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Company; and (d) Such other documents and agreements as I deem necessary for purposes of rendering the opinions expressed below. In my examination, I have assumed the genuineness of all signatures (other than those of officers of the Company on the Loan Documents), the authenticity of all documents submitted to me as originals, and the conformity to authentic original documents of all documents submitted to me as copies. I have been furnished with, and with your consent have relied upon, certificates of officers of the Company with respect to certain factual matters. In addition, I have obtained and relied upon such certificates and assurances from public officials as I have deemed necessary. I am opining herein as to the effect on the subject transaction only of the federal laws of the United States and the internal laws of the State of California, as applicable, and I express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. Whenever a statement herein is qualified by "to the best of my knowledge" or a similar phrase, it is intended to indicate that I do not have current actual knowledge of the inaccuracy of such statement. Except as otherwise expressly indicated, I have not undertaken any independent investigation to determine the accuracy of any such statement, and no inference that I have any knowledge of any matters pertaining to such statement should be drawn from my representation of the Company. Subject to the foregoing and the other matters set forth herein, it is my opinion that, as of the date hereof: 1. Based solely on certificates from public officials, I confirm that the Company is qualified to do business in the states in which the Company owns properties. 2. To the best of my knowledge, there are no proceedings or investigations pending or threatened before any court or arbitrator or before or by any governmental authority which would have a material adverse effect on the legality, validity, binding effect or enforceability of any Loan Document. Page 114 3. The Company has the corporate power and authority to execute, deliver and perform the terms and provisions of each Loan Document to which it is party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each such Loan Document. This opinion is delivered by me as general counsel for the Company to you and is solely for your benefit in connection with the transactions covered hereby. This opinion may not be relied upon by you for any other purpose, or furnished to, quoted to or relied upon by any other person, firm or corporation for any purpose, without my prior written consent, Very truly yours, Page 115 EXHIBIT H REAL ESTATE INVESTMENT CRITERIA The Investment Committee is authorized, without prior Board of Director approval, to approve real estate investments which meet all of the following criteria: 1. The Purchase Price for each property shall not exceed $10,000,000. 2. The investment must consist of a fee interest in real property. 3. If the real property is unimproved at the time of acquisition, there must be an agreement to complete specified improvements an the property by a date certain. 4. Prior to, or concurrent with the acquisition, the property must be net-leased to a tenant approved by the Company's Investment Committee. 5. The real estate investment may not cause (i) the total investment with that tenant to exceed $25 million, or (ii) the amount of annualized rental revenue to be derived by the Company from a tenant to exceed 5% of the Company's previous 12 months' rental revenues. 6. The real estate investment may not cause the mount of annualized rental revenue to be derived by the Company from any one industry to exceed 25% of the Company's previous 12 months' rental revenues. Page 116 EXHIBIT I FORM OF SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY, dated as of December , 1999, is made by each entity that is identified on Schedule A hereto or that hereafter executes and delivers a Subsidiary Joinder in the form of Exhibit A attached hereto pursuant to the Credit Agreement described herein (each such entity, a "Guarantor") in favor of the lenders (the "Lenders") from time to time party to the Credit Agreement (as defined below), and The Bank of New York ("BNY"), as administrative agent (BNY and any successor thereto in such capacity, "Administrative Agent") for the Lenders and in favor of all other present and future Holders of any of the Guaranteed Obligations described herein. RECITALS A. The Lenders and Administrative Agent have entered into that certain Revolving Credit Agreement, dated as of December , 1999 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Realty Income Corporation, a Maryland corporation ("Borrower"), the Administrative Agent and the Lenders. B. Each Guarantor is a Subsidiary of Borrower and expects to derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. C. It is a condition precedent to the making of Loans by the Lenders under the Credit Agreement that each Guarantor shall have guaranteed payment of each and all debts, liabilities and obligations of Borrower under the Credit Agreement and the Notes (collectively, the "Obligations"), on the terms set forth herein. D. Borrower has agreed, in the Credit Agreement, to cause certain Subsidiaries of Borrower to become party to this Guaranty, as a Guarantor hereunder, by executing and delivering a Subsidiary Joinder in the form of Exhibit A hereto. NOW, THEREFORE, in consideration of the foregoing and in order to induce the Lenders to make Loans under the Credit Agreement, each Guarantor hereby agrees as follows: Page 117 ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1 General Definitions. Except as otherwise specifically provided herein, the terms which are defined in Article I of the Credit Agreement shall have the same meanings when used in this Guaranty and the provisions of Section 1.01 of the Credit Agreement shall apply to this Guaranty. SECTION 1.2 Certain Defined Terms. As used in this Guaranty, the following terms shall have the following meanings: "Bankruptcy Code" means Title 11 of the United States Code, as from time to time amended. "Disallowed Post-Commencement Interest and Expenses" means interest computed at the rate provided in the Credit Agreement and claims for reimbursements, costs, expenses or indemnities under the terms of the Credit Agreement accruing or claimed at any time after commencement of any Insolvency or Liquidation Proceeding, if the claim for such interest, reimbursement, cost, expense or indemnity is not allowable, allowed or enforceable against Borrower in such Insolvency or Liquidation Proceeding. "Guaranty" means this Subsidiary Guaranty, dated as of December , 1999, made by the Guarantors for the benefit of the Lenders, Administrative Agent and other Holders of Guaranteed Obligations. "Guaranty Taxes" is defined in Section 3.8(a). "Holder" means, in respect of any Guaranteed Obligation, the Person entitled to enforce payment thereof and specifically includes the Administrative Agent and the Lenders. "Insolvency or Liquidation Proceeding" means any (i) any case under the Bankruptcy Code, any other insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding, relative to Borrower or to any of its creditors, as such, or to a substantial part of any of its assets, or (ii) any proceeding for the liquidation, dissolution or other winding up of Borrower, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of Borrower. "Subordinated Liabilities" is defined in Section 2.8(a). Page 118 ARTICLE II GUARANTY AND RELATED PROVISIONS SECTION 2.1 Guaranty. Each Guarantor hereby unconditionally: (a) guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of (i) all Obligations now outstanding or hereafter arising under or in connection with the Credit Agreement or the Notes, whether for principal, interest, fees, taxes, additional compensation, expense reimbursements, indemnification or otherwise, and (ii) each other debt, liability or obligation of Borrower now outstanding or hereafter arising under any of the Credit Agreement and the Notes (such Obligations, liabilities and other debts, liabilities and obligations, collectively, the "Guaranteed Obligations"), and (b) agrees to pay on demand (i) all Disallowed Post-Commencement Interest and Expenses, to the Person entitled to payment thereof if the claim therefor had been allowed in any Insolvency or Liquidation Proceeding and (ii) all costs and expenses (including, without limitation, reasonable attorneys' fees and legal expenses) incurred by any Holder of Guaranteed Obligations in enforcing this Guaranty; provided, however, that the amount of each Guarantor's payment obligations hereunder shall not exceed an aggregate amount equal to such Guarantor's stockholders' or partners' equity, as the case may be. SECTION 2.2 Acceleration of Payment. If the Notes become immediately due and payable pursuant to Section 8.01 of the Credit Agreement, then all liability of each Guarantor under this Guaranty in respect of any Guaranteed Obligation that is not then due and payable shall thereupon become and be immediately due and payable, without notice or demand. SECTION 2.3 Guaranty Absolute and Unconditional. Each Guarantor guarantees that the Guaranteed Obligations will be paid in accordance with the terms of the Credit Agreement and the Notes, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights and claims of any Holder of Guaranteed Obligations against Borrower with respect thereto and even if any such rights or claims are modified, reduced or discharged in an Insolvency or Liquidation Proceeding or otherwise. The obligations of each Guarantor under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce this Guaranty, irrespective of whether any action is brought against Borrower or whether Borrower is joined in any such action or actions. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of the Credit Agreement or any Note or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of Page 119 the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Credit Agreement or any Note, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to Borrower or otherwise; (iii) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other assets of Borrower; (v) any change, restructuring or termination of the corporate structure or existence of Borrower; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a surety or guarantor. SECTION 2.4 Guaranty Irrevocable and Continuing. This Guaranty is an irrevocable and continuing offer and agreement guaranteeing payment of any and all Guaranteed Obligations and shall extend to all Guaranteed Obligations now outstanding or created or incurred at any future time, whether or not created or incurred pursuant to any agreement presently in effect or hereafter made, until all obligations of the Lenders to extend credit to Borrower have expired or been terminated, and all Guaranteed Obligations have been fully, finally and indefeasibly paid. To the extent any contingent Obligation survives the expiration or termination of the Credit Agreement and the repayment of the Loans, each Guarantor's liability under this Guaranty shall likewise survive. This Guaranty may be released only in writing. SECTION 2.5 Reinstatement. If at any time any payment on any Guaranteed Obligation is set aside, avoided or rescinded or must otherwise be restored or returned, this Guaranty and the liability of each Guarantor under this Guaranty shall remain in full force and effect and, if previously released or terminated, shall be automatically and fully reinstated, without any necessity for any act, consent or agreement of any Guarantor, as fully as if such payment had never been made and as fully as if any such release or termination had never become effective. SECTION 2.6 Waiver. Each Guarantor hereby waives and agrees not to assert or take advantage of: (a) Marshaling. Any right to require any Holder of Guaranteed Obligations to proceed against or, exhaust its recourse against Borrower or any other Subsidiary Guarantor or any other Person liable for any of the Guaranteed Obligations or against any collateral for any of the Guaranteed Obligations or against any other Person or property, before demanding and enforcing payment of the Guaranteed Obligations from any Guarantor under this Guaranty; Page 120 (b) Other Defenses. Any defense that may arise by reason of (i) the incapacity, lack of authority, death or disability of Borrower or any other Person; (ii) the revocation or repudiation of any of the Credit Agreement or the Notes by Borrower or any other Person; (iii) the unenforceability in whole or in part of the Credit Agreement or the Notes or any other instrument, document or agreement; (iv) the failure of any Holder of Guaranteed Obligations to file or enforce a claim against any Person liable for any of the Guaranteed Obligations or in any Liquidation or Insolvency Proceeding; or (v) any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code; (c) Notices. Presentment, demand for payment, protest, notice of discharge, notice of acceptance of this Guaranty, notice of the incurrence of, or any default in respect of, any debt, liability or obligation guaranteed hereunder, and all other indulgences and notices of every type or nature, including, without limitation and to the maximum extent permitted by law, notice of the disposition of any collateral for any of the Guaranteed Obligations; (d) Election of Remedies. Any defense based upon an election of remedies (including, if available, an election to proceed by non- judicial foreclosure) or any other act or omission of any Holder of Guaranteed Obligations or any other Person which destroys or otherwise impairs any right that any Guarantor might otherwise have for subrogation, recourse, reimbursement, indemnity, exoneration, contribution or otherwise. against Borrower or any other Person; (e) Collateral. Any defense based upon any taking, modification or release of any collateral or guaranties for the Guaranteed Obligations, or any failure to create or perfect or ensure the priority or enforceability of any security interest in any collateral for any of the Guaranteed Obligations or any act or omission related thereto; (f) Offsets. Any right to recoup from or offset against any of the Guaranteed Obligations any claim that may be held or asserted by or available to (i) Borrower or any other Guarantor or any other Person liable for any of the Guaranteed Obligations against any Holder of Guaranteed Obligations or (ii) any Guarantor against Borrower, any other Guarantor, any other Holder of Guaranteed Obligations or any other Person; or (g) Defenses of Others. Any other claim, right or defense (including, by way of illustration and without limitation, such matters as failure or insufficiency of consideration, statute of limitations, breach of contract, tortious conduct, accord and satisfaction, and discharge by agreement, conduct or in a Liquidation or Insolvency Proceeding), except the defense of payment, that may be held or asserted by or available to (i) Page 121 Borrower or any other Guarantor or any other Person liable for any of the Guaranteed Obligations against any Holder of Guaranteed Obligations or (ii) any Guarantor against Borrower, any other Guarantor, any other Holder of Guaranteed Obligations or any other Person. SECTION 2.7 Subrogation. Each Guarantor hereby represents, warrants and agrees, in respect of any and all present and future rights of subrogation, recourse, reimbursement, indemnity, exoneration, contribution and other claims that such Guarantor at any time may have against Borrower, any other Guarantor or any other Person liable for the payment of any of the Guaranteed Obligations (including, without limitation, the owner of any interest in collateral for any of the Guaranteed Obligations) as a result of or in connection with this Guaranty or any payment hereunder, that: (a) No Agreement. Such Guarantor has not entered into, and agrees that it will not enter into, any agreement providing, directly or indirectly, for any such right or claim against Borrower or, except as set forth in Section 2.10, against any other Subsidiary of Borrower, and each such agreement now existing or hereafter entered into (except Section 2.10) is and shall be void; (b) Release. Such Guarantor forever waives and releases, and agrees never to sue upon, any such right or claim against Borrower and, except as set forth in Section 2. 10, against any other Subsidiary of Borrower, whether or not the Guaranteed Obligations have been paid in full; (c) Capital Contribution. Each payment made by such Guarantor under this Guaranty shall be a contribution to the capital of Borrower, and no such payment shall give rise to any claim (as that term is defined in the Bankruptcy Code) in favor of such Guarantor against Borrower; (d) Subordination of Contribution Rights. Each Guarantor reserves, as against each other Guarantor, its right of contribution under Section 2.10 but agrees that all such contribution rights shall be included among the Subordinated Liabilities; and (e) Deferral of Other Rights and Claims. Until all obligations of the Lenders to extend credit to Borrower have expired or been terminated and all the Guaranteed Obligations have been paid in full, such Guarantor will not demand, sue for, accept or receive any payment or transfer on account of any such right or claim from any Person (other than Borrower and its Subsidiaries) liable for the payment of any of the Guaranteed Obligations. SECTION 2.8 Subordination Provisions. (a) Subordination. Any and all present and future debts, liabilities and obligations of every type and description (whether for money Page 122 borrowed, on intercompany accounts, for provision of goods or services, under tax sharing or contribution agreements or on account of any other transaction, agreement, occurrence or event and whether absolute or contingent, direct or indirect, matured or uninatured, liquidated or unliquidated, created directly or acquired from another, or sole, joint, several or joint and several) of Borrower now outstanding or hereafter incurred or owed to any Guarantor (the "Subordinated Liabilities") shall be, and hereby are, subordinated to full and final payment of the Guaranteed Obligations. (b) Prohibited Payments. No Guarantor will demand, sue for, accept or receive, or cause or permit any other Person to make, any payment on or transfer of property on account of any Subordinated Liabilities except to the extent payment is permitted at the time under Section 7.02 of the Credit Agreement. (c) No Liens or Transfers. No Guarantor. will demand, accept or hold any Lien upon any real or personal property of Borrower as security for any of the Subordinated Liabilities and agrees that any such Lien shall be void. (d) Insolvency Proceedings. In any Insolvency or Liquidation Proceeding, the Holders of Guaranteed Obligations shall be entitled to receive payment in full of all amounts due or to become due on or in respect of the Guaranteed Obligations, or provision shall be made for such payment in money or money's worth, before any Guarantor is entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of any of the Subordinated Liabilities, and to that end the Holders of Guaranteed Obligations shall be entitled to receive, for application to the payment thereof, all payments and distributions of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt or liability of Borrower being subordinated to the payment of the Subordinated Liabilities), which may be payable or deliverable in respect of the Subordinated Liabilities in any such Insolvency or Liquidation Proceeding. (e) Disallowed Post-Commencement Interest and Expenses. If in any Insolvency or Liquidation Proceeding (i) any payment or distribution of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt or liability of Borrower being subordinated to the payment of the Subordinated Liabilities) is payable or deliverable in respect of the Subordinated Liabilities, and (ii) the Holders of Guaranteed Obligations are not otherwise entitled to receive such payment or distribution pursuant to Section 2.8(d), and (iii) any amount remains unpaid to any Holder of Page 123 Guaranteed Obligations on account of any Disallowed Post- Commencement Interest and Expenses, then the Holders of Guaranteed Obligations shall be entitled to receive payment of all such unpaid Disallowed Post-Commencement Interest and Expenses from and out of any and all such payments and distributions in respect of the Subordinated Liabilities. (f) Held in Trust. If any payment, transfer or distribution is made to any Guarantor upon any Subordinated Liabilities that is not permitted to be made under this Section 2.8 or that the Holders of Guaranteed Obligations are not entitled to receive under this Section 2.8, such Guarantor shall receive and hold the same in trust, as trustee for the benefit of the Holders of Guaranteed Obligations, and shall forthwith transfer and deliver the same to Agent, in precisely the form received (except for any required endorsement), for application to the payment of Guaranteed Obligations or any unpaid Disallowed Post-Commencement Interest and Expenses. (g) Claims in Bankruptcy. Each Guarantor will file all claims against Borrower in any Liquidation or Insolvency Proceeding in which the filing of claims is required or permitted by law upon any of the Subordinated Liabilities and will assign to Agent, for the benefit of the Holders of Guaranteed Obligations, all rights of such Guarantor thereunder. If any Guarantor does not file any such claim at least 30 days prior to any applicable claims bar date, Agent is hereby authorized (but shall not be obligated), as attorney-in-fact for such Guarantor with full power of substitution, either to file such claim or proof thereof in the name of such Guarantor or, at Agent's option, to assign the claim and cause the claim or proof thereof to be filed by an agent or nominee. Agent and its agents and nominees shall have the sole right, but no obligation, to accept or reject any plan proposed in such Insolvency or Liquidation Proceeding and to cast any votes and to take any other action with respect to all claims upon any of the Subordinated Liabilities. (h) Subordination Effective and not Impaired. This Section 2.8 shall remain effective for so long as this Guaranty is continuing and thereafter for so long as any Guaranteed Obligation is outstanding. Each Guarantor's obligations under this Section 2.8 (i) shall be absolute and unconditional as set forth in Section 2.3, irrevocable and continuing as set forth in Section 2.4, subject to reinstatement as set forth in Section 2.5, and not be affected or impaired by any of the matters waived in Section 2.6, (ii) shall be subject to the provisions of Article V of the Credit Agreement, and (iii) shall otherwise be as equally enduring and free from defenses as such Guarantor's liability under this Guaranty. SECTION 2.9 Fraudulent Transfer Limitation. If, in any action to enforce this Guaranty or any proceeding to allow or adjudicate a claim Page 124 under this Guaranty, a court of competent jurisdiction determines that enforcement of this Guaranty against any Guarantor for the full amount of the Guaranteed Obligations is not lawful under, or would be subject to avoidance under, Section 548 of the Bankruptcy Code or any applicable provision of comparable state law, the liability of such Guarantor under this Guaranty shall be limited to the maximum amount lawful and not subject to avoidance under such law. SECTION 2.10 Contribution among Guarantors. The Guarantors desire to allocate among themselves, in a fair and equitable manner, their rights of contribution from each other when any payment is made by one of the Guarantors under this Guaranty. Accordingly, if any payment is made by a Guarantor under this Guaranty (a "Funding Guarantor") that exceeds its Fair Share, the Funding Guarantor shall be entitled to a contribution from each other Guarantor in the amount of such other Guarantor's Fair Share Shortfall, so that all such contributions shall cause each Guarantor's Aggregate Payments to equal its Fair Share. For these purposes: (a) "Fair Share" means, with respect to a Guarantor as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount of such Guarantor to (y) the aggregate Adjusted Maximum Amounts of all Guarantors, multiplied by (ii) the aggregate amount paid on or before such date by all Funding Guarantors under this Guaranty. (b) "Fair Share Shortfall" means, with respect to a Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Guarantor over the Aggregate Payments of such Guarantor. (c) "Adjusted Maximum Amount" means, with respect to a Guarantor as of any date of determination, the maximum aggregate amount of the liability of such Guarantor under this Guaranty, limited to the extent required under Section 2.9 (except that, for purposes solely of this calculation, any assets or liabilities arising by virtue of any rights to or obligations of contribution under this Section 2.10 shall not be counted as assets or liabilities of such Guarantor). (d) "Aggregate Payments" means, with respect to a Guarantor as of any date of determination, the aggregate net amount of all payments made on or before such date by such Guarantor under this Guaranty (including, without limitation, under this Section 2. 10). The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the Funding Guarantor. The allocation and right of contribution among the Guarantors set forth in this Section 2.10 shall not be construed to limit in any way the liability of any Guarantor under this Guaranty to the Holders of the Guaranteed Obligations. Page 125 SECTION 2.11 Joint and Several Obligation. This Guaranty and all liabilities of each Guarantor hereunder shall be the joint and several obligation of each Guarantor and may be freely enforced against each Guarantor, for the full amount of the Guaranteed Obligations (subject to Section 2.9), without regard to whether enforcement is sought or available against any other Guarantor. ARTICLE III MISCELLANEOUS PROVISIONS SECTION 3.1 Condition of Borrower. Each Guarantor is fully aware of the financial condition of Borrower and is executing and delivering this Guaranty based solely upon such Guarantor's own independent investigation of all matters pertinent hereto and is not relying in any manner upon any representation or statement by any Holder of Guaranteed Obligations. Each Guarantor represents and warrants that it is in a position to obtain, and each Guarantor hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of Borrower and any other matter pertinent hereto as such Guarantor may desire, and such Guarantor is not relying upon or expecting any Holder of Guaranteed Obligations to furnish to such Guarantor any information now or hereafter in the possession of any Holder of Guaranteed Obligations concerning the same or any other matter. By executing this Guaranty, each Guarantor knowingly accepts the full range of risks encompassed within a contract of this type, which risks each Guarantor acknowledges. No Guarantor shall have the right to require any Holder of Guaranteed Obligations to obtain or disclose any information with respect to the Guaranteed Obligations, the financial condition or prospects of Borrower, the ability of Borrower to pay or perform the Guaranteed Obligations, the existence, perfection, priority or enforceability of any collateral security for any or all of the Guaranteed Obligations, the existence or enforceability of any other guaranties of all or any part of the Guaranteed Obligations, any action or non-action on the part of any Holder of Guaranteed Obligations, Borrower, or any other Person, or any other event, occurrence, condition or circumstance whatsoever. SECTION 3.2 Amendments. (a) Amendment to Guaranty. No amendment or waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, except that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, (i) limit the liability of any Guarantor hereunder, (ii) postpone any date fixed for payment hereunder, or (iii) change the number of Lenders required to take any action hereunder. Page 126 (b) Amendment or Modification of the Notes. The Notes may be amended, modified or supplemented in accordance with their terms without notice to or consent or agreement by any Guarantor, including, without limitation, so as to (i) alter, compromise, modify, accelerate, extend, renew, refinance or change the time or manner for making of advances, provision of other financial accommodations, or the payment or performance of all or any portion of the Guaranteed Obligations, (ii) increase or reduce the rate of interest or amount of principal payable on the Notes, (iii) release or discharge Borrower or any other Person as to all or any portion of the Guaranteed Obligations, or (iv) release, substitute or add any one or more guarantors or endorsers, accept additional or substituted security for payment or performance of the Guaranteed Obligations, or release or subordinate any security therefor. SECTION 3.3 Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed, telecopied or delivered; if to any Guarantor, at c/o Realty Income Corporation, 220 West Crest Street, Escondido, CA 92025- 1707, Attention: Michael Pfeiffer, Esq., with a copy to: Michael J. Brody Esq., Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90071-2007, if to Administrative Agent, at The Bank of New York, One Wall Street, 18th Floor, New York, NY 10286, Attention: Kalyani Bose -- Agency Function Administration; and if to any Lender, at its address specified in the Credit Agreement, or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. All such notices and other communications shall, when mailed or telecopied be effective when deposited in the mails or telecopied respectively. SECTION 3.4 Right of Set-off. If any request is made or consent is given by the Required Banks pursuant to Section 8.01 of the Credit Agreement for a declaration by the Administrative Agent that the Notes are immediately due and payable, or if the Notes become immediately due and payable pursuant to Section 8.01 of the Credit Agreement, each Lender shall have the right at any time and from time to time thereafter, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other liability at any time owing by such Lender to or for the credit or the account of any Guarantor against any and all liability of such Guarantor under this Guaranty, whether or not such Lender shall have made any demand under this Guaranty and even though such liability may then be contingent and unmatured. Each Lender agrees promptly to notify the affected Guarantor after any such set-off and application made by such Lender, but the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 3.4 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. Page 127 SECTION 3.5 Successors and Assigns. This Guaranty is binding upon and enforceable against each Guarantor, its successors and assigns, and shall inure to the benefit of, and be enforceable by, each Holder of any of the Guaranteed Obligations and such Holder's heirs, representatives, successors and assigns. SECTION 3.6 No Inquiry. Each Holder of Guaranteed Obligations may rely, without further inquiry, on the power and authority of each Guarantor, Borrower and each of its Subsidiaries and on the authority of all officers, directors and agents acting or purporting to act on their behalf. SECTION 3.7 Bankruptcy. So long as any Commitments or Guaranteed Obligation are outstanding, no Guarantor will, without the prior written consent of Agent and the Required Banks, commence or join with any other Person in commencing any Insolvency or Liquidation Proceeding against Borrower or any of its Subsidiaries. SECTION 3.8 No Waiver; Remedies. No failure on the part of any Holder of Guaranteed Obligations to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, and any single or partial exercise of any right hereunder shall not preclude any other or further exercise of any other right or of the same right as to any other matter or on a subsequent occasion. SECTION 3.9 Remedies Cumulative. All rights, powers and remedies of each Holder of Guaranteed Obligations under this Guaranty, under any other agreement now or at any time hereafter in effect between any such Holder and each and all of the Guarantors (whether relating to the Guaranteed Obligations or otherwise) or now or hereafter existing at law or in equity or by statute or otherwise, shall be cumulative and concurrent and not alternative and each such right, power and remedy may be exercised independently of, and in addition to, each other such right, power or remedy. SECTION 3.10 Severally Enforceable. This Guaranty may be enforced severally and successively by any one or more of the Holders of Guaranteed Obligations in one or more actions, whether independent, concurrent, joint, successive or otherwise. The claims, rights and remedies of any Holder of Guaranteed Obligations (i) may not be modified or waived by any other Holder, except as set forth in Section 3.2(a), and (ii) shall not be reduced, discharged, affected or impaired by any deed, act or omission, whether or not wrongful, of any other Holder. SECTION 3.11 Counterparts. This Guaranty may be executed in counterparts, and each such counterpart for all purposes shall be deemed an original and all such counterparts together shall constitute but one and the same agreement. SECTION 3.12 Severability. If any provision hereof or the application thereof in any particular circumstance is held to be Page 128 unlawful or unenforceable in any respect, all other provisions hereof and such provision in all other applications shall nevertheless remain effective and enforceable to the maximum extent lawful. SECTION 3.13 Integration. This Guaranty is intended as an integrated and final expression of the entire agreement of such Guarantor with respect to the subject matter hereof. No representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon any Holder of Guaranteed Obligations unless expressed herein or therein, and no course of prior dealing or usage of trade, and no parol or extrinsic evidence of any nature, shall be admissible to supplement, modify or vary any of the terms hereof. Acceptance of or acquiescence in a course of performance rendered under this Guaranty or any other dealings between any Guarantor and any Holder of Guaranteed Obligations shall not be relevant to determine the meaning of this Guaranty even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. SECTION 3.