8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549   FORM 8-K   CURRENT REPORT   PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934   January 31, 2003
Date of Report (Date of earliest event reported)   INVESTORS REAL ESTATE TRUST
(Exact name of registrant as specified in its charter)

North Dakota	0-14851	45-0311232
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)

12 South Main Street, Suite 100, Minot, ND	58701
(Address of principal executive offices)	(Zip Code)

(701) 837-4738

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

ITEM 5.      OTHER EVENTS

Investors Real Estate Trust has entered into a Merger Agreement with the T. F. James Company, a privately held Iowa corporation primarily engaged in the development and ownership of retail and commercial real estate in Minnesota and surrounding states.  Under the terms of the Agreement and Plan of Reorganization all of the assets and liabilities of the T. F. James Company, including the company office located at 21500 Highway 7, Greenwood, Minnesota, will be merged into IRET, Inc., the wholly-owned subsidiary of Investors Real Estate Trust.  The effective date of the merger will be February 1, 2003. As a result of the merger, IRET will acquire approximately 52 retail and commercial real estate properties containing approximately 807,154 square feet of rentable space as well as eight underdeveloped or primarily vacant parcels of real estate.  Once completed, the merger will increase IRET’s real estate portfolio by $70,197,945, and is expected to increase gross rental revenues by $6,356,000 on an annual basis.  As part of the merger, IRET will also be acquiring all of the outstanding debt and liabilities of the T. F. James Company in the amount of $37,732,004 at closing.  It is expected that the terms of the merger will be immediately accretive to IRET on a per-share basis even though the T.F James portfolio to be acquired by IRET includes eight undeveloped and vacant properties that will account for approximately $2,760,000 of the total transaction. These eight properties will either require additional funds for redevelopment or must be sold before IRET will recognize any income or value. 

In order to manage the newly acquired properties post merger, IRET will continue to operate the T. F. James Company Minneapolis office.  Six employees of the T. F. James Company will join the staff of IRET and will be located in Minneapolis.  Mr. Charles Wm. James, the president of the T. F. James Company, as well as a shareholder, has been appointed to fill an open seat on the board of Trustees of Investors Real Estate Trust.  Mr. James will also be an employee of IRET, in the position of Vice President of Development and Asset Management Minneapolis Portfolio.  He will report directly to the President of IRET, Mr. Thomas A. Wentz, Sr., and to IRET’s Chief Operating Officer, Timothy P. Mihalick.

A copy of the agreement and plan of the merger is filed as an exhibit to this Form 8-K and is incorporated herein by reference.

ITEM 7.       FINANCIAL STATEMENTS AND EXHIBITS

         

       (a)  
     Financial Statements of Business Acquired 

     The required financial statements for the
    T.F. James Company for the most recent full fiscal year prior
    to the merger from September 30, 2001 to October 1, 2002, are
    attached as Schedule 3.12 to the Agreement and Plan of Reorganization
    attached as Exhibit 10 to this Form 8-K and are incorporated
    herein by reference.  The required interim financial statements
    for the T.F. James Company from October 1, 2002, to the merger
    date of February 1, 2003, will be filed by amendment hereto no
    later than seventy-five (75) days after the date this report
    is required to be filed.  

(b)

Pro Forma Financial Information The required pro forma financial information reflecting the combined operations of Investors Real Estate Trust and T.F. James Company will be filed by amendment hereto no later than seventy-five (75) days after the date this report is to be filed.

(c)

Exhibits Ex-2 - Agreement and Plan of Reorganization dated January 31, 2003 Ex-2a - Schedule 2.16  Calculation of Estimated Merger Consideration and Merger Consideration Ex-2b - Schedules to Agreement and Plan of Reorganization By and Among Investors Real Estate Trust, IRET, Inc. and T.F. James Company dated January 31, 2003 (Schedule 3.1 - Schedule 5.14) Ex-2c - Tenant Summary Ex-2d - T.F. James Company/Investors Real Estate Trust (IRET) Share Issuance and Fractional Shares for Estimated Merger Consideration Ex-10 - T. F. James Company and Subsidiaries Consolidated Financial Statements Together with Independent Auditors' Report - September 30, 2002 Ex-99 - Consent of Olsen Thielen & Co., LTD.

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 who is duly authorized to do so.

Date:  January 31, 2003

INVESTORS REAL ESTATE TRUST
(Registrant)

By:      /S/ Thomas A. Wentz, Jr.                       
          (Signature)
           Thomas A. Wentz, Jr.
          Senior Vice President & General Counsel

EX-2

 Ex-2

AGREEMENT AND PLAN OF REORGANIZATION By and Among INVESTORS REAL ESTATE TRUST, IRET, INC. AND T. F. JAMES COMPANY DATE:  JANUARY 31, 2003 TABLE OF CONTENTS
                                                                                                                               ARTICLE 1
DEFINITIONS ARTICLE 2
THE MERGER

		Page
2.1	The Merger...................................................................................................	11
2.2	Action by Parties...........................................................................................	11
2.3	Closing..........................................................................................................	12
2.4	Effective Time...............................................................................................	15
2.5	Effect of the Merger......................................................................................	15
2.6	Articles of Incorporation................................................................................	15
2.7	Bylaws..........................................................................................................	15
2.8	Directors and Officers...................................................................................	15
2.9	Waiver(s) Under Shareholders' Agreement....................................................	15
2.10	Subsequent Actions.......................................................................................	16
2.11	Effect of the Merger on the Company Common Stock...................................	16
2.12	Surrender of Certificates................................................................................	18
2.13	No Further Ownership Rights in Company Common Stock............................	19
2.14	Lost, Stolen or Destroyed Certificates...........................................................	20
2.15	Transfer of Shares after the Effective Time.....................................................	20
2.16	Post-Closing Merger Consideration Adjustment..........................................	20

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS

3.1	Organization................................................................................................	24
3.2	Capitalization...............................................................................................	24
3.3	Due Authorization.......................................................................................	24
3.4	No Breach..................................................................................................	24
3.5	Clear Title...................................................................................................	25
3.6	Condition of Assets.....................................................................................	25
3.7	Litigation.....................................................................................................	25
3.8	Labor Matters.............................................................................................	25

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(continued)
                                                                                                                             

		Page
3.9	Tax Matters................................................................................................	26
3.10	Employee Benefits.......................................................................................	28
3.11	No Guaranties.............................................................................................	29
3.12	Financial Statements....................................................................................	29
3.13	Absence of Certain Developments...............................................................	30
3.14	Intellectual Property....................................................................................	31
3.15	Compliance with Laws................................................................................	32
3.16	Operating Contracts....................................................................................	32
3.17	Real Estate..................................................................................................	32
3.18	Accounts Receivable...................................................................................	34
3.19	Books and Records; Bank Accounts...........................................................	34
3.20	Employees...................................................................................................	35
3.21	Permits........................................................................................................	35
3.22	Mortgages and Tenant Leases.....................................................................	35
3.23	Subsidiaries.................................................................................................	35
3.24	Insurance.....................................................................................................	35
3.25	Brokers and Finders....................................................................................	35
3.26	Relationship with Related Persons................................................................	36
3.27	Hazardous Materials...................................................................................	36
3.28	Other Environmental Matters.......................................................................	36
3.29	Debt Instruments.........................................................................................	37
3.30	Tenants and Suppliers.................................................................................	38
3.31	Stockholder Loans......................................................................................	38
3.32	Adequacy of Properties...............................................................................	38
3.33	Absence of Certain Business Practices.........................................................	38
3.34	Trade Regulation.........................................................................................	39
3.35	Representations Regarding the Shareholders................................................	39

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF IRET AND THE MERGER
SUBSIDIARY

 4.1 Organization................................................................................................ 39

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(continued)
                                                                                                                           

		Page
4.2	Due Authorization.......................................................................................	40
4.3	No Breach..................................................................................................	40
4.4	Merger Subsidiary.......................................................................................	40
4.5	Investment Representations.........................................................................	40
4.6	Brokers.......................................................................................................	40
4.7	Articles of Incorporation and Bylaws...........................................................	41
4.8	Capitalization and Issuance of the IRET Shares............................................	41
4.9	SEC Reports..............................................................................................	41
4.10	No Consent Required.................................................................................	41

ARTICLE 5
PERFORMANCE AND COVENANTS PENDING CLOSING

5.1	Access to Information.................................................................................	42
5.2	Conduct of Business....................................................................................	42
5.3	Encumbrances.............................................................................................	42
5.4	Pay Increases..............................................................................................	43
5.5	Restrictions on New Contracts....................................................................	43
5.6	Preservation of Business..............................................................................	43
5.7	Payment and Performance of Obligations.....................................................	43
5.8	Restrictions on Sale of Assets......................................................................	43
5.9	Prompt Notice............................................................................................	43
5.10	Consents.....................................................................................................	44
5.11	Copies of Documents..................................................................................	44
5.12	Standstill Covenant......................................................................................	44
5.13	Accounts Receivable and Payable...............................................................	44
5.14	Shareholder Guarantees..............................................................................	44
5.15	Insurance.....................................................................................................	45
5.16	Filing Reports and Making Payments...........................................................	45
5.17	Capital Expenditures...................................................................................	45
5.18	[THIS SECTION INTENTIONALLY OMITTED]...................................	45
5.19	Litigation.....................................................................................................	45

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(continued)
                                                                                                                            

		Page
5.20	Notification of Inaccuracy..........................................................................	45
5.21	Shareholders' Agreement...........................................................................	45
5.22	Company Guarantees.................................................................................	45
5.23	Environmental Audit...................................................................................	46
5.24	Stockholder Approval................................................................................	46
5.25	Mortgagee Estoppel Certificates.................................................................	46
5.26	Cooperation with Respect to Permits, Licenses and Regulatory Matters......	46
5.27	Termination of Rights with Respect to the Common Stock..........................	46
5.28	Restrictions on Dividends; Changes in Stock.............................................	46
5.29	Restrictions on Issuance of Securities..........................................................	47
5.30	Restrictions on Liquidation or Merger, Change of Control...........................	47
5.31	Restrictions on Acquisitions........................................................................	47
5.32	Restrictions on Accounting Changes...........................................................	47
5.33	Confidentiality Agreement..........................................................................	47
5.34	Legal Requirements....................................................................................	47
5.35	Tax-Deferred Reorganization.....................................................................	48
5.36	Company Director and Officer Indemnification...........................................	48
5.37	Company Service Mark.............................................................................	48
5.38	T.F. James Annuity....................................................................................	48
5.39	Life Insurance Policies................................................................................	49

ARTICLE 6
MUTUAL CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS

6.1	Proceedings.................................................................................................	49
6.2	Consents and Approvals.............................................................................	49
6.3	Stockholder Approval.................................................................................	50
6.4	Tax-Deferred Reorganization.......................................................................	50

ARTICLE 7
ADDITIONAL CONDITIONS PRECEDENT TO IRET'S AND THE MERGER
SUBSIDIARY OBLIGATIONS

7.1	Accuracy of Representations and Warranties..............................................	50
7.2	Compliance with Covenants and Agreements..............................................	50

-iv- TABLE OF CONTENTS
(continued)
                                                                                                                            

		Page
7.3	No Material Adverse Change.....................................................................	50
7.4	Condition of Assets....................................................................................	51
7.5	Judgments; Conduct of Business.................................................................	51
7.6	Approval by Counsel.................................................................................	51
7.7	Legal Opinion............................................................................................	51
7.8	Resignation of Directors and Officers..........................................................	51
7.9	Corporate Action.......................................................................................	51
7.10	Non-Competition Agreements....................................................................	51
7.11	Schedule of Transactional Expenses...........................................................	51
7.12	Dissenting Stockholders.............................................................................	51

ARTICLE 8
ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
COMPANY

8.1	Accuracy of Representations and Warranties...............................................	52
8.2	Compliance with Covenants and Agreements...............................................	52
8.3	Approval by Counsel..................................................................................	52
8.4	Legal Opinion.............................................................................................	52
8.5	Securities Laws...........................................................................................	52
8.6	Release of Shareholder Guarantees..............................................................	52
8.7	Private Letter Ruling....................................................................................	52

ARTICLE 9
INDEMNIFICATION

9.1	Indemnification by the Shareholders............................................................	52
9.2	Indemnification by IRET.............................................................................	54
9.3	Procedure for Indemnification.....................................................................	54
9.4	Dispute Resolution.....................................................................................	56

ARTICLE 10
REGISTRATION AND SALE OF IRET SHARES

10.1	Reservation of IRET Shares.......................................................................	58
10.2	Registration of IRET Shares.......................................................................	58

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TABLE OF CONTENTS
(continued)
                                                                                                                          

		Page
10.3	Procedures for Sale of Shares Under Registration Statement.......................	62
10.4	Limitation on Resale..................................................................................	63
10.5	Representations and Warranties.................................................................	63

ARTICLE 11
PERFORMANCE FOLLOWING THE CLOSING DATE

11.1	Further Acts and Assurances......................................................................	65
11.2	Injunctive Relief.........................................................................................	65
11.3	Guarantees.................................................................................................	65
11.4	Employee Retention...................................................................................	66
11.5	Tax Matters...............................................................................................	66
11.6	Use of T. F. James Name..........................................................................	68
11.7	Post-Closing Audit....................................................................................	68
11.8	Payment of Employee Compensation Accruals...........................................	69

ARTICLE 12
TERMINATION

12.1	Termination................................................................................................	69
12.2	Return of Documents and Nondisclosure....................................................	69

ARTICLE 13
MISCELLANEOUS

13.1	Survival of Representations and Warranties, Covenants and Agreements.....	70
13.2	Preservation of and Access to Records......................................................	70
13.3	Cooperation..............................................................................................	70
13.4	Public Announcements...............................................................................	70
13.5	Notices.....................................................................................................	71
13.6	Entire Agreement.......................................................................................	71
13.7	Remedies..................................................................................................	71
13.8	Amendments.............................................................................................	72
13.9	Successors and Assigns.............................................................................	72
13.10	Fees and Expenses....................................................................................	72
13.11	Governing Law and Jurisdiction.................................................................	72
13.12	Counterparts and Facsimile Signature.........................................................	73

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(continued)
                                                                                                                             

		Page
13.13	Headings...................................................................................................	73
13.14	Scope of Agreement..................................................................................	73
13.15	Number and Gender..................................................................................	73
13.16	Severability................................................................................................	73
13.17	Parties in Interest.......................................................................................	73
13.18	Waiver......................................................................................................	73
13.19	Construction..............................................................................................	74
13.20	Specific Performance.................................................................................	74
13.21	Supplementation of Schedules....................................................................	74

-vii-


AGREEMENT AND PLAN OF REORGANIZATION

          THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of the 31st day of January, 2003, by and among Investors Real Estate Trust, a real estate investment trust organized under the laws of the State of North Dakota ("IRET"), IRET, Inc. , a North Dakota corporation and a wholly-owned first-tier subsidiary of IRET (the "Merger Subsidiary"), and T. F. James Company, an Iowa corporation (the "Company").  TheShareholders (as defined in Article 1 of this Agreement) join in this Agreement for the sole purposes of (i) making the representations and warranties set forth in Section 10.5 hereof, and (ii) to covenant the indemnification of IRET and the Merger Subsidiary as set forth in Article 9 hereof.  IRET, IRET, Inc. and the Company may be referred to herein individually as a "Party ," and collectively, as the "Parties."

RECITALS

A.        The Company, IRET and the Merger Subsidiary have agreed to enter into a merger transaction upon the terms and subject to the conditions of this Agreement and in accordance with (i) the North Dakota Business Corporation Act (the "NDBCA"), and (ii) the Iowa Business Corporation Act (the "IBCA"), pursuant to which the Company will merge with and into the Merger Subsidiary (the "Merger ") and the stockholders of the Company will convert their equity holdings in the Company into shares of beneficial interest (the functional equivalent of common stock) of IRET in accordance with the provisions of Article 2 hereof.

B.        The Board of Directors of the Company has determined that the Merger is in the best interests of the Company and its stockholders, and has approved and adopted this Agreement, the Merger and the Transactions contemplated hereby.

C.        IRET has (i) approved and adopted this Agreement on behalf of IRET, and (ii) approved the Merger and the Transactions contemplated hereby as the sole stockholder of Merger Subsidiary, by all appropriate and necessary action required under Applicable Law by its trustees.

D.        The Board of Directors of Merger Subsidiary has approved and adopted this Agreement, the Merger and the Transaction contemplated hereby.

E.        The Parties intend that the Merger qualify as a tax-deferred reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended, for United States federal income tax purposes.

F.         The Parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger.

AGREEMENT

In consideration of the foregoing Recitals, each of which is hereby incorporated by reference herein as an essential term hereof, and the mutual promises contained in this Agreement, and other good and valuable consideration, the receipt and

1

sufficiency of which are hereby acknowledged, IRET, the Merger Subsidiary and the Company agree as follows:

ARTICLE 1

DEFINITIONS

For purposes of this Agreement, the following terms have the meanings specified:

"1940 Act" has the meaning set forth in Section 10.5(b) of this Agreement.

"AAA Rules" has the meaning set forth in Section 9.4(b) of this Agreement.

"Acquisition Proposal" means any proposal relating to any transaction involving the sale or other transfer of any debt or equity securities of the Company (currently outstanding or to be issued) representing fifty percent (50%) or more of the voting power or equity of the Company, a merger, consolidation or exchange or other similar extraordinary transaction, or a sale or transfer of all or a significant portion of the assets of the Company.

"Affiliate" when used in reference to a specified Person, means any Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the specified Person.

"Agreement" has the meaning set forth in the preamble to this Agreement.

"Ancillary Documents" has the meaning set forth in Section 2.3(a)(i) of this Agreement.

"Applicable Law" means any and all laws, ordinances, constitutions, regulations, statutes, treaties, rules, codes, licenses, certificates, franchises, permits, requirements and Injunctions adopted, enacted, implemented, promulgated, issued, entered or deemed applicable by or under the authority of any Governmental Body having jurisdiction over a specified Person or any of such Person's properties or assets.

"Audit" has the meaning set forth in Section 5.23 of this Agreement.

"Auditor" has the meaning set forth in Section 11.7 of this Agreement.

"Balance Sheet" has the meaning set forth in Section 3.12 of this Agreement.

"Balance Sheet Date" has the meaning set forth in Section 3.12 of this Agreement.

"Basket Amount" has the meaning set forth in Section 9.1(a) of this Agreement.

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"Benefit Plan" means any and all bonus, stock option, restricted stock, stock purchase, stock appreciation, phantom stock, profit participation, profit-sharing, deferred compensation, severance, pension, retirement, disability, medical, dental, health, life or dental insurance, death benefit, incentive, welfare and/or other benefit, compensation and/or retirement plan, policy, arrangement and/or Contract maintained, sponsored or participated in by the Company.

"Business" means the development, purchase and operation of commercial (as opposed to residential) real estate properties, and the ongoing management of such real estate properties owned by the Company, including the leasing of premises with such real estate properties to commercial tenants.

"Certificates" has the meaning set forth in Section 2.12(c) of this Agreement.

"Closing" has the meaning set forth in Section 2.3 of this Agreement.

"Closing Balance Sheet" means the balance sheet of the Company as of the Closing Date.

"Closing Certificate" has the meaning set forth in Section 2.16(a) of this Agreement.

"Closing Date" has the meaning set forth in Section 2.3 of this Agreement.

"Code" means the Internal Revenue Code of 1986, as amended, or rules and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law.

"Commission" means the Securities and Exchange Commission.

"Company" has the meaning set forth in the preamble to this Agreement.

"Company Common Stock" means the common stock of the Company, par value $100.00 per share.

"Competing Business" has the meaning set forth in Section 3.26 of this Agreement.

"Confidential Information" means any information or compilation of information not generally known to the public or the industry or which a Person has not disclosed to third parties without a written obligation of confidentiality, which is proprietary to a Person, relating to the Person's procedures, techniques, methods, concepts, ideas, affairs, products, processes and services, including, but not limited to, information relating to marketing, merchandising, selling, research, development, purchasing, accounting, engineering, financing, costs, tenants, plans, pricing, billing, needs of tenants and products and services used by tenants, all lists of tenants, contractors and suppliers and their addresses, prospects, sales calls, products, services, prices and the like as well as any specifications, formulas, plans, drawings, accounts or sales records, sales brochures, code books, manuals, trade secrets, knowledge, know-how, pricing strategies, operating costs, sales margins, methods of operations, invoices or statements and the like.

"Confidentiality Agreement" has the meaning set forth in Section 5.33 of this Agreement.

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"Contract" means any agreement, lease of Real Estate, license, contract, obligation, promise, commitment, arrangement, understanding or undertaking, instrument, document (whether written or oral and whether express or implied) of any type, nature or description that is legally binding.  As used herein, the word "Contract" shall be limited in scope if modified by an adjective specifying the type of contract to which this Agreement or a Section hereof refers.

"Convertible Securities" means any and all securities convertible or exchangeable for (i) any shares of capital stock of the Company, including, without limitation, common stock, or (ii) any Debt Securities.

"Debt Instruments" has the meaning set forth in Section 3.29 of this Agreement.

"Debt Securities" means any and all indebtedness issued by or on behalf of the Company which constitutes a security under the Securities Act of 1933, as amended, except for indebtedness reflected in the financial statements of the Company described on Schedule 3.12 hereto.

"Director Indemnified Parties" has the meaning set forth in Section 5.36(a) of this Agreement.

"Disclose" means to reveal, deliver, divulge, disclose, publish, copy, communicate, show or otherwise make known or available to any other Person, or in any way to copy, any Confidential Information.

"Dissenting Shares" has the meaning set forth in Section 2.11(f) of this Agreement.

"Effective Date" has the meaning set forth in Section 2.4 of this Agreement.

"Effective Time" has the meaning set forth in Section 2.4 of this Agreement.

"Encumbrance" means and includes:

          (i)         with respect to any personal property, any intangible property or any property other than real property, any security or other property interest or right, claim, lien, pledge, option, charge, security interest, contingent or conditional sale, or other title claim or retention agreement or lease or use agreement in the nature thereof whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future; and

          (ii)        with respect to any real property (whether and including Owned Real Estate or Leased Real Estate), any mortgage, lien, easement, interest, right-of-way, condemnation or eminent domain proceeding, encroachment, any building, use or other form of restriction, encumbrance or other claim (including adverse or prescriptive) or right of third parties (including Governmental Bodies), any lease or sublease, boundary dispute, and agreements with respect to any real property including: purchase, sale, right of first refusal, option, construction, building or property service, maintenance, property management, conditional or contingent sale, use or occupancy, franchise or concession,

4

whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future.

"Environmental Audit Firm" has the meaning set forth in Section 5.23 of this Agreement.

"Environmental Laws" means any and all Applicable Laws (i) regulating the use, treatment, generation, transportation, storage, control or disposal of any Hazardous Material, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 etseq.) ("CERCLA"), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. § 1801 etseq.), the Federal Water Pollution Control Act (33 U.S.C. § 1251 etseq.), the Clean Water Act (33 U.S.C. § 1251 etseq.), the Clean Air Act (42 U.S.C. § 7401 etseq.), the Toxic Substances Control Act (15 U.S.C. § 2601 etseq.), the Minnesota Environmental Response and Liability Act (Minn. Stat. Ch. 115B), and the Minnesota Petroleum Tank Release Cleanup Act (Minn. Stat. Ch. 115C), and/or (ii) relating to the protection, preservation or conservation of the environment and public or worker health and safety, all as existing, defined or interpreted as of the Closing Date.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"Estate Tax Lien Amount" has the meaning set forth in Section 5.27(b) of this Agreement.

"Estimated Merger Consideration" has the meaning set forth in Section 2.11(c) of this Agreement.

"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder.

"Exchange Agent" has the meaning set forth in Section 2.12(a) of this Agreement.

"Exchange Price" has the meaning set forth in Section 2.11(c)(ii) of this Agreement.

"Exchange Ratio" has the meaning set forth in Section 2.11(c)(iii) of this Agreement.

"Final Order" has the meaning set forth in Section 6.2 of this Agreement.

"GAAP" means generally accepted accounting principals as adopted and practiced in the United States of America, consistently applied through the periods presented.

"Governmental Body" means any:

(i)         nation, state, county, city, town, village, district or other jurisdiction of any nature;

(ii)        federal, state, local, municipal, foreign or other government;

5

          (iii)       governmental or quasi-governmental authority of any nature (including any governmental agency, branch, board, commission, department, instrumentality, office or other entity, and any court or other tribunal);

(iv)       multinational organization or body; and/or

         (v)        body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature.

"Hazardous Materials" means any and all (i) dangerous, toxic or hazardous pollutants, contaminants, chemicals, wastes, materials or substances listed or identified in, or directly or indirectly regulated by, any Environmental Law, and (ii) any of the following, whether or not included in the foregoing:  polychlorinated biphenyls, asbestos in any form or condition, urea- formaldehyde, petroleum, including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, synthetic gas usable for fuel or mixtures thereof, nuclear fuels or materials, chemical wastes, radioactive materials, explosives and known possible carcinogens.

"IBCA" has the meaning set forth in the Recitals to this Agreement.

"IRET" has the meaning set forth in the preamble to this Agreement.

"IRET Shares" has the meaning set forth in Section 4.8 of this Agreement.

"IRET SEC Reports" has the meaning set forth in Section 4.9 of this Agreement.

"IRS" means the United States Internal Revenue Service.

"Indemnified Party" has the meaning set forth in Section 9.3 of this Agreement.

"Indemnifying Party" has the meaning set forth in Section 9.3 of this Agreement.

"Independent Accountants" has the meaning set forth in Section 2.16(e) of this Agreement.

"Injunction" means any and all writs, rulings, awards, directives, injunctions (whether temporary, preliminary or permanent), judgments, decrees or orders (whether executive, judicial or otherwise) adopted, enacted, implemented, promulgated, issued, entered or deemed applicable by or under the authority of any Governmental Body.

"Intellectual Property" means any and all (i) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations in part, revisions, extensions and reexaminations thereof; (ii) trademarks, service marks, trade dress, logos, trade names, assumed names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith;

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(iii) copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith; (iv) mask works and all applications, registrations and renewals in connection therewith; (v) trade secrets and confidential business information (including ideas, research and development, know-how, technology, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals); (vi) computer software (including data and related software program documentation in computer-readable and hardcopy forms); (vii) other intellectual property and proprietary rights of any kind, nature or description, including web sites, web site domain names and other e-commerce assets and resources of any kind or nature; and (viii) copies of tangible and embodiments thereof (in whatever form or medium).

"Knowledge" - an individual will be deemed to have "Knowledge" or "knowledge" of a particular fact or other matter if such individual is actually aware of such fact or other matter; provided, however, that the Shareholders shall be deemed to have Knowledge of all matters regarding the Company of which the Company's directors, officers, or any of the management employees of the Company have Knowledge.

"Leased Real Estate" has the meaning set forth in Section 3.17 of this Agreement.

"Liability" or "Liabilities" means any and all debts, liabilities and/or obligations of any type, nature or description (whether known or unknown, asserted or unasserted, secured or unsecured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due).

"Loss" or "Losses" has the meaning set forth in Section 9.1 of this Agreement.

"Material Adverse Effect" or "Material Adverse Change" means, in connection with any Person, any event, change or effect that is materially adverse, individually or in the aggregate, to the condition (financial or otherwise), properties, assets, Liabilities, revenues, income, business, operations, results of operations or prospects of such Person, taken as a whole; provided , however, a Material Adverse Change or a Material Adverse Effect shall not be deemed to have occurred solely as a result of (i) adverse conditions, economic or otherwise, in the industry in which the Company operates, or (ii) adverse general economic conditions which affect a national, regional or local economy.

"Merger" has the meaning set forth in the Recitals to this Agreement.

"Merger Consideration" has the meaning set forth in Section 2.11(c)(i) of this Agreement.

"Merger Consideration Adjustment" has the meaning set forth in Section 2.16(a)(ii) of this Agreement.

"Merger Consideration Calculation" has the meaning set forth in Section 2.16(a) of this Agreement.

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"Merger Subsidiary" has the meaning set forth in the preamble to this Agreement.

"Mortgages" has the meaning set forth in Section 3.16 of this Agreement.

"Mutual Release" has the meaning set forth in Section 2.3(a)(ix) of this Agreement.

"NDBCA" has the meaning set forth in the Recitals to this Agreement.

"Operating Contracts" has the meaning set forth in Section 3.16 of this Agreement.

"Ordinary Course of Business" means an action taken by a Person only if:

          (i)         such action is consistent with the past practices of such Person and is taken in the ordinary course of  the normal day-to-day operations of such Person; and

          (ii)        such action is not required to be authorized by the board of directors of such Person (or by any Personor group of Persons constituting a governing body of a Person exercising similar authority).

"Organizational Documents" means, with respect to (i) a Person which is a corporation, its charter or articles, by-laws, all initial authorizing minutes of its incorporator and its board of directors, all voting trusts and similar arrangements applicable to any of its capital stock, (ii) a Person that is a Partnership, its agreement and certificate of partnership, any agreement among partners, and any management and similar agreements between the partnership and any general partners (or any Affiliate thereof), and (iii) a trust, the trust indenture under state law, the acceptance of trust, and any initial authorizations and actions of its trustee(s).

"Overlap Period" has the meaning set forth in Section 11.5(b) of this Agreement.

"Owned Real Estate" has the meaning set forth in Section 3.17 hereof.

"Party" or "Parties" has the meaning set forth in the preamble to this Agreement, as supplemented by the provisions of Section 13.19 of this Agreement.

"Payment Agent" shall mean Olsen, Thielen & Co., Ltd., Certified Public Accountants.

"PCBs" has the meaning set forth in Section 3.28(f) of this Agreement.

"Permits" means all right, title and interest in and to any permits, licenses, filings, authorizations, approvals, or indicia of authority (and any pending applications for approval or renewal of a Permit), to own, construct, operate, sell, inventory, disburse or maintain any asset or conduct any business as issued by any Governmental Body.

"Permitted Encumbrances" has the meaning set forth in Section 3.17(d) of this Agreement.

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"Person" means any individual, corporation (including any nonprofit corporation), general, limited or limited liability partnership, limited liability company, joint venture, estate, trust, association, organization, or other entity or Governmental Body.

"Pre-Closing Period" has the meaning set forth in Section 3.9(b) of this Agreement.

"Proceeding" means any suit, litigation, arbitration, hearing, audit, investigation or other action (whether civil, criminal, administrative or investigative) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

"Prospectus" means the prospectus included in any Registration Statement (including without limitation, a prospectus that discloses information previously omitted from a Prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any Prospectus supplement, and by all other amendments and supplements to the Prospectus, including post-effective amendments, and in each case including all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

"Real Estate" has the meaning set forth in Section 3.17(b) of this Agreement.

"Registrable Shares" has the meaning set forth in Section 10.2(a) of this Agreement.

"Registration Effective Period" has the meaning set forth in Section 10.2(c)(i) of this Agreement.

"Registration Statement" has the meaning set forth in Section 10.2(b) of this Agreement.

"Related Person" or "Related Persons" means, with respect to a particular individual,

(i)         each other member of such individual's Family (as hereafter defined); and

(ii)        any Affiliate of one or more members of such individual's Family.

With respect to a specified Person other than an individual:

(i)         any Affiliate of such specified Person; and

          (ii)        each Person that serves as a director, governor, officer, manager, general partner, executor or trustee of such specified Person (or in a similar capacity).  For purposes of this definition, the "Family" of an individual includes (i) such individual, (ii) the individual's spouse, (iii) any lineal ancestor or lineal descendant of the individual, or (iv) atrust for the benefit of any of the foregoing.

"Response Period" has the meaning set forth in Section 2.16(d) of this Agreement.

"Rights" means any and all outstanding subscriptions, warrants, options, or other arrangements or commitments obligating or which may obligate (with or without notice or

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passage of time or both) the Company to issue or dispose of any securities of the Company including, without limitation, Convertible Securities, and Debt Securities.

"Schedules" has the meaning set forth in the introductory paragraph to Article 3 of this Agreement.

"Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder.

"Shareholder Guarantee" has the meaning set forth in Section 5.14 of this Agreement.

"Shareholders" or "Shareholder" means the individuals holding the issued and outstanding shares of common stock of the Company as set forth on Exhibit H to this Agreement in the holding amounts and pro-rata percentages set forth therein.

"Shareholders' Agreement" has the meaning set forth in Section 2.9 of this Agreement.

"Shareholders' Representative" has the meaning set forth in Section 11.5(b) of this Agreement.

"Shares" means the shares of beneficial interest of IRET to be issued, and as issued, to the Shareholders.

"Special Meeting" has the meaning set forth in Section 2.2(a) of this Agreement.

"Supplement" has the meaning set forth in Section 13.21 of this Agreement.

"Surviving Corporation" has the meaning set forth in Section 2.1 of this Agreement.

"Suspension Notice" has the meaning set forth in Section 10.3(a) of this Agreement.

"Suspension Right" has the meaning set forth in Section 10.2(c)(iv) of this Agreement.

"Tax" or "Taxes" means any and all net income, gross income, gross revenue, gross receipts, net receipts, ad valorem, franchise, profits, transfer, sales, use, social security, employment, unemployment, disability, license, withholding, payroll, privilege, excise, value-added, severance, stamp, occupation, property, customs, duties, real estate and/or other taxes, assessments, levies, fees or charges of any kind whatsoever imposed by any Governmental Body, together with any interest or penalty relating thereto.

"Tax Matter(s)" has the meaning set forth in Section 11.5(b) of this Agreement.

"Tax Return" or "Tax Returns" means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including without limitation any schedule or attachment thereto, any amendment thereof, and any estimated report or statement.

"Tenant Leases" has the meaning set forth in Section 3.16 of this Agreement.

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"T. F. James Annuity Obligation" has the meaning set forth in Section 5.38 of this Agreement.

"Threatened" means a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made in writing, or any notice has been given in writing that would lead a reasonably prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter will, with substantial certainty, be asserted, commenced, taken or otherwise pursued in the future; provided, however, that the foregoing shall not include customer billing disputes in the Ordinary Course of Business.

"Transaction" or "Transactions" means the transactions contemplated by this Agreement, the Merger and any transaction contemplated by any other agreement or instrument executed or required to be executed in connection herewith.

"Transactional Expenses" has the meaning set forth in Section 13.10 of this Agreement.

"Use" means to appropriate any of the Confidential Information of the Company for the benefit of oneself or any other Person other than the Company.

"Violation" has the meaning set forth in Section 10.2(e)(i) of this Agreement.

"Westlake Liquors" means Westlake Liquors, Inc., a Minnesota corporation and a wholly-owned subsidiary of the Company.

ARTICLE 2

THE MERGER

          2.1 The Merger.  Upon the terms and subject to the conditions set forth in this Agreement, and the specific provisions of the IBCA and the NDBCA, upon the time when the Articles of Merger are filed with and accepted by the Secretary of State of the State of Iowa and the Secretary of State of the State of North Dakota, or at such other time as the Parties may agree upon in writing, pursuant to Applicable Law, the Company will be merged with and into the Merger Subsidiary.  As a result of the Merger, the separate existence of the Company will cease and the Merger Subsidiary will continue as the surviving corporation of the Merger (the "Surviving Corporation ").

          2.2 Action by Parties.

          (a)Approval by Stockholders of the Company.  The Company, acting through its Board of Directors, will, in accordance with Applicable Law and its Organizational Documents, either:  (i) as soon as practicable, duly call, give notice of, convene and hold a special meeting of the stockholders of the Company holding Company Common Stock on the "record date" established by the Company's Board of Directors for the purpose of adopting and approving this Agreement, the Merger and the Transactions (the "Special Meeting "), which approval shall require, by agreement of the Parties, of one-hundred

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percent (100%) of such Company Common Stock, and use reasonable commercial efforts to obtain the one-hundred percent (100%) approval necessary for adoption of this Agreement, the Ancillary Documents, the Merger, and the Transactions by the stockholders of the Company at or pursuant to the Special Meeting, all in accordance with the IBCA, or (ii) obtain the unanimous written consent of the stockholders of the Company holding Company Common Stock in accordance with the IBCA; provided, that the Special Meeting or the consent and the adoption and approval described herein, shall take place and be obtained respectively, as provided in Section 2.2(d) hereof.

          (b)Approval by the Board of Directors of the Company.  The Company represents that its Board of Directors has (i) determined that this Agreement, the Ancillary Documents, the Merger and the Transactions are in the best interest of the Company and stockholders of the Company, (ii) approved this Agreement, the Ancillary Documents, the Merger, and the Transactions, which approval satisfies in full the requirements of the Company's Organizational Documents and applicable requirements of the IBCA, and (iii) resolved to recommend approval and adoption by the stockholders of the Company of this Agreement, the Ancillary Documents, the Merger and the Transactions to the extent and in a manner required by Applicable Law.

          (c)Approval by IRET (as the Merger Subsidiary Stockholder) and the Merger Subsidiary.  (i) IRET has approved and adopted this Agreement, the Ancillary Documents, the Merger and the Transactions, on behalf of itself and on behalf of the Merger Subsidiary, as the sole stockholder of the Merger Subsidiary, and (ii) the Board of Directors of the Merger Subsidiary has approved and adopted this Agreement, the Ancillary Documents, the Merger and the Transactions, in each case in accordance with Applicable Law.

          (d)Approval Dates.  The approvals required by (i) Section 2.2(a) shall occur on or before the Closing Date, and (ii) Sections 2.2(b) and (c) shall have occurred prior to the execution of this Agreement.

          2.3 Closing.  Unless this Agreement is terminated pursuant to the provisions of Article 12 hereof and the Merger and the Transactions have been abandoned, and subject to the satisfaction or, if applicable, waiver of the conditions set forth in Articles 6, 7 and 8 hereof, the closing (the "Closing ") of the Merger will take place on January 31, 2003or at such time and place as the Parties shall mutually agree (the "Closing Date").

          (a)Documents to be Delivered by or on behalf of the Company ..  At the Closing, the Company shall e xecute, where necessary or appropriate, and deliver to IRET each and all of the following:

          (i)A certificate in the form of Exhibit A hereto signed by the Company, and dated as of the Closing Date, to the effect that the representations and warranties made by the Company in this Agreement (as modified by the Schedules and any Supplement(s)) and in any document, instrument and/or agreement to be executed and/or delivered by the Company pursuant to this

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Agreement (collectively, the"Ancillary Documents" and, individually, an " Ancillary Document") are true and correct in all material respects at and as of the Closing and the Company has performed and complied with all of the covenants, agreements and obligations under this Agreement which are to be performed and complied with by the Company at or prior to the Closing;

          (ii)A copy of the (A) Organizational Documents of the Company, and (B) the duly adopted resolutions of the Board of Directors and stockholders of the Company approving this Agreement,the Ancillary Documents, the Merger and the Transactions certified by the Secretary of the Company;

          (iii)The fully-executed terminations of each and every Shareholders' Agreement (if required by IRET in Supplement to the provisions of Section 2.9 hereof);

          (iv)Evidence of payment in full of the T. F. James Annuity Obligation reasonably satisfactory to IRET and the Merger Subsidiary (as described in Section 5.37 hereof);

          (v)Evidence of the cancellation and termination of all Rights, if any, to purchase shares of Company Common Stock issued and outstanding on the date of this Agreement;

          (vi)Deposit of the Estate Tax Lien Amount with the Payment Agent as described in Section 5.27(b) a nd Schedule 3.35 hereto;

          (vii) A duly executed written opinion letter by counsel for the Company dated as of the Closing Date, addressed to IRET, as contemplated by Section 7.7 of this Agreement;

(viii) Duly executed resignation of thedirectors of the Company, effective as of the Effective Date;

          (ix)A Mutual Release in the form of Exhibit B hereto duly executed by the Shareholders (the "Mutual Release ");

          (x)A certificate of good standing for the Company dated within ten (10) days of the Closing Date issued by the Secretary of State of Iowa;

          (xi) A Share Transfer Restriction Agreement in the form of Exhibit C hereto duly executed by each Shareholder;

          (xii) The stock certificates of each Shareholder to be exchanged in connection with the Merger; and

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          (xiii)Such other documents and items as are reasonably necessary or appropriate to effect the consummation of the transactions contemplated hereby or which may be customary under local law.

          (b)Documents to be Delivered by IRET.  At the Closing, IRET shall execute, where necessary or appropriate, and deliver to the Company each and all of the following:

          (i)A certificate in the form of Exhibit D hereto signed by a duly authorized officer of IRET, and dated as of the Closing Date, to the effect that the representations and warranties made by IRET in this Agreement and the Ancillary Documents are true and correct in all material respects at and as of the Closing and IRET has performed and complied with all of its covenants, agreements and obligations under this Agreement which are to be performed and complied with by IRET on or prior to the Closing;

          (ii)A copy of the (A) Organizational Documents of IRET, and (B) the duly adopted resolutions of the Board of Directors of IRET approving this Agreement, the Ancillary Documents, the Merger and the Transactions certified by the Secretary of IRET;

          (iii)A copy of the (A) Organizational Documents of the Merger Subsidiary, and (B) the duly adopted resolutions of the Board of Directors and sole stockholder of the Merger Subsidiary approving this Agreement, the Ancillary Documents, the Merger and the Transactions certified by the Secretary of the Merger Subsidiary;

          (iv)A duly executed written opinion letter by counsel for IRET and the Merger Subsidiary, dated as of the Closing Date, addressed to the Company and the Shareholders, as contemplated by Section 8.4 of this Agreement;

          (v)A certificate of good standing for IRET dated within ten (10) days of the Closing Date issued by the Secretary of State of North Dakota;

          (vi)A certificate of good standing for the Merger Subsidiary dated within ten (10) days of the Closing Date issued by the Secretary of State of North Dakota;

          (vii) A Mutual Release in the form of Exhibit B hereto duly executed by IRET and the Merger Subsidiary;

          (viii) The IRET Shares, and cash payment for any fractional shares, issuable or payable (as applicable) to the Shareholders as described in Section 2.11(c) and 2.12;

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          (ix)Evidence satisfactory to the Company that Charles Wm. James has been appointed to the Board of Directors of IRET as of the Closing Date and shall serve until the next election of the Board of Directors by the owners of the shares of beneficial interest of IRET; and

          (x)The non-foreign person affidavit required by Section 1445 of the Code; and

          (xi)Such other documents and items as are reasonably necessary or appropriate to effect the consummation of the transactions contemplated hereby or which may be customary under local law.

          2.4 Effective Time.  On the Closing Date, the Parties will cause the Merger to be consummated by filings of the applicable Articles of Merger with the respective Secretaries of State of the States of Iowa and North Dakota, pursuant to and in accordance with, respectively, the IBCA and NDBCA, substantially in the forms attached hereto as Exhibit E and Exhibit F (the time and date of such final filings being the "Effective Time" and the "Effective Date," respectively).  The Merger will become effective at the Effective Time.

          2.5 Effect of the Merger.  From and after the Effective Time, the Surviving Corporation will possess all the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of the Company and the Merger Subsidiary, and the Merger will otherwise have the effects as provided under NDBCA and IBCA.  The outstanding shares of Company Common Stock (other than the Dissenting Shares and the shares canceled pursuant to Section 2.11(b)) shall be converted into the Merger Consideration on the basis, terms and conditions described in Section 2.11 hereof.

          2.6 Articles of Incorporation.  From and after the Effective Time, the Articles of Incorporation of the Surviving Corporation will be the Articles of Incorporation of the Merger Subsidiary in the form attached hereto as Exhibit G until amended in accordance with Applicable Law, and the name of the Surviving Corporation shall be the name of the Merger Subsidiary.

          2.7 Bylaws.  From and after the Effective Time, the bylaws of the Merger Subsidiary shall be the bylaws of the Surviving Corporation in effect immediately prior to the Effective Time.

          2.8 Directors and Officers.  From and after the Effective Time, until successors are duly elected or appointed and qualified (or their earlier resignation or removal) in accordance with Applicable Law, the directors and officers of the Surviving Corporation shall be the directors and officers of the Merger Subsidiary immediately prior to the Effective Time.  From and after the Effective Time, the officers and directors of the Company prior to the Effective Time shall be deemed resigned for all purposes, except as may be necessary or desirable pursuant to the provisions of Section 2.10 hereof.

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          2.9 Waiver(s) Under Shareholders' Agreement ..  By virtue of the respective approvals of this Agreement, the Ancillary Documents, the Merger and the Transactions by the stockholders of the Company pursuant to Section 2.2(a), the Company covenants and agrees that any provision(s) of any shareholder agreements by and among the Company and stockholders of the Company or among the stockholders of the Company (collectively, the "Shareholders' Agreement ") which require or prohibit certain acts, omissions or procedures in connection with the execution and approval of this Agreement, the Ancillary Documents, the Merger or the Transactions are hereby irrevocably waived and/or amended to conform with or to otherwise allow the operation of this Agreement, the Ancillary Documents, the Merger or the Transactions without violation of, or the giving a right of action with respect to any stockholder of the Company under the Shareholders' Agreement.

          2.10Subsequent Actions .  If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to perfect or confirm of record or otherwise vest in the Surviving Corporation its right, title or interest in, to, or under any of the rights, properties or assets of the Company or the Merger Subsidiary acquired or to be acquired by the Surviving Corporation, as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation are authorized to execute and deliver, in the name and on behalf of the Company and the Merger Subsidiary, as applicable, all such deeds, bills of sale, assignments and assurances, and to take and do, in the name and on behalf of the Company or the Merger Subsidiary, and all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under  such rights, properties or assets in the Surviving Corporation or otherwise to carry out the purposes of this Agreement.

          2.11Effect of the Merger on the Company Common Stock.  At the Effective Time, by virtue of the Merger and without any action on the part of any holder of any capital stock of the Company or the Merger Subsidiary:

          (a)Shares of the Merger Subsidiary Common Stock.  Each share of common stock, par value $1.00 per share, of the Merger Subsidiary that is issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger and each such share shall be a share of the Surviving Corporation.  Each stock certificate of the MergerSubsidiary evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation.

          (b)Cancellation of Certain Company Capital Stock Owned by IRET or the Company.  At the Effective Time, each share of the capital stock of the Company that is owned by the Company as treasury stock, if any, and eachshare of the capital stock of the Company owned by IRET or any direct or indirect wholly-owned subsidiary of IRET or of the Company immediately prior the Effective Time shall be canceled and extinguished without any conversion thereof.

          (c)Conversion of Company Common Stock.  Subject to the provisions of this Section 2.11, each share of Company Common Stock issued and outstanding

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immediately prior to the Effective Time, other than Dissenting Shares and shares canceled pursuant to Section 2.11(b), shall be converted into the right to receive that number of shares of IRET Shares equal to the Merger Consideration (as defined below).

          (i)Merger Consideration.  IRET and the Company shall, prior to the Closing, cooperate in good faith to prepare an estimate of the merger consideration payable to the Shareholders pursuant to the calculations and directives set forth in Schedule 2.11(c) of this Agreement (the "Estimated Merger Consideration").  The total number of shares of IRET Shares to be issued on the Closing Date in exchange for the acquisition by IRET of all outstanding shares of Company Common Stock shall be equal to the quotient of: the Estimated Merger Consideration set forth on Schedule 2.11(c) of this Agreement, divided by the Exchange Price.  The Estimated Merger Consideration calculated by IRET and the Company shall be subject to a post-Closing adjustment, if any, which shall be prepared and remitted in accordance with Section 2.16 of this Agreement.  Upon completion of the procedures and calculations set forth in Section 2.16, including the addition or subtraction, as applicable, of the Merger Consideration Adjustment (as defined in Section 2.16), the result shall be the "Merger Consideration" for all other purposes under this Agreement.

 (ii)Exchange Price.  The "Exchange Price" shall be equal to $9.75.

          (iii)Exchange Ratio.  The "Exchange Ratio" shall be equal to the quotient of the Estimated Merger Consideration divided by the total number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and shares canceled pursuant to Section 2.11(b)).

          (d)Common Stock Rights.  Immediately prior to the Effective Time, all outstanding Rights, including options and warrants to purchase shares of Company Common Stock which have not been exercised or that do not terminate by their terms shall, by operation of this Agreement and without further action, be canceled and terminated.

          (e)Anti-Dilution Provisions.  In the event IRET (i) changes (or establishes a record date for changing) the number of shares of IRET Shares issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, stock combination, recapitalization, reclassification, reorganization or similar transaction with respect to the outstanding shares of IRET Shares, or (ii) pays or makes an extraordinary dividend or distribution in respect of shares of IRET Shares (other than a distribution referred to in clause (i) of this sentence) and, in either case, the record date therefore shall be prior to the Effective Time, the Estimated Merger Consideration shall be proportionately adjusted. Regular periodic cash dividends and increases thereon consistent with past practices shall not be considered extraordinary for purposes of the preceding sentence.

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          (f)Dissenting Shares.  To the extent that the holders thereof are entitled to dissenter's rights under Sections 490.1302-490.1331 of the IBCA, Company Common Shares issued and outstanding immediately prior to theEffective Time and held by a holder who has properly exercised and perfected his dissenter's rights under Sections 490.1302-490.1331 of the IBCA (the "Dissenting Shares") shall not be converted into the right to receive the Merger consideration, but the holders of Dissenting Shares shall be entitled to receive from the Company such consideration as shall be determined pursuant to Sections 490.1302-490.1331 of the IBCA; provided , however, that if any such holder shall have failed to perfect or shall effectively withdraw or lose his right to appraisal and payment under the IBCA, such holder's shares of Company Common Stock shall thereupon be deemed to have been converted, as of the Effective Time, into the right to receive a portion of the Merger Consideration, without any interest thereon, and such shares shall not be deemed to be Dissenting Shares.  Notwithstanding the foregoing, in the event any stockholder of the Company elects to exercise dissenter's rights, IRET shall have the right to terminate this Agreement.

          (g)Fractional Shares.  No fraction of a share of IRET Shares will be issued, but in lieu thereof each holder of shares of Company Common Stock who would otherwise be entitled to a fraction of a share of IRET Shares (after aggregating all fractional shares of IRET Shares to be received by such holder) shall receive from IRET an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the market price.

          (h)        Proration of Distribution.  The first quarterly distribution payable (after the Effective Time) with respect to each IRET share shall be reduced by an amount equal to the distribution amount declared per share of Company  Common Stock multiplied by the quotient of the number of days from the Effective Time to first distribution payment date subsequent to the Effective Time divided by the number of days from the first immediately preceding distribution payment date prior to the Effective Time and the first distribution payment date subsequent to the Effective Time.

          2.12Surrender of Certificates .

          (a)Exchange Agent.  Diane Bryantt, the CFO of IRET, shall act as exchange agent (the "Exchange Agent") in the Merger.

          (b)IRET to Provide Common Stock and Cash.  At the Closing, IRET shall issue and make available to the Exchange Agent for exchange in accordance with this Section 2.12, (i) the shares of IRET Shares issuable pursuant to Section 2.11(c) in exchange for shares of Company Common Stock outstanding immediately prior to the Effective Time, and (ii) cash in an amount sufficient to permit payment of cash in lieu of fractional shares pursuant to Section 2.11(h).