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (a) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. (b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY NEW YORK LAW. (c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. SECTION 3.15 Acceptance and Notice. Each Guarantor acknowledges acceptance hereof and reliance hereon by each Holder of any of the Guaranteed Obligations and waives, irrevocably and forever, all notice thereof. Page 129 IN WITNESS WHEREOF, the Guarantors have caused this Subsidiary Guaranty to be duly executed and delivered by an officer of each Guarantor thereunto duly authorized as of the date first above written. THE GUARANTORS: ---------------------------------- By: Realty Income Corporation Its: General Partner By: ----------------------------- Michael R. Pfeiffer Vice President, General Counsel Page 130 Schedule A to Subsidiary Guaranty Guarantors ---------- Page 131 Exhibit A to Subsidiary Guaranty FORM OF SUBSIDIARY JOINDER This Subsidiary Joinder is entered into by , a corporation (the "Company"), as of . WHEREAS, the sole stockholder of the Company (the "Sole Stockholder") has entered into the Revolving Credit Agreement, dated as of December , 1999, among Realty Income Corporation, as Borrower, each of the banks identified on the signature pages thereof and The Bank of New York, as Administrative Agent for the Banks and as Swing Line Bank (the "Credit Agreement") which requires that each of the Subsidiaries of the Sole Stockholder enter into a subsidiary guaranty (the "Subsidiary Guaranty", attached hereto as Exhibit A) to and for the benefit of the lenders party to the Credit Agreement; WHEREAS, as a precondition to any transfer of certain properties owned by the Sole Stockholder, any of its Subsidiaries (as defined in the Credit Agreement), or any combination thereof (the "Properties"), to any other Subsidiary, that such transferee Subsidiary execute and deliver a subsidiary joinder (the "Subsidiary Joinder") with respect to the Subsidiary Guaranty to and for the benefit of the lenders party to the Credit Agreement; WHEREAS, the Company owns a % limited partnership interest in the limited partnership that owns such Properties; and WHEREAS, the Company is a Subsidiary of the [Sole Stockholder] of the Company, as defined in the Credit Agreement; NOW, THEREFORE, the Company hereby agrees to join with the Subsidiaries party to the Subsidiary Guaranty and agrees further to be bound by the terms and conditions of the Subsidiary Guaranty as though the Company had originally been a party to it. IN WITNESS WHEREOF, the undersigned has executed this Subsidiary Joinder as of the date first written above. [SUBSIDIARY NAME] ----------------------------------- By: ------------------------------ Its: ------------------------------ Page 132 Exhibit A to Subsidiary Joinder Subsidiary Guaranty ------------------- Page 133 Schedule 5.01 (a) ----------------- Subsidiaries and Joint Ventures of the Company ---------------------------------------------- Page 134 Schedule 5.01(q) ERISA Liabilities Page 135 Schedule 5.01(r) Intellectual Property --------------------- Page 136 EX-10.2 3 EXHIBIT 10.2 EXECUTION COPY AMENDMENT NO. 1 dated as of January 21, 2000 to and under the REVOLVING CREDIT AGREEMENT dated as of December 14, 1999 REALTY INCOME CORPORATION, a Maryland corporation, the BANKS listed on the signature pages hereof, BNY CAPITAL MARKETS, INC., as Lead Arranger and as Book Manager, FIRST UNION NATIONAL BANK, as Syndication Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, BANK OF MONTREAL, as Co-Agent, and THE BANK OF NEW YORK, as Administrative Agent and as Swing Line Bank, agree as follows: 1. Credit Agreement. Reference is made to the Credit Agreement, dated as of December 14, 1999, among Realty Income Corporation, as Borrower, the Banks listed on the signature pages thereof, BNY Capital Markets, Inc., as Lead Arranger and as Book Manager, First Union National Bank, as Syndication Agent, Wells Fargo Bank, National Association, as Documentation Agent, and The Bank of New York, as Administrative Agent and as Swing Line Bank (the "Credit Agreement"). Terms used in this Amendment No. 1 (this "Amendment") that are defined in the Credit Agreement and are not otherwise defined herein are used herein with the meanings therein ascribed to them. 2. Amendments to Section 7.02(e) ("Loans and Investments") of the Credit Agreement. Upon and after the Effective Date (as defined below), clause (ix) of Section 7.02(e) of the Credit Agreement shall be amended by (A) adding the following phrase after the words "common stock" appearing therein: ", preferred stock or its 8.25% Monthly Income Senior Notes due 2008", and (B) adding the words "or such Senior Notes" at the end thereof. 3. Amendment to Section 7.02(g) ("Dividends and Purchase of Stock") of the Credit Agreement. Upon and after the Effective Date (as defined below), Section 7.02(g) of the Credit Agreement shall be amended by adding the following phrase after the words "common stock" appearing therein: "or preferred stock". Page 1 4. Representations and Warranties. In order to induce the Banks to agree to amend the Credit Agreement, the Borrower makes the following representations and warranties which shall survive the execution and delivery of this Amendment: (a) No Default has occurred and is continuing; and (b) Each of the representations and warranties set forth in Article 5 of the Credit Agreement are true and correct as though such representations and warranties were made at and as of the Effective Date (as defined in Section 5 hereof) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case such representations and warranties shall be made as of such specified date or with respect to such specified period. Each of the representations and warranties made under the Credit Agreement (including those made herein) shall survive to the extent provided therein and not be waived by the execution and delivery of this Amendment. 5. Amendment Effective Date. The amendment to the Credit Agreement effected pursuant to Sections 2 and 3 hereof shall become effective as of the date (the "Effective Date") first referenced above on the date on which the Administrative Agent shall have received this Amendment, duly executed by each of the Borrower and the Required Banks. 6. Payment of Expenses. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Amendment and any other documents or instruments which may be delivered in connection herewith, including, without limitation, the reasonable fees and expenses of Winthrop, Stimson, Putnam & Roberts. 7. Counterparts. This Amendment may be executed in counterparts and by different parties hereto in separate counterparts each of which, when so executed and delivered, shall be deemed to be an original and all of which, when taken together, shall constitute one and the same instrument. 8. Ratification. The Credit Agreement, as amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects confirmed, approved and ratified. 9. Governing Law. The rights and duties of the parties under this Amendment shall, pursuant to New York General Obligations Law Section 5-1401, be governed by the law of the State of New York. 10. Reference to Agreement. From and after the Amendment Effective Date, each reference in the Credit Agreement to "this Agreement," Page 2 "hereof," "hereunder" or words of like import, and all references to the Credit Agreement in any and all agreements, instruments, documents, notes, certificates and other writings of every kind and nature, shall be deemed to mean the Credit Agreement as modified and amended by this Amendment. [Remainder of page intentionally left blank.] Page 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective authorized officers as of the date first above written. REALTY INCOME CORPORATION, as Borrower By: --------------------------------- Name: Michael R. Pfeiffer Title: Senior Vice President, General Counsel THE BANK OF NEW YORK, as Administrative Agent for the Banks, as a Bank and as the Swing Line Lender By: --------------------------------- Name: Elizabeth Ying Title: Vice President FIRST UNION NATIONAL BANK, as a Bank By: --------------------------------- Name: Title: WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Bank By: --------------------------------- Name: Title: Page 4 BANK OF MONTREAL, as a Bank By: --------------------------------- Name: Title: AMSOUTH BANK, as a Bank By: --------------------------------- Name: Title: SANWA BANK CALIFORNIA, as a Bank By: --------------------------------- Name: Title: CITIZENS BANK OF RHODE ISLAND, as a Bank By: --------------------------------- Name: Title: Page 5 EXECUTION COPY AMENDMENT NO. 1 Dated as of January 21, 2000 to and under the REVOLVING CREDIT AGREEMENT Dated as of December 14, 1999 Among REALTY INCOME CORPORATION, as Borrower, THE BANKS LISTED ON THE SIGNATURE PAGES HEREOF, THE BANK OF NEW YORK, as Administrative Agent and as Swing Line Bank FIRST UNION NATIONAL BANK, as Syndication Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, BANK OF MONTREAL, as Co-Agent, and BNY CAPITAL MARKETS, INC. as Lead Arranger and as Book Manager, Page 6 EX-10.3 4 EXHIBIT 10.3 ===================================================================== REVOLVING CREDIT AGREEMENT dated as of February 1, 2000 among REALTY INCOME CORPORATION, THE BANKS NAMED HEREIN, and BANK OF MONTREAL, as Agent ===================================================================== TABLE OF CONTENTS Section Heading Page - --------------------------------------------------------------------- ARTICLE I DEFINITIONS.................................... 4 Section 1.01 Definitions.................................... 4 ARTICLE II THE LOANS...................................... 20 Section 2.01 The Loans...................................... 20 Section 2.02 Procedure for Pro Rata Loans................... 20 Section 2.03 Pro Rata Notes................................. 21 Section 2.04 Certain Fees................................... 22 Section 2.05 Cancellation or Reduction of the Commitment.... 22 Section 2.06 Optional Prepayment............................ 22 Section 2.07 Mandatory Prepayment........................... 23 ARTICLE III INTEREST, METHOD OF PAYMENT, CONVERSION, ETC... 24 Section 3.01 Procedure for Interest Rate Determination...... 24 Section 3.02 Interest on ABR Loans.......................... 24 Section 3.03 Interest on Eurodollar Loans................... 24 Section 3.04 Conversion/Continuance......................... 25 Section 3.05 Post Default Interest.......................... 25 Section 3.06 Maximum Interest Rate.......................... 26 ARTICLE IV DISBURSEMENT AND PAYMENT....................... 26 Section 4.01 Pro Rata Treatment............................. 26 Section 4.02 Method of Payment.............................. 26 Section 4.03 Compensation for Losses........................ 26 Section 4.04 Withholding, Reserves and Additional Costs..... 27 Section 4.05 Unavailability................................. 32 ARTICLE V REPRESENTATIONS AND WARRANTIES................. 33 Section 5.01 Representations and Warranties................. 33 ARTICLE VI CONDITIONS OF LENDING.......................... 40 Section 6.01 Conditions to the Availability of the Commitment................................... 40 Section 6.02 Conditions to All Loans........................ 41 ARTICLE VII COVENANTS...................................... 42 Section 7.01 Affirmative Covenants.......................... 42 Section 7.02 Negative Covenants............................. 47 Section 7.03 Financial Covenants............................ 51 ARTICLE VIII EVENTS OF DEFAULT.............................. 52 Section 8.01 Events of Default.............................. 52 (table continued next page) Page 2 (table continued Section Heading Page - --------------------------------------------------------------------- ARTICLE IX THE AGENT AND THE BANKS........................ 55 Section 9.01 The Agency..................................... 55 Section 9.02 The Agent's Duties............................. 55 Section 9.03 Sharing of Payment and Expenses................ 55 Section 9.04 The Agent's Liabilities........................ 56 Section 9.05 The Agent as a Bank............................ 56 Section 9.06 Bank Credit Decision........................... 56 Section 9.07 Indemnification................................ 57 Section 9.08 Successor Agent................................ 57 ARTICLE X CONSENT TO JURISDICTION........................ 58 Section 10.01 Consent to Jurisdiction........................ 58 ARTICLE XI MISCELLANEOUS.................................. 58 Section 11.01 Applicable Law................................. 58 Section 11.02 Set-off........................................ 58 Section 11.03 Expenses....................................... 59 Section 11.04 Amendments..................................... 59 Section 11.05 Cumulative Rights and No Waiver................ 59 Section 11.06 Notices........................................ 60 Section 11.07 Separability................................... 60 Section 11.08 Assignments and Participations................. 60 Section 11.09 Waiver of Jury Trial........................... 62 Section 11.10 Confidentiality................................ 62 Section 11.11 Indemnity...................................... 62 Section 11.12 Extension of Termination Dates; Removal of Banks; Substitutions of Banks................ 63 Section 11.13 Knowledge of the Company....................... 65 Section 11.14 Execution in Counterparts...................... 65 EXHIBIT A Form of Conversion/Continuance Request......... 67 EXHIBIT B Form of Pro Rata Loan Request.................. 68 EXHIBIT C-1 Form of Pro Rata Note.......................... 69 EXHIBIT D-1 Form of Opinion of Latham & Watkins............ 72 EXHIBIT D-2 Form of Opinion of Michael R. Pfeiffer, Esq.... 75 EXHIBIT E Form of Property Management Exception Report... 78 EXHIBIT F Real Estate Investment Criteria................ 79 EXHIBIT G Form of Subsidiary Guaranty.................... 80 SCHEDULE 1 Commitments.................................... 96 SCHEDULE 5.01(A) Subsidiaries and Joint Venture of the Company.. 97 SCHEDULE 5.01(Q) ERISA Liabilities.............................. 98 SCHEDULE 5.01(R) Intellectual Property.......................... 99
Page 3 REVOLVING CREDIT AGREEMENT Revolving Credit Agreement, dated as of February 1, 2000 (this "Agreement"), among Realty Income Corporation, a Maryland corporation (the "Company"), each of the banks identified on the signature pages hereof (each, a "Bank" and, collectively, the "Banks") and Bank of Montreal, as Agent for the Banks (the "Agent"). W I T N E S S E T H: Whereas, the Company has requested the Banks to lend up to $25,000,000 to the Company on a revolving basis for the acquisition of property in the ordinary course of the Company's business, and for making capital contributions (whether by loan or otherwise) to a Subsidiary for purposes of the acquisition of property of such Subsidiary, or for other business purposes of such Subsidiary, including related costs and expenses and for the payment of fees and expenses incurred in connection with this Agreement. Now, Therefore, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. (a) Terms Generally. The definitions ascribed to terms in this Section 1.01 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The words "hereby", "herein", "hereof", "hereunder" and words of similar import refer to this Agreement as a whole (including any exhibits and schedules hereto) and not merely to the specific section, paragraph or clause in which such word appears. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all references to "dollars" or "$" shall be deemed references to the lawful money of the United States of America. (b) Accounting Terms. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that, for purposes of determining compliance with any covenant set forth in Article VII which requires financial computations, such terms shall be construed in accordance with GAAP as in effect on the Effective Date applied on a basis consistent with the construction thereof applied in preparing the Company's audited financial statements referred to in Section 5.01(h). In the event Page 4 there shall occur a change in GAAP which but for the foregoing proviso would affect the computation used to determine compliance with any covenant set forth in Article VII which requires financial computations, the Company and the Banks agree to negotiate in good faith in an effort to agree upon an amendment to this Agreement that will permit compliance with such covenant to be determined by reference to GAAP as so changed while affording the Banks the protection afforded by such covenant prior to such change (it being understood, however, that such covenant shall remain in full force and effect in accordance with its existing terms pending the execution by the Company and the Banks of any such amendment). (c) Other Terms. The following terms shall have the meanings ascribed to them below or in the Sections of this Agreement indicated below: "ABR Loans" shall mean Loans which bear interest at a rate based upon the Base Rate and in the manner set forth in Section 3.02. "Agent" shall have the meaning given to such term in the preamble of this Agreement and shall also include any successor agent hereunder. "Adverse Environmental Condition" shall mean any of the matters referred to in clauses (i) or (ii) of the definition of Environmental Claim. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through ownership of stock, by contract or otherwise. "Applicable Margin" shall mean the margin set forth in the following chart applicable to the Pricing Level then in effect: Pricing Level Applicable LIBOR Margin ------------- ----------------------- I 0.875% II 1.000% III 1.125% IV 1.225% V 1.450%
"Pricing Level I" shall be applicable for so long as the Company's Debt Rating is better than or equal to A-/A3; "Pricing Level II" shall be applicable for so long as the Company's Debt Rating is lower than A-/A3 but better than or equal to BBB+/Baal; "Pricing Level III" shall Page 5 be applicable for so long as the Company's Debt Rating is lower than BBB+/Baal but better than or equal to BBB/Baa2; "Pricing Level IV" shall be applicable for so long as the Company's Debt Rating is lower than BBB/Baa2 but better than or equal to BBB-/Baa3; "Pricing Level V" shall be applicable for so long as the Company's Debt Rating is lower than BBB-/Baa3, or if the Company does not have a Debt Rating. Changes in the applicable Pricing Level shall be effective as of the first day of the calendar quarter following a change in the Company's Debt Rating. "Assignee" has the meaning ascribed to such term in Section 11.08(c). "Available Commitment" shall mean (a) on any date prior to the Termination Date, an amount equal to the remainder of (i) the Total Commitment on such date minus (ii) the aggregate outstanding principal amount of Loans on such date and (b) on and after the Termination Date, $0. "Bank" shall have the meaning given to such term in the preamble of this Agreement and shall also include any other financial institution which pursuant to the provisions hereof becomes a party to this Agreement. "Base LIBOR" shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate does not appear on such Page 3750 (or any successor or substitute page, or any successor to or substitute for such Service) at such time for any reason, then "Base LIBOR" with respect to such Eurodollar Loan for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Base Rate" shall mean a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall on any day be equal to the higher of: (a) the rate of interest publicly announced by the Agent from time to time as its prime commercial loan rate in effect on such day; and (b) the sum of (i) 1/2 of 1% per annum and (ii) the Federal Funds Rate. Page 6 "Borrowing Date" shall mean the date set forth in each Loan Request as the date upon which the Company desires to borrow Loans pursuant to the terms of this Agreement. "Business Day" shall mean (i) with respect to any ABR Loan or any payment of the Facility Fee, any day except a Saturday, Sunday or other day on which commercial banks in Chicago are authorized by law to close and (ii) with respect to any Eurodollar Loan, any day on which commercial banks are open for domestic and international business (including dealings in U.S. dollar deposits) in London and Chicago. "Capital Lease" shall mean, with respect to any Person, any obligation of such Person to pay rent or other amounts under a lease with respect to any property (whether real, personal or mixed) acquired or leased by such Person that is required to be accounted for as a liability on a balance sheet of such Person in accordance with GAAP. "Capital Lease Obligations" shall mean the obligation of any Person to pay rent or other amounts under a Capital Lease. "Change of Control" shall mean any person or group of Persons (within the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) who shall become the beneficial owner(s), directly or indirectly, of capital stock of the Company representing 50% or more of the voting power of the Company or otherwise enabling such Person or group of Persons to exercise effective control over the management of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Commitment" of any Bank shall mean, in the case of each Bank (i) prior to any such Bank's Termination Date, the amount set forth opposite such Bank's name under the heading "Commitment" on Schedule 1 hereto, or set forth in the assignment agreement executed by such Bank if it is not a Bank on the date hereof, as such amount may be adjusted from time to time pursuant to assignments of such Bank and as such amount may be reduced from time to time pursuant to Section 2.05 and (ii) after such Bank's Termination Date, zero. "Compliance Date" shall mean each of the date of this Agreement, each Borrowing Date, each Conversion Date and the date of each delivery by the Company of a certificate requiring the Company to certify as to the accuracy of the representations and warranties contained in Article V. "Consolidated Annualized Base Rent" shall mean, in respect of any fiscal quarter, (A) the product of (i) the monthly contractual base rents at the end of such fiscal quarter multiplied by (ii) twelve plus (B) the previous twelve month's historical percentage rents at such time, determined on a consolidated basis for the Company and its Subsidiaries. Page 7 "Consolidated Depreciation and Amortization" shall mean, at any date of determination, "Depreciation and Amortization" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated statement of income for the Company and its Subsidiaries which has been delivered to the Agent pursuant to Section 7.01(a). "Consolidated Funds from Operations" shall mean, for any period, Consolidated Net Income, after dividends on preferred stock, excluding gain or loss from debt restructurings or sales of properties plus provision for impairment losses, plus Consolidated Depreciation and Amortization, and after adjustments for unconsolidated partnerships and joint ventures, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated statement of cash flow for the Company and its Subsidiaries which has been delivered to the Agent pursuant to Section 7.01(a). "Consolidated Interest Expense" shall mean, for any period, total interest expense (including that attributable to Capital Leases in accordance with GAAP) of the Company and its Subsidiaries, determined on a consolidated basis, in accordance with GAAP with respect to all outstanding Indebtedness of the Company and its Subsidiaries, including, without limitation, paid-in-kind (PIK) interest and all net costs under Interest Rate Protection Agreements. "Consolidated Net Income" shall mean, for any period, "Net Income" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated statement of income for the Company and its Subsidiaries which has been delivered to the Agent pursuant to Section 7.01(a). "Consolidated Stockholders' Equity" shall mean, for any period, "Total Stockholders' Equity" or the similar item, determined on a consolidated basis for the Company and its subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Agent pursuant to Section 7.01(a). "Consolidated Tangible Stockholders' Equity" shall mean Consolidated Stockholders' Equity less all intangible assets of the Company and its Subsidiaries. For purposes of the foregoing, "intangible assets" means goodwill, patents, trade names, trademarks, copyrights, franchises, organization expenses and any other assets that are properly classified as intangible assets in accordance with GAAP. "Consolidated Total Assets" shall mean, at any date of determination, "Total Assets" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Agent pursuant to Section 7.01(a). Page 8 "Consolidated Total Indebtedness" shall mean total Indebtedness, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Agent pursuant to Section 7.01(a). "Consolidated Total Liabilities" shall mean, at any date of determination, "Total Liabilities" or the similar item, determined on a consolidated basis for the Company and its Subsidiaries, as shown on the most recent consolidated balance sheet for the Company and its Subsidiaries which has been delivered to the Agent pursuant to Section 7.01(a). "Conversion/Continuance Date" shall mean the date on which a conversion of interest rates on outstanding Loans, pursuant to a Conversion/Continuance Request, shall take effect. "Conversion/Continuance Request" shall mean a request by the Company to convert or continue the interest rate on all or portions of outstanding Loans pursuant to the terms hereof, which shall be substantially in the form of Exhibit A and shall specify, with respect to such outstanding Loans, (i) the requested Conversion/Continuance Date, which shall be not less than three Business Days after the date of such Conversion/Continuance Request, (ii) the aggregate amount of the Loans, from and after the Conversion/Continuance Date, which are to bear interest as ABR Loans or Eurodollar Loans and (iii) if any Loans are Eurodollar Loans, the term of the Interest Periods therefor, if any. "Covered Tax" means any Tax that is not an Excluded Tax. "Credit Documents" shall mean this Agreement and the Notes. "Debt Rating" shall mean the highest rating published by at least two of the three Rating Agencies with respect to the senior unsecured long-term debt of the Company, provided, that if no two Rating Agencies have published the same rating with respect to the Company's senior unsecured debt, the Debt Rating shall be the rating that is at the middle of the three published ratings. "Default" shall mean any event or circumstance which, with the giving of notice or the passage of time, or both, would become an Event of Default. "Effective Date" shall have the meaning ascribed to such term in Section 6.01. "Environmental Claim" shall mean any notice, request for information, action, claim, order, proceeding, demand or direction (conditional or otherwise) based on, relating to or arising out of (i) any violation of any Environmental Law by the Company, any person acting on behalf of the Company or any subsidiary of the Company, or (ii) any Page 9 liabilities under any Environmental Law arising out of or otherwise in respect of any act, omission, event, condition or circumstance existing or occurring in connection with the Company and its Subsidiaries, including without limitation liabilities relating to the release of hazardous substances (whether on-site or off-site), any claim by any third party (including, without limitation, tort suits for personal or bodily injury, tangible or intangible property damage, damage to the environment, nuisance and injunctive relief), fines, penalties or restrictions, or the transportation, storage, treatment or disposal of any Hazardous Substances. "Environmental Law" means (i) any applicable federal, state, foreign and local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, legal doctrine, order, judgment, decree, injunction, requirement or agreement with any governmental entity, relating to (x) the protection, preservation or restoration of the environment, (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as now or hereafter in effect. The term Environmental Law includes, without limitation, the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the federal Water Pollution Control Act of 1972, the federal Clean Air Act, the federal Clean Water Act, the federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the federal Solid Waste Disposal Act and the federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Federal Occupational Safety and Health Act of 1970, each as amended and as now or hereafter in effect (collectively, "Environmental Ordinances"), and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Substance. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean a corporation, partnership or other entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 (b), (c), (m) or (o) of the Code. "Eurodollar Loans" means, collectively, Eurodollar Pro Rata Loans. "Eurodollar Pro Rata Loans" shall mean Pro Rata Loans which bear interest at a rate based upon Base LIBOR and in the manner set forth in Section 3.03. Page 10 "Eurodollar Reserve Percentage" shall mean for any day, that percentage, expressed as a decimal, which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including any marginal, supplemental or emergency reserve requirements) for a member bank of the Federal Reserve System in Chicago with deposits exceeding one billion dollars in respect of eurocurrency funding liabilities. LIBOR shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" shall mean any of the events described in Section 8.01. "Excluded Asset Sales" shall mean, in respect of each fiscal year, the sale, lease (not entered into in the ordinary course of business), transfer or disposal during such year of assets, the aggregate proceeds of which, in one or more transactions, are less than $50,000,000. "Excluded Tax" means, in respect of any Bank, Participant, Assignee or the Agent, as the case may be, any of the following taxes, levies, imposts, duties, deductions, withholdings or charges, and all liabilities with respect thereto: (i) Taxes imposed on the net income of a Bank, the Agent, Participant or Assignee (including without limitation branch profits taxes, minimum taxes and taxes computed under alternative methods, at least one of which is based on net income (collectively referred to as "net income taxes") by (A) the jurisdiction under the laws of which such Bank, the Agent, Participant or Assignee is organized or any political subdivision thereof, (B) the jurisdiction of such Bank's, Participant's, Assignee's or the Agent's applicable lending office or any political subdivision thereof or (C) any jurisdiction in which the Bank, the Agent, Participant or Assignee is doing business (other than solely as a result of actions contemplated or required by this Agreement); (ii) any Taxes to the extent that they are in effect and would apply to a payment to such Bank or the Agent, as applicable, as of the Closing Date, or as of the date such Person becomes a Bank, in the case of any Participant or Assignee pursuant to Section 11.08; (iii) any Taxes resulting from a failure to take the actions, if any, required by subsection 4.04(a)(iv); (iv) any Taxes to the extent of any credit or other Tax benefit which, in the reasonable good faith judgment of such Bank, Participant, Assignee or the Agent, as the case may be, is available to such Bank, Participant, Assignee or the Agent, as applicable, as a result thereof and is allocable to the transactions contemplated by this Agreement; (v) any Taxes imposed on or measured by the overall net income of any Bank by the United States of America or any political subdivision or taxing authority thereof or therein; or (vi) any Taxes that would not have been imposed but for the failure by the Agent or such Bank, Participant or Assignee as applicable to provide and keep current any certification or other documentation required to qualify for an exemption from or reduced rate of any Tax. Page 11 "Facility Fee" shall have the meaning ascribed to such term in Section 2.04(a). "Facility Fee Rate" with respect to any Facility Fee payment shall mean the facility fee rate set forth in the following chart applicable to the Pricing Level (determined as set forth under "Applicable Margin" above) in effect on the date on which such Facility Fee payment is due: Pricing Level Facility Fee ------------- ------------ I 0.125% II 0.150% III 0.175% IV 0.225% V 0.300%
"Federal Funds Rate" for any day shall mean the rate on such day for Federal Funds as published by the Board of Governors of the Federal Reserve System in "Statistical Release H.15(519), Selected Interest Rates", or any successor publication, under the heading "Federal Funds (Effective)". In the event that such rate or such publication is not published with respect to such day the Federal Funds Rate on such day shall be the "Federal Funds/Effective Rate" as posted by the Federal Reserve Bank of Chicago for that day in its publication "Composite Closing Quotations for U.S. Government Securities". The Federal Funds Rate for Saturdays, Sundays and any other day on which the Federal Reserve Bank of Chicago is closed shall be the Federal Funds Rate as in effect for the next preceding day for which such rates are published or posted, as the case may be. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entities as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Guarantee" by any person shall mean any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain working capital, equity capital or other financial Page 12 statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings correlative to the foregoing); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Substance" means any substance presently or hereafter listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Ordinance, whether by type or by quantity, including any substance containing any such substance as a component. Hazardous Substance includes, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl. "Indebtedness" of any Person shall mean, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including all obligations, contingent or otherwise, of such Person in connection with letter of credit facilities, bankers' acceptance facilities, Interest Rate Protection Agreements or other similar facilities including currency swaps) other than indebtedness to trade creditors and service providers incurred in the ordinary course of business; (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments; (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (d) all Capital Lease obligations of such Person; (e) that portion of the Indebtedness of any joint venture of which such Person is a joint venturer that bears the same proportion to the total Indebtedness of such joint venture as such Person's equity interest in such joint venture (however denominated) bears to the total equity of such joint venture, expressed as a percentage in the form of a decimal to no more than four decimal places; (f) without duplication of clause (e) above, all Indebtedness of unconsolidated joint venturers in which such Person is a joint venturer to the extent recourse may be had to such Person or its assets; (g) all obligations of such Person in respect of any "forward equity purchase", or other arrangement, however characterized, pursuant to which such Person makes a forward purchase of its own capital stock from a counterparty and which is settled in such capital stock, and having such other terms as may be agreed, and having a value, for purposes hereof, equal to its mark-to-market Page 13 valuation on any date of determination; (h) all Indebtedness referred to in clauses (a), (b), (c), (d), (e), (f) or (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; (i) all preferred stock issued by such Person which is redeemable, prior to the full satisfaction of the Company's obligations under the Credit Documents (including repayment in full of the Loans and all interest accrued thereon), other than at the option of such Person, valued at the greater of its voluntary or involuntary liquidation preference plus accumulated and unpaid dividends and (j) all Indebtedness of others Guaranteed by such Person. For purposes of this Agreement, the amount of any Indebtedness under clauses (c) and (h) shall be the lesser of (x) the principal amount of such Indebtedness and (y) the value of the property subject to the Lien referred to therein. For purposes of this Agreement tenant security deposits shall not be deemed to be Indebtedness. "Initial Loan" shall mean the first Loan which is made pursuant to the terms hereof. "Interest Period" shall mean each one, two, three or six-month period selected by the Company in a Pro Rata Loan Request, or, if no Eurodollar Loans are then outstanding, at the time of a Conversion/Continuance Request, or pursuant to Section 3.03 hereof and commencing on the date the relevant loan is made or the last day of the current Interest Period, as the case may be. "Interest Rate Protection Agreements" shall mean any interest rate swap, collar or cap agreement or similar arrangement used by a Person to fix or cap a floating rate of interest on Indebtedness to a negotiated maximum rate or amount. "Leverage Ratio" shall mean the ratio of Consolidated Total Indebtedness to Consolidated Tangible Stockholders' Equity. "Lien" shall mean, with respect to any asset, any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset. "LIBOR" shall mean with respect to any Interest Period the rate per annum determined pursuant to the following formula: Base LIBOR --------------------------------------------- LIBOR = (1 - Eurodollar Reserve Percentage) "Loan Request" shall mean either a Pro Rata Loan Request. "Loans" shall mean, collectively, Pro Rata Loans outstanding hereunder from time to time. Page 14 "Material Adverse Change" shall mean a material adverse change in the business, properties, condition (financial or otherwise) or operations of the Company and its Subsidiaries, taken as a whole since December 31, 1998. "Material Adverse Effect" shall mean (i) any material adverse effect on the business, properties, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole, from and after the date of any determination, (ii) any material adverse effect on the ability of the Company to perform its obligations hereunder and under the Credit Documents, or (iii) any adverse effect on the legality, validity, binding effect or enforceability of this Agreement or the Notes. "Net Cash Proceeds" shall mean (i) when used in respect of any sale or disposition of assets of the Company or any Subsidiary, the gross cash proceeds received by the Company, or the relevant Subsidiary from such sale or disposition, less: (x) the costs of sale, including payment of the outstanding principal amount of, and premium or penalty, if any, and interest on any Indebtedness which is paid or required to be paid as a result of such sale, all legal, accounting, title and recording tax expenses, commissions and other fees and expenses paid or to be paid in cash solely as a result of such sale, and all other federal, state, local and foreign taxes paid or payable in connection therewith; (y) the portion of gross cash proceeds from such sale or disposal which the Company must distribute to its stockholders in order to avoid the imposition of any income or excise tax with respect to a taxable gain (if any) associated with such sale or disposition; and (z) the portion of gross cash proceeds from such sale or disposal by any Subsidiary which are distributed pro rata to stockholders or other equity holders of such Subsidiary other than the Company, (ii) when used with respect to any loss, casualty, fire damage, theft, destruction or condemnation of any capital asset of the Company or any Subsidiary, the gross cash proceeds received by the Company or the relevant Subsidiary under any insurance policy or any award or compensation received, as the case may be, in each case as a result of any such loss, casualty, fire damage, theft, destruction or condemnation, net of all legal, accounting and other fees and expenses paid or to be paid in cash as a result of such loss, casualty, fire damage, theft, destruction or condemnation, and all other federal, state, local and foreign taxes paid or payable in connection therewith, less the portion of gross cash proceeds from such award or compensation which the Company must distribute to its stockholders in order to avoid the imposition of any income or excise tax with respect to a taxable gain (if any) associated with such award or compensation, provided that such award or compensation shall not be deemed to be Net Cash Proceeds if such proceeds have been reinvested in or have been committed to be reinvested in, or in replacement of, the lost, damaged, stolen, destroyed or condemned property within twelve months from the date of such award or compensation, and less the portion of gross cash proceeds from such award or compensation which are distributed pro rata to stockholders or other equity holders of such Page 15 Subsidiary other than the Company; and (iii) when used in respect of the issuance, assumption or incurrence of Specified Additional Indebtedness by the Company or any of its Subsidiaries, the gross cash proceeds received by the Company or the relevant Subsidiary from such issuance, assumption or incurrence less the costs of issuance, assumption or incurrence. Net Cash Proceeds shall equal $0 if it would otherwise be a negative number hereunder. "Notes" means the Pro Rata Notes. "Participant" shall have the meaning ascribed to such term in Section 11.08(b). "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Permitted Encumbrances" shall mean (i) Liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for which adequate reserves (in accordance with GAAP) are being maintained, (ii) deposits or pledges to secure obligations under workers' compensation, social security or similar laws, or under unemployment insurance, (iii) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases (other than Capital Leases), statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, (iv) mechanics', workers', materialmen's or other like Liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith, (v) minor imperfections of title on real estate, provided such imperfections do not render title unmarketable, (vi) all other Liens existing on the date of this Agreement and disclosed to the Bank in writing prior to the date hereof (including in the notes of the Company's financial statements), (vii) leases or subleases granted to others in the ordinary course of business of the Company and its Subsidiaries, (viii) any interest or title of a lessor in the property subject to any Capital Lease or operating lease, (ix) Liens arising from filing Uniform Commercial Code financing statements regarding leases or sub-leases, (x) any attachment or judgment Lien arising from a judgment or order against the Company or any Subsidiary that does not give rise to a Default or an Event of Default, provided that such Lien is not in place for more than sixty days or has been stayed, (xi) Liens encumbering customary initial deposits and margin deposits, and other Liens securing Indebtedness under Interest Rate Protection Agreements that are within the general parameters customary in the industry and incurred in the ordinary course of business, (xii) any option, contract or other agreement to sell an asset provided such sale is otherwise permitted by this Agreement, (xiii) any statutory right of a lender to which the Company or a Subsidiary may be indebted to offset against, or appropriate and apply to the payment of, such Indebtedness any and all balances, credits, deposits, accounts or monies of the Company or a Subsidiary with or held by such lender, (xiv) any pledge or deposit of cash or property in conjunction with Page 16 obtaining bonds or letters of credit required to engage in constructing on-site and off-site improvements required by municipalities or other governmental authorities in the ordinary course of business of the Company and its Subsidiaries, (xv) Liens in favor of all of the Banks collectively, and (xvi) purchase money security interests in personal property, with such encumbrances, in the aggregate, not to exceed $3,500,000. "Permitted Subsidiary Indebtedness" shall have the meaning ascribed to such term in Section 7.02(a). "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" shall mean an employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to by the Company or an ERISA Affiliate while such entity is an ERISA Affiliate. "Pro Rata Loan Request" shall mean a request by the Company to borrow Pro Rata Loans pursuant to the terms hereof, which shall be substantially in the form of Exhibit B and shall specify, with respect to such requested Loans, (i) the requested Borrowing Date, (ii) the aggregate amount of Pro Rata Loans which the Company desires to borrow on such date, (iii) whether such requested Loans are to bear interest as ABR Loans or Eurodollar Loans, and (iv) if the requested Loans are to bear interest as Eurodollar Loans the requested term of the Interest Period therefor. "Pro Rata Loans" shall have the meaning ascribed to such term in Section 2.01. "Pro Rata Notes" shall mean, collectively, the promissory notes of the Company evidencing Pro Rata Loans, each substantially in the form of Exhibit C-1. "Pro Rata Share" shall mean, with respect to any Bank, the proportion of such Bank's Commitment to the Total Commitment of all the Banks or, if the Total Commitment shall have been canceled or reduced to $0 or expired, the proportion of such Bank's then outstanding Loans to the aggregate amount of Loans then outstanding. "Rating Agency" shall mean Moody's Investors Service, Inc., Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc., or Duff & Phelps Credit Rating Co. "Real Estate Development Project" shall mean any real estate development activity not related to current income-producing properties, including, without limitation, the development of undeveloped land. Page 17 "Real Estate Investment Criteria" shall mean the Real Estate Investment Criteria established by the Company's Board of Directors as amended, restated, supplemented or revised from time to time, the current version (as of the date hereof) of which are attached hereto as Exhibit F. "Reference Amount", with respect to any Bank and Interest Period, shall mean the amount of that Bank's Eurodollar Loan scheduled to be outstanding during that Interest Period (i) without taking into account any reduction in the amount of any Bank's Loan through any assignment or transfer and (ii) rounded up to the nearest integral multiple of $1,000,000. "REIT" shall have the meaning ascribed to such term in Section 5.01(w). "Required Banks" shall mean at any date Banks having at least 60% of the Total Commitment or, if the Total Commitment has been canceled or terminated, holding Notes evidencing at least 60% of the aggregate unpaid principal amount of the Loans provided that for purposes of this definition, the Commitment of any Bank shall be deemed reduced by the principal amount of any Pro Rata Loan which such Bank is obligated to advance pursuant to Section 2.02 hereof but which fails to do so. "SIC Code" shall mean the Standard Industrial Classification Code, published by the United States Office of Management and Budget. "Single-Employer Plan" shall mean any Plan that is a single-employer plan as defined in Section 4001(a)(15) of ERISA which is subject to the provisions of Title IV of ERISA. "Solvent" shall mean, when used with respect to any Person, that: (a) at the date of determination, the present fair salable value of such Person's assets is in excess of the total amount of such Person's liabilities; (b) at the date of determination, such Person is able to pay its debts as they become due; and (c) such Person does not have unreasonably small capital to carry on such Person's business as theretofore operated and all businesses in which such Person then is about to engage. "Specified Additional Indebtedness" of any Person shall mean Indebtedness which is not outstanding as of the date hereof, excluding (i) Indebtedness to the Agent, or the Banks hereunder and under the Notes, (ii) Indebtedness incurred in connection with the payment of any dividend necessary for the Company to maintain its qualification as a REIT, (iii) up to $10,000,000 principal amount of additional unsecured Indebtedness that matures and becomes due and payable on a date not more than one year from the date such Indebtedness was incurred by the Company and (iv) Permitted Subsidiary Indebtedness. Page 18 "Subsidiary" shall mean any Person of which or in which the Company and its other Subsidiaries own directly or indirectly 50% or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity, or a corporation whose capital stock so owned are non-voting, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization; provided, however, that "Subsidiary" shall not include any such entity that the Company does not control. For the purpose of this definition, the term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting equity interests, by contract or otherwise. "Subsidiary Guaranty" shall mean a guaranty of a Subsidiary furnished pursuant to Section 7.02(e)(vii), in the form of Exhibit G hereto. "Tax" means any present or future tax, levy, impost, duty, governmental fee, deduction, withholding or charge, and all liabilities with respect thereto of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed. "Termination Date" shall mean, with respect to any Bank, the earliest to occur of (i) February 1,2003 or such later date as may be agreed to by such Bank pursuant to Section 11.12, (ii) the date on which the obligations of the Banks to make loans hereunder shall terminate pursuant to Section 8.01 or the Commitments shall be reduced to zero pursuant to Section 2.05, and (iii) the date specified as such Bank's Termination Date pursuant to Section 11.12, or, if in any case (other than clause (ii) above) such day is not a Business Day, the next succeeding Business Day; in all cases, subject to the provisions of Section 11.12(d). "Total Commitment" shall mean the aggregate Commitments of all the Banks. "Unmatured Surviving Obligations" shall mean, as of any date, any obligations under this Agreement which are contingent and unliquidated and not then due and payable on such date and which pursuant to the provisions of this Agreement survive termination of this Agreement. Page 19 "Unsecured Revolver" shall mean the revolving credit made available to the Company under that certain Credit Agreement dated as of December 14, 1999 by and among the Company, the Agent, The Bank of New York, First Union National Bank, Wells Fargo Bank, National Association, BNY Capital Markets, Inc. and the other banks party thereto. "Wholly owned Subsidiary" shall mean any Subsidiary all the equity interests of which (other than directors' qualifying shares, if a corporation) at the time are owned directly or indirectly by the Company and/or one or more Wholly owned Subsidiaries of the Company. "Year 2000 Issue" means failure of computer software, hardware and firmware systems and equipment containing or relying on embedded computer chips to properly receive, transmit, process, manipulate, store, retrieve, retransmit, or in any other way utilize data or information due to the occurrence of the year 2000 or the inclusion of dates on or after January 1, 2000. ARTICLE II THE LOANS Section 2.01. The Loans. Prior to the Termination Date, and subject to the terms and conditions of this Agreement, upon the request of the Company, and upon the satisfaction by the Company or the waiver by each of the Banks of each of the conditions precedent contained in Section 6.02, each of the Banks, severally and not jointly with the other Banks, agrees to make revolving credit loans (collectively, "Pro Rata Loans") to the Company from time to time in an aggregate principal amount at any one time outstanding not to exceed its Commitment; provided, however, that the aggregate outstanding Loans may not exceed the Total Commitment. Section 2.02. Procedure for Pro Rata Loans. (a) The Company may borrow Pro Rata Loans by delivering a written Pro Rata Loan Request to the Agent on or before 5:00 P.M., Chicago time, one Business Day prior to the requested Borrowing Date therefor, in the case of ABR Loans, or on the date not less than three Business Days prior to the requested Borrowing Date therefor, in the case of Eurodollar Pro Rata Loans. ABR Loans shall be in the minimum aggregate amount of $1,000,000 or in integral multiples of $100,000 in excess thereof. Eurodollar Pro Rata Loans shall be in the minimum aggregate amount of $5,000,000 or in integral multiples of $50,000 in excess thereof. (b) Upon receipt of any Pro Rata Loan Request from the Company, the Agent shall forthwith give notice to each Bank of the substance thereof. Not later than 2:00 P.M., Chicago time, on the Borrowing Date specified in such Pro Rata Loan Request, each Bank shall make available to the Agent in immediately available funds at the office of the Agent at its address set forth on the signature pages hereof, such Bank's Pro Rata Share of the requested Pro Rata Loans. Page 20 (c) Upon receipt by the Agent of funds and satisfaction by the Company or waiver by each of the Banks of each of the conditions precedent contained in Section 6.02, the Agent shall disburse to the Company on the requested Borrowing Date the Pro Rata Loans requested in such Pro Rata Loan Request. The Agent may, but shall not be required to, advance on behalf of any Bank such Bank's Pro Rata Share of the Pro Rata Loans on a Borrowing Date unless such Bank shall have notified the Agent prior to such Borrowing Date that it does not intend to make available its Pro Rata Share of such Loans on such date (it being understood that no action or inaction by the Agent regarding such an advance shall affect the rights of the Company with respect to any non-performing Bank). If the Agent makes such advance, the Agent shall be entitled to recover such amount on demand from the Bank on whose behalf such advance was made, and if such Bank does not pay the Agent the amount of such advance on demand, the Company shall promptly repay such amount to the Agent. Until such amount is repaid to the Agent by such Bank or the Company, such advance shall be deemed for all purposes to be a Pro Rata Loan made by the Agent. The Agent shall be entitled to recover from the Bank or the Company, as the case may be, interest on the amount advanced by it for each day from the Borrowing Date therefor until repaid to the Agent, at a rate per annum equal to (i) in the case of the Bank, the Federal Funds Rate, for the three-day period beginning on the Borrowing Date, and the applicable rate on the Pro Rata Loans made on the Borrowing Date for the period beginning on the fourth day after the Borrowing Date, and (ii) in the case of the Company, the applicable rate on the Pro Rata Loans made on the Borrowing Date. (d) In lieu of delivering the written notice described above, the Company may give the Agent telephonic notice of any request for borrowing by the time required under this Section 2.02; provided that such telephonic notice shall be confirmed by delivery of a written notice to the Agent promptly but in no event later than 3:00 P.M., Chicago time, on the date of such telephonic notice. Section 2.03. Pro Rata Notes. The Company's obligation to repay the Pro Rata Loans shall be evidenced by Pro Rata Notes, one such Pro Rata Note payable to the order of each Bank. The Pro Rata Note of each Bank shall (i) be in the principal amount of such Bank's Commitment, (ii) be dated the date of the initial Loan and (iii) be stated to mature on the Termination Date as such date may be extended hereunder and bear interest from its date until maturity on the principal balance (from time to time outstanding thereunder) payable at the rates and in the manner provided herein. Each Bank is authorized to indicate upon the grid attached to its Pro Rata Note all Pro Rata Loans made by it pursuant to this Agreement, interest elections and payments of principal and interest thereon. Such notations shall be presumptive as to the aggregate unpaid principal amount of all Pro Rata Loans made by such Bank, and interest due thereon, but the failure by any Bank to make such notations or the inaccuracy or incompleteness of any such notations shall not affect the obligations of the Company hereunder or under the Pro Rata Notes. Page 21 Section 2.04. Certain Fees. (a) The Company shall pay to the Agent a fee (the "Facility Fee") equal to the Facility Fee Rate per annum (calculated on the basis of a 360-day year for the actual number of days involved) on the daily average amount of the Total Commitment, regardless of usage (excluding the amount of any canceled or reduced portion of the Commitment for which the Facility Fee was paid in connection with such cancellation or reduction pursuant to Section 2.05 hereof) during the quarter with respect to which such Facility Fee is being paid. Such Facility Fee shall be payable in arrears on the last Business Day of each calendar quarter, commencing on the first such date after the date hereof, on any date that the Total Commitment is canceled or reduced pursuant to Section 2.05 (but only with respect to the amount of such cancellation or reduction) and on the Termination Date. (b) The Company shall pay to the Agent for its own account such fees as have been or may hereinafter be agreed to between the Agent and the Company, in the amounts and at the times agreed upon. (c) On the Effective Date the Company shall pay to the Agent for the account of each of the Banks such fees as have been or may hereinafter be agreed to between the Agent and the Company, in the amounts and at the times agreed upon. Section 2.05. Cancellation or Reduction of the Commitment. The Company shall have the right, upon not less than three Business Days' written notice to the Agent and upon payment of the Facility Fees relating to the amount of the Total Commitment canceled or reduced which have accrued through the date of such cancellation or reduction, with respect to the amount of the cancellation or reduction, to cancel the Total Commitment in full or to reduce the amount thereof; provided, however, that the Total Commitment may not be canceled so long as any Loan remains outstanding; and provided, further, that the amount of any partial reduction in the Total Commitment shall not exceed the remainder of (i) the Total Commitment on such date minus (ii) the aggregate outstanding principal amount of Loans on such date. Partial reductions of the Total Commitment shall be in the amount of $5,000,000 or in integral multiples of $1,000,000 in excess thereof (or, if the aggregate outstanding amount of Loans is less than $5,000,000, then all of such lesser amount). All such cancellations or reductions shall be permanent. Section 2.06. Optional Prepayment. The Company shall have the right, on not less than three Business Days' written notice to the Agent in the case of Eurodollar Pro Rata Loans, and upon such written notice delivered by 10:00 A.M. Chicago time the day of the proposed prepayment to the Agent in the case of ABR Loans, to prepay Pro Rata Loans bearing interest on the same basis and having the same Interest Periods, if any, in whole or in part, without premium or penalty, in the aggregate principal amount of $1,000,000 or in integral multiples of $100,000 in excess thereof (or, if the outstanding aggregate amount of such Loan is less than $1,000,000 then all of such lesser amount), Page 22 together with accrued interest on the principal being prepaid to the date of prepayment and, in the case of Eurodollar Loans, the amounts required by Section 4.03. Subject to the terms and conditions hereof, prepaid Loans may be reborrowed. Section 2.07. Mandatory Prepayment. (a) If (i) the Company or any Subsidiary shall sell, lease (other than in the ordinary course of business), assign, transfer or otherwise dispose of any of its assets, other than pursuant to Excluded Asset Sales, in an exchange that qualifies under Section 1031 of the Code, or to the extent that the Net Cash Proceeds received therefrom are reinvested in similar assets within 180 days of such disposition of such assets, (ii) the Company or a Subsidiary issues, assumes or incurs Specified Additional Indebtedness or (iii) the Company sells or issues equity securities for cash, other than pursuant to the Company's Stock Incentive Plan, the Company shall prepay outstanding Pro Rata Loans with the Net Cash Proceeds therefrom. Notwithstanding the foregoing, if at the time a mandatory prepayment shall be required to be made hereunder, a mandatory prepayment shall also be required to be made under any similar provision of any agreement evidencing Indebtedness permitted by Section 7.02(a), then the Company may apportion such mandatory prepayment pro rata according to the relative principal amounts outstanding under such Credit Agreement and under this Agreement, and the amount of such mandatory prepayment hereunder shall be reduced accordingly. Any such reduction shall be described in reasonable detail in the officer's certificate required under this Section 2.07(c). (b) Application of Prepayments. All prepayments required to be made pursuant to this Section 2.07 shall be applied in the following order: first, to compensate the Banks for any amounts required by Section 4.03, in the case that such prepayment shall apply to any Eurodollar Pro Rata Loans, second, to accrued interest on the principal amount of Pro Rata Loans being prepaid, and third, to the principal of the Pro Rata Loans then outstanding, if any; provided that any prepayments shall be applied in a manner to minimize the payments, if any, required by the Company pursuant to Section 4.03 with respect to such prepayment; and provided, further, that the accrued interest on, and the outstanding principal of, Pro Rata Loans to be prepaid shall be applied to prepayment of ABR Loans and Eurodollar Pro Rata Loans in proportion to the outstanding aggregate principal amount of such ABR Loans or Eurodollar Pro Rata Loans, respectively, relative to that of all Pro Rata Loans. (c) Officer's Certificate. Promptly upon receipt of any Net Cash Proceeds, other than pursuant to any Excluded Asset Sales, the Company shall deliver to the Agent a certificate signed by the chief financial officer of the Company, which shall