          (c)Exchange Procedures.  At and upon the Closing, IRET shall cause the Exchange Agent to issue to each holder of record of a certificate or certificates for the IRET Shares (the "Certificates") and cash in lieu of fractional shares upon surrender of

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the individual Shareholder's stock certificate representing such Shareholder's Company Common Stock.  Until so surrendered, each outstanding stock certificate representing the Shareholder's Company Common Stock will be deemed from and after the Effective Time, for all corporate purposes, to evidence the ownership of the number of full shares of IRET Shares into which such shares of Company Common Stock shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 2.11(h).

(d)Distributions with Respect to Unexchanged Shares.  No dividends or other distributions with respect to IRET Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Common Stock with respect to the shares of IRET Shares represented thereby until the holder of record of suchCompany Common Stock surrenders such Company Common Stock.  Subject to Applicable Law, following surrender of any such Company Common Stock, there shall be paid to the record holder Certificates representing whole shares of IRET Shares issued in exchange therefore, without interest, at the time of such surrender, the amount of any such dividends or other distributions with a record date after the Effective Time which would have been previously payable (but for the provisions of this Section 2.12(d)) with respect to such shares of IRET Shares.

(e)Transfers of Ownership.  If any Certificate for shares of IRET Shares is to be issued in a name other than that in which the Company Common Stock surrendered in exchange therefore is registered, it shall be a condition of the issuance thereof that the Company Common Stock so surrendered is properly endorsed or accompanied by a stock power duly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange will have paid to IRET or any agent designated by it any transfer or other taxes required by reason of the issuance of a Certificate for shares of IRET Shares in any name other than that of the registered holder of the Company Common Stock surrendered, or established to the satisfaction of IRET or any agent designated by it that such tax has been paid or is not payable.

(f)No Liability.  Notwithstanding anything to the contrary in this Section 2.12, none of the Exchange Agent, the Surviving Corporation or any Party hereto shall be liable to any Person for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

(g)Dissenting Shares.  The provisions of this Section 2.12 shall also apply to Dissenting Shares that lose their status as such, except that the obligations of IRET under this Section 2.12 shall commence on the date of loss of such status and the holder of such shares shall be entitled to receive in exchange for such shares the number of shares of IRET Shares (and cash in lieu of fractional shares) to which such holder is entitled pursuant to Section 2.11 hereof.

          2.13No Further Ownership Rights in Company Common Stock.  All shares of IRET Shares issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms hereof (including any cash paid in lieu of fractional shares) shall be

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deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Common Stock which were outstanding immediately prior to the Effective Time.  If, after the Effective Time, Company Common Stock is presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 2.12.

          2.14Lost, Stolen or Destroyed Certificates.  In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of IRET Shares (and cash in lieu of fractional shares) as may be required pursuant to Section 2.11; provided, however , that IRET may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to indemnify IRET against any claim that may be made against IRET, the Surviving Corporation or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

          2.15Transfer of Shares after the Effective Time.  No transfers of Company Common Shares shall be made on the stock transfer books of the Company after the close of business on the day prior to the Effective Date.

          2.16Post-Closing Merger Consideration Adjustment.

(a)Promptly following the Closing Date (but in any event within ninety (90) days after the Closing Date), I RET, at its expense, shall cause to be prepared and delivered to the Shareholders a certification (the "Closing Certificate") prepared by the Auditor.  The Closing Certificate shall include:

(i)a special purpose report of the Auditor setting forth the scope and procedures used to prepare and present the financial matters set forth in the Closing Certificate; and

(ii)a calculation and comparison of (A) the Estimated Merger Consideration as set forth in the calculation prepared and agreed to by IRET and the Company as of the Closing Date, and (B) the Merger Consideration calculated by the Auditor in accordance with this Section 2.16 and Schedule 2.16 , including the Parties' methodology in calculating the Estimated Merger Consideration set forth therein or therewith (the "Merger Consideration Calculation").  Any difference between the Estimated Merger Consideration and the Merger Consideration shall be deemed the "Merger Consideration Adjustment ."  In the event that:

(1)the Estimated Merger Consideration is greater than the Merger Consideration, the Shareholders, on a pro-rata basis in accordance with their respective pre-Closing ownership interest(s) in the Company, hereby authorize IRET to deduct their pro-rata share of the Merger Consideration Adjustment from future dividend payments to such

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Shareholder until the Merger Consideration Adjustment amount is satisfied.  IRET shall not have the right or authorization to deduct any amount from a dividend due to a Shareholder in excess of the Shareholder's pro-rata amount of the Merger Consideration Adjustment; or

(2)the Estimated Merger Consideration is less than the Merger Consideration, IRET shall remit in cash to the Shareholders, on a pro-rata basis in accordance with their respective pre-Merger ownership interest(s) in the Company, the amount of the Merger Consideration Adjustment.  All amounts owed by IRET to the Shareholders shall be paid by certified or bank cashier's check or by wire transfer of immediately available funds within five (5) business days of the (i) end of the Response Period, in the event none of the Shareholders object to the Closing Certificate within the Response Period, or (ii) receipt of theIndependent Accountant's decision with respect to and in the event of a dispute.

The Auditor's calculation and comparison shall indicate whether the Merger Consideration Adjustment is due (i) to the Shareholders, or (ii) IRET; and

(iii)copies of all supplementary documents, work papers and other data relating to the Closing Certificate; and

(iv)such other supplementary evidence as the Shareholders may require either prior to or after delivery of the Closing Certificate.

(b)In connection with the preparation of the Merger Consideration Calculation and all other matters arising under the Closing Certificate, IRET and the Merger Subsidiary shall afford the Shareholders and their representatives complete access to the books, records, personnel and facilities of or pertaining to the Company and permit the Auditor review of such information as is necessary or desirable to review the Merger Consideration Calculation and all other statements arising under the Closing Certificate.

(c)The calculation and form of the Estimated Merger Consideration and the Merger Consideration Calculation shall be in the form set forth in Schedule 2.16, with supporting schedules attached.  The Merger Consideration Calculation shall be prepared by the Auditor from the consolidated audited financial statements of the Company and its subsidiary datedJanuary 31, 2003 (resulting from the post-Closing Audit described in Section 11.7 of this Agreement).  The Estimated Merger Consideration and the Merger Consideration Calculation made, respectively, by the Parties and the Auditor shall depart from the GAAP presentation of any and all consolidated financial statements of the company in the following manner(s):

(i)The historical cost GAAP calculation of Rental Real Estate, Real Estate Development in Progress, and the associated Accumulated Depreciation thereto, shall be eliminated.  In its place Rental Real Estate shall be given a value

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of $67,135,000, and Real Estate Development in Progress shall be given a value of $2,760,000.

(ii)An asset entitled "Ripley, Tennessee Property" shall be an addition to Merger Consideration and valued at $250,000.

(iii)An asset entitled "Pre-Closing Lakeville Property Improvements" shall be an addition to Merger Consideration and valued at $52,945.

(iv)The GAAP calculation of the asset for Unbilled Real Estate Taxes shall be eliminated.  In its place, an addition to Merger Consideration shall be calculated for Unbilled Real Estate Taxes for all such Taxes not yet billed for the   actual amounts that have accrued, but have not been paid by the tenants, for the month of January, 2003 and any month in the calendar year 2002.  For purposes of this calculation, the month of January shall be the amount of Real Estate Taxes that would be paid by the tenant for the month of January, 2003 and the unpaid months of 2002 under the applicable Leased Real Estate lease.

(v)The historical cost GAAP calculation of furniture, fixtures and equipment (excluding transportation equipment), and associated depreciation, for the Company (excluding Westlake Liquors, Inc.) shall be eliminated. In its place, such furniture, fixtures and equipment shall be an addition to Merger Consideration and valued at $300,000.

          (vi)The historical cost GAAP calculation of transportation equipment (autos), and associated depreciation, shall be eliminated. In its place, such transportation equipment shall be an addition to Merger Consideration and valued at $50,175.

          (vii)The historical cost GAAP calculation of furniture, fixtures and equipment and associated accumulated depreciation, for Westlake Liquors, Inc. shall be eliminated. In its place such furniture, fixtures and equipment shall be an addition to Merger Consideration and valued at $50,000.

(viii)A non-GAAP accrual of mortgage interest that will be payable by the Surviving Corporation in February, 2003, with respect to mortgages on the Owned Real Estate shall be a subtraction from Merger Consideration.

(ix)The GAAP amounts computed for Accrued Real Property Taxes shall be eliminated.  In its place, an accrual of one-twelfth (1/12th) of the aggregate Real Estate Taxes that will be payable by the Surviving Corporation in May and October, 2003 shall be a subtraction from Merger Consideration.

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(x)           The amount of $138,000 for broker fees (described in Section 3.25), to the extent not accrued under GAAP in the January 31, 2003, consolidated audited financial statements of the Company, shall be subtracted from Merger Consideration. Notwithstanding the foregoing, if such amount is or has been paid on or before January 31, 2003, no subtraction shall be made from Merger Consideration.

(xi)No accrual shall be made for the Auditor's January 31, 2003, Audit of the Company.

(d)If any Shareholder concludes that any matter reported in the Closing Certificate, including the Merger Consideration Calculation and/or the Merger Consideration Adjustment, is not accurate, such Shareholder shall, within thirty (30) days after its receipt of the Closing Certificate (the "Response Period"), deliver to IRET a written statement setting forth a specific description of each of its objections and each of any discrepancies believed to exist.  If no notice of any objections or discrepancies is given within the Response Period, then the calculations set forth in the Closing Certificate shall be controlling for all purposes of this Agreement, and IRET or the Shareholders, as the case may be, shall be obligated to the other Party in the amount of the Merger Consideration Adjustment set forth in the Closing Certificate.

(e)          IRET and the Shareholders shall use good faith efforts to jointly resolve the properly noticed objections and discrepancies within fifteen (15) days of the receipt of the written statement of objections and discrepancies, which resolution, if achieved, shall be fully and completely binding upon all Parties to this Agreement and not subject to further review, appeal, or dispute.  If IRET and the Shareholders are unable to resolve the objections and discrepancies to their  mutual satisfaction within such fifteen (15) day period, then the matter shall be submitted to a mutually acceptable  accounting firm of national reputation (the "Independent Accountants ").  In submitting a dispute to the Independent Accountants, each of the Parties shall concurrently furnish, at its own expense, to the Independent Accountants and the other Party such documents and information as the Independent Accountants may request.  Each Party may also furnish to the Independent Accountants such other information and documents as it deems relevant, with copies of such submission and all such documents and information being concurrently given to the other Party.  Neither Party shall have or conduct any communication, either written or oral, with the Independent Accountants without the other Party either being present or receiving a concurrent copy of any written communication.  The Independent Accountants may conduct a conference concerning the objections and disagreements between the IRET and the Shareholders, at which conference each Party shall have the right to (i) present its documents, materials and other evidence (previously provided to the Independent Accountants and the other Party), and (ii) have present its or their advisors, accountants and/or counsel.  The Independent

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Accountants shall promptly (but not to exceed thirty (30) days from the date of engagement of the Independent Accountants) render a decision on the issues presented, and such decision shall be final and binding on all of the Parties to this Agreement.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS

As an inducement to IRET and the Merger Subsidiary to enter into this Agreement and to consummate the Transactions, the Company represents and warrants to IRET and the Merger Subsidiary that each and all of the following representations and warranties (as modified by the Schedules to this Agreement (the " Schedules ") and any Supplement delivered by the Company pursuant to Section 13.21 of this Agreement) are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date.  The Schedules shall be arranged in paragraphs corresponding to the sections and subsections contained in this Article 3.

          3.1 Organization.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Iowa.  The Company has all requisite power and authority, corporate and otherwise, to own, operate and lease its properties and assets and to conduct the business as it is now being conducted.  The Company is duly qualified to transact business as a foreign corporation and is in good standing under the laws of every state or jurisdiction in which the nature of its activities or of its properties owned, leased or operated makes such qualification necessary and in which the failure to be so qualified could reasonably be expected to have a Material Adverse Effect on the Company.  Schedule 3.1 sets forth each jurisdiction in which the Company is qualified to do business.

          3.2 Capitalization.  The authorized capital stock of the Company consists solely of 175 shares of common stock consisting of 175 shares of voting common stock, of which 165.496 shares of Company Common Stock are outstanding on the date hereof and owned beneficially and of record as indicated in Exhibit H, free and clear of all liens and Encumbrances.  None of the Company Common Stock has been issued in violation of the rights of any Person.  Except as set forth on Schedule 3.2 hereto, as of the date hereof, (i) there are no Convertible Securities or Debt Securities outstanding, (ii) there are no Rights outstanding, and (iii) there are no shareholder agreements or other agreements, understandings or commitments relating to the rights of the stockholders of the Company to vote or dispose of the Company Common Stock.

  3.3 Due Authorization.  The execution, delivery and performance of this Agreement and the Ancillary Documents to be executed by the Company pursuant to this Agreement, and the consummation of the Transactions have been duly and validly authorized by all necessary action on the part of the Company and the Shareholders.  This Agreement and the Ancillary Documents to be executed by the Company pursuant to this Agreement have been, or will be on or before the Effective Time, duly and validly authorized, executed and delivered by the Company and the obligations of the Company hereunder and thereunder are or will be upon such

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execution and delivery valid, legally binding and enforceable against the Company and, after the Closing, the Shareholders, in accordance with their respective terms.

          3.4 No Breach.  The Company has full power and authority to execute and deliver this Agreement and, subject to the approval of its Shareholders, perform its obligations under this Agreement and the Ancillary Documents to be executed by the Company pursuant hereto.  Each of the Shareholders has the full legal right, power and authority to enter into this Agreement and to perform his obligations under this Agreement and the Ancillary Documents to be executed by such Shareholder pursuant hereto.  The execution and delivery of this Agreement and the Ancillary Documents to be executed by the Company and the Shareholders pursuant to this Agreement, and the consummation of the Transactions will not:  (i) violate any provision of the Organizational Documents of the Company, (ii) violate any Applicable Laws or Injunction applicable to the Company or the Shareholders, (iii) other than as provided in Schedule 3.4 hereto, require any filing with, Permit from, authorization, consent or approval of, or the giving of any notice to, any Person, (iv) except as provided in Schedule 3.4 hereto, result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give another party any rights of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, Permit (including, but not limited to, any Permits, approvals or authorizations of any Governmental Body), lease or other Contract to which the Company and/or the Shareholders is a party, or by which they or any of their properties or assets may be bound, or (v) result in the creation or imposition of any Encumbrance on any of the properties or assets of the Company or the Shareholders.

          3.5 Clear Title.  Except as otherwise set forth on Schedule 3.5 hereto, at the Effective Time, the Company will hold good, valid and marketable title to all of its properties and assets and a valid leasehold interest in all Leased Real Estate and all leased properties and assets.

          3.6 Condition of Assets.  Except as set forth in Schedule 3.6 hereto, all of the non-Real Estate properties and assets of the Company (i) have in all material respects been properly maintained, (ii) are in all material respects in good operating condition and repair, subject only to ordinary wear and tear, (iii) are usable and fit for their intended purpose, and (iv) are all the assets used to operate, and necessary to operate, the Business of the Company as currently conducted.

 3.7 Litigation.  Except as described in Schedule 3.7 hereto, there is no pending Proceeding:

(a)that has been commenced by or served upon the Company or the Shareholders, or of which the Company or the Shareholders have Knowledge (other than any Proceeding which generally affects the business of all Persons conducting business similar to the Company and in which the Company is not a named defendant); or

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(b)to the Knowledge of the Company or the Shareholders, that challenges, or that will have the effect of preventing, delaying, making illegal, or otherwise interfering with, this Agreement or the Transactions.

To the Knowledge of the Company or the Shareholders, no such Proceeding has been Threatened.  Except as provided in Schedule 3.7 hereto, to the Knowledge of the Company or the Shareholders, the Company is not a party to or subject to the provisions of any Injunction which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company or impair the ability of the Shareholders to consummate the Transactions.

          3.8 Labor Matters.  The Company has never been a party to any collective bargaining agreement or other labor Contract.  There has never been, and there is not presently pending or existing, and to the Knowledge of the Company or the Shareholders, there is not Threatened, (i) any strike, slowdown, walkout, picketing, work stoppage, labor arbitration or other Proceeding in respect of the grievance of any employee, (ii) any application or complaint filed by any employee or union with the National Labor Relations Board, or any comparable Governmental Body, (iii) any organizational activity or other labor dispute against or affecting the Company, and no application for certification of a collective bargaining agreement is pending or, to the Knowledge of the Company or the Shareholders, is Threatened.  There is no lockout of any employees by the Company and no such action is contemplated by the Company.  Except as set forth in Schedule 3.8 hereto, there is no allegation, charge, complaint or Proceeding pending or, to the Knowledge of the Company or the Shareholders, Threatened by any Person against the Company or any of its current or former officers, directors or employees relating to employment, equal employment opportunity, discrimination, harassment, wrongful discharge, unfair labor practices, immigration, wages, hours, benefits, collective bargaining, the payment of social security or similar Taxes, occupational safety and health or plant closing.

          3.9 Tax Matters.

(a)Tax Returns.  The Company has timely filed or caused to be timely filed or will timely file or cause to be timely filed with the appropriate taxing authorities all Tax Returns that are required to be filed by, or with respect to, the Company on or prior to the Effective Date.  The Tax Returns have accurately reflected and will, to the Knowledge of the Company, accurately reflect all Liability for Taxes of the Company for the periods covered thereby. Schedule 3.9(a) lists all income Tax Returns filed with any Governmental Body with respect to the Company for the taxable periods ended on or after December 31, 1999.

(b)Payment of Taxes.  All Taxes and Tax Liabilities of the Company for all taxable years or periods that end on or before the Effective Date and, with respect to any taxable year or period beginning before and ending after the Effective Date, the portion of such taxable year or period ending on the day immediately preceding the Effective Time ("Pre-Closing Period") have been timely paid or accrued and adequately disclosed and fully provided for on the books and records of the Company in accordance with GAAP, except for interim financial statements for which accruals for such Taxes may not have been made.

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(c) Other Tax Matters.  Except as set forth on Schedule 3.9(c) :

(i)The Company has not been the subject of a dispute or claim or an audit or other examination of Taxes by the Tax authorities of any Governmental Body, nor has the Company received any notices from any such Tax authority relating to any issue which could affect the Tax Liability of the Company.  Schedule 3.9(c)(i) alsoincludes a list of all Tax examination reports and statements of deficiencies assessed against or agreed to by the Company since January 1, 1995, each of which has been provided to IRET.

(ii)Neither the Shareholders nor any predecessor stockholder of the Company or the Company has, as of the Effective Time, (A) entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of Taxes of the Company, or (B) is presently contesting the Tax Liability of the Company before any court, tribunal or agency.

(iii)The Company has not been included in any "consolidated," "unitary" or "combined" Tax Return provided for under Applicable Law with respect to Taxes for any taxable period for which the statute of limitations has not expired.

(iv)All Taxes which the Company is (or was) required by law to withhold or collect have been duly withheld or collected, and have been timely paid over to the proper authorities to the extent due and payable.

(v)The Company is not a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code.

(vi)There are no Tax sharing, allocation, indemnification or similar agreements in effect as between the Company or any predecessor or Affiliate thereof and any other party (including the Shareholders and any predecessors or Affiliates thereof) under which IRET, the Company or the Surviving Corporation could be liable for any Taxes or other claims of any Person.

(vii)The Company has not applied for, been granted, or agreed to any accounting method change for which it will be required to take into account any adjustment under Section 481 of the Code or any similar provision of the Code or the corresponding Tax laws of any nation, state or locality.

(viii)No election under Section 341(f) of the Code has been made or shall be made prior to the Effective Time to treat the Company as a consenting corporation, as defined in Section 341 of the Code.

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(ix)The Company is not a party to any agreement that would require it to make any payment that would constitute an "excess parachute payment" for purposes of Sections 280G and 4999 of the Code.

(x)The Company, through its stockholders, has made a valid S election under Section 1361 of the Code.  Such election was made on June 26, 2001 and was effective as of the Tax year commencing May 1, 2001.  The Company has also made all such elections required under any analogous provisions of state or local law.  The Company will continue to be a valid S corporation through the Effective Time.

(xi)Except for the Private Letter Ruling request made by the Company with respect to the Transactions contemplated by the Company and the Shareholders pursuant to and under this Agreement, a copy of which has been provided to IRET and the Merger Subsidiary, there are no requests for rulings in respect of any Taxes pending between the Company and any Tax authority.

          3.10Employee Benefits .

(a)Benefit Plans.  Except as described in Schedule 3.10 hereto, the Company does not maintain or contribute to any Benefit Plans.  Without limiting the generality of the foregoing provision of this Section, except as described in Schedule 3.10 hereto, there are no pension plans, welfare plans or employee benefit plans qualified under Section 401(a) of the Code to which the Company is required to contribute.  Except as described in Schedule 3.10 hereto, the Company does not and will not have any unfunded Liability for services rendered prior to the Effective Date under any Benefit Plans.  The Company is not in any material default under any Benefit Plan.  Except as set forth in Schedule 3.10, neither the Company, nor any Person now or formerly part of a controlled group with the Company, within the meaning of Section 412(c)(11)(B)(ii) of the Code, maintains or has ever maintained a "defined benefit plan," as defined in Section 3(35) of ERISA, that is subject to Section 412 of the Code and Section 302 of ERISA.  Except as set forth in Schedule 3.10 hereto, neither the Company nor any of its subsidiaries contributes to or has, or could reasonably be expected to have, any Liability (including but not limited to withdrawal Liability) with respect to any multi-employer plan (as defined in Section 4064(a) of ERISA or Section 4001(a)(3) of ERISA).  Other than claims for benefits in Ordinary Course of Business, there are no actions, suits, disputes, arbitrations or other material claims pending or, to the Knowledge of the Company, Threatened, with respect to any Benefit Plan.  The execution and delivery by the Company of this Agreement and the consummation of the Transactions will not accelerate the payment of any benefits under any Benefit Plan.

(b)Other Plans.  Except as otherwise set forth in Schedule 3.10, there are no present or former employees of the Company who are entitled to (i) any pensions or other benefits to be paid after termination of employment, including termination on account of

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disability (except as otherwise required under Section 601 of ERISA), or (ii) deferred compensation payments.

(c)Documents.  The Company has made available to IRET the following documents, as they may have been amended to the date hereof, embodying or relating to each Benefit Plan of the Company listed in Schedule 3.10 hereto:  (i) all written plan documents for each such Benefit Plan, including all amendments to each such Benefit Plan, any related trust agreements, group annuity contracts, insurance policies or other funding agreements or arrangements, (ii) the most recent determination letter received from the IRS, if any, as to the qualified status of any such Benefit Plan under Section 401(a) of the Code, (iii) the current summary plan description, if any, for each such Benefit Plan, and (iv) the most recent annual return/report on form 5500, 5500C or 5500R, if any, for each such Benefit Plan.

(d)Prohibited Transactions.  The Company has not, nor, to the Knowledge of the Company, has any other "disqualified person" or "party in interest", as defined in Section 4975(e)(2) of the Code and Section 3(14) of ERISA, respectively, engaged in a "prohibited transaction," as such term is defined in Section 4975 of the Code and Section 406 of ERISA, with respect to any Benefit Plan of the Company subject to ERISA, which could reasonably be expected to subject the Company to a Tax or penalty on prohibited Transactions imposed by either Section 502(i) of ERISA or Section 4975 of the Code.  The execution and delivery by the Company of this Agreement and the consummation of the Transactions will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code with respect to any Benefit Plan listed on Schedule 3.10 hereto.

(e)Fiduciary Duty.  Neither the Company, nor, to the Knowledge of the Company, any other fiduciary of any Benefit Plan listed on Schedule 3.10 hereto engaged in any transaction with respect to such Benefit Plan or failed to act in a manner with respect to such Benefit Plan which could reasonably be expected to subject the Company to any material Liability for a breach of fiduciary duty under ERISA or any other Applicable Law.

(f)COBRA.  Except as set forth on Schedule 3.10 hereto, the Company has complied in all material respects with the coverage continuation requirements of all Applicable Laws, including Sections 601 through 609 of ERISA, Section 4980B of the Code, and the requirements of any similar state law regarding continued insurance coverage, and the Company has incurred no material Liability with respect to its failure to offer or provide continued coverage in accordance with the foregoing requirements, nor is there any suit pending, or to the Knowledge of the Company, Threatened, with respect to such requirements.

(g)Triggering of Obligation and Other Binding Commitments.  Except for the claims set forth in Schedule 3.10, the consummation of the Transactions, in and of themselves, will not entitle any current or former employee of the Company to severance pay, unemployment compensation or any other payment, or accelerate the time of

29

payment or vesting, or increase the amount of compensation due to any such employee or former employee.

          3.11No Guaranties .  Except as set forth on Schedule 3.11, (i) none of the obligations of the Company is guaranteed by, or subject to a similar contingent Liability of, any Person, and (ii) the Company has not guaranteed, or otherwise become contingently liable for, any Liability of any Person.

          3.12Financial Statements .  The Company has furnished true and correct copies of the financial statements identified in Schedule 3.12 hereto to IRET.  All of said financial statements, including any notes thereto, are true and correct in all material respects and fairly present the financial position and condition of the Company as of their respective dates and the results of its operations for the periods covered thereby in accordance with GAAP applied by the Company on a consistent basis throughout the periods covered thereby and on a basis consistent with that of prior years and periods; provided, however, that any interim financial statements listed on such Schedule 3.12 are subject to yearend adjustments and lack footnotes and other required presentation items.  Except for Liabilities (i) reflected or reserved against in the balance sheet (the "Balance Sheet") of the Company as of December 31, 2001 (the " Balance Sheet Date") or in the notes thereto, (ii) incurred in the Ordinary Course of Business since the Balance Sheet Date (none of which resulted from, arose out of, is related to, or was caused by any breach of Contract, breach of warranty, tort, infringement or violation of Applicable Laws), (iii) arising under Contracts to which the Company is a party, and/or (iv) described on Schedule 3.12 hereto, the Company does not have any Liabilities which, individually or in the aggregate, would have a Material Adverse Effect on the Company.  The reserves reflected in the Balance Sheet are adequate.

          3.13Absence of Certain Developments.  Except for the Transactions contemplated hereby, and as otherwise set forth on Schedule 3.13 hereto, since September 30, 2002, the Company has conducted the Business only in the Ordinary Course of Business and has not:

(a)Except as specifically contemplated by this Agreement, sold, leased, assigned or otherwise transferred any material properties or assets, or disposed of or permitted to lapse any rights in any Permit or Intellectual Property owned or used by the Company, other than in the usual and Ordinary Course of Business, or organized any new business entity or acquired any equity securities, assets, properties, or business of any Person or any equity or ownership interest in any business or merged with or into or consolidated with any other Person;

(b)Suffered, sustained or incurred any material Loss or waived or released any material right or claim, whether or not in the Ordinary Course of Business;

(c)Suffered, sustained or incurred any material damage, destruction or casualty loss to any material properties or assets, whether or not covered by insurance;

(d)Engaged in any transaction not in the Ordinary Course of Business;

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(e)Made any capital expenditure (or series of related capital expenditures affecting one parcel of real property) exceeding $250,000;

(f)Subjected any of its properties or assets to any Encumbrance, whether or not in the Ordinary Course of Business;

(g)Issued any note, bond or other Debt Security; created, incurred or assumed any indebtedness for borrowed money or capitalized lease obligation or otherwise incurred any material Liability, except current Liabilities incurred in the Ordinary Course of Business;

(h)Discharged or satisfied any Encumbrance, or paid any material Liability, other than current Liabilities shown on the Balance Sheet of the Company as of the Balance Sheet Date, and current Liabilities incurred in the Ordinary Course of Business;

(i)Declared, set aside or paid a dividend or made any other distribution with respect to any class or series of capital stock of the Company, or directly or indirectly redeemed, purchased or otherwise acquired any shares of any class or series of the capital stock of the Company;

(j)Increased the salary, wage or other compensation or level of benefits payable or to become payable by the Company to any of its officers, directors, employees or agents other than in the Ordinary Course of Business;

(k)Loaned money to any Person or guaranteed any loan to or Liability of any Person, whether or not in the Ordinary Course of Business;

(l)Amended or terminated any of the Operating Contracts (as hereinafter defined), except in the Ordinary Course of Business;

(m)Changed accounting methods or practices (including, without limitation, any change in depreciation, amortization or cost accounting policies or rates);

(n)Suffered, sustained or incurred any Material Adverse Change in the properties, assets, Liabilities, revenues, income, business, operations, results of operations or financial condition of the Company;

(o)Received notice from any customer, supplier, vendor, Governmental Body or any other Person which would, with substantial certainty, give rise to or result in a Material Adverse Effect on the Company;

(p)Delayed or postponed the payment of accounts payable or other Liabilities outside of the Ordinary Course of Business;

(q)Entered into any employment Contract or collective bargaining agreement, written or oral, or modified the terms of any existing such Contract or agreement or

31

adopted, amended, modified or terminated any Benefit Plan for the benefit of any of the directors, officers or employees of the Company;

(r)Made any change or amendment in its Organizational Documents;

(s)Issued or sold any securities; acquired, directly or indirectly, by redemption or otherwise, any securities; reclassified, split-up or otherwise changed any such equity security; or granted or entered into any options, warrants, calls or commitments of any kind with respect thereto;

(t)Entered into any Contract to do any of the foregoing.

          3.14Intellectual Property .  Schedule 3.14 hereto contains a list and description of all Intellectual Property owned by the Company or used by the Company in the operation of the Business.  Except as set forth in Schedule 3.14 , the Company has no Knowledge of any asserted claim to the effect that the operation of the Business or the possession or use in the Business of any of the Intellectual Property listed and described on Schedule 3.14 hereto, infringes the intellectual property rights of any other Person.  Except as set forth in Schedule 3.14, the Company has no Knowledge of any claim that any of the Intellectual Property listed and described on Schedule 3.14 is invalid; and, except as provided in Schedule 3.14 hereto, the Company is not obligated under any Contract or otherwise to pay royalties, fees or other payments with respect to any of the Intellectual Property listed and described on Schedule 3.14 hereto.  Except as set forth in Schedule 3.14 , the consummation of the Transactions will not adversely affect the use by the Company of any of the Intellectual Property listed on Schedule 3.14 hereto.

          3.15Compliance with Laws .  Except as set forth on Schedule 3.15 hereto, (i) the Business has been operated and the Company is in compliance in all material respects with the requirements of all Applicable Laws to which the Company is subject, and (ii) the Company has not received any notice of, and the Company and the Shareholders have no Knowledge of any violation of a material nature of any Applicable Laws respecting the Company.  Notwithstanding the foregoing, it is understood and agreed that the foregoing shall not apply to the acts, actions, omissions, breaches or defaults of any tenant lessee of the Company with respect to such person's compliance with Applicable Law, and the Company makes no representation or warranty with respect to such person.  No act, action, omission, breach or default of a tenant/lessee shall result in any breach or obligation of the Company under this Agreement.

          3.16Operating Contracts .  Except as disclosed in Schedule 3.16, and except with respect to (i) Contracts that have been fully performed as of the date hereof and have no further force or effect, (ii) Contracts that can be terminated on sixty (60) days or less notice, (iii) Contracts that have associated payments of less than $5,000 per year, and (iv) the Contracts that are mortgages (the "Mortgages") and tenant leases (the "Tenant Leases") and vacant land Real Estate properties set forth on Schedule 3.22, the Company is not a party to any oral or written Contract.  All of the Contracts listed on Schedule 3.16 hereto are referred to in this Agreement as the "Operating Contracts ."  All of the Operating Contracts, Mortgages and Tenant Leases were made in the Ordinary Course of Business, and, to the Knowledge of the

32

Company, are valid, binding and currently in full force and effect.  Except as set forth on Schedule 3.16, the Company is not in default under any of the Operating Contracts, Mortgages or Tenant Leases, and, to the Knowledge of the Company, no event has occurred which, through the passage of time or the giving of notice, or both, would constitute a default by the Company or give rise to a right of termination or cancellation by another party under any of the Operating Contracts, the Mortgages or Tenant Leases, or cause the acceleration of any Liability of the Company, or result in the creation of any Encumbrance upon any of the properties or assets of the Company.  To the Knowledge of the Company, no other party is in default under any of the Operating Contracts, Mortgages or Tenant Leases.  Except as described on Schedule 3.16 hereto, none of the Operating Contracts, Mortgages or Tenant Leases have been canceled, terminated, amended or modified.  Except as provided in Schedule 3.4 hereto, the consummation of the Transactions will not require the consent or approval of any Person under any of the Operating Contracts, Mortgages or Tenant Leases.

          3.17Real Estate.  With respect to each parcel of real estate owned by the Company (the " Owned Real Estate"), and each parcel of real estate leased by the Company (the "Leased Real Estate"):

(a)Schedule 3.17 contains a complete and accurate listing of the locations of each parcel of Owned Real Estate and a listing and description (including the parties, term, expiration date(s) and locations of the leased premises) of each written or oral lease regarding Leased Real Estate;

(b)Except as set forth on Schedule 3.17 hereto, to the Knowledge of the Company, there are no publicimprovements affecting any parcel of Owned Real Estate or Leased Real Estate (collectively the "Real Estate"),including, but not limited to, water, sewer, sidewalk, street, alley, curbing, landscaping or related improvements, which have been commenced and/or completed and for which an assessment has not been levied or, to the Knowledge of the Company, which may be levied after the date of this Agreement;

(c)Except as set forth in Schedule 3.17 hereto, to the Knowledge of the Company, there are no deferred property Taxes or assessments with respect to the Real Estate which may or will become due and payable as a result of the consummation of the transaction contemplated hereby;

(d)The Company is the sole owner in fee simple title of each parcel of Owned Real Estate and to the Knowledge of the Company, each such parcel is free and clear of any and all Encumbrances, except (i) those Encumbrances set forth in Schedule 3.17 hereto, (ii) municipal zoning ordinances, recorded or platted easements for public utilities and recorded building and use restrictions and covenants, (iii) general Real Estate Taxes and installments of special assessments payable in the year of Closing, (iv) minor survey exceptions, Encumbrances, licenses, easements or reservations of, or rights of others for, oil, gas minerals, ores or metals, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions on the use of real property, minor defects in title or other similar charges or Encumbrances not

33

interfering in any material respect with the Ordinary Course of Business of the Company or with the use or ownership of the Owned Real Estate, (v) mortgages, liens, and other debt on or related to the Owned Real Estate, and (vi) tenant and other leases and similar rights (collectively the "Permitted Encumbrances").  To the Knowledge of the Company, the Permitted Encumbrances and those Encumbrances set forth in Schedule 3.17 hereto do not individually or in the aggregate materially impair or prohibit the Company's current use of the Owned Real Estate;

(e)Except as set forth in Schedule 3.17 hereto, there are no condemnation Proceedings pending or, to the Knowledge of the Company, Threatened with respect to all or any part of any parcel of Real Estate;

(f)To the Knowledge of the Company, except for the Permitted Encumbrances and those Encumbrances set forth in Schedule 3.17 hereto, there are no private restrictions, covenants, or reservations which materially and adversely affect the use or occupancy of all or any part of any parcel of Real Estate or any easements;

(g)Except as set forth in Schedule 3.17 hereto, to the Knowledge of the Company, other than the Americans With Disabilities Act, which will be applicable to all properties that, among other things, undergo remodeling, refurbishing and similar changes, there are no Applicable Laws requiring repair, alteration or correction of any existing condition on any parcel of Real Estate and, to the Knowledge of the Company or the Shareholders, there are no conditions other than tenant leasehold build-outs or improvements that could give rise to the same;

(h)Except as set forth in Schedule 3.17 hereto, the improvements made by the Company (as opposed to any tenant) on each parcel of Real Estate and the use thereof by the Company comply in all material respects with any and all building, zoning, subdivision, traffic, parking, land use, occupancy, health and other Applicable Laws pertaining to the Real Estate or to the development, construction, management, use and operations of the improvements thereon;

(i)Except as set forth in Schedule 3.17 hereto, to the Knowledge of the Company, the improvements made by the Company (as opposed to any tenant) located on each parcel of Real Estate, including fences, driveways and other structures occupied, used or claimed by the Company, are wholly within the boundary lines of such parcels of Real Estate and such improvements and the present uses thereof by the Company do not in any material respect infringe upon the rights of any other Person; and

(j)Except as set forth in Schedule 3.17 hereto, to the Knowledge of the Company, the Company has all operating Permits necessary for its operation of the Business on the Real Estate (as opposed to the businesses operated by tenants), and all such Permits are current, except where the failure to have any such current operating Permit in good order would not have a Material Adverse Effect.  To the Knowledge of the Company, except as set forth inSchedule 3.17, the Company has all easements, or access through public utility easements, on to private property, construction Permits,

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highway crossing Permits (and other similar Permits) and right-of-way-licenses reasonably necessaryto the conduct of its Business, except where the failure to have any such easement on to private property, construction Permits, highway crossing Permits (and other similar Permits), and right-of-way licenses would not have a Material Adverse Effect.

          3.18Accounts Receivable .  The Company's accounts receivable and other rights to the payment of money represent, and at the Effective Time will represent, valid obligations arising from transactions actually made or services actually performed in the Ordinary Course of Business.

          3.19Books and Records; Bank Accounts.  The Company's books of account and other financial and corporate records relating to the Business have been made available to IRET and its representatives (or will be so made available prior to the Effective Date).  Such books of account and records are current, complete, true and correct in all material respects.  All such books and records are consistent with the Financial Statements listed on Schedule 3.12 hereto.  Attached hereto as Schedule 3.19 is a list of all of the Company's bank accounts, security accounts and other similar accounts, and the names of all Persons authorized to draw thereon or have access thereto, as well as the identification of all safety deposit boxes, and the Persons authorized to have access to those boxes.

          3.20Employees.  Schedule 3.20 hereto contains a list of the names, positions, proposed annual salary and hourly wage rates, severance benefits and accrued vacation and sick leave, as of the date hereof, of all present employees of the Company, other than the Shareholders who may also be employees (including those on furlough, leave, disability (short- or long-term) or layoff of any kind).  Except as set forth in Schedule 3.20, and except for each of the Shareholders other than Charles Wm. James, none of the employees has informed the Company that he/she intends to terminate employment with the Company.  IRET and the Merger Subsidiary acknowledge and agree that none of the Shareholders, other than Charles Wm. James, intend or are obligated to provide services as employees to or on behalf of the Company upon and after the Closing.  Schedule 3.20 also sets forth a description of any written Contract, other than the Benefit Plans described on Schedule 3.10 hereto, with respect to the conditions of employment of any of the Company's employees.  All employees are employed on an "at will" basis.

          3.21Permits.  Except as set forth in Schedule 3.21, the Company has obtained all Permits of each Governmental Body having jurisdiction over the Company or any of its properties or assets to operate and carry on the Business as they are now being conducted.

          3.22Mortgages and Tenant Leases.  Schedule 3.22 hereto sets forth a schedule of the Mortgages and Tenant Leases to which the Company is a party.

          3.23Subsidiaries ..  Except as disclosed or described in this Agreement or as set forth on Schedule 3.23 hereto, the Company has no subsidiaries and does not own any shares of stock or other securities or equity interests, directly or indirectly, in any other Person.  Except as

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disclosed or described in this Agreement or as set forth on Schedule 3.23 hereto, the Company is not subject to any obligation or requirement to provide funds to, or invest in, any such Person.

          3.24Insurance.  The Company has maintained and will continue to maintain until the Effective Time the insurance described in Schedule 3.24, which insurance covers the tangible real and personal property and assets of the Company and its subsidiaries disclosed on Schedule 3.23, whether owned or leased, against loss or damage by fire or other casualty.  All such insurance is in full force on the date of this Agreement and is carried with insurers licensed in the states affected by such policies.  The Company has promptly and adequately notified the Company's insurance carriers of any and all claims known to the Company with respect to the operations, products or services of the Company for which the Company is insured.  The Company has not been refused any insurance coverage by any insurance carrier to which it has applied for insurance during the past three (3) years.

          3.25Brokers and Finders .  Except for CB Richard Ellis and its agent, Joseph Sullivan, who shall be paid by the Company (the amount of which is set forth in section 2.16 and Schedule 2.16), and except as set forth on Schedule 3.25 , neither the Company nor the Shareholders has employed or engaged any broker, finder, agent, banker or third party, nor have they otherwise dealt with anyone purporting to act in the capacity of a finder or broker in connection with the Transactions and no commissions, finder's fees or like charges have been or will be incurred by the Company in connection with the execution and delivery of this Agreement or the consummation of the Transactions.  Any commissions, finders' fees or like charges incurred by the Company shall reduce the Estimated Merger Consideration to be paid in connection with the exchange of the Company Common Stock for the shares of IRET Shares as contemplated by the terms of this Agreement.

          3.26Relationship with Related Persons.  Except as set forth in Schedule 3.26 hereto, none of the Shareholders, the other current and former stockholders, directors, officers, and employees of the Company, and their Related Persons have any interest in any of the properties or assets of or used by the Company and none of such Persons own, of record or as a beneficial owner, an equity interest or any other financial or profit interest in any Person that (i) has had business dealings or a material financial interest in any transaction with the Company or, (ii) has engaged or is engaged in competition with the Company with respect to any line of products or services of the Company in any market presently served by the Company (a "Competing Business ") (except for less than five percent (5%) of the outstanding capital stock of any Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market).  To the Knowledge of the Company, and except as set forth on Schedule 3.26 hereto, no stockholder, director or officer of the Company and none of their Related Persons is a party to any Contract with, or has any claim or right against, the Company, other than the rights the officers and directors of the Company have with respect to indemnification under Applicable Law.  All money owed by the Company to its stockholders, directors or officers, or their Related Persons (other than for salary) are for bona fide debts and are set forth in Schedule 3.26 hereto.

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          3.27Hazardous Materials .  Except as set forth in Schedule 3.27 hereto, to the Knowledge of the Company, the Company has never generated, transported, stored, handled, disposed of or contracted for the disposal of any Hazardous Materials.  Except as set forth in Schedule 3.27 hereto, to the Knowledge of the Company, no employee of the Company has, in the course and scope of employment with the Company, been exposed to any Hazardous Materials in such a manner as to be harmed thereby (whether such harm is now known to exist or will be discovered in the future).  Except as set forth on Schedule 3.27 hereto, the Company is not listed as a potentially responsible party under CERCLA or any comparable or similar Applicable Law, the Company has not received notice of such a listing.

          3.28Other Environmental Matters.

(a)Except as set forth on Schedule 3.28 hereto, and except with respect to the acts, actions, omissions, breach or default of any tenant (i) the Real Estate has been operated by the Company and is in compliance in all material respects with all Applicable Laws, including Environmental Laws and all Applicable Laws relating to underground and/or above ground petroleum storage tanks, (ii) to the Knowledge of the Company, except as set forth on Schedule 3.28 hereto, the Company otherwise complies in all material respects with all Environmental Laws, (iii) to the Knowledge of the Company, except as set forth on Schedule 3.28 hereto, the Company has obtained or has taken appropriate steps, as required by Environmental Laws and Applicable Laws, to obtain all environmental, health and safety Permits and other authorizations necessary for the ownership and operation of the Business, and to the Knowledge of the Company, all of the Permits and other such authorizations are in good standing, and the Company is in compliance in all material respects with such Permits and other such authorizations, (iv) to the Knowledge of the Company, the Real Estate is free of any and all Hazardous Materials, and (v) the Real Estate is not subject to any "Super Fund" type Encumbrances by any Person arising from the release or Threatened release of any Hazardous Materials in, on, about or under the Real Estate.

(b)To the Knowledge of the Company, all of the third parties with which the Company has arranged, engaged or contracted to accept, treat, transport, store, dispose or remove any pollutant generated or present at the Real Estate, or which otherwise participate or have participated in activities or conduct related to the Real Estate or the Business, were properly permitted at the relevant time to perform the foregoing activities or conduct.

(c)Except as described on Schedule 3.28 hereto, to the Knowledge of the Company, there are not currently any wells or underground and/or above ground storage tanks (whether or not currently in use) on any parcel of Real Estate and, to the extent such wells or tanks are described in Schedule 3.28 , all such wells and tanks are, to the Knowledge of the Company, in sound condition and are not leaking.

(d)To the Knowledge of the Company, and except as set forth in Schedule 3.28 hereto, the Company is not subject to any investigation, nor has the Company received any written notification within the past two years of any Proceeding alleging

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or addressing (i) any violation of Environmental Laws, or (ii) any claims or liabilities and costs arising from the release or Threatened release of any Hazardous Materials.  To the Knowledge of the Company, there has beenno release of any Hazardous Materials in a reportable quantity under Environmental Laws at, to or from the Real Estate.

(e)Except as set forth in Schedule 3.28 hereto, to the Knowledge of the Company, there is not constructed, placed, deposited, stored, disposed or located on the Real Estate any asbestos.

(f)Except as set forth in Schedule 3.28 hereto, to the Knowledge of the Company, there is not constructed, placed, deposited, stored, disposed nor located on the Real Estate any polychlorinated biphenyls ("PCBs") or transformers, capacitors, ballasts, or other equipment which contain dielectric fluid containing PCBs.

          3.29Debt Instruments .  Schedule 3.29 is a true, correct and complete list showing the names of the parties and outstanding indebtedness as of the respective dates set forth on Schedule 3.29 under all notes, guarantees, indentures and other obligations for or relating to borrowed money, purchase money debt (including conditional sales contract and capital leases) or covenants not to compete, other than the Mortgages set forth on Schedule 3.22 hereof (the "Debt Instruments "), for which the Company is primarily or secondarily obligated.  The Company has previously delivered to IRET true, complete and correct copies of each of the Debt Instruments.  Except as described in Schedule 3.29 , the Company has performed all of the material obligations required to be performed by it, and is not in material default under any of the provisions of any of the Debt Instruments, and there has not occurred any event which, (with or without notice, lapse of time or the happening or occurrence of any other event) would constitute such a default.

          3.30Tenants and Suppliers .  To the Knowledge of the Company, and except in the Ordinary Course of Business, no tenant, subscriber or a group of tenants of the Company has notified the Company on or after September 30, 2002, that the tenant intends to terminate, cancel, limit or modify the tenant's business relationship with the Company, except such terminations, cancellations, limitations or modifications as occur in the Ordinary Course of Business of the Company.  No vendor, supplier, dealer, representative or consultant of the Company which is material to the Company's business operations has notified the Company after September 30, 2002, that it intends to terminate, cancel, limit or modify its business relationship with the Company in any material respect.

         3.31Stockholder Loans .  Except as set forth in Schedule 3.31, there are no loans, advances or other obligations for borrowed money owing by the Company to the Shareholders as of the date hereof, and no amount shall be owing for such obligations at and upon the Closing.  Except for the Shareholder Guarantees described in Section 5.14, and except as set forth in Schedule 3.31, the Shareholders do not have any claim of any kind against the Company, and no amount shall be owing for such obligations at and upon the Closing.

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          3.32Adequacy of Properties .  The Company owns, leases or otherwise has adequate rights to use all Real Estate and tangible and intangible personal property necessary for the conduct of its Business in the manner in which such Business is presently being conducted with no conflict with or infringement of the rights of others, and none of such property or the rights of the Company thereto is subject to any pending Proceeding, or to the Knowledge of the Company, Threatened, which may result in the revocation, termination, supervision, cancellation or adverse modification of any such property.

          3.33Absence of Certain Business Practices.  Except as disclosed in Schedule 3.33 , neither the Company nor any Person acting on its behalf has, directly or indirectly, within the past six (6) years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other Person who is or may be in a position to help or hinder the Business of the Company (or assist the Company in connection with any actual or proposed transaction) which (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or Proceeding, (ii) if not given in the past, might have had an adverse effect on the financial condition, Business or results of operations of the Company, or (iii) if not continued in the future, might adversely affect the financial condition, Business or operations of the Company or which might subject the Company to suit or penalty in any private or governmental litigation or Proceedings.

          3.34Trade Regulation .  Except as set forth on Schedule 3.34, (i) all of the prices charged by the Company in connection with the marketing, sale or distribution of any products or services have been in compliance with all Applicable Laws and regulations, and (ii) no claims have been communicated or, to the Knowledge of the Company or the Shareholders, threatened in writing against the Company with respect to wrongful termination of any dealer, distributor or any other marketing entity, discriminatory pricing, price fixing, unfair competition, false advertising, or any other violation of any Applicable Laws relating to anti-competitive practices or unfair trade practices of any kind, and to the Knowledge of the Company or the Shareholders, no specific situation, set of facts, or occurrence provides any basis for any such claim against the Company.

          3.35       Representations Regarding the Shareholders.  Except as set forth on Schedule 3.35, the Company represents and warrants to IRET and the Merger Subsidiary that the Shareholders are the lawful owners of 165.496 shares of Company Common Stock, free and clear of all Rights and Encumbrances.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF IRET AND THE MERGER
SUBSIDIARY

As an inducement for the Company and the Shareholders to enter into this Agreement and consummate the Transactions, IRET and the Merger Subsidiary represent and warrant to the Company and the Shareholders that each and all of the following representations and warranties (as modified by the Schedules and any Supplement delivered by IRET pursuant to Section 13.21 of this Agreement) are true and correct as of the date of this Agreement and will be true and

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correct as of the Closing Date.  The Schedules shall be arranged in paragraphs corresponding to the sections and subsections contained in this Article 4.

          4.1 Organization.

(a)IRET is a real estate investment trust duly organized, validly existing and in good standing under the laws of the State of North Dakota, and has all requisite power and authority, corporate and otherwise, to own, operate and lease its properties and assets and to conduct its business as it is now being conducted.  IRET is duly qualified to transact business as a foreign Person and is in good standing under the laws of every state or jurisdiction in which the nature of its activities or of its properties owned, leased or operated makes such qualification necessary and in which the failure to be so qualified could reasonably be expected to have a Material Adverse Effect on IRET or the Merger Subsidiary, as the case may be.

(b)The Merger Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of North Dakota, and has all requisite power and authority, corporate and otherwise, to own, operate and lease its properties and assets and to conduct its business as it is now being conducted.  The Merger Subsidiary is duly qualified to transact business as a foreign corporation and is in good standing under the laws of every state or jurisdiction in which the nature of its activities or of its properties owned, leased or operated makes such qualification necessary and in which the failure to be so qualified could reasonably be expected to have a Material Adverse Effect on IRET or the Merger Subsidiary, as the case may be.

          4.2 Due Authorization.  The execution, delivery and performance of this Agreement, including the documents, instruments and agreements to be executed and/or delivered by IRET and the Merger Subsidiary pursuant to this Agreement, and the consummation of the Transactions have been duly and validly authorized by all necessary corporate and other action on the part of IRET and the Merger Subsidiary.  This Agreement and the Ancillary Documents to be executed (and, in the case of the IRET Shares, delivered) by IRET and the Merger Subsidiary pursuant to this Agreement have been, or will be on or before the Effective Time, duly and validly authorized, executed and delivered by IRET and the Merger Subsidiary and the obligations of IRET and the Merger Subsidiary hereunder and thereunder are or will be on or before the Effective Time valid, legally binding and enforceable against IRET and the Merger Subsidiary in accordance with their respective terms.