be in form and substance satisfactory to the Agent, setting forth the amount of the gross cash proceeds received and the items deducted therefrom in reasonable detail in order to confirm the amount of such Net Cash Proceeds and also setting forth the Company's year-to-date asset sales. Page 23 ARTICLE III INTEREST, METHOD OF PAYMENT, CONVERSION, ETC. Section 3.01. Procedure for Interest Rate Determination. Unless the Company shall request in a Loan Request or in a Conversion/ Continuance Request that Pro Rata Loans (or portions thereof) bear interest as Eurodollar Pro Rata Loans, the Pro Rata Loans shall bear interest as ABR Loans. Section 3.02. Interest on ABR Loans. Each ABR Loan shall bear interest from the date of such ABR Loan until maturity thereof or until such Loan is repaid or converted, or the beginning of any relevant Interest Period, as the case may be, payable in arrears on the last day of each calendar quarter of each year, commencing with the first such date after the date hereof, and on the date such ABR Loan is repaid, at a rate per annum (on the basis of a 365- or 366-day year for the actual number of days involved in the case of ABR Loans which accrue interest based upon the Prime Rate and on the basis of a 360-day year for the actual number of days involved in the case of ABR Loans which accrue interest based upon the Federal Funds Rate) equal to the Base Rate in effect from time to time, which rate shall change as and when said Base Rate shall change. If an ABR Loan is outstanding, the Agent shall notify the Company of the Base Rate when said Base Rate shall change; provided that the failure to give notice shall not affect the Company's obligations with respect to such ABR Loan. Section 3.03. Interest on Eurodollar Loans. (a) Each Eurodollar Loan shall bear interest from the date of such Loan until maturity thereof or until such Loan is repaid, payable in arrears, with respect to Interest Periods of three months or less, on the last day of such Interest Period, and with respect to Interest Periods longer than three months, on the day which is three months after the commencement of such Interest Period and on the last day of such Interest Period, at a rate per annum (on the basis of a 360-day year for the actual number of days involved), determined by the Agent with respect to each Interest Period with respect to Eurodollar Loans, equal to the sum of (i) the Applicable Margin, in the case of Eurodollar Pro Rata Loans and (ii) LIBOR. (b) The Interest Period for each Eurodollar Loan shall be selected by the Company at least three Business Days prior to the beginning of such Interest Period. If the Company fails to notify the Agent of the subsequent Interest Period for an outstanding Eurodollar Pro Rata Loan at least three Business Days prior to the last day of the then current Interest Period of such Eurodollar Pro Rata Loan, then such outstanding Eurodollar Pro Rata Loan shall become an ABR Loan at the end of such current Interest Period. Page 24 (c) Notwithstanding the foregoing: (i) if any Interest Period for a Eurodollar Loan would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iii) no Interest Period for a Eurodollar Loan may extend beyond the Termination Date. (d) Eurodollar Loans shall be made by each Bank from its branch or affiliate identified as its Eurodollar Lending Office on the signature page hereto, or such other branch or affiliate as it may hereafter designate to the Company and the Agent as its Eurodollar Lending Office. A Bank shall not change its Eurodollar Lending Office designation if it, at the time of the making of such change, increases the amounts that would have been payable by the Company to such Bank under this Agreement in the absence of such a change. Section 3.04. Conversion/Continuance. (a) The Company may request, by delivery to the Agent of a written Conversion/Continuance Request not less than three Business Days prior to a requested Conversion/ Continuance Date, that all or portions of the outstanding ABR Loans and Eurodollar Pro Rata Loans, in the aggregate amount of $1,000,000 or in integral multiples of $100,000 in excess thereof (or, if the aggregate amount of outstanding Loans is less than $1,000,000, then all such lesser amount), shall bear interest from and after the Conversion/Continuance Date as either ABR Loans or Eurodollar Pro Rata Loans. (b) Upon receipt of any such Conversion/Continuance Request from the Company, the Agent shall forthwith give notice to each Bank of the substance thereof. Effective on such Conversion/Continuance Date and upon payment by the Company of the amounts, if any, required by Section 4.03, the Loans or portions thereof as to which the Conversion/Continuance Request was made shall commence to accrue interest as set forth in this Article III for the interest rate selected by the Company. (c) In lieu of delivering the above-described notice, the Company may give the Agent telephonic notice hereunder by the required time under this Section 3.05; provided that such telephonic notice shall be confirmed by delivery of a written notice to the Agent by no later than 3:00 P.M., Chicago time, the date of such telephonic notice. Section 3.05. Post Default Interest. Upon the occurrence and during the continuation of an Event of Default, all Loans and any unpaid installment of interest shall bear interest at a rate per annum equal to the sum of (i) 2% and (ii) with respect to ABR Loans, the rate of Page 25 interest then applicable to ABR Loans, changing as and when said rate shall change, with respect to Eurodollar Loans, the rate of interest applicable to each such Eurodollar Loan. Interest payable pursuant to this Section 3.06 shall be payable on demand. Section 3.06. Maximum Interest Rate. (a) Nothing in this Agreement or the Notes shall require the Company to pay interest at a rate exceeding the maximum rate permitted by applicable law. Neither this Section nor Section 11.01 is intended to limit the rate of interest payable for the account of any Bank to the maximum rate permitted by the laws of the State of New York (or any other applicable law) if a higher rate is permitted with respect to such Bank by supervening provisions of U.S. Federal law. (b) If the amount of interest payable for the account of any Bank on any interest payment date in respect of the immediately preceding interest computation period, computed pursuant to this Article III, would exceed the maximum amount permitted by applicable law to be charged by such Bank, the amount of interest payable for its account on such interest payment date shall automatically be reduced to such maximum permissible amount. ARTICLE IV DISBURSEMENT AND PAYMENT Section 4.01. Pro Rata Treatment. Each payment of the Facility Fee and each reduction of the Total Commitment shall be apportioned among the Banks in proportion to each Bank's Pro Rata Share. Except as provided in Section 4.04 or 4.05, the ABR Loans and Eurodollar Pro Rata Loans or portions thereof as to which a Conversion/Continuance Request has been made pursuant to Section 3.05 hereof shall at all times bear interest on the same basis respectively (i.e., as ABR Loans and Eurodollar Pro Rata Loans) and the Interest Periods applicable thereto, if any, shall be of the same duration. Section 4.02. Method of Payment. (a) All payments by the Company hereunder and under the Notes shall be made without set-off or counterclaim to the Agent, for its account or for the account of the Bank or Banks entitled thereto, as the case may be, in lawful money of the United States and in immediately available funds at the office of the Agent on the date when due. (b) Any payment hereunder which falls due on a non-Business Day will be carried over to the next Business Day (subject to Section 3.03(c)), and interest at the rate applicable hereunder will continue to run during such extension of time. Section 4.03. Compensation for Losses. (a) Compensation. In the event that (i) the Company makes a prepayment under Section 2.06 on a day other than the last day of the Interest Period for the amount so prepaid, (ii) a Conversion/Continuance Date selected pursuant to Page 26 Section 3.05 falls on a day other than the last day of the Interest Period for the amount as to which a conversion is made, (iii) the Company revokes any notice given under Section 2.02 requesting Eurodollar Loans, (iv) the Loans or portions thereof are converted into ABR Loans pursuant to Section 4.05 on a day other than the last day of the Interest Period for the Eurodollar Loans so converted or (v) the Eurodollar Loans shall be declared to be due and payable prior to the scheduled maturity thereof pursuant to Section 8.01. Such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so paid or prepaid, or not borrowed or converted, for the period from the date of such payment or prepayment or conversion or failure to borrow to the last day of such Interest Period (or, in the case of a failure to borrow, the Interest Period that would have commenced on the date of such failure to borrow) in each case at the applicable rate of interest for such Loan provided for herein (excluding, however, the Applicable Margin included therein) over (ii) the amount of interest (as reasonably determined by such Bank) which would have accrued to such Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the London interbank market. For purposes of calculating amounts payable by the Company to the Banks under this Section, each Eurodollar Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at Base LIBOR used in determining LIBOR for such Eurodollar Loan by a matching deposit or other borrowing in the London interbank deposits market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan is in fact so funded. (b) Certificate, Etc. Each Bank shall promptly notify the Company, with a copy to the Agent, upon becoming aware that the Company may be required to make any payment pursuant to this Section 4.03. When requesting payment pursuant to this Section 4.03, each Bank shall provide to the Company, with a copy to the Agent, a certificate, signed by an officer of such Bank, setting forth the amount required to be paid by the Company to such Bank and the computations made by such Bank to determine such amount. In the absence of manifest error, such certificate shall be conclusive and binding on the Company as to the amount so required to be paid by the Company to such Bank. (c) Participants. Subject to Section 11.08(e), each Participant shall be deemed a "Bank" for the purposes of this Section 4.03. Section 4.04. Withholding, Reserves and Additional Costs. (a) Taxes. (i) Withholding. To the extent permitted by law, all payments under this Agreement and under the Notes (including payments of principal and interest) shall be payable to each Bank free and clear of any and all present and future Covered Taxes. If any Taxes are required to be withheld or deducted from any amount payable under this Agreement or any Note, then (1) the Company shall pay any such Tax before the date Page 27 on which penalties attach thereto, and (2) in the event such Tax is a Covered Tax, the amount payable under this Agreement or such Note shall be increased to the amount which, after deduction from such increased amount of all Covered Taxes required to be withheld or deducted therefrom, will yield to such Bank the amount stated to be payable under this Agreement or such Note. The Company shall execute and deliver to any Bank upon its request such further instruments as may be necessary or desirable to give full force and effect to any such increase, including a new Note of the Company to be issued in exchange for any Note theretofore issued. The Company shall also hold each Bank harmless and indemnify it for any stamp or other taxes with respect to the preparation, execution, delivery, recording, performance or enforcement of the Credit Documents (all of which shall be included with "Taxes"). If any Covered Taxes are paid by any Bank, the Company shall, not later than 10 days after demand of such Bank, reimburse such Bank for such payments, together with any interest, penalties and expenses incurred in connection therewith, plus interest thereon at a rate per annum (based on a 360-day year for the actual number of days involved) equal to the interest rate then applicable to ABR Loans, changing as and when such rate shall change, from the date such payment or payments are made by such Bank to the date of reimbursement by the Company. The Company shall deliver to the Agent certificates or other valid vouchers for all Taxes or other charges deducted from or paid with respect to payments made by the Company hereunder. (ii) Tax Refund. If the Company determines in good faith that, (a) acting in the name of a Bank, Participant, Assignee or the Agent it is more likely than not to win a contest involving a Covered Tax, or (b) acting in the name of the Company, a reasonable basis exists for contesting a Covered Tax, then the relevant Bank, Participant, Assignee or the Agent, as applicable, shall cooperate with the Company in challenging such Tax at the Company's expense if requested by the Company (it being understood and agreed that neither the Agent nor any Bank, Participant or Assignee shall have any obligation to contest, or any responsibility for contesting any Tax). If any Bank, Participant, Assignee or the Agent, as applicable, receives a refund (whether by way of direct payment or by offset) of any Covered Tax for which a payment has been made pursuant to subsection 4.04(a)(i) which, in the reasonable good faith judgment of such Bank, Participant, Assignee or Agent, as the case may be, is allocable to such payment made under subsection 4.04(a)(i), the amount of such refund (together with any interest received thereon) shall be paid to the Company to the extent payment has been made in full pursuant to subsection 4.04(a) (i). Page 28 (iii) U.S. Tax Certificates. Each Bank that is organized under the laws of any jurisdiction other than the United States or any state thereof shall deliver to the Agent for transmission to the Company, on or prior to the Closing Date (in the case of each Bank listed on the signature pages hereof) or on the date (and as a condition to effectiveness) of an assignment pursuant to which it becomes a Bank (in the case of each other Bank), and at such other times as may be necessary in the determination of the Company or the Agent (each in the reasonable exercise of its discretion), such certificates, documents or other evidence, properly completed and duly executed by such Bank (including, without limitation, Internal Revenue Service Form 1001 or Form 4224 or any other certificate or statement of exemption required by Treasury Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish that such Bank is not subject to deduction or withholding of United States federal income tax under Section 1441 or 1442 of the Code or otherwise (or under any comparable provisions of any successor statute) or is subject to deduction or withholding at a reduced rate under any applicable treaty or otherwise with respect to any Payments to such Bank of principal, interest, fees or other amounts payable under this Agreement or any of the Notes. The Company shall not be required to pay any additional amount to any such Bank under subsection 4.04(a)(i) if such Bank shall have failed to satisfy the requirements of the immediately preceding sentence; provided that if such Bank shall have satisfied such requirements on the Closing Date (in the case of each Bank listed on the signature pages hereof) or on the date of the agreement pursuant to which it became a Bank (in the case of each other Bank), nothing in this subsection 4.04(a)(iii) shall relieve the Company of its obligation to pay any additional amounts pursuant to subsection 4.04(a)(i) in the event that, as a result of any change in applicable law, such Bank is no longer properly entitled to deliver certificates, documents or other evidence at a subsequent date establishing the fact that such Bank is not subject to withholding as described in the immediately preceding sentence. (iv) Mitigation. Each Bank agrees that, as promptly as practicable after the officer of such Bank responsible for administering the Loans under this Agreement becomes aware of the occurrence of an event or the existence of a condition that would require the Company to make payments with respect to such Bank under subsection 4.04(a)(i), it will, to the extent not inconsistent with such Bank's internal policies, use reasonable efforts (1) to make, fund or maintain the Commitments or Loans of such Bank through another lending office of such Bank, or (2) take such other reasonable measures, if as a result the additional amounts that would otherwise be required to be paid by the Company Page 29 with respect to such Bank pursuant to subsection 4.04(a)(i) would be materially reduced and if, as determined by such Bank in its sole discretion, the making, funding or maintaining of such Commitments or Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or the interests of such Bank. (v) Replacement of Bank. If the Company becomes obligated to pay additional amounts described in Section 4.04(a) as a result of any condition described in such Section and payment of such amount is demanded by any Bank, then the Company may, on ten business days' prior written notice to the Agent and such Bank, cause such Bank to (and such Bank shall) assign all of its rights and obligations under this Agreement to a Bank or other entity selected by the Company for a purchase price equal to the outstanding principal amount of such Bank's Loans and all accrued interest, fees, and other amounts owing to such Bank provided that in no event shall the assigning Bank be required to pay or surrender to such purchasing Bank or other entity any of the fees received by such assigning Bank pursuant to this Agreement. The Company shall remain obligated to pay to such assigning Bank all additional amounts described in Section 4.04(a) arising on or prior to the date of such assignment as a result of any condition described in such Section and demanded by any Bank. (b) Additional Costs. (i) If after the date hereof, any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof or the enactment of any law or regulation shall either (1) impose, modify or deem applicable any reserve, special deposit or similar requirement against the Banks' Commitments or the Loans or (2) impose on any Bank any other condition regarding this Agreement, its Commitment or the Loans and the result of any event referred to in clause (1) or (2) of this clause (b) shall be to increase the cost (other than an increase in cost as a consequence of any Tax, which shall be governed by the provisions of Section 4.04(a)) to any Bank of maintaining its Commitment or any Loans (which increase in cost shall be calculated in accordance with each Bank's reasonable averaging and attribution methods) by an amount which any such Bank deems to be material, then, upon receipt by the Company of written notice by such Bank, the Company shall be obligated to pay to such Bank within 10 days of any written demand therefor an amount equal to such increase in cost incurred by such Bank after the date the Company Page 30 receives such notice; provided that in respect of any Loan such amount shall bear interest, after receipt by the Company of any such demand until payment in full thereof, at a rate per annum (based on a 360-day year, for the actual number of days involved) equal to the sum of 2% and the interest rate then applicable to ABR Loans, changing as and when such rate shall change. (ii) If any Bank shall have determined that the adoption of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (including any such adoption or change made prior to the date hereof but not effective until after the date hereof), or compliance by any Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital for any such Bank or any corporation controlling such Bank as a consequence of its obligations under this Agreement to a level below that which such Bank or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy), then upon receipt by the Company of written notice by such Bank, the Company shall be obligated to pay to such Bank upon receipt of written demand from such Bank such additional amount or amounts as will compensate such Bank for such reduction suffered by such Bank after the date the Company receives such notice, plus interest thereon at a rate per annum (based on a 360-day year, for the actual number of days involved) equal to the interest rate then applicable to ABR Loans, changing as and when such rate shall change, from the date of such demand by such Bank to the date of payment by the Company. (iii) Mitigation. Each Bank agrees that, as promptly as practicable after the officer of such Bank responsible for the Loans under this Agreement becomes aware of the occurrence of an event or the existence of a condition that would require the Company to make payments with respect to such Bank under subsection 4.04(b)(i) or (ii), it will, to the extent not inconsistent with such Bank's internal policies, use reasonable efforts (1) to make, fund or maintain the Commitments or Loans of such Bank through another lending office of such Bank, or (2) take such other reasonable measures, if as a result the additional amounts that would otherwise be required to be paid by the Company with respect to such Bank pursuant to subsection 4.04(b)(i) or (ii) would be materially reduced and if, as determined by Page 31 such Bank in its sole discretion, the making, funding or maintaining of such Commitments or Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or the interests of such Bank. (iv) Replacement of Bank. If the Company becomes obligated to pay additional amounts described in Section 4.04(b)(i) or (ii) as a result of any condition described in such Section and payment of such amount is demanded by any Bank, then the Company may, on ten business days' prior written notice to the Agent and such Bank, cause such Bank to (and such Bank shall) assign all of its rights and obligations under this Agreement to a Bank or other entity selected by the Company for a purchase price equal to the outstanding principal amount of such Bank's Loans and all interest and facility fees accrued to the date of purchase. The Company shall remain obligated to pay to such assigning Bank all additional amounts described in Section 4.04(b) arising on or prior to the date of such assignment as a result of any condition described in such Section and demanded by any Bank. (c) Lending Office Designations. Before giving any notice to the Company pursuant to this Section 4.04, each Bank shall, if possible, designate a different lending office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. (d) Certificate, Etc. Each Bank shall promptly notify the Company, with a copy to the Agent, upon becoming aware that the Company may be required to make any payment pursuant to this Section 4.04. When requesting payment pursuant to this Section 4.04, each Bank shall provide to the Company, with a copy to the Agent, a certificate, signed by an officer of such Bank, setting forth the amount required to be paid by the Company to such Bank and the computations made by such Bank to determine such amount. Determinations and allocations by such Bank for purposes of this Section 4.04 shall be conclusive and binding upon the Company, provided that such determinations and allocations are made on a reasonable basis and are mathematically accurate. (e) Participants. Subject to Section 11.08(e), each Participant shall be deemed a "Bank" for the purposes of this Section 4.04. Section 4.05. Unavailability. If at any time any Bank shall have determined in good faith (which determination shall be conclusive) that (x) the making or maintenance of all or any part of such Bank's Eurodollar Loans has been made impracticable or unlawful because of compliance by such Bank in good faith with any law or guideline or any interpretation or administration thereof by any official body charged Page 32 with the interpretation or administration thereof or with any request or directive of such body (whether or not having the effect of law), or (y) that LIBOR would not accurately reflect the cost to such Bank of making, continuing or converting any Eurodollar Loan by reason of such compliance, or by reason of the unavailability of appropriate quotations, or by reason of the unavailability of U.S. dollar deposits in the appropriate amount and maturity in the London Eurodollar interbank market, then the Agent, upon notification to it of such determination by such Bank, shall forthwith advise the other Banks and the Company thereof. Upon such date as shall be specified in such notice and until such time as the Agent, upon notification to it by such Bank, shall notify the Company and the other Banks that the circumstances specified by it in such notice no longer apply, (i) notwithstanding any other provision of this Agreement, such Eurodollar Loans of such Bank shall automatically and without requirement of notice by the Company be converted to ABR Loans and (ii) the obligation of only such Bank to allow borrowing, elections and renewals of Eurodollar Loans shall be suspended, and, if the Company shall request in a Loan Request or Conversion/Continuance Request that such Bank make a Eurodollar Loan, the loan requested to be made by such Bank shall instead be made as an ABR Loan. ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.01. Representations and Warranties. As of each Compliance Date, the Company represents and warrants to the Banks that: (a) Subsidiaries. At the date hereof, the Company has no Subsidiaries and is a participant in no joint ventures other than as listed on Schedule 5.01(a). (b) Good Standing and Power. The Company is duly organized and validly existing and in good standing under the laws of the State of Maryland; and the Company has the power to own its property and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good standing, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Each of the corporate Subsidiaries of the Company are corporations, each duly organized and validly existing, under the laws of the jurisdiction of its incorporation; each other Subsidiary is an entity duly organized and validly existing under the laws of the jurisdiction of its organization; and each Subsidiary has the power to own its property and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except Page 33 where the failure to be so organized, existing, qualified, or to be in good standing, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (c) Corporate Authority. The Company has full corporate power and authority to execute, deliver and perform its obligations under this Agreement, to make the borrowings contemplated hereby, and to execute and deliver the Notes and to incur the obligations provided for herein and therein, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of stockholders is required as a condition to the validity or performance by the Company of its obligations under this Agreement or the Notes. (d) Authorizations. All authorizations, consents, approvals, registrations, notices, exemptions and licenses with or from Governmental Authorities and other Persons which are necessary for the borrowing hereunder, the execution and delivery of the Credit Documents, the performance by the Company of its obligations hereunder and thereunder have been effected or obtained and are in full force and effect. (e) Binding Agreements. This Agreement constitutes, and the Notes, when executed and delivered pursuant hereto for value received will constitute, the valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; and the effect of general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity, and the discretion of the court before which any proceeding therefor may be brought. (f) Litigation. There are no proceedings or investigations, so far as the executive officers of the Company know, pending or threatened before any court or arbitrator or before or by any Governmental Authority which (i) in any one case or in the aggregate, if determined adversely to the interests of the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect, (ii) relates to any Credit Document or the lending transactions contemplated hereby and thereby or (iii) seeks to (or is expected to) rescind, terminate, revoke, cancel, withdraw, suspend, modify or withhold any material license or permit of the Company or any of the Subsidiaries. (g) No Conflicts. There is no statute, regulation, rule, order or judgment, and no provision of any material agreement or instrument binding on the Company or any of its Subsidiaries, or affecting their respective properties and no provision of the certificate of incorporation, by-laws, governing partnership agreement or other organizational document of the Company or any of its Subsidiaries, which would prohibit, conflict with or in any way prevent the execution, delivery, or performance of the terms of the Credit Page 34 Documents or the incurrence of the obligations provided for herein and therein, or result in or require the creation or imposition of any Lien on any of the Company's or its Subsidiaries' properties as a consequence of the execution, delivery and performance of any Credit Document or the lending transactions contemplated hereby and thereby. (h) Financial Condition. (i)(A) The consolidated balance sheet as of December 31, 1998, together with consolidated statements of income, stockholders' equity and cash flows for the fiscal year then ended, audited by KPMG, LLP, included in the Realty Income Corporation 1998 Year End Report and (B) the consolidated balance sheet as of June 30, 1999, together with the consolidated statements of income and cash flows for the 6 months then ended certified by the chief financial officer of the Company, heretofore delivered to the Agent, fairly present the financial condition of the Company and its consolidated Subsidiaries and the results of their operations as of the dates and for the periods referred to and have been prepared in accordance with GAAP consistently applied throughout the periods involved. As of the date hereof, there are no material liabilities, direct or indirect, fixed or contingent, of the Company and its Subsidiaries as of the dates of such balance sheet which are not reflected therein or in the notes thereto; (ii) since December 31, 1998 there has been no Material Adverse Change. (i) Taxes. The Company and each of its Subsidiaries has filed or caused to be filed all tax returns which are required to be filed and has paid all taxes required to be shown to be due and payable on said returns or on any assessment made against it or any of its property and all other taxes, assessments, fees, liabilities, penalties or other charges imposed on it or any of its property by any Governmental Authority, except for any taxes not yet delinquent and any taxes, assessments, fees, liabilities, penalties or other charges which are being contested in good faith and for which adequate reserves (in accordance with GAAP) have been established. (j) Use of Proceeds. The proceeds of the Loans will be used by the Company for the purposes described in the Whereas clause hereto. (k) Margin Regulations. No part of the proceeds of any Loan will be used to purchase or carry, or to reduce, retire or refinance any credit incurred to purchase or carry or extend credit to others for the purpose of purchasing or carrying, any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System. (l) No Material Misstatements. All written information relating to the Company and its Subsidiaries heretofore delivered by the Company and its Subsidiaries to the Agent or any Bank in connection with the Credit Documents is complete and correct in all material respects. Page 35 (m) Title to Properties; Possession Under Leases. The Company and its Subsidiaries each have good and marketable title to, or valid leasehold interests in, all properties and assets reflected on the consolidated balance sheet of the Company as of June 30, 1999, referred to in Section 5.01(h), except for such properties and assets as have been disposed of in the ordinary course of business and except for minor defects in title that do not, individually or in the aggregate, materially interfere with the ability of the Company or any of such Subsidiaries to conduct its business as now