         4.3 No Breach.  Each of IRET and the Merger Subsidiary has full power and authority, corporate and otherwise, to execute and deliver this Agreement and to perform its obligations under this Agreement and the Ancillary Documents to be executed by IRET and/or the Merger Subsidiary, as applicable, pursuant hereto.  The execution and delivery of this Agreement and the Ancillary Documents to be executed by IRET and the Merger Subsidiary pursuant to this Agreement, and the consummation of the Transactions will not: (i) violate any provision of the Organizational  Documents of IRET or the Merger Subsidiary, (ii) violate any Applicable Laws or Injunction applicable to IRET or the Merger Subsidiary, (iii) other than applicable requirements of the Securities Act, the Exchange Act and state securities "blue sky"

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laws, require any filing with, Permit from, authorization, consent or approval of, or the giving of any notice to, any Person, (iv) result in a material violation or breach of, or constitute (with or without due notice or lapse of time or both) a material default (or give another party any rights of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, Permit (including, but not limited to, any Permits, appeals or authorizations of any Governmental Body), lease or other Contract to which either IRET or the Merger Subsidiary is a party, or by which either of their respective assets or properties may be bound.

          4.4 Merger Subsidiary.  The Merger Subsidiary is a direct, wholly-owned subsidiary of IRET.

          4.5 Investment Representations.  IRET understands that the Company Common Stock has not been registered under the Securities Act, or under the securities laws of any jurisdiction, by reason of reliance upon certain exemptions under Applicable Law.

          4.6 Brokers.  Neither IRET nor the Merger Subsidiary have employed or engaged any broker, finder, agent, investment banker or third party nor have either of them otherwise dealt with anyone purporting to act in the capacity of a finder or broker, in connection with the Transactions.  Any commissions, finder's fees or like charges incurred by IRET or the Merger Subsidiary shall be paid by IRET.

          4.7 Articles of Incorporation and Bylaws.  IRET has previously delivered to the Company a true, complete and correct copy of the Organizational Documents, each as amended to date, of IRET and the Merger Subsidiary.  Such Organizational Documents are in full force and effect.  Neither IRET nor the Merger Subsidiary is in violation of any provision of its Organizational Documents.

          4.8 Capitalization and Issuance of the IRET Shares.  IRET is authorized to issue an unlimited number ofshares of beneficial interest of IRET, no par value per share (the "IRET Shares").  As of September 30, 2002, 31,798,856.917shares of IRET Shares were issued and outstanding, including 10,308,178.1159 limited partnership units of IRET Properties, a North Dakota limited partnership.  Such units are convertible on a one-for-one basis to IRET shares.  IRET does not offer aStock Option Plan, or an Employee Stock Purchase Plan.  All shares of IRET Shares to be issued in connection with the Merger will be, when issued in accordance with this Agreement, duly authorized, validly issued, fully paid and nonassessible, issued in compliance with all applicable federal and state securities Laws and will be free of all Liens (including preemptive rights), other than restrictions on transfer under state and/or federal securities Laws, those restrictions on transfer and ownership contained in the Declaration of Trust of IRET and those restrictions contained in Section 5.37 of this agreement.

          4.9 SEC Reports.  IRET has filed all forms, reports and documents required to be filed by it with the Commission since May 1, 1987, and has heretofore made available to the Company, in the form filed with the Commission (excluding any exhibits thereto), (i) its Annual Report on Form 10-K for the fiscal year ended 2002, and (ii) all other forms, reports, registration statements and other documents filed by IRET with the Commission since May 1, 1987 (the

41

forms, reports, registration statements and other documents referred to in clauses (i) and (ii) above being referred to herein, collectively, as the "IRETSEC Reports").  IRET SEC Reports and any other forms, reports and other documents filed by IRET with the Commission after the date of this Agreement (x) were or will be prepared in accordance with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations thereunder, and (y) did not at the time they were filed, or will not at the time they are filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were or are made, not misleading.

          4.10No Consent Required .  No consent or approval of the holder of the shares of beneficial interest of IRET, and no other Person, is necessary to enter into this Agreement or the documents, instruments and agreements to which IRET is a party or for IRET to consummate the Transactions.

ARTICLE 5

PERFORMANCE AND COVENANTS PENDING CLOSING

The Company covenants and agrees that from and after the date of this Agreement and until the earlier of the Effective Time or the termination of this Agreement in accordance with Article 12 hereof:

          5.1 Access to Information.  At the request of IRET, the Company shall, from time to time, give or cause to be given to IRET and/or the Merger Subsidiary and their respective officers, employees, business, environmental, accounting, legal and other representatives, upon reasonable notice to the Company, full access during normal business hours, without undue disruption to the Business of the Company, the properties and assets of and all books, minute books, title papers, records, files, Contracts, insurance policies, environmental records and reports, licenses and documents of every character of the Company relating to the Business, and the Company shall furnish or cause to be furnished to IRET and/or the Merger Subsidiary and their respective officers, employees, business, environmental, accounting, legal and other representatives all of the information with respect to the Company and/or the Company's properties or assets as any of them may reasonably request.  IRET and/or the Merger Subsidiary and their respective officers, employees, business, environmental, accounting, legal and other representatives shall have the authority to interview, as reasonably necessary and without undue disruption to the Business of the Company, all employees, tenants, vendors, suppliers and other Person having relationships with the Company, and the Company shall make such introductions as may be requested; provided, however, that access to tenants and mortgages shall, if at all, be done in a commercially reasonably manner consistent with the best interests of the Company.  In addition, IRET and the Merger Subsidiary may, subject to the conditions stated above, at its sole cost and expense, at any time prior to January 31, 2003, through their respective officers, employees, business, environmental, accounting, legal and other representatives, conduct such investigations and examinations of the properties and assets of the Company as they deem necessary or advisable, and the Company will provide, or cause to be provided, reasonable cooperation to such Persons in such investigations.  IRET and the Merger Subsidiary shall

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complete their due diligence investigations on or before January 31, 2003 unless a later date is mutually agreed to by the Parties in writing.

          5.2 Conduct of Business.  The Company shall carry on the Business diligently, only in the Ordinary Course of Business and substantially in the same manner as heretofore conducted and will keep and maintain the properties and assets of the Company in reasonable and safe repair and condition consistent with past practices.  The Company shall not make any regulatory filings with any Governmental Body, except in the Ordinary Course of Business or with the prior written consent of IRET (which consent shall not be unreasonably withheld, delayed or conditioned).

          5.3 Encumbrances.  The Company shall not directly or indirectly perform or fail to perform any act which would, with substantial certainty, result in the creation or imposition of any Encumbrance on any of the properties or assets of the Company or otherwise adversely affect the marketability of the Company's title to any of its properties or assets, outside of the Ordinary Course of Business.  Notwithstanding the foregoing, the Company may apply for and complete a loan transaction in the approximate amount of $3,200,000.00 with the Bremer Bank (or a similar lending institution) prior to or upon the Closing.

          5.4 Pay Increases.  Except for normal increases in the Ordinary Course of Business, the Company shall not, without the prior written consent of IRET, grant any increase in the salaries or rate of pay to any of its employees, grant any increase in any benefits or establish, adopt, enter into, make any new grants or awards under, or amend any collective bargaining agreement, employment agreement or Benefit Plan for the benefit of any of its employees.

          5.5 Restrictions on New Contracts.  Except as set forth on Schedule 5.5 , and otherwise except with the prior written consent of IRET, which consent shall not be unreasonably withheld, the Company shall not enter into any Contract, incur any Liability, assume, guarantee or otherwise become liable or responsible for any Liability of any other Person, make any loans, advances or capital contributions to any other Person (except for Mortgages and Tenant Leases entered into in the Ordinary Course of Business), or waive any right or enter into any other transaction, in each case other than in the Ordinary Course of Business and consistent with the normal business practices of the Company.

          5.6 Preservation of Business.  The Company shall use reasonable efforts to preserve the business organization of the Company intact, to keep available to IRET the present employees of the Company (other than the Shareholders who will terminate their employment upon and at the Effective Time) and to preserve for IRET the present goodwill and relationship of the Company with its vendors, suppliers, tenants and others having business relationships with the Company.  The foregoing covenant shall not require or imply that the Company or its Shareholders shall be required to provide any advance notification of the transaction, whether required or desirable for (i) conformity with the provisions of any Contract, or (ii) preservation of any business relationship.

          5.7 Payment and Performance of Obligations.  The Company shall timely pay and discharge all invoices, bills and other monetary Liabilities.

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          5.8 Restrictions on Sale of Assets.  The Company shall not sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose of any of its material properties or assets, except in the Ordinary Course of Business.

          5.9 Prompt Notice.  The Company shall promptly notify IRET in writing upon becoming aware of any of the following:  (i) any claim, demand or other Proceeding that may be brought, Threatened, asserted or commenced against the Company, its officers or directors, (ii) any changes in the accuracy of the representations and warranties made by the Company in this Agreement, (iii) any Injunction or any complaint praying for an Injunction restraining or enjoining the consummation of the Transactions, or (iv) any notice from any Person of its intention to institute an investigation into, or institute a Proceeding to restrain or enjoin the consummation of, the Transactions, or to nullify or render ineffective this Agreement or such Transactions, if consummated.

          5.10Consents.  The Company shall not be required to, and shall make no efforts to, obtain or cause to be obtained any of the consents and approvals of the Persons necessary or desirable for the Parties to consummate the Transactions, including the consents and approvals listed on Schedule 3.4 hereto.  IRET acknowledges and agrees that certain consents are required or desirable under Contracts to which the Company is a party, and to preserve intact certain business relationships of the Company.  IRET hereby irrevocably consents to and assumes the risk of such non-compliance on behalf of itself and the Merger Subsidiary.

          5.11Copies of Documents .  The Company agrees that as soon as reasonably possible following the execution hereof, they shall furnish or make available to IRET, if not already provided or made available as of the date hereof, a true, complete and accurate copy of each Operating Contract, Mortgage, Tenant Lease and any additional Contract listed on Schedules 3.16, 3.22 and 3.29 hereto.

          5.12Standstill Covenant .  From the date hereof until the earlier of the Effective Time or January 31, 2003, the Company and the  Shareholders will not, and will not permit their respective representatives, investment bankers, officers, directors, stockholders, employees, agents and Affiliates to, directly or indirectly, (i) solicit, initiate or encourage submission of or any inquiries, proposals or offers by, (ii) enter into, participate in or continue any discussions or negotiations (other than with IRET, the Merger Subsidiary or their Affiliates, agents and representatives) with, (iii) afford any access to the properties, books or records of the Company to, or (iv) otherwise assist, facilitate or encourage, or enter into any Contract (whether written or oral) with, any Person or group (other than IRET, the Merger Subsidiary or their Affiliates, agents and representatives), in connection with any Acquisition Proposal.  In addition, the Company and the Shareholders will not, and will not permit their respective representatives, investment bankers, officers, directors, stockholders, employees, agents and Affiliates to, directly or indirectly, make or authorize any statement, recommendation or solicitation in support of any Acquisition Proposal made by any Person or group (other than IRET, the Merger Subsidiary or their Affiliates).  In addition, the Company and the Shareholders will immediately cease any and all existing activities, discussions or negotiations with any parties with respect to any of the foregoing.

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          5.13Accounts Receivable and Payable.  The Company shall not accelerate the collection of its accounts receivable or delay the payments of its accounts payable or other Liabilities, in each case arising out of the operation of the Business in a manner which would be inconsistent with past practice.

          5.14Shareholder Guarantees .  Schedule 5.14 sets forth a list of guarantees made by the Shareholders to third parties with respect to the Business.  Each of the Parties shall use all reasonable commercial efforts prior to the Closing to cause each of the Shareholders to be released from any and all guarantees, contingent or otherwise, of any kind or nature, made for or on behalf of any of the Companies or in connection with the Business (a " Shareholder Guarantee").  The release of the Shareholder Guarantee(s) shall be evidenced by the return of the original guaranty at the Closing or by the delivery of an irrevocable release executed by the beneficiary of the Shareholder Guarantee.  In the event that the Shareholder releases have not been so released at the Closing, IRET and the Surviving Corporation shall make continuous reasonable commercial efforts to have terminated, extinguished or otherwise released any remaining Shareholder Guarantee(s) (and provide all documents and instruments to evidence such termination, extinguishment or release) and shall defend, indemnify and hold the Shareholders harmless from any Shareholder Guarantee.

          5.15Insurance.  The Company shall maintain in full force and effect all insurance coverages for the properties and assets of the Company substantially comparable to coverages existing on the date hereof.

          5.16Filing Reports and Making Payments.  The Company shall timely file all required reports and notices with each and every applicable Governmental Body and timely make all payments due and owing to each such Governmental Body, including, but not by way of limitation, any filings, notices and/or payments required by reason of the Transactions.

          5.17Capital Expenditures .  The Company shall not make any capital expenditures (other than those disclosed to IRET as of the date of this Agreement under any Contract) in excess of $50,000 individually or $500,000 in the aggregate without IRET's prior written consent, which consent shall not be unreasonably withheld.

          5.18[THIS SECTION INTENTIONALLY OMITTED]

          5.19Litigation.  From the date hereof and through the Effective Time, the Company will notify IRET in writing of any actions or Proceedings of the type required to be described in Section 3.7 of this Agreement, that, from the time hereof, are, to the Knowledge of the Company, Threatened or commenced against the Company or against any officer, director or employee of the Company relating to the Business or the Company.

          5.20Notification of Inaccuracy .  The Company agrees to promptly notify IRET in writing of any material inaccuracy made by the Company in this Agreement of which the Company becomes aware prior to the Effective Time and which could result in a Material Adverse Effect with respect to the Company.  IRET agrees to promptly notify the Company in writing of any material inaccuracy made by IRET or the Merger Subsidiary in this Agreement of

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which IRET becomes aware prior to the Effective Time and which could result in a Material Adverse Effect with respect to IRET or the Merger Subsidiary.  The foregoing shall not limit the ability of the Company to Supplement the Schedules.

          5.21Shareholders' Agreement .  The Company and the Shareholders shall cause each and all of any Shareholders' Agreements to be terminated immediately prior to the Effective Time.

          5.22Company Guarantees .  All guarantees made by the Company, contingent or otherwise, of any kind or nature made for or on behalf of the Shareholders, any Affiliate of the Company or any of their respective officers, directors, employees or other representatives shall be indemnified by the Shareholders in accordance with the provisions of Section 9.1(e) of this Agreement.

          5.23Environmental Audit .  The Company shall permit IRET or any reasonably qualified environmental consultant designated by IRET (the "Environmental Audit Firm") to conduct a Phase I environmental audit, and, if reasonably determined by IRET to be necessary, a Phase II environmental audit (collectively, the "Audit ") of the Real Estate prior to Closing.  Beginning immediately after the execution hereof, the Environmental Audit Firm shall have full and free access to the Real Estate during normal business hours, upon reasonable notice; provided, however , that neither IRET nor the Environmental Audit Firm shall unreasonably interfere with the normal business operations of the Company.  IRET shall pay all fees and expenses of the Environmental Audit Firm.  IRET shall indemnify and hold the Company harmless from, against and in respect of any and all property damage caused by the Environmental Audit Firm.

          5.24Stockholder Approval .  Except in the event that this Agreement is terminated by the Company in accordance with the provisions of Article 12 of this Agreement, the Shareholders shall vote affirmatively for the approval of this Agreement and the Transactions at any Special Meeting or in connection with any written consent in lieu thereof, and no such affirmative vote or consent shall have been rescinded or otherwise undergone any action which would call into question the approval of the Shareholders of this Agreement, the Ancillary Documents or the Merger.

          5.25Mortgagee Estoppel Certificates.  [THIS SECTION INTENTIONALLY OMITTED.]

          5.26Cooperation with Respect to Permits, Licenses and Regulatory Matters.  [THIS SECTION INTENTIONALLY OMITTED.]

          5.27Termination of Rights with Respect to the Common Stock.

(a) In General.  Unless canceled or exercised prior to the Effective Date by the holders thereof, all Rights including warrants and options to purchase Company Common Stock held by any Person shall, by operation of this Agreement, by virtue of the Merger and without further action, be canceled and terminated as of the Effective Date.  The Company shall take all such actions as may be necessary or appropriate to give effect to this Section 5.27 or on or prior to the Effective Date.

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(b)Deposit with Payment Agent.  Prior to or upon the Closing, the Shareholders shall deposit with the Payment Agent an aggregate amount of cash sufficient to satisfy, when paid, the obligations of principal and interest due to the IRS for the Tax Liens encumbering the Company Common Stock (the "Estate Tax Lien Amount") as described on Schedule 3.35 to this Agreement.  In the alternative, the Shareholders may directly remit full payment of the Estate Tax Lien Amount to the IRS and present a receipt(s) from the IRS at the Closing to evidence the satisfaction of the Estate Tax Lien Amount.

          5.28Restrictions on Dividends; Changes in Stock.  Without the prior consent of IRET, the Company shall not (i) declare or pay any dividends on or make other distributions in respect of any of its capital stock (a) in excess of $3.2 million in cash, and (b) in excess of approximately $630,000 for estimated Tax payments made on behalf of the Shareholders for the fiscal years 2002 and 2003, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities.  Notwithstanding the foregoing, in the event that the distributions to or on behalf of the Shareholders exceed the amounts set forth above, and such amounts are reflected in the Estimated Merger Consideration calculation (by, for example, the debt incurred or accrued to obtain such funds to remit or by the reduction of cash as an asset), then IRET shall not have a remedy under this Agreement or otherwise.

          5.29Restrictions on Issuance of Securities.  The Company shall not issue, deliver, sell, pledge or encumber, or authorize or propose the issuance, delivery, sale, pledge or Encumbrance of, any shares of its capital stock of any class or any securities convertible into or exchangeable for, or any rights, warrants, calls, subscriptions or options to acquire, any such shares or Convertible Securities, or any other ownership interest (including stock appreciation rights or phantom stock) other than the issuance of shares of Company Common Stock upon the exercise of options to acquire Company Common Stock outstanding on the date of this Agreement and in accordance with the existing terms of such options.

          5.30Restrictions on Liquidation or Merger, Change of Control.  The Company shall not (i) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization, or (ii) enter into any agreement or exercise any discretion providing for acceleration of payment, performance, vesting or exercisability as a result of a change of control of the Company or its subsidiaries.

          5.31Restrictions on Acquisitions .  The Company shall not acquire or agree to acquire (i) by merging or consolidating with, or by purchasing a substantial equity interest in or substantial portion of the assets of, or by any other manner, any business or any Person, or (ii) any assets other than acquisitions in the Ordinary Course of Business consistent with past practice, which are not material, individually or in the aggregate, to the Company.

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          5.32Restrictions on Accounting Changes.  The Company shall not adopt any change, other than in the Ordinary Course of Business consistent with past practice or as required by Applicable Law, in its accounting policies, procedures or practices.

          5.33Confidentiality Agreement .  The Parties acknowledge that the Company and IRET previously executed a Non-Disclosure and Non-Use Agreement, dated December 11, 2001 (the "Confidentiality Agreement"), which Confidentiality Agreement, to the extent not superseded by this Agreement, shall continue in full force and effect in accordance with its terms; provided that such Confidentiality Agreement shall terminate at the Effective Time.

          5.34Legal Requirements .  Except as specifically contemplated by this Agreement, each of IRET, the Merger Subsidiary and the Company will, and each of them will cause its subsidiaries to, take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the Transactions and will promptly cooperate with and furnish information to any Party hereto necessary in connection with any such requirements imposed upon such other Party in connection with the consummation of the Transactions.

          5.35Tax-Deferred Reorganization .  None of the Parties, either before or after consummation of the Merger, shall take any action that, to the knowledge of such Party, would cause the Merger or the Transactions to fail to constitute a "reorganization" within the meaning of Code Section 368.  No party to this Agreement shall take a position on any return, report or filing inconsistent with this treatment.

          5.36Company Director and Officer Indemnification.

(a)After the Effective Time, and to extent such indemnification and defense is not available pursuant to an applicable policy of insurance, IRET will, and will cause the Surviving Corporation to (i) indemnify, defend and hold harmless the present and former officers directors, employees and agents of the Company (the "Director Indemnified Parties") in respect of acts or omissions occurring on or prior to the Effective Time to the extent provided underApplicable Law or under the Company's Organizational Documents, in each case as in effect on the date hereof, and (ii) advance expenses as incurred by such officers, directors, employees and agents of the Company to the fullest extent permitted under Applicable Law or under the Company's Organizational Documents, in each case as in effect on the date hereof, provided that such indemnification and advancement or expenses shall be subject to any limitation imposed from time to time under Applicable Law.

(b)The provisions of this Section 5.36 are intended to be for the benefit of, and shall be enforceable by, each of the Director Indemnified Parties, their heirs and personal representatives.

          5.37Company Service Mark .  The Company's service mark and domain name described in Schedule 3.14 shall be transferred for consideration to an entity owned and controlled by the Shareholders on or prior to the Closing Date.  IRET and the Merger Subsidiary

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shall have no right, title, interest or other right with respect to such service mark after the Closing.

          5.38T. F. James Annuity .  The obligation to Mr. T. F. James, a former shareholder of the Company, in the approximate amount of $575,000 (the "T. F. James Annuity Obligation") shall be remitted by the Company to Mr. T. F. James or his authorized representative on or prior to the Closing.  The Company shall obtain a receipt of full payment and release with respect to such obligation.  In order to facilitate the payment of the T. F. James Annuity Obligation by the Company, the Shareholders shall make an aggregate capital contribution to the Company in the amount necessary for payment of such obligation in full.

          5.39Life Insurance Policies .

(a)T. F. James Life Policies.  The policies described in Schedule 3.10 of this Agreement carried by the Company on the life of Mr. Thomas F. James, a former shareholder of the Company, shall be sold and transferred on or before the Closing Date to James Family Properties, a Minnesota general partnership, for an aggregate amount of $92,327 (the difference between the aggregate cash surrender value of such policies and the aggregate loan taken by the Company against such policies).  After payment of the amount above is made by the purchaser, the Company and its successors shall have no further right, title or interest in or to such policies.

(b)          Term Life Policies.  To the extent transferable, each of the Shareholders shall have the right to direct the Company to transfer the term life insurance policy covering the requesting Shareholder's life, each of which is set forth in Schedule 3.10 to this Agreement.  The Company shall cooperate fully both before and after the Closing to facilitate the order by transfer of such policy(ies).

ARTICLE 6

MUTUAL CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS

Unless waived in writing by the Parties, each and every obligation of IRET, the Merger  Subsidiary and the Company to be performed at the Closing shall be subject to the satisfaction at or prior thereto of each and all of the following conditions precedent:

          6.1Proceedings.  There being no (i) Proceedings which have been brought, asserted, commenced or Threatened against IRET, the Merger Subsidiary, the Company and/or the Shareholders by any Person involving or affecting in any way IRET's, the Merger Subsidiary's, the Company's or the Shareholders' consummation of the Transactions, or (ii) Applicable Laws restraining or enjoining or which may reasonably be expected to nullify or render ineffective this Agreement or the consummation of the Transactions or which otherwise could reasonably be expected to have a Material Adverse Effect.

          6.2Consents and Approvals.  IRET and the Company shall have received evidence, in form and substance reasonably satisfactory to the respective counsel for IRET and the

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Company that all material consents, waivers, releases, authorizations, approvals, certificates, Permits and franchises of all Persons (including each and every Governmental Body) as may be necessary to consummate the Transactions and for the Surviving Corporation to carry on and continue the operations of the Company as they are now conducted have been obtained.  All consents of a Governmental Body shall be by Final Order; provided, however , that if IRET and the Company waive the condition of Governmental Body consent by Final Order, the parties shall consider the Governmental Body consent without Final Order sufficient to proceed to Closing according to the other terms of this Agreement.  "Final Order" means an action or decision of the Governmental Body as to which (i) no request for a stay is pending, no stay is in effect, and any deadline for filing such request that may be designated by statute or regulation has passed, (ii) no petition for rehearing or reconsideration or application for review is pending and the time for the filing of such petition or application has passed, (iii) the Governmental Body does not have the action or decision under reconsideration on its own motion and the time within which it may effect such reconsideration has passed, and (iv) no judicial appeal is pending or in effect and any deadline for filing any such appeal that may be designated by statute or rule has passed.

          6.3 Stockholder Approval.  The stockholders of the Company entitled to vote or consent to this Agreement in accordance with the IBCA shall have approved this Agreement and the Transactions without any Dissenting Shares.  Any agreements or arrangements that may result in the payment of any amount that would not be deductible by reason of Section 280G of the Code shall have been approved by the stockholders of the Company as is required by Section 280G(b)(5)(B) and shall be obtained in a manner which satisfies all applicable requirements of such Code section.

          6.4 Tax-Deferred Reorganization.  The Merger shall qualify as a tax-deferred reorganization within the meaning of Section 368 of the Code.

  ARTICLE 7

ADDITIONAL CONDITIONS PRECEDENT TO IRET'S AND THE MERGER
SUBSIDIARY OBLIGATIONS

Unless waived by IRET and the Merger Subsidiary in writing, each and every obligation of IRET and the Merger Subsidiary to be performed at the Closing shall be subject to the satisfaction at or prior thereto of each and all of the following conditions precedent:

          7.1 Accuracy of Representations and Warranties.  The representations and warranties made by the Company and the Shareholders in this Agreement, including the documents, instruments and agreements to be executed and/or delivered by the Company or the Shareholders pursuant to this Agreement, shall be true and correct in all material respects at and as of the Closing with the same force and effect as though such representations and warranties had been made or given at and as of the Closing.

          7.2 Compliance with Covenants and Agreements.  The Company and the Shareholders shall have performed and complied with all of the covenants, agreements and

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obligations under this Agreement which are to be performed or complied with by them at or prior to the Closing, including the execution and delivery of the Ancillary Documents specified in Section 2.3(a) hereof, all of which shall be reasonably satisfactory in form and substance to counsel for IRET.

          7.3 No Material Adverse Change.  As of the Effective Time, nothing shall have occurred which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company.

          7.4 Condition of Assets.  The Business assets of the Company (both tangible and intangible) shall be in substantially the same condition as they were on the date hereof, reasonable wear and tear accepted.

          7.5 Judgments; Conduct of Business.  As of the Effective Time, there shall be no material judgments or orders against the  Company or the assets of the Company's Business, nor shall there be any other conditions which could reasonably be expected to materially and adversely interfere with the conduct by IRET or the Surviving Corporation of the Business of the Company after the Effective Time.

          7.6 Approval by Counsel.  All actions, Proceedings, instruments and documents required of the Shareholders to carry out the Transactions and all other related legal matters shall have been reasonably satisfactory to and approved by counsel for IRET, and such counsel shall have been furnished with such certified copies of actions and Proceedings and such other instruments and documents as they shall have reasonably requested.

          7.7 Legal Opinion.  IRET shall have received an opinion from the counsel for the Shareholders and the Company, dated as of the Closing Date, in form and substance satisfactory to IRET in IRET's reasonable commercial discretion.

          7.8 Resignation of Directors and Officers.  All directors and officers of the Company shall have submitted their resignations from the Board effective as of the Effective Time or such Persons shall have otherwise been removed from such position effective as of the Effective Date.

          7.9 Corporate Action.  IRET shall have received a certificate of the Secretary of the Company as to the incumbency and signatures of the officers and directors.

          7.10Non-Competition Agreements .  [THIS SECTION INTENTIONALLY OMITTED.]

          7.11Schedule of Transactional Expenses.  [THIS SECTION INTENTIONALLY OMITTED.]

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          7.12Dissenting Stockholders .  None of the Shareholders shall have properly exercised dissenters rights under the IBCA.

ARTICLE 8

ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
COMPANY

Unless waived by the Company in writing, each and every obligation of the Company to be performed prior to or at the Closing shall be subject to the satisfaction at or prior thereto of each and all of the following conditions precedent:

          8.1 Accuracy of Representations and Warranties.  The representations and warranties made by IRET and the Merger Subsidiary in this Agreement and the Ancillary Documents to be executed and/or delivered by IRET and the Merger Subsidiary pursuant to this Agreement, shall be true and correct in all material respects at and as of the Closing with the same force and effect as though such representations and warranties had been made or given at and as of the Closing.

          8.2 Compliance with Covenants and Agreements.  Each of IRET and the Merger Subsidiary shall have performed and complied with all of their respective covenants, agreements and obligations under this Agreement which are to be performed or complied with by it at or prior to the Closing, including the execution and/or delivery of the Ancillary Documents specified in Section 2.3(b) hereof, all of which shall be reasonably satisfactory in form and substance to counsel for the Company.

          8.3 Approval by Counsel.  All actions, Proceedings, instruments and documents required of IRET or the Merger Subsidiary to carry out the Transactions or incidental thereto and all other related legal matters shall have been reasonably satisfactory to and approved by counsel for the Company, and such counsel shall have been furnished with such certified copies of actions and Proceedings and such other instruments and documents as they shall have reasonably requested.

          8.4 Legal Opinion.  The Company and the Shareholders shall have received an opinion from the counsel for IRET and the Merger Subsidiary, dated as of the Closing Date, in form and substance satisfactory to the Company in the Company's reasonable commercial discretion.

          8.5 Securities Laws.  IRET shall have made all necessary filings under the Securities Act, the Exchange Act and applicable blue sky or similar securities laws and shall have received all authorizations necessary to issue shares of IRET Shares pursuant to this Agreement and the Closing of the Transactions.

          8.6 Release of Shareholder Guarantees.  IRET shall have used its best efforts, including offering its corporate guarantee as substitution, to secure the release of all Shareholder guarantees of Company obligations.

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          8.7 Private Letter Ruling.  The Private Letter Ruling issued by the IRS with respect to the transactions contemplated by this Agreement shall continue, in its substance and analysis, to result in the Tax effects of the transactions contemplated by this Agreement, and no change in Applicable Law shall have occurred which would affect such ruling.

ARTICLE 9

INDEMNIFICATION

          9.1 Indemnification by the Shareholders.  The Company prior to the Closing, and the Shareholders (individually) severally (but not jointly) in accordance with their pro-rata ownership interests in the Company upon and after the Closing Date, hereby covenant and agree to indemnify and hold IRET, its officers, directors, employees, Affiliates, stockholders and agents, and each of their respective heirs, personal representatives, successors and assigns, harmless from, against and in respect of any and all losses, costs, expenses (including without limitation, reasonable attorneys' fees and disbursements of counsel), Liabilities, damages, fines, penalties, charges, assessments, judgments, settlements, claims, causes of action and other obligations of any nature whatsoever (individually, a "Loss" and collectively "Losses ") that any of them may at any time, directly or indirectly, suffer, sustain, incur or become subject to, arising out of, based upon or resulting from or on account of each of the following:

(a)the breach or falsity of any representation or warranty made by the Company in this Agreement and the Ancillary Documents to be executed and delivered by the Company pursuant hereto and thereto; provided , however, that the Shareholders shall not be required to provide such indemnification for the breach or falsity of any such representation or warranty unless and until IRET, its officers, directors, employees, Affiliates and other representatives shall have sustained cumulative Losses as a result of one or more such breaches or falsities of more than One Hundred Thousand Dollars ($100,000) (the "Basket Amount").  Once the aggregate of Losses exceeds the Basket Amount, the Shareholders shall provide indemnification for all Losses sustained as a result of such breach(es) or falsity(ies) of the applicable representations and warranties in excess, and only in the amount of the excess, of the Basket Amount; and

(b)the breach of any covenant or agreement made by the Company in this Agreement, including the documents, instruments and agreements to be executed and delivered by the Company or the Shareholders or their representatives pursuant hereto or thereto; and

(c)any claim (i) for severance pay, bonus, unpaid wages or salaries accruing, incurred or triggered by a termination (voluntary or involuntary) of any employee, agent or other representative of the Company at any time prior to the Closing or which arises as a result of the occurrence of the Closing, or (ii) relating to any claim or

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Proceeding of any employee of the Company arising from any act, occurrence, or event, the basis of which is dated at any time prior to, or attributable to, the Closing; and

(d)any claim relating to any guarantee described in Section 5.22; and

(e)any and all Losses arising from Section 10.2(e) of this Agreement.

Notwithstanding the foregoing, any Loss or aggregate Losses to be indemnified by the Shareholders to IRET (or any Person identified above as an Indemnified Party, including the Merger Subsidiary) under this Agreement shall not exceed twenty percent (20%) of the value of the Merger Consideration.  In the event of any claim of a Loss or Losses by IRET, each Shareholder shall have the irrevocable right and option of transferring IRET Shares received in satisfaction of any such Loss or Losses and such IRET Shares shall be valued at $9.75 per share.

          9.2 Indemnification by IRET.  IRET and the Merger Subsidiary jointly and severally covenant and agree to defend, indemnify and hold each of the Shareholders (individually and collectively), and their respective beneficiaries, heirs, personal representatives and assigns, harmless from, against and in respect of any and all Losses that any of them may at any time, directly or indirectly, suffer, sustain, incur or become subject to, arising out of, based upon or resulting from or on account of each or all of the following:

(a)the breach or falsity of any representation or warranty made by IRET or the Merger Subsidiary in this Agreement, including the documents, instruments and agreements to be executed and/or delivered by IRET or the Merger Subsidiary pursuant hereto and thereto; and

(b)the breach of any covenant or agreement made by IRET or the Merger Subsidiary in this Agreement, including the documents, instruments and agreements to be executed and/or delivered by IRET or the Merger Subsidiary pursuant hereto or thereto; and

(c)any and all Losses arising from, in connection with or incident to the work or investigation done or completed by the Environmental Audit Firm; and

(d)any and all Losses arising from, in connection with or incident to any claims made against a Shareholder or Shareholders with respect to any guaranty of Company obligations, or any obligation of the Company; and

(e)any claim relating to any Shareholder Guarantee generally described in Section 5.14; and

(f)any and all Losses arising from Section 10.2(e) of this Agreement.

Any claim of indemnification by the Shareholders arising from, in connection with or incident to any Loss or Losses related to a Registration Statement shall be governed solely by Section 10.2(e).

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          9.3 Procedure for Indemnification.  In the event a Party, including its officers, directors, employees, Affiliates and other representatives, intends to seek indemnification pursuant to the provisions of Sections 9.1 or 9.2 hereof (the "Indemnified Party"), the Indemnified Party shall promptly give notice hereunder to the other party (the "Indemnifying Party ") after obtaining written notice of any claim, investigation, or the service of a summons or other initial or continuing legal or administrative process or Proceeding in any action instituted against the Indemnified Party as to which recovery or other action may be sought against the Indemnified Party because of the indemnification provided for in Section 9.1 or 9.2 hereof, and, if such indemnity shall arise from the claim of a third party, the Indemnified Party shall permit the Indemnifying Party to assume the defense of any such claim and any litigation resulting from such claim; provided, however , that the Indemnified Party shall not be required to permit such an assumption of the defense of any claim or Proceeding which, if not first paid, discharged or otherwise complied with, would result in a material interruption or disruption of the business of the Indemnified Party, or any material part thereof.  Notwithstanding the foregoing, the right to indemnification hereunder shall not be affected by any failure of the Indemnified Party to give such notice (or by delay by the Indemnified Party in giving such notice) unless, and then only to the extent that, the rights and remedies of the Indemnifying Party shall have been prejudiced as a result of the failure to give, or delay in giving, such notice.  Failure by the Indemnifying Party to notify the Indemnified Party of its election to defend any such claim or action by a third party within twenty (20) days after notice thereof shall have been given to the Indemnifying Party shall be deemed a waiver by the Indemnifying Party of its right to defend such claim or action.

If the Indemnifying Party assumes the defense of such claim, investigation or Proceeding resulting therefrom, the obligations of the Indemnifying Party hereunder as to such claim, investigation or Proceeding shall include taking all steps necessary in the defense or settlement of such claim, investigation or Proceeding and holding the Indemnified Party harmless from and against any and all Losses arising from, in connection with or incident to any settlement approved by the Indemnifying Party or any judgment entered in connection with such claim, investigation or Proceeding, except where, and only to the extent that, the Indemnifying Party has been prejudiced by the actions or omissions of the Indemnified Party.  The Indemnifying Party shall not, in the defense of such claim or any Proceeding resulting therefrom, consent to entry of any judgment (other than a judgment of dismissal on the merits without costs) except with the written consent of the Indemnified Party (which consent shall not be unreasonably withheld, delayed or conditioned) or enter into any settlement (except with the written consent of the Indemnified Party, which consent shall not be unreasonably withheld, delayed or conditioned) unless (i) there is no finding or admission of any violation of Applicable Law, (ii) the sole relief provided is monetary damages that are paid in full for Losses which are or may be properly applied against the Basket Amount, and (iii) the settlement shall include the giving by the claimant or the plaintiff to the Indemnified Party a release from all Liability in respect to such claim or litigation.

If the Indemnifying Party assumes the defense of such claim, investigation or Proceeding resulting therefrom, the Indemnified Party shall be entitled to participate in the defense of the claim, but solely by observation and comment to the Indemnifying Party, and the counsel selected by the Indemnified Party shall not appear on its behalf in any Proceeding arising

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hereunder.  The Indemnified Party shall bear the fees and expenses of any additional counsel retained by it to participate in its defense unless any of the following shall apply: (i) the employment of such counsel shall have been authorized in writing by the Indemnifying Party, or (ii) the Indemnifying Party's legal counsel shall advise the Indemnifying Party in writing, with a copy to the Indemnified Party, that there is a conflict of interest that would make it inappropriate under applicable standards of professional conduct to have common counsel.  If clause (i) or (ii) in the immediately preceding sentence is applicable, then the Indemnified Party may employ separate counsel at the expense of the Indemnifying Party to represent the Indemnified Party, but in no event shall the Indemnifying Party be obligated to pay the costs and expenses of more than one such separate counsel for any one complaint, claim, action or Proceeding in any one jurisdiction.

If the Indemnifying Party does not assume the defense of any such claim by a third party or litigation resulting therefrom after receipt of notice from the Indemnified Party, the Indemnified Party may defend against such claim or litigation in such manner as it reasonably deems appropriate, and unless the Indemnifying Party shall deposit with the Indemnified Party a sum equivalent to the total amount demanded in such claim or litigation plus the Indemnified Party's estimate of the cost (including reasonable attorneys' fees) of defending the same, the Indemnified Party may settle such claim or Proceeding on such terms as it may reasonably deem appropriate and the Indemnifying Party shall, subject to its defenses and the applicability of any remaining Basket Amount provided for in Section 9.1(a) hereof, promptly reimburse the Indemnified Party for the amount of such settlement and for all reasonable costs (including reasonable attorneys' fees), expenses and damages incurred by the Indemnified Party in connection with the defense against or settlement of such claim, investigation or litigation, or if any such claim or litigation is not so settled, the Indemnifying Party shall, subject to its defenses and the applicability of any remaining Basket Amount provided for in Section 9.1(a) hereof, promptly reimburse the Indemnified Party for the amount of any final nonappealable judgment rendered with respect to any claim by a third party in such litigation and for all costs (including reasonable attorneys' fees), expenses and damage incurred by the Indemnified Party in connection with the defense against such claim or litigation.

Each party shall cooperate in good faith and in all respects with each Indemnifying Party and its representatives (including without limitation its counsel) in the investigation, negotiation, settlement, trial and/or defense of any Proceedings (and any appeal arising therefrom) or any claim.  The Parties shall cooperate with each other in any notifications to and information requests of any insurers.  No individual representative of any Person, or their respective Affiliates shall be personally liable for any Loss or Losses under this Agreement, except as specifically agreed to by said individual representative.

          9.4 Dispute Resolution.  In the event a dispute arises under this Agreement, except with respect to Article 10 or equitable remedies pursued under this Agreement, such disputes shall be resolved in the manner set forth in this Section 9.4.

(a)If a dispute arises under this Agreement, including any question regarding the existence, validity, interpretation or termination hereof, which is not described as an exception in this Section 9.4, the Parties may invoke the dispute resolution procedure set

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forth in this Section 9.4 by giving written notice to the other Parties.  The Parties shall enter into discussions concerning this dispute.  If the dispute is not resolved as a result of such discussion in ten (10) days, an attempt will be made to resolve the matter by a formal nonbinding mediation with an independent neutral mediator agreed to by the Parties.  If the Parties cannot agree on a mediator within a period of ten (10) days after expiration of the ten (10) day period for resolution by discussion, then any Party may apply to any court of competent jurisdiction for appointment of a mediator, which appointment shall be binding and nonappealable.  Upon commencement of the mediation process, the Parties shall promptly communicate with respect to a procedure and schedule for the conduct of the Proceeding and for the exchange of documents and other information related to the dispute.  The mediation process shall be deemed ended if the dispute has not been resolved within thirty (30) days after appointment of the mediator.

(b)All claims, disputes or other matters in question among the Parties to this Agreement arising out of or relating to this Agreement which are not resolved by mediation in accordance with Section 9.4(a) within thirty (30) days after appointment of mediator shall be submitted for, subject to and decided by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association currently in effect as of the date of this Agreement ("AAA Rules"), except to the extent those rules are inconsistent with this Section 9.4.  Any arbitration must be held in Minneapolis, Minnesota by a single arbitrator mutually selected by the Parties hereto or, if the Parties hereto cannot agree on the appointment of such arbitrator within ten (10) days following the date notice of the dispute is given by a Party to the adverse Party, an arbitrator selected according to the AAA Rules.  The arbitrator's award shall be final, conclusive and binding upon all Parties to this Agreement, and judgment may be entered upon it in accordance with the Federal Arbitration Act in any court of general jurisdiction, or in any United States District Court having jurisdiction.  The arbitrator shall be required to provide in writing to the Parties the basis for the award or order of such arbitrator, and a court reporter shall record all hearings (unless otherwise agreed to by the Parties), with such record constituting the official transcript of such Proceedings.  The Parties specifically desire this Arbitration clause to be governed by the United States Federal Arbitration Act, and not by the arbitration laws of any state.

(c)The Parties agree and consent that any legal action, suit or Proceeding seeking to enforce this Section 9.4 or to confirm or contest any arbitration award shall be instituted and adjudicated solely and exclusively in any court of general jurisdiction in Minnesota, or in the United States District Court having jurisdiction in Minnesota and the Partiesagree that venue will be proper in such courts and waive any objection which they may have now or hereafter to the venue of any such suit, action or Proceeding in such courts, and irrevocably consent and agree to the jurisdiction of said courts in any such suit, action or Proceeding.  The Parties further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or Proceeding in said courts, and also agree that service of process or notice upon them shall be deemed in every respect effective service of process or notice upon them, in any suit, action, Proceeding or arbitration demand, if given or made: (i) according to Applicable Law,

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(ii) according to the AAA Rules, (iii) by a Person over the age of eighteen who personally serves such notice or service of process on such Parties, or (iv) by certified mail, return receipt requested, mailed to such Parties, at its respective address set forth in this Agreement.

(d)          In the event of arbitration filed or instituted among the Parties pursuant to this Section 9.4, the prevailing Party will be entitled to receive from the adverse Party all costs, damages and expenses, including reasonable attorney's fees, incurred by the prevailing Party in connection with that action or Proceeding, whether or not the controversy is reduced to judgment or award.  The prevailing Party will be that Party who is determined by the arbitrator to have prevailed on the major disputed issues.

ARTICLE 10

REGISTRATION AND SALE OF IRET SHARES

          10.1 Reservation of IRET Shares.  IRET shall prior to the Effective Time reserve for issuance, out of its authorized but unissued capital stock, the maximum number of shares of IRET Shares as may be issuable upon consummation of the Merger.

          10.2 Registration of IRET Shares.

          (a)Registrable Shares.  For purposes of this Agreement, "Registrable Shares" shall mean the shares of IRET Shares issued in the Merger.

          (b)Required Registration.  IRET shall use its best reasonable commercial efforts (i) to prepare and file with the Commission a registration statement on Form S-3 (or such successor or other appropriate form) under the Securities Act with respect to the Registrable Shares (the "Registration Statement") within three (3) months, but in any event no later than six (6) months, following the Closing Date, so long as the Shareholders whose Registrable Securities are to be included in the Registration Statement have provided the information necessary for inclusion therein in a timely manner to enable IRET to file the Registration Statement within such period, and (B) to the extent the Company's financial statements are required by Form S-3, (ii) to cause such Registration Statement to be declared effective by the Commission as soon thereafter as possible (but in no event on a date earlier than the date the Shareholders have the capacity to sell, transfer, dispose or otherwise reduce their risk pursuant to the Share Transfer Restriction Agreement set forth as Exhibit C hereto), (iii) to file such amendments or supplements as may be necessary so that the Prospectus contained in the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and (iv) to effect all such registrations, qualifications and compliances (including, without limitation, obtaining appropriate qualifications under applicable state securities or "blue sky" laws and compliance with any other applicable governmental requirements or regulations) as any selling holder of Registrable Shares may reasonably request and that would permit or

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facilitate the sale of all Registrable Shares (provided, however , that IRET shall not be required in connection therewith to qualify to do business or to file a general consent to service of process in any such state or jurisdiction), and in each case IRET will use its reasonable commercial efforts to cause such Registration Statement and all other such registrations, qualifications and compliances to become effective as soon as practicable thereafter.  As soon as necessary after the execution of this Agreement, IRET will provide to the Company a questionnaire setting forth the information that IRET will require from each Shareholder to include such holder's Registrable Shares in the Registration Statement.  If any Shareholder shall fail to furnish such information to IRET within thirty (30) days following the request, IRET may, at its election, either exclude such holder from the Registration Statement or delay the filing of the Registration Statement for up to ten (10) additional days.  IRET may postpone the filing of any Registration Statement required hereunder for a reasonable period of time, not to exceed sixty (60) days, if IRET has been advised by legal counsel (based on a reasonable interpretation of Applicable Law) that such filing would require the disclosure of a material transaction or other matter and IRET determines reasonably and in good faith that such disclosure would have a Material Adverse Effect on IRET.  The disclosure to any holder of Registrable Shares of any material transaction, or of the existence thereof, pursuant to the preceding sentence shall be held in confidence by such holder until IRET or a third party not under the control of holder has made a public disclosure thereof.

(c) Effectiveness; Delivery of Prospectus; Suspension Right.

          (i)IRET will use its best reasonable commercial efforts to maintain the effectiveness of the Registration Statement and other applicable registrations, qualifications and compliances until the second anniversary of the date on which the Registration Statement is declared effective by the applicable regulatory entities (the "Registration Effective Period").  As soon as practicable following the effectiveness of the Registration Statement, IRET will furnish to each holder of Registrable Shares such number of copies of the Prospectus contained in the Registration Statement in conformity with the requirements of the Securities Act, and such other documents as such holder may reasonably request in order to facilitate the public sale or other disposition of such shares.

          (ii)For any offer or sale of any of the Registrable Shares by a stockholder in a transaction that is not exempt under the Securities Act, the stockholder, in addition to complying with any other federal securities laws, will deliver a copy of the final Prospectus (or amendment of or supplement to such Prospectus) of IRET covering the Registrable Shares in the form furnished to the stockholder by IRET to the purchaser of any of the Registrable Shares on or before the settlement date for the purchase of such Registrable Shares.

          (iii)Following the date on which the Registration Statement is first declared effective, the holder of Registrable Shares will be permitted (subject in all cases to Section 10.3 below) to offer and sell Registrable Shares during the Registration Effective Period in the manner described in the Registration

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Statement, provided that the Registration Statement remains effective and has not been suspended.

          (iv)Notwithstanding any other provision of this Section 10.2 but subject to Section 10.3, IRET shall have the right at any time to require that all holders of Registrable Shares suspend further open market offers and sales of Registrable Shares whenever, and for so long as, in the reasonable judgment of IRET after consultation with counsel, there is or may be in existence material undisclosed information or events with respect to IRET (the "Suspension Right"); provided , however, that IRET shall not be entitled to invoke the Suspension Right unless such right or an equivalent restriction has been imposed on, and is then applicable to, all of IRET's executive officers, directors and other holders of IRET Shares which are registered for resale under the Securities Act.  In the event IRET exercises the Suspension Right, such suspension will continue for the period of time reasonably necessary for disclosure (including any necessary filings with the Commission) to occur at a time that is not detrimental to IRET and its stockholders or until such time as the information or event is no longer material, each as determined in good faith by IRET (it being understood that IRET will use all reasonably commercial efforts to minimize the duration of the suspension period).  The termination of the Registration Effective Period will extend by one (1) day for each day during which the holders of Registrable Shares suspend further open market offers and sales of Registrable Shares pursuant to the IRET's exercise of the Suspension Right.

          (d)Expenses.  The costs and expenses to be borne by IRET for purposes of this Section 10.2 shall include, without limitation, printing expenses (including a reasonable number of Prospectuses for circulation by the selling stockholders), legal fees and disbursements of counsel for IRET, "blue sky" expenses, accounting fees and filing fees, but shall not include underwriting commissions or similar charges, or any legal fees and disbursements of counsel for the selling stockholders.

(e) Indemnification and Contribution.

          (i)To the extent permitted by law, IRET will indemnify and hold harmless each holder of Registrable Shares, any underwriter (as defined in the Securities Act) for such stockholder, its officers, directors, stockholders or partners and each Person, if any, who controls such stockholder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Losses, claims, damages, or Liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such Losses, claims, damages, or Liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"):  (A) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any preliminary Prospectus or final Prospectus contained therein or any amendments or supplements thereto, (B) the omission or alleged omission to state

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therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (C) any violation or alleged violation by IRET of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and IRET will pay to each such stockholder (and its officers, directors, stockholders or partners), underwriter or controlling Person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss, claim, damage, Liability, or action; provided , however, that the indemnity agreement contained in this Section 10.2(e)(i) shall not apply to amounts paid in settlement of any such Loss, claim, damage, Liability, or action if such settlement is effected without the consent of IRET; nor shall IRET be liable in any such case for any such Loss, claim, damage, Liability, or action to the extent that it arises out of or is based upon (a) a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in the Registration Statement by any such stockholder, or (b) a Violation that would not have occurred if such stockholder had delivered to the purchaser the version of the Prospectus most recently provided by IRET to the stockholder as of the date of such sale.

          (ii)To the extent permitted by law, each Shareholder will indemnify and hold harmless IRET, each of its directors, each of its officers who has signed the Registration Statement, each Person, if any, who controls IRET within the meaning of the Securities Act, any underwriter, any other stockholder selling securities pursuant to the Registration Statement and any controlling Person of any such underwriter or other stockholder, against any Losses, claims, damages, or Liabilities (joint or several) to which any of the foregoing Persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such Losses, claims, damages, or Liabilities (or actions in respect thereto) arise out of or are based upon any Violation (which includes without limitation the failure of the stockholder to comply with the Prospectus delivery requirements under the Securities Act, and the failure of the stockholder to deliver the most current Prospectus provided by IRET prior to such sale), in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such stockholder expressly for use in the Registration Statement or such Violation is caused by the stockholder's failure to deliver to the purchaser of the stockholder's Registrable Shares a Prospectus (or amendment or supplement thereto) that had been made available to the stockholder by IRET; and each such stockholder will pay any legal or other expenses reasonably incurred by any Person intended to be indemnified pursuant to this Section 10.2(e)(ii) in connection with investigating or defending any such Loss, claim, damage, Liability, or action; provided, however, that the indemnity agreement contained in this Section 10.2(e)(ii) shall not apply to amounts paid in settlement of any such Loss, claim, damage, Liability or action if such settlement is effected without the consent of the stockholder, which consent shall not be unreasonably withheld, conditioned

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or delayed.  The aggregate indemnification Liability of each stockholder under this Section 10.2(e)(ii) shall not exceed the net proceeds received by such stockholder in connection with sale of shares pursuant to the Registration Statement.

          (iii)Each Indemnified Party shall give notice to the party required to the Indemnifying Party promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any `such claim and any litigation resulting therefrom, provided that counsel for the Indemnifying Party who conducts the defense of such claim or any litigation resulting therefrom shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld, conditioned or delayed), and the Indemnified Party may participate in such defense at such party's expense; and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 10.2 unless the Indemnifying Party is materially prejudiced thereby.  No Indemnifying Party, in the defense of any such claim or litigation, shall (except with the consent of each Indemnified Party) consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all Liability in respect to such claim or litigation.  Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

          (iv)To the extent that the indemnification provided for in this Section 10.2(e) is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any Loss, Liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Loss, Liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such Loss, Liability, claim, damage or expense, as well as any other relevant equitable considerations.  The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The aggregate contribution Liability of each stockholder under this Section 10.2(e)(iv) shall not exceed the net proceeds received by such stockholder in connection with sale of shares pursuant to the Registration Statement.

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          10.3 Procedures for Sale of Shares Under Registration Statement.

          (a)Notice and Approval.  If any Shareholder shall propose to sell any Registrable Shares pursuant to the Registration Statement, in addition to satisfaction of the requirements set forth in Exhibit C , it shall notify IRET of its intent to do so (including the proposed manner and timing of all sales) at least five (5) full trading days prior to such sale, and the provision of such notice to IRET shall conclusively be deemed to reestablish and reconfirm an agreement by such Shareholder to comply with the registration provisions set forth in this Agreement.  Unless otherwise specified in such notice, such notice shall be deemed to constitute a representation that any information previously supplied by such Shareholder expressly for inclusion in the Registration Statement (as the same may have been superseded by subsequent such information) is accurate as of the date of such notice.  IRET may delay the resale by such Shareholder of any Registrable Shares pursuant to the Registration Statement by delivering to such Shareholder a written notification that IRET's Suspension Right has been exercised and is then in effect (the " Suspension Notice "); provided, however, that the Suspension Notice must be delivered within the five (5) trading-day period following receipt of such Shareholder's notice of intent to sell Registrable Shares so long as such notice included a working facsimile number for purposes of delivery of IRET's response.  Upon receipt of the Suspension Notice, such Shareholder shall refrain from selling any Registrable Shares in the open market until his, her or its receipt of a supplemented or amended Prospectus pursuant to Section 10.3(b) below or written notice from IRET that the suspension period has ended and use of the Prospectus previously furnished to such Shareholder may be resumed.

          (b)Copies of Prospectuses.  Subject to the provisions of this Section 10.3, when a Shareholder is entitled to sell and gives notice of its intent to sell Registrable Shares pursuant to the Registration Statement, IRET shall, within two (2) trading days following the request or, in the event that IRET's Suspension Right has been exercised and is then in effect, as soon as practicable following the termination of the suspension period, furnish to such Shareholder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such Prospectus shall not as of the date of delivery to the Shareholder include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

          10.4 Limitation on Resale.  The shares of IRET Shares being issued in connection with this Merger are being issued pursuant to exemptions from registration under the Securities Act.  Because such shares of IRET Shares are issued in a transaction not involving a public offering, such securities are "restricted securities" as that term is defined in Rule 144(a)(3) of the Securities Act.  The shares of IRET Shares being issued in connection with the Merger may be resold only as permitted under the Securities Act and the applicable state securities laws pursuant to registration or exemption therefrom.

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          10.5 Representations and Warranties.  As a material inducement to IRET to enter into this Agreement and to consummate the Transactions, each Shareholder represents and warrants that:

          (a)The Shareholder is acquiring the shares of IRET Shares to be issued hereunder for his own account for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, in violation of the Securities Act or any rule or regulation thereunder, as amended from time to time.

          (b)The Shareholder is not directly or indirectly controlled by, or acting on behalf of any Person which is, an "investment company" within the meaning of the Investment Company Act of 1940 (the "1940 Act "), as amended, or required to register as such under the 1940 Act.

          (c)The Shareholder (i) has carefully reviewed the information provided by IRET, (ii) has requested and received such other information, as he or she has deemed relevant, regarding IRET for purposes of evaluating his acquisition of IRET Shares to be issued hereunder, (iii) is aware of the risks associated with an investment in IRET Shares, and (iv) has not received any form of general solicitation or advertising in connection with his decision to acquire IRET Shares hereunder.  The Shareholder has not relied in any way on any information with respect to IRET Shares or IRET generally, other than the representations of IRET contained herein or materials furnished by IRET in writing in connection herewith.

          (d)The Shareholder acknowledges and understands that (i) the shares of IRET Shares to be issued to him or her hereunder have not been registered under the Securities Act or any state securities laws, (ii) the shares of IRET Shares to be issued to the Shareholder hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) subsequently registered under the Securities Act and applicable state securities laws or (y) there is delivered to IRET an opinion of counsel satisfactory to IRET that such registration is not required, and (iii) IRET will place a restrictive legend on the certificate(s) representing shares of IRET Shares to be issued to the Shareholders hereunder, containing the following language:

The shares represented by this certificate (i) were issued without registration under the Securities Act of 1933, as amended (the "Securities Act") and without registration under applicable state securities laws, in reliance upon exemptions contained in the Securities Act and such laws, and (ii) cannot be sold or otherwise transferred except as permitted under the Securities Act and the applicable state securities laws pursuant to registration or exemption therefrom.  Further, no transfer of these shares or any interest therein may be made except pursuant to effective registration statements under said laws unless this Corporation has received an opinion of counsel satisfactory to it that such transfer or disposition does not require registration under said laws and, for any

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sales under Rule 144 of the Securities Act, such evidence as it shall request for compliance with that rule.

In addition to the foregoing, during the period of one (1) year from the Effective Date, the certificate(s) shall also bear the restrictive legend set forth in Section 1(b) of Exhibit C hereto.

          (e)The Shareholder represents that he/she is an "accredited investor" within the meaning of Commission Rule 501(c) under the Securities Act, and (i) is able to bear the economic risks of the acquisition of shares of IRET Shares hereunder and has adequate means of providing for current needs and possible contingencies, (ii) either alone or with his advisors has had the opportunity to ask questions and receive answers concerning IRET and the terms and conditions of the issuance of the shares of IRET Shares hereunder, as well as the opportunity to obtain any additional information necessary to verify the accuracy of information furnished in connection therewith which IRET possesses or can acquire without unreasonable effort or expense, and (iii) together with his advisors, if any, has such Knowledge and experience in financial and business matters that he/she is capable of evaluating the merits and risks of this acquisition of shares of IRET Shares, and of making an informed investment decision.

ARTICLE 11

PERFORMANCE FOLLOWING THE CLOSING DATE

The following covenants and agreements are to be performed after the Closing by the Parties and shall continue in effect for the periods respectively indicated or, where no indication is made, until performed:

          11.1 Further Acts and Assurances.  The Parties agree that, at any time and from time to time, on and after the Effective Date, upon the reasonable request of the other party, they will do or cause to be done all such further acts and things and execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered any and all papers, documents, instruments, agreements, assignments, transfers, assurances and conveyances as may be necessary or desirable to carry out and give effect to the provisions and intent of this Agreement.  In addition, from and after the Closing Date, IRET will afford to the Shareholders and their attorneys, accountants and other representatives access, during normal business hours, to such personnel, books and records relating to the Company as may reasonably be required in connection with the preparation of financial information or the filing of Tax Returns and will cooperate in all reasonable respects in connection with claims and Proceeding asserted by or against third parties, relating to or arising from the Transactions.

          11.2Injunctive Relief.  The Parties agree that the remedy of damages at law for the breach by any Party of any of the covenants contained in Sections 10.2(b), 10.2(c) or 10.2(d) is an inadequate remedy.  In recognition of the irreparable harm that a violation of any of the covenants, agreements or obligations arising under Sections 10.2(b) and 10.2(c) would cause the Shareholders, IRET and the Surviving Corporation agree that in addition to any other remedies

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or relief afforded by law, an Injunction against an actual or Threatened violation or violations may be issued against IRET and every other Person concerned thereby, without the necessity of posting bond, it being the understanding of the Parties that both damages and Injunction shall be proper modes of relief and are not to be considered alternative remedies.

          11.3 Guarantees.  In furtherance of the provisions of Section 5.22 hereof, IRET and the Merger Subsidiary shall (i) have a continuing obligation after the Closing to terminate, extinguish or otherwise remove any and all of the guarantees made by the Shareholders on behalf of the Company, and (ii) defend and indemnify the Shareholders with respect to such guarantees in accordance with Article 9 of this Agreement, including Section 9.2.

          11.4 Employee Retention.  From and after the Closing Date, notwithstanding any provision in this Agreement to the contrary, only the following Company employees shall remain as at-will employees:  Charles Wm. James, Richard Kvanbeck, Robert Martin, Anthony J. Oxborough, and Tonia Sikorski.

          11.5 Tax Matters.  The following provisions shall govern the allocation of responsibility as between IRET and the Shareholders for certain Tax matters following the Closing Date:

(a) Tax Returns.

          (i)The Shareholders have the exclusive authority and obligation to prepare, execute on behalf of the Company and timely file, or cause to be prepared and timely filed, all Tax Returns of the Company that are due with respect to any taxable year or other taxable period ending prior to or ending on and including the Closing Date.  Such authority shall include, but not be limited to, the determination of the manner in which any items of income, gain, deduction, Loss or credit arising out of the income, properties and operations of the Company shall be reported or disclosed in such Tax Returns; provided, however , that such Tax Returns shall be prepared by treating items on such Tax Returns in a manner consistent with the past practices with respect to such items.

          (ii)Except as provided in Section 11.5(a)(i), IRET shall have the exclusive authority and obligation to prepare and timely file, or cause to be prepared and timely filed, all Tax Returns of the Company and/or the Surviving Corporation; provided, however, with respect to Tax Returns to be filed by IRET pursuant to this Section 11.5(a) for taxable periods beginning before the Closing Date and ending after the Closing Date, items set forth on such Tax Returns shall be treated in a manner consistent with the past practices with respect to such items.  Such authority shall include, but not be limited to, the determination of the manner in which any items of income, gain, deduction, Loss or credit arising out of the income, properties and operations of the Company and/or the Surviving Corporation shall be reported or disclosed on such Tax Returns.

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          (b)Controversies.  IRET shall promptly notify the Shareholders in writing upon receipt by IRET or any Affiliate of IRET (including the Surviving Corporation after the Closing Date) of written notice of any inquiries, claims, assessments, audits or similar events with respect to Taxes relating to a taxable period ending prior to or ending on and including the Closing Date for which the Shareholders may be liable under this Agreement (any such inquiry, claim, assessment, audit or similar event, a "Tax Matter ").  The Shareholders, or their duly appointed representative (the "Shareholders' Representative"), at its sole expense, shall have the authority to represent the interests of the Company with respect to any Tax Matter before the IRS, any other taxing authority, any other governmental agency or authority or any court and shall have the sole right to control the defense, compromise or other resolution of any Tax Matter, including responding to inquiries, filing Tax Returns and contesting, defending against and resolving any assessment for additional Taxes or notice of Tax deficiency or other adjustment of Taxes of, or relating to, a Tax Matter; provided, however, that neither the Shareholders nor any of their Affiliates shall enter into any settlement of or otherwise compromise any Tax Matter that affects or may affect the Tax Liability of IRET, the Surviving Corporation or any Affiliate of the foregoing for any period ending after the Closing Date, including the portion of a period beginning before the Closing Date and ending after the Closing Date (the "Overlap Period") that is after the Closing Date, without the prior written consent of IRET.  The Shareholders or the Shareholders' Representative shall keep IRET fully and timely informed with respect to the commencement, status and nature of any Tax Matter.  The Shareholders shall, in good faith, allow IRET, at its sole expense, to make comments to the Shareholders or the Shareholders' Representative, regarding the conduct of or positions taken in any such Proceeding.

          Except as otherwise provided in this Section 11.5(b), IRET shall have the sole right to control any audit or examination by any taxing authority, initiate any claim for refund or amend any Tax Return, and contest, resolve and defend against any assessment for additional Taxes, notice of Tax deficiency or other adjustment of Taxes of, or relating to, the income, assets or operations of the Company and/or the Surviving Corporation for all taxable periods; provided, however , that IRET shall not, and shall cause its Affiliates (including the Company) not to, enter into any settlement of any contest or otherwise compromise any issue with respect to the portion of the Overlap Period ending on or prior to the Closing Date without the prior written consent of the Shareholders, which consent shall not be unreasonably withheld.

          (c)Amended Tax Returns.  Neither the Shareholders nor the Company shall file or cause to be filed any amended Tax Return or claims for refund without the prior written consent of IRET, which consent shall not be unreasonably withheld, delayed or conditioned, except for such amended Tax Returns or claims for refund filed in connection with the resolution of any Tax Matter in accordance with Section 11.5(b).

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          (d)Non-foreign Person Affidavit.  The Shareholders shall furnish to IRET on or before the Closing Date a non-foreign Person affidavit as required by Section 1445 of the Code.

(e) Indemnification.

          (i)The Shareholders hereby severally (but not jointly) in accordance with their respective pro-rata interests covenant and agree to indemnify, defend and hold harmless IRET, its Affiliates (including the Company) and the successors to the foregoing (and their respective stockholders, officers, directors, employees and agents) against (i) all Taxes, Losses, claims and expenses resulting from, arising out of, or incurred with respect to, any claims that may be asserted by any party based upon, attributable to, or resulting from the failure of any representation or warranty made with respect to Taxes in this Agreement, including those made pursuant to Section 3.9 to be true and correct as of the Closing Date, (ii) all Taxes imposed on or asserted against the properties, income or operations of the Company for all Pre-Closing Periods to the extent such Taxes have not been fully reserved for on the Closing Balance Sheet, and (iii) all Taxes imposed on the Company, or for which the Company may be liable, as a result of any transaction contemplated by this Agreement, including any Taxes imposed on or incurred by IRET or the Company arising from, in connection with or incident to Section 280G of the Code.  IRET shall promptly give the Shareholders or their respective representatives written notice of all Taxes, Losses, claims and expenses which IRET has reasonably determined may give rise to a right of indemnification under this Section 11.5(e), including a computation of the amount of the claimed indemnification with sufficient detail and particularity to enable the Shareholders to reasonably determine the amount of such required indemnification.

          (ii)In the event that IRET fails to notify the Shareholders with respect to a Tax Matter in accordance with the provisions of Section 11.5(b), the Shareholders shall not be obligated to indemnify IRET under Section 11.5(e) to the extent that such failure to notify the Shareholders has a Material Adverse Effect on the Shareholders' ability to defend against such Tax Matter.

          (f)Post-Closing Access and Cooperation.  From and after the Closing Date, IRET agrees, and agrees to cause the Company, to permit the Shareholders or the Shareholders' Representative to have reasonable access, during normal business hours, to the Company's books and records, to the extent that such books and records relate to a Pre-Closing Period, and personnel, for the purpose of enabling the Shareholders to:  (i) prepare the Tax Returns specified in Section 11.5(a)(i), (ii) investigate or contest any Tax Matter which the Shareholders have the authority to conduct under Section 11.5(b), and (iii) evaluate any claim for indemnification under Section 11.5(e).

          11.6 Use of T. F. James Name.  IRET and the Merger Subsidiary, on behalf of themselves and their Affiliates, covenant and agree that they shall have no right, title or interest in or to the name "T. F. James" and shall not use or claim any right to use such name, after the

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Closing.  In the event the Surviving Corporation or IRET have or acquire any such interest in the name "T. F. James," such right shall be immediately transferred to the Shareholders (or to an entity directed by the Shareholders to receive such right).

          11.7 Post-Closing Audit.  IRET and the Surviving Corporation shall engage and shall be solely obligated for the payment of fees and expenses of Brady, Martz & Associates, P.C. and Olsen, Thielen & Co., Ltd., Certificate Public Accountants (the "Auditor") to conduct an audit of the Company and its subsidiary in accordance with GAAP of the period commencing on October 1, 2002 and ending on the close of business on the Closing Date.  IRET and the Merger Subsidiary acknowledge and agree (without objection) that the Olsen, Thielen & Co., Ltd. shall continue to be engaged after the Closing by the Shareholders and their affiliated entities to perform financial and Tax related services on their behalf, including the filing of the Company's final 1120-S and associated state Tax returns.

          11.8          Payment of Employee Compensation Accruals.  IRET shall cause the Surviving Corporation to remit payment to each employee or former employee of the Company in the amount accrued (or to be accrued pursuant to the Closing) for additional compensation to such employees within two (2) months of the Closing Date.  IRET shall indemnify the Shareholders from any adverse Tax consequences arising from, in connection with or incident to any failure of the Surviving Corporation to remit the accrual payments to such employees within the required period.

ARTICLE 12

TERMINATION

          12.1 Termination.  This Agreement may be terminated and the Transactions may be abandoned after the date of this Agreement, but not later than the Closing:

           (a)by mutual written consent of all Parties hereto;

          (b)by IRET or the Company if any of the conditions provided for in Article 6 of this Agreement have not been met and have not been waived in writing by the Party seeking to terminate on or before the Closing Date;

          (c)by IRET if any of the conditions provided for in Article 7 of this Agreement have not been met and have not been waived or deemed waived in writing in accordance with the provisions of this Agreement in writing by IRET on or before the Closing Date;

          (d)by the Company if any of the conditions provided for in Article 8 of this Agreement have not been met and have not been waived in writing in accordance with the provisions of this Agreement by the Shareholders on or before the Closing Date;

           (e) by either IRET or the Company if the Closing shall not have occurred on or before April 30, 2003; and

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           (f)by a Party who objects to a Supplement pursuant to Section 13.21.

In the event of termination or abandonment by any Party as provided in this Section 12.1, written notice shall forthwith be given to the other Party and, except as otherwise provided herein, each Party shall pay its own expenses incident to preparation or consummation of this Agreement and the Transactions and no Party shall have any Liability to any other Party hereunder except such Liability as may arise as a result of a breach hereof.

          12.2 Return of Documents and Nondisclosure.  If this Agreement is terminated for any reason pursuant to Section 12.1 hereto, each Party and its counsel shall return all documents and materials which shall have been furnished by or on behalf of the other Party, and all copies thereof, and each Party hereby covenants that it will not Use or Disclose to any Person any Confidential Information about the other Party or any information about the Transactions, except insofar as may be necessary to comply with the requirements of any Governmental Body or Final Order or to assert its rights hereunder.

ARTICLE 13

MISCELLANEOUS

          13.1 Survival of Representations and Warranties, Covenants and Agreements ..  Each of the representations and warranties of the Parties contained in this Agreement and in any Exhibit, Schedule, certificate, instrument or document delivered by or on behalf of any of the Parties hereto pursuant to this Agreement and the Transactions shall survive the Closing of the Transactions and any investigation made by the Parties or their agents for a period of eighteen (18) months after the Closing, after which no claim for indemnification for any misrepresentation, or for the breach of any representation or warranty under this Agreement, may be brought, and no action with respect thereto may be commenced, and no Party shall have any Liability or obligation with respect thereto, unless (i) the Indemnified Party gave written notice to the Indemnifying Party specifying with particularity the misrepresentation or a breach of representation or warranty claimed on or before the expiration of such period, (ii) the claim relates to a breach of any representations or warranties contained in Sections 3.9, 3.10, 3.11, 3.25, 3.33, 4.3, 4.8 and 4.9, in which case the right to indemnification shall survive the Closing for a period of twenty-four (24) months after the Closing, and then expire, or (iii) the claim relates to any representation or warranty in Sections 3.2, 3.5, 3.34, 3.35 or 10.5, in which case the representation or warranty shall survive the Closing for a period of thirty (30) months after the Closing, and then expire.  The covenants and agreements arising from, incident to or in connection with this Agreement shall survive the Closing until the earlier of (x) such covenants and agreements being fully satisfied and require no performance or forbearance, or the Rights of a Party hereto expire on a specific date by the terms hereof, or (y) thirty (30) months after the Closing (and then expire).

          13.2 Preservation of and Access to Records.  IRET shall preserve or cause the Company to preserve all books and records of the Company for a period of six (6) years after the Closing Date; provided, however , IRET may destroy any part or parts of such records upon obtaining written consent of the Shareholders for such destruction, which consent shall not be

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unreasonably withheld.  Such records shall be made available to the Shareholders and their representatives at all reasonable times during normal business hours of the Company during said six-year period with the right at their expense to make abstracts from and copies thereof.

          13.3 Cooperation.  The Parties hereto shall cooperate with each other in all respects, including using commercially reasonable efforts to assist each other in satisfying the conditions precedent to their respective obligations under this Agreement, to the end that the Transactions will be consummated.

          13.4 Public Announcements.  The timing and content of all public announcements relating to the execution of this Agreement and the consummation of the Transactions shall be approved by both IRET and the Company prior to the release of such public announcements, and each Party agrees to cooperate with the other Party as appropriate to comply with all Applicable Laws.  Subsequent to the date of receipt of all consents and approvals of each Governmental Body necessary to consummate this Transaction, IRET may make such announcements and/or advertisements as IRET, in its sole discretion, deems necessary.

          13.5 Notices.  All notices, demands and other communications provided for hereunder shall be in writing and shall be given by personal delivery, via facsimile transmission (receipt telephonically confirmed), by nationally recognized overnight courier (prepaid), or by certified or registered first class mail, postage prepaid, return receipt requested, sent to each Party, at its/his address as set forth below or at such other address or in such other manner as may be designated by such Party in written notice to each of the other Parties.  All such notices, demands and communications shall be effective when personally delivered, one (1) business day after delivery to the overnight courier, upon telephone confirmation of facsimile transmission or upon receipt after dispatch by mail to the Party to whom the same is so given or made:

If to Purchaser	Investors Real Estate Trust
or the Merger	12 South Main Street
Subsidiary:	Minot, North Dakota  58702-1988
	Attention:  Thomas Wentz, Sr., President and CEO
	Thomas Wentz, Jr., Vice President and General Counsel
If to the Company	T. F. James Company
or the Shareholders:	21500 Highway 7, Box 560
	Excelsior, Minnesota  55331
	Attention:  Charles Wm. James
	Thomas J. Legierski
With a copy to:	Briggs and Morgan, Professional Association
	2400 IDS Center
	80 South Eighth Street
	Minneapolis, Minnesota  55402
	Attention:  Michael J. Grimes, Esq.

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          13.6 Entire Agreement.  Except for the Confidentiality Agreement, which shall remain in effect to, at and upon the Effective Time, and shall thereupon terminate, this Agreement and the Ancillary Documents to be executed and delivered by the Parties pursuant hereto, contains the entire agreement of the Parties hereto and supersedes all prior or contemporaneous agreements and understandings, oral or written, among the Parties hereto with respect to the subject matter hereof.

          13.7 Remedies.  The respective indemnification obligations of the Parties set forth in Article 9 of this Agreement are the exclusive remedies of the Parties and their successors, assigns, heirs, beneficiaries or others seeking to claim by, through, or on behalf of a Party, under this Agreement (other than pursuant to Article 10 and Section 11.5), and no other remedy or remedies, whether arising under any Applicable Law, common law or otherwise, may be used, asserted or prosecuted in connection with this Agreement and any transaction, occurrence, or omission arising from, in connection with or otherwise based upon this Agreement; provided, however , that all equitable remedies shall remain available and shall not be restricted by any interpretation of this Agreement.

          13.8 Amendments.  No purported amendment, modification or waiver of any provision of this Agreement or any of the documents, instruments or agreements to be executed by the Parties pursuant hereto shall be effective unless in a writing specifically referring to this Agreement and signed by all of the Parties hereto.

       13.9 Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, personal representatives, successors and permitted assigns, but except as hereinafter provided in this Section, nothing in this Agreement is to be construed as an authorization or right of any Party to assign its rights or delegate its duties under this Agreement without the prior written consent of the other Parties hereto.  In its sole discretion, IRET may assign its rights in and/or delegate its duties under this Agreement to an Affiliate of IRET.  In the event of such an assignment of rights and/or delegation of duties, all references to IRET in this Agreement shall also be deemed to be references to the Person to which this Agreement is assigned; provided that no such assignment and/or delegation shall relieve IRET of any of its duties or obligations hereunder.

          13.10Fees and Expenses .  Each Party hereto shall pay their own fees and expenses incurred in connection with negotiating and preparing this Agreement and consummating the Transactions, including but not limited to fees and disbursements of their respective attorneys, accountants, finders, brokers and investment bankers. 

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          13.11Governing Law and Jurisdiction.  This Agreement, including the documents, instruments and agreements to be executed and/or delivered by the Parties pursuant hereto, shall be construed, governed by and enforced in accordance with the internal laws of the State of Minnesota, without giving effect to the principles of comity or conflicts of laws thereof, except for the requirements of the IBCA and the NDBCA which shall take precedence in the interpretation of the requirements of the Parties with respect to the Merger and the respective internal corporate governance of the Parties.  The Parties agree and consent that any legal action, suit or Proceeding seeking to enforce any provision of this Agreement, with the exception of the primacy of Section 9.4 with respect to certain subject matters of this Agreement (which is governed by Section 9.4(c)) shall be instituted and adjudicated solely and exclusively in any court of general jurisdiction in Minnesota, or in the United States District Court having jurisdiction in Minnesota and the Parties agree that venue will be proper in such courts and waive any objection which they may have now or hereafter to the venue of any such suit, action or Proceeding in such courts, and each hereby irrevocably consents and agrees to the jurisdiction of said courts in any such suit, action or Proceeding.  The Parties further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or Proceeding in said courts, and also agree that service of process or notice upon them shall be deemed in every respect effective service of process or notice upon them, in any suit, action, Proceeding, if given or made (i) according to Applicable Law, (ii) by a Person over the age of 18 who personally served such notice or service of process on such Party, as the case may be, or (iii) by certified mail, return receipt requested, mailed to such Party, as the case may be, at their respective addresses set forth in this Agreement.

          13.12Counterparts and Facsimile Signature.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same Agreement.  The counterparts of this Agreement and all Ancillary Documents may be executed and delivered by facsimile signature by any of the parties to any other party, and the receiving party may rely on the receipt of such document so executed and delivered as if the original had been received.

          13.13Headings.  The headings of the articles, sections and subsections of this Agreement are intended for the convenience of the Parties only and shall in no way be held to explain, modify, construe, limit, amplify or aid in the interpretation of the provisions hereof.  The terms "this Agreement," "hereof," "herein," "hereunder," "hereto" and similar expressions refer to this Agreement as a whole and not to any particular article, section, subsection or other portion hereof and include the Schedules and Exhibits hereto and any document, instrument or agreement executed and/or delivered by the Parties pursuant hereto.

          13.14Scope of Agreement .  Unless the context otherwise requires, all references in this Agreement or in any Schedule or Exhibit hereto, to the assets, properties, operations, business, financial statements, employees, books and records, accounts receivable, accounts payable, Contracts or other attributes of the Business of the Company shall mean such items or attributes as they are used in, apply to, or relate to the Business of the Company.

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          13.15Number and Gender .  Unless the context otherwise requires, words importing the singular number shall include the plural and vice versa and words importing the use of any gender shall include all genders.

          13.16Severability ..  In the event that any provision of this Agreement is declared or held by any court of competent jurisdiction to be invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement, unless such invalid or unenforceable provision goes to the essence of this Agreement, in which case the entire Agreement may be declared invalid and not binding upon any of the Parties.

          13.17Parties in Interest .  Except as specifically set forth in Sections 5.36 and 13.19 of this Agreement, nothing expressed or implied in this Agreement is intended or shall be construed to confer any rights or remedies under or by reason of this Agreement upon any Person other than the Parties hereto and their respective heirs, personal representatives, successors and permitted assigns.  Nothing in this Agreement is intended to relieve or discharge the Liabilities of any third Person to the Parties hereto.  Notwithstanding the foregoing, upon and after the Closing, the Shareholders shall have the right to direct action with respect to Article 10 of this Agreement and all correllary and enabling provisions hereunder.

          13.18Waiver.  The terms, conditions, warranties, representations and indemnities contained in this Agreement, including the documents, instruments and agreements executed and/or delivered by the Parties pursuant hereto, may be waived only by a written instrument executed by the Party waiving compliance.  Any such waiver shall only be effective in the specific instance and for the specific purpose for which it was given and shall not be deemed a waiver of any other provision hereof or of the same breach or default upon any recurrence thereof.  No failure on the part of a Party hereto to exercise and no delay in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

          13.19Construction ..  The Parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.  The words "including," "include" or "includes"shall mean including without limitation.  The Parties intend that each representation, warranty and covenant contained herein shall have independent significance.  If any Party has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty or covenant.  With respect to the rights of the Shareholders under this Agreement, the Shareholders shall, upon and after the Closing, have the individual and collective right to assert all rights, defenses, benefits and other interests under this Agreement that could have been asserted by the Company, and each Shareholder shall be deemed to be a successor-in-interest to the Company under this Agreement for the purpose of asserting such rights, defenses, benefits and other interests.  For

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clarification, and in furtherance of the foregoing, upon and after the Closing, the Shareholders shall be deemed a "Party" to this Agreement.

          13.20Specific Performance .  The Parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the Parties shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

          13.21Supplementation of Schedules.  The Company, the Shareholders or IRET may elect to deliver a supplement ("Supplement") to one or more of the Schedules and previously delivered to the other in accordance with the procedures set forth in this Section 13.21 as follows:

          (a)Prior to the Closing Date, any and all Supplements must be in writing and must be delivered to the other Party before the date that is five (5) business days prior to the scheduled Closing Date.  The other Party shall be given the opportunity during the five (5) business days following the delivery of the proposed Supplement to consider that Supplement.  If the recipient does not object to the contents of the Supplement within such period, the Schedule in question shall be deemed amended by the Supplement.  If the recipient objects to a proposed Supplement, the sole remedy of such objecting Party shall be termination of this Agreement in accordance Section 12.1(f) of this Agreement, provided that this limitation of remedies shall only apply if the Supplement was prepared in connection with or was made necessary by a change in circumstance of which the Party proposing the Supplement was unaware from the date of this Agreement to the date of the proposed Supplement; and

          (b)Any and all Supplements within five (5) business days prior to the scheduled Closing Date must be in writing and delivered to the other Party pursuant to Section 13.5 of this Agreement, and will only be deemed to amend a Schedule with the written consent of the recipient of the Supplement.

  [SIGNATURE PAGE FOLLOWS]

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          IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be executed by its duly authorized representative as of the day, month and year first above written.

IRET:                                                                      MERGER SUBSIDIARY:

INVESTORS REAL ESTATE TRUST                  IRET, INC.

By_________________________________                      By________________________________

            Its___________________________                                  Its__________________________

COMPANY::

T. F. JAMES COMPANY

By________________________________

            Its__________________________

_______________________________________

          The Shareholders below execute and deliver this Agreement for the sole purposes of (i) making the representations and warranties set forth in Section 10.5 of this Agreement, and (ii) to covenant the indemnification of IRET and the Merger Subsidiary as set forth in Article 9 hereof:

SHAREHOLDERS:

__/s/Douglas M. James _________________                      _ /s/Judith Scherer___________________
Douglas M. James                                                                Judith Scherer

_/s/Robert R. James    __________________                      _/s/Thomas J. Legierski_______________
Robert R. James                                                                   Thomas J. Legierski

_/s/Charles Wm. James__________________                       /s/Thomas M. James____________ ____
Charles Wm. James                                                              Thomas M. James

[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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EXHIBITS AND SCHEDULES

Schedules

2.11(c)             Estimated Merger Consideration
2.16                 Merger Consideration Calculation
3.1                   Due Incorporation
3.2                   Capitalization
3.4                   No Breach
3.5                   Clear Title
3.6                   Condition of Assets
3.7                   Litigation
3.8                   Labor Matters
3.9(a)              Tax Returns
3.9(c)              Other Tax Matters
3.9(c)(i)           Audits or Other Examinations
3.10                 Employee Benefits
3.11                 Guaranties
3.12                 Financial Statements
3.13                 Absence of Certain Developments
3.14                 Intellectual Property
3.15                 Compliance with Laws
3.16                 Operating Contracts
3.17                 Real Estate
3.19                 Books and Records; Bank Accounts
3.20                 Employees
3.21                 Permits
3.22                 Mortgages and Tenant Leases
3.23                 Subsidiaries
3.24                 Insurance
3.25                 Brokers and Finders
3.26                 Relationship with Related Persons
3.27                 Hazardous Materials
3.28                 Other Environmental Matters
3.29                 Debt Instruments
3.31                 Shareholder Loans
3.33                 Absence of Certain Business Practices
3.34                 Trade Regulations
3.35                 Representations Regarding the Shareholders
5.5                   Restrictions on New Contracts
5.14                 Shareholder Guarantees

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Exhibits

Exhibit A         Closing Certificate of the Company
Exhibit B          Mutual Release
Exhibit C          Share Transfer Restriction Agreement
Exhibit D         Closing Certificate of IRET and Merger Subsidiary
Exhibit E          Articles of Merger – North Dakota
Exhibit F          Articles of Merger - Iowa
Exhibit G          Articles of Incorporation of Surviving Corporation
Exhibit H         Shareholders of the Company

78 EXHIBIT A COMPANY CLOSING CERTIFICATE

          The undersigned, T. F. James Company , an Iowa corporation (the "Company"), hereby certifies to Investors Real Estate Trust, a real estate investment trust organized under the laws of the State of North Dakota ("IRET ") and IRET, Inc., a North Dakota corporation (the "Merger Subsidiary "), pursuant to that certain Agreement and Plan of Reorganization made and entered into as of the [___] day of January, 2003, by and among IRET, the Merger Subsidiary, the Company and the Shareholders of the Company (the "Reorganization Agreement"), as follows:

          1.         All of the representations and warranties made by the Company in the Reorganization Agreement and the Ancillary Documents (as modified by the Schedules and the Supplements thereto) are true and correct in all material respects on and as of the date hereof with the same force and effect as though all such representations and warranties had been made on or given on and as of the date hereof; and

          2.         The Company has performed and/or complied with all of the covenants, agreements and obligations under the Reorganization Agreement and the Ancillary Documents which are to have been performed and complied with by the Company prior to or on the date hereof.

          3.         Capitalized terms not otherwise defined herein shall have the meaning set forth in the Reorganization Agreement.

[SIGNATURE PAGE FOLLOWS]

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          IN WITNESS WHEREOF, this Company Closing Certificate has been executed as of the ____ day of ______________, 2003.

                                                                                           T. F. JAMES COMPANY

                                                                                           By_________________________________
                                                                                                   Its____________________________

[SIGNATURE PAGE TO COMPANY CLOSING CERTIFICATE]

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EXHIBIT B MUTUAL RELEASE

          THIS MUTUAL RELEASE is made this [___] day of [______________] , 2003, by the shareholders ("Shareholders") of T. F. James Company , an Iowa corporation (the "Company"), Investors Real Estate Trust , a real estate investment trust organized under the laws of the State of North Dakota ("IRET") and IRET, Inc., a North Dakota corporation (the "Merger Subsidiary"), pursuant to that certain Agreement and Plan of Reorganization made and entered into as of the [___] day of January, 2003, by and among the Shareholders of the Company, IRET and the Merger Subsidiary (the "Reorganization Agreement").

          Each of the Shareholder, the Company, IRET and the Merger Subsidiary  may be collectively referred to herein as the "Parties" and referred to individually as a "Party ."

RECITALS

          A.        The Shareholders are all of the shareholders of the Company;

          B.        The Shareholders have entered into the Reorganization Agreement, pursuant to which the Company will merge with and into the Merger Subsidiary and the shareholders of the Company will convert their equity holdings in the Company into shares of beneficial interest (the functional equivalent of common stock) of IRET; and

          C.        It is a condition precedent to the obligations of the Shareholders, the Company, IRET and the Merger Subsidiary under the Reorganization Agreement that the parties execute and deliver this Mutual Release at the Closing.

AGREEMENT

          NOW, THEREFORE , in consideration of the foregoing Recitals and the mutual promises contained in this Mutual Release and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

          1.         Release of the Shareholders and the Company.  Except as otherwise provided in paragraph 3 below, the IRET and the Merger Subsidiary, acting for themselves, their respective Affiliates, insurers, shareholders, successors and assigns, and each of them, do hereby release and forever discharge the Shareholders, the Company, their respective heirs, personal representatives, successors and assigns, and each of them, from any and all liabilities, claims, demands and causes of action, either in law or in equity, known or unknown, liquidated or unliquidated, which have arisen or may arise out of or are in any way connected with any act, omission, event, occurrence, representation, warranty, failure, default or breach, actual or asserted, of the Shareholders and the Company on or prior to the date of this Mutual Release.

          2.         Release of IRET and the Merger Subsidiary.  Except as otherwise provided in paragraph 3 below, the Shareholders and the Company, acting for themselves, their shareholders and their successors and assigns, and each of them,

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do hereby release and forever discharge IRET and the Merger Subsidiary, and their respective officers, employees, agents, consultants, successors and assigns, and each of them, from any and all liabilities, claims, demands and causes of action, either in law or in equity, known or unknown, liquidated, or unliquidated, which have arisen or may arise out of or are in any way connected with any act, omission, event, occurrence, representation, warranty, failure, default or breach, actual or asserted, of any one or more of IRET and the Merger Subsidiary on or prior to the date of this Mutual Release.

          3.         Excluded Claims.   This Mutual Release shall not apply to any liabilities, claims, demands or causes of action, either in law or in equity, known or unknown, liquidated or unliquidated, which have arisen or may arise out of or in any way connected with:

          (a)       The obligations and rights arising from, in connection with or incident to the Reorganization Agreement, and any of the Ancillary Documents thereto, which any one or more of the parties hereto ever had, have, or hereafter ever can, shall or may have claim to have, on account of any act, omission, event, occurrence, representation, warranty, failure, default or breach, actual or asserted, of any one or more of the other parties hereto, their respective officers, directors, employees, agents, consultants, successors or assigns, as the case may be, or any of them; and

                    (b)       The obligation of the Company to indemnify its officers and directors to the extent allowed by Applicable Law.

          4.         Governing Law.   The validity, interpretation, and performance of this Mutual Release shall be controlled by and construed under the internal laws of the State of Minnesota, without regard to the principals of comity or the conflicts of laws provisions of any jurisdiction which would result in the application of laws other that those of the State of Minnesota.

          5.         Counterparts and Facsimile Signatures.  This Mutual Release may be executed in one or more counterparts which together constitute one and the entire agreement among the parties with respect to the transactions contemplated hereby.  The counterparts of this Mutual Release may be executed and delivered by one Party to another by telecopy, and the receiving Party may rely on the receipt of such executed instrument as if the original had been received.

          6.         Severability.   Whenever possible, each provision of this Mutual Release will be interpreted in such a manner as to be effective and valid under Applicable Law, but if any provision of this Mutual Release is held to be prohibited by or invalid under Applicable Law, such provision will be ineffective only to the extent such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Mutual Release.

          7.         Amendment.  This Mutual Release shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by written amendment signed by each of the parties hereto.

          8.         Headings.  The headings herein are for purposes of reference only and shall not otherwise effect the meaning or interpretation of any provision hereof.

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          9.         Definitions.  Any capitalized term or phrase used but not defined herein shall have the meanings set forth in the Reorganization Agreement.

[SIGNATURE PAGE FOLLOWS] B-3

          IN WITNESS WHEREOF, the parties hereto have executed this Mutual Release as of the day, month and year first above written.

IRET:                                                                       MERGER SUBSIDIARY:

INVESTORS REAL ESTATE TRUST                  IRET, INC.

By_________________________________                      By________________________________
            Its___________________________                                  Its__________________________

COMPANY::                                                          SHAREHOLDERS;

T. F. JAMES COMPANY

                                                                                 _/s/Douglas M. James _________________
By________________________________            Douglas M. James
            Its__________________________
                                                                                 _/s/Robert R. James __________________
                                                                                Robert R. James

                                                                                 _/s/Charles Wm. James________________
                                                                                Charles Wm. James

                                                                                 _/s/Judith Scherer ____________________
                                                                                 Judith Scherer

                                                                                 _/s/Thomas M. James_________________
                                                                                 Thomas M. James

                                                                                _ /s/Thomas J. Legierski__  ____________
                                                                                Thomas J. Legierski

[SIGNATURE PAGE TO MUTUAL RELEASE]

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EXHIBIT C SHARE TRANSFER RESTRICTION AGREEMENT

          THIS SHARE TRANSFER RESTRICTION AGREEMENT ("Agreement") is made and entered into as of this 31st day of January, 2003, by and between [NAME OF T. F. JAMES SHAREHOLDER TO BE INSERTED] (the "Shareholder"), and Investors Real Estate Trust, a real estate investment trust organized under the laws of the state of North Dakota ("IRET").

RECITALS

          A.        This Agreement is entered into in connection with and upon the Closing of that certain Agreement and Plan of Reorganization dated January [___] , 2003 (the "Reorganization Agreement"), by and among IRET, IRET, Inc., a North Dakota corporation and a wholly-owned first-tier subsidiary of IRET, and T. F. James Company, an Iowa corporation (the "Company ").

          B.        Pursuant to Section 2.11 of the Reorganization Agreement, IRET will issue shares of beneficial interest in IRET (the "IRET Shares") to each of the shareholders of the Company (the "Shareholders") in partial exchange of the Shareholders' ownership interests in the Company.

          C.        The Shareholders are required under the provisions of Section 2.3(a) of the Reorganization Agreement to execute and deliver this Agreement at and upon the Closing of the Reorganization Agreement.

          D.        This Agreement sets forth the understanding between IRET and the Shareholder regarding the terms and conditions, including certain restrictions and limitations, on the transfer and Encumbrance of the IRET Shares held by the Shareholder.

AGREEMENT

          In consideration of the foregoing Recitals, each of which is hereby incorporated by reference herein as an essential term hereof, the mutual promises contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, IRET and the Shareholder agree as follows:

          1.         General Transfer Restrictions and Limitations.  In addition to all of the terms and conditions contained on the date hereof in the Second Restated Declaration of Trust of IRET dated February 10, 1999, the following terms and conditions shall apply to all IRET Shares received by the Shareholder:

          (a)       Other than the Shareholder's right to transfer IRET Shares in satisfaction of a claim under Section 9.1 of the Reorganization Agreement, notwithstanding any other covenant or understanding set forth herein or in the

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Reorganization Agreement, for a period of one (1) year after the Effective Time (the "Restriction Period"), the IRET Shares shall not be sold, assigned, pledged, or otherwise transferred except in accordance with this Agreement.

                    (b)       Each certificate representing the IRET Shares shall bear the following legend:

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE HELD SUBJECT TO, AND CANNOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED FOR A PERIOD OF ONE (1) YEAR FROM THE ISSUANCE DATE HEREOF, EXCEPT IN COMPLIANCE WITH THE PROVISIONS OF THAT CERTAIN SHARE TRANSFER RESTRICTION AGREEMENT DATED ________________________."

          (c)       Immediately upon the termination of the Restriction Period, IRET shall cause and facilitate the legend set forth above to be removed from all certificates representing the IRET Shares held by the Shareholder.

          2.         Transfer Procedure among Family Members.  In the event the Shareholder desires to transfer IRET Shares to an immediate family member (consisting of spouse, children or grandchildren or entity composed solely of immediately family members) ("Immediate Family Member") during the Restriction Period, the Shareholder may do so only upon advance written notice to IRET and in conformity with the provisions below.  Any transfer of IRET Shares during the Restriction Period from the Shareholder to an Immediate Family Member shall be allowed subject to the following requirements:

          (a)       An Immediate Family Member who is a natural person shall consist solely of a spouse, child or other issue of a child as those terms are defined by the Uniform Probate Code, as adopted and as amended from time to time by the state of Minnesota;

          (b)       Any transfer notification by the Shareholder shall be made in writing to IRET at least ten (10) business days prior to any transfer;

          (c)       As part of any transfer notification, the Shareholder shall (i) represent and warrant to IRET that the intended transferee is an Immediate Family Member, and (ii) submit a completed and signed IRS W-9 form reasonably acceptable to IRET;

          (d)       The transferee identified by the Shareholder shall affirmatively agree to be bound by all terms and conditions of this Agreement;

          (e)       No transfer shall be complete until IRET has received the Shareholder's original IRET Share certificate for cancellation and reissue pursuant to the terms of the transfer.  In the event the Shareholder's original IRET Share certificate has been lost, stolen or destroyed, an affidavit to such effect, along with a customary indemnity agreement and bond, shall also be submitted by the Shareholder.  In the event the IRET Shares are held in book entry, this requirement shall not apply.

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3.         Miscellaneous .

          (a)       Notices ..  Wherever any notice or other communication is required or permitted hereunder, such notice or other communication shall be in writing and shall be delivered by hand, by nationally recognized overnight express delivery service, by U.S. registered or certified mail, return receipt requested, postage prepaid, or by electronic "fax" transfer with prompt telephone confirmation to the addresses set out below or at such other addresses as are specified by written notice delivered in accordance herewith:

            If to the Shareholder:    [NAME/ADDRESS OF SHAREHOLDER]

            With a copy to:            Michael J. Grimes, Esq.
                                               Briggs and Morgan, P.A.
                                               2400 IDS Center
                                                80 South Eighth Street
                                                Minneapolis, Minnesota  55402
                                                Phone:  (612) 334-8492
                                                Fax:  (612) 334-8650

            If to IRET:                  Investors Real Estate Trust
                                              Attn: General Counsel
                                              PO Box 1988, 12 South Main, Suite 100
                                              Minot, North Dakota 58701
                                              Phone: (701) 837-4738
                                              Fax: (701) 838-7785 

          Such notices shall be deemed received (i) on the date of delivery, if delivered by hand, (ii) the date tendered to such overnight express delivery service if sent by overnight delivery service, (iii) on the date received if mailed, or (iv) on the date of transmission and receipt, if sent by electronic "fax" transfer device.

          (b)       Governing Law; Headings; Rules of Construction.  This Agreement shall be governed by and construed in accordance with the laws of the State of North Dakota, without reference to the conflicts of laws or choice of law provisions thereof.  The titles of sections and subsections herein have been inserted as a matter of convenience of reference only and shall not control or affect the meaning or construction of any of the terms or provisions herein.  All references herein to the singular shall include the plural, and vice versa.  The parties agree that this Agreement is the result of negotiation by the parties, each of whom was represented by counsel, and thus, this Agreement shall not be construed against the maker thereof.

          (c)       No Waiver ..  Neither the failure of either party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of either party's right to demand exact compliance with the terms hereof.

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          (d)       Entire Agreement.  Except for the provisions of the Reorganization Agreement pertaining to the subject matter of this Agreement, this Agreement contains the entire agreement of the parties hereto with respect to the IRET Shares, and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein or incorporated herein by reference shall be of any force or effect.

          (e)       Binding Effect.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors, grantees and assigns.

          (f)        Amendments ..  No amendment to this Agreement shall be binding on any of the parties hereof unless such amendment is in writing and is executed by the party against whom enforcement of such amendment is sought.

          (g)       Counterparts and Facsimile Signatures.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute but one and the same instrument.  The counterparts of this Agreement and any notice hereunder may be executed and delivered by facsimile signature by either of the parties to the other party, and the receiving party may rely on the receipt of such document as if the original had been received.

          (h)       Severability ..  This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all Applicable Laws, ordinances, rules and regulations, and is intended, and shall for all purposes be deemed to be, a single, integrated document setting forth all of the agreements and understandings of the parties hereto, and superseding all prior negotiations, understandings and agreements of such parties.  If any term or provision of this Agreement or the application thereof to any person or circumstance shall for any reason and to any extent be held to be invalid or unenforceable, then such term or provision shall be ignored, and to the maximum extent possible, this Agreement shall continue in full force and effect, but without giving effect to such term or provision.

[SIGNATURE PAGE FOLLOWS]
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          IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and sealed by its duly authorized signatory, effective as of the day and year first above written.

                                                          ___________________________________________
                                                          [NAME OF SHAREHOLDER TO BE INSERTED]

                                                          INVESTORS REAL ESTATE TRUST

                                                          By___/s/Thomas A. Wentz, Jr____________________
                                                                     Thomas A. Wentz, Jr.
                                                                     Its Trustee and Vice President

  [SIGNATURE PAGE TO SHARE TRANSFER RESTRICTION AGREEMENT]
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EXHIBIT D CLOSING CERTIFICATE OF IRET AND MERGER SUBSIDIARY

The undersigned, Investors Real Estate Trust, a real estate investment trust organized under the laws of the state of North Dakota ("IRET") and IRET, Inc., a North Dakota corporation and wholly-owned first-tier subsidiary of IRET (the "Merger Subsidiary") hereby certify to the Company and the Shareholders pursuant to that certain Agreement and Plan of Reorganization made and entered into as of the [___] day of January, 2003, by and among the IRET, the Merger Subsidiary, T. F. James Company, an Iowa corporation (the " Company") and the Shareholders set forth therein (the "Reorganization Agreement"), as follows:

1.         All of the representations and warranties made by IRET and the Merger Subsidiary in the Reorganization Agreement and the Ancillary Documents (as modified by the Schedules and the Supplements thereto) are true and correct in all material respects at and as of the date hereof with the same force and effect as though all such representations and warranties had been made on or given on and as of the date hereof; and

2.         IRET and the Merger Subsidiary have performed and/or complied with all of their respective covenants, agreements, and obligations under the Reorganization Agreement and the Ancillary Documents which are to have been performed and complied with by them prior to or on the date hereof.

3.         Capitalized terms not otherwise defined herein shall have the meaning set forth in the Reorganization Agreement.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, IRET and the Merger Subsidiary, by their authorized representatives, have executed this Closing Certificate as of the ____ day of _________________, 2003.

INVESTORS REAL ESTATE TRUST

By__________________________________
      Its________________________________

IRET, Inc.