conducted. All such assets and properties are free and clear of all Liens, except Liens permitted pursuant to this Agreement. (n) Leases. (i) To the Company's knowledge, no condition exists which, with the giving of notice or the passage of time, or both, would permit any lessee to cancel its obligations under any lease to which the Company or any Subsidiary is a party that would create, individually or in the aggregate, a Material Adverse Effect; (ii) the Company has received no notice that any lessee or lessees intend to cease operations at any leased property or properties prior to the expiration of the term of the applicable lease (other than temporarily due to casualty, remodeling, renovation or any similar cause) that would create, individually or in the aggregate, a Material Adverse Effect; and (iii) to the Company's knowledge, none of the lessees or their sublessees, if any, under any of the leases to which the Company or any Subsidiary is a party to or is the subject of any bankruptcy, reorganizations, insolvency or similar proceeding that would create, individually or in the aggregate, a Material Adverse Effect. (o) Conduct of Business. At the date hereof, the Company and its Subsidiaries hold all authorizations, consents, approvals, registrations, franchises, licenses and permits, with or from Governmental Authorities and other Persons as are required or necessary for them to own their properties and conduct their business as now conducted unless and to the extent that any failure to hold such authorizations, consents, approvals, registrations, franchises, licenses and permits, individually or in the aggregate, could not have a Material Adverse Effect. (p) Compliance with Laws and Charter Documents. Neither the Company nor any Subsidiary thereof is, or as a result of performing any of its obligations under the Credit Documents will be, in violation of (a) any law, statute, rule, regulation or order of any Governmental Authority (including Environmental Laws) applicable to it or its properties or assets, (b) its certificate of incorporation, by-laws, governing partnership agreement or other organizational document or (c) judgments or agreements to which it is a party or by which its assets may be bound unless and to the extent that such violations, individually or in the aggregate, would not have a Material Adverse Effect. Page 36 (q) ERISA. (i) Neither the Company nor any ERISA Affiliate has engaged in a transaction with respect to any Plan which, assuming the taxable period of such transaction expired as of the Compliance Date, could subject the Company or any ERISA Affiliate to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount that would have a Material Adverse Effect. (ii) Except as set forth on Schedule 5.01(q), neither the Company nor any ERISA Affiliate has incurred any liability since December 31, 1998, under Title IV of ERISA with respect to any Single Employer Plan. No Single-Employer Plan had an accumulated funding deficiency, whether or not waived, as of the last day of the most recent fiscal year of such Plan ended prior to the Compliance Date, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. Neither the Company nor any ERISA Affiliate is (A) required to give security to any Single-Employer Plan pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, or (B) subject to a lien in favor of such a Plan under Section 414(n) of the Code or Section 302(f) of ERISA. (iii) No liability under Section 4062, 4063, 4064 or 4069 of ERISA has been or is expected by the Company to be incurred by the Company or any ERISA Affiliate with respect to any Single- Employer Plan in an amount that could have a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred or expects to incur any withdrawal liability with respect to any Plan which is a multiemployer plan in an amount which would have a Material Adverse Effect. (iv) Under each Single-Employer Plan, as of the last day of the most recent plan year ended prior to the Compliance Date, the actuarially determined present value of all benefit liabilities (as determined on the basis of the actuarial assumptions contained in the Plan's most recent actuarial valuation) did not exceed the fair market value of the asset of such Plan by an amount that would have a Material Adverse Effect. (v) Insofar as the representations and warranties of the Company contained in clause (i) above relates to any Plan which is a multiemployer plan, such representations and warranties are made to the best knowledge of the Company and its ERISA Affiliates. As used in this Section, (A) "accumulated funding deficiency" shall have the meaning assigned to such term in Section 412 of the Code and Section 302 of ERISA; (B) "multiemployer plan" and "plan year" shall have the respective meanings assigned to such terms in Section 3 of ERISA; (C) "benefit liabilities" shall have the meaning assigned to such term in Section 4001 of ERISA; (D) "taxable period" shall have the meaning assigned to such term in Page 37 Section 4975 of the Code; and (E) "withdrawal liability" shall have the meaning assigned to such term in Part 1 of Subtitle E of Title IV of ERISA. (r) Intellectual Property. The Company and each of its Subsidiaries owns, or is licensed to use, all trademarks, trade names, patents and copyrights (the "Intellectual Property") necessary for the conduct of its business as currently conducted, including, without limitation, the Intellectual Property listed on Schedule 5.01(r) hereto. To the knowledge of the Company, no claim has been asserted or is pending by any Person challenging or questioning the use by the Company or any Subsidiary of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Company know of any valid basis for any such claim. To the knowledge of the Company, the use of such Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person, nor, to the knowledge of the Company, are there any uses by other Persons of such Intellectual Property which infringe on the rights of the Company and its Subsidiaries. (s) Not an Investment Company or Public Utility Holding Company. Neither the Company nor any of its Subsidiaries is or, after giving effect to the transactions contemplated hereby will be (i) an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended or (ii) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or any foreign, federal, state or local statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby. (t) Environmental Matters. Except as they would not individually or in the aggregate have a Material Adverse Effect (i) the businesses as presently or formerly engaged in by the Company and its Subsidiaries are and have been conducted in compliance with all applicable Environmental Laws, including, without limitation, having all permits, licenses and other approvals and authorizations, during the time the Company and its Subsidiaries engaged in such businesses, (ii) the properties presently or formerly owned or operated by the Company and its Subsidiaries (including, without limitation, soil, groundwater or surface water on, under or adjacent to the properties, and buildings thereon) (the "Properties") do not contain any Hazardous Substance other than in compliance with applicable Environmental Law (provided, however, that with respect to Properties formerly owned or operated by the Company and its Subsidiaries, such representation is limited to the period the Company owned or operated such Properties), (iii) neither the Company or any of its Subsidiaries has received any notices, demand letters or request for information from any Federal, state, local or foreign governmental entity or any third party indicating that the Company or any of its Subsidiaries may be in violation of, or liable under, in any respect, any Environmental Law in connection with the ownership or operation of the Company's businesses, (iv) there are no civil, criminal or administrative Page 38 actions, suits, demands, claims, hearings, investigations or proceedings pending or threatened against the Company or any of its Subsidiaries with respect to the Company or any of its Subsidiaries or the Properties relating to any violation, or alleged violation, of any Environmental Law, (v) no reports have been filed, or are required to be filed, by the Company or any of its Subsidiaries concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law on or at the Properties, (vi) no Hazardous Substance has been disposed of, transferred, released or transported from any of the Properties during the time such Property was owned or operated by the Company or any of its Subsidiaries, other than in compliance with applicable Environmental Law, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by or which are in the possession of the Company or any of its Subsidiaries relating to the Company or such Subsidiary or the Properties which have not been delivered to the Banks prior to the date hereof, (viii) none of the Properties has been used at any time by the Company or any of its Subsidiaries as a sanitary landfill or hazardous waste disposal site and (ix) neither the Company nor any of its Subsidiaries has incurred, and none of the Properties are presently subject to, any material liabilities (fixed or contingent) relating to any suit, settlement, court order, administrative order, judgment or claim asserted or arising under any Environmental Law. (u) Solvency. On the date of each Loan hereunder, and after the payment of all estimated legal, investment banking, accounting and other fees related hereto, the Company and each of its Subsidiaries will be Solvent. (v) Insurance. The properties (other than properties leased to other Persons) and operations of the Company and its Subsidiaries of a character usually insured by companies of established reputation engaged in the same or a similar business similarly situated are adequately insured, by financially sound and reputable insurers, against loss or damage of the kinds and in amounts customarily insured against by such Persons, and the Company and its Subsidiaries carry, with such insurers in customary amounts, such other insurance as is usually carried by companies of established reputation engaged in the same or a similar business similarly situated. (w) REIT Status. The Company qualifies, and will elect or has elected to be treated, as a real estate investment trust under Sections 856 through 860 of the Code and the rules and regulations thereunder (a "REIT") beginning with its taxable year ending December 31, 1993. No fact, event or condition has occurred which could jeopardize the Company's tax status as a REIT. (x) Year 2000 Issue. The Company and its Subsidiaries have reviewed the effect of the Year 2000 Issue on the computer software, hardware and firmware systems and equipment containing embedded microchips owned or operated by or for the Company and its Subsidiaries or used Page 39 or relied upon in the conduct of their business (including systems and equipment supplied by others or with which such computer systems of the Company and its Subsidiaries interface). The costs to the Company and its Subsidiaries of any reprogramming required as a result of the Year 2000 Issue to permit the proper functioning of such systems and equipment and the proper processing of data, and the testing of such reprogramming, and of the reasonably foreseeable consequences of the Year 2000 Issue to the Company or any of its Subsidiaries (including reprogramming errors and the failure of systems or equipment supplied by others) are not reasonably expected to result in a Default or Event of Default or to have a Material Adverse Effect. ARTICLE VI CONDITIONS OF LENDING Section 6.01. Conditions to the Availability of the Commitment. The obligations of each Bank hereunder are subject to, and the Banks' Commitment shall not become available until the date (the "Effective Date") on which, each of the following conditions precedent shall have been satisfied or waived in writing by each of the Banks, and upon such satisfaction or waiver each Bank will give a written confirmation of the same to the Company on request: (a) Credit Agreement. The Agent shall have received this Agreement duly executed and delivered by each of the Banks and the Company. (b) Notes. The Agent on behalf of each Bank shall have received Pro Rata Notes in the principal amounts set forth in Sections 2.03, duly executed and delivered by the Company. (c) Good Standing Certificates. The Agent on behalf of the Banks shall have received from the Company copies of good standing certificates, dated within five (5) days prior to the date hereof, confirming the Company's representation as to good standing in Section 5.01(b). (d) Secretary's Certificate. The Agent on behalf of the Banks shall have received from the Company a certificate from the Secretary or Assistant Secretary of the Company, dated as of the date hereof, (i) certifying the incumbency of the officers executing the Credit Documents and all related documentation, (ii) attaching and certifying the resolutions of the Board of Directors of the Company relating to the execution, delivery and performance of this Agreement, and (iii) attaching and certifying the Certificate of Incorporation and By-laws of the Company. (e) Authorizations. The Agent shall have received copies of all authorizations, consents, approvals, registrations, notices, exemptions and licenses with or from Governmental Authorities and other Persons which are necessary for the borrowing hereunder, the execution and delivery of the Credit Documents, the performance by the Company of its obligations hereunder and thereunder. Page 40 (f) Opinions of Company Counsel. The Agent shall have received the favorable written opinions, dated the date hereof, of Latham & Watkins, special New York counsel for the Company, in substantially the form of Exhibit D-1 and of Michael R. Pfeiffer, General Counsel of the Company, in substantially the form of Exhibit D-2. (g) Litigation. There shall not be pending or threatened any action or proceeding before any court or administrative agency relating to the lending transactions contemplated by this Agreement or any Note which, in the judgment of the Agent or any Bank, could materially impair the ability of the Company to perform its obligations hereunder or thereunder. (h) Other Agreements. The Agent shall have received copies of all tax sharing, management and other similar agreements between the Company and any of its Subsidiaries or Affiliates, which shall be in form and substance satisfactory to the Agent. (i) Subsidiary Guaranty. One or more duly executed Subsidiary Guaranties, to the extent required by Section 7.02(e). (j) Fees. The Agent shall have received from the Company the fees set forth in Section 2.04 and fees of Agent's counsel which are due and payable on the Effective Date. (k) Other Documents. The Agent shall have received such other certificates and documents as the Agent and the Banks reasonably may require. Section 6.02. Conditions to All Loans. The obligations of each Bank in connection with each Loan (including the Initial Loan) are subject to the conditions precedent that, on the date of each such Loan and after giving effect thereto, each of the following conditions precedent shall have been satisfied or waived in writing by each Bank, and upon such satisfaction or waiver each Bank will give a written confirmation of the same to the Company on request: (a) Requests. For each Loan, the Agent shall have received a Pro Rata Loan Request in substantially the form of Exhibit B. (b) No Default. No Default or Event of Default shall have occurred and be continuing, and the Agent shall have received from the Company a certificate to that effect signed by an authorized officer of the Company. (c) Representations and Warranties; Covenants. The representations and warranties contained in Article V (other than representations and warranties that speak as of a specific date) shall be true and correct with the same effect as though such representations and warranties had been made at the time of such Loan, and the Agent shall have received from the Company a certificate to that effect signed by an authorized officer of the Company. Page 41 ARTICLE VII COVENANTS Section 7.01. Affirmative Covenants. Until the Termination Date, and thereafter until payment in full of the Notes and performance of all other obligations of the Company hereunder (other than Unmatured Surviving Obligations), the Company will: (a) Financial Statements; Compliance Certificates. Furnish to the Agent and to each Bank: (i) as soon as available, but in no event more than 60 days following the end of each fiscal quarter, copies of all consolidated quarterly balance sheets, income statements and other financial statements and reports of the Company and its Subsidiaries, prepared in a format and in scope consistent with the financial statements and reports of the Company referenced in Section 5.01(h); (ii) as soon as available, but in no event more than 105 days following the end of each fiscal year, a copy of the annual consolidated audit report and financial statements relating to the Company and its Subsidiaries, certified by KPMG, LLP, one of the other major nationally recognized accounting firms or another independent certified public accountant reasonably satisfactory to the Agent, prepared in a format and in scope consistent with the December 31, 1998 financial statements and reports of the Company referenced in Section 5.01(h); (iii) as soon as available, but in no event later than 105 days following the end of each fiscal year, an annual forecast for the then-current fiscal year, prepared in a manner and in the form of the forecast provided on the date of this Agreement or in such other form as is reasonably acceptable to the Agent and the Required Banks together with an annual rent roll dated the most-recent December 31; (iv) together with each of the financial statements delivered pursuant to clauses (i) and (ii) of this Section 7.01(a), a certificate of the Chief Financial Officer of the Company stating whether as of the last dates of such financial statements any event or circumstance exists which constitutes a Default or Event of Default and, if so, stating the facts with respect thereto, together with calculations, where applicable, which establish in reasonable detail the Company's (and where applicable, each of the Company's Subsidiaries') compliance with the provisions of this Agreement; Page 42 (v) promptly upon receipt thereof, copies of any reports and management letters submitted to the Company or any of its Subsidiaries or their accountants in connection with any annual or interim audit of the books of the Company or its Subsidiaries, together with the responses thereto, if any; and (vi) such additional information, reports or statements as the Agent and the Banks from time to time may reasonably request including but not limited to the quarterly furnishing to the Agent of the most recent Property Management Exception Report in a form substantially similar to Exhibit E hereto, a list of the Company's current property portfolio and a list of the Company's past quarter's acquisitions on an acquisition cost basis, an appraised value basis (to the extent available) and a projected annual rent basis. (b) Notification of Defaults and Adverse Developments. Notify the Agent (i) promptly, and in any event not later than five Business Days after the discovery by any officer of the Company of the occurrence of any Default or Event of Default; (ii) promptly, and in any event not later than five Business Days after the discovery by any officer of the Company of the occurrence of a Material Adverse Change; (iii) promptly, and in any event not later than ten Business Days after the discovery by any officer of the Company of any litigation or proceedings that are (to the knowledge of any executive officer of the Company) instituted or threatened against the Company or its Subsidiaries or any of their respective assets that (a) could reasonably be expected to have a Material Adverse Effect or (b) seeks to (or is expected to) rescind, terminate, revoke, cancel, withdraw, suspend, modify or withhold any material license or permit of the Company or any of the Subsidiaries; (iv) promptly, and in any event not later than five Business Days after the discovery by any officer of the Company of the occurrence of each and every event which would be an Event of Default (or an event which with the giving of notice or lapse of time or both would be an Event of Default) under any Indebtedness of the Company or any of its Subsidiaries in a principal amount in excess of $5,000,000, such notice to include the names and addresses of the holders of such Indebtedness and the amount thereof and (v) promptly, and in any event not later than five days after the end of each calendar quarter in which the Company receives notice of a change in the rating published by any of the Rating Agencies with respect to the Company's senior unsecured debt, notice of such change in rating. Upon receipt of any such notice of Default or adverse development, the Agent shall forthwith give notice to each Bank of the details thereof. (c) Notice of ERISA Events. Within 10 days after the Company or any ERISA Affiliate knows that any of the events described in the succeeding two sentences have occurred, the Company shall furnish to the Agent a statement signed by a senior officer of the Company describing such event in reasonable detail and the action, if any, Page 43 proposed to be taken with respect thereto. The events referred to in the preceding sentence are, with respect to any Single Employer Plan: (i) any reportable event described in Section 4043 of ERISA, other than a reportable event for which the 30-day notice requirement has been waived by the PBGC; (ii) the provision to any affected party as such term is defined in Section 4001 of ERISA of a notice of intent to terminate the Plan; (iii) the adoption of or amendment to the Plan if, after giving effect to such amendment, the Plan is a plan described in Section 4021(b) of ERISA; (iv) receipt of notice of an application by the PBGC to institute proceedings to terminate the Plan pursuant to Section 4042 of ERISA; (v) withdrawal from or termination of the Plan during a plan year for which the Company or any ERISA Affiliate is or would be subject to liability under Sections 4063 or 4064 of ERISA; (vi) cessation of operations by the Company or any ERISA Affiliate at a facility under the circumstances described in Section 4062(e) of ERISA; (vii) adoption of an amendment to the Plan which would require security to be given to the Plan pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; and (viii) failure by the Company or any ERISA Affiliate to make any payment to the Plan which would give rise to a lien in favor of the Plan under Section 414(n) of the Code or 302(f) of ERISA. Such events shall also include receipt of notice of withdrawal liability pursuant to Section 4202 of ERISA with respect to a Plan that is a multiemployer plan. (d) Other Reports, Notices and Materials. Furnish to the Agent (i) as soon as available copies of reports, notices and other materials sent to the Company or any of its Subsidiaries from any Governmental Authority, including the Securities and Exchange Commission, the Internal Revenue Service and PBGC and (ii) within 90 days of adoption by the Company's board of directors, copies of any revisions, supplements, amendments or restatements to the Real Estate Investment Criteria. (e) Environmental Matters. (i) Comply, and cause its Subsidiaries to comply, in all material respects, with all applicable Environmental Laws, (ii) notify the Agent promptly after receiving notice or becoming aware of any order, notice, claim or proceeding under any Environmental Laws, other than those that are clearly not material, and (iii) promptly forward to Agent a copy of any Environmental Claim, order, notice, permit, application, or any other communication or report received by Company or any of its Subsidiaries in connection with any such matters as they may affect such premises, if material. (f) Taxes. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges upon it, its income and its properties prior to the date on which penalties attach thereto, unless and to the extent that (i) such taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings by the Company or such Subsidiary, as the case may be, (ii) adequate reserves (in accordance with GAAP) are maintained by the Company or such Subsidiary, as the Page 44 case may be, with respect thereto, and (iii) any failure to pay and discharge such taxes, assessments and governmental charges could not have a Material Adverse Effect. (g) Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible insurance companies against such risks, on such properties and in such amounts as is customarily maintained by similar businesses; and file and cause each of its Subsidiaries to file with the Agent upon its request or the request of any Bank a detailed list of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. (h) Corporate Existence. Except as permitted by Section 7.02(c), maintain, and cause each of its Subsidiaries to maintain, its existence in good standing and qualify and remain qualified to do business in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business is such that the failure to maintain such existence or to qualify could reasonably be expected to have a Material Adverse Effect. (i) Authorizations. Obtain, make and keep in full force and effect all material authorizations from and registrations with Governmental Authorities. (j) Maintenance of Records. Maintain, and cause each of its Subsidiaries to maintain, complete and accurate books and records in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in its respective business and activities. (k) Inspection. Permit, and cause each of its Subsidiaries to permit, the Agent and the Banks to have one or more of their officers and employees, or any other Person designated by the Agent or the Banks, visit and inspect any of the properties of the Company and its Subsidiaries (upon reasonable request and notice and in accordance with the agreement, if any, relating to any such property) and to examine the minute books, books of account and other records of the Company and its Subsidiaries and make copies thereof or extracts therefrom, and discuss its affairs, finances and accounts with its officers and, at the request of the Agent or the Banks, with the Company's independent accountants, during normal business hours and at such other reasonable times and as often as the Agent or the Banks reasonably may desire. (l) Conduct of Business. (i) Engage in as its principal business investing in real estate in the United States, (ii) preserve, renew and keep in full force and effect all its material contracts, (iii) preserve, renew and maintain in full force and effect all its franchises and licenses material to the normal conduct of its business as now conducted, and (iv) comply with all of the terms of all Page 45 instruments which evidence, secure or govern the Indebtedness of the Company and its Subsidiaries and all material laws, rules and regulations of all Governmental Authorities. (m) Maintenance of Property, Etc. With only such exceptions that individually or in the aggregate would not have a Material Adverse Effect (i) maintain, keep and preserve and cause each of its Subsidiaries to maintain, keep and preserve all of its properties in good repair, working order and condition and from time to time make all necessary and proper repairs, renewals, replacements, and improvements thereto (provided that in the properties subject to sale agreements, to the extent permitted by Section 7.02(c)(iii), compliance with the terms of such agreement shall be deemed to constitute compliance with this Section 7.01(m)(i)), and (ii) maintain, preserve and protect and cause each of its Subsidiaries to maintain, preserve and protect all franchises, licenses, copyrights, patents and trademarks material to its business, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. (n) Insurance on Leased Properties. Use its, and cause its Subsidiaries to use their, commercially reasonable best efforts to ensure that each lessee of a property owned in whole or in part, directly or indirectly, by the Company or any Subsidiary, and each mortgagor of a property on which the Company or any Subsidiary holds a mortgage, has, and until the Termination Date will keep, in place adequate insurance which names the Company or such Subsidiary as a loss payee. For the purposes of the preceding sentence "adequate insurance" shall mean insurance, with financially sound and reputable insurers in such amounts and insuring against such risks as are customarily maintained by similar businesses. (o) Further Assurances. The Company agrees to do all acts and things, as may be required by law or as, in the reasonable judgement of the Agent, may be necessary or advisable to carry out the intent and purpose of this Agreement. (p) Year 2000. Take all necessary action to complete in all material respects by December 31, 1999, the reprogramming of computer software, hardware and firmware systems and equipment containing embedded microchips owned or operated by or for the Company and its Subsidiaries or used or relied upon in the conduct of their business (including systems and equipment supplied by others or with which such systems of the Company or any of its Subsidiaries interface) required as a result of the Year 2000 Issue to permit the proper functioning of such computer systems and other equipment and the testing of such systems and equipment, as so reprogrammed. At the request of the Agent, the Company shall provide, and shall cause each of its Subsidiaries to provide, to the Agent, such information as may reasonably be requested relating to its compliance with the preceding sentence. Page 46 Section 7.02. Negative Covenants. Until the Termination Date, and thereafter until payment in full of the Notes and performance of all other obligations of the Company hereunder (other than Unmatured Surviving Obligations), the Company will not: (a) Indebtedness. Create, incur or assume any Indebtedness, except (i) Indebtedness to the Agent and the Banks hereunder and under the Notes, (ii) Indebtedness incurred to pay dividends enabling the Company to maintain its status as a REIT, (iii) Indebtedness incurred to purchase Interest Rate Protection Agreements, (iv) Indebtedness that would otherwise be permitted under the Credit Documents and (v) Indebtedness incurred under the Unsecured Revolver, provided that, in each of the aforementioned cases (other than (v)), (A) such Indebtedness is unsecured (B) the maturity of such Indebtedness (including all scheduled payments of principal) is later than the Termination Date (C) such Indebtedness ranks pari passu or subordinate to the Notes and (D) after giving effect to the incurrence of such Indebtedness, the Company's and its Subsidiaries interest coverage ratio on a consolidated basis referred to in Section 7.03(c) herein for the most recent four-quarter period ending on the ending date of the Company's last fiscal quarter would have been greater than 2.00:1.00; provided, that the limitations contained in the foregoing clauses (A) and (B) shall not apply to Indebtedness having an aggregate principal amount at any time less than 5% of Consolidated Total Assets. The Company shall not permit any Subsidiary to create, incur, assume or suffer to exist any Indebtedness except Indebtedness which does not exceed, at any time, 5.0% of Consolidated Total Assets ("Permitted Subsidiary Indebtedness"), provided that if such Permitted Subsidiary Indebtedness is secured, (x) the principal amount thereof shall be applied towards (and shall accordingly limit) the amount of secured Indebtedness which the Company is permitted to incur pursuant to the first sentence of this Section 7.02(a), and (y) such secured Indebtedness shall in addition be permitted by Section 7.02(b). (b) Mortgages and Pledges. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien of any kind upon or in any of its property or assets, whether now owned or hereafter acquired, except that this Section 7.02(b) shall not apply (i) to Permitted Encumbrances and (ii) to other Liens securing Indebtedness permitted by Section 7.02(a), if immediately after giving effect to the incurrence of such Indebtedness and the application of the proceeds therefrom on a pro forma basis, the aggregate principal amount of all such Indebtedness of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is not greater than 5% of Consolidated Total Assets. (c) Merger, Acquisition or Sales of Assets. (i) Acquire, or permit any of its Subsidiaries to acquire, all or any substantial portion of the assets of any Person other than (a) the acquisition of property in the ordinary course of the Company's business; or (b) the acquisition of the equity interests of an entity for the purpose of controlling the property of that entity in the ordinary course of the Company's Page 47 business, provided that the aggregate purchase price paid by the Company in all transactions under this clause (b) and clause (ii)(b) below shall not exceed 10% of Consolidated Total Assets as of June 30, 1999; (ii) enter into any merger or consolidation, or permit any Subsidiary to do so, other than (a) a merger or consolidation of a Wholly Owned Subsidiary with one or more other Wholly Owned Subsidiaries or into the Company, (b) a merger or consolidation of a Subsidiary or the Company with an entity for the purpose of controlling the property of that entity in the ordinary course of the Company's business, provided that the aggregate purchase price paid by the Company in all transactions under this clause (b) and clause (i)(b) above shall not exceed 10% of Consolidated Total Assets as of June 30, 1999, or (c) a merger of the Company into another corporation primarily for the purpose of changing the jurisdiction of incorporation of the Company, provided that the surviving entity shall assume all obligations of the Company hereunder; or (iii) sell, lease or otherwise dispose of any assets of the Company or any of the Subsidiaries other than in the ordinary course of the Company's business for the fair market value thereof. (d) Negative Pledge. Grant any Person a negative pledge on any assets of the Company or of the Subsidiaries, except as may be provided in (i) any Permitted Subsidiary Indebtedness, (ii) Indebtedness under the Unsecured Revolver and (iii) other Indebtedness permitted by Section 7.02(a) having an aggregate principal amount not exceeding $25,000,000. (e) Loans and Investments. Purchase or acquire the obligations or stock of, or any other interest in, or make loans, advances or capital contributions to, or form any joint ventures or partnerships with, any Person, or permit any Subsidiary so to do, except (i) investments in real estate which satisfy each of the Real Estate Investment Criteria, as determined by the Board of Directors from time to time, (ii) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (iii) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (x) any Bank, (y) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (z) any bank (or the parent company of such bank) whose short-term commercial paper rating from Standard & Poor's Corporation, a division of the McGraw Hill Companies, Inc., ("S&P") is at least A-1 or the equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at least P-1 or the equivalent thereof (any such bank, an "Approved Bank"), in each case with maturities of not more than twelve months from the date of acquisition, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (ii) above entered into with any bank meeting the qualifications specified in clause (iii) above, (v) commercial paper issued by any Bank or Page 48 Approved Bank or by the parent company of any Bank or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company or by any agency of the Federal Government with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's (any such company, an "Approved Company"), or guaranteed by any industrial company with a long-term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within twelve months after the date of acquisition, (vi) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (ii) through (v) above, (vii) capital contributions to a Subsidiary by the Company or a Subsidiary of the purchase price for acquisitions by such Subsidiary of properties that the Company would be allowed to acquire directly under this Agreement, provided that a Subsidiary Guaranty of the Company's payment obligations under this Agreement, in the form attached hereto as Exhibit G, shall remain in full force and effect; (viii) capital contributions after taking account of any distributions to the Company, including intercompany loans and advances, to any Subsidiary that has not provided a Subsidiary Guaranty, provided that such capital contributions shall not exceed $50,000,000 at any time and (ix) shares of the Company's common stock, preferred stock or its 8.25% Monthly Income Senior Notes due 2008; provided, that the Company shall not spend more than $25,000,000 in the aggregate during the term of this Agreement in acquiring such shares or such Senior Notes. (f) Real Estate Development. Purchase or acquire, or agree (pursuant to a binding agreement) to purchase or acquire, the obligations or stock of, or any other interest in, or make loans, advances or capital contributions to, or form any joint ventures or partnerships with, or make any other expenditures with respect to, any Real Estate Development Project, if, in the aggregate, the total project costs required to be made in connection with all such purchases, acquisitions, loans, advances, capital contributions or expenditures would be greater than $100,000,000, at any one time, or permit any Subsidiary so to do. (g) Dividends and Purchase of Stock. Declare any dividends (other than dividends payable in capital stock of the Company) on any shares of any class of its capital stock, or apply any of its property or assets to the purchase, redemption or other retirement of, or set apart any sum for the payment of any dividends on, or for the purchase, redemption or other retirement of, or make any other distribution by reduction of capital or otherwise in respect of, any shares of any class of capital stock of the Company, or permit any Subsidiary which is not a Wholly Owned Subsidiary so to do, or permit any Subsidiary to purchase or acquire any shares of any class of capital stock of the Company; provided, however, that so long as an Event of Default pursuant to Section 8.01(a) has not occurred and is not continuing, the Company may, and may permit its Subsidiaries to, pay dividends and other distributions with respect to capital stock, Page 49 except that this Section 7.02(g) shall not apply to the Company's expenditure of up to $25,000,000 in the aggregate during the term of this Agreement for the purchases of its own common stock or preferred stock. (h) Stock of Subsidiaries. Issue, sell or otherwise dispose of any shares of capital stock of any Subsidiary (except in connection with (A) a merger or consolidation of a Wholly Owned Subsidiary permitted by Section 7.02(c) or with the dissolution of any Subsidiary) provided, that such dissolution shall not be for the purpose of avoiding the provisions of this Section 7.02(h)), (B) investments in Subsidiaries permitted by Section 7.02(e), or (C) the issuance and sale to Persons other than the Company of an amount not greater than 10% of the outstanding shares of such capital stock in connection with the formation and capitalization of the Subsidiary described in Section 7.02(e)(viii), or permit any Subsidiary to issue any additional shares of its capital stock except to its existing stockholders. (i) Terms of Indebtedness. Unless otherwise expressly permitted by this Agreement and other than with respect to the Unsecured Revolver, amend or modify, or permit to be amended or modified the terms of any Company or Subsidiary Indebtedness for borrowed money or any documents relating thereto in a manner which would (i) increase the principal amount of such Indebtedness, (ii) increase the interest borne by such Indebtedness, (iii) shorten the maturity of such Indebtedness or (iv) elevate, in relation to the Loans, the ranking in terms of payment of such Indebtedness, without prior written consent of the Agent. (j) Certain Amendments. Amend or modify (i) the Company's certificate of incorporation, (ii) the Real Estate Investment Criteria to a material degree or (iii) without the approval of the independent members of the Company's board of directors, any tax sharing, management or other similar agreement between or among the Company and any of its Subsidiaries. (k) Transactions with Affiliates. Enter into any transactions, including without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate, or permit any Subsidiary so to do, except in the ordinary course of and pursuant to the reasonable requirements of its business and upon the approval of a majority of the disinterested members of the board of directors or a committee of such disinterested members. (l) Mortgage Financings. Enter into any mortgage financings, as a borrower thereunder, except that this Section 7.02(l) shall not apply to mortgage financings involving a Lien on any real estate assets of the Company or a Subsidiary to the extent permitted by Section 7.02(b). Page 50 (m) Significant Properties. Without the prior written consent of the Required Banks (which consent shall not be unreasonably withheld, and which consent the Banks and the Agent shall use their best efforts to grant or deny within 10 Business Days of receipt by the Agent of the Company's written request therefor, provided that the failure to grant, deny or explain the inability to make a determination about such consent for 20 Business Days after the Agent's receipt of the Company's request shall be deemed to constitute a grant of such consent), purchase or acquire an interest in (i) multi-tenant office buildings, (ii) hotels, motels, bowling alleys or mobile home parks or (iii) any individual lot of property the price of which exceeds $25,000,000 or two contiguous lots occupied by more than one tenant, the price of which exceeds $50,000,000. (n) Industry and Tenant Concentration. (i) Permit, at any time, its tenants conducting business in any one industry (determined by the SIC Code) to comprise more than 25% of total Consolidated Annualized Base Rent (measured on a quarterly basis and detailed on the compliance certificate issued in accordance with Section 6.02(c)), provided that in the case of the child care industry, the Company shall not permit, at any time, its tenants conducting business in the child care industry to comprise more than 30% of total Consolidated Annualized Base Rent (measured at the end of each fiscal quarter and detailed on the compliance certificate issued in accordance with Section 6.02(c)) or (ii) permit, at any time, any one of its tenants to comprise more than 15% of total Consolidated Annualized Base Rent (measured at the end of each fiscal quarter and detailed on the compliance certificate issued in accordance with Section 6.02(c)), provided that in the case of Children's World Learning Centers, the Company shall not permit, at any time, Children's World Learning Centers to comprise more than 20% of total Consolidated Annualized Base Rent (measured at the end of each fiscal quarter and detailed on the compliance certificate issued in accordance with Section 6.02(c)). Section 7.03. Financial Covenants. Until the Termination Date, and thereafter until payment in full of the Notes and performance of all other obligations of the Company hereunder (other than Unmatured Surviving Obligations), (a) Tangible Stockholders' Equity. The Company will maintain Consolidated Tangible Stockholders' Equity of not less than the sum of (i) $400,000,000 plus (ii) 75% of the sum of the net proceeds received by the Company after December 31, 1999 from any offering of its equity securities. (b) Leverage Ratio. The Company will maintain, as measured at the end of each fiscal quarter, a Leverage Ratio of not more than 1.00:1.00. Page 51 (c) Interest Coverage Ratio. The Company will not permit the ratio of (i) the sum of Consolidated Funds from Operations and Consolidated Interest Expense to (ii) Consolidated Interest Expense for the four quarter period ending on the last day of each fiscal quarter to be less than 2.00:1.00. ARTICLE VIII EVENTS OF DEFAULT Section 8.01. Events of Default. If one or more of the following events (each, an "Event of Default") shall occur: (a) Default shall be made in the payment of any installment of principal of any Loan when due and payable, whether at maturity, by notice of intention to prepay or otherwise; or default shall be made in the payment of any installment of interest upon any Loan when due and payable, and such default shall have continued for five days; or (b) Default shall be made in the payment of the Facility Fee or any other fee or amount payable hereunder when due and payable and such default shall have continued for five days; or (c) Default shall be made in the due observance or performance of any term, covenant, or agreement contained in Section 7.01(j) or in Section 7.03; or (d) Default shall be made in the due observance or performance of any other term, covenant or agreement contained in this Agreement, and such default shall have continued unremedied for a period of 30 days after any officer of the Company becomes aware, or should have become aware, of such default; or (e) Any representation or warranty made or deemed made by the Company herein or any statement or representation made in any certificate or report delivered by or on behalf of the Company in connection herewith or in connection with any Note shall prove to have been false or misleading in any material respect when made; or (f) Any obligation (other than its obligation hereunder) of the Company or any of its Subsidiaries for the payment of Indebtedness in excess of $1,000,000 is not paid when due or within any grace period for the payment therefor or becomes or is declared to be due and payable prior to the expressed maturity thereof, or there shall have occurred an event which, with the giving of notice or lapse of time, or both, would cause any such obligation to become, or allow any such obligation to be declared to be, due and payable; or (g) An involuntary case or other proceeding shall be commenced against the Company or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under Page 52 any applicable Federal or State bankruptcy, insolvency, reorganization or similar law now or hereafter in effect or seeking the appointment of a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed, or an order or decree approving or ordering any of the foregoing shall be entered and continued unstayed and in effect, in any such event, for a period of 60 days; or (h) The commencement by the Company or any of its Subsidiaries of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by any of them to the entry of a decree or order for relief in respect of the Company or any of its Subsidiaries in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against any of them, or the filing by any of them of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by any of them to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any of its Subsidiaries or any substantial part of their respective property, or the making by any of them of an assignment for the benefit of creditors, or the admission by any of them in writing of inability to pay their debts generally as they become due, or the taking of corporate action by the Company or any of its Subsidiaries in furtherance of any such action; or (i) One or more judgments against the Company or any of its Subsidiaries or attachments against its property, which in the aggregate exceed $1,000,000, or the operation or result of which could be to interfere materially and adversely with the conduct of the business of the Company or any of its Subsidiaries, remain unpaid, unstayed on appeal, undischarged, unbonded, or undismissed for a period of 30 days; or (j) With respect to any Single-Employer Plan, any of the following shall occur: (A) the provision to any affected party as such term is defined in Section 4001 of ERISA of a notice of intent to terminate the Plan, the adoption of an amendment to the Plan if, after giving effect thereto, the Plan is a plan described in Section 4021(b) of ERISA, receipt of notice of an application by the PBGC to institute proceedings to terminate the Plan pursuant to Section 4042 of ERISA, or any reportable event described in Section 4043 of ERISA (other than a reportable event for which the 30-day notice requirement has been waived by the PBGC); in each case, if the amount of unfunded benefit liabilities, as such term is defined in Section 4001(a)(18) of ERISA, of the Plan as of the date such event occurs is more than $5,000,000, (B) the Company or any ERISA Affiliate incurs liability under Sections 4062(e), 4063 or 4064 of ERISA in an amount in excess of $5,000,000, Page 53 (C) an amendment is adopted to the Plan which would require security to be given to the Plan pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA in an amount in excess of $5,000,000, (D) the Company or any ERISA Affiliate fails to make a payment to the Plan which would give rise to a lien in favor of the Plan under Section 412(n) of the Code or Section 302(f) of ERISA in an amount in excess of $5,000,000, or (E) any Person shall engage in any non-exempt "prohibited transaction" (as defined in Section 406 or 407 of ERISA or Section 4975 of the Code) involving any Plan, in an amount in excess of $5,000,000; or (k) With respect to any Plan that is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA, any of the following shall occur: (A) the Company or any ERISA Affiliate shall be in "default" as defined in Section 4219(c)(5) of ERISA with respect to payments in excess of $5,000,000 owing to such Plan as a result of the Company's or such ERISA Affiliate's complete or partial withdrawal from such Plan within the meaning of Sections 4203 and 4205 of ERISA, respectively, or (B) the Company or any ERISA Affiliate shall be delinquent in making contributions to such Plan in accordance with Section 515 of ERISA in an amount in excess of $5,000,000. (l) Any court or governmental or regulatory authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which prohibits, enjoins or otherwise restricts in a manner that would have a Material Adverse Effect on any of the lending transactions contemplated under the Credit Documents; or (m) The Company shall fail to maintain its status as a "real estate investment trust", as such term is defined in the Code; (n) There shall occur a Change of Control; (o) Thomas A. Lewis is terminated or resigns and is not replaced, within the twelve-month period following such termination or resignation, with a person having qualifications reasonably acceptable to Required Lenders; or (p) There shall occur an Event of Default under the Unsecured Revolver. then (i) upon the happening of any of the foregoing Events of Default, the obligation of the Banks to make any further Loans or the obligation of the Swing Line Bank to make any further Swing Line Advances under this Agreement shall terminate upon declaration to that effect delivered by the Agent or the Required Banks to the Company and (ii) upon the happening of any of the foregoing Events of Default which shall be continuing, the Notes shall become and be immediately due and payable upon declaration to that effect delivered by the Agent or the Required Banks to the Company; provided that upon the happening Page 54 of any event specified in Section 8.01(g) or (h), the Notes shall become immediately due and payable and the obligation of the Banks to make any further Loans hereunder shall terminate without declaration or other notice to the Company. The Company expressly waives any presentment, demand, protest or other notice of any kind. ARTICLE IX THE AGENT AND THE BANKS Section 9.01. The Agency. (a) Each Bank appoints Bank of Montreal as its Agent hereunder and irrevocably authorizes the Agent to take such action on its behalf and to exercise such powers hereunder as are specifically delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental hereto, and the Agent hereby accepts such appointment subject to the terms hereof. The relationship between the Agent and the Banks shall be that of agent and principal only and nothing herein shall be construed to constitute the Agent a trustee for any Bank nor to impose on the Agent duties or obligations other than those expressly provided for herein. Section 9.02. The Agent's Duties. The Agent shall promptly forward to each Bank copies, or notify each Bank as to the contents, of all notices and other communications received from the Company pursuant to the terms of this Agreement and the Notes and, in the event that the Company fails to pay when due the principal of or interest on any Loan, the Agent shall promptly give notice thereof to the Banks. As to any other matter not expressly provided for herein or therein, the Agent shall have no duty to act or refrain from acting with respect to the Company, except upon the instructions of the Required Banks. The Agent shall not be bound by any waiver, amendment, supplement, or modification of this Agreement or any Note which affects its duties hereunder and thereunder, unless it shall have given its prior written consent thereto. The Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements binding on the Company pursuant to this Agreement or any Note nor shall it be deemed to have knowledge of the occurrence of any Default or Event of Default (other than a failure of the Company to pay when due the principal or interest on any Loan), unless it shall have received written notice from the Company or a Bank specifying such Default or Event of Default and stating that such notice is a "Notice of Default". Section 9.03. Sharing of Payment and Expenses. All funds for the account of the Banks received by the Agent in respect of payments made by the Company pursuant to, or from any Person on account of, this Agreement or any Note shall be distributed forthwith by the Agent among the Banks, in like currency and funds as received, ratably in proportion to their respective interests therein. In the event that any Bank shall receive from the Company or any other source any payment of, on account of, or for or under this Agreement or any Note (whether received pursuant to the exercise of any right of set-off, Page 55 banker's lien, realization upon any security held for or appropriated to such obligation or otherwise as permitted by law) other than in proportion to its Pro Rata Share, then such Bank shall purchase from each other Bank so much of its interest in obligations of the Company as shall be necessary in order that each Bank shall share such payment with each of the other Banks in proportion to each Bank's Pro Rata Share; provided that no Bank shall purchase any interest of any Bank that does not, to the extent that it may lawfully do so, set-off against the balance of any deposit accounts maintained with it the obligations due to it under this Agreement. In the event that any purchasing Bank shall be required to return any excess payment received by it, the purchase shall be rescinded and the purchase price restored to the extent of such return, but without interest. Section 9.04. The Agent's Liabilities. Each of the Banks and the Company agrees that (i) neither the Agent in such capacity nor any of its officers or employees shall be liable for any action taken or omitted to be taken by any of them hereunder except for its or their own gross negligence or willful misconduct, (ii) neither the Agent in such capacity nor any of its officers or employees shall be liable for any action taken or omitted to be taken by any of them in good faith in reliance upon the advice of counsel, independent public accountants or other experts selected by the Agent, and (iii) the Agent in such capacity shall be entitled to rely upon any notice, consent, certificate, statement or other document (including any telegram, cable, telex, facsimile or telephone transmission) believed by it to be genuine and correct and to have been signed and/or sent by the proper Persons. Section 9.05. The Agent as a Bank. The Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not the Agent, and the terms "Bank" or "Banks", unless the context otherwise indicated, include the Agent in its individual capacity. The Agent may, without any liability to account, maintain deposits or credit balances for, invest in, lend money to and generally engage in any kind of banking business with the Company or any Subsidiary or affiliate of the Company as if it were any other Bank and without any duty to account therefor to the other Banks. Section 9.06. Bank Credit Decision. Neither the Agent nor any of its officers or employees has any responsibility for, gives any guaranty in respect of, nor makes any representation to the Banks as to, (i) the condition, financial or otherwise, of the Company or any Subsidiary thereof or the truth of any representation or warranty given or made herein or in any other Credit Document, or in connection herewith or therewith or (ii) the validity, execution, sufficiency, effectiveness, construction, adequacy, enforceability or value of this Agreement or any other Credit Document or any other document or instrument related hereto or thereto. Except as specifically provided herein and in the other Credit Documents to which the Agent is a party, the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any Page 56 credit or other information with respect to the operations, business, property, condition or creditworthiness of the Company or any of its Subsidiaries, whether such information comes into the Agent's possession on or before the date hereof or at any time thereafter. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will independently and without reliance upon the Agent or any other Bank, based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement or any Note. Section 9.07. Indemnification. Each Bank agrees (which agreement shall survive payment of the Loans and the Notes) to indemnify the Agent, to the extent not reimbursed by the Company, ratably in accordance with its respective Commitment, from and against any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any other Credit Document, or any action taken or omitted to be taken by the Agent hereunder or thereunder; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Agent or any of its officers or employees. Without limiting the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in such capacity in connection with the preparation, execution or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement or any Note or any amendments or supplements hereto or thereto, to the extent that the Agent is not reimbursed for such expenses by the Company. Section 9.08. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Banks and the Company, and the Agent may be removed at any time by the Required Banks by giving written notice thereof to the Agent, the other Banks and the Company at least ten Business Days prior to the effective date of such removal. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the resigning Agent's giving of notice of resignation, or the Required Banks' giving notice of removal, as the case may be, the resigning Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Any successor Agent appointed Page 57 pursuant to this Section 9.08 shall be a Bank hereunder. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigned or removed Agent, and the resigned or removed Agent shall be discharged from its duties and obligations under this Agreement. After any Agent's resignation hereunder as Agent, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE X CONSENT TO JURISDICTION Section 10.01. Consent to Jurisdiction. The Company hereby irrevocably submits to the non-exclusive jurisdiction of the State and Federal courts located in The City of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and each Note. The Company hereby irrevocably appoints CT Corporation System, with offices on the date hereof at 111 Eighth Avenue, New York, New York 10011, as its authorized agent on whom process may be served in any action which may be instituted against it by the Agent or the Banks in any state or federal court in the Borough of Manhattan, The City of New York, arising out of or relating to any Loan or this Agreement and each Note. Service of process upon such authorized agent and written notice of such service to the Company shall be deemed in every respect effective service of process upon the Company, and the Company hereby irrevocably consents to the jurisdiction of any such court in any such action and to the laying of venue in the Borough of Manhattan, The City of New York. The Company hereby irrevocably waives any objection to the laying of the venue of any such suit, action or proceeding brought in the aforesaid courts and hereby irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Notwithstanding the foregoing, nothing herein shall in any way affect the right of the Agent or any Bank to bring any action arising out of or relating to the Loans or this Agreement and each Note in any competent court elsewhere having jurisdiction over the Company or its property. ARTICLE XI MISCELLANEOUS Section 11.01. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal law of the State of New York, United States of America. Section 11.02. Set-off. Each Bank is authorized to set off and apply any and all deposits at any time held by such Bank against obligations of the Company under the Credit Documents. Page 58 Section 11.03. Expenses. The Company agrees to pay (i) all reasonable out-of-pocket expenses of the Agent (including, without limitation, all reasonable fees and expenses of Chapman and Cutler, as counsel to the Agent) in connection with the preparation of this Agreement and the other Credit Documents and any amendments, supplements or modifications hereto or thereto, (ii) all reasonable out-of-pocket expenses incurred by the Agent and any Bank, including fees and expenses of counsel, in connection with the enforcement of, and the protection of their rights under, any provisions of this Agreement, the Notes or any amendment or supplement hereto or thereto, whether or not any loan is made hereunder, and (iii) all reasonable out-of-pocket expenses of the Agent, including reasonable fees and disbursements of counsel, in connection with the syndication of the Loans. The Company shall pay any transfer taxes, documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement or the Notes incurred up to and including the date of this Agreement. Section 11.04. Amendments. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (A) in the case of amendments or waivers relating to Section 7.03(a), (b) or (c), Banks having at least 66 2/3% of the Total Commitment or, if the Total Commitment has been cancelled or terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid principal amount of the Loans and (B) in all other cases, the Company and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment, waiver or modification shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank, subject any Bank to any additional obligation or change the several nature of the obligations of each Bank, (ii) reduce the principal of or rate of interest on any Loan (other than interest payable pursuant to Section 3.06) or any fees hereunder, (iii) except as otherwise provided in Section 11.12, postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for any reduction or termination of any Commitment, (iv) except as otherwise may result from actions taken in accordance with Section 11.12, change the percentage of any of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, or (v) amend or waive the provisions of Article IV or of this Section 11.04. Section 11.05. Cumulative Rights and No Waiver. Each and every right granted to the Agent and the Banks hereunder or under any other document delivered hereunder or in connection herewith, or allowed them by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by the Agent or any Bank of any right preclude any other or future exercise thereof or the exercise of any other right. Page 59 Section 11.06. Notices. Any communication, demand or notice to be given hereunder or with respect to the Notes will be duly given when delivered in writing or by telecopy to a party at its address as indicated below, except that notices from the Company pursuant to Section 2.02 will not be effective until received by the Agent. A communication, demand or notice given pursuant to this Section 11.06 shall be addressed: If to the Company, at 220 West Crest Street Escondido, California 92025-1707 Telecopy: (760) 741-8674 Attention: Legal Department If to the Agent, at its address as indicated on the signature pages hereof, with a copy to: Chapman and Cutler 111 West Monroe Chicago, Illinois 60603 Telecopy: (312) 701-2361 Attention: James R. Theiss If to any Bank, at its address as indicated on the signature pages hereof. Unless otherwise provided to the contrary herein, any notice which is required to be given in writing pursuant to the terms of this Agreement may be given by telex, telecopy or facsimile transmission. Section 11.07. Separability. In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. Section 11.08. Assignments and Participations. (a) This Agreement shall be binding upon and inure to the benefit of the Company and the Banks and their respective successors and assigns, except that the Company may not assign any of its rights hereunder without the prior written consent of the Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Company and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Company and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under Page 60 this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Company hereunder including the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clauses (i) through (v), inclusive, of Section 11.04 without the consent of the Participant. Subject to Section 11.08(e), the Company agrees that each Participant shall be entitled to the benefits of Sections 4.03, 4.04 and 11.04 with respect to its participating interest. An assignment or other transfer which is not permitted by clause (c) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this clause (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an instrument executed by such Assignee and such transferor Bank, with (and subject to) the signed consents of the Company and the Agent (which consents shall not be unreasonably withheld or delayed); provided, however, any such assignment shall be in the minimum aggregate amount of $10,000,000; provided, further, that the foregoing consent requirement shall not be applicable in the case of, and this subsection (c) shall not restrict, an assignment of all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes by any Bank to an Affiliate of such Bank or a pledge and assignment of all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes to a Federal Reserve Bank as collateral; and provided, further, that no consent of the Company shall be required if an Event of Default has occurred and is continuing. Upon (i) execution and delivery of such an instrument, (ii) payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee and (iii) payment by the transferee Bank or transferor Bank to the Agent of an administrative fee in the amount of $3,500 (except that no such fee shall be payable in connection with a transfer or pledge to an Affiliate of a Bank or to a Federal Reserve Bank referred to in the proviso above), such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank (and the Company as to the transferor Bank) shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Company shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. Page 61 (d) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 4.03 or 4.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made (i) with the Company's prior written consent, (ii) in the circumstances referred to in the third proviso to the first sentence of the preceding paragraph (c) or (iii) by reason of the provisions of Section 4.04 requiring such Bank to designate a different lending office under certain circumstances or at a time when the circum-stances giving rise to such payment did not exist. (e) No Participant of any Bank shall be entitled to receive any greater payment under Section 4.03, Section 4.04 or Section 11.04 than such Bank would have been entitled to receive if it had not granted a participation to such Participant. Section 11.09. Waiver of Jury Trial. The Company, the Agent and each of the Banks hereby waive trial by jury in any judicial proceeding involving any claim (whether sounding in contract, tort, applicable law or otherwise) arising out of or in any way relating to (and whenever arising) this Agreement, the Notes or the transactions contemplated hereby. Section 11.10. Confidentiality. Except as may be required to enforce the rights and duties established hereunder, the parties hereto shall preserve in a confidential manner all information received from the other pursuant to this Agreement, the Notes and the transactions contemplated hereunder and thereunder, and shall not disclose such information except to those persons with which a confidential relationship is maintained (including regulators, legal counsel, accountants, or designated agents), or where required by law. Nothing in this paragraph shall prevent the filing of this Agreement with the Securities and Exchange Commission. Section 11.11. Indemnity. The Company agrees to indemnify the Agent, the Arranger and each of the Banks and their respective directors, officers, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages and liabilities of any party other than the Company and related expenses, including reasonable counsel fees and expenses incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any Note or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the transactions and the other transactions contemplated hereby or thereby, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto and notwithstanding that any claim, proceeding, investigation or litigation relating to any such losses, claims, damages, liabilities or expenses is or was brought by a Page 62 stockholder, creditor, employee or officer of the Company; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of any Indemnitee or from the breach by any Indemnitee of its obligations hereunder or with respect to claims or actions solely between or among the Banks relating to this Agreement or the transactions contemplated hereby and provided further, that such Indemnity shall not apply to any loss, claim, damage, or liability or related expense incurred as a consequence of any additional costs (as contemplated by Section 4.04(b)) or any Tax, which shall be governed by the provisions of Section 4.04(b) and (a), respectively. The provisions of this Section 11.11 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the reduction or cancellation of the Commitment, the invalidity or unenforceability of any term or provision of this Agreement or any Note, or any investigation made by or on behalf of the Banks. All amounts due under this Section 11.11 shall be payable in immediately available funds upon written demand therefor. Section 11.12. Extension of Termination Dates; Removal of Banks; Substitutions of Banks. (a) (i) No earlier than the first anniversary of the Effective Date and no later than 120 days prior to the scheduled Termination Date, the Company may, at its option, request all the Banks then party to this Agreement to extend their scheduled Termination Dates by one calendar year by means of a letter, addressed to each such Bank and the Agent. If such a request is accepted and the Termination Date is extended pursuant to subsection 11.12(a)(ii), the Company may, at its option, no earlier than the date one year after the first request for extension and no later than 120 days prior to the rescheduled Termination Date, make one further request that all the Banks then party to this Agreement to extend their scheduled Termination Dates by one additional year in the same manner, subject to the provisions of subsection 11.12(a)(ii); provided that in no event shall the Termination Date be extended to a date which is later than the fifth anniversary of the Effective Date. (ii) Each Bank electing (in its sole discretion) so to extend its scheduled Termination Date shall execute and deliver within forty-five (45) days following such request counterparts of such letter to the Company and the Agent, whereupon, such Bank's scheduled Termination Date shall be extended to the Page 63 anniversary date of the year immediately succeeding such Bank's then-current scheduled Termination Date. If no such election is received within such forty-five day period from any Bank, such Bank shall be deemed to have elected not to extend its scheduled Termination Date. (b) With respect to any Bank which has declined to extend such Bank's scheduled Termination Date and if Banks with an aggregate percentage of the Total Commitment in excess of 33 1/3% have not declined to extend their respective Termination Dates, the Company may in its discretion, upon not less than 30 days' prior written notice to the Agent and each Bank, remove such Bank as a party hereto. Each such notice shall specify the date of such removal (which shall be a Business Day), which shall thereupon become the scheduled Termination Date for such Bank. (c) In the event that any Bank does not extend its scheduled Termination Date pursuant to subsection (a) above or is the subject of a notice of removal pursuant to subsection (b) above, then, at any time prior to the Termination Date for such Bank (a "Terminating Bank"), the Company may, at its option, arrange to have one or more other financial institutions acceptable to the Agent (which may be a Bank or Banks and each of which shall herein be called a "Successor Bank") succeed to all or a percentage of the Terminating Bank's outstanding Loans, if any, and rights under this Agreement and assume all or a like percentage (as the case may be) of such Terminating Bank's Commitment and other obligations hereunder, as if (i) in the case of any Bank electing not to extend its scheduled Termination Date pursuant to subsection (a) above, such Successor Bank had extended its scheduled Termination Date pursuant to such subsection (a) and (ii) in the case of any Bank that is the subject of a notice of removal pursuant to subsection (b) above, no such notice of removal had been given by the Company. Such succession and assumption shall be effected by means of one or more agreements supplemental to this Agreement among the Terminating Bank, the Successor Bank, the Company and the Agent. On and as of the effective date of each such supplemental agreement, each Successor Bank party thereto shall be and become a Bank for all purposes of this Agreement and to the same extent as any other Bank hereunder and shall be bound by and entitled to the benefits of this Agreement in the same manner as any other Bank. (d) On the originally scheduled Termination Date for any Terminating Bank, such Terminating Bank's Commitment shall terminate and, except to the extent assigned pursuant to subsection (c) above, the Company shall pay in full all of such Terminating Bank's Loans and all other amounts payable to such Bank hereunder, including any amounts payable pursuant to Section 4.03 on account of such payment. (e) To the extent that all or a portion of any Terminating Bank's obligations are not assumed pursuant to subsection (c) above, the Total Commitment shall be reduced on the applicable Termination Date Page 64 and each Bank's percentage of the reduced Total Commitment shall be revised pro rata to reflect such Terminating Bank's absence. Section 11.13. Knowledge of the Company. As used in this Agreement, knowledge of the Company shall mean to the best of any executive officer's knowledge, after a reasonable investigation. Section 11.14. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. Page 65 In Witness Whereof, the parties hereto have caused this Agreement to be duly executed as of the date first above written. Realty Income Corporation By: ------------------------------ Name: Michael R. Pfeiffer Title: Senior Vice President, General Counsel Bank of Montreal, as Agent for the Banks By: ------------------------------ Name: ---------------------- Title: ---------------------- Address for Notices: Client Services 115 South LaSalle Street, 12 West Chicago, Illinois 60603 Attn: Josie Nichols Fax: (312) 750-6061 Eurodollar Lending Office: 115 South LaSalle St., 12 West Chicago, IL 60603 Attn: Josie Nichols Fax: (312) 750-6061 Page 66 Exhibit A FORM OF CONVERSION/CONTINUANCE REQUEST [Dated as provided in Section 3.05] Bank of Montreal 115 South LaSalle Street, 12 West Chicago, Illinois 60603 Attn: Josie Nichols Realty Income Corporation (the "Company") hereby gives notice of its intention to [convert/continue] [$ Principal Amount] [the entire outstanding amount] of its [ABR Loans] [Eurodollar Pro Rata Loans] with an Interest Period of days and ending on , ] [to/as] [ABR Loans] [Eurodollar Pro Rata Loans], pursuant to the Revolving Credit Agreement, dated as of February 1, 2000, among the Company, the Banks and Bank of Montreal, as Agent (as amended, supplemented or otherwise modified from time to time, the "Agreement"), such [conversion/continuance to be effective as of , ]. [The Interest Period for the Eurodollar Pro Rata Loans shall be days, with a Scheduled Maturity on .] Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. Realty Income Corporation By: ------------------------------ Name: Title: Page 67 Exhibit B FORM OF PRO RATA LOAN REQUEST [Dated as provided in Section 2.02] Bank of Montreal 115 South LaSalle Street, 12 West Chicago, Illinois 60603 Attn: Josie Nichols Realty Income Corporation (the "Company") hereby gives notice of its intention to borrow $ of Loans on , pursuant to the Revolving Credit Agreement, dated as of February 1, 2000, among the Company, the Banks and Bank of Montreal, as Agent (as amended, supplemented or otherwise modified from time to time, the "Agreement"). [The Company hereby requests that such Loan constitute a Eurodollar Pro Rata Loans with a scheduled maturity of 20 and an Interest Period of days.] The Company hereby confirms that the amounts of Loans outstanding on the date hereof is as follows: Total Commitment $25,000,000 Outstanding Pro Rata Loans $ Outstanding Competitive Loans $ Availability $ The Company also hereby confirms that each of the representations and warranties (other than the representations and warranties that speak as of a specific date) contained in Article V of the Agreement is true and correct on the date hereof and, after giving effect to this borrowing, will be true and correct on the proposed borrowing date as though such representation or warranty had originally been made on such dates. No Default or Event of Default has occurred and is continuing, nor will any such event occur as a result of this borrowing. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. Realty Income Corporation By: ------------------------------ Name: Title: Page 68 Exhibit C-1 FORM OF PRO RATA NOTE $ February 1, 2000 Realty Income Corporation, a Maryland corporation (the "Company"), for value received, hereby promises to pay on the Termination Date to the order of (the "Bank"), at the office of Bank of Montreal, as Agent, at 115 South LaSalle Street, 12 West, Chicago, Illinois 60603, in lawful money of the United States, the principal sum of $ or if less, the aggregate unpaid principal amount of all Pro Rata Loans made by the Bank to the Company pursuant to that certain Revolving Credit Agreement, dated as of February 1, 2000 (as amended, supplemented or otherwise modified from time to time, the "Agreement") among the Company, each of the banks party thereto, and Bank of Montreal, as Agent. This Note shall bear interest, and such interest shall be payable, as set forth in the Agreement for ABR Loans and Eurodollar Pro Rata Loans. Upon the occurrence and during the continuation of an Event of Default, this Note shall bear interest at the default rate pursuant to Section 3.06 of the Agreement. Except as otherwise provided in the Agreement, with respect to Eurodollar Pro Rata Loans, if interest or principal on the Loan evidenced by this Note becomes due and payable on a day which is not a Business Day, then the maturity thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon at the rate herein specified during such extension. Page 69 This Note is one of the Pro Rata Notes referred to in the Agreement, and is subject to prepayment in whole or in part and its maturity is subject to acceleration upon the terms provided in the Agreement. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings specified in the Agreement. Presentment, demand, protest, notice of dishonor, notice of intent to accelerate and other notice of any kind are hereby waived by the undersigned. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. All Pro Rata Loans made by the Bank to the Company pursuant to the Agreement and all payments of principal hereof and interest thereon may be indicated by the Bank upon the grid attached hereto which is a part of this Note. Such notations shall be presumptive as to the aggregate unpaid principal amount of and interest on all Pro Rata Loans made by the Bank pursuant to the Agreement. Realty Income Corporation By: ------------------------------ Name: Title: Page 70 Loan and Payments of Principal and Interest ------------------------------------------- Name Interest Interest of Method Period Amount Amount Person Amount (ABR or if Euro- of Unpaid of Making of Euro- dollar Principal Principal Interest Nota- Date Loan dollar Loan Paid Balance Paid tion - ---- ------ ------ -------- --------- --------- -------- ------
Page 71 February 1, 2000 EXHIBIT D-1 FORM OF OPINION OF LATHAM & WATKINS Bank of Montreal, as Agent for the Banks 115 South LaSalle Street, 12 West Chicago, Illinois 60603 The Banks Signatory to the Credit Agreement Referred to Below Re: Revolving Credit Agreement, dated as of February 1, 2000, among Realty Income Corporation, the Banks named therein and Bank of Montreal, as Agent Ladies/Gentlemen: We have acted as special counsel for Realty Income Corporation, a Maryland corporation (the "Company"), in connection with the Revolving Credit Agreement (the "Credit Agreement") dated as of February 1, 2000, among the Company, each of the banks identified on the signature pages thereof (the "Banks") and Bank of Montreal, as Agent for the Banks (the "Agent"). This opinion is rendered to you pursuant to Section 6.01(f) of the Credit Agreement. Capitalized terms defined in the Credit Agreement are used herein as therein defined. In our capacity as such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of rendering the opinions expressed below. We have examined among other things, the following: (a) The Credit Agreement; (b) The following promissory notes of the Company dated February 1, 2000 (collectively, the "Notes", and together with the Credit Agreement, the "Loan Documents"): (i) note in the original principal amount of $ payable to Bank of Montreal; (ii) note in the original principal amount of $ payable to ; [and ( ) note in the original principal amount of payable to ;] (c) The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Company; and (d) Such other documents and agreements as we deem necessary for purposes of rendering the opinions expressed below. Page 72 In our examination, we have assumed the genuineness of all signatures (other than those of officers of the Company on the Loan Documents as to which we have relied on a certificate of incumbency), the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We have been furnished with, and with your consent have relied upon, certificates of officers of the Company with respect to certain factual matters. In addition, we have obtained and relied upon such certificates and assurances from public officials as we have deemed necessary. We are opining herein as to the effect on the subject transaction only of the federal laws of the United States and the internal laws of the State of New York, as applicable, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. Our opinions set forth in paragraph 1 below are based upon our consideration of only those statutes, rules and regulations which, in our experience, are normally applicable to bank credit transactions. Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof: 1. None of the execution and delivery of the Loan Documents by the Company, the borrowing of the funds pursuant to the Loan Documents by the Company and the payment of the indebtedness of the Company evidenced by the Notes: (a) violate any federal or New York statute, rule, or regulation applicable to the Company (including, without limitation, Regulations T, U, or X of the Board of Governors of the Federal Reserve System), or (b) require any consents, approvals, authorizations, registrations, declarations, or filings by the Company under any applicable federal or New York statute, rule or regulation. 2. Each of the Loan Documents has been duly executed and delivered by the Company and constitutes a legally valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 3. The Company is not an "investment company" as such term is defined in the Investment Company Act of 1940, as amended from time to time. The opinions set forth in paragraph 2 above are subject to the following limitations, qualifications and exceptions: (a) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; Page 73 (b) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; (c) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnifi- cation of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy; (d) the unenforceability of any provision requiring the payment of attorney's fees, except to the extent that a court determines such fees to be reasonable; and (e) we express no opinion with respect to the enforceability of Section 10.01 of the Credit Agreement by a federal court. To the extent that the obligations of the Company may be dependent upon such matters, we assume for purposes of this opinion that: all parties to the Loan Documents are duly incorporated, validly existing and in good standing under the laws of their respective jurisdictions of incorporation; all parties to the Loan Documents have the requisite corporate power and authority to execute and deliver the Loan Documents and to perform their respective obligations under the Loan Documents to which they are a party; and the Loan Documents to which such parties are a party have been duly authorized, executed and delivered by such parties and constitute their legally valid and binding obligations, enforceable against them in accordance with their terms. We express no opinion as to compliance by any parties to the Loan Documents with any state or federal laws or regulations applicable to the subject transactions because of the nature of their business. This opinion is rendered only to you and is solely for your benefit in connection with the transactions covered hereby. This opinion may not be relied upon by you for any other purpose, or furnished to, quoted to or relied upon by any other person, firm or corporation for any purpose, without our prior written consent. Very truly yours, Page 74 February 1, 2000 EXHIBIT D-2 FORM OF OPINION OF MICHAEL R. PFEIFFER, ESQ. Bank of Montreal, as Agent for the Banks 115 South LaSalle Street, 12 West Chicago, Illinois 60603 The Banks Signatory to the Credit Agreement Referred to Below Re: Revolving Credit Agreement, dated as of February 1, 2000, among Realty Income Corporation, the Banks listed on the signature pages thereto and Bank of Montreal, as Agent Ladies/Gentlemen: I am general counsel of Realty Income Corporation, a Maryland corporation (the "Company"). This opinion is rendered to you pursuant to Section 6.01(f) of the Revolving Credit Agreement (the "Credit Agreement"), dated as of February 1, 2000, among the Company, each of the banks identified on the signature pages thereof (the "Banks") and Bank of Montreal, as Agent for the Banks (the "Agent"). Capitalized terms defined in the Credit Agreement are used herein as therein defined. In my capacity as general counsel, I have examined such matters of fact and questions of law as I have considered appropriate for purposes of rendering the opinions expressed below, except where a statement is qualified as to knowledge or awareness, in which case I have made no or limited inquiry as specified below. I have examined, among other things, the following: (a) The Credit Agreement; (b) The following promissory notes of the Company dated February 1, 2000 (collectively, the "Notes", and together with the Credit Agreement, the "Loan Documents"): (i) note in the original principal amount of $ payable to Bank of Montreal; (ii) note in the original principal amount of $ payable to [[and] ( ) note in the original principal amount of $ payable to ]; (c) The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Company; and Page 75 (d) Such other documents and agreements as I deem necessary for purposes of rendering the opinions expressed below. In my examination, I have assumed the genuineness of all signatures (other than those of officers of the Company on the Loan Documents), the authenticity of all documents submitted to me as originals, and the conformity to authentic original documents of all documents submitted to me as copies. I have been furnished with, and with your consent have relied upon, certificates of officers of the Company with respect to certain factual matters. In addition, I have obtained and relied upon such certificates and assurances from public officials as I have deemed necessary. I am opining herein as to the effect on the subject transaction only of the federal laws of the United States and the internal laws of the State of California, as applicable, and I express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. Whenever a statement herein is qualified by "to the best of my knowledge" or a similar phrase, it is intended to indicate that I do not have current actual knowledge of the inaccuracy of such statement. Except as otherwise expressly indicated, I have not undertaken any independent investigation to determine the accuracy of any such statement, and no inference that I have any knowledge of any matters pertaining to such statement should be drawn from my representation of the Company. Subject to the foregoing and the other matters set forth herein, it is my opinion that, as of the date hereof: 1. Based solely on certificates from public officials, I confirm that the Company is qualified to do business in the states in which the Company owns properties. 2. To the best of my knowledge, there are no proceedings or investigations pending or threatened before any court or arbitrator or before or by any governmental authority which would have a material adverse effect on the legality, validity, binding effect or enforceability of any Loan Document. 3. The Company has the corporate power and authority to execute, deliver and perform the terms and provisions of each Loan Document to which it is party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each such Loan Document. Page 76 This opinion is delivered by me as general counsel for the Company to you and is solely for your benefit in connection with the transactions covered hereby. This opinion may not be relied upon by you for any other purpose, or furnished to, quoted to or relied upon by any other person, firm or corporation for any purpose, without my prior written consent, Very truly yours, Page 77 Exhibit E PROPERTY MANAGEMENT EXCEPTION REPORT Page 78 Exhibit F REAL ESTATE INVESTMENT CRITERIA The Investment Committee is authorized, without prior Board of Director approval, to approve real estate investments which meet all of the following criteria: 1. The Purchase Price for each property shall not exceed $10,000,000. 2. The investment must consist of a fee interest in real property. 3. If the real property is unimproved at the time of acquisition, there must be an agreement to complete specified improvements on the property by a date certain. 4. Prior to, or concurrent with the acquisition, the property must be net-leased to a tenant approved by the Company's Investment Committee. 5. The real estate investment may not cause (i) the total investment with that tenant to exceed $25 million, or (ii) the amount of annualized rental revenue to be derived by the Company from a tenant to exceed 5% of the Company's previous 12 months' rental revenues. 6. The real estate investment may not cause the amount of annualized rental revenue to be derived by the Company from any one industry to exceed 25% of the Company's previous 12 months' rental revenues. Page 79 Exhibit G FORM OF SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY, dated as of February 1, 2000, is made by each entity that is identified on Schedule A hereto or that hereafter executes and delivers a Subsidiary Joinder in the form of Exhibit A attached hereto pursuant to the Credit Agreement described herein (each such entity, a "Guarantor") in favor of the lenders (the "Lenders") from time to time party to the Credit Agreement (as defined below), and Bank of Montreal ("BMO"), as agent (BMO and any successor thereto in such capacity, "Agent") for the Lenders and in favor of all other present and future Holders of any of the Guaranteed Obligations described herein. R E C I T A L S A. The Lenders and Agent have entered into that certain Revolving Credit Agreement, dated as of February 1, 2000 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Realty Income Corporation, a Maryland corporation ("Borrower"), the Agent and the Lenders. B. Each Guarantor is a Subsidiary of Borrower and expects to derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. C. It is a condition precedent to the making of Loans by the Lenders under the Credit Agreement that each Guarantor shall have guaranteed payment of each and all debts, liabilities and obligations of Borrower under the Credit Agreement and the Notes (collectively, the "Obligations"), on the terms set forth herein. D. Borrower has agreed, in the Credit Agreement, to cause certain Subsidiaries of Borrower to become party to this Guaranty, as a Guarantor hereunder, by executing and delivering a Subsidiary Joinder in the form of Exhibit A hereto. NOW, THEREFORE, in consideration of the foregoing and in order to induce the Lenders to make Loans under the Credit Agreement, each Guarantor hereby agrees as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS Section 1.1. General Definitions. Except as otherwise specifically provided herein, the terms which are defined in Article I of the Page 80 Credit Agreement shall have the same meanings when used in this Guaranty and the provisions of Section 1.01 of the Credit Agreement shall apply to this Guaranty. Section 1.2 Certain Defined Terms. As used in this Guaranty, the following terms shall have the following meanings: "Bankruptcy Code" means Title 11 of the United States Code, as from time to time amended. "Disallowed Post-Commencement Interest and Expenses" means interest computed at the rate provided in the Credit Agreement and claims for reimbursements, costs, expenses or indemnities under the terms of the Credit Agreement accruing or claimed at any time after commencement of any Insolvency or Liquidation Proceeding, if the claim for such interest, reimbursement, cost, expense or indemnity is not allowable, allowed or enforceable against Borrower in such Insolvency or Liquidation Proceeding. "Guaranty" means this Subsidiary Guaranty, dated as of February 1, 2000, made by the Guarantors for the benefit of the Lenders, Agent and other Holders of Guaranteed Obligations. "Guaranty Taxes" is defined in Section 3.8(a). "Holder" means, in respect of any Guaranteed Obligation, the Person entitled to enforce payment thereof and specifically includes the Agent and the Lenders. "Insolvency or Liquidation Proceeding" means any (i) any case under the Bankruptcy Code, any other insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding, relative to Borrower or to any of its creditors, as such, or to a substantial part of any of its assets, or (ii) any proceeding for the liquidation, dissolution or other winding up of Borrower, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of Borrower. "Subordinated Liabilities" is defined in Section 2.8(a). ARTICLE II GUARANTY AND RELATED PROVISIONS Section 2.1. Guaranty. Each Guarantor hereby unconditionally: (a) guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of (i) all Obligations now outstanding or hereafter arising under or in connection with the Page 81 Credit Agreement or the Notes, whether for principal, interest, fees, taxes, additional compensation, expense reimbursements, indemnification or otherwise, and (ii) each other debt, liability or obligation of Borrower now outstanding or hereafter arising under any of the Credit Agreement and the Notes (such Obligations, liabilities and other debts, liabilities and obligations, collectively, the "Guaranteed Obligations"), and (b) agrees to pay on demand (i) all Disallowed Post-Commencement Interest and Expenses, to the Person entitled to payment thereof if the claim therefor had been allowed in any Insolvency or Liquidation Proceeding and (ii) all costs and expenses (including, without limitation, reasonable attorneys' fees and legal expenses) incurred by any Holder of Guaranteed Obligations in enforcing this Guaranty; provided, however, that the amount of each Guarantor's payment obligations hereunder shall not exceed an aggregate amount equal to such Guarantor's stockholders' or partners' equity, as the case may be. Section 2.2. Acceleration of Payment. If the Notes become immediately due and payable pursuant to Section 8.01 of the Credit Agreement, then all liability of each Guarantor under this Guaranty in respect of any Guaranteed Obligation that is not then due and payable shall thereupon become and be immediately due and payable, without notice or demand. Section 2.3. Guaranty Absolute and Unconditional. Each Guarantor guarantees that the Guaranteed Obligations will be paid in accordance with the terms of the Credit Agreement and the Notes, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights and claims of any Holder of Guaranteed Obligations against Borrower with respect thereto and even if any such rights or claims are modified, reduced or discharged in an Insolvency or Liquidation Proceeding or otherwise. The obligations of each Guarantor under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce this Guaranty, irrespective of whether any action is brought against Borrower or whether Borrower is joined in any such action or actions. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of the Credit Agreement or any Note or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Credit Agreement or any Note, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to Borrower or otherwise; (iii) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (iv) any manner of application of collateral, Page 82 or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other assets of Borrower; (v) any change, restructuring or termination of the corporate structure or existence of Borrower; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a surety or guarantor. Section 2.4. Guaranty Irrevocable and Continuing. This Guaranty is an irrevocable and continuing offer and agreement guaranteeing payment of any and all Guaranteed Obligations and shall extend to all Guaranteed Obligations now outstanding or created or incurred at any future time, whether or not created or incurred pursuant to any agreement presently in effect or hereafter made, until all obligations of the Lenders to extend credit to Borrower have expired or been terminated, and all Guaranteed Obligations have been fully, finally and indefeasibly paid. To the extent any contingent Obligation survives the expiration or termination of the Credit Agreement and the repayment of the Loans, each Guarantor's liability under this Guaranty shall likewise survive. This Guaranty may be released only in writing. Section 2.5. Reinstatement. If at any time any payment on any Guaranteed Obligation is set aside, avoided or rescinded or must otherwise be restored or returned, this Guaranty and the liability of each Guarantor under this Guaranty shall remain in full force and effect and, if previously released or terminated, shall be automatically and fully reinstated, without any necessity for any act, consent or agreement of any Guarantor, as fully as if such payment had never been made and as fully as if any such release or termination had never become effective. Section 2.6. Waiver. Each Guarantor hereby waives and agrees not to assert or take advantage of: (a) Marshaling. Any right to require any Holder of Guaranteed Obligations to proceed against or, exhaust its recourse against Borrower or any other Subsidiary Guarantor or any other Person liable for any of the Guaranteed Obligations or against any collateral for any of the Guaranteed Obligations or against any other Person or property, before demanding and enforcing payment of the Guaranteed Obligations from any Guarantor under this Guaranty; (b) Other Defenses. Any defense that may arise by reason of (i) the incapacity, lack of authority, death or disability of Borrower or any other Person; (ii) the revocation or repudiation of any of the Credit Agreement or the Notes by Borrower or any other Person; (iii) the unenforceability in whole or in part of the Credit Agreement or the Notes or any other instrument, document or agreement; (iv) the failure of any Holder of Guaranteed Obligations to file or enforce a claim against any Person liable for any of the Guaranteed Obligations or in any Liquidation or Insolvency Proceeding; or (v) any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code; Page 83 (c) Notices. Presentment, demand for payment, protest, notice of discharge, notice of acceptance of this Guaranty, notice of the incurrence of, or any default in respect of, any debt, liability or obligation guaranteed hereunder, and all other indulgences and notices of every type or nature, including, without limitation and to the maximum extent permitted by law, notice of the disposition of any collateral for any of the Guaranteed Obligations; (d) Election of Remedies. Any defense based upon an election of remedies (including, if available, an election to proceed by non- judicial foreclosure) or any other act or omission of any Holder of Guaranteed Obligations or any other Person which destroys or otherwise impairs any right that any Guarantor might otherwise have for subrogation, recourse, reimbursement, indemnity, exoneration, contribution or otherwise. against Borrower or any other Person; (e) Collateral. Any defense based upon any taking, modification or release of any collateral or guaranties for the Guaranteed Obligations, or any failure to create or perfect or ensure the priority or enforceability of any security interest in any collateral for any of the Guaranteed Obligations or any act or omission related thereto; (f) Offsets. Any right to recoup from or offset against any of the Guaranteed Obligations any claim that may be held or asserted by or available to (i) Borrower or any other Guarantor or any other Person liable for any of the Guaranteed Obligations against any Holder of Guaranteed Obligations or (ii) any Guarantor against Borrower, any other Guarantor, any other Holder of Guaranteed Obligations or any other Person; or (g) Defenses of Others. Any other claim, right or defense (including, by way of illustration and without limitation, such matters as failure or insufficiency of consideration, statute of limitations, breach of contract, tortious conduct, accord and satisfaction, and discharge by agreement, conduct or in a Liquidation or Insolvency Proceeding), except the defense of payment, that may be held or asserted by or available to (i) Borrower or any other Guarantor or any other Person liable for any of the Guaranteed Obligations against any Holder of Guaranteed Obligations or (ii) any Guarantor against Borrower, any other Guarantor, any other Holder of Guaranteed Obligations or any other Person. Section 2.7. Subrogation. Each Guarantor hereby represents, warrants and agrees, in respect of any and all present and future rights of subrogation, recourse, reimbursement, indemnity, exoneration, contribution and other claims that such Guarantor at any time may have against Borrower, any other Guarantor or any other Person liable for the payment of any of the Guaranteed Obligations (including, without limitation, the owner of any interest in collateral for any of the Guaranteed Obligations) as a result of or in connection with this Guaranty or any payment hereunder, that: Page 84 (a) No Agreement. Such Guarantor has not entered into, and agrees that it will not enter into, any agreement providing, directly or indirectly, for any such right or claim against Borrower or, except as set forth in Section 2.10, against any other Subsidiary of Borrower, and each such agreement now existing or hereafter entered into (except Section 2.10) is and shall be void; (b) Release. Such Guarantor forever waives and releases, and agrees never to sue upon, any such right or claim against Borrower and, except as set forth in Section 2.10, against any other Subsidiary of Borrower, whether or not the Guaranteed Obligations have been paid in full; (c) Capital Contribution. Each payment made by such Guarantor under this Guaranty shall be a contribution to the capital of Borrower, and no such payment shall give rise to any claim (as that term is defined in the Bankruptcy Code) in favor of such Guarantor against Borrower; (d) Subordination of Contribution Rights. Each Guarantor reserves, as against each other Guarantor, its right of contribution under Section 2.10 but agrees that all such contribution rights shall be included among the Subordinated Liabilities; and (e) Deferral of Other Rights and Claims. Until all obligations of the Lenders to extend credit to Borrower have expired or been terminated and all the Guaranteed Obligations have been paid in full, such Guarantor will not demand, sue for, accept or receive any payment or transfer on account of any such right or claim from any Person (other than Borrower and its Subsidiaries) liable for the payment of any of the Guaranteed Obligations. Section 2.8. Subordination Provisions. (a) Subordination. Any and all present and future debts, liabilities and obligations of every type and description (whether for money borrowed, on intercompany accounts, for provision of goods or services, under tax sharing or contribution agreements or on account of any other transaction, agreement, occurrence or event and whether absolute or contingent, direct or indirect, matured or unmatured, liquidated or unliquidated, created directly or acquired from another, or sole, joint, several or joint and several) of Borrower now outstanding or hereafter incurred or owed to any Guarantor (the "Subordinated Liabilities") shall be, and hereby are, subordinated to full and final payment of the Guaranteed Obligations. (b) Prohibited Payments. No Guarantor will demand, sue for, accept or receive, or cause or permit any other Person to make, any payment on or transfer of property on account of any Subordinated Liabilities except to the extent payment is permitted at the time under Section 7.02 of the Credit Agreement. Page 85 (c) No Liens or Transfers. No Guarantor will demand, accept or hold any Lien upon any real or personal property of Borrower as security for any of the Subordinated Liabilities and agrees that any such Lien shall be void. (d) Insolvency Proceedings. In any Insolvency or Liquidation Proceeding, the Holders of Guaranteed Obligations shall be entitled to receive payment in full of all amounts due or to become due on or in respect of the Guaranteed Obligations, or provision shall be made for such payment in money or money's worth, before any Guarantor is entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of any of the Subordinated Liabilities, and to that end the Holders of Guaranteed Obligations shall be entitled to receive, for application to the payment thereof, all payments and distributions of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt or liability of Borrower being subordinated to the payment of the Subordinated Liabilities), which may be payable or deliverable in respect of the Subordinated Liabilities in any such Insolvency or Liquidation Proceeding. (e) Disallowed Post-Commencement Interest and Expenses. If in any Insolvency or Liquidation Proceeding (i) any payment or distribution of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt or liability of Borrower being subordinated to the payment of the Subordinated Liabilities) is payable or deliverable in respect of the Subordinated Liabilities, and (ii) the Holders of Guaranteed Obligations are not otherwise entitled to receive such payment or distribution pursuant to Section 2.8(d), and (iii) any amount remains unpaid to any Holder of Guaranteed Obligations on account of any Disallowed Post-Commencement Interest and Expenses, then the Holders of Guaranteed Obligations shall be entitled to receive payment of all such unpaid Disallowed Post-Commencement Interest and Expenses from and out of any and all such payments and distributions in respect of the Subordinated Liabilities. (f) Held in Trust. If any payment, transfer or distribution is made to any Guarantor upon any Subordinated Liabilities that is not permitted to be made under this Section 2.8 or that the Holders of Guaranteed Obligations are not entitled to receive under this Section 2.8, such Guarantor shall receive and hold the same in trust, as trustee for the benefit of the Holders of Guaranteed Obligations, and shall forthwith transfer and deliver the same to Agent, in precisely the form received (except for any required endorsement), for application to the payment of Guaranteed Obligations or any unpaid Disallowed Post-Commencement Interest and Expenses. Page 86 (g) Claims in Bankruptcy. Each Guarantor will file all claims against Borrower in any Liquidation or Insolvency Proceeding in which the filing of claims is required or permitted by law upon any of the Subordinated Liabilities and will assign to Agent, for the benefit of the Holders of Guaranteed Obligations, all rights of such Guarantor thereunder. If any Guarantor does not file any such claim at least 30 days prior to any applicable claims bar date, Agent is hereby authorized (but shall not be obligated), as attorney-in-fact for such Guarantor with full power of substitution, either to file such claim or proof thereof in the name of such Guarantor or, at Agent's option, to assign the claim and cause the claim or proof thereof to be filed by an agent or nominee. Agent and its agents and nominees shall have the sole right, but no obligation, to accept or reject any plan proposed in such Insolvency or Liquidation Proceeding and to cast any votes and to take any other action with respect to all claims upon any of the Subordinated Liabilities. (h) Subordination Effective and Not Impaired. This Section 2.8 shall remain effective for so long as this Guaranty is continuing and thereafter for so long as any Guaranteed Obligation is outstanding. Each Guarantor's obligations under this Section 2.8 (i) shall be absolute and unconditional as set forth in Section 2.3, irrevocable and continuing as set forth in Section 2.4, subject to reinstatement as set forth in Section 2.5, and not be affected or impaired by any of the matters waived in Section 2.6, (ii) shall be subject to the provisions of Article V of the Credit Agreement, and (iii) shall otherwise be as equally enduring and free from defenses as such Guarantor's liability under this Guaranty. Section 2.9. Fraudulent Transfer Limitation. If, in any action to enforce this Guaranty or any proceeding to allow or adjudicate a claim under this Guaranty, a court of competent jurisdiction determines that enforcement of this Guaranty against any Guarantor for the full amount of the Guaranteed Obligations is not lawful under, or would be subject to avoidance under, Section 548 of the Bankruptcy Code or any applicable provision of comparable state law, the liability of such Guarantor under this Guaranty shall be limited to the maximum amount lawful and not subject to avoidance under such law. Section 2.10. Contribution among Guarantors. The Guarantors desire to allocate among themselves, in a fair and equitable manner, their rights of contribution from each other when any payment is made by one of the Guarantors under this Guaranty. Accordingly, if any payment is made by a Guarantor under this Guaranty (a "Funding Guarantor") that exceeds its Fair Share, the Funding Guarantor shall be entitled to a contribution from each other Guarantor in the amount of such other Guarantor's Fair Share Shortfall, so that all such contributions shall cause each Guarantor's Aggregate Payments to equal its Fair Share. For these purposes: Page 87 (a) "Fair Share" means, with respect to a Guarantor as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount of such Guarantor to (y) the aggregate Adjusted Maximum Amounts of all Guarantors, multiplied by (ii) the aggregate amount paid on or before such date by all Funding Guarantors under this Guaranty. (b) "Fair Share Shortfall" means, with respect to a Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Guarantor over the Aggregate Payments of such Guarantor. (c) "Adjusted Maximum Amount" means, with respect to a Guarantor as of any date of determination, the maximum aggregate amount of the liability of such Guarantor under this Guaranty, limited to the extent required under Section 2.9 (except that, for purposes solely of this calculation, any assets or liabilities arising by virtue of any rights to or obligations of contribution under this Section 2.10 shall not be counted as assets or liabilities of such Guarantor). (d) "Aggregate Payments" means, with respect to a Guarantor as of any date of determination, the aggregate net amount of all payments made on or before such date by such Guarantor under this Guaranty (including, without limitation, under this Section 2.10). The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the Funding Guarantor. The allocation and right of contribution among the Guarantors set forth in this Section 2.10 shall not be construed to limit in any way the liability of any Guarantor under this Guaranty to the Holders of the Guaranteed Obligations. Section 2.11. Joint and Several Obligation. This Guaranty and all liabilities of each Guarantor hereunder shall be the joint and several obligation of each Guarantor and may be freely enforced against each Guarantor, for the full amount of the Guaranteed Obligations (subject to Section 2.9), without regard to whether enforcement is sought or available against any other Guarantor. ARTICLE III MISCELLANEOUS PROVISIONS Section 3.1. Condition of Borrower. Each Guarantor is fully aware of the financial condition of Borrower and is executing and delivering this Guaranty based solely upon such Guarantor's own independent investigation of all matters pertinent hereto and is not relying in any manner upon any representation or statement by any Holder of Guaranteed Obligations. Each Guarantor represents and warrants that Page 88 it is in a position to obtain, and each Guarantor hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of Borrower and any other matter pertinent hereto as such Guarantor may desire, and such Guarantor is not relying upon or expecting any Holder of Guaranteed Obligations to furnish to such Guarantor any information now or hereafter in the possession of any Holder of Guaranteed Obligations concerning the same or any other matter. By executing this Guaranty, each Guarantor knowingly accepts the full range of risks encompassed within a contract of this type, which risks each Guarantor acknowledges. No Guarantor shall have the right to require any Holder of Guaranteed Obligations to obtain or disclose any information with respect to the Guaranteed Obligations, the financial condition or prospects of Borrower, the ability of Borrower to pay or perform the Guaranteed Obligations, the existence, perfection, priority or enforceability of any collateral security for any or all of the Guaranteed Obligations, the existence or enforceability of any other guaranties of all or any part of the Guaranteed Obligations, any action or non-action on the part of any Holder of Guaranteed Obligations, Borrower, or any other Person, or any other event, occurrence, condition or circumstance whatsoever. Section 3.2. Amendments. (a) Amendment to Guaranty. No amendment or waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, except that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, (i) limit the liability of any Guarantor hereunder, (ii) postpone any date fixed for payment hereunder, or (iii) change the number of Lenders required to take any action hereunder. (b) Amendment or Modification of the Notes. The Notes may be amended, modified or supplemented in accordance with their terms without notice to or consent or agreement by any Guarantor, including, without limitation, so as to (i) alter, compromise, modify, accelerate, extend, renew, refinance or change the time or manner for making of advances, provision of other financial accommodations, or the payment or performance of all or any portion of the Guaranteed Obligations, (ii) increase or reduce the rate of interest or amount of principal payable on the Notes, (iii) release or discharge Borrower or any other Person as to all or any portion of the Guaranteed Obligations, or (iv) release, substitute or add any one or more guarantors or endorsers, accept additional or substituted security for payment or performance of the Guaranteed Obligations, or release or subordinate any security therefor. Section 3.3. Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed, telecopied or delivered; if to any Guarantor, at c/o Page 89 Realty Income Corporation, 220 West Crest Street, Escondido, CA 92025- 1707, Attention: Michael Pfeiffer, Esq., with a copy to: Michael J. Brody Esq., Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90071-2007, if to Agent, at Bank of Montreal, 115 South LaSalle Street, 12 West, Chicago, Illinois 60603, Attention: Josie Nichols; and if to any Lender, at its address specified in the Credit Agreement, or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. All such notices and other communications shall, when mailed or telecopied be effective when deposited in the mails or telecopied respectively. Section 3.4. Right of Set-off. If any request is made or consent is given by the Required Banks pursuant to Section 8.01 of the Credit Agreement for a declaration by the Agent that the Notes are immediately due and payable, or if the Notes become immediately due and payable pursuant to Section 8.01 of the Credit Agreement, each Lender shall have the right at any time and from time to time thereafter, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other liability at any time owing by such Lender to or for the credit or the account of any Guarantor against any and all liability of such Guarantor under this Guaranty, whether or not such Lender shall have made any demand under this Guaranty and even though such liability may then be contingent and unmatured. Each Lender agrees promptly to notify the affected Guarantor after any such set-off and application made by such Lender, but the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 3.4 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. Section 3.5. Successors and Assigns. This Guaranty is binding upon and enforceable against each Guarantor, its successors and assigns, and shall inure to the benefit of, and be enforceable by, each Holder of any of the Guaranteed Obligations and such Holder's heirs, representatives, successors and assigns. Section 3.6. No Inquiry. Each Holder of Guaranteed Obligations may rely, without further inquiry, on the power and authority of each Guarantor, Borrower and each of its Subsidiaries and on the authority of all officers, directors and agents acting or purporting to act on their behalf. Section 3.7. Bankruptcy. So long as any Commitments or Guaranteed Obligation are outstanding, no Guarantor will, without the prior written consent of Agent and the Required Banks, commence or join with any other Person in commencing any Insolvency or Liquidation Proceeding against Borrower or any of its Subsidiaries. Section 3.8. No Waiver; Remedies. No failure on the part of any Holder of Guaranteed Obligations to exercise, and no delay in Page 90 exercising, any right hereunder shall operate as a waiver thereof, and any single or partial exercise of any right hereunder shall not preclude any other or further exercise of any other right or of the same right as to any other matter or on a subsequent occasion. Section 3.9. Remedies Cumulative. All rights, powers and remedies of each Holder of Guaranteed Obligations under this Guaranty, under any other agreement now or at any time hereafter in effect between any such Holder and each and all of the Guarantors (whether relating to the Guaranteed Obligations or otherwise) or now or hereafter existing at law or in equity or by statute or otherwise, shall be cumulative and concurrent and not alternative and each such right, power and remedy may be exercised independently of, and in addition to, each other such right, power or remedy. Section 3.10. Severally Enforceable. This Guaranty may be enforced severally and successively by any one or more of the Holders of Guaranteed Obligations in one or more actions, whether independent, concurrent, joint, successive or otherwise. The claims, rights and remedies of any Holder of Guaranteed Obligations (i) may not be modified or waived by any other Holder, except as set forth in Section 3.2(a), and (ii) shall not be reduced, discharged, affected or impaired by any deed, act or omission, whether or not wrongful, of any other Holder. Section 3.11. Counterparts. This Guaranty may be executed in counterparts, and each such counterpart for all purposes shall be deemed an original and all such counterparts together shall constitute but one and the same agreement. Section 3.12. Severability. If any provision hereof or the application thereof in any particular circumstance is held to be unlawful or unenforceable in any respect, all other provisions hereof and such provision in all other applications shall nevertheless remain effective and enforceable to the maximum extent lawful. Section 3.13. Integration. This Guaranty is intended as an integrated and final expression of the entire agreement of such Guarantor with respect to the subject matter hereof. No representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon any Holder of Guaranteed Obligations unless expressed herein or therein, and no course of prior dealing or usage of trade, and no parol or extrinsic evidence of any nature, shall be admissible to supplement, modify or vary any of the terms hereof. Acceptance of or acquiescence in a course of performance rendered under this Guaranty or any other dealings between any Guarantor and any Holder of Guaranteed Obligations shall not be relevant to determine the meaning of this Guaranty even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. Page 91 SECTION 3.14. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (a) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. (b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY NEW YORK LAW. (c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. Section 3.15. Acceptance and Notice. Each Guarantor acknowledges acceptance hereof and reliance hereon by each Holder of any of the Guaranteed Obligations and waives, irrevocably and forever, all notice thereof. IN WITNESS WHEREOF, the Guarantors have caused this Subsidiary Guaranty to be duly executed and delivered by an officer of each Guarantor thereunto duly authorized as of the date first above written. THE GUARANTORS: By: Realty Income Corporation Its: General Partner By: ------------------------------ Michael R. Pfeiffer Executive Vice President, General Counsel Page 92 Schedule A to Subsidiary Guaranty GUARANTORS Page 93 Exhibit A to Subsidiary Guaranty FORM OF SUBSIDIARY JOINDER This Subsidiary Joinder is entered into by , a corporation (the "Company"), as of . WHEREAS, the sole stockholder of the Company (the "Sole Stockholder") has entered into the Revolving Credit Agreement, dated as of February 1, 2000, among Realty Income Corporation, as Borrower, each of the banks identified on the signature pages thereof and Bank of Montreal, as Agent for the Banks (the "Credit Agreement") which requires that each of the Subsidiaries of the Sole Stockholder enter into a subsidiary guaranty (the "Subsidiary Guaranty", attached hereto as Exhibit A) to and for the benefit of the lenders party to the Credit Agreement; WHEREAS, as a precondition to any transfer of certain properties owned by the Sole Stockholder, any of its Subsidiaries (as defined in the Credit Agreement), or any combination thereof (the "Properties"), to any other Subsidiary, that such transferee Subsidiary execute and deliver a subsidiary joinder (the "Subsidiary Joinder") with respect to the Subsidiary Guaranty to and for the benefit of the lenders party to the Credit Agreement; WHEREAS, the Company owns a % limited partnership interest in the limited partnership that owns such Properties; and WHEREAS, the Company is a Subsidiary of the [Sole Stockholder] of the Company, as defined in the Credit Agreement; NOW, THEREFORE, the Company hereby agrees to join with the Subsidiaries party to the Subsidiary Guaranty and agrees further to be bound by the terms and conditions of the Subsidiary Guaranty as though the Company had originally been a party to it. IN WITNESS WHEREOF, the undersigned has executed this Subsidiary Joinder as of the date first written above. [Subsidiary Name] ---------------------------------- By: ----------------------------- Its: ----------------------------- Page 94 Exhibit A to Subsidiary Joinder SUBSIDIARY GUARANTY Page 95 Schedule 1 COMMITMENTS BANK COMMITMENT Bank of Montreal (Agent) $25,000,000 Total - All Banks $25,000,000 Page 96 SCHEDULE 5.01(A) SUBSIDIARIES AND JOINT VENTURES OF THE COMPANY Page 97 SCHEDULE 5.01(Q) ERISA LIABILITIES Page 98 SCHEDULE 5.01(R) INTELLECTUAL PROPERTY Page 99 EX-12.1 5 Exhibit 12.1 REALTY INCOME CORPORATION STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (dollars in thousands) Years ended December 31, ----------------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- Net income $46,241 $41,304 $34,770 $32,223 $25,600 ------- ------- ------- ------- ------- Fixed Charges: Interest 23,267 13,044 7,800 1,987 2,186 Amortization of fees 1,106 679 426 380 456 Interest capitalized 1,644 660 168 150 217 ------- ------- ------- ------- ------- Fixed charges 26,117 14,383 8,394 2,517 2,859 ------- ------- ------- ------- ------- Net income before fixed charges 70,714 55,027 42,996 34,590 28,242 Divided by fixed charges 26,117 14,383 8,394 2,517 2,859 ------- ------- ------- ------- ------- Ratio of earnings to fixed charges 2.7 3.8 5.1 13.7 9.9 ======= ======= ======= ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends 2.3 3.8 5.1 13.7 9.9 ======= ======= ======= ======= ======= Preferred stock dividend 5,229 -- -- -- --
Page 1 EX-21.1 6 Exhibit 21.1 ============ Subsidiaries of the Company as of January 1, 2000 - ------------------------------------------------- Realty Income Texas Properties, L.P. a Delaware limited partnership Realty Income Texas Properties, Inc. a Delaware corporation Crest Net Lease, Inc. a Delaware corporation Page 1 EX-23.1 7 EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Realty Income Corporation: We consent to incorporation by reference in Registration Statement No. 333-80821 on Form S-3 of Realty Income Corporation and to incorporation by reference in Registration Statement No. 33-95708 on Form S-8 of Realty Income Corporation, of our report relating to the consolidated balance sheets of Realty Income Corporation as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, and the related Schedule III. Such report is dated January 25, 2000, except as to note 18A, which is as of February 1, 2000, and appears in the December 31, 1999, annual report on Form 10-K of Realty Income Corporation. /s/ KPMG LLP ------------ KPMG LLP San Diego, California March 20, 2000 Page 1 EX-27 8
5 This Schedule contains summary financial information extracted from the registrant's Balance Sheet as of December 31, 1999 and Income Statement for the twelve months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 1 12-MOS DEC-31-1999 DEC-31-1999 773,000 0 3,407,000 0 0 0 1,062,479,000 (195,386,000) 905,404,000 0 349,200,000 26,822,000 0 4,140,000 503,869,000 905,404,000 0 104,510,000 0 0 34,742,000 0 24,473,000 46,596,000 0 46,596,000 0 (355,000) 0 46,241,000 1.53 1.53 Current assets and current liabilities are not applicable to the Company under current industry standards.
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