By__________________________________
      Its________________________________

[SIGNATURE PAGE TO CLOSING CERTIFICATE OF IRET AND MERGER SUBSIDIARY]

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EXHIBIT E ARTICLES OF MERGER (NORTH DAKOTA) ARTICLES OF MERGER OF IRET, INC.
(a North Dakota Corporation) AND T. F. JAMES COMPANY
(an Iowa corporation)

To the Secretary of State
State of North Dakota

Pursuant to the provisions of Chapter 10-19.1, North Dakota Century Code governing the merger of a domestic business corporation into a foreign business corporation, the corporations hereinafter named do hereby submit the following Articles of Merger.

1.         The names of the merging corporations are IRET, Inc., which is a business corporation organized under the laws of the State of North Dakota, and which is subject to the provisions of Chapter 10-19.1, North Dakota Century Code, and T. F. James Company, which is a business corporation organized under the laws of the State of Iowa.

2.         Annexed hereto and made a part hereof is the Plan of Merger for merging T. F. James Company with and into IRET, Inc., as set forth in a resolution approved by the affirmative vote of at least a majority of the Shareholders of T. F. James Company.

3.         The Plan of Merger has been approved by each corporation pursuant to Chapter 10-19.1, North Dakota Century Code.

4.         The laws of the jurisdiction of organization of T. F. James Company permit the merger of a business corporation of another jurisdiction with and into a business corporation the jurisdiction of organization of T. F. James Company; and the merger of T. F. James Company with and into IRET, Inc. is in compliance with the laws of the jurisdiction of organization of Iowa.

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5.         IRET, Inc. will continue its existence as the surviving corporation under its present name pursuant to the provisions of the laws of North Dakota, the jurisdiction of its organization.

6.         IRET, Inc. does hereby agree that it may be served with process in the State of North Dakota in a proceeding for the enforcement of an obligation of T. F. James Company and IRET, Inc. and in a proceeding for the enforcement of the rights of a dissenting shareholder of T. F. James Company and IRET, Inc.; does hereby irrevocably appoint the Secretary of State of the State of North Dakota as its agent to accept service of process in any proceeding and the address to which process may be forwarded shall be its registered agent (Corporation Service Company, 316 North Fifth Street, P.O. Box 1695, Bismarck, ND 58502); and does hereby agree that it will promptly pay to the dissenting shareholders of T. F. James Company the amount, if any, to which they are entitled under the provisions of Section 10-19.1-88, North Dakota Century Code with respect to the rights of dissenting shareholders.

7.         An address to which process may be forwarded is:

                       IRET, Inc.
                       Attn: General Counsel
                       P.O. Box 1988
12 South Main, Suite 100
                       Minot, North Dakota 58701

8.         The merger of T. F. James Company with and into IRET, Inc. shall become effective in the State of North Dakota on February 1, 2003 at 12:01 a.m..

  [SIGNATURE PAGE FOLLOWS]

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We the undersigned, by virtue of the authority vested in us, have read the foregoing articles of merger, know the contents thereof, and verily believe the statements made therein to be true.

Executed on January ___, 2003.                      IRET, INC.

                                                                       By__________________________________
                                                                                 Its____________________________

Executed on January ___, 2003.                      T. F. JAMES COMPANY

                                                                       By__________________________________
                                                                                 Its____________________________

[SIGNATURE PAGE TO ARTICLES OF MERGER (NORTH DAKOTA)]

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PLAN OF MERGER

PLAN OF MERGER approved on [____________________], 20[____] by IRET, Inc., which is a business corporation organized under the laws of the State of North Dakota, and which is subject to the provisions of Chapter 10-19.1, North Dakota Century Code, and by resolution adopted by the affirmative vote of at least a majority of its Board of Directors on said date, and approved on [____________________], 20[____] by T. F. James Company, which is a business corporation organized under the laws of the State of Iowa, and by resolution adopted by its Shareholders of said date.

1.         IRET, Inc. and T. F. James Company shall, pursuant to the provisions of Chapter 10-19.1, North Dakota Century Code and the provisions of the Iowa Business Corporation Act, be merged with and into a single corporation, to wit, IRET, Inc., which shall be the surviving corporation upon the effective date of the merger and which is sometimes hereinafter referred to as the "surviving corporation", and which shall continue to exist as said surviving corporation under its present name pursuant to the provisions of Chapter 10-19.1 of the North Dakota Century Code.  The separate existence of T. F. James Company, which is sometimes hereinafter referred to as the "terminating corporation," shall cease upon the effective date of the merger in accordance with the provisions of the Iowa Business Corporation Act.

2.         The Articles of Incorporation of the surviving corporation upon the effective date of the merger in the State of North Dakota shall be the Articles of Incorporation of said surviving corporation, and said Articles of Incorporation shall continue in full force and effect until amended and changed in the manner prescribed by the provisions of the North Dakota Business Corporation Act.

3.         The bylaws of the surviving corporation as in force and effect upon the effective date of the merger shall continue to be the bylaws of said surviving corporation and shall continue in full force and effect until changed, altered, or amended as therein provided and in the manner prescribed by the provisions of the North Dakota Business Corporation Act.

4.         The directors and officers in office of the surviving corporation upon the effective date of the merger shall continue to be the members of the Board of Directors and the officers of the surviving corporation, all of whom shall hold their directorships and offices until the election and qualification of their respective successors or until their tenure is otherwise terminated in accordance with the bylaws of the surviving corporation.

5.         Each issued share of the terminating corporation shall, upon the effective date of the merger, be converted into [________________] shares of the surviving corporation.

6.         In the event that the merger of the terminating corporation with and into the surviving corporation shall have been fully authorized in accordance with the provisions of Chapter 10-19.1, North Dakota Century Code and in accordance with the provisions of the Iowa Business Corporation Act, the terminating corporation and the surviving corporation hereby stipulate that they will cause to be executed and filed and/or recorded any document or documents prescribed by the laws of the State of

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North Dakota and of the State of Iowa, and that they will cause to be performed all necessary acts therein and elsewhere to effectuate the merger.

7.         The Board of Directors and the proper officers of the terminating corporation and of the surviving corporation, respectively, are hereby authorized, empowered, and directed to do any and all acts and things, and to make, executed, deliver, file, and /or record any and all instruments, papers, and documents which shall be or become necessary, proper, or convenient to carry out or put into effect any of the provisions of this Plan of Merger or of the merger herein provided for.

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EXHIBIT F ARTICLES OF MERGER (IOWA) ARTICLES OF MERGER OF T. F. JAMES COMPANY
(an Iowa Corporation) AND IRET, INC.
(A North Dakota Corporation)

To the Secretary of State
State of Iowa

Pursuant to the provisions of the Iowa Business Corporation Act, the domestic business corporation and the foreign business corporation hereinafter named do hereby submit the following Articles of Merger.

1.         Annexed hereto and made a part hereof is the Plan of Merger for merging T. F. James Company with and into IRET, Inc. as adopted by resolution adopted at a meeting by the Shareholders of T. F. James Company on [_____________________] and by resolution adopted at a meeting by the Board of Directors of IRET, Inc. on [_____________________].

2.         In respect of T. F. James Company, the designation, the number of outstanding shares, and the number of votes entitled to be cast by the sole voting group entitled to vote on the Plan of Merger herein provided for, are as follows:

(a)       Designation of shares of voting group:  Common Stock

(b)       Number of outstanding shares of voting group:  165.496 Shares

(c)       Number of votes of voting group entitled to be cast on the Plan of Merger:  165.496

3.         In respect of T. F. James, the total number of votes cast for and against the Plan of Merger herein provided for by the sole voting group entitled to vote separately on the said Plan of Merger is as follows:

(a)       Designation of shares of voting group:  Common Stock

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(b)       Number of votes of voting group cast for the Plan of Merger:  165.496

(c)       Number of votes of voting group cast against the Plan of Merger:  -0-

3.         The said number of votes cast for the said merger was sufficient for the approval thereof by the said voting group.

4.         The merger of T. F. James Company with and into IRET, Inc. is permitted by the laws of the jurisdiction of organization of IRET, Inc. and has been authorized in compliance with said laws.

5.         The effective time and date in the State of Iowa of the merger herein provided for shall be upon filing on February 1, 2003 at 12:01 a.m.

[SIGNATURE PAGE FOLLOWS]

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Executed on January ___, 2003.                      T. F. JAMES COMPANY

                                                                        By__________________________________
                                                                                 Its____________________________

Executed on January ___, 2003.                      IRET, INC.

                                                                        By__________________________________
                                                                                 Its____________________________

[SIGNATURE PAGE TO ARTICLES OF MERGER (IOWA)]

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PLAN OF MERGER

PLAN OF MERGER adopted by T. F. James Company, a business corporation organized under the laws of the State of Iowa, by resolution of its Shareholders on [_____________________] , and adopted by IRET, Inc., a business corporation organized under the laws of the State of North Dakota, by resolution of its Board of Directors on [_____________________].

1.         T. F. James Company and IRET, Inc. shall, pursuant to the provisions of the Iowa Business Corporation Act and the provisions of the laws of the jurisdiction of organization of IRET, Inc., be merged with and into a single corporation, to wit, IRET, Inc., which shall be the surviving corporation at the effective time and date of the merger and which is sometimes hereinafter referred to as the "surviving corporation", and which shall continue to exist as said surviving corporation under its present name pursuant to the provisions of the laws of the jurisdiction of its organization.  The separate existence of T. F. James Company, which is sometimes hereinafter referred to as the "non-surviving corporation," shall cease at the effective time and date of the merger in accordance with the provisions of the Iowa Business Corporation Act.

2.         The articles of incorporation of the surviving corporation at the effective time and date of the merger in the jurisdiction of its organization shall be the articles of incorporation of said surviving corporation; and said articles of incorporation shall continue in full force and effect until amended and changed in the manner prescribed by the provisions of the laws of the jurisdiction of organization of the surviving corporation.

3.         The bylaws of the surviving corporation at the effective time and date of the merger in the jurisdiction of its organization will be the bylaws of said surviving corporation and will continue in full force and effect until changed, altered, or amended as therein provided and in the manner prescribed by the provisions of the laws of the jurisdiction of its organization. 

4.         The directors and officers in office of the surviving corporation at the effective time and date of the merger in the jurisdiction of its organization shall be the members of the first Board of Directors and the first officers of the surviving corporation, all of whom shall hold their directorships and offices until the election and qualification of their respective successors or until their tenure is otherwise terminated in accordance with the bylaws of the surviving corporation. 

5.         Each issued share of the non-surviving corporation immediately prior to the effective time and date of the merger shall be converted into [_____________________] shares of the surviving corporation.  The issued shares of the surviving corporation shall not be converted or exchanged in any manner, but each said share which is issued at the effective date and time of the merger shall continue to represent one issued share of the surviving corporation.

6.         The Plan of Merger herein made and approved shall be submitted to the shareholders of the non-surviving corporation for their approval or rejection in the manner prescribed by the provisions of the Iowa Business Corporation Act,

F-4

and the merger of the non-surviving corporation with and into the surviving corporation shall be authorized in the manner prescribed by the laws of the jurisdiction of organization of the surviving corporation. 

7.         In the event that the Plan of Merger shall have been approved by the shareholders entitled to vote of the non-surviving corporation in the manner prescribed by the provisions of the Iowa Business Corporation Act, and in the event that the merger of the non-surviving corporation with and into the surviving corporation shall have been duly authorized in compliance with the laws of the jurisdiction of organization of the surviving corporation, the non-surviving corporation and the surviving corporation hereby stipulate that they will cause to be executed and filed and/or recorded any document or documents prescribed by the laws of the State of Iowa and of the State of North Dakota, and that they will cause to be performed all necessary acts therein and elsewhere to effectuate the merger.

8.         The Board of Directors and the proper officers of the non-surviving corporation and of the surviving corporation, respectively, are hereby authorized, empowered, and directed to do any and all acts and things, and to make, execute, deliver, file, and/or record any and all instruments, papers, and documents which shall be or become necessary, proper, or convenient to carry out or put into effect any of the provisions of this Plan of Merger or of the merger herein provided for.

F-5
EXHIBIT G ARTICLES OF INCORPORATION
OF
SURVIVING CORPORATION
          I, the undersigned natural person of the age of eighteen years or more, acting as incorporator of a corporation under the North Dakota Business Corporation act, adopt the following Articles of Incorporation for such corporation:

Article 1.      The name of the corporation shall be IRET, INC.

Article 2.      The purposes for which the corporation is organized are:

(1)	to be a "Qualified REIT Subsidiary" of Investors Real Estate Trust, a North Dakota Business Trust, pursuant to Section 856(i) of the Internal Revenue Code.
(2)	to act as the sole general partner of IRET PROPERTIES, A NORTH DAKOTA LIMITED PARTNERSHIP; and,
(3)	to conduct all related business activities as shall be authorized by its sole shareholder and shall be in conformity with applicable provisions of the Internal Revenue Code dealing with Real Estate Investment Trusts as from time to time amended.

Article 3.      The aggregate number of share which the corporation shall have authority to issue is 50,000 shares of $1.00 par value per share.

Article 4.      The names and addresses of the original officers and directors are as follows:

Name and Address	Office Held
Roger R. Odell 12 South Main Minot, ND 58701	President and Director
Thomas A. Wentz, Sr. 12 South Main Minot, ND 58701	Vice President

G-1

Name and Address	Office Held
Timothy P. Mihalick 12 South Main Minot, ND 58701	Secretary
Ralph A. Christensen 224 Souris Drive Minot, ND 58701	Chairman of the Board and Director
Mike F. Dolan 310 NW 17th Minot, ND 5870	Vice-Chairman of the Board and Director
Jeff L. Miller 9 Parkway Minot, ND 58701	Vice-Chairman of the Board and Director
C. Morris Anderson 1901 North Broadway Minot, ND 58701	Director
John D. Decker 1201 Glacial Drive Minot, ND 58701	Director
J. Norman Ellison, Jr. 203 7th Avenue SW Minot, ND 58701	Director
Daniel L. Feist 1111 Robert St. Minot, ND 58701	Director
Patrick G. Jones 17 Vista Drive Minot, ND 58701	Director
Thomas A. Wentz, Jr. 713 1st Avenue SE Minot, ND 58701	Director

Article 5.      The address of the initial registered agent for the corporation is 12 South Main, Minot, ND 58701; the name of its initial registered agent at that address is Odell-Wentz and Associates, L.L.C., a North Dakota Limited Liability Company.

Article 6.      The name and address of the incorporator is Thomas A. Wentz, Sr., 12 South Main, Minot, ND 58701.
Dated this 15th day of January, 1997.

/S/ Thomas A. Wentz, Sr.                         
Thomas A. Wentz, Sr.

  G-2

REGISTERED AGENT'S CONSENT  
          I, THOMAS A. WENTZ, SR., declare that I am the Vice President of Odell-Wentz & Associates, L.L.C., a North Dakota Limited Liability Company, registered agent named in these Articles of Incorporation, and that said Company consents to serve in such capacity.

Dated this 15th day of January, 1997.

ODELL-WENTZ & ASSOCIATES, L.L.C.
/S/ Thomas A. Wentz., Sr.                       
Thomas A. Wentz, Sr., Vice-President G-3

EXHIBIT H SHAREHOLDERS OF THE COMPANY

Shareholder	Number of Shares Owned	Percentage of Shares Owned
Douglas M. James	28.0992	16.979%
Robert R. James	28.0992	16.979%
Charles Wm. James	28.0992	16.979%
Judith James Scherer	28.0992	16.979%
Thomas M. James	28.0992	16.979%
Thomas J. Legierski	25.0000	15.106%
Total:	165.496	100%

H-1

EX-2

Ex-2b   SCHEDULES TO AGREEMENT AND PLAN OF REORGANIZATION   By and Among   INVESTORS REAL ESTATE TRUST,   IRET, INC. AND T. F. JAMES COMPANY DATE:  January 31, 2003 INDEX TO
T. F. JAMES COMPANY
SCHEDULES

SCHEDULE 3.1          Due Incorporation
SCHEDULE 3.2          Capitalization
SCHEDULE 3.4          No Breach
SCHEDULE 3.5          Clear Title
SCHEDULE 3.6          Condition of Assets
SCHEDULE 3.7          Litigation
SCHEDULE 3.8          Labor Matters
SCHEDULE 3.9(a)     Tax Returns
SCHEDULE 3.9(c)     Other Tax Matters
SCHEDULE 3.9(c)(i)  Audits or Other Examinations
SCHEDULE 3.10        Employee Benefits
SCHEDULE 3.11        Guaranties
SCHEDULE 3.12        Financial Statements
SCHEDULE 3.13        Absence of Certain Developments
SCHEDULE 3.14        Intellectual Property
SCHEDULE 3.15        Compliance with Laws
SCHEDULE 3.16        Operating Contracts
SCHEDULE 3.17        Real Estate
SCHEDULE 3.19        Books and Records; Bank Accounts
SCHEDULE 3.20        Employees
SCHEDULE 3.21        Permits
SCHEDULE 3.22        Mortgages and Tenant Leases
SCHEDULE 3.23        Subsidiaries
SCHEDULE 3.24        Insurance
SCHEDULE 3.25        Brokers and Finders
SCHEDULE 3.26        Relationship with Related Persons
SCHEDULE 3.27        Hazardous Materials
SCHEDULE 3.28        Other Environmental Matters
SCHEDULE 3.29        Debt Instruments
SCHEDULE 3.31        Shareholder Loans
SCHEDULE 3.33        Absence of Certain Business Practices
SCHEDULE 3.34        Trade Regulation
SCHEDULE 3.35        Representations Regarding the Shareholders
SCHEDULE 5.5          Restrictions on New Contracts
SCHEDULE 5.14        Shareholder Guarantees

T. F. JAMES COMPANY

SCHEDULE 3.1

Due Incorporation

The Company is qualified to do business and is in good standing as of the date hereof in the following states:

1.Iowa

2.Minnesota

3.Montana

4.North Dakota

5.Wisconsin

6.Tennessee

1 T. F. JAMES COMPANY

SCHEDULE 3.2

Capitalization

1. Stock Purchase Agreement by and between Phillip M. James, Thomas M. James, Douglas M. James, Judith James Scherer, Robert R. James, Charles W. James and Thomas J. Legierski and James Refrigeration Company, dated effective July 15, 1979;  see also Schedule 3.26(4).

2 T. F. JAMES COMPANY

SCHEDULE 3.4

No Breach

Following is a list of the Mortgage Mortgagees of the Company properties to whom prior consent and notice must be given and from whom consent to the transaction(s) contemplated by the Agreement must be obtained.

Line of Credit:

1.Central Bank

Mortgagees:

See listing of Mortgage locations and due dates set forth on Schedule 3.22 for each of the following:

1.Marshall & Ilsley Bank (National City Bank)

2.Lake Elmo Bank

3.Teachers Insurance Co.

4.Standard Mortgage Investors, LLC

5.Premier Bank

6.Prior Lake State Bank

7.Twin City Federal

8.First Security State Bank

9.Oakley National Bank

10.Wells Fargo Bank

11.The County Bank

12.Lake Country State Bank

13.American Express (IDS)

14.Lutheran Brotherhood

15.Valley Bank

3

16.U.S. Bank

4 T. F. JAMES COMPANY

SCHEDULE 3.5

Clear Title

Summary of UCC Searches:

Name of Debtor:	Jurisdiction
Jamestown Variety, Inc.	North Dakota Secretary of State Stutsman County
T. F. James Company	Minnesota Secretary of State Washington, Pine, Dakota, Scott, Benton, LeSueur and Hennepin Countie s
T. F. James Company	Iowa Secretary of State
Westlake Liquors, Inc.	Minnesota Secretary of State Hennepin County

See Attached Summary and Reports of UCC/Tax Lien/Judgment Search which follows:

The following is a listing of the Internal Revenue Service (IRS) Personal Liens on the James' family members Shareholders Stock, other than Thomas J. Legierski;  see also Schedule 3.35.

IRS LIEN ON COMMON STOCK
SHAREHOLDER	AMOUNT DUE AS OF JANUARY 31, 2003
Douglas M. James	$91,865
Charles Wm. James	$91,865
Judith J. Scherer	$91,865
Robert R. James	$91,865
Thomas M. James	$91,865
TOTAL	$459,325

5   UCC SEARCH SMMARY  

NAME OF DEBTOR:	Jamestown Variety, Inc.
JURISDICTIONS:	North Dakota Secretary of State Stutsman County
EFFECTIVE DATE OF SEARCH:	August 1, 2002 – UCC/Federal/State Tax Lien July 18, 2002 – Bankruptcy August 5, 2002 – Judgment

            No UCC filings were found at the North Dakota Secretary of State's office.

            No Federal or State Tax Liens, Bankruptcy's or Judgment's were found.

6 UCC SEARCH SUMMARY  

NAME OF DEBTOR:	T. F. James Company
JURISDICTIONS:	Minnesota Secretary of State Washington, Pine, Dakota, Scott, Benton, LeSueur and Hennepin County
EFFECTIVE DATE OF SEARCH:	July 29, 2002 – UCC/Federal/State Tax Lien July 5, 2002 – State/Federal Tax  Lien – Hennepin July 5, 2002 – Judgment July 18, 2002 – Bankruptcy

            UCC filings were found at the Minnesota Secretary of State's office and in the above listed counties.  See chart for details.

            No Federal or State Tax Liens, Judgments or Bankruptcy's were found.

  7

MINNESOTA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
751400	6/5/84	UCC-1	American National Bank and Trust Company	See Exhibit A attached to UCC-1 Financing Statement for property covered
1225418	3/21/89	UCC-3	American National Bank and Trust Company	Continuation to Original Financing Statement #751400
1562959	2/10/93	UCC-3	American National Bank and Trust Company	Amendment to Original Financing Statement #751400 – Debtor Name Change from James Refrigeration Company to T F James Company
1659068	3/18/94	UCC-3	American National Bank and Trust Company	Continuation to Original Financing Statement #751400
2122078	4/13/99	UCC-3	American National Bank and Trust Company	Amendment to Original Financing Statement #751400 – Secured Party Name Change to Firstar Bank Minnesota, N.A.
2122079	4/13/99	UCC-3	Firstar Bank Minnesota, N.A.	Continuation to Original Financing Statement #751400
2002439476	6/17/02	UCC-3	Firstar Bank Minnesota, N.A.	Amendment to Original Financing Statement #751400 – Debtor Address Change
827116	7/12/85	UCC-1	First Bank (National Association) - Lake	All bldg. materials, EQ, FX, FU to property located at Lot 1, Block 1, James Plaza, Dakota County;  See Exhibit A attached to UCC-1 Financing Statement for additional property covered

8

MINNESOTA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
1333192	5/29/90	UCC-3	First Bank (National Association) - Lake	Amendment to Original Financing Statement #827116 – Secured Party Name Change to First Bank National Association
1333193	5/29/90	UCC-3	Firstar Bank National Association	Continuation to Original Financing Statement  #827116
1743763	3/9/95	UCC-3	Firstar Bank National Association	Continuation to Original Financing Statement #827116
2215865	4/3/00	UCC-3	Firstar Bank National Association	Continuation to Original Financing Statement #827116
2215866	4/3/00	UCC-3	Firstar Bank National Association	Amendment to Original Financing Statement #827116 – Secured Party Name Change to U.S. Bank National Association
971709	6/18/87	UCC-1	First Bank (National Association) - Lake	Lapsed 6/18/02
1487143	3/18/92	UCC-3	First Bank (National Association) - Lake	Continuation to Original Financing Statement #971709Lapsed 6/18/02
1922898	3/10/97	UCC-3	First Bank (National Association) - Lake	Continuation to Original Financing Statement #971709 Lapsed 6/18/02
1234350	4/21/89	UCC-1	Lutheran Brotherhood	Blanket Filing (see Exhibit A) on real property described in Exhibit B attached to UCC-1 Financing Statement

9

MINNESOTA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
1645897	1/24/94	UCC-3	Lutheran Brotherhood	Continuation to Original Financing Statement #1234350
2086333	11/25/98	UCC-3	Lutheran Brotherhood	Continuation to Original Financing Statement #1234350
1293660	12/21/89	UCC-1	IDS Life Insurance Company	Blanket Filing (see Exhibit A) on real property described in Exhibit B attached to UCC-1 Financing Statement
1718462	11/28/94	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #1293660
2173041	10/26/99	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #1293660
1326308	5/3/90	UCC-1	TCF Bank Savings fsb	Blanket Filing;  See Exhibit A attached to UCC-1 Financing Statement for property covered
1725859	12/27/94	UCC-3	TCF Bank Savings fsb	Continuation to Original Financing Statement #1326308
2191868	1/7/00	UCC-3	TCF Bank Savings fsb	Continuation to Original Financing Statement #1326308
1354727	8/30/90	UCC-1	IDS Life Insurance Company	Blanket Filing (see Exhibit A) on real property described in Exhibit B attached to UCC-1 Financing Statement
1760697	5/11/95	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #1354727
2232216	5/30/00	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #1354727

10

MINNESOTA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
1354729	8/30/90	UCC-1	IDS Life Insurance Company	Blanket Filing (see Exhibit A) on real property described in Exhibit B attached to UCC-1 Financing Statement
1760698	5/11/95	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #1354729
2232215	5/30/00	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #1354729
1411061	4/26/91	UCC-1	First Bank National Association	Blanket Filing;  See Exhibit A attached to UCC-1 Financing Statement for property covered
1829432	3/4/96	UCC-3	First Bank National Association	Continuation to Original Financing Statement #1411061
2271305	10/31/00	UCC-3	First Bank National Association	Continuation to Original Financing Statement #1411061
1714944	11/7/94	UCC-1	National City Bank of Minneapolis	Blanket Filing described in Exhibit B in or on the real property described in Exhibit A to Original UCC-1 Financing Statement
2172740	10/25/99	UCC-3	National City Bank of Minneapolis	Continuation to Original Financing Statement #1714944
1853666	6/3/96	UCC-1	Norwest Bank Minnesota, National Association	Blanket Filing in or on the real property described in Exhibit A to Original UCC-1 Financing Statement
2301096	2/21/01	UCC-3	Norwest Bank Minnesota, National Association	Continuation to Original Financing Statement #1853666

11

MINNESOTA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
1883468	10/7/96	UCC-1	Century Bank National Association	Lapsed 10/7/01
1897694	12/2/96	UCC-1	TMG Life Insurance Company	Lapsed 12/2/01
1920665	2/28/97	UCC-1	First Security State Bank	Lapsed 2/28/02
1931239	4/8/97	UCC-1	Century Bank National Association	Lapsed 4/8/02
1935382	4/23/97	UCC-1	Lake Elmo Bank	Blanket Filing;  See Attachment A and Exhibit A attached to UCC-1 Financing Statement for property covered
2002345184	3/20/02	UCC-3	Lake Elmo Bank	Continuation to Original Financing Statement #1935382
1961079	7/28/97	UCC-1	First Security State Bank	Blanket Filing described in Exhibit A in or on the real property described in Exhibits A, B, C, D, E, F and G to Original UCC-1 Financing Statement
20024495564	6/24/02	UCC-1	First Security State Bank, Sleepy Eye	Continuation to Original Financing Statement #1961079
2030037	4/20/98	UCC-1	First Security Bank, Sleepy Eye	Blanket Filing;  See Exhibit A attached to UCC-1 Financing Statement for property covered
2076657	10/19/98	UCC-3	First Security Bank	Partial Release to Original Financing Statement #2030037;  Collateral identified in original UCC-1, Exhibit A as being located upon "Parcel II" only is released

12

MINNESOTA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
2125328	4/26/99	UCC-1	National City Bank of Minneapolis	Blanket Filing;  See Exhibit A and Exhibit B attached to UCC-1 Financing Statement for property covered
2160803	9/8/99	UCC-1	National City Bank of Minneapolis	Blanket Filing;  See Exhibit A and Exhibit B attached to UCC-1 Financing Statement for property covered
2243669	7/14/00	UCC-1	Central Bank	Blanket Filing;  See Schedule A to UCC-1 Financing Statement
2247966	8/11/00	UCC-1	National City Bank of Minneapolis	Blanket Filing described in Exhibit B in or on the real property described in Exhibit A to Original UCC-1 Financing Statement
2312163	4/2/01	UCC-1	Lutheran Brotherhood	Blanket Filing described in Exhibit A in or on the real property described in Exhibit B to Original UCC-1 Financing Statement
2221778	4/24/00	UCC-1	Firstar Bank, National Association	UCC Replaces Original Financing Statement #1739542 which lapsed 2/21/00;  NO Property listed on original financing statement #1739542
2002439470	6/17/02	UCC-3	Firstar Bank, National Association	Amendment to Original Financing Statement #2221778 – Debtor Name Change from James Refrigeration Company to T F James Company

13

MINNESOTA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
20011188862	8/6/01	UCC-1	The County Bank	Exhibit A not attached – cannot be located
20011259716	8/6/01	UCC-1	The County Bank	Blanket Filing described in Exhibit A in or on the real property described in Exhibit B to Original UCC-1 Financing Statement

MINNESOTA COUNTY FILINGS T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
136520001	8/6/01	UCC-1	The County Bank	Copy of Exhibit A, not attached to UCC-1 Financing Statement Washington County
152697	4/21/89	UCC-1	Lutheran Brotherhood	Blanket Filing described in Exhibit A in or on the real property described in Exhibit B to Original UCC-1 Financing Statement Washington County
169392	1/25/94	UCC-3	Lutheran Brotherhood	Continuation to Original Financing Statement #152697 Washington County
180521	11/30/98	UCC-3	Lutheran Brotherhood	Continuation to Original Financing Statement #152697 Washington County

14

MINNESOTA COUNTY FILINGS T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
052100	12/20/89	UCC-1	IDS Life Insurance Company	Blanket Filing described in Exhibit A in or on real property described in Exhibit B attached to UCC-1 Financing Statement Pine County
060303	11/28/94	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #052100 Pine County
68865	10/26/99	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #052100 Pine County
236515	8/29/90	UCC-1	IDS Life Insurance Company	Blanket Filing described in Exhibit A in or on real property described in Exhibit B attached to UCC-1 Financing Statement Dakota County
262341	5/11/95	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #236515 Dakota County
283364	5/31/00	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #236515 Dakota County
91823	9/4/90	UCC-1	IDS Life Insurance Company	Blanket Filing described in Exhibit A in or on real property described in Exhibit B attached to UCC-1 Financing Statement Scott County

15

MINNESOTA COUNTY FILINGS T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
101752	5/11/95	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #91823 Scott County IDSL Loan #694-1248
110169	5/30/00	UCC-3	IDS Life Insurance Company	Continuation to Original Financing Statement #91823 Scott County IDSL Loan #694-1248
062806	11/7/94	UCC-1	National City Bank of Minneapolis	Blanket Filing described in Exhibit B in or on real estate described in Exhibit A attached to UCC-1 Financing Statement Benton County
072071	10/29/99	UCC-3	National City Bank of Minneapolis	Continuation to Original Financing Statement #062806 Benton County
076049	6/17/96	UCC-1	Norwest Bank Minnesota, National Association	Blanket Filing described in or on real estate described in Exhibit A attached to UCC-1 Financing Statement LeSueur County

16

MINNESOTA COUNTY FILINGS T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
0082296	2/22/01	UCC-3	Norwest Bank Minnesota, National Association	Continuation to Original Financing Statement #076049 LeSueur County Also Attached:  Fourth Amendment to Promissory Note and to Combination Mortgage, Security Agreement and Fixture Financing Statement and to Assignment of Rents and Leases
0082659	6/4/01	UCC-3	Norwest Bank Minnesota, National Association	Amendment to Original Financing Statement #076049 – Secured Party Name Change to Wells Fargo Bank Iowa, National Association LeSueur County
1138522	5/6/99	UCC-1	National City Bank of Minneapolis	Blanket Filing described in Exhibit A in or on real estate described in Exhibit B attached to UCC-1 Financing Statement Hennepin County
1140658	9/9/99	UCC-1	National City Bank of Minneapolis	Blanket Filing described in Exhibit A in or on real estate described in Exhibit B attached to UCC-1 Financing Statement Hennepin County
97201	8/1/00	UCC-1	National City Bank of Minneapolis	Blanket Filing described in Exhibit B in or on real estate described in Exhibit A attached to UCC-1 Financing Statement Carver County

17

MINNESOTA COUNTY FILINGS T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
185354	5/25/01	UCC-1	Lutheran Brotherhood	Blanket Filing described in Exhibit A in or on real estate described in Exhibit B attached to UCC-1 Financing Statement Washington County Copy of exhibits to come

18 UCC SEARCH SUMMARY

NAME OF DEBTOR:	T. F. James Company
JURISDICTIONS:	Iowa Secretary of State
EFFECTIVE DATE OF SEARCH:	July 30, 2002 – UCC/Tax Lien – Federal March 30, 2002 – Tax Lien – County

            2 UCC filings were found at the Iowa Secretary of State's office.  See chart for details.

            No Federal or State Tax Liens were found.

19

IOWA SECRETARY OF STATE T. F. JAMES COMPANY
Filing Number	Date of Filing	Type of UCC	Secured Party	Collateral Code
P307891	8/7/01	UCC-1	The County Bank	Blanket Filing described in Exhibit A in or on real estate described in Exhibit B attached to UCC-1 Financing Statement
P328026	10/15/01	UCC-1	Central Bank	Initial Financing Statement In Lieu of Continuation Statement to Original Financing Statement #2243669, filed in the State of Minnesota on 7/14/00

20
UCC SEARCH SUMMARY

NAME OF DEBTOR:	Westlake Liquors, Inc.
JURISDICTIONS:	Minnesota Secretary of State Hennepin County
EFFECTIVE DATE OF SEARCH:	July 29, 2002 – UCC/Federal/State Tax Lien – MN Central Index July 5, 2002 – State/Federal Tax Lien – MN Hennepin County July 18, 2002 – Bankruptcy July 5, 2002 – Judgment

            No UCC filings were found at the Minnesota Secretary of State's office.

            No Federal or State Tax Liens, Bankruptcy's or Judgment's were found.

21 T. F. JAMES COMPANY

SCHEDULE 3.6

Condition of Assets None   22
T. F. JAMES COMPANY

SCHEDULE 3.7

Litigation

1.

Janet Gale and Alan Gale, wife and husband v. Hollywood Entertainment Corporation, d/b/a Hollywood Video and T.F. James Company;  Hennepin County District Court File No. PI 02006330.  This action involves a claim filed on March 6, 2002, by Janet Gale and Alan Gale, wife and husband, against the Company for a "slip and fall" injury sustained by Mrs. Gale at the Company's retail center in Chanhassen, Minnesota.  Both Plaintiffs are individually seeking to recover damages in an amount greater than Fifty Thousand ($50,000) Dollars.  On January 20, 2002, the Company settled this claim in the amount of $25,000 to be paid by the Company's insurance company, Cincinnati Insurance Company.  This claim is currently being handled by Cincinnati Insurance Company and is represented by Terhaar, Archibald, Pfefferle & Griebel, LLP, 300 First Avenue North, Suite 220, Minneapolis, MN  55401, (612) 573-3000;  see also Schedule 3.13(5).

2.

Good Fortune Properties, LLC v. The Order of St. Benedict, First American Title Insurance Company and T.F. James Company,  Dakota County District Court File No. 19-C7-02-10591.  This action involves a claim filed on October 22, 2002, by the Plaintiff, a prospective purchaser of the land adjacent to the Company's Burnsville, Minnesota retail center.  The Plaintiff wants to ensure that the Company's easement will give it access to the property it wants to buy.  The easement is in place and there should be no monetary damages in this regard.  This claim against the Company is currently being handled by Thorfinnson & Thorfinnson, P.A., P.O. Box 44326, Eden Prairie, MN  55344, (952) 974-0454;  see also Schedule 3.13(5).

23
T. F. JAMES COMPANY

SCHEDULE 3.8

Labor Matters     None   24
T. F. JAMES COMPANY

SCHEDULE 3.9(a)

Tax Returns

Tax returns filed by the Company:

1.Tax year ended April 30, 1999:

(a)Federal
(b)Minnesota
(c)Arizona
(d)Iowa
(e)Kansas
(f)Montana
(g)North Dakota
(h)Tennessee
(i)Wisconsin

2.Tax year ended April 30, 2000:

(a)Federal
(b)Minnesota
(c)Arizona
(d)Iowa
(e)Kansas
(f)Montana
(g)North Dakota
(h)Tennessee
(i)Wisconsin

3.Tax year ended April 30, 2001:

(a)Federal
(b)Minnesota
(c)Arizona
(d)Iowa
(e)Kansas
(f)Montana
(g)North Dakota
(h)Tennessee
(i)Wisconsin

25

3.Tax year ended September 30, 2001 :

(a)Federal
(b)Minnesota
(c)North Dakota
(d)Wisconsin
(e)Montana
(f)Tennessee

S Election:

          The Company made the S election with the IRS on June 26, 2001, effective as of May 1, 2001.

Built-In-Gains Tax:

          In connection with the May 1, 2001 Company's Subchapter S election under the Code, the Company became subject to the so-call "Built-In-Gains Tax" under Section 1374 of the Code. Under Code Section 1374, the Company became subject to a potential corporate level tax that is imposed on any appreciation that existed in the Company's assets held by the Company on May 1, 2001, the date of the Company's S election, as those assets are disposed of during the next ten (10) year period. The Build-in-Gain affects each parcel of the Owned Real Property of the Company. This Built-in-Gain Tax will be unaffected by the Merger, except that the Shareholders will not be liable for any Built-in-Gain Tax after the Closing. The amount of the Built-in-Gain subject the Built-in-Gain Tax is approximately $34.845 million.

          In addition, the "Northfield" property was subject to a condemnation proceeding (a §1033 exchange) during the calendar year 2002. The tax on this condemnation is deferred under section 1033 of the Code. The Northfield property must be replaced within three (3) years after the year (2002) of the condemnation (estimated as September 30, 2005) or the gain and the Built-in-Gain will become payable. The Built-in-Gain subject to the Built-in-Gains Tax on the Northfield property is $215,648. see also Schedule 3.17(h)(2).

See attached Built-in-Gain Calculation's as of April 30, 2002.

26
Built-in-Gain Calculation - - April 30, 2002
Updated for Disposals Through 1/31/03

 Tax Basis

Property	FMV	Land	Bldgs & Other	Accum Depr	Total Tax Basis	Built In Gain
Andover - Tom Thumb	150,000	30,000	77,951	(60,978)	46,973	103,027
Anoka	700,000	75,000	301,583	(157,491)	219,092	480,908
Bethel	310,000	32,552	235,819	(219,688)	48,683	261,317
Blaine	490,000	30,349	250,774	(192,264)	88,859	401,141
Buffalo	460,000	31,000	193,050	(149,743)	74,307	385,693
Burnsville	1,100,000	81,561	615,036	(496,610)	199,987	900,013
Burnsville II	700,000	81,560	503,241	(378,190)	206,611	493,389
Centerville	300,000	15,213	173,449	(173,449)	15,213	284,787
Chanhassen	18,500,000	1,796,596	12,720,509	(1,495,937)	13,021,168	5,478,832
Eagan	500,000	16,542	332,866	(269,894)	79,514	420,486
Eagan - Phase II	1,100,000	34,196	562,497	(559,872)	36,821	1,063,179
Eagan - PDQ	675,000	15,000	290,512	(96,320)	209,192	465,808
Eden Prairie	5,000,000	84,781	3,983,676	(3,302,857)	765,600	4,234,400
Excelsior	740,000	50,000	220,171	(215,844)	54,327	685,673
Faribault	380,000	35,000	84,887	(58,776)	61,111	318,889
Forest Lake - Crown Auto	500,000	107,294	280,503	(258,891)	128,906	371,094
Forest Lake - Retail	6,500,000	138,583	4,310,986	(1,199,223)	3,250,346	3,249,654
Glencoe	300,000	55,697	210,739	(194,369)	72,067	227,933
Greenwood	1,000,000	232,107	1,184,227	(145,934)	1,270,400	(270,400)
Ham Lake	275,000	43,000	166,807	(147,691)	62,116	212,884
Howard Lake	265,000	20,879	158,810	(158,810)	20,879	244,121
Inver Grove Center	850,000	87,061	454,359	(449,477)	91,943	758,057
Inver Grove - Undeveloped	600,000	231,541			231,541	368,459
Lakeland	280,000	11,402	217,378	(217,378)	11,402	268,598
Lakeville	530,000	29,798	274,014	(195,977)	107,835	422,165
Lindstrom	130,000	18,500	94,445	(70,102)	42,843	87,157
Lino Lakes	400,000	22,000	276,194	(197,118)	101,076	298,924
Monticello	228,000	58,685	107,024	(77,206)	88,503	139,497
Mora	158,000	32,000	101,184	(78,458)	54,726	103,274
Mound	250,000	47,788	150,234	(116,475)	81,547	168,453
Mounds View	310,000	22,424	123,567	(75,596)	70,395	239,605
Northfield (Condemnation Sec. 1033 Exchange)	290,000	30,000	161,303	(116,951)	74,352	215,648
Oakdale	480,000	34,325	449,248	(156,122)	327,451	152,549
Paynesville	280,000	27,375	213,172	(198,538)	42,009	237,991
Pine City - Tom Thumb	330,000	50,000	282,029	(259,833)	72,196	257,804
Pine City - Pamida Center	3,150,000	132,099	2,460,892	(902,172)	1,690,819	1,459,181
Prior Lake - PDQ	700,000	39,218	393,833	(393,833)	39,218	660,782
Prior Lake - Undeveloped	150,000	30,235			30,235	119,765
Rochester	350,000	44,000	148,653	(94,123)	98,530	251,470
St. Louis Park	300,000	35,000	73,825	(63,986)	44,839	255,161
Sauk Rapids	148,000	13,500	115,354	(83,383)	45,471	102,529
Shoreview	159,000	24,000	132,049	(96,452)	59,597	99,403
St. Paul - West 7th Street	375,000	55,000	96,373	(77,761)	73,612	301,388

  27

Willmar	450,000	36,610	250,803	(121,689)	165,724	284,276
Winsted	278,000	34,152	180,713	(180,713)	34,152	243,848
Libby - Undeveloped	98,000	97,677			97,677	323
Kalispell - Pamida Center	2,800,000	389,000	1,483,220	(515,313)	1,356,907	1,443,093
Kalispell - Undeveloped	770,000	610,217			610,217	159,783
Livingston	1,961,000	195,693	1,378,792	(480,598)	1,093,887	867,113
Fargo	2,100,000	369,889	1,245,454	(626,826)	988,517	1,111,483
Jamestown	2,280,000	325,224	3,406,390	(1,887,373)	1,844,241	435,759
Ripley	600,000	193,996	902,974	(815,176)	281,794	318,206
Ripley - Bank of Ripley	200,000		123,520	(95,786)	27,734	172,266
Ripley - Pizza Hut	200,000		68,082	(68,082)	0	200,000
Berlin	145,000	32,000	76,888	(76,888)	32,000	113,000
Ladysmith	1,790,000	95,046	1,453,672	(523,486)	1,025,232	764,768
Schofield	1,900,000	149,000	1,138,820	(814,243)	473,577	1,426,423
TOTALS	65,965,000	6,611,365	44,892,551	(20,059,945)	31,443,971	34,521,029
Inventory	139,706				139,706	0
Investment in Liquor Store	300,000				(24,131)	324,131
Subtotal						34,845,160
Cash Surrender Value of Life      Insurance	493,962				395,868	98,094
TOTAL BUILT IN GAIN						34,943,254

  28
  29


T. F. JAMES COMPANY

SCHEDULE 3.9(c)

Other Tax Matters   None.   30
  T. F. JAMES COMPANY

SCHEDULE 3.9(c)(i)

Audits or Other Examinations     None   31
T. F. JAMES COMPANY

SCHEDULE 3.10

Employee Benefits

Life Insurance Policies: 

1.Policy on Thomas F. James
                New York Life Insurance Company
                Policy #25 448 610
                Policy Amount:  $50,000
                Net Cash Value:  Approximately $21,963.03
                Sold to James Family Properties in January 2003; see also Schedule 3.13(9)

2.Policy on Thomas F. James
                CUNA Mutual Life Insurance Company
                Policy #00758065
                Policy Amount:  $200,000
                Net Cash Value:  Approximately $65,632.9
                Sold to James Family Properties in January 2003; see also Schedule 3.13(9)

Term Life Policies on Present Shareholders: 

The following Term Life Policies were transferred by the company to each shareholder individually in January, 2003; see also Schedule 3.13(10):

1. Douglas M. James
                Northwestern Mutual
                Policy #14404613
                $1,000,000

2.Charles Wm. James
                Northwestern Mutual
                Policy #12524265
                $1,000,000

3.Thomas J. Legierski
                Northwestern Mutual
                Policy #8132207
                $1,000,000

4.Judith J. Scherer
               First Colony Life Insurance
                Policy #0205384
                $1,000,000

32

5.Robert R. James
                First Colony Life Insurance
                Policy #0205384
                $1,000,000

6.Thomas M. James
                National Life Insurance
                Policy #1702123
                $1,000,000

Annuities/Pensions to Former Employees:

1.Elaine Engels
                10 year annuity paying $9,796.32 per year, beginning on October 1996
                The Company paid-in-full the balance of $31,964.26, on January 27, 2003; see also Schedule 3.13(11)

2.James B. O'Rourke
                Lifetime annuity paying $10,400 per year, beginning in 1985
                The Company paid-in-full the balance of $58,977, on January 27, 2003; see also Schedule 3.13(11)

3.Thomas F. James, Sr.
                Lifetime annuity paying $141,432 per year, beginning in 1984
                Balance of Company pay off by January 31, 2003, is approximately $575,115;  see also Schedule 3.26(1).

Employee Group Insurance:

1.             Life/AD&D Insurance, Health Insurance and Dental Insurance, is provided by the Company to
                 all employees by the Principal Life Insurance Company, Account #P53572-1.

2.             The Company carries disability insurance for all employees from Unum Insurance Co.,
                Policy #0332403.

33
  T. F. JAMES COMPANY

SCHEDULE 3.11

Guaranties

Guarantees by Shareholders on Debts of the Company

Each of the Company Shareholders have personally guaranteed the following Indebtedness of the Company;  see also Schedules 3.26(3) and 5.14:

Lender	Purpose/Security	Original Amount
Central Bank	Line of Credit	$750,000.00
Marshall & Ilsley Bank	Unsecured Note	300,000.00
Marshall & Ilsley Bank	Schofield, WI	271,153.90
Marshall & Ilsley Bank	Kalispell, MT	2,200,000.00
Twin City Federal	Excelsior, MN	205,239.68
Premier Bank	St. Paul, MN	100,000.00
Oakley National Bank	Buffalo, MN	140,701.00
Marshall & Ilsley Bank	Chanhassen #2, MN	3,100,000.00
Wells Fargo Bank	Inver Grove, MN (Land)	250,000.00
Marshall & Ilsley Bank	Lakeville, MN	225,000.00
Lake Country Bank	Long Prairie, MN	470,692.73
Marshall & Ilsley Bank	Jamestown, ND	1,206,000.00
Marshall & Ilsley Bank	Livingston, MT	900,000.00
Lutheran Brotherhood	Forest Lake, MN	3,400,000.00
Lutheran Brotherhood	Forest Lake, MN	760,000.00
Marshall & Ilsley Bank	Greenwood, MN	750,000.00
Marshall & Ilsley Bank	Greenwood, MN	250,000.00
American Express Financial	Pine City, MN	2,300,000.00
Valley Bank	Kalispell, MT (Land)	190,000.00
County Bank	Oakdale, MN	200,000.00
American Express Financial	Ladysmith, WI	1,200,000.00
U.S. Bank	Eden Prairie, MN	3,600,000.00
American Express Financial	Eagan, MN; Prior Lake, MN;  Ripley, TN	3,350,000.00

Guarantees by the Company on behalf of the Shareholders

The Company has guaranteed a loan with First Interstate Bank dated February 1985, for property purchased by Peak Properties Development, a partnership owned by the Shareholders of the Company, in Helena, Montana.  The original loan was in the amount of $1,335,000.  As of January 1, 2003, the amount owed on the loan was $494,993.74;  see also Schedule 3.26(3).

34
  T. F. JAMES COMPANY

SCHEDULE 3.12

Financial Statements

1.	The undeveloped property, located at Highway 35 & 93, in Polson, Montana, was deeded to the James Family Properties and is mistakenly listed on the Company's Schedule of Real Estate as of September 30, 2002; see also "Built-In-Gains" disclosures set forth on Schedule 3.9(a) and disclosures set forth on Schedule 3.13(12).
2.	See T.F. James Company and Subsidiaries Consolidated Financial Statement as of September 30, 2002 which follow.

  35
T. F. JAMES COMPANY AND SUBSIDIARIES   CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH
INDEPENDENT AUDITORS’ REPORT SEPTEMBER 30, 2002 OLSEN THIELEN & CO., LTD.
Certified Public Accountants & Consultants   36
T. F. JAMES COMPANY AND SUBSIDIARIES CONTENTS

INDEPENDENT AUDITORS' REPORT

CONSOLIDATED FINANCIAL STATEMENTS:

  Balance Sheet

  Statement of Operations and Retained Earnings

  Statement of Cash Flows

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION

SUPPLEMENTARY FINANCIAL INFORMATION:

  Consolidating Schedules—

     Balance Sheet Information

     Statement of Operations and Retained Earnings (Deficit) Information

     Statement of Cash Flows Information

     Schedule of General and Administrative Expenses Information

     Schedule of Rental Income

     Schedule of Real Estate

37
INDEPENDENT AUDITORS' REPORT

Board of Directors
T. F. James Company and Subsidiaries
Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheet of T. F. James Company (an Iowa corporation) and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of operations and retained earnings and cash flows for the year and five months ended September 30, 2002 and 2001 and the year ended April 30, 2001.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of T. F. James Company and subsidiaries as of September 30, 2002 and 2001, and the results of their operations and their cash flows for the year and five months ended September 30, 2002 and 2001 and the year ended April 30, 2001, in conformity with accounting principles generally accepted in the United States of America.

/S/ Olsen Thielen & Co., LTD
St. Paul, Minnesota
November 14, 2002

38
T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002 AND 2001 ASSETS

		2002			2001
Cash	$	484,702		$	361,869
Cash in Escrow		237,378			306,675
Accounts Receivable, Less Allowance for
Doubtful Accounts of $52,124		1,089,735			1,167,828
Rents Receivable		83,190			49,707
Income Taxes Receivable		116,337			57,702
Other Receivables		113,366			100,000
Inventory		124,878			140,608
Prepaid Expenses		13,974			13,974
Cash Value of Life Insurance		92,327			87,005
Mortgage Commitment Fees, Net		43,448			43,448
		2,399,335			2,328,816
Rental Real Estate		53,663,172			52,514,303
Real Estate Development in Progress		372,213			205,091
Less Accumulated Depreciation		(19,329,329	)		(18,349,392	)
Net Rental Real Estate		34,706,056			34,370,002
Other Property and Equipment		601,708			707,056
Less Accumulated Depreciation		(452,446	)		(509,500	)
Net Other Property and Equipment		149,262			197,556
TOTAL ASSETS	$	37,254,653		$	36,896,374

The accompanying notes are an integral part of the consolidated financial statements.   39 LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:		2002			2001
Notes Payable	$	1,017,833		$	665,779
Accounts Payable		1,871,081			1,928,297
Accrued Real Property Taxes		221,065			235,359
Accrued Interest Payable		256,138			256,138
Payable to Related Party		100,000			–
Rents Received in Advance		156,574			53,125
Retirement Contract Payable		93,249			41,468
Annuity Payable		605,997			655,942
Long-Term Debt		31,895,034			32,846,989
Total Liabilities		36,216,971			36,683,097
STOCKHOLDERS' EQUITY:
Common Stock, $100 Par Value, 1,250
Shares Authorized, 650 Shares
Issued, 165.5 Shares Outstanding		65,000			65,000
Retained Earnings		4,090,562			3,232,358
Cost of 484.5 Shares of Common Stock
Owned by Company		(3,117,880	)		(3,084,081	)
Total Stockholders' Equity		1,037,682			213,277
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	37,254,653		$	36,896,374

  40
T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR AND FIVE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 AND
YEAR ENDED APRIL 30, 2001

					2001
		2002			September 30			April 30
REVENUES:
Sales and Rental Income	$	7,359,251		$	3,300,873		$	7,293,650
Less Cost of Sales and Operating                                   Expenses		5,353,734			2,488,319			5,350,389
Gross Profit and Net Rental Income		2,005,517			812,554			1,943,261
Gain on Sale of Real Estate		898,275			15,614			1,095,615
Interest Income		16,572			4,985			32,862
Miscellaneous Income, Net		96,530			32,517			478,587
Net Revenues		3,016,894			865,670			3,550,325
GENERAL AND ADMINISTRATIVE EXPENSES		1,726,503			741,240			1,996,924
INCOME BEFORE INCOME TAXES		1,290,391			124,430			1,553,401
INCOME TAXES (BENEFIT)		45,624			(384,711	)		707,309
NET INCOME		1,244,767			509,141			846,092
RETAINED EARNINGS at Beginning of Year		3,232,358			2,768,627			1,922,535
DIVIDENDS		(386,563	)		(45,410	)		–
RETAINED EARNINGS at End of Year	$	4,090,562		$	3,232,358		$	2,768,627

The accompanying notes are an integral part of the consolidated financial statements.   41 T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR AND FIVE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 AND
YEAR ENDED APRIL 30, 2001

	2001
2002	September 30	April 30

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,244,767		$	509,141		$	846,092
Adjustments to Reconcile Net                                               Income to Net Cash Provided                                               By Operating Activities:
Depreciation		1,355,866			559,348			1,276,831
Gain on Sale of Property		(898,275	)		(15,614	)		(1,095,615	)
Changes in Assets and Liabilities:
Cash in Escrow		69,297			(68,383	)		34,555
Accounts Receivable		78,093			(393,944	)		(78,440	)
Rents Receivable		(33,483	)		(29,289	)		2,503
Other Receivable		(13,366	)		–			–
Inventory		15,730			(902	)		74,135
Prepaid Expenses		–			–			2,329
Accounts Payable		(57,216	)		451,300			139,994
Accrued Real Property Taxes		(14,294	)		72,389			(33,658	)
Accrued Interest Payable		–			12,825			25,458
Rents Received in Advance		103,449			(135,930	)		86,217
Retirement Contract Payable		51,781			(2,846	)		(6,502	)
Accrued Income Taxes		(58,635	)		(437,631	)		303,966
Deferred Income Taxes		–			(347,330	)		199,839
Net Cash Provided By Operating                                               Activities		1,843,714			173,134			1,777,704
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Other Receivables		–			–			(100,000	)
Purchase of Property and Equipment		(1,820,795	)		(603,047	)		(5,060,320	)
Proceeds from Sale of Property and                                                Equipment		1,075,444			24,300			2,651,092
Increase in Cash Value of Life                                                Insurance, Net		(5,322	)		2,515			(11,426	)
Payments Received on Contract                                                for Deed		–			9,896			31,526
Net Cash Used In Investing                                                Activities		(750,673	)		(566,336	)		(2,489,128	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowing (Repayment) Under                                               Line-of-Credit Agreements		352,054			479,033			(619,420	)
Principal Payments of Long-Term                                               Debt		(1,739,397	)		(601,076	)		(2,386,334	)
Proceeds from Issuance of                                               Long-Term Debt		787,442			294,851			4,114,262
Change in Treasury Stock		(33,799	)		–			–
Related Party Loans, Net		100,000			–			(13,460	)
Decrease in Annuity Payable		(49,945	)		–			(33,837	)
Payment of Dividends		(386,563	)		(45,410	)		–
Net Cash Provided By (Used In)                                        Financing Activities		(970,208	)		127,398			1,061,211
NET INCREASE (DECREASE) IN CASH		122,833			(265,804	)		349,787
CASH at Beginning of Year		361,869			627,673			277,886
CASH at End of Year	$	484,702		$	361,869		$	627,673

42

Net Cash Provided By (Used In)                                              Financing Activities		(970,208	)		127,398			1,061,211
NET INCREASE (DECREASE) IN CASH		122,833			(265,804	)		349,787
CASH at Beginning of Year		361,869			627,673			277,886
CASH at End of Year	$	484,702		$	361,869		$	627,673

  The accompanying notes are an integral part of the consolidated financial statements.   43 T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company's principal line of business is the purchase, sale and operation of rental property.  The Company holds real estate in five states concentrated mostly in the midwest.

Accounting Estimates

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  All material intercompany transactions and accounts have been eliminated in consolidation. 

Inventory

Inventories of finished goods are valued at the lower of first-in, first-out cost or market.

Property and Depreciation

Property and equipment are recorded at original cost.  Additions, improvements or major renewals are capitalized.  Any gains or losses on property and equipment retirements are reflected in the current year operations.

Depreciation is computed using the straight-line and declining balance methods at rates based on the asset's useful life as follows:

Buildings	5-40 years
Rental Equipment	7-8 years
Furniture and Fixtures	2-7 years
Transportation Equipment	3-5 years

Interest

The Company capitalizes interest related to assets during their construction.  For the year and five months ended September 30, 2002 and 2001 and the year ended and April 30, 2001, $0 and $0 and $156,948 was capitalized, $2,689,060 and $1,148,412 and $2,619,896 was expensed as rental

44

operating expense, and $30,113 and $54,046 and $82,220 was expensed as general and administrative expense.

45
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade receivables.  Concentrations of credit risk with respect to trade receivables are limited due to the Company’s large number of customers and their dispersion across many different industries.  The Company requires no collateral from its customers.  Historically, the Company has not incurred significant credit related losses and believes no significant credit risk exists at September 30, 2002.

Income Taxes

Prior to May 1, 2001 the provision for income taxes consisted of an amount for taxes that were currently payable and a provision for tax consequences deferred to future periods.  Deferred income taxes were recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred income tax assets and liabilities were measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences were expected to be recovered or settled.  The major temporary difference that gave rise to the net deferred tax liability was alternative minimum tax credit carryforwards and depreciation, which for tax purposes is determined based on accelerated methods and shorter lives.

As of May 1, 2001 the Company elected to have its income taxed to the shareholders under Subchapter S of the Internal Revenue Code.  Therefore, for the years subsequent to April 30, 2001 the statements will not include a provision for income taxes, except for the benefit due to the reversal of previously recorded deferred income taxes.

Reclassification

Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentations.  These reclassifications had no effect on net income or total stockholders’ equity.

NOTE 2 - CASH VALUE OF LIFE INSURANCE

The Company has $207,000 of life insurance on a former shareholder.  The cash value of life insurance is presented net of life insurance loans:

		2002		2001
Cash Surrender Value	$	527,057	$	498,531
Policy Loans		434,730		411,526
Net Cash Value	$	92,327	$	87,005

46

NOTE 3 - NOTES PAYABLE

Notes payable consists of two lines of credit agreements totaling $1,310,000.  Interest is paid monthly at 1% above the prime rate.  The notes are secured by real estate.

47
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LONG-TERM DEBT

Long-term debt and related pledged assets are as follows:

		2002		2001
Real Estate Mortgages payable in monthly installments with              6.5% to 10.5% interest.  Mortgages are secured by real estate.	$	31,846,317	$	32,783,621
Notes payable in monthly installments with 1.9% to 10%             interest. The notes are secured by transportation equipment.		48,717		63,368
Total	$	31,895,034	$	32,846,989

The principal payments required during the next five years are:  2003  $1,749,000; 2004  $2,263,000; 2005  $1,815,000; 2006  $1,837,000; and 2007  $1,916,000.

NOTE 5 - INCOME TAXES

The Company elected to be a Subchapter S corporation beginning May 1, 2001.  Therefore, deferred income tax liabilities were eliminated resulting in a recognition of income tax benefits in 2001.

The provisions for income tax expense includes the following components:

	2001
2002	September 30	April 30

Current Payable:
Federal	$	(1,044	)	$	(41,880	)	$	381,099
State		46,668			4,499			126,371
Total		45,624			(37,381	)		507,470
Deferred:
Federal		–			(169,742	)		167,075
State		–			(177,588	)		32,764
		–			(347,330	)		199,839
Total Income Tax Expense                                      (Benefit)	$	45,624		$	(384,711	)	$	707,309

The Company is subject to a built-in gains tax on asset appreciation.  The appreciation is calculated as of the Subchapter S election date and is the excess of the fair market value of all corporate assets over their tax bases.  The tax is imposed at the maximum federal rate of 35% and is based on the

48

Company’s asset appreciation that is realized within ten years after the Subchapter S election.  Asset appreciation as of May 1, 2001 is approximately $34,800,000. 

49
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - INCOME TAXES AND INVESTMENT TAX CREDITS (Continued)

When a company changes from a C corporation to an S corporation it would continue to recognize a deferred tax liability to the extent it would be subject to the builtin gains tax.  Deferred tax liabilities were eliminated May 1, 2001 since the realized asset appreciation for the ten year period cannot be reasonably estimated.

Built in gains of approximately $580,000 were recognized in the year ended September 30, 2002.  Alternative minimum tax credit carryforwards of approximately $310,000 were used to offset the built in gains income tax liability.

NOTE 6 - RENTAL INCOME UNDER OPERATING LEASES

The Company rents various real estate under noncancelable leases.  Real estate consists primarily of retail store buildings and related land.  Most leases include provisions for additional rent based on excess sales.  All of these leases, with terms of from one to twenty years, have been accounted for as operating leases.

The following is a schedule of future minimum rental revenue due under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 2002:

2003	$	5,932,000
2004		5,555,000
2005		5,069,000
2006		4,750,000
2007		4,354,000
Later Years		13,964,000
Total Minimum Rental Revenue	$	39,624,000

NOTE 7 - ANNUITY PAYABLE

On July 15, 1979, the Company purchased 475 shares of its common stock in exchange for a lifetime annuity payable to the former shareholder.  The annuity contract provides for monthly payments of $11,786.  The stock purchased and the liability for the annuity were recorded at the present value of the expected future payments discounted using a 6% rate and IRS mortality tables.  The liability and treasury stock is adjusted annually based on the life expectancy of the former shareholder.  Treasury stock increased $33,799 and $0 during the years ended September 30, 2002 and 2001 as a result of this adjustment.

50
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK REDEMPTION AGREEMENT

The Company has a stock redemption agreement with all stockholders requiring the corporation to purchase the outstanding shares of any stockholder upon death.  The agreement requires an unspecified payment at time of death and the remainder to be paid in installments over five years with 8% interest.  The Company has sufficient life insurance on all stockholders to meet current redemption agreement requirements.  The agreement allows transfer by gift or sale to members of a stockholder's family, other stockholders or children of any other stockholder.  This agreement also restricts the sale of corporation stock to outsiders by giving the corporation and other stockholders first option to purchase at a predetermined price.

NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION

	2001
2002	September 30	April 30

Cash Payments For:
Interest	$	2,719,173	$	1,189,134	$	2,665,447
Income Taxes		104,259		400,250		203,504

NOTE 10 - RETIREMENT CONTRACT

The Company is making monthly payments of $816, including 7% interest, to a retired employee which will continue to September 1, 2006. 

The Company has a lifetime annuity payable to a former employee.  The annuity contract provides for monthly payments of $867.  The liability for the annuity was recorded at the present value of expected future payments discounted using a 6% late and IRS mortality tables.  The liability is adjusted annually based on the life expectancy of the former employee.

51
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION

Board of Directors
T. F. James Company and Subsidiaries
Minneapolis, Minnesota

Our report on the audits of the basic financial statements of T. F. James Company and subsidiaries as of September 30, 2002 and 2001 appears on page 1.  Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole.  The supplementary information on pages 12-26 is presented for the purpose of additional analysis and is not a required part of the basic financial statements.  Such information has been subjected to the procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/S/ Olsen Thielen & Co., LTD
St. Paul, Minnesota
November 14, 2002

52
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET INFORMATION
SEPTEMBER 30, 2002


ASSETS

			Consolidated	Eliminations	T. F. James Company	Jamestown Variety, Inc.	Westlake Liquors, Inc.
Cash			$    484,702	$	$    407,162	$	$  77,540
Cash in Escrow			237,378		237,378
Accounts Receivable Less Allowance
	for Doubtful Accounts of $52,124		1,089,735		1,089,735
Rents Receivable			83,190		83,190
Income Taxes Receivable			116,337		116,337
Other Receivables			113,366		113,366
Inventory			124,878				124,878
Prepaid Expenses			13,974		13,974
Cash Value of Life Insurance			92,327		92,327
Mortgage Commitment Fees, Net			43,448		43,448
Rental Real Estate			53,663,172		53,663,172
Real Estate Development in Progress			372,213		372,213
Other Property and Equipment			601,708		483,406		118,302
Accumulated Depreciation			(19,781,775)		(19,680,661)		(101,114)
Investment and Advances to Subsidiaries			–	(884,148)	884,148
		TOTAL ASSETS	$ 37,254,653	$(884,148)	$37,919,195	$         –	$219,606

  53
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET INFORMATION (Continued)
SEPTEMBER 30, 2002

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  

			Consolidated	Eliminations	T. F. James Company	Jamestown Variety, Inc.	Westlake iquors, Inc.
LIABILITIES:
Notes Payable			$     1,017,833	$	$  1,017,833	$	$
Accounts Payable			1,871,081		1,848,060		23,021
Accrued Property Taxes			221,065		221,065
Accrued Interest Payable			256,138		256,138
Notes Payable to Related Parties			100,000	(220,046)	100,000		220,046
Rents Received in Advance			156,574		156,574
Retirement Contract Payable			93,249		93,249
Annuity Payable			605,997		605,997
Long-Term Debt			31,895,034		31,895,034
	Total Liabilities		36,216,971	(220,046)	36,193,950	–	243,067
STOCKHOLDERS' EQUITY (DEFICIT): Common Stock $100 Par Value, 1,250
	Shares Authorized, 650 Shares Issued,
	165.5 Shares Outstanding		65,000	(100,100)	65,000	100,000	100
Paid in Capital			–	(564,002)		394,694	169,308
Retained Earnings (Deficit)			4,090,562		4,778,125	(494,694)	(192,869)
Cost of 484.5 Shares of Common
		Stock Owed by Company	(3,117,880)		(3,117,880)
		Total Stockholders' Equity (Deficit)	1,037,682	(664,102)	1,725,245	–	(23,461)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)			$    37,254,653	$(884,148)	$37,919,195	$         –	$219,606

  54
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (DEFICIT) INFORMATION
YEAR ENDED SEPTEMBER 30, 2002  

			Consolidated	Eliminations	T. F. James Company	Jamestown Variety, Inc.	Westlake Liquors, Inc.
REVENUES:
	Sales and Rental Income		$   7,359,251	$(42,000)	$6,356,493	$	$1,044,758
	Less Cost of Sales and Operating Expenses		5,353,734		4,518,447		835,287
		Gross Profit and Net Rental Income	2,005,517	(42,000)	1,838,046	–	209,471
	Gain on  Sale of Property		898,275		898,275
	Interest Income		16,572		16,572
	Miscellaneous Income, Net		96,530		96,530
		Net Revenues	3,016,894	(42,000)	2,849,423	–	209,471
GENERAL AND ADMINISTRATIVE EXPENSES			1,726,503	(42,000)	1,540,880	–	227,623
INCOME (LOSS) BEFORE INCOME TAXES			1,290,391	–	1,308,543	–	(18,152)
INCOME TAXES			45,624	–	45,624	–	–
NET INCOME (LOSS)			1,244,767	–	1,262,919	–	(18,152)
RETAINED EARNINGS (DEFICIT) at Beginning of Year			3,232,358	–	3,901,769	(494,694)	(174,717)
DIVIDENDS			(386,563)	–	(386,563)	–	–
RETAINED EARNINGS (DEFICIT) at End of Year			$   4,090,562	$         –	$4,778,125	$(494,694)	$  (192,869)

  55
T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED SEPTEMBER 30, 2002

				Consolidated		Eliminations	T. F. James Company		Jamestown Variety, Inc.	Westlake Liquors, Inc.
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net Income  Loss)			$   1,244,767		$	$1,262,919		$	$ (18,152)
	Adjustments to Reconcile Net Income (Loss) to Net
			Cash Provided By (Used In) Operating Activities:
		Depreciation		1,355,866			1,353,639			2,227
		Gain on Sale of Property		(898,275)			(898,275)
		Changes in Assets and Liabilities::
			Cash in Escrow	69,297			69,297
			Accounts Receivable	78,093			78,093
			Rents Receivable	(33,483)			(33,483)
			Other Receivable	(13,366)			(13,366)
			Inventory		15,730						15,730
			Accounts Payable	(57,216)			(36,505)			(20,711)
			Accrued Real Property Taxes	(14,294)			(14,294)
			Rents Received in Advance	103,449			103,449
			Retirement Contract	51,781			51,781
			Accrued Income Taxes	(58,635)			(58,635)
		Net Cash Provided By (Used In) Operating Activities		1,843,714		–	1,864,620	#	–	(20,906)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of Property and Equipment			(1,820,795)			(1,809,926)			(10,869)
	Proceeds from Sale of Property and Equipment			1,075,444			1,075,444
	Increase in Cash Value of Life Insurance			(5,322)			(5,322)
		Net Cash Used In Investing Activities		(750,673)		–	(739,804)		–	(10,869)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net Receipts Under Line-of-Credit Agreements			352,054			352,054
	Principal Payments of Long-Term Debt			(1,739,397)			(1,739,397)
	Proceeds from Issuance of Long-Term Debt			787,442			787,442
	Change in Treasury Stock			(33,799)			(33,799)
	Related Party Loans			100,000			100,000
	Decrease in Annuity Payable			(49,945)			(49,945)
	Payment of Dividends			(386,563)			(386,563)
		Net Cash Used in Financing Activities		(970,208)		–	(970,208)		–	–
NET INCREASE (DECREASE) IN CASH				122,833		–	154,608		–	(31,775)
CASH at Beginning of Year				361,869		–	252,554		–	109,315
CASH at End of Year				$      484,702		$          –	$   407,162		$        –	$  77,540

  56
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING SCHEDULE OF GENERAL AND
ADMINISTRATIVE EXPENSES INFORMATION
YEAR ENDED SEPTEMBER 30, 2002

		Consolidated	Eliminations	T. F. James Company	Westlake Liquors, Inc.
Annuity Expense		$       57,688	$	$     57,688	$
Auto		7,129		7,129
Advertising		4,317		2,090	2,227
Board Fees		72,000		72,000
Computer Services		2,573		2,573
Depreciation		49,079		45,212	3,867
Donations		2,070		1,795	275
Group Insurance		101,369		97,812	3,557
General Insurance		63,255		63,255
Interest		30,113		30,113
Legal, Accounting and Architectural		136,606		136,606
Mortgage Fees		5,500		5,500
Officers' Life Insurance		86,296		86,296
Operating		76,393		53,936	22,457
Payroll Taxes		51,484		42,989	8,495
Real Estate Taxes		45,065		30,431	14,634
Rents		–	(42,000)		42,000
Repairs and Maintenance		11,836		7,971	3,865
Supplies		108			108
Telephone		23,094		20,816	2,278
Travel and Entertainment		15,003		15,003
Utilities		8,530			8,530
Wages and Benefits		876,995		761,665	115,330
	TOTAL	$   1,726,503	$(42,000)	$1,540,880	$227,623

  57
T. F. JAMES COMPANY AND SUBSIDIARIES

SCHEDULE OF RENTAL INCOME
YEAR ENDED SEPTEMBER 30, 2002

		Gross Rental Income	Interest	Taxes	Other Operating Expense	Building Depreciation	Total Expenses	Net Rental Income (Loss)
MINNESOTA:
	Andover - Tom Thumb	$     10,625	$	$	$	$       2,612	$       2,612	$       8,013
	Anoka	77,410	16,894		11,328	7,651	35,873	41,537
	Bethel	31,710	14,601			7,861	22,462	9,248
	Blaine	48,037			4,703	8,359	13,062	34,975
	Bloomington	1,815			2,157	748	2,905	(1,090)
	Brooklyn Park-63rd Ave(retail)	12,860			419		419	12,441
	Buffalo	46,858	15,054		198	6,440	21,692	25,166
	Burnsville - Phase I	129,853	27,014		(3,438)	19,498	43,074	86,779
	Burnsville - Phase II	79,055	34,244	672	2,045	16,775	53,736	25,319
	Centerville	30,055	5,707			5,782	11,489	18,566
	Chanhassen	1,765,680	984,702	9,424	52,060	323,606	1,369,792	395,888
	Eagan - Phase I	115,818	29,248		1,478	25,379	56,105	59,713
	Eagan - Phase II	101,748	50,140		19,533		69,673	32,075
	Eagan - PDQ	–	25,070		(765)	9,642	33,947	(33,947)
	Eden Prairie	546,626	206,737	4,296	2,456	132,590	346,079	200,547
	Excelsior	85,063	6,819	6,727	11,537	653	25,736	59,327
	Faribault	40,781	6,050			980	7,030	33,751
	Forest Lake - Crown Auto	42,000	7,902				7,902	34,098
	Forest Lake - Retail	687,392	244,037		(15,719)	160,412	388,730	298,662
	Glencoe	31,641	15,433		152	7,024	22,609	9,032
	Greenwood	32,000	93,724	28,755	19,009	43,045	184,533	(152,533)
	Ham Lake	27,552	7,160			5,576	12,736	14,816
	Howard Lake	40,836	5,707			5,294	11,001	29,835
	Inver Grove Heights	92,874	92,384		(1,641)	15,145	105,888	(13,014)
	Lakeland	53,442	8,104			7,246	15,350	38,092
	Lakeville	4,400	8,716	26,515	4,489	4,649	44,369	(39,969)
	Lindstrom	13,451				2,864	2,864	10,587
	Lino Lakes	40,784	7,175		(3,228)	9,206	13,153	27,631
	Monticello	22,778			6,856	3,567	10,423	12,355
	Mora	15,827				3,374	3,374	12,453
	Mound	23,621				5,012	5,012	18,609
	Mounds View	29,011	3,941			3,398	7,339	21,672
	Northfield	–		10,317	2,206	2,688	15,211	(15,211)
	Oakdale	86,461	18,312		14,749	13,115	46,176	40,285
	Paynesville	28,879	14,459			7,106	21,565	7,314
	Pine City	343,745	157,073	202	14,571	91,431	263,277	80,468
	Prior Lake	64,940	57,876	2,970	4,868	13,843	79,557	(14,617)
	Rochester	34,236	12,328			3,462	15,790	18,446
	St. Louis Park	24,081	6,734		39	377	7,150	16,931
	Sauk Rapids	–		5,642	3,752	3,845	13,239	(13,239)
	Shoreview	15,900			120	4,402	4,522	11,378
	St. Paul - West 7th Street	36,000	5,314			1,863	7,177	28,823

  58
 

			Gross Rental Income	Interest	Taxes	Other Operating Expense	Building Depreciation	Total Expenses	Net Rental Income (Loss)
	Willmar		43,262				5,366	5,366	37,896
	Winsted		45,519	8,104			6,024	14,128	31,391
		Total Minnesota	5,004,626	2,196,763	95,520	153,934	997,910	3,444,127	1,560,499
MONTANA:
	Kalispell		$   256,890	$     86,612	$  26,118	$       600	$     49,434	$   162,764	$     94,126
	Livingston		196,114	50,745			45,960	96,705	99,409
		Total Montana	453,004	137,357	26,118	600	95,394	259,469	193,535
NORTH DAKOTA:
	Fargo		145,379	87,978	14,087	6,213	34,843	143,121	2,258
	Jamestown		332,115	76,428	36,838	125,104	79,441	317,811	14,304
		Total North Dakota	477,494	164,406	50,925	131,317	114,284	460,932	16,562
TENNESSEE:
	Ripley		40,808	119,986	21,027	28,879	21,863	191,755	(150,947)
		Total Tennessee	40,808	119,986	21,027	28,879	21,863	191,755	(150,947)
WISCONSIN:
	Berlin		14,400		3,338	3,208		6,546	7,854
	Ladysmith		165,410	65,761			48,297	114,058	51,352
	Schofield		200,751	4,787	2,470	3,624	30,679	41,560	159,191
		Total Wisconsin	380,561	70,548	5,808	6,832	78,976	162,164	218,397
TOTAL			$6,356,493	$2,689,060	$199,398	$321,562	$1,308,427	$4,518,447	$1,838,046

  59
T. F. JAMES COMPANY AND SUBSIDIARIES

SCHEDULE OF REAL ESTATE
SEPTEMBER 30, 2002

		Date Acquired	Land	Buildings and Improvements	Total	Accumulated Depreciation	Net Book Value	Mortgage Or Note Payable
MINNESOTA:
	Andover - Tom Thumb	1976-1978	$     30,000	$       77,951	$     107,951	$       64,677	$     43,274	$
	Anoka	1971	75,000	329,756	404,756	168,122	236,634	181,892
	Bethel	1984	32,551	235,819	268,370	142,803	125,567	140,906
	Blaine	1978-1979	30,349	250,774	281,123	199,567	81,556
	Buffalo	1976-1979	31,000	193,050	224,050	154,066	69,984	140,269
	Burnsville - Phase I	1985	81,561	584,949	666,510	324,972	341,538	391,309
	Burnsville - Phase II	1986-1987	81,560	503,241	584,801	265,378	319,423	368,700
	Centerville	1979-1982	15,214	173,449	188,663	124,407	64,256	61,450
	Chanhassen	1986-1994, 2001-2002	1,796,596	13,055,779	14,852,375	1,928,749	12,923,626	11,112,725
	Eagan - Phase I	1978-1981	16,542	332,866	349,408	214,906	134,502	322,789
	Eagan - Phase II	1979-1984	34,196	562,497	596,693	418,144	178,549	553,352
	Eagan - PDQ	1990-1991	15,000	290,512	305,512	114,774	190,738	276,676
	Eden Prairie	1979-1990	84,781	3,983,677	4,068,458	2,218,371	1,850,087	2,566,871
	Excelsior	1976	50,000	220,171	270,171	220,171	50,000	55,721
	Faribault	1971	35,000	84,887	119,887	61,168	58,719	65,137
	Forest Lake - Champion Auto	1978-1985	107,294	270,140	377,434	162,835	214,599	76,290
	Forest Lake - Retail	1989, 2001	138,583	4,669,396	4,807,979	1,505,668	3,302,311	3,307,207
	Glencoe	1984	55,697	210,739	266,436	127,029	139,407	140,617
	Greenwood	1971-2000	225,300	1,181,399	1,406,699	237,870	1,168,829	1,028,159
	Ham Lake	1976-1985	43,000	166,807	209,807	119,938	89,869	550,476
	Howard Lake	1978-1982	20,879	158,810	179,689	114,076	65,613	61,450
	Inver Grove Center	1984	87,061	454,359	541,420	284,819	256,601	226,027
	Inver Grove - Undeveloped	1984	231,541		231,541		231,541	68,861
	Lakeland	1977-1982	11,402	217,378	228,780	155,876	72,904	87,259
	Lakeville	1971-1987	29,798	274,014	303,812	203,892	99,920	117,475
	Lindstrom	1976	18,500	94,445	112,945	74,159	38,786
	Lino Lakes	1978-1979	22,000	276,193	298,193	171,180	127,013	81,007
	Long Prairie	2002	100,000	583,247	683,247	1,620	681,627	470,693
	Monticello	1978-1979	58,685	107,024	165,709	82,260	83,449
	Mora	1978-1979	32,000	101,184	133,184	80,659	52,525
	Mound	1977-1979	47,788	150,234	198,022	119,745	78,277
	Mounds View	1973	22,424	123,567	145,991	86,331	59,660	52,070
	Oakdale	1977-1979	34,325	449,248	483,573	174,892	308,681	235,434
	Paynesville	1984	27,375	213,172	240,547	129,089	111,458	139,532
	Pine City - Tom Thumb	1978-1985	50,000	282,029	332,029	169,217	162,812	139,983

  60
 

			Date Acquired	Land	Buildings and Improvements	Total	Accumulated Depreciation	Net Book Value	Mortgage Or Note Payable
	Pine City - Pamida Center		1978-1989	132,099	2,460,892	2,592,991	1,053,497	1,539,494	1,700,114
	Prior Lake - PDQ		1977-1984	39,218	393,833	433,051	248,334	184,717	638,723
	Prior Lake - Undeveloped		1977-1984	30,235		30,235		30,235
	Prior Lake 2		2002	165,000	257,521	422,521	715	421,806
	Rochester		1972	44,000	148,653	192,653	110,483	82,170	132,732
	St. Louis Park		1970	$     35,000	$       73,825	$     108,825	$       65,130	$     43,695	$       72,511
	Sauk Rapids		1978-1981	13,500	115,354	128,854	88,830	40,024
	Shoreview		1978-1979	24,000	132,049	156,049	102,687	53,362
	St. Paul - West 7th Street		1972	55,000	96,373	151,373	89,291	62,082	56,929
	Willmar		1973	36,610	250,803	287,413	131,253	156,160
	Winsted		1978-1982	34,152	180,713	214,865	129,790	85,075	87,259
		Total Minnesota		4,381,816	34,972,779	39,354,595	12,641,440	26,713,155	25,708,605
MONTANA:
	Polson		1988	51,246		51,246		51,246
	Libby		1989	97,676		97,676		97,676
	Kalispell - Pamida Center		1989-1990	389,000	1,483,221	1,872,221	609,706	1,262,515	1,146,324
	Kalispell - Undeveloped		1989	610,217		610,217		610,217	157,566
	Livingston		1989-1990	195,693	1,378,792	1,574,485	548,520	1,025,965	640,401
		Total Montana		1,343,832	2,862,013	4,205,845	1,158,226	3,047,619	1,944,291
NORTH DAKOTA:
	Fargo		1962-1989	369,889	1,245,455	1,615,344	684,400	930,944	1,142,011
	Jamestown		1974-1979	325,224	3,592,369	3,917,593	2,314,858	1,602,735	847,770
		Total North Dakota		695,113	4,837,824	5,532,937	2,999,258	2,533,679	1,989,781
TENNESSEE:
	Ripley		1974-1975	193,996	914,296	1,108,292	767,379	340,913	1,191,764
	Ripley - Bank of Ripley		1978		123,520	123,520	98,472	25,048	132,418
	Ripley - Pizza Hut		1975		68,082	68,082	68,082	–
		Total Tennessee		193,996	1,105,898	1,299,894	933,933	365,961	1,324,182
WISCONSIN:
	Berlin		1960	32,000	76,888	108,888	76,888	32,000
	Ladysmith		1990	95,046	1,453,671	1,548,717	622,425	926,292	709,195
	River Falls		2002	165,870		165,870		165,870	150,000
	Schofield		1967-1987	149,000	1,297,426	1,446,426	897,159	549,267	20,263
		Total Wisconsin		441,916	2,827,985	3,269,901	1,596,472	1,673,429	879,458
TOTAL REAL ESTATE				$7,056,673	$46,606,499	$53,663,172	$19,329,329	$34,333,843	$31,846,317

  61

T. F. JAMES COMPANY

SCHEDULE 3.13

Absence of Certain Developments

1.	Since June 30, 2002, the Company has expended sums for architectural and other services to undertake the remodeling of the Company's Lakeville, Minnesota Strip Center.  When completed, this project is estimated to require in excess of $750,000.  This remodeling project is anticipated to begin in the winter of 2002-2003.
2.	Any mortgages on properties that were due for renewal after June 30, 2002 have been renewed.  This is in the normal course of business.
3.	The Company may apply for and complete a loan transaction in the approximate amount of $3,200,000.00 with the Bremer Bank (or a similar lending institution) prior to or upon the Closing.
4.	The Company made Shareholder distributions in 2002 and 2003 in the approximate aggregate amount of $621,301.00.  An additional $3.2 million will be paid in January, 2003;  see attached 2002 and 2003 Payment to Stockholders.
5.	See Litigation disclosures set forth on Schedule 3.7.
6.	See also Schedule 3.17(h)(1 and 2)
7.	See disclosures under "Built-In-Gains Tax" set forth in Schedule 3.9(a)
8.	Bonus Accruals for payment to the employees of the Company as of the closing date will approximate $450,000. Payment on this Accrual must be made within 2½ months after the Closing Date.
9.	The Company sold the New York Life Insurance Company Policy #25 448 610 and the CUNA Mutual Life Insurance Company Policy #00758065, both in the name of Thomas F. James, to the James Family Properties in January 2003; see also disclosures set forth in Schedule 3.10(1 and 2) at "Life Insurance Policies".
10.	In January 2003, the Company transferred the Term Life Policies on the Company shareholders to each of the shareholders individually; see also Schedule 3.10 at "Term Life Policies on Present Shareholders".
11.	On January 27, 2003, the Company paid-in-full the individual annuities owed to each of Elaine Engels and James B. O'Rourke; see also Schedule 3.10 at "Annuities/Pensions to Former Employees".

62

12.	See disclosures regarding property located in Polson, Montana set forth on Schedule 3.12(1).
13.	On January 28, 2003, Douglas M. James, a Shareholder and an employee of the Company, purchased a _____ Volvo from the Company.
14.	In January of 2003 the Company paid to Charles Wm. James, a Shareholder and an employee of the Company $100,000 for the purchase of land in Kalispell, Montana; see also Schedules 3.31(1) and 3.26(2)

  63
2002 AND 2003 PAYMENTS TO SHAREHOLDERS  

	Douglas M. James	Judith Scherer	Thomas M. James	Charles Wm. James	Robert R. James	Thomas J. Legierski	TOTAL
3/29/2002	$5,000.00	$5,000.00	$5,000.00	$5,000.00	$5,000.00	$5,000.00	$30,000.00
4/15/2002	4,217.00	4,217.00	4,217.00	4,217.00	4,217.00	3,752.00	24,837.00
4/15/2002	19,109.00	19,109.00	19,109.00	19,109.00	19,109.00	17,002.00	112,547.00
6/14/2002	3,526.00	3,526.00	3,526.00	3,526.00	3,526.00	3,137.00	20,767.00
6/14/2002	15,977.00	15,977.00	15,977.00	15,977.00	15,977.00	14,214.00	94,099.00
9/16/2002	14,504.00	14,504.00	14,504.00	14,504.00	14,504.00	12,904.00	85,424.00
9/16/2002	3,201.00	3,201.00	3,201.00	3,201.00	3,201.00	2,848.00	18,853.00
12/13/2002	1,430.00	1,430.00	1,430.00	1,430.00	1,430.00	1,272.00	8,422.00
1/10/2003	6,479.00	5,479.00	6,479.00	6,479.00	6,479.00	5,765.00	37,160.00
1/21/2003	1,031.00	1,031.00	1,031.00	1,031.00	1,031.00	917.00	6,072.00
1/21/2003	26,534.00	26,534.00	26,534.00	26,534.00	26,534.00	23,605.00	156,275.00
1/21/2003	3,389.00	3,353.00	3,389.00	3,389.00	3,389.00	3,015.00	19,924.00
1/21/2003	550.00	550.00	550.00	550.00	550.00	490.00	3,240.00
1/21/2003	625.00	625.00	625.00	625.00	625.00	556.00	3,681.00
TOTAL	$105,572.00	$104,536.00	$ 105,572.00	$ 105,572.00	$ 105,572.00	$94,477.00	$ 621,301.00

  64
T. F. JAMES COMPANY

SCHEDULE 3.14

Intellectual Property

7. Service Mark Reg. No. 1,699,398;  Ser. No. 74-135,952, Filed by the Company on February 4, 1991  The mark consists of the letter "J" in a design which forms the stylized letters "TFJ".  See Service Mark below:

[ TFJ LOGO]

8.	TFJamesco.com – domain name
9.	Various software such as real estate management software and GL software are owned by the Company and are under no restrictions or claims.
10.	The Company uses various "off-the-shelf" software in the conduct of its business for which no separate list has been prepared.

65
  T. F. JAMES COMPANY

SCHEDULE 3.15

Compliance with Laws   None   66
T. F. JAMES COMPANY

SCHEDULE 3.16

Operating Contracts

Location	Contractor	Service	Contract Date	Contract Terms
Anoka, MN	Alley Brothers Lawn & Landscape 9804 – 302nd Avenue NW Princeton, MN  55371 Phone:  (612) 282-4009	Snowplow	10/7/02	11/1/02 – 4/1/02 $65 per hour
Blaine, MN	Alley Brothers Lawn & Landscape 9804 – 302nd Avenue NW Princeton, MN  55371 Phone:  (612) 282-4009	Snowplow	10/7/02	11/1/02 – 4/1/03 $65 per hour
Buffalo, MN	Tri-Co Tree Movers 5412 County Road 12N Buffalo, MN  55313 Phone:  (763) 682-1050	Snowplow	10/10/02	11/1/02 – 4/1/03 $45 per hour
Burnsville, MN	Dennis Jenkins 14078 Natalie Road NE Prior Lake, MN  55372 Phone:  (952) 440-2135	Snowplow	10/7/02	11/1/02 – 4/1/03 $236 per plow
Chanhassen, MN	Kahnke Bros., Inc. 1400 Arboretum Boulevard Victoria, MN  55386 Phone:  (952) 443-3800	Snowplow	10/2/02	11/1/02 – 4/1/03 $40-$80 per hour based on equipment
Chanhassen, MN	Waste Management 124 Union Street, PO Box 119 Norwood Young America, MN 55368	Trash Service	8/30/95	$291 per month
Chanhassen, MN	Waste Management 124 Union Street, PO Box 119 Norwood Young America, MN 55368	Trash Service	3/14/02	$260 per month
Chanhassen, MN	Thyssen Lagerquist 1801 West River Road North Minneapolis, MN  55411 Phone:  (612) 588-7844	Elevator	6/8/00	$140 per month 5 year term to June 2005 with automatic renewal unless terminated
Chanhassen, MN	ADT 2561 Territorial Road St. Paul, MN  55114 Phone:  (888) 238-2666	Fire Sprinkler Monitor	4/11/95 (renewed 7/10/00)	5 Year term $1,488 per year
Chanhassen, MN	ADT 2561 Territorial Road St. Paul, MN  55114 Phone:  (888) 238-2666	Fire Sprinkler Monitor	1/15/01	5 Year term $832 per year
Eagan, MN	Heikes Enterprises 19595 Lillehei Avenue Hastings, MN  55033 Phone:  (651) 437-3847	Snowplow	10/7/02	11/1/02 – 4/1/03 $400 per plow 4-8" snow

  67

Location	Contractor	Service	Contract Date	Contract Terms
Eden Prairie, MN	Kahnke Bros., Inc. 1400 Arboretum Boulevard Victoria, MN  55386 Phone:  (952) 443-3800	Snowplow		11/1/02 – 4/1/03 $40-$80 per hour based on equipment
Eden Prairie, MN	Perfection Plus	Cleaning Service	1/23/97	$2,795 per month
Eden Prairie, MN	Aspen Waste 2951 Weeks Avenue SE Minneapolis, MN  55414	Trash Service		$450 per month
Excelsior, MN	Bernie Whetston 5835 Eureka Road Excelsior, MN  55331 Phone:  (952) 474-4908	Snowplow	10/22/02	11/1/02 – 4/1/03 $60 per plow
Forest Lake, MN	Oakley Contracting 19480 Fenway Avenue North Forest Lake, MN  55025 Phone:  (651) 464-2750	Snowplow	10/7/02	11/1/02 – 4/1/03 $42-$105 per hour based on equipment
Greenwood, MN	Bernie Whetston 5835 Eureka Road Excelsior, MN  55331 Phone:  (952) 474-4908	Snowplow	10/22/02	11/1/02 – 4/1/03 $60 per plow
Inver Grove Heights, MN	Koehnen Landscaping & Trucking 9932 Rich Valley Boulevard Inver Grove Heights, MN  55077 Phone:  (651) 450-1025	Snowplow	10/17/02	11/1/02 – 4/1/03 $125 per plow $45 per hour
Jamestown, ND	Brad Thronton	Snowplow	10/1/02	10/02 – 4/03 $1,500 per month
Jamestown, ND	Ella Rettig	Mall Manager		$650 per month
Lakeville, MN	Reisinger Lawn & Snowplowing PO Box 507 Lakeville, MN  55044 Phone:  (952) 469-6695	Snowplow	10/14/02	11/1/02 – 4/1/03 $50 per hour
Line Lakes, MN	Breen Enterprises 14001 Julliard Street NE Forest Lake, MN  55025 Phone:  (651) 982-6292	Snowplow	10/21/02	11/1/02 – 4/1/03 $95 per plow
Oakdale, MN	D and R & Son, Inc. 1245 Granada Avenue North Oakdale, MN  55128 Phone:  (651) 295-0811	Snowplow	10/23/02	11/1/02 – 4/1/02 $95 per plow up to 6" $55 per hour
Oakdale, MN	TruGreen ChemLawn Maplewood, MN	Lawn Fertilizer	10/23/02	$290 per year
Pine City, MN	Stransky Construction 645 NE 2nd Street Pine City, MN  55063 Phone:  (320) 629-6589	Snowplow	10/17/02	1/1/02 – 4/1/03 $45 - $85 per hour based on equipment
Prior Lake, MN	Dennis Jenkins 14078 Natalie Road NE Prior Lake, MN  55372 Phone:  (952) 440-2135	Snowplow	10/7/02	11/1/02 -4/1/03 $177 per plow

  68

Location	Contractor	Service	Contract Date	Contract Terms
Golden Valley, MN	GMAC Financial Services	2002 Bravada Oldsmobile	09/23/01	$570.50 per month for 60 months *See also Schedule 3.29
Burnsville, MN	Chrysler Financial Company L.L.C.	2001 Jeep Grand Cherokee	05/17/01	$650.38 per month for 60 months *See also Schedule 3.29

  69

T. F. JAMES COMPANY

SCHEDULE 3.17

Real Estate

Schedule 3.17 (a):

The following properties/locations are owned by the Company:

LOCATION	BUILDING DESCRIPTION	ADDRESS
Andover	Tom Thumb # 255	15825 7th Avenue, Andover, MN 55303
Anoka	River Road Shopping Ctr.	504 - 516 East River Road, Anoka, MN 55303
Blaine	Tom Thumb #180	601 - 641 Main Street NE, Blaine, MN 55433
Burnsville 1	PDQ #210 Strip	13700 - 13720 County Road 11, Burnsville, MN 55337
Burnsville 2	Phase 2 Strip	13600 - 13614 County Road 11, Burnsville, MN 55337
Buffalo	Tom Thumb #218	401 - 409 East Highway 55, Buffalo, MN 55313
Centerville	Tom Thumb #295	1801 Main Street, Centerville, MN 55038
Centerville	Undeveloped Land	Next door to 1801 Main Street, Centerville, MN 55038
Chanhassen 1	Byerlys	800 West 78th Street, Chanhassen, MN 55317
Chanhassen 2	Retail Center	816 - 860 West 78th Street, Chanhassen, MN 55317
Chanhassen 3	Kinko's Copy Center	880 West 78th Street, Chanhassen, MN 55317
Chanhassen 4	TCF Bank	900 West 78th Street, Chanhassen, MN 55317
Chanhassen 5	Office Max	960 West 78th Street, Chanhassen, MN 55317
Chanhassen 6	Retail Center Phase 2	910 - 950 West 78th Street, Chanhassen, MN 55317
East Bethel	Tom Thumb #243	4825 East Viking Road, East Bethel, MN 55092
Eagan 1	Hilltop Plaza	4160 - 4166 Pilot Knob Road, Eagan, MN 55123
Eagan 2	Hilltop Plaza	4168 - 4180 Pilot Knob Road, Eagan, MN 55123
Eagan 3	PDQ #213	4198 Pilot Knob Road, Eagan, MN 55123
Eden Prairie	Central Bank Building	6640 Shady Oak Road, Eden Prairie, MN 55344
Excelsior	Water Street Strip	10 Water Street & 324 - 332 Lake Street, MN 55331
Fargo	Express Shopping Center	1431 - 1441 South University Avenue, Fargo, ND 58102
Faribault	CSK Auto Store	1233 West Highway 60, Faribault, MN 55021
Forest Lake 1	Champion Auto Store #407	107 SW. 12th Street, Forest Lake, MN 55025
Forest Lake 2	West Lake Shopping Center	119 - 289 SW. 12th Street, Forest Lake, MN 55025
Glencoe	Tom Thumb #246	415 Chandler Avenue North, Glencoe, MN 55336
Greenwood 1	T.F. James Company	21500 Highway 7, Excelsior, MN 55331
Greenwood 2	Excelsior Chiropractic Clinic	21450 Highway 7, Excelsior, MN 55331
Ham Lake	Tom Thumb #185	16315 Highway 65, Ham Lake, MN 55303
Howard Lake	Tom Thumb #222	1025 6th Street, Howard Lake, MN 55343
Inver Grove Hts.	PDQ #212	5440 - 5472 Roberts Trail, Inver Grove Heights, MN 55077
Inver Grove Hts.	Undeveloped Land	Roberts Trail, Inver Grove Heights, MN 55077
Jamestown	Jamestown Mall	3rd Street N.E. & 3rd Avenue, Jamestown, ND 58401
Kalispell	Ernst Home Center	1441 Montana Highway 35, Kalispell, MT 59901
Kalispell	Undeveloped Land	Montana Highway 35, Kalispell, MT 59901
Ladysmith	Pamida #282	500 West 9th Street, Ladysmith, WI 54848
Lakeland	Tom Thumb #546	280 St. Croix Trail, Lakeland, MN 55043
Lakeville	Lakeville Strip	17440 - 17450 Kenwood Trail, Lakeville, MN 55044

70

LOCATION	BUILDING DESCRIPTION	ADDRESS
Libby	Undeveloped Land	Highway 2, Libby, MT
Lindstrom	Tom Thumb #178	100 West St. Croix Avenue, Lindstrom, MN 55055
Lino Lakes	Tom Thumb #197 Strip	797 Lake Drive, Lino Lakes, MN 55014
Livingston	Pamida	100 West Washington, Livingston, MT 59047
Long Prairie	Tom Thumb # 303	904 1st Avenue NE, Long Prairie, MN 56347
Monticello	Tom Thumb #583	110 Oakwood Drive, Monticello, MN 55362
Mora	Tom Thumb	Highway 23 & 65, Mora, MN 55362
Mound	PDQ 292	5550 Three Points Blvd., Mound, MN 55364
Moundsview	Interstate Brands	2701 Highway 10, Moundsview, MN 55112
Oakdale	Tom Thumb #214 Strip	1025 - 1043 Hadley Drive, Oakdale, MN 55128
Paynesville	Tom Thumb #244	28976 Collins Road, Paynesville, MN 55362
Pine City	Evergreen Square	100 - 170 Evergreen Square, Pine City, MN 55063
Pine City	Tom Thumb #248	1120 Hillside, Pine City, MN 55063
Prior Lake 1	PDQ Shopping Center	14161 - 14173 Commerce Ave., Prior Lake, MN 55372
Prior Lake 2	Undeveloped Land	Commerce Ave., Prior Lake, MN 55372
Prior Lake 3	Shopping Center	14123 - 14129 Commerce Ave., Prior Lake, MN 55372
Ripley	Shopping Center	309 - 319 South Washington, Ripley, TN 38063
River Falls	Undeveloped Land	SE Corner of STH 65 & Cemetary Road ( 830th Ave.)
Rochester	CSK Auto Store	2001 South Broadway, Rochester, MN 55901
Sauk Rapids	Tom Thumb Strip	1313 2nd Street North, Sauk Rapids, MN 55901
Schofield	Schofield Plaza	5302 - 5317 Business Highway 51, Schofield, WI 54476
Shoreview	Tom Thumb #195	5995 Hodgson Road, Shoreview, MN 55343
Saint Louis Park	Dilly Lilly	4611 Excelsior Blvd., St. Louis Park, MN 55411
St. Paul	Interstate Brands	1546 West 7th Street, St. Paul, MN 55102
Willmar	Sam Goody	701 South First Street, Willmar, MN 56201
Winsted	Tom Thumb #223	132 5th Street North, Winsted, MN 55395

Schedule 3.17(b)

Curbing was recently installed at the Company's Winsted, MN location.  The formal assessment has not yet been received by the Company; however, it is estimated to approximate $2,000.00.

Schedule 3.17(c)

None

Schedule 3.17(d)

See mortgages against Company's properties set forth in Schedule 3.22.

Schedule 3.17(e)

None

Schedule 3.17(f)

None

71

Schedule 3.17(g)

Several of the Company's locations are leased to convenience stores that purchase, store and sell gasoline.

Schedule 3.17(h)

1.

The Central Bank Building, located at 6640 Shady Oak Road, Eden Prairie, MN 55344, has a re-occurring problem with leaky window seals.  The Company has on several occasions made attempts to repair the leaks, however they appear to be an ongoing problem; see also Schedule 3.13(6)

2.

In April of 2002, The Company entered into an Agreement for Purchase and Sale of Commercial Real Estate with the Economic Development Authority of the City of Northfield, for the purchase of its property located at 110 North Water Street, Northfield, MN. The sale was in lieu of condemnation that allows the Company to qualify for an IRS Code Section 1033 exchange; see also disclosures set forth under "Built-In-Gains Tax" at Schedule 3.9(a) and Schedule 3.13(6).

Schedule 3.17(i)

None

Schedule 3.17(j)

None

Schedule 3.17(k)

None

Schedule 3.17(l)

None

72
T. F. JAMES COMPANY

SCHEDULE 3.19

Books and Records; Bank Accounts

Checking Accounts:                                                  Authorized Signers

Central Bank, Eden Prairie, MN                                 Douglas M. James
Account #270082                                                      Thomas J. Legierski
                                                                                  Robert J. Martin

Central Bank, Eden Prairie, MN                                 Douglas M. James
Account #270504                                                      Thomas J. Legierski
                                                                                  Robert J. Martin

Marshall & Ilsley Bank, Minneapolis, MN                   Douglas M. James
Account #110-6414                                                   Thomas J. Legierski
                                                                                   Robert J. Martin

Lake Elmo Bank, Lake Elmo, MN                              Douglas M. James
Account #927623                                                       Thomas J. Legierski
                                                                                   Robert J. Martin

Safe Deposit Box                                                   

Central Bank, Eden Prairie, MN                                 Douglas M. James
                                                                                  Thomas J. Legierski

Certificate of Deposit

Central Bank, Eden Prairie, MN                                 Douglas M. James
Account #305471                                                      Thomas J. Legierski

Escrow/Savings Account

Marshall & Ilsley Bank, Minneapolis, MN                   Heitman Financial*
Account #1915428                                                    

*    The Company remits an additional monthly payment to Heitman Financial which, in turn, is remitted by Heitman Financial to pay the real estate taxes on the Chanhassen Phase 1 Development.

73
  T. F. JAMES COMPANY

SCHEDULE 3.20

Employees

1.                  The following employee list does not include the 4 owners/officers/shareholders of the Company.

Employee                               Job Desc.       Vacation*       Sick/Leave*

Richard Kvanbeck                   Prop Mgr/        4 weeks           6 days
                                               Leasing Agent

Anthony Oxborough                 Prop Mgr/        3 weeks           6 days
                                                          Leasing Agent

Robert Martin                          Payable/Rec./  4 weeks           6 days
                                                          Insurance

Brian Rose                              Gen. Maint.      2 weeks           6 days

Tonia Sikorski                          Receptionist     2 weeks           6 days
                                                          Clerk

*    The period of time indicated is a yearly amount.  No accumulation of vacation or sick leave is permitted.

2.                  There are no written employment contracts or benefit plans.

74
  T. F. JAMES COMPANY

SCHEDULE 3.21

Permits None   75 T. F. JAMES COMPANY

SCHEDULE 3.22

Mortgages and Tenant Leases

Mortgage                                         Location                                           Due Date       

Marshall & Ilsley Bank                       Kalispell, MT                                      12/31/02
Lake Elmo Bank                                 Lakeland, Centerville, MN                 10/10/03
The County Bank                                Forest Lake, MN                               10/17/03
Twin City Federal                               Excelsior, MN                                    11/1/03
Premier Bank                                      West St. Paul, MN                             1/14/04
Twin City Federal                               Pine City, MN                                     4/1/04
Twin City Federal                               Paynesville, MN                                  4/1/04
Twin City Federal                               Glencoe, MN                                      4/1/04
Twin City Federal                               East Bethel, MN                                  4/1/04
Prior Lake State Bank                         Ham Lake, Moundsview, MN            8/15/05
Teachers Insurance                             Chanhassen, MN                                8/31/05
Oakley National Bank                          Buffalo, MN                                      9/10/05
Marshall & Ilsley Bank                        Chanhassen #2, MN                           1/27/06
Wells Fargo Bank                               Inver Grove, MN (Land)                     6/1/06
Marshall & Ilsley Bank                       Lakeville, MN                                      11/1/06
Lake Country State Bank                    Long Prairie, MN                                9/1/07
Marshall & Ilsley Bank                       Jamestown, ND                                   4/5/08
First Security State Bank                     Lino Lakes, MN                                 4/16/08
Marshall & Ilsley Bank                       Livingston, MT                                   12/10/08
U.S. Bank                                          Inver Grove, MN                                2/20/09
Lutheran Brotherhood                          Forest Lake, MN                               5/1/09
Lutheran Brotherhood                          Forest Lake, MN                               5/1/09
Marshall & Ilsley Bank                       Greenwood, MN                                 5/22/09
Marshall & Ilsley Bank                       Greenwood #2, MN                            9/2/09
American Express                              Pine City, MN                                     1/1/10
Valley Bank                                       Kalispell, MT                                       8/10/10
US Bank                                            Burnsville, MN                                    1/1/11
The County Bank                                Oakdale, MN                                     8/1/11
American Express                              Ladysmith, WS                                    9/1/11
First Security State Bank                     Anoka, MN                                       3/10/12
                                                          Burnsville #2, MN
                                                          St. Louis Park, MN
                                                          Winsted, MN

76

Mortgage                                         Location                                           Due Date       

                                                          Howard Lake, MN
                                                          Rochester, MN           
                                                          Faribault, MN
U.S. Bank                                          Eden Prairie, MN                                5/20/14
Standard Mtge Investors, LLC           Fargo, ND                                          9/1/14
American Express                              Eagan, MN                                         9/1/15
                                                          Prior Lake, MN
                                                          Ripley, TN                                                    

See attached tenant summary by location.

77 T. F. JAMES COMPANY

SCHEDULE 3.23

Subsidiaries

1.	The Company owns 100% of the stock in Westlake Liquors, Inc., a Minnesota corporation.  This is a retail off-sale establishment which leases space from the Company in the Forest Lake, Minnesota facility.  For Tax purposes, this entity is a "disregarded entity."
2.	Jamestown Variety, Inc., a former wholly-owned subsidiary of the Company, was involuntarily dissolved and ceased to exist with the North Dakota Secretary of State's office on August 6, 2001, for failure to file its 2000 Annual Report.

78
               T. F. JAMES COMPANY

SCHEDULE 3.24

Insurance

1.   Business Property/Casualty Insurance – T. F. James Company and/or Westlake Liquors, Inc. DBA Westlake Warehouse Liquors and/or Peak Properties Development, for the period September 1, 2002 to September 1, 2003.  Insurance Carrier:  Cincinnati Insurance Company.  Policy Coverage:  (i) Commercial Main Package, Policy #COP2314667;  (ii) Commercial Package – Vacant Buildings, Policy #CPP0734709;  (iii) Commercial Umbrella, Policy #CCC4479494;  (iv) Commercial Automobile, Policy #CAP5450417;  (v) Workers Compensation, Policy #WC1914512-01.

79

T. F. JAMES COMPANY

SCHEDULE 3.25

Brokers and Finders

1.   The Company is obligated to CB Richard Ellis and its former agent, Joseph Sullivan, for a finder's fee in the approximate amount of $138,000, in connection with the transaction contemplated by the Agreement. 

      

80 T. F. JAMES COMPANY

SCHEDULE 3.26

Relationship with Related Persons

1.	The Company is indebted to Mr. T. F. James (the father of each of the Shareholders other than Thomas Legierski) for an annuity which has a principal amount of approximately $600,000;  see also Schedule 3.10.
2.	The Company was indebted to Charles Wm. James as set forth in Schedules 3.31(14) and 3.31(1).
3.	See Guarantees by Shareholders on Debts of the Company set forth on Schedules 3.11 and 5.14 and Guarantees by the Company on behalf of the Shareholders set forth on Schedule 3.11.
4.	Stock Purchase Agreement by and between Phillip M. James, Thomas M. James, Douglas M. James, Judith James Scherer, Robert R. James, Charles W. James and Thomas J. Legierski and James Refrigeration Company, dated effective July 15, 1979;  see also Schedule 3.2(1).

81
T. F. JAMES COMPANY

SCHEDULE 3.27

Hazardous Materials   None   82
T. F. JAMES COMPANY

SCHEDULE 3.28

Other Environmental Matters

Schedule of Underground Storage Tanks Owned by Tenants

LOCATION	TENANT
Andover, MN	Tom Thumb
Bethel, MN	Tom Thumb
Buffalo, MN	Tom Thumb
Blaine, MN	Tom Thumb
Burnsville #1, MN (Recently removed)	PDQ
Centerville, MN	Tom Thumb
Eagan, MN	PDQ
Glencoe, MN	Tom Thumb
Ham Lake, MN	Tom Thumb
Howard Lake, MN	Tom Thumb
Inver Grove, MN	PDQ
Lakeland, MN	Tom Thumb
Lino Lakes, MN	Tom Thumb
Lindstrom, MN	Tom Thumb
Monticello, MN	Tom Thumb
Mora, MN	Tom Thumb
Mound, MN	PDQ
Oakdale, MN	Tom Thumb
Paynesville, MN	Tom Thumb
Pine City, MN	Tom Thumb
Prior Lake, MN	PDQ
Shoreview, MN	Tom Thumb
Winsted, MN	Tom Thumb

Other Matters

The Inver Grove, Minnesota location has a tenant that performs on-site dry cleaning.  The Eagan, Minnesota and Burnsville, Minnesota locations have tenants that provide dry cleaning services off-site;  however, on-site dry cleaning services were previously performed at these locations.

83
T. F. JAMES COMPANY

SCHEDULE 3.29

Debt Instruments

Other than the mortgages which are set forth on Schedule 3.22, the Company has outstanding Debt Instruments with and with respect to the following:

Central Bank, Eden Prairie	Line of Credit
Marshall & Ilsley Bank	Line of Credit
*GMAC	Auto Loan - 2002 Bravada
*Chrysler Financial	Auto Loan - 2001 Jeep Grand Cherokee

*see also Schedule 3.16

[**Note to IRET – One or more of the currently owned vehicles may be purchased by one or more of the Shareholders prior to the closing.  We may need to add a covenant in the Agreement to reflect this]

84
T. F. JAMES COMPANY

SCHEDULE 3.31

Shareholder Loans

1.   The Company was indebted to Charles Wm. James, a Shareholder and an employee of the Company, in the amount of $100,000 for land purchased by the Company in Kalispell, Montana. This debt was paid in full in January, 2003; see also Schedules 3.13(14) and 3.26(2).

85
T. F. JAMES COMPANY

SCHEDULE 3.33

Absence of Certain Business Practices   None   86
T. F. JAMES COMPANY

SCHEDULE 3.34

Trade Regulation   None   87
T. F. JAMES COMPANY

SCHEDULE 3.35

Representations Regarding the Shareholders

Each of the Shareholders' right, title and interest in and to the Company Common Stock, other than Thomas J. Legierski, is Encumbered by a Federal Tax Lien which was issued by the IRS on March 29, 2000, and filed in the office of the Minnesota Secretary of State on April 30, 2001.  The amount of the IRS Tax Lien as stated on the April 30, 2001 filing with the Minnesota Secretary of State is $350,660.15.  As of January 31, 2003, the Federal Tax Lien is estimated to approximate $459,325, including interest accrued from June 29, 1999 through January 31, 2003 in the amount of 108,657.00;  see also Schedule 3.5.

88
T. F. JAMES COMPANY

SCHEDULE 5.5

Restrictions on New Contracts None   89
T. F. JAMES COMPANY

SCHEDULE 5.14

Shareholder Guarantees

Each of the Company Shareholders have personally guaranteed the following Indebtedness of the Company;  see also Schedules 3.11 and 3.26(3):

Indebtedness Owed To:	Description of Purpose/Location
Central Bank	Line of Credit
Marshall & Ilsley Bank	Line of Credit
Marshall & Ilsley Bank	Mortgage Loan, Schofield, WI
Marshall & Ilsley Bank	Mortgage Loan, Kalispell, MT
Twin City Federal	Mortgage Loan, Excelsior, MN
Premier Bank	Mortgage Loan, St. Paul, MN
Oakley National Bank	Mortgage Loan, Buffalo, MN
Marshall & Ilsley Bank	Mortgage Loan, Chanhassen #2, MN
Wells Fargo Bank	Mortgage Loan, Inver Grove Land, MN
Marshall & Ilsley Bank	Mortgage Loan, Lakeville, MN
Lake Country Bank	Mortgage Loan, Long Prairie, MN
Marshall & Ilsley Bank	Jamestown, ND
Marshall & Ilsley Bank	Livingston, MT
Lutheran Brotherhood	Forest Lake, MN
Lutheran Brotherhood	Forest Lake, MN
Marshall & Ilsley Bank	Greenwood Office, MN
Marshall & Ilsley Bank	Greenwood, MN
American Express Financial	Pine City, MN
Valley Bank	Kalispell, MT
County Bank	Oakdale, MN
American Express Financial	Ladysmith, WI
U.S. Bank	Eden Prairie, MN
American Express Financial	Eagan, MN; Prior Lake, MN; Ripley, TN

  90

EX-2

Ex-2a   SCHEDULE 2.16

CALCULATION
OF
ESTIMATED MERGER CONSIDERATION
AND
MERGER CONSIDERATION
(INCLUDING T. F. JAMES COMPANY, INC. AND WESTLAKE LIQUORS, INC.)

	Estimated Merger Consideration 1/31/03	Merger Consideration	Difference (+) (-)
Additions to Merger Consideration (from Page 2)	$71,641,725	$	$
Subtractions from Merger Consideration (from Page 3)	37,732,004
	33,909,721
Estimated Merger Consideration "Cushion"	(350,000)1	-0-
Estimated Merger Consideration/ Merger Consideration	$33,559,721	$	$

Preparation Standards

• The figures herein include the consolidated financial data of T. F. James Company and Westlake Liquors, Inc.

• The standards by which this calculation shall be made are set forth in Section 2.16 of the Merger Agreement and this Schedule (including the methodology used for the Estimated Merger Consideration agreed to by the Parties).

• The Merger Consideration figures and calculation shall be based on the 1/31/03 audit of the consolidated financial statements of the Company, adjusted by the directives of Section 2.16 of the Agreement.

• Detail schedules will be prepared to support the summary financial figures set forth on Pages 2 and 3 of this Schedule.

Footnote 1 – The "Cushion" is to be used only for the calculation of Estimated Merger Consideration.  It will not be utilized for the calculation of the Merger Consideration.
  1
SCHEDULE 2.16
(Continued)

CALCULATION
OF
ESTIMATED MERGER CONSIDERATION
AND
MERGER CONSIDERATION
(INCLUDING T. F. JAMES COMPANY, INC. AND WESTLAKE LIQUORS, INC.)

Additions to Merger Consideration (Assets)	Estimated Merger Consideration 1/31/03	Merger Consideration1	Difference (+) (-)
Cash and Cash Equivalents	$357,336	$	$
Cash in Escrow	151,547
Accounts Receivable, less Allowance for      doubtful Accounts	120,000
Rents Receivable	50,112
Income Taxes Receivable	-0-
Other Receivables	239,727
Inventory	110,000
Prepaid Insurance	14,883
Rental Real Estate	67,135,0002	67,135,0002	-0-
Real Estate Development in Progress	2,760,0002	2,760,0002	-0-
Other Property and Equipment (Excluding      Westlake Liquors and Transportation      Equipment)	300,0002	300,0002	-0-
Other Property and Equipment (Westlake      Liquors, excluding Transportation      Equipment)	50,0002	50,0002	-0-
Ripley, Tennessee Property	250,0002	250,0002	-0-
Pre-Closing Lakeville Property Improvements	52,9452	52,9452
Transportation Equipment (Autos)	50,1752	50,1752	-0-
Total Additions to Merger Consideration (A)	$71,641,725	$	$

____________________________

1/ See supporting detail Schedules attached.

2/ These amounts are agreed upon by the parties, notwithstanding non-compliance with the GAAP standards and presentation in T. F. James' consolidated financial statements.

2
SCHEDULE 2.16
(Continued)

CALCULATION
OF
ESTIMATED MERGER CONSIDERATION
AND
MERGER CONSIDERATION
(INCLUDING T. F. JAMES COMPANY, INC. AND WESTLAKE LIQUORS, INC.)

Subtractions to Merger Consideration (Liabilities)	Estimated Merger Consideration 1/31/03	Merger Consideration1	Difference (+) (-)
Notes Payable	$932,832	$	$
Accounts Payable	832,451
Accrued Employee Bonus Compensation	450,000	450,000	-0-
Accrued Real Property Taxes	153,704
Accrued Interest Payable	218,938
Payable to Related Party	-0-
Rents Received in Advance	75,635
Equity Loan	3,169,588
Annuity Payable	-0-
Long-Term Debt	31,898,856
Total Subtractions from Merger Consideration	$37,732,004	$	$

____________________________

1/ See supporting detail Schedules attached.

3

EX-2

Ex-2c Tenant Summary

Tenant Name	Rent	Status	Move In	Move Out	Lease Exp	Next Inc.	Next Rent	Square Feet
Tom Thumb Superette #255
Tom Thumb Superette #15825	885.41	Current	02/01/78		01/31/08	02/01/03	885.41	3,000.0
River Road Shopping Center
Interstate Brands Corporation	2,500.00	Current	03/03/01		03/31/06			5,625.0
Pizza Man	833.33	Current	10/01/95		09/30/04			1,000.0
Piers Fitness, Inc.	833.33	Current	09/01/00		08/31/03			1,000.0
Abernathy	2216.67	Current	01/01/93		02/28/04			3,000.0
Tom Thumb Shopping Center #180
Tom Thumb Superette #	1,540.87	Current	06/01/77		05/31/07			5,500.0
Barr, DDS	781.25	Current	04/01/93		03/31/03			1,250.0
Woodman, Inc.	1,799.75	Current	04/01/91		03/31/03	04/01/03	1,9000.00	2,000.0
Burnsville PDQ #210 Strip Center
ACR Subway Inc.	2,604.00	Current			12/31/07	02/01/03	2,604.00	2,604.0
Westmoreland Company	1,490.00	Current	02/21/97		02/28/07	03/01/03	1,676.25	1,490.0
Annettes Hair Studio, Inc.	1,206.00	Current	07/01/91		10/31/03			1,072.0
Burnsville Liquor Outlet	3,360.00	Current	01/01/94		12/31/03	01/01/04	3,640.00	3,360.0
Burnsville Phase 2 Strip Center
Valley Pet Hospital	1,575.00	Current	12/01/88		02/28/06			2,100.0
Tony Pankey State Farm	787.50	Current	03/01/94		12/31/02			1,050.0
Five Diamond Industries	1,750.00	Current	01/01/99		02/28/04			2,100.0
Pizza Man of Savage, Inc.	775.00	Current	02/01/99		01/31/05			840.0
Tonys Appliance, Inc.	1,732.50	Current	03/01/99		02/28/03			2,310.0
Tom Thumb Shopping Center #218
P & D Klitzke Enterprises	800.00	Current	09/01/00		08/31/03			1,200.0
Central States Telecomm	1,200.00	Current	12/01/99		01/31/04			1,800.0
Klatt	800.00	Current	03/01/96		02/28/06	03/01/05	850.00	1,200.0

1

Tenant Name	Rent	Status	Move In	MoveOut	Lease Exp	Next Inc.	Next Rent	Square Feet
Tom Thumb Superette #	1,150.00	Current	06/01/78		05/31/08	06/01/03	1,150.00	3,500.0
Tom Thumb Superette #295
Tom Thumb Superette #	2,504.60	Current	07/01/95		06/30/05	07/01/05	2,750.00	3,000.0
Byerlys
Byerlys	64,141.08	Current	11/06/94		12/01/19	12/01/04	66,656.91	64,643.0
Retail Center
Paper Warehouse, Inc.	14,493.33	Current	05/01/95		02/28/11			10,870.0
Great Clips	2,251.13	Current	06/01/95		05/31/05			1,566.0
Pilgrim Cleaners	2,088.00	Current	06/01/95		05/31/05			1,566.0
Travel Advisors Internati	1,893.75	Current	05/05/95		05/31/05			1,515.0
Turbo Nails	2,500.00	Current	10/01/01		09/30/06			1,487.0
General Nutrition Corpor	1,957.50	Current	10/05/95		10/04/05			1,697.0
Tradition Title & Apprais	3,333.33	Current	12/01/01		11/30/04			3,043.0
State Farm Insurance	1,500.00	Current	09/01/00		06/30/05	07/01/03	1,167.00	1,178.0
Chanhassen Chiropractic	1,600.00	Current	04/01/02		03/31/05			1,125.0
Hollywood Entertainment	8,716.42	Current	05/01/95		04/30/05			7,078.0
Kinkos Copy Center
Attn: Lease Admin, Linda	9,333.33	Current	04/01/95		04/01/05			7,000.0
TCF Bank
TCF Bank	1,000.00	Current	01/20/95		08/20/20	08/21/15	1,500.00	0.0
OfficeMax Phase 2
OfficeMax #1102	22,605.17	Current	12/06/00		12/31/15	01/01/06	23,500.00	23,588.0
Retail Center Phase 2

2

Tenant Name	Rent	Status	Move In	MoveOut	Lease Exp	Next Inc.	Next Rent	Square Feet
Caribou Coffee Compan	2,712.13	Current	08/25/01		08/31/11	09/01/06	2,851.21	1,669.0
The Hair District Chanha	3,813.33	Current	09/01/02		07/31/07			2,288.0
Golf America of Eagan	6,084.75	Current	03/15/01		03/31/06			3,843.0
Tom Thumb Superette #243
Tom Thumb Superette #	2,611.83	Current	07/15/84		07/31/14	08/01/04	4,300.00	4,800.0
Eagan Center One
Chevalier	1,800.00	Current	06/01/93		09/30/98			2,400.0
Boudreau	700.00	Current	09/01/91		08/31/97			1,000.0
Minnesota Clean, Inc.	1,333.33	Current	02/21/97		02/28/07	08/01/05	1,667.67	2,000.0
Eagan Center Two
Ryan	791.67	Current	02/01/94		01/31/03			1,000.0
Kleffman	823.33	Current	02/01/94		03/31/03			1,040.0
Koski	2,672.33	Current	06/01/94		08/31/03			3,584.0
Blomquist Martial Arts	2,060.83	Current	10/01/02		09/30/03	10/01/03	2,060.83	2,473.0
MGM Spirits Express In	3,869.33	Current	12/01/85		11/30/05			5,804.0
PDQ Store #214
PDQ Food Store #214	6,000.00	Current	12/01/90		11/30/08	12/01/08	6,666.67	3,886.0
Central Bank Building
Central Bank	6,696.00	Current	03/01/95		02/28/05			4,464.0
Olsen Thielen & Compan	5,225.00	Current	10/01/89		09/30/03			4,481.0
Checkpoint Security Syst	23,730.00	Current	04/01/90		03/31/05	04/01/05	23,730.00	21,093.0
McGrath, DDS	858.75	Current	06/01/91		05/31/01			807.0
J.A. Price Agency, Inc.	9,142.42	Current	05/01/99		04/30/04			7,078.0
Equis Corporation	400.00	Current	04/01/85		03/31/05	04/01/05	500.00	289.0
Water Street Strip Center

3

Tenant Name	Rent	Status	Move In	MoveOut	Lease Exp	Next Inc.	Next Rent	Square Feet
Sky Ventures, LLC	3,587.13	Current	09/09/76		09/30/06	10/01/03	3,694.75	3,068.0
Agnew Communications	850.00	Current	05/01/02		04/30/03			1,200.0
Queen of Excelsior	750.00	Current	06/01/87					1,125.0
Minnesota Transportation	1,262.71	Current	12/01/97					1,102.0
Shoberg	453.33	Current	06/01/87					680.0
Crystal Catering	545.33	Current	04/01/92					818.0
Express Shopping Center
Tow	800.00	Current	09/01/88		08/31/06			650.0
Hornbachers Facility #12	7,814.58	Current	01/01/88		12/31/03	01/01/06	7,814.58	16,650.0
Werlinger	1,667.00	Current	09/01/88		08/31/03			1,410.0
Animal Health Clinic, PC	1,833.33	Current	06/24/88		06/30/08	07/01/08	2,016.67	4,038.0
CSK Auto Store #18
CSK Auto, Inc. Store #1	3,398.42	Current	03/15/99		02/28/09	03/01/04	3,515.66	5,600.0
Champion Auto Store #407
Champion Auto Store #4	3,500.00	Current	09/01/84		08/30/04			6,836.0
WestLake Shopping Center
Northern Tool & Equip	7,000.00	Current	09/20/00		09/19/10	10/01/08	8,000.00	20,500.0
Officemax #1120	14,428.04	Current	05/09/01		01/31/17	06/01/06	15,276.75	20,369.0
Ocean-Air Travel, Inc.	2,366.00	Current	06/01/97		05/31/03			2,366.0
Snip, Inc.	2,243.75	Current	05/01/94		12/31/04			1,795.0
Forest Lake Tobacco	1,600.00	Current	06/01/99		03/31/04			1,600.0
SST, Inc.	2,611.25	Current	05/15/90		05/31/05	06/01/05	3,159.58	2,158.0
Westlake Warehouse Liq	3,500.00	Current	06/01/89		02/28/11			4,161.0
Fleming Companies, Inc.	15,250.00	Current	02/15/89		03/01/09			47,621.0
Tom Thumb Superette #246
Tom Thumb Superette #	2,636.72	Current	09/01/84		08/31/04			4,800.0
T.F. James Company

4

Tenant Name	Rent	Status	Move In	Move Out	Lease Exp	Next Inc.	Next Rent	Square Feet
T.F. James Company	0.00	Current	03/15/99					5,625.0
Excelsior Chiropractic Clinic
Excelsior Chiropractic Cli	2,666.67	Current	02/10/00		01/31/10			1,600.0
Tom Thumb Superette #185
Tom Thumb Superette #	2,296.02	Current	01/01/78		12/31/07			4,800.0
Tom Thumb Superette #222
Tom Thumb Superette #	3,000.00	Current	03/05/81		05/31/11	04/01/06	3,300.00	3,571.0
PDQ#212 Inver Grove Hghts Cntr
P D Q Food Store #212	2,977.81	Current	02/01/87		01/31/05	02/01/05	3,275.59	2,604.0
Wells Fargo Financial Ac	1,275.00	Current	08/01/97		07/31/04			2,100.0
Gerke	1,737.50	Current	07/01/91		06/30/06			1,668.0
Enterprise Rent-A-Car	1,749.15	Current	05/01/96		04/30/06			2,028.0
Jamestown Mall
Medcenter One, Inc.	5,791.67	Current	07/01/99		07/31/09	08/01/09	6,370.83	27,823.0
Lifetime Eye Care	4,566.66	Current	04/01/01		04/30/11			5,045.0
Keim	2,250.00	Current	06/18/76		06/17/05			6,000.0
Janet Smith	2,125.00	Current	08/01/76		07/31/07			5,000.0
Banquet room	0.00	Current	08/01/96		07/31/07			2,000.0
David J. Gion	1,200.00	Current	02/01/02		01/31/05			1,800.0
Joys Hallmark Shop III	1,050.00	Current	11/01/99		12/31/04			2,503.0
Jamestown Mall Office	0.00	Current						120.0
Equis Corporation	577.29	Current	10/01/00		09/30/03	10/01/03	635.00	815.0
First Impressions	790.00	Current	12/01/99		05/31/03			1,592.0
Merrick and Schaar Law	1,308.00	Current	06/01/92		10/31/03			2,166.0
American Legion Auxiliar	415.00	Current	08/01/01		07/31/03			664.0
Path Inc.	683.92	Current	01/01/94		12/31/98			1,132.0
Xtreme Basketball Assoc	192.50	Current	11/11/02		03/11/02			308.0
Jan Insurance Agency	151.00	Current	10/01/99					250.0
Bergquist, Mike	250.00	Current	04/01/98					410.0

5

Tenant Name	Rent	Status	Move In	Move Out	Lease Exp	Next Inc.	Next Rent	Square Feet
Midwest Financial Servic	887.50	Current	06/01/98					1,420.0
North Dakota School for	263.67	Current	01/01/00		06/30/00			452.0
Freedom Res. Ctr For Ind	129.50	Current	09/01/97		08/31/99			222.0
Dolan Anderson DDS	546.25	Current	07/31/01		07/31/03	08/01/03	546.25	874.0
Jamestown Taxi Service	80.00	Current	01/01/02					100.0
Buffalo Valley Chapter of	279.13	Current	08/01/99		07/31/03			462.0
Community Correction A	326.90	Current	11/01/99		09/30/00			561.0
Northern States Trucking	356.25	Current	09/01/02					570.0
AAA of North Dakota	100.00	Current	01/01/87					174.0
N D Division of Parole &	508.00	Current	07/01/95		06/30/03			871.0
Daly	300.00	Current	11/01/85					522.0
Great Plains Directory Se	501.46	Current	05/01/99					830.0
Alcohol, Families and Ch	315.38	Current	05/01/95		03/31/02			522.0
Lutheran Social Services	262.21	Current	01/01/94					434.0
Clay Wilkin Opportunity	192.13	Current	08/01/99					318.0
Ramstad	100.00	Current	06/24/83					174.0
Ernst Home Center
Shopko Stores Inc.	21,407.50	Current	08/01/90		08/01/10			52,000.0
Pamida
Pamida Store #282	13,784.17	Current	11/01/89		10/30/09			41,000.0
Tom Thumb Superette #221
Tom Thumb Superette #280	3,600.00	Current	04/01/81		02/28/11	03/01/06	3,900.00	3,650.0
Tom Thumb Superette #178
Tom Thumb Superette #100	1,120.92	Current	04/01/77		03/31/07			4,000.0
Lino Lake Tom Thumb #197 Cntr
It Figures!	1,031.25	Current	08/01/01		08/31/04			1,375.0
ACR Subway, Inc.	1,031.25	Current	06/15/99		04/30/04	05/01/04	1,185.94	1,375.0
Tom Thumb Superette #	1,457.67	Current	07/01/79		06/30/04	07/01/04	1,457.67	3,575.0

6

Tenant Name		Rent	Status	Move In	Move Out	Lease Exp	Next Inc.	Next Rent	Square Feet
Pamida
Pamida Store #288	1	16,342.77	Current	07/01/90		07/01/10			41,200.0
Tom Thumb Superette #303
Tom Thumb Superette #	904	6,518.65	Current			05/31/18	06/01/18	5,830.82	5,216.0
Tom Thumb Superette #583
Tom Thumb Superette #	110	1,898.19	Current	06/01/79		05/31/09			3,575.0
Tom Thumb Superette #194
Tom Thumb Superette #	23	1,318.94	Current	04/01/79		03/31/04			3,571.0
PDQ #292 Shopping Center
P D Q Food Store #292	5550	1,968.41	Current	01/01/79		12/31/03			3,864.0
Hostess Bread Outlet
Interstate Brands Corpor	2701	2,617.58	Current	10/01/97		09/30/07	10/01/07	2,917.58	4,560.0
Tom Thumb #214 Strip Center
Tom Thumb Superette #	1025	3,700.00	Current	05/01/80		04/30/10	05/01/05	4,000.00	3,575.0
The Best Books and Gift	1037-43	2,276.09	Current	10/01/99		11/30/10			2,691.0
Tom Thumb Superette #244
Tom Thumb Superette #	28976	2,406.59	Current	08/01/84		07/31/04			4,800.0

7

Tenant Name		Rent	Status	Move In	Move Out	Lease Exp	Next Inc.	Next Rent	Square Feet
Evergreen Square
Shopko Stores Inc.	100	11,000.00	Current	07/01/89		07/01/09			33,673.0
Pine Eye Associates, P.	110	1,452.85	Current	09/01/01		08/31/06	09/01/06	1,452.85	1,779.0
S & C Fergie, Inc. 120		585.00	Current	05/01/01		04/30/03			1,170.0
Subway Sandwich Shop	130	823.33	Current	03/03/93		03/31/08	04/01/03	1,054.76	1,235.0
American Residential Mo	140	720.42	Current	06/01/02		05/31/03			1,235.0
Randy Carey	160	963.63	Current	11/15/92		07/31/03			1,779.0
Fleming Companies, Inc.	170	9,913.16	Current	07/01/89		06/30/09			21,184.0
Tom Thumb Superette #248
Tom Thumb Superette #1120		2,918.84	Current	09/01/84		08/31/04			4,800.0
PDQ #216 Shopping Center
Colliers Turley Martin Tu	14161	1,130.83	Current	12/01/02		04/30/06	05/01/06	1,230.00	1,180.0
Dalal State Farm Insuran	14163	1,130.83	Current	09/01/92		05/31/06			1,180.0
Waconia Cleaners	14165	975.00	Current	06/01/98		05/31/04			1,088.0
Hariman	14169	874.00	Current	10/01/94		09/30/03			912.0
P D Q Food Store #216	14173	2,618.38	Current	02/01/87		01/31/05	02/01/05	2,880.22	2,440.0
Prior Lake Peak
Battery Wholesale, Inc.	14123	1,006.25	Current			09/30/03			1,050.0
Jeffrey S. Snyder	14125	1,006.25	Current			10/31/03			1,050.0
Apple Valley Secretarial	14127	1,006.25	Current			09/30/04			1,050.0
Sophea Sok	14129	1,006.25	Current			08/31/04			1,050.0
Ripley Shopping Center
New Beginnings Christia	309	0.00	Current	05/01/01		12/31/02			2,400.0
Bank of Ripley	311	1,642.37	Current	08/01/93		07/31/03			2,300.0
New Beginning Christian	313	1,750.00	Current	11/01/00		12/31/02			3,200.0
CSK Auto Store #18
CSK Auto, Inc. Store #1	2001	2,853.00	Current	02/15/99		02/28/04	03/01/04	3,000.00	6,225.0

8

Tenant Name	Rent	Status	Move In	Move Out	Lease Exp	Next Inc.	Next Rent	Square Feet
Schofield Plaza Shopping Ctr.
Hancock Fabrics, Inc.	3,753.75	Current	06/01/92		12/31/02			12,060.0
Interstate Brands Corpor	1,733.33	Current	09/01/93		08/31/02			4,160.0
Pat Malone	1,820.00	Current	02/01/97		01/31/03			3,860.0
Big Lots, Inc. #00457B	7,479.50	Current	04/01/93		01/31/04	02/01/04	8,548.00	25,644.0
Tom Thumb Superette #195
Tom Thumb Superette #5995	1,325.00	Current	05/01/79		04/30/04			3,000.0
Dilly Lilly
Dilly Lilly	2,000.00	Current	03/01/96		01/01/06	01/01/06	0.00	3,444.0
Hostess Bread Outlet STP
Interstate Brands Corpor	3,000.00	Current	01/15/99		01/31/04	02/01/04	3,300.00	6,225.0
T.F. James Company
Aramark Educational Re	0.00							0.0
Sam Goody(Musicland)
The Musicland Group	3,590.75	Current	05/15/92		01/31/08	04/01/03	3,590.75	6,225.0
Tom Thumb Superette #223
Tom Thumb Superette #132	3,300.00	Current	03/13/81		03/31/11	04/01/06	3,600.00	3,571.0
	528,021.39						255,610.20	829,229.0

9

EX-2

Ex-2d
T. F. JAMES COMPANY/INVESTORS REAL ESTATE TRUST (IRET) SHARE ISSUANCE AND FRACTIONAL SHARES
FOR
ESTIMATED MERGER CONSIDERATION    

Estimated Merger Consideration 1/31/03	$33,559,721
Divided by $9.75 per IRET Share	÷          9.75
Shares to be Issued at Closing	3,442,022.667

SHAREHOLDERS OF THE COMPANY

Shareholder	Number of Shares Owned	Percentage of Shares Owned	*Shares (With Fractional Amount)	Whole Share Issuance	**Fractional Share Payment
Douglas M. James	28.0992	16.97877%	584,413.1119	584,413	$1.09
Robert R. James	28.0992	16.97877%	584,413.1119	584,413	$1.09
Charles Wm. James	28.0992	16.97877%	584,413.1119	584,413	$1.09
Judith James Scherer	28.0992	16.97877%	584,413.1119	584,413	$1.09
Thomas M. James	28.0992	16.97877%	584,413.1119	584,413	$1.09
Thomas J. Legierski	25.0000	15.10615%	519,957.1072	519,957	$1.05
Total:	165.496	100%	3,442,022.667	3,442,022	$6.50

Notes:

*          Shares with Fractional Amount (x) Percentage of Shares Owned
**        Fractional Share Payment (x) $9.75/IRET Share EX-10 8 financials.htm AUDITED FINANCIAL STATEMENTS - T.F. JAMES COMPANY 10/1/01 - 09/30/02

 Ex-10

  T. F. JAMES COMPANY

SCHEDULE 3.12

Financial Statements

1.	The undeveloped property, located at Highway 35 & 93, in Polson, Montana, was deeded to the James Family Properties and is mistakenly listed on the Company's Schedule of Real Estate as of September 30, 2002; see also "Built-In-Gains" disclosures set forth on Schedule 3.9(a) and disclosures set forth on Schedule 3.13(12).
2.	See T.F. James Company and Subsidiaries Consolidated Financial Statement as of September 30, 2002 which follow.

  1
T. F. JAMES COMPANY AND SUBSIDIARIES   CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH
INDEPENDENT AUDITORS’ REPORT SEPTEMBER 30, 2002 OLSEN THIELEN & CO., LTD.
Certified Public Accountants & Consultants   2
T. F. JAMES COMPANY AND SUBSIDIARIES CONTENTS

INDEPENDENT AUDITORS' REPORT

CONSOLIDATED FINANCIAL STATEMENTS:

  Balance Sheet

  Statement of Operations and Retained Earnings

  Statement of Cash Flows

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION

SUPPLEMENTARY FINANCIAL INFORMATION:

  Consolidating Schedules—

     Balance Sheet Information

     Statement of Operations and Retained Earnings (Deficit) Information

     Statement of Cash Flows Information

     Schedule of General and Administrative Expenses Information

     Schedule of Rental Income

     Schedule of Real Estate

3
INDEPENDENT AUDITORS' REPORT

Board of Directors
T. F. James Company and Subsidiaries
Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheet of T. F. James Company (an Iowa corporation) and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of operations and retained earnings and cash flows for the year and five months ended September 30, 2002 and 2001 and the year ended April 30, 2001.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of T. F. James Company and subsidiaries as of September 30, 2002 and 2001, and the results of their operations and their cash flows for the year and five months ended September 30, 2002 and 2001 and the year ended April 30, 2001, in conformity with accounting principles generally accepted in the United States of America.

/S/ Olsen Theilen & Co., LTD.
St. Paul, Minnesota
November 14, 2002

4
T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002 AND 2001 ASSETS

		2002			2001
Cash	$	484,702		$	361,869
Cash in Escrow		237,378			306,675
Accounts Receivable, Less Allowance for
Doubtful Accounts of $52,124		1,089,735			1,167,828
Rents Receivable		83,190			49,707
Income Taxes Receivable		116,337			57,702
Other Receivables		113,366			100,000
Inventory		124,878			140,608
Prepaid Expenses		13,974			13,974
Cash Value of Life Insurance		92,327			87,005
Mortgage Commitment Fees, Net		43,448			43,448
		2,399,335			2,328,816
Rental Real Estate		53,663,172			52,514,303
Real Estate Development in Progress		372,213			205,091
Less Accumulated Depreciation		(19,329,329	)		(18,349,392	)
Net Rental Real Estate		34,706,056			34,370,002
Other Property and Equipment		601,708			707,056
Less Accumulated Depreciation		(452,446	)		(509,500	)
Net Other Property and Equipment		149,262			197,556
TOTAL ASSETS	$	37,254,653		$	36,896,374

The accompanying notes are an integral part of the consolidated financial statements.   5 LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:		2002			2001
Notes Payable	$	1,017,833		$	665,779
Accounts Payable		1,871,081			1,928,297
Accrued Real Property Taxes		221,065			235,359
Accrued Interest Payable		256,138			256,138
Payable to Related Party		100,000			–
Rents Received in Advance		156,574			53,125
Retirement Contract Payable		93,249			41,468
Annuity Payable		605,997			655,942
Long-Term Debt		31,895,034			32,846,989
Total Liabilities		36,216,971			36,683,097
STOCKHOLDERS' EQUITY:
Common Stock, $100 Par Value, 1,250
Shares Authorized, 650 Shares
Issued, 165.5 Shares Outstanding		65,000			65,000
Retained Earnings		4,090,562			3,232,358
Cost of 484.5 Shares of Common Stock
Owned by Company		(3,117,880	)		(3,084,081	)
Total Stockholders' Equity		1,037,682			213,277
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	37,254,653		$	36,896,374

  6
T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR AND FIVE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 AND
YEAR ENDED APRIL 30, 2001

					2001
		2002			September 30			April 30
REVENUES:
Sales and Rental Income	$	7,359,251		$	3,300,873		$	7,293,650
Less Cost of Sales and Operating                                   Expenses		5,353,734			2,488,319			5,350,389
Gross Profit and Net Rental Income		2,005,517			812,554			1,943,261
Gain on Sale of Real Estate		898,275			15,614			1,095,615
Interest Income		16,572			4,985			32,862
Miscellaneous Income, Net		96,530			32,517			478,587
Net Revenues		3,016,894			865,670			3,550,325
GENERAL AND ADMINISTRATIVE EXPENSES		1,726,503			741,240			1,996,924
INCOME BEFORE INCOME TAXES		1,290,391			124,430			1,553,401
INCOME TAXES (BENEFIT)		45,624			(384,711	)		707,309
NET INCOME		1,244,767			509,141			846,092
RETAINED EARNINGS at Beginning of Year		3,232,358			2,768,627			1,922,535
DIVIDENDS		(386,563	)		(45,410	)		–
RETAINED EARNINGS at End of Year	$	4,090,562		$	3,232,358		$	2,768,627

The accompanying notes are an integral part of the consolidated financial statements.   7 T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR AND FIVE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 AND
YEAR ENDED APRIL 30, 2001

	2001
2002	September 30	April 30

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,244,767		$	509,141		$	846,092
Adjustments to Reconcile Net                                               Income to Net Cash Provided                                               By Operating Activities:
Depreciation		1,355,866			559,348			1,276,831
Gain on Sale of Property		(898,275	)		(15,614	)		(1,095,615	)
Changes in Assets and Liabilities:
Cash in Escrow		69,297			(68,383	)		34,555
Accounts Receivable		78,093			(393,944	)		(78,440	)
Rents Receivable		(33,483	)		(29,289	)		2,503
Other Receivable		(13,366	)		–			–
Inventory		15,730			(902	)		74,135
Prepaid Expenses		–			–			2,329
Accounts Payable		(57,216	)		451,300			139,994
Accrued Real Property Taxes		(14,294	)		72,389			(33,658	)
Accrued Interest Payable		–			12,825			25,458
Rents Received in Advance		103,449			(135,930	)		86,217
Retirement Contract Payable		51,781			(2,846	)		(6,502	)
Accrued Income Taxes		(58,635	)		(437,631	)		303,966
Deferred Income Taxes		–			(347,330	)		199,839
Net Cash Provided By Operating                                               Activities		1,843,714			173,134			1,777,704
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Other Receivables		–			–			(100,000	)
Purchase of Property and Equipment		(1,820,795	)		(603,047	)		(5,060,320	)
Proceeds from Sale of Property and                                                Equipment		1,075,444			24,300			2,651,092
Increase in Cash Value of Life                                                Insurance, Net		(5,322	)		2,515			(11,426	)
Payments Received on Contract                                                for Deed		–			9,896			31,526
Net Cash Used In Investing                                                Activities		(750,673	)		(566,336	)		(2,489,128	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowing (Repayment) Under                                               Line-of-Credit Agreements		352,054			479,033			(619,420	)
Principal Payments of Long-Term                                               Debt		(1,739,397	)		(601,076	)		(2,386,334	)
Proceeds from Issuance of                                               Long-Term Debt		787,442			294,851			4,114,262
Change in Treasury Stock		(33,799	)		–			–
Related Party Loans, Net		100,000			–			(13,460	)
Decrease in Annuity Payable		(49,945	)		–			(33,837	)
Payment of Dividends		(386,563	)		(45,410	)		–
Net Cash Provided By (Used In)                                        Financing Activities		(970,208	)		127,398			1,061,211
NET INCREASE (DECREASE) IN CASH		122,833			(265,804	)		349,787
CASH at Beginning of Year		361,869			627,673			277,886
CASH at End of Year	$	484,702		$	361,869		$	627,673

8

Net Cash Provided By (Used In)                                              Financing Activities		(970,208	)		127,398			1,061,211
NET INCREASE (DECREASE) IN CASH		122,833			(265,804	)		349,787
CASH at Beginning of Year		361,869			627,673			277,886
CASH at End of Year	$	484,702		$	361,869		$	627,673

  The accompanying notes are an integral part of the consolidated financial statements.   9 T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company's principal line of business is the purchase, sale and operation of rental property.  The Company holds real estate in five states concentrated mostly in the midwest.

Accounting Estimates

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  All material intercompany transactions and accounts have been eliminated in consolidation. 

Inventory

Inventories of finished goods are valued at the lower of first-in, first-out cost or market.

Property and Depreciation

Property and equipment are recorded at original cost.  Additions, improvements or major renewals are capitalized.  Any gains or losses on property and equipment retirements are reflected in the current year operations.

Depreciation is computed using the straight-line and declining balance methods at rates based on the asset's useful life as follows:

Buildings	5-40 years
Rental Equipment	7-8 years
Furniture and Fixtures	2-7 years
Transportation Equipment	3-5 years

Interest

The Company capitalizes interest related to assets during their construction.  For the year and five months ended September 30, 2002 and 2001 and the year ended and April 30, 2001, $0 and $0 and $156,948 was capitalized, $2,689,060 and $1,148,412 and $2,619,896 was expensed as rental

10

operating expense, and $30,113 and $54,046 and $82,220 was expensed as general and administrative expense.

11
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade receivables.  Concentrations of credit risk with respect to trade receivables are limited due to the Company’s large number of customers and their dispersion across many different industries.  The Company requires no collateral from its customers.  Historically, the Company has not incurred significant credit related losses and believes no significant credit risk exists at September 30, 2002.

Income Taxes

Prior to May 1, 2001 the provision for income taxes consisted of an amount for taxes that were currently payable and a provision for tax consequences deferred to future periods.  Deferred income taxes were recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred income tax assets and liabilities were measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences were expected to be recovered or settled.  The major temporary difference that gave rise to the net deferred tax liability was alternative minimum tax credit carryforwards and depreciation, which for tax purposes is determined based on accelerated methods and shorter lives.

As of May 1, 2001 the Company elected to have its income taxed to the shareholders under Subchapter S of the Internal Revenue Code.  Therefore, for the years subsequent to April 30, 2001 the statements will not include a provision for income taxes, except for the benefit due to the reversal of previously recorded deferred income taxes.

Reclassification

Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentations.  These reclassifications had no effect on net income or total stockholders’ equity.

NOTE 2 - CASH VALUE OF LIFE INSURANCE

The Company has $207,000 of life insurance on a former shareholder.  The cash value of life insurance is presented net of life insurance loans:

		2002		2001
Cash Surrender Value	$	527,057	$	498,531
Policy Loans		434,730		411,526
Net Cash Value	$	92,327	$	87,005

12

NOTE 3 - NOTES PAYABLE

Notes payable consists of two lines of credit agreements totaling $1,310,000.  Interest is paid monthly at 1% above the prime rate.  The notes are secured by real estate.

13
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LONG-TERM DEBT

Long-term debt and related pledged assets are as follows:

		2002		2001
Real Estate Mortgages payable in monthly installments with              6.5% to 10.5% interest.  Mortgages are secured by real estate.	$	31,846,317	$	32,783,621
Notes payable in monthly installments with 1.9% to 10%             interest. The notes are secured by transportation equipment.		48,717		63,368
Total	$	31,895,034	$	32,846,989

The principal payments required during the next five years are:  2003  $1,749,000; 2004  $2,263,000; 2005  $1,815,000; 2006  $1,837,000; and 2007  $1,916,000.

NOTE 5 - INCOME TAXES

The Company elected to be a Subchapter S corporation beginning May 1, 2001.  Therefore, deferred income tax liabilities were eliminated resulting in a recognition of income tax benefits in 2001.

The provisions for income tax expense includes the following components:

	2001
2002	September 30	April 30

Current Payable:
Federal	$	(1,044	)	$	(41,880	)	$	381,099
State		46,668			4,499			126,371
Total		45,624			(37,381	)		507,470
Deferred:
Federal		–			(169,742	)		167,075
State		–			(177,588	)		32,764
		–			(347,330	)		199,839
Total Income Tax Expense                                      (Benefit)	$	45,624		$	(384,711	)	$	707,309

The Company is subject to a built-in gains tax on asset appreciation.  The appreciation is calculated as of the Subchapter S election date and is the excess of the fair market value of all corporate assets over their tax bases.  The tax is imposed at the maximum federal rate of 35% and is based on the

14

Company’s asset appreciation that is realized within ten years after the Subchapter S election.  Asset appreciation as of May 1, 2001 is approximately $34,800,000. 

15
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - INCOME TAXES AND INVESTMENT TAX CREDITS (Continued)

When a company changes from a C corporation to an S corporation it would continue to recognize a deferred tax liability to the extent it would be subject to the builtin gains tax.  Deferred tax liabilities were eliminated May 1, 2001 since the realized asset appreciation for the ten year period cannot be reasonably estimated.

Built in gains of approximately $580,000 were recognized in the year ended September 30, 2002.  Alternative minimum tax credit carryforwards of approximately $310,000 were used to offset the built in gains income tax liability.

NOTE 6 - RENTAL INCOME UNDER OPERATING LEASES

The Company rents various real estate under noncancelable leases.  Real estate consists primarily of retail store buildings and related land.  Most leases include provisions for additional rent based on excess sales.  All of these leases, with terms of from one to twenty years, have been accounted for as operating leases.

The following is a schedule of future minimum rental revenue due under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 2002:

2003	$	5,932,000
2004		5,555,000
2005		5,069,000
2006		4,750,000
2007		4,354,000
Later Years		13,964,000
Total Minimum Rental Revenue	$	39,624,000

NOTE 7 - ANNUITY PAYABLE

On July 15, 1979, the Company purchased 475 shares of its common stock in exchange for a lifetime annuity payable to the former shareholder.  The annuity contract provides for monthly payments of $11,786.  The stock purchased and the liability for the annuity were recorded at the present value of the expected future payments discounted using a 6% rate and IRS mortality tables.  The liability and treasury stock is adjusted annually based on the life expectancy of the former shareholder.  Treasury stock increased $33,799 and $0 during the years ended September 30, 2002 and 2001 as a result of this adjustment.

16
T. F. JAMES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK REDEMPTION AGREEMENT

The Company has a stock redemption agreement with all stockholders requiring the corporation to purchase the outstanding shares of any stockholder upon death.  The agreement requires an unspecified payment at time of death and the remainder to be paid in installments over five years with 8% interest.  The Company has sufficient life insurance on all stockholders to meet current redemption agreement requirements.  The agreement allows transfer by gift or sale to members of a stockholder's family, other stockholders or children of any other stockholder.  This agreement also restricts the sale of corporation stock to outsiders by giving the corporation and other stockholders first option to purchase at a predetermined price.

NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION

	2001
2002	September 30	April 30

Cash Payments For:
Interest	$	2,719,173	$	1,189,134	$	2,665,447
Income Taxes		104,259		400,250		203,504

NOTE 10 - RETIREMENT CONTRACT

The Company is making monthly payments of $816, including 7% interest, to a retired employee which will continue to September 1, 2006. 

The Company has a lifetime annuity payable to a former employee.  The annuity contract provides for monthly payments of $867.  The liability for the annuity was recorded at the present value of expected future payments discounted using a 6% late and IRS mortality tables.  The liability is adjusted annually based on the life expectancy of the former employee.

17
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION

Board of Directors
T. F. James Company and Subsidiaries
Minneapolis, Minnesota

Our report on the audits of the basic financial statements of T. F. James Company and subsidiaries as of September 30, 2002 and 2001 appears on page 1.  Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole.  The supplementary information on pages 12-26 is presented for the purpose of additional analysis and is not a required part of the basic financial statements.  Such information has been subjected to the procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/S/ Olsen Theilen & Co., LTD
St. Paul, Minnesota
November 14, 2002

18
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET INFORMATION
SEPTEMBER 30, 2002


ASSETS

			Consolidated	Eliminations	T. F. James Company	Jamestown Variety, Inc.	Westlake Liquors, Inc.
Cash			$    484,702	$	$    407,162	$	$  77,540
Cash in Escrow			237,378		237,378
Accounts Receivable Less Allowance
	for Doubtful Accounts of $52,124		1,089,735		1,089,735
Rents Receivable			83,190		83,190
Income Taxes Receivable			116,337		116,337
Other Receivables			113,366		113,366
Inventory			124,878				124,878
Prepaid Expenses			13,974		13,974
Cash Value of Life Insurance			92,327		92,327
Mortgage Commitment Fees, Net			43,448		43,448
Rental Real Estate			53,663,172		53,663,172
Real Estate Development in Progress			372,213		372,213
Other Property and Equipment			601,708		483,406		118,302
Accumulated Depreciation			(19,781,775)		(19,680,661)		(101,114)
Investment and Advances to Subsidiaries			–	(884,148)	884,148
		TOTAL ASSETS	$ 37,254,653	$(884,148)	$37,919,195	$         –	$219,606

  19
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET INFORMATION (Continued)
SEPTEMBER 30, 2002

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  

			Consolidated	Eliminations	T. F. James Company	Jamestown Variety, Inc.	Westlake iquors, Inc.
LIABILITIES:
Notes Payable			$     1,017,833	$	$  1,017,833	$	$
Accounts Payable			1,871,081		1,848,060		23,021
Accrued Property Taxes			221,065		221,065
Accrued Interest Payable			256,138		256,138
Notes Payable to Related Parties			100,000	(220,046)	100,000		220,046
Rents Received in Advance			156,574		156,574
Retirement Contract Payable			93,249		93,249
Annuity Payable			605,997		605,997
Long-Term Debt			31,895,034		31,895,034
	Total Liabilities		36,216,971	(220,046)	36,193,950	–	243,067
STOCKHOLDERS' EQUITY (DEFICIT): Common Stock $100 Par Value, 1,250
	Shares Authorized, 650 Shares Issued,
	165.5 Shares Outstanding		65,000	(100,100)	65,000	100,000	100
Paid in Capital			–	(564,002)		394,694	169,308
Retained Earnings (Deficit)			4,090,562		4,778,125	(494,694)	(192,869)
Cost of 484.5 Shares of Common
		Stock Owed by Company	(3,117,880)		(3,117,880)
		Total Stockholders' Equity (Deficit)	1,037,682	(664,102)	1,725,245	–	(23,461)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)			$    37,254,653	$(884,148)	$37,919,195	$         –	$219,606

  20
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (DEFICIT) INFORMATION
YEAR ENDED SEPTEMBER 30, 2002  

			Consolidated	Eliminations	T. F. James Company	Jamestown Variety, Inc.	Westlake Liquors, Inc.
REVENUES:
	Sales and Rental Income		$   7,359,251	$(42,000)	$6,356,493	$	$1,044,758
	Less Cost of Sales and Operating Expenses		5,353,734		4,518,447		835,287
		Gross Profit and Net Rental Income	2,005,517	(42,000)	1,838,046	–	209,471
	Gain on  Sale of Property		898,275		898,275
	Interest Income		16,572		16,572
	Miscellaneous Income, Net		96,530		96,530
		Net Revenues	3,016,894	(42,000)	2,849,423	–	209,471
GENERAL AND ADMINISTRATIVE EXPENSES			1,726,503	(42,000)	1,540,880	–	227,623
INCOME (LOSS) BEFORE INCOME TAXES			1,290,391	–	1,308,543	–	(18,152)
INCOME TAXES			45,624	–	45,624	–	–
NET INCOME (LOSS)			1,244,767	–	1,262,919	–	(18,152)
RETAINED EARNINGS (DEFICIT) at Beginning of Year			3,232,358	–	3,901,769	(494,694)	(174,717)
DIVIDENDS			(386,563)	–	(386,563)	–	–
RETAINED EARNINGS (DEFICIT) at End of Year			$   4,090,562	$         –	$4,778,125	$(494,694)	$  (192,869)

  21
T. F. JAMES COMPANY AND SUBSIDIARIES CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED SEPTEMBER 30, 2002

				Consolidated		Eliminations	T. F. James Company		Jamestown Variety, Inc.	Westlake Liquors, Inc.
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net Income  Loss)			$   1,244,767		$	$1,262,919		$	$ (18,152)
	Adjustments to Reconcile Net Income (Loss) to Net
			Cash Provided By (Used In) Operating Activities:
		Depreciation		1,355,866			1,353,639			2,227
		Gain on Sale of Property		(898,275)			(898,275)
		Changes in Assets and Liabilities::
			Cash in Escrow	69,297			69,297
			Accounts Receivable	78,093			78,093
			Rents Receivable	(33,483)			(33,483)
			Other Receivable	(13,366)			(13,366)
			Inventory		15,730						15,730
			Accounts Payable	(57,216)			(36,505)			(20,711)
			Accrued Real Property Taxes	(14,294)			(14,294)
			Rents Received in Advance	103,449			103,449
			Retirement Contract	51,781			51,781
			Accrued Income Taxes	(58,635)			(58,635)
		Net Cash Provided By (Used In) Operating Activities		1,843,714		–	1,864,620	#	–	(20,906)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of Property and Equipment			(1,820,795)			(1,809,926)			(10,869)
	Proceeds from Sale of Property and Equipment			1,075,444			1,075,444
	Increase in Cash Value of Life Insurance			(5,322)			(5,322)
		Net Cash Used In Investing Activities		(750,673)		–	(739,804)		–	(10,869)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net Receipts Under Line-of-Credit Agreements			352,054			352,054
	Principal Payments of Long-Term Debt			(1,739,397)			(1,739,397)
	Proceeds from Issuance of Long-Term Debt			787,442			787,442
	Change in Treasury Stock			(33,799)			(33,799)
	Related Party Loans			100,000			100,000
	Decrease in Annuity Payable			(49,945)			(49,945)
	Payment of Dividends			(386,563)			(386,563)
		Net Cash Used in Financing Activities		(970,208)		–	(970,208)		–	–
NET INCREASE (DECREASE) IN CASH				122,833		–	154,608		–	(31,775)
CASH at Beginning of Year				361,869		–	252,554		–	109,315
CASH at End of Year				$      484,702		$          –	$   407,162		$        –	$  77,540

  22
T. F. JAMES COMPANY AND SUBSIDIARIES

CONSOLIDATING SCHEDULE OF GENERAL AND
ADMINISTRATIVE EXPENSES INFORMATION
YEAR ENDED SEPTEMBER 30, 2002

		Consolidated	Eliminations	T. F. James Company	Westlake Liquors, Inc.
Annuity Expense		$       57,688	$	$     57,688	$
Auto		7,129		7,129
Advertising		4,317		2,090	2,227
Board Fees		72,000		72,000
Computer Services		2,573		2,573
Depreciation		49,079		45,212	3,867
Donations		2,070		1,795	275
Group Insurance		101,369		97,812	3,557
General Insurance		63,255		63,255
Interest		30,113		30,113
Legal, Accounting and Architectural		136,606		136,606
Mortgage Fees		5,500		5,500
Officers' Life Insurance		86,296		86,296
Operating		76,393		53,936	22,457
Payroll Taxes		51,484		42,989	8,495
Real Estate Taxes		45,065		30,431	14,634
Rents		–	(42,000)		42,000
Repairs and Maintenance		11,836		7,971	3,865
Supplies		108			108
Telephone		23,094		20,816	2,278
Travel and Entertainment		15,003		15,003
Utilities		8,530			8,530
Wages and Benefits		876,995		761,665	115,330
	TOTAL	$   1,726,503	$(42,000)	$1,540,880	$227,623

  23
T. F. JAMES COMPANY AND SUBSIDIARIES

SCHEDULE OF RENTAL INCOME
YEAR ENDED SEPTEMBER 30, 2002

		Gross Rental Income	Interest	Taxes	Other Operating Expense	Building Depreciation	Total Expenses	Net Rental Income (Loss)
MINNESOTA:
	Andover - Tom Thumb	$     10,625	$	$	$	$       2,612	$       2,612	$       8,013
	Anoka	77,410	16,894		11,328	7,651	35,873	41,537
	Bethel	31,710	14,601			7,861	22,462	9,248
	Blaine	48,037			4,703	8,359	13,062	34,975
	Bloomington	1,815			2,157	748	2,905	(1,090)
	Brooklyn Park-63rd Ave(retail)	12,860			419		419	12,441
	Buffalo	46,858	15,054		198	6,440	21,692	25,166
	Burnsville - Phase I	129,853	27,014		(3,438)	19,498	43,074	86,779
	Burnsville - Phase II	79,055	34,244	672	2,045	16,775	53,736	25,319
	Centerville	30,055	5,707			5,782	11,489	18,566
	Chanhassen	1,765,680	984,702	9,424	52,060	323,606	1,369,792	395,888
	Eagan - Phase I	115,818	29,248		1,478	25,379	56,105	59,713
	Eagan - Phase II	101,748	50,140		19,533		69,673	32,075
	Eagan - PDQ	–	25,070		(765)	9,642	33,947	(33,947)
	Eden Prairie	546,626	206,737	4,296	2,456	132,590	346,079	200,547
	Excelsior	85,063	6,819	6,727	11,537	653	25,736	59,327
	Faribault	40,781	6,050			980	7,030	33,751
	Forest Lake - Crown Auto	42,000	7,902				7,902	34,098
	Forest Lake - Retail	687,392	244,037		(15,719)	160,412	388,730	298,662
	Glencoe	31,641	15,433		152	7,024	22,609	9,032
	Greenwood	32,000	93,724	28,755	19,009	43,045	184,533	(152,533)
	Ham Lake	27,552	7,160			5,576	12,736	14,816
	Howard Lake	40,836	5,707			5,294	11,001	29,835
	Inver Grove Heights	92,874	92,384		(1,641)	15,145	105,888	(13,014)
	Lakeland	53,442	8,104			7,246	15,350	38,092
	Lakeville	4,400	8,716	26,515	4,489	4,649	44,369	(39,969)
	Lindstrom	13,451				2,864	2,864	10,587
	Lino Lakes	40,784	7,175		(3,228)	9,206	13,153	27,631
	Monticello	22,778			6,856	3,567	10,423	12,355
	Mora	15,827				3,374	3,374	12,453
	Mound	23,621				5,012	5,012	18,609
	Mounds View	29,011	3,941			3,398	7,339	21,672
	Northfield	–		10,317	2,206	2,688	15,211	(15,211)
	Oakdale	86,461	18,312		14,749	13,115	46,176	40,285
	Paynesville	28,879	14,459			7,106	21,565	7,314
	Pine City	343,745	157,073	202	14,571	91,431	263,277	80,468
	Prior Lake	64,940	57,876	2,970	4,868	13,843	79,557	(14,617)
	Rochester	34,236	12,328			3,462	15,790	18,446
	St. Louis Park	24,081	6,734		39	377	7,150	16,931
	Sauk Rapids	–		5,642	3,752	3,845	13,239	(13,239)
	Shoreview	15,900			120	4,402	4,522	11,378
	St. Paul - West 7th Street	36,000	5,314			1,863	7,177	28,823

  24
 

			Gross Rental Income	Interest	Taxes	Other Operating Expense	Building Depreciation	Total Expenses	Net Rental Income (Loss)
	Willmar		43,262				5,366	5,366	37,896
	Winsted		45,519	8,104			6,024	14,128	31,391
		Total Minnesota	5,004,626	2,196,763	95,520	153,934	997,910	3,444,127	1,560,499
MONTANA:
	Kalispell		$   256,890	$     86,612	$  26,118	$       600	$     49,434	$   162,764	$     94,126
	Livingston		196,114	50,745			45,960	96,705	99,409
		Total Montana	453,004	137,357	26,118	600	95,394	259,469	193,535
NORTH DAKOTA:
	Fargo		145,379	87,978	14,087	6,213	34,843	143,121	2,258
	Jamestown		332,115	76,428	36,838	125,104	79,441	317,811	14,304
		Total North Dakota	477,494	164,406	50,925	131,317	114,284	460,932	16,562
TENNESSEE:
	Ripley		40,808	119,986	21,027	28,879	21,863	191,755	(150,947)
		Total Tennessee	40,808	119,986	21,027	28,879	21,863	191,755	(150,947)
WISCONSIN:
	Berlin		14,400		3,338	3,208		6,546	7,854
	Ladysmith		165,410	65,761			48,297	114,058	51,352
	Schofield		200,751	4,787	2,470	3,624	30,679	41,560	159,191
		Total Wisconsin	380,561	70,548	5,808	6,832	78,976	162,164	218,397
TOTAL			$6,356,493	$2,689,060	$199,398	$321,562	$1,308,427	$4,518,447	$1,838,046

  25
T. F. JAMES COMPANY AND SUBSIDIARIES

SCHEDULE OF REAL ESTATE
SEPTEMBER 30, 2002

		Date Acquired	Land	Buildings and Improvements	Total	Accumulated Depreciation	Net Book Value	Mortgage Or Note Payable
MINNESOTA:
	Andover - Tom Thumb	1976-1978	$     30,000	$       77,951	$     107,951	$       64,677	$     43,274	$
	Anoka	1971	75,000	329,756	404,756	168,122	236,634	181,892
	Bethel	1984	32,551	235,819	268,370	142,803	125,567	140,906
	Blaine	1978-1979	30,349	250,774	281,123	199,567	81,556
	Buffalo	1976-1979	31,000	193,050	224,050	154,066	69,984	140,269
	Burnsville - Phase I	1985	81,561	584,949	666,510	324,972	341,538	391,309
	Burnsville - Phase II	1986-1987	81,560	503,241	584,801	265,378	319,423	368,700
	Centerville	1979-1982	15,214	173,449	188,663	124,407	64,256	61,450
	Chanhassen	1986-1994, 2001-2002	1,796,596	13,055,779	14,852,375	1,928,749	12,923,626	11,112,725
	Eagan - Phase I	1978-1981	16,542	332,866	349,408	214,906	134,502	322,789
	Eagan - Phase II	1979-1984	34,196	562,497	596,693	418,144	178,549	553,352
	Eagan - PDQ	1990-1991	15,000	290,512	305,512	114,774	190,738	276,676
	Eden Prairie	1979-1990	84,781	3,983,677	4,068,458	2,218,371	1,850,087	2,566,871
	Excelsior	1976	50,000	220,171	270,171	220,171	50,000	55,721
	Faribault	1971	35,000	84,887	119,887	61,168	58,719	65,137
	Forest Lake - Champion Auto	1978-1985	107,294	270,140	377,434	162,835	214,599	76,290
	Forest Lake - Retail	1989, 2001	138,583	4,669,396	4,807,979	1,505,668	3,302,311	3,307,207
	Glencoe	1984	55,697	210,739	266,436	127,029	139,407	140,617
	Greenwood	1971-2000	225,300	1,181,399	1,406,699	237,870	1,168,829	1,028,159
	Ham Lake	1976-1985	43,000	166,807	209,807	119,938	89,869	550,476
	Howard Lake	1978-1982	20,879	158,810	179,689	114,076	65,613	61,450
	Inver Grove Center	1984	87,061	454,359	541,420	284,819	256,601	226,027
	Inver Grove - Undeveloped	1984	231,541		231,541		231,541	68,861
	Lakeland	1977-1982	11,402	217,378	228,780	155,876	72,904	87,259
	Lakeville	1971-1987	29,798	274,014	303,812	203,892	99,920	117,475
	Lindstrom	1976	18,500	94,445	112,945	74,159	38,786
	Lino Lakes	1978-1979	22,000	276,193	298,193	171,180	127,013	81,007
	Long Prairie	2002	100,000	583,247	683,247	1,620	681,627	470,693
	Monticello	1978-1979	58,685	107,024	165,709	82,260	83,449
	Mora	1978-1979	32,000	101,184	133,184	80,659	52,525
	Mound	1977-1979	47,788	150,234	198,022	119,745	78,277
	Mounds View	1973	22,424	123,567	145,991	86,331	59,660	52,070
	Oakdale	1977-1979	34,325	449,248	483,573	174,892	308,681	235,434
	Paynesville	1984	27,375	213,172	240,547	129,089	111,458	139,532
	Pine City - Tom Thumb	1978-1985	50,000	282,029	332,029	169,217	162,812	139,983

  26
 

			Date Acquired	Land	Buildings and Improvements	Total	Accumulated Depreciation	Net Book Value	Mortgage Or Note Payable
	Pine City - Pamida Center		1978-1989	132,099	2,460,892	2,592,991	1,053,497	1,539,494	1,700,114
	Prior Lake - PDQ		1977-1984	39,218	393,833	433,051	248,334	184,717	638,723
	Prior Lake - Undeveloped		1977-1984	30,235		30,235		30,235
	Prior Lake 2		2002	165,000	257,521	422,521	715	421,806
	Rochester		1972	44,000	148,653	192,653	110,483	82,170	132,732
	St. Louis Park		1970	$     35,000	$       73,825	$     108,825	$       65,130	$     43,695	$       72,511
	Sauk Rapids		1978-1981	13,500	115,354	128,854	88,830	40,024
	Shoreview		1978-1979	24,000	132,049	156,049	102,687	53,362
	St. Paul - West 7th Street		1972	55,000	96,373	151,373	89,291	62,082	56,929
	Willmar		1973	36,610	250,803	287,413	131,253	156,160
	Winsted		1978-1982	34,152	180,713	214,865	129,790	85,075	87,259
		Total Minnesota		4,381,816	34,972,779	39,354,595	12,641,440	26,713,155	25,708,605
MONTANA:
	Polson		1988	51,246		51,246		51,246
	Libby		1989	97,676		97,676		97,676
	Kalispell - Pamida Center		1989-1990	389,000	1,483,221	1,872,221	609,706	1,262,515	1,146,324
	Kalispell - Undeveloped		1989	610,217		610,217		610,217	157,566
	Livingston		1989-1990	195,693	1,378,792	1,574,485	548,520	1,025,965	640,401
		Total Montana		1,343,832	2,862,013	4,205,845	1,158,226	3,047,619	1,944,291
NORTH DAKOTA:
	Fargo		1962-1989	369,889	1,245,455	1,615,344	684,400	930,944	1,142,011
	Jamestown		1974-1979	325,224	3,592,369	3,917,593	2,314,858	1,602,735	847,770
		Total North Dakota		695,113	4,837,824	5,532,937	2,999,258	2,533,679	1,989,781
TENNESSEE:
	Ripley		1974-1975	193,996	914,296	1,108,292	767,379	340,913	1,191,764
	Ripley - Bank of Ripley		1978		123,520	123,520	98,472	25,048	132,418
	Ripley - Pizza Hut		1975		68,082	68,082	68,082	–
		Total Tennessee		193,996	1,105,898	1,299,894	933,933	365,961	1,324,182
WISCONSIN:
	Berlin		1960	32,000	76,888	108,888	76,888	32,000
	Ladysmith		1990	95,046	1,453,671	1,548,717	622,425	926,292	709,195
	River Falls		2002	165,870		165,870		165,870	150,000
	Schofield		1967-1987	149,000	1,297,426	1,446,426	897,159	549,267	20,263
		Total Wisconsin		441,916	2,827,985	3,269,901	1,596,472	1,673,429	879,458
TOTAL REAL ESTATE				$7,056,673	$46,606,499	$53,663,172	$19,329,329	$34,333,843	$31,846,317

  27

T. F. JAMES COMPANY

SCHEDULE 3.13

Absence of Certain Developments

1.	Since June 30, 2002, the Company has expended sums for architectural and other services to undertake the remodeling of the Company's Lakeville, Minnesota Strip Center.  When completed, this project is estimated to require in excess of $750,000.  This remodeling project is anticipated to begin in the winter of 2002-2003.
2.	Any mortgages on properties that were due for renewal after June 30, 2002 have been renewed.  This is in the normal course of business.
3.	The Company may apply for and complete a loan transaction in the approximate amount of $3,200,000.00 with the Bremer Bank (or a similar lending institution) prior to or upon the Closing.
4.	The Company made Shareholder distributions in 2002 and 2003 in the approximate aggregate amount of $621,301.00.  An additional $3.2 million will be paid in January, 2003;  see attached 2002 and 2003 Payment to Stockholders.
5.	See Litigation disclosures set forth on Schedule 3.7.
6.	See also Schedule 3.17(h)(1 and 2)
7.	See disclosures under "Built-In-Gains Tax" set forth in Schedule 3.9(a)
8.	Bonus Accruals for payment to the employees of the Company as of the closing date will approximate $450,000. Payment on this Accrual must be made within 2½ months after the Closing Date.
9.	The Company sold the New York Life Insurance Company Policy #25 448 610 and the CUNA Mutual Life Insurance Company Policy #00758065, both in the name of Thomas F. James, to the James Family Properties in January 2003; see also disclosures set forth in Schedule 3.10(1 and 2) at "Life Insurance Policies".
10.	In January 2003, the Company transferred the Term Life Policies on the Company shareholders to each of the shareholders individually; see also Schedule 3.10 at "Term Life Policies on Present Shareholders".
11.	On January 27, 2003, the Company paid-in-full the individual annuities owed to each of Elaine Engels and James B. O'Rourke; see also Schedule 3.10 at "Annuities/Pensions to Former Employees".

28

12.	See disclosures regarding property located in Polson, Montana set forth on Schedule 3.12(1).
13.	On January 28, 2003, Douglas M. James, a Shareholder and an employee of the Company, purchased a _____ Volvo from the Company.
14.	In January of 2003 the Company paid to Charles Wm. James, a Shareholder and an employee of the Company $100,000 for the purchase of land in Kalispell, Montana; see also Schedules 3.31(1) and 3.26(2)

  29
2002 AND 2003 PAYMENTS TO SHAREHOLDERS  

	Douglas M. James	Judith Scherer	Thomas M. James	Charles Wm. James	Robert R. James	Thomas J. Legierski	TOTAL
3/29/2002	$5,000.00	$5,000.00	$5,000.00	$5,000.00	$5,000.00	$5,000.00	$30,000.00
4/15/2002	4,217.00	4,217.00	4,217.00	4,217.00	4,217.00	3,752.00	24,837.00
4/15/2002	19,109.00	19,109.00	19,109.00	19,109.00	19,109.00	17,002.00	112,547.00
6/14/2002	3,526.00	3,526.00	3,526.00	3,526.00	3,526.00	3,137.00	20,767.00
6/14/2002	15,977.00	15,977.00	15,977.00	15,977.00	15,977.00	14,214.00	94,099.00
9/16/2002	14,504.00	14,504.00	14,504.00	14,504.00	14,504.00	12,904.00	85,424.00
9/16/2002	3,201.00	3,201.00	3,201.00	3,201.00	3,201.00	2,848.00	18,853.00
12/13/2002	1,430.00	1,430.00	1,430.00	1,430.00	1,430.00	1,272.00	8,422.00
1/10/2003	6,479.00	5,479.00	6,479.00	6,479.00	6,479.00	5,765.00	37,160.00
1/21/2003	1,031.00	1,031.00	1,031.00	1,031.00	1,031.00	917.00	6,072.00
1/21/2003	26,534.00	26,534.00	26,534.00	26,534.00	26,534.00	23,605.00	156,275.00
1/21/2003	3,389.00	3,353.00	3,389.00	3,389.00	3,389.00	3,015.00	19,924.00
1/21/2003	550.00	550.00	550.00	550.00	550.00	490.00	3,240.00
1/21/2003	625.00	625.00	625.00	625.00	625.00	556.00	3,681.00
TOTAL	$105,572.00	$104,536.00	$ 105,572.00	$ 105,572.00	$ 105,572.00	$94,477.00	$ 621,301.00

  30
T. F. JAMES COMPANY

SCHEDULE 3.14

Intellectual Property

7. Service Mark Reg. No. 1,699,398;  Ser. No. 74-135,952, Filed by the Company on February 4, 1991  The mark consists of the letter "J" in a design which forms the stylized letters "TFJ".  See Service Mark below:

[ TFJ LOGO]

8.	TFJamesco.com – domain name
9.	Various software such as real estate management software and GL software are owned by the Company and are under no restrictions or claims.
10.	The Company uses various "off-the-shelf" software in the conduct of its business for which no separate list has been prepared.

31
  T. F. JAMES COMPANY

SCHEDULE 3.15

Compliance with Laws   None   32
T. F. JAMES COMPANY

SCHEDULE 3.16

Operating Contracts

Location	Contractor	Service	Contract Date	Contract Terms
Anoka, MN	Alley Brothers Lawn & Landscape 9804 – 302nd Avenue NW Princeton, MN  55371 Phone:  (612) 282-4009	Snowplow	10/7/02	11/1/02 – 4/1/02 $65 per hour
Blaine, MN	Alley Brothers Lawn & Landscape 9804 – 302nd Avenue NW Princeton, MN  55371 Phone:  (612) 282-4009	Snowplow	10/7/02	11/1/02 – 4/1/03 $65 per hour
Buffalo, MN	Tri-Co Tree Movers 5412 County Road 12N Buffalo, MN  55313 Phone:  (763) 682-1050	Snowplow	10/10/02	11/1/02 – 4/1/03 $45 per hour
Burnsville, MN	Dennis Jenkins 14078 Natalie Road NE Prior Lake, MN  55372 Phone:  (952) 440-2135	Snowplow	10/7/02	11/1/02 – 4/1/03 $236 per plow
Chanhassen, MN	Kahnke Bros., Inc. 1400 Arboretum Boulevard Victoria, MN  55386 Phone:  (952) 443-3800	Snowplow	10/2/02	11/1/02 – 4/1/03 $40-$80 per hour based on equipment
Chanhassen, MN	Waste Management 124 Union Street, PO Box 119 Norwood Young America, MN 55368	Trash Service	8/30/95	$291 per month
Chanhassen, MN	Waste Management 124 Union Street, PO Box 119 Norwood Young America, MN 55368	Trash Service	3/14/02	$260 per month
Chanhassen, MN	Thyssen Lagerquist 1801 West River Road North Minneapolis, MN  55411 Phone:  (612) 588-7844	Elevator	6/8/00	$140 per month 5 year term to June 2005 with automatic renewal unless terminated
Chanhassen, MN	ADT 2561 Territorial Road St. Paul, MN  55114 Phone:  (888) 238-2666	Fire Sprinkler Monitor	4/11/95 (renewed 7/10/00)	5 Year term $1,488 per year
Chanhassen, MN	ADT 2561 Territorial Road St. Paul, MN  55114 Phone:  (888) 238-2666	Fire Sprinkler Monitor	1/15/01	5 Year term $832 per year
Eagan, MN	Heikes Enterprises 19595 Lillehei Avenue Hastings, MN  55033 Phone:  (651) 437-3847	Snowplow	10/7/02	11/1/02 – 4/1/03 $400 per plow 4-8" snow

  33

Location	Contractor	Service	Contract Date	Contract Terms
Eden Prairie, MN	Kahnke Bros., Inc. 1400 Arboretum Boulevard Victoria, MN  55386 Phone:  (952) 443-3800	Snowplow		11/1/02 – 4/1/03 $40-$80 per hour based on equipment
Eden Prairie, MN	Perfection Plus	Cleaning Service	1/23/97	$2,795 per month
Eden Prairie, MN	Aspen Waste 2951 Weeks Avenue SE Minneapolis, MN  55414	Trash Service		$450 per month
Excelsior, MN	Bernie Whetston 5835 Eureka Road Excelsior, MN  55331 Phone:  (952) 474-4908	Snowplow	10/22/02	11/1/02 – 4/1/03 $60 per plow
Forest Lake, MN	Oakley Contracting 19480 Fenway Avenue North Forest Lake, MN  55025 Phone:  (651) 464-2750	Snowplow	10/7/02	11/1/02 – 4/1/03 $42-$105 per hour based on equipment
Greenwood, MN	Bernie Whetston 5835 Eureka Road Excelsior, MN  55331 Phone:  (952) 474-4908	Snowplow	10/22/02	11/1/02 – 4/1/03 $60 per plow
Inver Grove Heights, MN	Koehnen Landscaping & Trucking 9932 Rich Valley Boulevard Inver Grove Heights, MN  55077 Phone:  (651) 450-1025	Snowplow	10/17/02	11/1/02 – 4/1/03 $125 per plow $45 per hour
Jamestown, ND	Brad Thronton	Snowplow	10/1/02	10/02 – 4/03 $1,500 per month
Jamestown, ND	Ella Rettig	Mall Manager		$650 per month
Lakeville, MN	Reisinger Lawn & Snowplowing PO Box 507 Lakeville, MN  55044 Phone:  (952) 469-6695	Snowplow	10/14/02	11/1/02 – 4/1/03 $50 per hour
Line Lakes, MN	Breen Enterprises 14001 Julliard Street NE Forest Lake, MN  55025 Phone:  (651) 982-6292	Snowplow	10/21/02	11/1/02 – 4/1/03 $95 per plow
Oakdale, MN	D and R & Son, Inc. 1245 Granada Avenue North Oakdale, MN  55128 Phone:  (651) 295-0811	Snowplow	10/23/02	11/1/02 – 4/1/02 $95 per plow up to 6" $55 per hour
Oakdale, MN	TruGreen ChemLawn Maplewood, MN	Lawn Fertilizer	10/23/02	$290 per year
Pine City, MN	Stransky Construction 645 NE 2nd Street Pine City, MN  55063 Phone:  (320) 629-6589	Snowplow	10/17/02	1/1/02 – 4/1/03 $45 - $85 per hour based on equipment
Prior Lake, MN	Dennis Jenkins 14078 Natalie Road NE Prior Lake, MN  55372 Phone:  (952) 440-2135	Snowplow	10/7/02	11/1/02 -4/1/03 $177 per plow

  34

Location	Contractor	Service	Contract Date	Contract Terms
Golden Valley, MN	GMAC Financial Services	2002 Bravada Oldsmobile	09/23/01	$570.50 per month for 60 months *See also Schedule 3.29
Burnsville, MN	Chrysler Financial Company L.L.C.	2001 Jeep Grand Cherokee	05/17/01	$650.38 per month for 60 months *See also Schedule 3.29

  35

T. F. JAMES COMPANY

SCHEDULE 3.17

Real Estate

Schedule 3.17 (a):

The following properties/locations are owned by the Company:

LOCATION	BUILDING DESCRIPTION	ADDRESS
Andover	Tom Thumb # 255	15825 7th Avenue, Andover, MN 55303
Anoka	River Road Shopping Ctr.	504 - 516 East River Road, Anoka, MN 55303
Blaine	Tom Thumb #180	601 - 641 Main Street NE, Blaine, MN 55433
Burnsville 1	PDQ #210 Strip	13700 - 13720 County Road 11, Burnsville, MN 55337
Burnsville 2	Phase 2 Strip	13600 - 13614 County Road 11, Burnsville, MN 55337
Buffalo	Tom Thumb #218	401 - 409 East Highway 55, Buffalo, MN 55313
Centerville	Tom Thumb #295	1801 Main Street, Centerville, MN 55038
Centerville	Undeveloped Land	Next door to 1801 Main Street, Centerville, MN 55038
Chanhassen 1	Byerlys	800 West 78th Street, Chanhassen, MN 55317
Chanhassen 2	Retail Center	816 - 860 West 78th Street, Chanhassen, MN 55317
Chanhassen 3	Kinko's Copy Center	880 West 78th Street, Chanhassen, MN 55317
Chanhassen 4	TCF Bank	900 West 78th Street, Chanhassen, MN 55317
Chanhassen 5	Office Max	960 West 78th Street, Chanhassen, MN 55317
Chanhassen 6	Retail Center Phase 2	910 - 950 West 78th Street, Chanhassen, MN 55317
East Bethel	Tom Thumb #243	4825 East Viking Road, East Bethel, MN 55092
Eagan 1	Hilltop Plaza	4160 - 4166 Pilot Knob Road, Eagan, MN 55123
Eagan 2	Hilltop Plaza	4168 - 4180 Pilot Knob Road, Eagan, MN 55123
Eagan 3	PDQ #213	4198 Pilot Knob Road, Eagan, MN 55123
Eden Prairie	Central Bank Building	6640 Shady Oak Road, Eden Prairie, MN 55344
Excelsior	Water Street Strip	10 Water Street & 324 - 332 Lake Street, MN 55331
Fargo	Express Shopping Center	1431 - 1441 South University Avenue, Fargo, ND 58102
Faribault	CSK Auto Store	1233 West Highway 60, Faribault, MN 55021
Forest Lake 1	Champion Auto Store #407	107 SW. 12th Street, Forest Lake, MN 55025
Forest Lake 2	West Lake Shopping Center	119 - 289 SW. 12th Street, Forest Lake, MN 55025
Glencoe	Tom Thumb #246	415 Chandler Avenue North, Glencoe, MN 55336
Greenwood 1	T.F. James Company	21500 Highway 7, Excelsior, MN 55331
Greenwood 2	Excelsior Chiropractic Clinic	21450 Highway 7, Excelsior, MN 55331
Ham Lake	Tom Thumb #185	16315 Highway 65, Ham Lake, MN 55303
Howard Lake	Tom Thumb #222	1025 6th Street, Howard Lake, MN 55343
Inver Grove Hts.	PDQ #212	5440 - 5472 Roberts Trail, Inver Grove Heights, MN 55077
Inver Grove Hts.	Undeveloped Land	Roberts Trail, Inver Grove Heights, MN 55077
Jamestown	Jamestown Mall	3rd Street N.E. & 3rd Avenue, Jamestown, ND 58401
Kalispell	Ernst Home Center	1441 Montana Highway 35, Kalispell, MT 59901
Kalispell	Undeveloped Land	Montana Highway 35, Kalispell, MT 59901
Ladysmith	Pamida #282	500 West 9th Street, Ladysmith, WI 54848
Lakeland	Tom Thumb #546	280 St. Croix Trail, Lakeland, MN 55043
Lakeville	Lakeville Strip	17440 - 17450 Kenwood Trail, Lakeville, MN 55044

36

LOCATION	BUILDING DESCRIPTION	ADDRESS
Libby	Undeveloped Land	Highway 2, Libby, MT
Lindstrom	Tom Thumb #178	100 West St. Croix Avenue, Lindstrom, MN 55055
Lino Lakes	Tom Thumb #197 Strip	797 Lake Drive, Lino Lakes, MN 55014
Livingston	Pamida	100 West Washington, Livingston, MT 59047
Long Prairie	Tom Thumb # 303	904 1st Avenue NE, Long Prairie, MN 56347
Monticello	Tom Thumb #583	110 Oakwood Drive, Monticello, MN 55362
Mora	Tom Thumb	Highway 23 & 65, Mora, MN 55362
Mound	PDQ 292	5550 Three Points Blvd., Mound, MN 55364
Moundsview	Interstate Brands	2701 Highway 10, Moundsview, MN 55112
Oakdale	Tom Thumb #214 Strip	1025 - 1043 Hadley Drive, Oakdale, MN 55128
Paynesville	Tom Thumb #244	28976 Collins Road, Paynesville, MN 55362
Pine City	Evergreen Square	100 - 170 Evergreen Square, Pine City, MN 55063
Pine City	Tom Thumb #248	1120 Hillside, Pine City, MN 55063
Prior Lake 1	PDQ Shopping Center	14161 - 14173 Commerce Ave., Prior Lake, MN 55372
Prior Lake 2	Undeveloped Land	Commerce Ave., Prior Lake, MN 55372
Prior Lake 3	Shopping Center	14123 - 14129 Commerce Ave., Prior Lake, MN 55372
Ripley	Shopping Center	309 - 319 South Washington, Ripley, TN 38063
River Falls	Undeveloped Land	SE Corner of STH 65 & Cemetary Road ( 830th Ave.)
Rochester	CSK Auto Store	2001 South Broadway, Rochester, MN 55901
Sauk Rapids	Tom Thumb Strip	1313 2nd Street North, Sauk Rapids, MN 55901
Schofield	Schofield Plaza	5302 - 5317 Business Highway 51, Schofield, WI 54476
Shoreview	Tom Thumb #195	5995 Hodgson Road, Shoreview, MN 55343
Saint Louis Park	Dilly Lilly	4611 Excelsior Blvd., St. Louis Park, MN 55411
St. Paul	Interstate Brands	1546 West 7th Street, St. Paul, MN 55102
Willmar	Sam Goody	701 South First Street, Willmar, MN 56201
Winsted	Tom Thumb #223	132 5th Street North, Winsted, MN 55395

Schedule 3.17(b)

Curbing was recently installed at the Company's Winsted, MN location.  The formal assessment has not yet been received by the Company; however, it is estimated to approximate $2,000.00.

Schedule 3.17(c)

None

Schedule 3.17(d)

See mortgages against Company's properties set forth in Schedule 3.22.

Schedule 3.17(e)

None

Schedule 3.17(f)

None

37

Schedule 3.17(g)

Several of the Company's locations are leased to convenience stores that purchase, store and sell gasoline.

Schedule 3.17(h)

1.

The Central Bank Building, located at 6640 Shady Oak Road, Eden Prairie, MN 55344, has a re-occurring problem with leaky window seals.  The Company has on several occasions made attempts to repair the leaks, however they appear to be an ongoing problem; see also Schedule 3.13(6)

2.

In April of 2002, The Company entered into an Agreement for Purchase and Sale of Commercial Real Estate with the Economic Development Authority of the City of Northfield, for the purchase of its property located at 110 North Water Street, Northfield, MN. The sale was in lieu of condemnation that allows the Company to qualify for an IRS Code Section 1033 exchange; see also disclosures set forth under "Built-In-Gains Tax" at Schedule 3.9(a) and Schedule 3.13(6).

Schedule 3.17(i)

None

Schedule 3.17(j)

None

Schedule 3.17(k)

None

Schedule 3.17(l)

None

38
T. F. JAMES COMPANY

SCHEDULE 3.19

Books and Records; Bank Accounts

Checking Accounts:                                                  Authorized Signers

Central Bank, Eden Prairie, MN                                 Douglas M. James
Account #270082                                                      Thomas J. Legierski
                                                                                  Robert J. Martin

Central Bank, Eden Prairie, MN                                 Douglas M. James
Account #270504                                                      Thomas J. Legierski
                                                                                  Robert J. Martin

Marshall & Ilsley Bank, Minneapolis, MN                   Douglas M. James
Account #110-6414                                                   Thomas J. Legierski
                                                                                   Robert J. Martin

Lake Elmo Bank, Lake Elmo, MN                              Douglas M. James
Account #927623                                                       Thomas J. Legierski
                                                                                   Robert J. Martin

Safe Deposit Box                                                   

Central Bank, Eden Prairie, MN                                 Douglas M. James
                                                                                  Thomas J. Legierski

Certificate of Deposit

Central Bank, Eden Prairie, MN                                 Douglas M. James
Account #305471                                                      Thomas J. Legierski

Escrow/Savings Account

Marshall & Ilsley Bank, Minneapolis, MN                   Heitman Financial*
Account #1915428                                                    

*    The Company remits an additional monthly payment to Heitman Financial which, in turn, is remitted by Heitman Financial to pay the real estate taxes on the Chanhassen Phase 1 Development.

39
  T. F. JAMES COMPANY

SCHEDULE 3.20

Employees

1.                  The following employee list does not include the 4 owners/officers/shareholders of the Company.

Employee                               Job Desc.       Vacation*       Sick/Leave*

Richard Kvanbeck                   Prop Mgr/        4 weeks           6 days
                                               Leasing Agent

Anthony Oxborough                 Prop Mgr/        3 weeks           6 days
                                                          Leasing Agent

Robert Martin                          Payable/Rec./  4 weeks           6 days
                                                          Insurance

Brian Rose                              Gen. Maint.      2 weeks           6 days

Tonia Sikorski                          Receptionist     2 weeks           6 days
                                                          Clerk

*    The period of time indicated is a yearly amount.  No accumulation of vacation or sick leave is permitted.

2.                  There are no written employment contracts or benefit plans.

40
  T. F. JAMES COMPANY

SCHEDULE 3.21

Permits None   41 T. F. JAMES COMPANY

SCHEDULE 3.22

Mortgages and Tenant Leases

Mortgage                                         Location                                           Due Date       

Marshall & Ilsley Bank                       Kalispell, MT                                      12/31/02
Lake Elmo Bank                                 Lakeland, Centerville, MN                 10/10/03
The County Bank                                Forest Lake, MN                               10/17/03
Twin City Federal                               Excelsior, MN                                    11/1/03
Premier Bank                                      West St. Paul, MN                             1/14/04
Twin City Federal                               Pine City, MN                                     4/1/04
Twin City Federal                               Paynesville, MN                                  4/1/04
Twin City Federal                               Glencoe, MN                                      4/1/04
Twin City Federal                               East Bethel, MN                                  4/1/04
Prior Lake State Bank                         Ham Lake, Moundsview, MN            8/15/05
Teachers Insurance                             Chanhassen, MN                                8/31/05
Oakley National Bank                          Buffalo, MN                                      9/10/05
Marshall & Ilsley Bank                        Chanhassen #2, MN                           1/27/06
Wells Fargo Bank                               Inver Grove, MN (Land)                     6/1/06
Marshall & Ilsley Bank                       Lakeville, MN                                      11/1/06
Lake Country State Bank                    Long Prairie, MN                                9/1/07
Marshall & Ilsley Bank                       Jamestown, ND                                   4/5/08
First Security State Bank                     Lino Lakes, MN                                 4/16/08
Marshall & Ilsley Bank                       Livingston, MT                                   12/10/08
U.S. Bank                                          Inver Grove, MN                                2/20/09
Lutheran Brotherhood                          Forest Lake, MN                               5/1/09
Lutheran Brotherhood                          Forest Lake, MN                               5/1/09
Marshall & Ilsley Bank                       Greenwood, MN                                 5/22/09
Marshall & Ilsley Bank                       Greenwood #2, MN                            9/2/09
American Express                              Pine City, MN                                     1/1/10
Valley Bank                                       Kalispell, MT                                       8/10/10
US Bank                                            Burnsville, MN                                    1/1/11
The County Bank                                Oakdale, MN                                     8/1/11
American Express                              Ladysmith, WS                                    9/1/11
First Security State Bank                     Anoka, MN                                       3/10/12
                                                          Burnsville #2, MN
                                                          St. Louis Park, MN
                                                          Winsted, MN

42

Mortgage                                         Location                                           Due Date       

                                                          Howard Lake, MN
                                                          Rochester, MN           
                                                          Faribault, MN
U.S. Bank                                          Eden Prairie, MN                                5/20/14
Standard Mtge Investors, LLC           Fargo, ND                                          9/1/14
American Express                              Eagan, MN                                         9/1/15
                                                          Prior Lake, MN
                                                          Ripley, TN                                                    

See attached tenant summary by location.

43 T. F. JAMES COMPANY

SCHEDULE 3.23

Subsidiaries

1.	The Company owns 100% of the stock in Westlake Liquors, Inc., a Minnesota corporation.  This is a retail off-sale establishment which leases space from the Company in the Forest Lake, Minnesota facility.  For Tax purposes, this entity is a "disregarded entity."
2.	Jamestown Variety, Inc., a former wholly-owned subsidiary of the Company, was involuntarily dissolved and ceased to exist with the North Dakota Secretary of State's office on August 6, 2001, for failure to file its 2000 Annual Report.

44
               T. F. JAMES COMPANY

SCHEDULE 3.24

Insurance

1.   Business Property/Casualty Insurance – T. F. James Company and/or Westlake Liquors, Inc. DBA Westlake Warehouse Liquors and/or Peak Properties Development, for the period September 1, 2002 to September 1, 2003.  Insurance Carrier:  Cincinnati Insurance Company.  Policy Coverage:  (i) Commercial Main Package, Policy #COP2314667;  (ii) Commercial Package – Vacant Buildings, Policy #CPP0734709;  (iii) Commercial Umbrella, Policy #CCC4479494;  (iv) Commercial Automobile, Policy #CAP5450417;  (v) Workers Compensation, Policy #WC1914512-01.

45

T. F. JAMES COMPANY

SCHEDULE 3.25

Brokers and Finders

1.   The Company is obligated to CB Richard Ellis and its former agent, Joseph Sullivan, for a finder's fee in the approximate amount of $138,000, in connection with the transaction contemplated by the Agreement. 

      

46 T. F. JAMES COMPANY

SCHEDULE 3.26

Relationship with Related Persons

1.	The Company is indebted to Mr. T. F. James (the father of each of the Shareholders other than Thomas Legierski) for an annuity which has a principal amount of approximately $600,000;  see also Schedule 3.10.
2.	The Company was indebted to Charles Wm. James as set forth in Schedules 3.31(14) and 3.31(1).
3.	See Guarantees by Shareholders on Debts of the Company set forth on Schedules 3.11 and 5.14 and Guarantees by the Company on behalf of the Shareholders set forth on Schedule 3.11.
4.	Stock Purchase Agreement by and between Phillip M. James, Thomas M. James, Douglas M. James, Judith James Scherer, Robert R. James, Charles W. James and Thomas J. Legierski and James Refrigeration Company, dated effective July 15, 1979;  see also Schedule 3.2(1).

47
T. F. JAMES COMPANY

SCHEDULE 3.27

Hazardous Materials   None   48
T. F. JAMES COMPANY

SCHEDULE 3.28

Other Environmental Matters

Schedule of Underground Storage Tanks Owned by Tenants

LOCATION	TENANT
Andover, MN	Tom Thumb
Bethel, MN	Tom Thumb
Buffalo, MN	Tom Thumb
Blaine, MN	Tom Thumb
Burnsville #1, MN (Recently removed)	PDQ
Centerville, MN	Tom Thumb
Eagan, MN	PDQ
Glencoe, MN	Tom Thumb
Ham Lake, MN	Tom Thumb
Howard Lake, MN	Tom Thumb
Inver Grove, MN	PDQ
Lakeland, MN	Tom Thumb
Lino Lakes, MN	Tom Thumb
Lindstrom, MN	Tom Thumb
Monticello, MN	Tom Thumb
Mora, MN	Tom Thumb
Mound, MN	PDQ
Oakdale, MN	Tom Thumb
Paynesville, MN	Tom Thumb
Pine City, MN	Tom Thumb
Prior Lake, MN	PDQ
Shoreview, MN	Tom Thumb
Winsted, MN	Tom Thumb

Other Matters

The Inver Grove, Minnesota location has a tenant that performs on-site dry cleaning.  The Eagan, Minnesota and Burnsville, Minnesota locations have tenants that provide dry cleaning services off-site;  however, on-site dry cleaning services were previously performed at these locations.

49
T. F. JAMES COMPANY

SCHEDULE 3.29

Debt Instruments

Other than the mortgages which are set forth on Schedule 3.22, the Company has outstanding Debt Instruments with and with respect to the following:

Central Bank, Eden Prairie	Line of Credit
Marshall & Ilsley Bank	Line of Credit
*GMAC	Auto Loan - 2002 Bravada
*Chrysler Financial	Auto Loan - 2001 Jeep Grand Cherokee

*see also Schedule 3.16

[**Note to IRET – One or more of the currently owned vehicles may be purchased by one or more of the Shareholders prior to the closing.  We may need to add a covenant in the Agreement to reflect this]

50
T. F. JAMES COMPANY

SCHEDULE 3.31

Shareholder Loans

1.   The Company was indebted to Charles Wm. James, a Shareholder and an employee of the Company, in the amount of $100,000 for land purchased by the Company in Kalispell, Montana. This debt was paid in full in January, 2003; see also Schedules 3.13(14) and 3.26(2).

51
T. F. JAMES COMPANY

SCHEDULE 3.33

Absence of Certain Business Practices   None   52
T. F. JAMES COMPANY

SCHEDULE 3.34

Trade Regulation   None   53
T. F. JAMES COMPANY

SCHEDULE 3.35

Representations Regarding the Shareholders

Each of the Shareholders' right, title and interest in and to the Company Common Stock, other than Thomas J. Legierski, is Encumbered by a Federal Tax Lien which was issued by the IRS on March 29, 2000, and filed in the office of the Minnesota Secretary of State on April 30, 2001.  The amount of the IRS Tax Lien as stated on the April 30, 2001 filing with the Minnesota Secretary of State is $350,660.15.  As of January 31, 2003, the Federal Tax Lien is estimated to approximate $459,325, including interest accrued from June 29, 1999 through January 31, 2003 in the amount of 108,657.00;  see also Schedule 3.5.

54
T. F. JAMES COMPANY

SCHEDULE 5.5

Restrictions on New Contracts None   55
T. F. JAMES COMPANY

SCHEDULE 5.14

Shareholder Guarantees

Each of the Company Shareholders have personally guaranteed the following Indebtedness of the Company;  see also Schedules 3.11 and 3.26(3):

Indebtedness Owed To:	Description of Purpose/Location
Central Bank	Line of Credit
Marshall & Ilsley Bank	Line of Credit
Marshall & Ilsley Bank	Mortgage Loan, Schofield, WI
Marshall & Ilsley Bank	Mortgage Loan, Kalispell, MT
Twin City Federal	Mortgage Loan, Excelsior, MN
Premier Bank	Mortgage Loan, St. Paul, MN
Oakley National Bank	Mortgage Loan, Buffalo, MN
Marshall & Ilsley Bank	Mortgage Loan, Chanhassen #2, MN
Wells Fargo Bank	Mortgage Loan, Inver Grove Land, MN
Marshall & Ilsley Bank	Mortgage Loan, Lakeville, MN
Lake Country Bank	Mortgage Loan, Long Prairie, MN
Marshall & Ilsley Bank	Jamestown, ND
Marshall & Ilsley Bank	Livingston, MT
Lutheran Brotherhood	Forest Lake, MN
Lutheran Brotherhood	Forest Lake, MN
Marshall & Ilsley Bank	Greenwood Office, MN
Marshall & Ilsley Bank	Greenwood, MN
American Express Financial	Pine City, MN
Valley Bank	Kalispell, MT
County Bank	Oakdale, MN
American Express Financial	Ladysmith, WI
U.S. Bank	Eden Prairie, MN
American Express Financial	Eagan, MN; Prior Lake, MN; Ripley, TN

  56

EX-10

  Ex-2b - Schedules to Agreement and Plan of Reorganization By and
Among Investors Real Estate Trust, IRET, Inc. and T.F. James Company

  

EX-99

Ex-99   CONSENT OF INDEPENDENT AUDITORS    

We hereby consent to the incorporation directly or by reference in this Form 8-K of Investors Real Estate Trust ("IRET") our Independent Auditor's Report of Consolidated Financial Statements for T.F. Company and Subsidiaries for the period October 1, 2001, through September 30, 2002, attached as Schedule 3.12 of the Agreement and Plan of Reorganization by and Among Investors Real Estate Trust, IRET, Inc. and T.F. James Company dated January 31, 2003.

/S/ OLSEN THIELEN & CO., LTD.
St. Paul, Minnesota
January 30, 2003